Despite a similar political past with Ukraine and similar economic diversity, the respective paths of Georgia and Ukraine and their economic relations with Russia have split over the last decade. This was a result of differences in reform initiatives, in the internal political climate, and the Russian embargo on Georgia that forced it to redirect its focus. Georgia’s key positives lie in its trade diversification and lower export exposure to Russia, its limited energy dependence on Russia, the success of implemented reforms, its macroeconomic resilience, lower public debt levels, stronger banking sector, and the underdevelopment of the stock market, which shields Georgia from negative shocks. In short, Georgia is unlikely to experience any of the economic troubles Ukraine is currently facing.
Trade with Russia: Much lower exposure for Georgia
The share of trade turnover (both export and import in total trade) with Russia is 4x higher in Ukraine than in Georgia. In 2013, Russia accounted for 6.5% (US$ 190mn) of Georgian exports and 23.8% (US$ 15.1bn) of Ukrainian exports. Over the last 8 years the share of exports to Russia has averaged 24.7% in Ukraine and just 3.5% in Georgia.
After Russian embargo of 2006, Georgia’s exports to Russia decreased from 18% in 2005 to 8% in 2006 and 2% in 2008-2012. The embargo forced Georgian producers to redirect exports to other CIS countries, the EU, and the Middle East. The upcoming signing of the DCFTA with the EU and the recent depreciation of the lari against the euro will further support Georgian exports to EU markets, in our view. Exports to Russia picked up in 2013 as Russia opened its borders to Georgian wines but accounted for only 6% in total export growth in 2013 (for further details see our report from March 7, 2014). Even without Russia, Georgian exports have more than tripled since 2005 to US$ 2.9bn in 2013. However, recent foreign trade outcomes suggest that dependence on the Russian market (mainly wine, mineral water and agricultural products) is increasing. In 1Q 2014, Russia’s share in total Georgian exports went up further by 3.2ppts to 9.7% and this trend will continue, in our view.
