Tag: Georgia

Agricultural Subsidies: The Case of Georgia

Fresh apples, pears, and grapes at a local market benefiting from agricultural subsidies in Georgia.

This brief explores the role of government subsidy programs in Georgia’s agricultural sector, with a focus on grapes, apples, and hazelnuts. These subsidies play a significant role in providing social assistance to the sector and in supporting farmers; however, their long-term impact on industry growth remains a subject of discussion. Key challenges include ensuring product quality, enhancing productivity, and expanding market opportunities, particularly regarding export market concentration and infrastructure constraints.

Introduction

Governments have historically intervened in agricultural markets under the pretext of promoting food security. At first, interventions aimed to provide affordable food for rapidly growing urban populations, afterwards more emphasis was put on enhancing agricultural productivity. Nowadays, agriculture remains a priority for policymakers due to its role in promoting inclusive growth and reducing poverty. Additionally, renewed concerns about food security have further driven these policy efforts (Gautam, 2015).

One of the key instruments of these interventions are subsidies in different forms – such as various input subsidies, price supports, and trade interventions. While their use has been widespread, the economic effectiveness of subsidies continues to be heavily debated. Economic theory suggests that subsidies are useful in resolving market failures; however, even in this case, the actual effect of subsidies is highly dependent on the specific implementation. Further, in many other cases, subsidies have led to distortions and have been detrimental to countries’ own economic interests (Gautam, 2015).

Another important concern arises from the political economy of subsidies use. Widening rural-urban income disparities create political pressure to implement measures that support the livelihoods of the large agricultural population. Subsidies, due to their visibility, are a convenient instrument to increase political support from this population group. Further, subsidies offer immediate or near-immediate gains to recipients, whereas public capital investments take longer to deliver results, therefore subsidies are often used as a political instrument. Since political decision-making is typically driven by short-term considerations, often aligned with electoral cycles, long-term investments do not always align with political incentives (Gautam, 2015).

Box 1. Subsidies

Subsidies are financial assistance provided by governments to support or promote specific sectors, industries, or activities within the economy. They can take various forms, including direct cash payments, tax relief, low-interest loans, and in-kind support, such as the provision of goods and services at below-market prices. Subsidies play a significant role as a tool in government expenditure policy. They influence resource allocation decisions, income distribution, and expenditure efficiency (Schwartz & Clements, 1999).

In the case of Georgia, subsidies are the main instrument for support to the agricultural sector, with direct subsidies accounting on average 45 percent of total government expenditure in the sector (2014-2024). The government provides subsidies for most of the country’s main crops, including wheat, grapes, hazelnut, tangerines and apples.

Given the scope of this policy brief, only subsidies for major perennial crops – grapes, hazelnuts and apples – are discussed. This as as the wheat sector involves additional food security considerations and due to lack of data for tangerines. Among perennial crops grapes have the highest share of total production (46 percent, including both white and red grapes), followed by tangerines at 14 percent, apples at 10 percent, and hazelnuts at 8 percent (2023, Geostat).

This policy brief firstly explains the Georgian context in more detail, followed by sub-sections discussing each major perennial crop sector, ending with conclusions and policy recommendations.

The Georgian Context

Agriculture plays a crucial role in Georgia’s economy. As of 2024, 39 percent of the population resides in rural areas (Geostat, 2024), where agriculture serves as the primary source of income. The sector employs the largest share of the country’s workforce—17 percent (Geostat, 2023)—yet it contributes to only 7 percent of Georgia’s GDP (Geostat, 2023).  At the same time, the disparity in income, and other major socio-economic indicators between the rural (agricultural) and urban population is large. For example, in Tbilisi, the capital of Georgia, the average monthly nominal earnings are 78 percent higher than the average for the rest of Georgia. Additionally, Tbilisi accounts for 70 percent of the total value added generated in the country (Geostat, 2023).

In recent year, the country has undertaken significant efforts to modernize and improve the agricultural sector, yet significant challenges remain. Georgian agriculture is largely characterized by small, fragmented family farms focused on subsistence farming with restricted market access. They are highly vulnerable to weather conditions, yet there is little awareness of or adoption of insurance and risk mitigation measures (State Audit Office of Georgia, 2023). Traditional farming methods remain dominant, with limited use of modern technology. Additionally, most farmers operate on a small scale and lack cooperation and coordination, further hindering efficiency and competitiveness. As a result, they often struggle with low productivity and have difficulty producing high-quality products in stable quantities. Lastly, a high dependency on the Russian market for most agricultural products poses significant risks, as Russia is not a stable trade partner.

