RONDELI BLOG

Georgia’s External Trade: How to Strengthen Positive Trends

2018 / 10 / 22

Author: Amb. Valeri Chechelashvili, Senior Fellow, Rondeli Foundation

 

The Georgian Economy finished 2013 with the best current account in recent period. Unfortunately, this was not strengthened with economic growth rate data (2010 – 6.2%, 2011 – 7.2%, 2012 – 6.4%, 2013 – 3.4%, 2014 – 4.6%, 2015 – 2.9%, 2016 – 2.8%, 2017 – 5.0% (See:  http://www.geostat.ge/?action=page&p_id=118&lang=geo).

Source:  https://www.nbg.gov.ge/index.php?m=304

http://www.geostat.ge/?action=page&p_id=2230&lang=geo

http://geostat.ge/index.php?action=wnews_archive1&qy=1&qy1=2&lang=geo

http://mof.ge/images/File/BROSHURA/2017/Outlook_November_2017_GEO.PDF

Several key economic indicators reflect the trend of a healthier economy. For example, in 2013 the current account deficit was at record low negative indicator – USD-938,408 million while exports reached a record high of USD 4,025,840 million (according to the data of the National Bank of Georgia). In terms of current account indicator, 2017 is only second to 2013. The current account deficit with regard to GDP has decreased significantly as well (2015 – 12%, 2016 – 12.8%, 2017 – 8.67%). As compared to the previous year, the current account deficit reduced by USD 524 million. Exports are growing while trade deficit reduces, albeit slightly (in 2017 trade deficit constituted 48.7% of the overall trade turnover while in the first eight months of 2018 it is 47%).

The tourism sector continues its dynamic growth. Current trends strengthen the hope that the income from tourism will exceed USD 3 billion this year. This, together with remittances from our citizens abroad and Foreign Direct Investment will ensure the reduction of the current account deficit. It should also be noted that the amount of money sent by our citizens to Georgia in cash almost equals the amount of transfers through official channels. In principle, this amount is supposed to cover, for the most part, the annual current account (USD 1,317 million) deficit. The activities of the transport sector always used to leave a positive balance in the current account. Unfortunately, from 2015 there is a growing deficit there, which requires separate serious analysis.

In recent two years there are positive trends in Georgia’s external trade, which is well reflected in the table below.

 

2015

2016

2017

2018 (8 Months )

Overall Exports

2,205

2,113

2,736

2,146

Exports, EU

645

565

655

456

Exports, Eurasian Union

417

424

697

541

Exports, Turkey

187

173

217

182

Overall Imports

7,300

7,294

7,939

5,954

Imports, EU

2,081

2,215

2,200

1,751

Imports, Eurasian Union

845

975

1,176

909

Imports, Turkey

1,327

1,354

1,374

939

Overall Turnover

9,505

9,407

10,675

8,101

Turnover, EU

2,726

2,780

2,855

2,207

Turnover, Eurasian Union

1,262

1,399

1,875

1,450

Turnover, Turkey

1,514

1,527

1,591

1,121

Source:  http://www.geostat.ge/?action=page&p_id=133&lang=geo,  http://geostat.ge/?action=news&lang=geo&npid=1360

EU remains firm in holding the position of top trade partner of Georgia. Trade turnover with Russia increased markedly in 2017 and as a result, the difference between trade turnovers with the EU and Eurasian Union has reduced. That said, this difference still amounted to USD 1 billion in 2017. Presumably, we will have the same numbers this year as well.

Georgia’s main macroeconomic challenge is serious trade deficit, which, as already pointed out, is 47% of overall trade turnover this year (2017 – 48.7%, 2016 – 55%, 2015 – 53.6%).

Exports are growing at the expense of traditional trade products (copper, ferroalloys, re-export of cars, nitrogen fertilizers, wine, alcoholic beverages, mineral water).

According to the assessment of the experts, a big part of the billions generated in the tourism sector is returning back abroad. As Lado Papava points out:  “about 80% of the money spent by each tourist on average goes outside the country to import products necessary for serving this tourist” (See:  https://www.gfsis.org/blog/view/864). If this is indeed so (we can dispute only about 10% in this case), this money amounted to USD 1.9-2.2 billion last year (about 24-28% of all imports), while this year it will be somewhere between USD 2.1-2.14 billion (about 23-26% of all imports). The growth of the number of tourists means the expansion of the national market and Georgian companies are given additional opportunities here. In a number of sectors, our entrepreneurs cover the new market space almost completely. Examples include wine, alcoholic beverages, beer, water – still and mineral, souvenirs, certain categories of food products. However, most part of new opportunities remains unused – furniture for new hotels, technics, food products, especially those finely packaged and so on. It is also noticeable that companies founded by foreigners are especially active in the tourism service sector.

The overall trade deficit with three main trade partners – Turkey, Russia and China, amounted to USD 1,511 million in the eight months of 2018. It is also interesting to note that the import of small trade items from the same three countries (amounts with the worth of less than USD 12-20 million) was about USD 1,593 million. This amount is a part of USD 2.1-2.4 billion mentioned above and naturally indicates a good possibility of import substitution, which would make our trade balance healthier. In addition, this potential, given the specifics of this trade group, could also be used by small and medium businesses. In the case of an active policy of import substitution, it is possible to entirely balance the country’s current account.

Yet another reserve for improving the trade balance is the export of electricity; however, this is a topic of separate discussion…

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