Foreign direct investment (FDI) implies a resident of one country owning a share in a foreign-based enterprise and carrying out different types of economic operations related to that enterprise. An investor is considered to be a direct one if he has at least a 10% ownership stake in a foreign-based enterprise’s shares or the equivalent of such participation.
According to the preliminary data of the National Statistics Office of Georgia, the volume of foreign direct investments made in Georgia amounted to USD 351.8 million in the second quarter of 2022 which is 9.1% more as compared to final FDI figure of the second quarter of 2021. According to the data of the first two quarters of 2022, the amount of FDI reached USD 922 million which constitutes a 202% growth as compared to the same period of the previous year. Of interest is that the total FDI for the first two quarters is the highest in the history of independent Georgia except for 2008 when USD 1.1 billion FDI was made in the first two quarters of that year.
Table 1: Foreign Direct Investment Dynamic in 2013-2022
Source: National Statistics Office of Georgia
Foreign direct investments consist of three major components: the equity capital of investors, reinvestments and debt obligations. According to the data of the first two quarters of 2022, the amount of equity capital amounted to USD 343 million which constitutes a 400% and a 28% growth as compared to 2021 and pre-pandemic 2019, respectively. The amount of equity capital accounted for 37.2% of total investments. According to the data of the first two quarters of 2022, reinvestment accounted for most of FDI growth as the reinvestment volume reached USD 559 million which is 60.6% of total investments. As compared to the pre-pandemic period, the reinvestment to the total investments ratio has increased drastically whilst the share of equity capital has shrunk.
Reinvestment is not a negative occurrence if taken separately, although it is indicative of a relatively lower inflow of new investments when reinvestment growth is more as compared to equity capital, something which is bad for a country like Georgia. In absolute figures, the volume of equity capital was higher in 2017-2018. Therefore, it was still more successful in terms of attracting new investments even though the total investments were lower in that period. However, the current statistics are certainly positive given the post-pandemic economic situation and in light of both economic and political problems.
Table 2: Foreign Direct Investment Structure According to the First Two Quarters of 2017-2022, USD Million
Source: National Statistics Office of Georgia
According to the data of the first two quarters of 2022, Spain is the biggest investor country in Georgia (USD 197 million) which is precipitated by the Spanish company FCC Aqualia purchasing 80% of stocks of the Georgia Global Utilities water supply company. Spain is followed by the UK (USD 151 million), Turkey (USD 97 Million) and the Netherlands (USD 67 million). Ireland and Turkey were the leaders in terms of FDI in the pre-pandemic 2019 when investments from these two countries exceeded investments from CIS member states.
Given the economic reality that was shaped as a result of Russia’s invasion of Ukraine followed by growth of migration, tourism and remittances from Russia, it is interesting to analyse the foreign direct investment dynamic from Russia. According to the data of the first two quarters of 2022, FDI from Russia was in fact negative, totalling to USD 11.8 million. Presumably, this was of a technical nature and related to transactions such as debt payment, dividend receipt and selling property owned by residents of Russia to residents of Georgia such as in the Borjomi case, etc. In the last few years, Russia’s share in the total FDI has fluctuated within the margins of 5-7%.
In the first two quarters of 2022, the biggest amount of FDI was registered in the energy (USD 313 million), finance (USD 165 million) and real estate (USD 152 million) sectors. A negative FDI of USD 4.5 million was registered in the communications sector which perhaps is stipulated by a resident of Georgia acquiring ownership of Beeline.