Given this context, agricultural subsidies are a highly important topic in Georgia. The Georgian government implements various subsidy programs to support agricultural sectors such as fruit production, viticulture, hazelnut farming, and wheat production. These initiatives aim to promote the sales of grapes, non-standard apples, and tangerines, enhance hazelnut production, and ensure food security by subsidizing essential staples like wheat, particularly during the Covid-19 pandemic.

Starting from 2014 to 2024 (Figure 1), the share of subsidies in total agricultural expenditure has followed an increasing trend, ranging from 21.4 percent in 2014 to peaking at 67.5 percent in 2021. In 2024 the respective share is 54.1 percent.  A decline occurred in 2022–2023, following the stabilization of the Covid-19 pandemic. Apart from this, the share of subsidies within agricultural expenditures has been increasing over the last ten years.

Figure 1. Total and subsidy expenditures on agriculture, million GEL (2014-2024)

Source: Geostat, 2025.

While these programs are designed to assist farmers and increase sales, how these subsidies support in addressing the mentioned structural challenges – therefore advancing the effectiveness of the sector – is under question.

The Grape Subsidy Programs

The grape subsidy programs in Georgia are primarily aimed at supporting viticulture in key wine-producing regions, such as Kakheti, Racha-Lechkhumi, and Kvemo Svaneti. These subsidies were designed to stabilize farmers’ incomes and ensure smooth harvests, to guarantee that even lower-quality grapes will be sold, particularly for grape varieties used in wine production. In general, the government uses two types of subsidies: direct and indirect. Direct subsidies involve paying farmers a certain amount of money per kilogram of grapes. Indirect subsidies are implemented through state-owned companies that are responsible for purchasing grapes from farmers.

Georgia’s grape subsidy program (direct subsidies) was introduced in 2008 and has been implemented every year except for in 2018 and 2019. Starting from 2014, the government provided substantial direct financial support to grape producers. However, starting in 2017, direct subsidies began to decline sharply, and by 2018–2019, the government announced that it would no longer directly subsidize the grape harvest. However, during this period, the state’s grape purchasing program remained in place, purchasing any surplus grapes left on the market after private acquisitions.

The Covid-19 pandemic in 2020 prompted a renewed surge in subsidies, with financial support reaching its highest levels in years. This elevated support continued until 2022 but was significantly reduced again in 2023 (by 63 percent), following a decline in production (Figure 2).

Figure 2. Grape production, subsidies and wine exports (2014-2023)

Source: Geostat, 2025.

Grape production has generally followed an upward trend, with record harvests in 2019 and 2020. Given the absence of direct subsidies in 2017 and 2018, the effect of subsidies on production levels is questionable. In more recent years, production has become more volatile, displaying a noticeable decline by 2023.

Wine exports, a crucial part of Georgia’s economy, have grown steadily, with volumes peaking in 2022, and persisting at high levels ever since. Export revenues have also increased consistently, reaching an all-time high in 2024, according to preliminary data.

The main destination for the Georgian wine sector is CIS countries. Russia accounts for the largest share among the CIS, with an average of 75.4 percent, between 2014-2024. Russia’s share has been increasing in recent years, reaching 85.8 percent in 2024 (among CIS countries). The average share of exports to the EU of total exports is 10 percent (Figure 3).

Figure 3. Wine exports by country groups (2014-2024)

Source: Geostat, 2025.

Although subsidies played a key role in revitalizing Georgia’s wine industry following the collapse of the Soviet Union, especially as grape production and processing have increased over the years, their long-term impact have been problematic (Ghvanidze, Bitsch, Hanf, & Svanidze, 2020). Since subsidies were introduced in 2008, Georgia’s grape market has become heavily distorted, with prices shaped by government support rather than supply and demand dynamics.

Even though a significant portion of government funding for the sector is allocated to subsidies, the way in which subsidies affect grape production levels is not obvious. Other sector insufficiencies, such as quality issues and exporting market diversification are inadequately addressed. Grape quality remains a key issue, as farmers lack incentives to improve production practices, knowing that the government will purchase their yield regardless. Additionally, Georgia’s heavy reliance on its main export partner, Russia, poses significant risks, and the share of exports to EU countries has not seen substantial growth. Overall, since the subsidies aim to stabilize producers’ income rather than to address structural issues in the sector, they may be considered social support.

