TOPIC OF THE WEEK: Tourism statistics in Georgia defy political crisis
Tourism in Georgia has traditionally been a cash cow for the economy, having brought on average about 8 percent of GDP annually over 2010-2023. Naturally, then, the events of the last year with the adoption of the Transparency Law (foreign agents law) and the disputed Parliamentary elections have raised legitimate concerns about how the more political backdrop might affect the attractiveness of the country as a tourist destination. The question goes beyond pure economics as Georgian Dream and the opposition have been offering conflicting views on this issue.
The release of the full 2024 data for tourist flows, international arrivals and income generated by foreign travels should thus come as the final arbiter of that debate. It has delivered a strong verdict in favor of Georgian Dream. International arrivals increased by 4.2 percent over the year, while international visitors rose by 5.4 percent. Moreover, 2024 turned out to be a record year for income generated by foreign travel. Last year foreign travel brought US$4.4bn vs US$4.1bn generated in 2023.
The underlying structure of tourist flows easily explains the numbers. Tourism in Georgia depends little on visitors from the EU (who presumably might have decided to shun the country for political events, as claimed by the opposition). Not only does the EU account for a mere 7 percent of total visitors, but it was also the case that, actually, more Europeans came to Georgia last year despite the two events mentioned above. The bulk of visitors arrives from countries (Russia, Turkey, Armenia) that would tend to care less for what the Georgian opposition stands for. And I am confident that this will continue to be the case in the coming years as tourism will remain a money-generating machine for the country and a very useful financing item in the current account.
The other key financing item in the BoP, FDI, has less to boast about, with Jan-to-Sep 2024 numbers falling by about 40 percent YoY. However, the recent announcement of plans for a major investment from the UAE has injected hopes that there could be some re-orientation of FDI flows away from Western countries, which could be more sensitive to the political backdrop. The US$6bn investment, if implemented according to initial announcements (approximately US$1bn will be invested each year), would be enough to offset any projected decline in Western FDI as FDI coming from the EU/UK/US has averaged US$942mn per annum over the last decade.
Is this too good to be true? The timing of the announcement and the grandeur of the announced FDI certainly invites some questions. There are still a lot of uncertainties about the investment that I discuss in more detail in this report. In essence, the UAE investment should be treated with some caution. If it proceeds as planned in terms of the amount of money and timing, it would represent a major economic coup for the government, and for Georgia as a whole. It would largely substitute for the bulk of FDI coming from Western Europe and the US over the next 5 years or so and help alleviate CA pressures. However, until these plans are put into action, they should be treated strictly as such.
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