Coronavirus’ Impact on Georgia’s Economy Will Remain Limited

Op-Ed

Analysts and many politicians have begun fearing that Georgia’s economy, highly dependent on its revenues from tourism and trade with its immediate neighbors, might suffer. However, as will be shown below, there is a number of developments in Georgia’s economy that even in the worst case scenario still forecast a considerable economic growth throughout 2020.

First for the negatives, flight bans and limitations of various degree put in place since February 23 with Iran, China and EU states, decrease the number of foreign visitors to the country expected for 2020.

Some numbers are revealing. For example, in 2019, with 14 flights per week from Tbilisi and Kutaisi airports to Iran, approximately, 140,000 Iranians visited Georgia, which means fewer Iranian tourists will be visiting the country this year.

Losses are likely to be felt from the ban on China too. The influx of Chinese tourists to the South Caucasus overall, and Georgia in particular, has been increasing over the past several years (by 40-50% in 2019 in comparison with 2018). For example, by the Georgian National Tourist Administration’s estimates, about 50,000 Chinese citizens visited Georgia last year (in comparison, in Armenia and Azerbaijan Chinese tourists constituted 15,000 and 25,000 people respectively), and approximately the same number is expected for 2020.

Negative effects for the Georgian economy are also expected from a possible drop in bilateral trade with China. According to the 2019 data, Georgia exported from China goods worth $858 million, which is significant for Georgia’s minor economic potential. This makes China among the country’s top three importers, with a steady rise in comparison with previous years (2017 – $732.6 million, 2018 – $833.9 million).

What should be also feared is the effect of the coronavirus as a disincentive for minor and small scale business representatives to travel to China, Iran, Azerbaijan and Armenia (the latter two recently reported their first cases of coronavirus).

Government officials also expect that more travel limitations with other countries will follow as the number of states across Eurasia effected by the virus increases. What could be far more damaging for Georgia is if certain limits are imposed on the land route with Russia and Turkey. Both are among Georgia’s top trading partners and a major source of foreign visitors. For instance, a decrease in the number of Russian tourists could impact Georgia’s economy as Russians comprised 19% of inbound visitors to Georgia in 2019; even with the air travel ban imposed in June 2019 this constitutes almost 1.5 million people visiting Georgia in 2020.

A worst case scenario predicts the overall decrease in demand for Georgian products, which will mean a decrease in the volume of the country’s exports. There could also be a considerable decrease in foreign investments in the light of a possible reduction of exported capital globally. Another likely possibility could be the diminution of remittances (a significant portion of Georgian fiscal revenue) from Georgian emigrants, especially in Italy and other European states.

Positive Trends

Despite the abovementioned negative trends, there is a whole set of long-term positive trends which can limit the negative impact on Georgia’s vulnerable economy.

First is the fact that the tourist season in Georgia has not yet started; it is expected that by April-May, when the first large numbers of foreign tourists are expected in the country, the coronavirus will likely have been contained.

Moreover, so far the trajectory of the number of tourists visiting Georgia is actually on the rise. For instance, in comparison with the previous year, the number of foreign visitors to the country rose by 19%. Even with a very limited number of tourists from Iran and China, the impact on the Georgian economy is unlikely to be large, as throughout 2019 these two groups of tourists spent only $190 million – not a critical amount even for Georgia’s small economy of $18 billion (out of which the tourism sector amount to $3.5 billion).

There is also the factor of the Lari, Georgia’s national currency, which, after depreciating throughout 2018-2019, became significantly stronger by levelling at 2,79 to 1 USD.

Moreover, underscoring a likely limited shock to the Georgian economy because of the travels bans with Iran and China, here are the following figures: $2.5 million of losses from the diminution of Chinese tourists. In 2019, Georgia received $300 in revenue from China, which is 1.7% of the GDP; in Iran’s case, the losses amount to $8 million per month. In 2019, Georgia received $177 million in revenue from Iran, which is 1.0% pf the GDP. Indeed, according to the projections set by the Ministry of Economy of Georgia, the possible economic losses for the country would, under the current circumstances, likely amount to only $11 million per month.

A further stabilizing long term factor is Georgia’s expected economic growth of more than 4% for 2020. Given the above negative factors and considering the likelihood that negative effects will remain for most of 2020, it is likely that the growth will still remain at least near the 3.5% mark.

Thus, though there is an expectation in Georgia of immediate economic losses from travel bans and likely diminution of trade with China and the immediate neighbors, unless there are travel and trade limitations with Turkey and Russia, long term positive perspectives will limit the existing negative effect on the Georgian economy.

By Emil Avdaliani

Image source: nytimes.com/Franck Robichon/EPA, via Shutterstock