The Apple Subsidy Program

The apple subsidy program in Georgia was introduced in 2014 to support the sale of non-standard apples after market prices dropped to a record low 0.02 GEL. Non-standard apples are damaged fruits that fall from trees due to wind, hail, or other natural factors. Typically unfit for direct consumption, these lower-quality apples are primarily used by factories to produce apple concentrate. The program aimed to stabilize prices and provide financial relief to farmers. Processing companies received financial support for each kilogram of non-standard apples purchased.

The program was discontinued between 2015 and 2019, before it resumed in 2020. The number of companies involved in purchasing non-standard apples for further processing ranges from 12 to15 over the years.

As for apple production levels, although there were significant production surges in 2016, 2018, and 2020, these increases have been volatile and unstable.

Figure 4. Apple production, subsidies and exports (2014-2023)

Source: Geostat, 2025.

In terms of exports, the volume increased sharply between 2018 and 2019, reaching its peak in 2021 before gradually declining. Most apple exports are directed to CIS countries, with Russia accounting for an average of 94 percent between 2018 and 2024. In contrast, the EU’s share remains minimal, averaging less than 1 percent, with no exports recorded to the EU in half of the considered years.

Figure 5. Apple exports by country group (2014-2024)

Source: Geostat, 2025.

While apple production is highly vulnerable to weather conditions, the adoption of insurance remains low. The provided subsidy program supports farmers in producing lower-quality non-standard apples, thus limiting the incentives to enhance product quality, productivity, or production practices, as farmers rely on the government to purchase their produce regardless. Similar to the grape industry, government support in the apple market functions more as a social assistance rather than a tool for industry advancement.

The Hazelnut Subsidy Program

Georgia introduced the Hazelnut Production Support Program in 2022 to enhance competitiveness, assist farmers, and improve disease management. The program registered hazelnut orchards in a national cadaster, enabling better monitoring and targeted support, to subsidize the purchase of pesticides and agrochemicals essential for hazelnut care and cultivation. The program has continued in 2023 and 2024, with subsidies amounting 22 and 22.6 million GEL, respectively.

Hazelnut production in Georgia has been highly volatile in the past decade. The sector experienced its most severe crisis in 2017-2018 when fungal diseases and an Asian stink bug (Pharosana) invasion devastated yields. Consequently, both the quantity and quality of hazelnut production declined. In 2019, the production began to recover, peaking in 2021. However, unfavorable weather conditions resulted in a decline in 2022, with only a partial rebound in 2023.

Figure 6. Hazelnut production and exports (2014-2023)

Source: Geostat, 2025.

Hazelnut is mainly exported to EU countries, with an average share of 65.3 percent, between 2014 and 2024. The share of CIS countries in this period is 20.2 percent. However, the share exported to EU countries has been declining 2023 and 2024, to 52.4 and 56.7 percent, respectively.

Figure 7. Hazelnut exports by country group (2014-2024)

Source: Geostat, 2025.

The subsidy scheme in the hazelnut sector seems to be more targeted at the issues the sector is facing, compared to the other discussed programs. The effects are however yet to be explored as the program began in 2022. However, several challenges remain, such as insufficient technical facilities for drying and storing goods essential for ensuring the quality of products (Gelashvili, Deisadze & Seturidze, 2023).

Conclusion and Recommendations

Although the government of Georgia provides substantial support for the agricultural sector, it still suffers from various challenges. Product quality, high vulnerability to weather events and export dependency on unstable partners are major issues for the grape and apple sectors. Further, the effectiveness of the direct financial support and the corresponding incentives within these sectors can be questioned.

For these crops, the subsidy programs seem to function more as social assistance rather than tools for industry development. In the grape sector, guaranteed government purchases reduce incentives for farmers to improve grape quality. Similarly, the apple subsidy program encourages the cultivation of non-standard apples, as farmers rely on state-backed purchases rather than market-driven quality improvements. Apple production has also shown significant volatility over the years, further highlighting the sector’s instability.

Additionally, heavy dependence on Russia as a primary export market for these crops presents economic risks. Diversification, particularly to the EU, has remained limited.

As for the hazelnut sector, the subsidy program aims to address some of the structural challenges, while this sector also relies less on the Russian market. However, some issues with infrastructural equipment remain unresolved.

