Irakli Kobakhidze: “Foreign direct investment increased by 10% despite attempts to incite chaos.”
Verdict: FactCheck concludes that Irakli Kobakhidze’s statement is MOSTLY FALSE.
Foreign direct investment (FDI) in Georgia increased by 10.3% reaching USD 574 million in the second quarter of 2024 as compared to the same period last year. However, FDI decreased significantly by 34% to USD 769 million when analysing the six-month data.
New investments constitute a smaller part of total investment whilst reinvestments account for the largest share. Particularly, the share of reinvestment amounted to 70% in the six-month period and 79% in the second quarter.
Another key measure of investment is its ratio to the gross domestic product (GDP) which amounted to 5.3% in 2023 – representing the lowest point in the past 20 years (excluding 2020). Whilst it is difficult to predict investment volumes for the remaining two quarters, a 57% increase would be needed to match the 2023 level. Even if this growth is achieved, the investment-to-GDP ratio would still fall below the 2023 figure considering economic growth.
Despite accurately highlighting the nominal figure of the second quarter, the Prime Minister omits the significant fall observed in the six-month period, the decrease in the investment-to-GDP ratio and a low number of new investments. Furthermore, there was a growth in investment in the second quarter “despite attempts to incite chaos,” according to the Prime Minister, suggesting that the growth would have to be even higher in the first quarter. However, a 70% reduction was observed from January to March in reality. Considering the omission of essential factors, which can create a misleading impression of the actual state of the economy, FactCheck concludes that Irakli Kobakhidze’s statement is MOSTLY FALSE.
Analysis
Whilst talking about the economy on 9 September, Prime Minister Irakli Kobakhidze stated: “Foreign Direct Investment increased by 10% in the second quarter of the current year as compared to the same period last year. This is the period when the radical opposition was attempting to incite chaos in Georgia and even then, investment grew by 10%.”
The volume of FDI increased by 10.3% from USD 520 million to USD 574 million in the second quarter of 2024 as compared to the same period during the previous year according to GeoStat. However, FDI saw a reduction of 34%, decreasing to USD 769 million, when calculating data for the first two quarters of the current year.
Graph 1: Foreign Direct Investment (USD Million)
Source: National Statistics Office of Georgia
Notably, the Prime Minister framed the growth in the second quarter of 2024 – which occurred “despite attempts to incite chaos” - positively. When referring to "inciting chaos," Irakli Kobakhidze was likely alluding to the protests in Georgia against the proposed Russian-style law. Whilst political events generally affect the economy, attributing the 70% drop in investment during the first quarter solely to such circumstances would be questionable, as no protests were taking place during that period.
Great Britain accounted for almost half of the investments in the second quarter (USD 267 million) with Japan (USD 59 million) and Malta (USD 38 million) ranking second and third, respectively. Other countries in the list are Azerbaijan, the Czech Republic, the Netherlands, the USA, Israel, Austria and the Virgin Islands.
Graph 2: Foreign Direct Investment in the Second Quarter by Countries (USD Million)
Source: National Statistics Office of Georgia
The finance sector accounts for the largest share of investments, receiving USD 300 million. Trade ranks second with USD 79 million, followed by manufacturing at USD 56 million.
Graph 3: Foreign Direct Investment in the Second Quarter by Sectors (USD Million)
Source: National Statistics Office of Georgia
Foreign direct investment is comprised of three components: equity, reinvestment of earnings and debt instruments. GeoStat began to categorise the investment data into sources in 2013. The lowest share of reinvestment (9%) was recorded in 2015 whilst the highest value recorded (84%) occurred in 2020.
The so-called Estonian Model was implemented in 2017 which exempts companies from profit tax if they reinvest their profits. Profit tax contributed over GEL one billion to the state budget; however, this figure had dropped by GEL 300 million to GEL 757 million by 2017. This shortfall was compensated by raising excise taxes on tobacco products and fuel.
Investments were also influenced by the aforementioned reform. The share of reinvestment reached 31% in 2017 and 47% in 2019. Whilst the average ratio of reinvestment amounted to 18% from 2013 to 2016 – prior to the reform, it had tripled, reaching 57% between 2017 and 2023 – after the reform. The average share of reinvestment would still constitute 51% in the period after the changes in the Tax Code of Georgia when excluding the pandemic years of 2020 and 2021.
The share of reinvestment decreased to 40% in the first quarter of 2024 but subsequently rose to 79% in the second quarter. The share of investment totals 70% in the six-month period.
Graph 4: Share of Reinvestment
გრაფიკი 4: რეინვესტირების მაჩვენებელი
Source: National Statistics Office of Georgia
Both equity capital – new investment – and reinvestment are components of investment from an economic standpoint. Whilst the reinvestment of returns by existing investors is a positive sign, the lack of new investment points to certain issues.
Another key measure of investment is its ratio to the GDP. When investment reached a record high in 2022, the aforementioned ratio stood at 8.5%. However, the investment-to-GDP ratio had surpassed double digits on seven occasions in previous years when the economy was not as high.
The investment-to-GDP ratio fell to 5.3% in 2023, marking the lowest figure recorded in the past 20 years, excluding 2020. Whilst it is difficult to predict investment volumes for the remaining two quarters, a 57% increase would be needed to match the 2023 level. Even if this growth is achieved, the investment-to-GDP ratio would still fall below the 2023 figure considering economic growth.
Whilst investment increased by 10% in the second quarter of 2024 as compared to the same period last year, there was still a significant 34% decline over the six-month period. Despite accurately highlighting the nominal figure of the second quarter, the Prime Minister omits the significant fall observed in the six-month period, the decrease in the investment-to-GDP ratio and a low number of new investments. Furthermore, there was a growth in investment in the second quarter “despite attempts to incite chaos,” according to the Prime Minister, suggesting that the growth would have to be even higher in the first quarter. However, a 70% reduction was observed from January to March in reality. Considering the omission of essential factors, which can create a misleading impression of the actual state of the economy, FactCheck concludes that Irakli Kobakhidze’s statement is MOSTLY FALSE.
