Georgia: Political Turmoil and Risks for Foreign Investors
Economic Downturn in Georgia
Georgia, once seen as an economic beacon in Europe, has taken a concerning turn towards authoritarianism and anti-democratic practices. This has halted its EU accession talks, leading to political unrest, Western sanctions, and growing investor anxiety.
Impact on Foreign Businesses
Foreign businesses and investors face a heightened risk in Georgia. International sanctions lists include not only government officials but also leaders of large UK-based companies, including those listed on the London Stock Exchange (LSE). These individuals are accused of enabling authoritarian practices and could face sanctions from the US and other countries.
Financial Instability
Three London-listed Georgian firms, Bank of Georgia Group PLC, TBC Bank Group PLC, and Georgia Capital PLC, reflect the country's volatility. Since April 2024, their share prices have plummeted significantly due to political turmoil and the threat of sanctions. Moreover, Fitch Ratings has downgraded Georgia's outlook to "negative," indicating financial instability.
Political Elites and Sanctions
Sanctions targeting political elites undermine investor confidence, especially in countries heavily dependent on foreign investment. While sanctions against Georgian Dream founder Bidzina Ivanishvili aim to limit his influence, they also impact Georgia's economic reliance on non-Western actors, including Russia.
Georgia's Alignment with Russia
Georgia's refusal to join Western sanctions against Russia raises concerns about its role in sanctions evasion. Former US sanctions coordinator James O'Brien has expressed concerns about Georgia's potential support for Russia's military supply chain.
Targeted Businesses and Individuals
Western sanctions-setters are closing loopholes by targeting businesses that support the Georgian government. Irakli Gilauri, Chairman and CEO of Georgia Capital PLC, has been named as a potential target. Sanctioning individuals like Gilauri would further shake investor confidence in the governance of Georgian firms.
Irakli Gilauri and Legal Disputes
Irakli Gilauri's management record includes ongoing legal disputes, including a case involving the British Georgian Academy. The dispute raises questions about Georgia Capital's business practices and management ethics.
Capital Flight Risks
If sanctions against business leaders like Irakli Gilauri materialize, capital flight from Georgia could escalate rapidly. The alignment of Georgian institutions with pro-Russian policies raises concerns about the sustainability of investments in the country.
Investors in London should proceed with caution when investing in Georgia due to the political and economic risks posed by its current government.