Overall, the share of subsidies in agriculture is very high; further, the design of the programs mainly prioritizes short-term income stability for farmers rather than long-term market competitiveness and sectoral development. To address the discussed systemic challenges, it is essential to develop targeted policies tailored to the specific needs of each sector. While the priorities may differ across each crop, several key areas require focused attention:

  • Quality of Products – Enhancing product quality through ensuring food safety standards, improved farming and manufacturing practices, and better regulatory frameworks can help increase competitiveness in both domestic and international markets.
  • Market Diversification – Strengthening ties with new international partners and improving branding strategies can help industries access new markets and reduce risks associated with economic or political fluctuations in dominant trade partners.
  • Infrastructure Development – Poor infrastructure remains a challenge for the sector. Investments in post-harvest drying and storage facilities, as well as modern machinery and equipment, will enhance efficiency, reduce losses, and improve product quality.
  • Adoption of innovative farming practices– Adopting innovative farming practices boosts productivity, lowers costs, and enhances sustainability. It helps farmers adapt to changing weather conditions, making agriculture more efficient, environmentally friendly, and resilient.

By addressing these fundamental issues, policies can play a role in contributing to the long-term stability and growth of the agricultural sector, ultimately strengthening the economy and increasing global competitiveness.

References

  • Gautam, M. (2015). Agricultural Subsidies: Resurging Interest in a Perennial Debate. Indian Journal of Agricultural Economics.
  • Gelashvili, S., Deisadze, S., & Seturidze, E. (2022). An Overview of the Georgian Wine Sector.
  • Gelashvili, S., Deisadze, S., & Seturidze, E. (2023). Overview of the hazelnut sector in Georgia: past trends and the way forward. Tbilisi: ISET Policy Institute.
  • Ghvanidze, S., Bitsch, L., Hanf, J. H., & Svanidze, M. (2020). “The Cradle of Wine Civilization” – Current Developments in the Wine Industry of the Caucasus. Caucasus Analytical Digest, 117, 9-15.
  • Jayne, T., & Rashid, S. (2013). Input Subsidy Programs in Sub-Saharan Africa: A Synthesis of Recent Evidence. Agricultural Economics, 44, 547-562.
  • Schwartz, G., & Clements, B. (1999). Government subsidies. Journal of Economic Surveys, 13(2), 119-148. doi:10.1111/1467-6419.00079
  • State Audit Office of Georgia. (2023). Audit Report on the Development and Management of the State Agricultural Insurance Program.

Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.

How Social Assistance Shapes Election Outcomes: The Case of Georgia

Protesters waving Georgian flags in front of the Parliament building in Tbilisi, Georgia, during a public demonstration following election outcomes.

This policy brief investigates the relationship between social assistance programs and election outcomes in Georgia, focusing on the 2024 parliamentary elections. Our regression analysis establishes a statistically significant link between an increase in social assistance beneficiaries and the vote share obtained by the incumbent Georgian Dream party. The results raise critical questions about the potential use of social assistance programs as a strategic political tool. Specifically, a 1 percentage point increase in targeted social assistance beneficiaries as a share of the population lead to an, on average, 0.5 percentage point increase in the Georgian Dream’s vote share, even after controlling for poverty-related factors. The findings recognize the dual impact of social assistance programs – alleviating poverty while shaping political behavior. They also underscore the need for ensuring that social assistance remains focused on addressing the needs of vulnerable populations without exerting undue political influence.

Introduction

The relationship between social assistance programs and electoral outcomes has gathered significant attention in both academic and policy circles, especially in the last decade. Social assistance programs, designed to support vulnerable populations, often carry political implications, particularly in developing democracies where incumbent governments may leverage these programs to secure voter loyalty. In Georgia, one of the largest components of social assistance is the targeted living allowance program, which, unlike other types of social assistance – such as those for individuals with special needs, internally displaced people, or elderly population –relies on assessing the beneficiaries’ poverty levels through proxy means testing (PMT). This makes subsistence allowance benefits vulnerable to biased, favorable selection by those in power. Allegations exist that the government may have strategically used this program, including increasing the number of beneficiaries in the lead-up to elections to secure votes or threatening existing beneficiaries with the withdrawal of their assistance based on their disclosed political preferences (Shubladze (2024); Japaridze (2023); Social Justice Center (2024)).

This policy brief explores the impact of social assistance on electoral outcomes in Georgia, specifically assessing whether increases in the number of targeted subsistence allowance beneficiaries during the 2020-2024 period influenced the votes received by the incumbent party in the 2024 parliamentary elections.

