China’s Investment in Georgia’s Anaklia Deep Sea Port Project: Risks and Recommendations
A new policy brief from the ISET Policy Institute evaluates the risks associated with China’s investment in Georgia’s Anaklia Deep Sea Port Project. The report sheds light on China’s lending practices and its status as the largest bilateral creditor to low- and middle-income countries (LMICs). The brief identifies key financial and geopolitical risks that could arise from China’s involvement in the Anaklia port, and it offers strategic recommendations for Georgia to mitigate these potential threats.
China’s Lending Practices: Hidden Risks in Infrastructure Projects
China’s lending to LMICs is largely driven by the Belt and Road Initiative (BRI), focusing on infrastructure, transport, energy, and mining. This lending often includes confidentiality clauses, collateralized loans, and complex debt instruments, all of which pose risks. These practices can lead to hidden debt and financial vulnerabilities for borrowers, especially in large-scale projects like the Anaklia Deep Sea Port.
Anaklia Project’s Risks: Similarities to Other Chinese Infrastructure Investments
The policy brief highlights the similarities between the Anaklia project and other Chinese-backed infrastructure initiatives, such as Sri Lanka’s Hambantota Port. In Sri Lanka, unforeseen low returns led to debt restructuring and a debt-for-equity swap, sparking a global debate over sovereignty loss and debt-trap diplomacy. Georgia faces similar risks if the Anaklia Port Project does not generate the expected economic returns.
Uncertainty Over Cargo Volume: A Major Risk for Anaklia
The success of the Anaklia Deep Sea Port depends on achieving sufficient cargo volume to cover debt obligations. However, the geopolitical environment and uncertain contractual terms pose significant challenges. A failure to meet the projected cargo volume could severely undermine the project’s financial viability.
Policy Recommendations for Georgia: Mitigating China’s Investment Risks
The ISET Policy Institute recommends that Georgia prioritize transparency in all dealings related to the Anaklia project. The report emphasizes the need for robust risk management frameworks, thorough contractual reviews, and alignment with domestic laws and international standards. To further protect itself, Georgia should invest in capacity building in areas such as debt management and public investment oversight.
Despite the recent selection of a Belgian company for construction work at Anaklia, the report stresses that this does not alleviate the core financial and geopolitical risks linked to China’s involvement as an investor.
About ISET Policy Institute
ISET Policy Institute is the leading economic policy think tank in Georgia, specializing in research, training, and policy consultation in the South Caucasus region. The institute focuses on promoting good governance and fostering inclusive economic development.
For more information, visit ISET Policy Institute.
To read more policy briefs published by the ISET Policy Institute, visit the Institute’s page on the FREE Network’s website.
