In Georgia, Economic Development is National Security

During the last year or two, there have been enormous changes in the west that have had an impact on Georgia. Brexit, the election of Donald Trump and the growing impact of Russia’s activities have contributed to democratic rollback and the potential for low instability in the US, questions about the future of NATO and an emboldened Russia. One thing, however, that has not changed is the Russian occupation of a significant part of Georgia and the persistent threat Moscow represents for Georgia. 

Thus, Georgia’s national security challenges remain essentially the same as in the previous few years, but there is a need to craft strategies that recognize this new and more challenging context. For much of the last 10-15 years, democracy was central to Georgia’s national security strategy. It was both key to moving the NATO process forward and a way to enhance Georgia’s strategic value to the west. Continued democratic development is still essential to Georgia, and key to the NATO process, but the likelihood that NATO membership is a long way off as well as the almost inevitable decline in American interest in democracy promotion as that country wrestles with its own democratic rollback means that democracy may now be somewhat less salient for Georgia’s national security.

Now economic development has become a major pillar of Georgia’s national security strategy.  Foreign direct investment (FDI) in Georgia from powerful, although not necessarily western, countries will help Georgia strengthen its position with regards to Russia. If Moscow sees Georgia as a poor and weak country that is a western project but otherwise largely untethered from the rest of the world, they will be more likely to expand their conflict with Georgia. Fortunately for Georgia, that description is no longer accurate and has not been for a few years. Less fortunately, it is not clear whether or not the Kremlin understands this.

Russia will begin to understand this better if there is a significant increase in FDI from, for example, China, India and wealthy Middle Eastern countries. Currently, FDI in Georgia is still substantially from other countries that were part of the Soviet Union. For example, in 2016, 37% of the roughly $1,645.4 billion in FDI were from those countries. All but two percent of that was from Azerbaijan. Azerbaijan is a very wealthy neighbor with whom Georgia has a close relationship. Azerbaijan’s investments in Georgia are very beneficial to Georgia, but do not help address the national security problem. Additionally, there was another $60 billion or so from countries like the Cayman Islands and Panama, must of which very likely originated in Russia or similar countries.

In contrast the combined FDI from China, India and the Middle East last year represented only three percent of total FDI in Georgia. If those numbers begin to change, and the gap between investments from other former Soviet countries and those from China, India and the Middle East narrows, it will change Georgia’s security environment as well. The good news for Georgia is that while China still represents a small portion of FDI in Georgia, the bilateral relationship between those two countries is deepening, particularly as China has made Georgia an important node in its One Belt One Road project.

Economic development is important for Georgia’s national security for an additional reason as well. Georgia can best resist Russia when its own pro-west political consensus is strong. Although it not near a crisis yet, there is reason to believe that may fray in the future. There are a few signs of this including the success of the Alliance of Patriots in the last election, an uptick in visible demonstrations of nationalism and xenophobia and the enduring influence of anti-western propaganda. All of these are made possible in significant part by a weak economy, particularly one that is bifurcated a western oriented and relatively cosmopolitan middle and large swaths of the rest of the country.

Georgia’s economy looks very different in most of the country than it does in some of the more prosperous parts of Tbilisi and Batumi, but until that changes, the pro-west consensus will remain vulnerable. Again, this means there is need not just for economic development, but for the kind that will lead to good jobs and economic opportunity for parts of the population that have been left behind, in some cases for decades. If that does not happen, divisions within society will grow and Georgia will become less cohesive and more disunified. Anybody who has paid attention to politics in the US, UK and much of Europe over the last few years should be familiar with this dynamic. Unfortunately, Georgia is not likely to be an exception to this.

In several of my recent discussions in Georgia, particularly with NGO and business leaders, I was told that economic development is the priority and primary focus of the current government. There is a clear political imperative for this as well. The Georgian Dream (GD) easily won the last election, but much of their margin was attributable to political missteps by the United National Movement (UNM) that not only failed to bring new voters to the UNM, but pushed soft supporters to the GD. Thus, the GD has a constitutional majority in parliament that is a bit incongruous with their actual standing with the electorate. The best, and perhaps only, way for the GD to expand their popular support is through delivering meaningful and inclusive economic growth.

The Georgian economy will not turn around due to priority and focus alone. If it were that easy, the problem would have been ameliorated years ago. Nonetheless, progress has been made and seems likely to continue. The major challenge will be to accelerate that pace, but there is some reason to be hopeful. Georgia has now enjoyed its longest period of political stability-a period without war, widespread demonstrations or extremely poor governance-in its modern history. While there are still many areas in which Georgia needs to improve its infrastructure, the curve in that area is clearly in the right direction. 

The Georgian leadership also needs to have a vision of what a prosperous Georgia would look like. The current Georgian government seems to moving towards a vision based on Georgia as a strategic transit corridor. This is a reasonable decision and one that  might deemphasize things like tourism and food and wine export that have been a big part of Georgia’s economic development program for much of the recent past. While these sectors can still contribute to Georgia’s economic development and have both been growing visibly in recent years, they are also highly competitive and rarely lead to substantial numbers of good paying jobs. Tourism is also a very fickle industry. Georgia is becoming a more sought after tourist destination, but that may not endure. 

The appeal of a model of economic growth that is based around Georgia’s importance as a transit hub and a connector between markets in Europe and in Asia, is that Georgia’s location is permanent so development in that sector has the potential to bring longer term economic prosperity and stability to Georgia. However, therein lies the challenge as well. Georgia has had the same location for its entire history while, for the most part, failing to parlay that into significant direct economic benefit. Resolving the question of why now as globalism is hardly a new phenomena, Georgia should expect this to change is central to the success of Georgia’s economic development.

This strategy also both relies upon and creates an incentive for more FDI from countries beyond the immediate region. If Georgia emerges as a place where goods and resources on their way to or from Asia and Europe pass through, its economy will become more global and thus become a more attractive destination for investors. Similarly, without FDI from countries like China or many in the Middle East and Europe, it will be extremely difficult for Georgia to emerge as an important transit corridor.

It is also important not to engage in magical thinking here. There is no guaranteed strategy for reviving Georgia’s economy or finding ways for the poorer parts of the country to catch up. If such a strategy existed, it would have been implemented already. For around two decades, Georgia has tried to use its geographic location to develop its economy. There have been some successes, but it has not been the definitive answer. The circumstances, particularly given China’s commitment to the region and Georgia’s relative political stability, may favor this approach more now than in the past, but it will still be very difficult. 

The changes that are occurring in Europe and particularly the US may end up meaning little for Georgia. It is possible that despite the role the Kremlin played in the US election, Georgia’s friends in Washington will be able to shield it from becoming a pawn in a Trump-Putin agreement, or from falling victim to budget cuts or simply from a US that is increasingly unable to focus on foreign policy because of domestic political conflict, but Tbilisi would be foolish to assume things will go so smoothly. Building an economy that grounds Georgia more in a truly global economy is an essential hedge against that assumption.

The Georgia Analysis is a periodicanalysis of political and other major developments in Georgia. Lincoln Mitchell is a political development, research and strategic consultant who has worked extensively in the post-Soviet region.  If you would like to be on the Georgia analysis mailing list or are interested in more research, analysis or consulting for your business, government, campaign or other organization, please email