«Orbeli» Analytical Center had an interview with a Georgian economist, director of the Center for Analysis and Forecasting at Tbilisi State University, Vakhtang Charaia on the economic problems and new challenges in Georgia caused by the Russian-Ukrainian war.

-On February 25, the Georgian Prime Minister announced that Georgia was not going to participate in financial and economic sanctions against Russia, taking into account the national interests and the interests of the population. Later, the Georgian president told CNN that Georgia participates in all international financial sanctions. This was followed by a new statement by Prime Minister Gharibashvili that Georgia will not impose economic sanctions on Russia. Please clarify these statements. Georgia does not impose sanctions individually or does not join the international sanctions at all?.

- Georgia is part of all international sanctions, which were imposed on Russia. That's true, but Georgia is not active in bilateral sanctions against Russia. If we consider the diplomatic dimension there is not even one case when Georgia refused to vote against Russia. In all cases Georgia supports Ukraine against Russia. So on a diplomatic dimension it is clear that Georgia supports Ukraine, but in case of economic sanctions, you can see that even inside the European Union not all of the countries put the same sanctions against Russia. Some Eastern European countries, the Baltic States, Poland said that they will close the border and refused to trade with Russia, Lithuania even stopped receiving Russian gas. But there are a lot of other countries in the European Union, like Germany or Hungary, which did not close any borders, and continued to receive Russian gas and/or are willing to buy Russian oil.

In case of Georgia, it fully implements its instruments in the diplomatic area. On the international financial aspect, Georgia supports sanctions against Russia in terms of the banking system.

We had one of the prominent Russian banks, VTB bank, which was closed less than a week after the war began. Russian credit cards are not accepted in Georgia, because Visa and MasterCard ceased their operations for the Russian clients. Georgia does not allow any transactions via Russian special payment system “Mir”,

But in case of bilateral economic cooperation, like trade or financial remittances, Georgia is not imposing sanctions on Russia, as well as almost any country in the world. Moreover, because in this case Georgia would harm only its economy and would not be able to harm the Russian economy, which should be a target. This is a pragmatic step by Georgian government, but there are still some areas where Georgia can impose some bilateral sanctions against Russia. Georgia is getting some gas from Russia. The general supplier is Azerbaijan. Georgia, I believe, can easily say no to Russian gas to support Ukrainian friends. Probably sooner or later the Georgian Government will do it, if the war will move to a more intense level.

- Many countries imposed various sanctions against Russia. Especially on the economies of small countries these sanctions are already taking their toll. What economic impact have they had on Georgia or can they have, what is the situation there?

-Yes, sanctions against Russia not only negatively affect the Russian economy, but also those countries which are imposing these sanctions. African countries did not impose any sanctions against Russia, because Russia together with the Ukraine are producers of very different agricultural products, which are highly demanded in the African continent. There are significant price increases and in some cases even the scarcity of different agricultural products. It does not matter whether you are imposing sanctions or not, the whole world is negatively affected by those sanctions. At the same time, there are some opportunities as well, but still, the negative effect is prevailing. However, it should be mentioned that the Russian economy at large managed to overcome the first wave of the shock received by the Western sanctions and in some aspects even improved its economic position, which is sad to take as a fact, but reality.

I believe there should be a reasonable combination where you can act, where you cannot. Still the balance should be that you have to support your friends also not totally destroying your own economy.

-Russia is one of Georgia’s main trading partners. According to various international forecasts, Russia’s economic decline in 2022 may reach up to 15%. How will this scenario affect Georgia’s economic growth?

-Of course it will negatively affect the Georgian economy both in terms of exports and imports, because Russia is one of the main trading partners. It is one of the top export and import markets   for Georgia. Georgia sells a lot of Georgia’s strategically important products in the Russian market, as well as receives a lot of strategically important products from the Russian market. At the same time of course theoretically all exports and imports of Georgia could be diversified with the help of other countries, but it will take some time, money and effort, which could cause problems for Georgian society and the business. Most probably it will negatively affect the price, at least, the import of different products. In each and every trouble there is an opportunity, prospects as well. There are a lot of opportunities for Georgia to overcome these negative Russian effects if the international partners of Georgia support the Georgian economy and the Georgian Government itself will be acting according to the specific case, which includes Covid and war simultaneously.

-The Russian-Ukrainian conflict created food security problems for many countries. What measures is Georgia taking to prevent a food crisis?

 -I do not believe that Georgia will face any food crises or especially humanitarian crises until Russia decides to attack Georgia. If Russia does not attack Georgia, I don't see any food crises in Georgia. I see the price increase, but not the food crisis.

-Up to 70% of wheat consumed by Georgia comes from Russia. It was recently officially announced that Russia continues to be the main supplier of grain and flour. What do you think  is profitable to increase the volume of imports from Kazakhstan? Will it help to diversify this market?

-Russia is one of the top importers of wheat to the Georgian market. In different years it was up to 90% of the total import, because it was the cheapest one. The wheat itself costs the same price almost all over the world, but the main thing which makes Russian wheat cheaper in Georgia is the transportation cost. A ton of wheat from Russia in terms of transportation costs 30-35 USD, from Kazakhstan it is up to 70 USD, and from Ukraine, it could be 80 USD. But now considering the issue that the price of wheat has increased from 200 up to 400 USD per ton, the price of transportation is less sensitive. So Georgia has an opportunity to diversify its wheat import. The total price will be higher than it would be from Russia in case Russia stops wheat exports.

-In Georgia, about 80-100,000 tons of wheat are harvested every year, which covers less than 10% of the overall consumption countrywide. Are there any discussions or state support programs to increase the self-sufficiency index? Does Georgia have that potential?

-Yes Georgia is working on different plans on how to increase the amount of wheat produced in Georgia. The Ministry of Agriculture is working on that project. Maybe Georgia will not be able to produce all the wheat it needs on its own, but 10% is a really low result in this direction. Therefore, it should be multiplied by several times and then Georgia will have more comfort and confidence.

The local producers sell the wheat at the price which is on the international market. So producing more wheat in Georgia does not mean it will become cheaper. But from the perspective that it will be less dependent on the foreign market, the Russian market in particular, is important.  

-Due to the Russian-Ukrainian events and the sanctions imposed on Russia the cargo transportation sector suffers. Georgia is a transit country, is there a change in volumes?

-Despite the fact that globally the supply chain is disrupted, I can say that Georgia right now is even taking some benefits from this global supply chain disruption. A lot of Asian businesses, which were oriented on transit to the Russian economy, are refusing this option. One of the alternatives is Georgia. Right now, Georgian ports, railway and highways are transferring and allowing to transfer more products than before the pandemic or before the war. There are a lot of opportunities for the long-run as well as Georgia could be a partial alternative to the Russian transit corridor. According to its capacity Georgia cannot be a full alternative to the Russian transit corridor, but, at least, it can be a space, which could be used by the European and Asian players. It will give extra benefits to the Georgian market and stability to the Georgian country at large.