Irakli Kobakhidze: “We saw positive investment indicators in the first half of the year, a 10% economic expansion over ten months and an appreciation of the GEL following its recent deterioration.”

Verdict: FactCheck concludes that Irakli Kobakhidze’s statement is HALF TRUE.

Georgia received USD 768 million in foreign direct investment (FDI) in January-June 2024, reflecting a 34% decline as compared to the same period last year. The 10% rise in FDI during the second quarter was insufficient to offset the 70% fall recorded in the first quarter. Irakli Kobakhidze’s claims implied that investments only decreased in the third quarter, which is inaccurate. Investments fell in the first quarter, the third quarter and cumulatively across the first two and all three quarters. The second quarter was the only exception, rather than the third.
The GDP grew by 10% in January-October, according to GeoStat, making this part of the statement accurate.
Regarding the GEL exchange rate, it had strengthened by GEL 0.05 to GEL 2.82 at the time of the statement as compared to its peak depreciation of GEL 2.87. However, the aforementioned mark remained far from its pre-depreciation level. The official exchange rate of GEL against USD constituted GEL 2.74.
Irakli Kobakhidze addressed three parameters in total: foreign direct investment, economic growth and the GEL exchange rate. Whilst the GDP did indeed grow by 10% over ten months, FDI decreased both in the first half of the year and across the first three quarters. The GEL exchange rate exhibits a slight recovery but has not returned to its pre-depreciation levels. Thus, FactCheck concludes that Irakli Kobakhidze’s statement is HALF TRUE.

Analysis

In response to a question at a briefing, Irakli Kobakhidze commented on the economic growth rate, foreign direct investment and the GEL exchange rate (from 16:07): “We had a very good indicator in the first half of the year. The third quarter [of FDI] was up to and including September and it had nothing to do with our decision (referring to the statement that Georgia would halt its efforts to open negotiations with the European Union until the end of 2028). This is a normal phenomenon when one quarter of the year might be better than another. We have very good economic trends overall. We have exactly 10% economic growth in the first ten months of this year” … “The GEL exchange rate also deteriorated, as we had a slight devaluation. However, the GEL exchange rate immediately also began to stabilise as soon as the situation stabilised” … “In reality, a minor intervention became necessary during these days” … “The National Bank of Georgia manages to ensure the stability of the GEL exchange rate even without any substantial interventions.”

Georgia received USD 768 million in FDI in the first half of 2024, marking a USD 398 million, or a 34%, decrease as compared to the same period in 2023. Whilst there was a 10% increase in FDI in the second quarter, it was insufficient to offset the 70% fall recorded in January-March. Investments fell by an additional 55% in the third quarter. Overall, FDI decreased by 40% in the first three quarters of 2024 as compared to the same period in 2023 and by 50% as compared to January-September 2022.

Graph 1: Foreign Direct Investments (USD Million)

Source: National Statistics Office of Georgia

Another important measure of investment is its ratio to the GDP. This indicator constituted 5.8% in 2023, marking the lowest level in the past 11 years, excluding 2020. This situation has worsened further as of the first nine months of 2024.

Another challenge is the lack of new investments. Reinvestment accounted for 91% of total investments in the first nine months of 2024. Whilst reinvesting profits back into businesses is positive, a lack of new investment is the key issue.

Notably, whilst political circumstances also influence investment flows, these effects are not necessarily immediate. Investments fell by 70% in the first quarter, despite Georgia recently attaining EU candidate status. However, investments rose by 10% amidst the adoption of the Russian-style law and nearly 1.5 months of continuous protests. Finally, investments further declined by 55% in the third quarter.

The data indicates decreases across the first three quarters and the first two quarters combined, regardless of the volume of investments in the fourth quarter. FDI fell by 34% in January-June – the period cited by Irakli Kobakhidze as favourable – as compared to the same period in 2023, far from what could be considered as a “very good indicator.” The third quarter followed the same declining trend, rather than being an exception. The second quarter stood out as more of an exception.

The second part of Irakli Kobakhidze’s statement focused on economic growth. The economy indeed grew by 10% in the first ten months of 2024 according to GeoStat. The number of newly registered enterprises and the turnover of VAT-paying businesses also increased. Growth in specific sectors during the first half of the year was observed in mining and manufacturing, construction, trade, education, healthcare and transport, whilst slight declines were marked in agriculture and energy.

When Parliament approved the 2024 state budget in December 2023, the projected economic growth rate was set at 5.2%. The GDP growth forecast was revised to 8.2% in September and further to 9% in November, given the higher-than-expected economic activity.

Graph 2: Economic Growth Rate

Source: National Statistics Office of Georgia

Irakli Kobakhidze also commented on the GEL exchange rate, noting that the rate began to stabilise following its initial depreciation. Whilst the dollar fell by a few tetri from its peak, it has not returned to its pre-depreciation rate. It is typical for there to be some improvement or deterioration from the peak rate when the exchange rate experiences upward or downward trends, respectively. Therefore, it is important not to compare the current situation with the peak but rather with the indicators that existed before the depreciation process began.

The official exchange rate against USD stood at GEL 2.74 on 28 November, before Irakli Kobakhidze’s speech, in which he stated that Georgia would not raise the issue of opening negotiations with the EU until the end of 2028, also refusing EU grants during that period. Whilst the official exchange rate for 29 November remained unchanged as the announcement was made after 5:00 PM, the official rate for 30 November was announced as GEL 2.78 due to further depreciation on 29 November. USD had reached GEL 2.87 by 4 December. Furthermore, the rate reached even higher levels at currency exchange booths and commercial banks. Whilst USD was worth GEL 2.82 as of 17 December, which is GEL 0.05 less than its peak, it is still GEL 0.08 more as compared to the 28 November rate.

Graph 3: Official Exchange Rate of GEL against USD

Source: National Bank of Georgia

Irakli Kobakhidze also mentioned “minor interventions.” No foreign exchange auctions have been held after 25 October. The exact amount of USD-denominated assets purchased or sold by the National Bank of Georgia in November on the Bmatch platform will be announced on 25 December whilst the data for December will be published on 25 January 2025.

Irakli Kobakhidze addressed three parameters in total: foreign direct investment, economic growth and the GEL exchange rate. Whilst the GDP did indeed grow by 10% over ten months, FDI decreased both in the first half of the year and across the first three quarters. The GEL exchange rate exhibits a slight recovery but has not returned to its pre-depreciation levels. Thus, FactCheck concludes that Irakli Kobakhidze’s statement is HALF TRUE.