This analysis is especially important given the recent developments in Georgia’s political landscape. The 2024 parliamentary elections marked a critical juncture, with the Georgian Dream claiming to have secured 53.93 percent of the votes. Concerns over the fairness and transparency of the elections have been widespread. The Organization for Security and Co-operation in Europe’s (OSCE) Office for Democratic Institutions and Human Rights (ODIHR) reported systematic election irregularities, including pressure on voters, media bias, unequal campaign conditions, and election-day practices that compromised the ability of some voters – including public sector employees and recipients of social assistance – to cast their ballots without fear of retribution.

Our regression analysis documents a positive relationship between the number of living allowance beneficiaries and the votes garnered by the incumbent party across Georgian municipalities, raising further concerns about the integrity of the electoral process, and the allocation of state funds.

Political Implications of Social Assistance Programs: A Global Perspective

The link between social assistance and electoral outcomes has been widely studied. Social assistance programs often serve a dual purpose: they alleviate poverty and provide tangible support to vulnerable citizens while also shaping political behavior, particularly voting patterns. These programs can enhance incumbents’ electoral support by fostering gratitude among recipients, signaling government competence in addressing social needs, or creating concerns among beneficiaries that their political preferences if exposed, may influence the government’s decisions when choosing the beneficiaries of social assistance.

Research by De La O (2013) provides a compelling case in the context of Mexico. Examining the Progresa/Oportunidades conditional cash transfer program, De La O find that the program led to an increase in both voter turnout and incumbent vote share.

Zucco (2013) contributes further evidence from Brazil, where the Bolsa Família conditional cash transfer program emerged as a cornerstone of electoral strategy. Zucco demonstrates that municipalities with higher proportions of cash transfer beneficiaries tended to favor incumbent candidates in three different presidential elections, establishing a clear link between social assistance and voting behavior.

Adding to this body of work, Layton & Smith (2015) provide further insight into the nuanced ways in which targeted social assistance programs influence voter behavior in Latin America. The authors theorize that such programs simultaneously mobilize non-voters and convert opposition supporters, with variations based on country-level political and programmatic differences.

In addition, recent research from Indonesia further illustrates the impact of social assistance budgets on electoral outcomes. A study by Dharma, Syakhroza, and Martani (2022) examines 212 regencies and cities in Indonesia where incumbents participated in local elections. The findings reveal a direct positive effect of social assistance spending on incumbent votes. The authors further claim that high political competition counteracts incumbents’ advantages and mitigates the effectiveness of such spending.

The international literature thus provides valuable motivation for exploring the Georgian case, where social assistance may play a similar role in shaping voting behavior.

The Georgian Context

The deeply controversial October 26, 2024, parliamentary elections in Georgia mark a pivotal moment in the country’s political history. According to the Central Election Committee of Georgia, the ruling party, the Georgian Dream, secured 53.93 percent of the votes, maintaining its dominant position in Georgian politics. However, the elections were accompanied by widespread allegations of electoral malpractice, casting a shadow over their legitimacy and raising concerns about the future of democratic governance in the country.

OSCE’s ODIHR provided a comprehensive observation of the electoral process, noting both positive aspects and critical shortcomings. While the elections were generally well-administered, ODIHR’s final report emphasized significant concerns related to the broader political environment. Key issues included the adoption of legislation that undermined fundamental freedoms, restrictions on civil society, and a pervasive atmosphere of voter intimidation. Specific election-day practices, such as pressuring voters and leveraging administrative resources, were highlighted as undermining the integrity of the process. The report also mentions instances in 16 municipalities where public sector employees and economically vulnerable groups, particularly those reliant on social assistance, faced pressure to support the ruling party. Such fear of losing social benefits or facing retribution at work creates an atmosphere where voters struggle to form independent opinions and vote independently.

Further scrutiny from independent analysts has shed light on systematic irregularities that suggest the elections may not have reflected the genuine will of the Georgian electorate. Gutbrod (2024) suggests that tactics such as vote buying, mass intimidation, and direct manipulation of electoral outcomes were employed, leading to statistical anomalies. Specifically, the Georgian Dream’s support increased disproportionately in precincts linked to reported violence and irregularities. Additionally, social assistance beneficiaries were identified as a target group for snowball mobilization, organized by individuals affiliated with the Georgian Dream – a method where participants are encouraged to mobilize or identify a certain number of additional people to expand voter outreach and engagement.

Social Assistance in Georgia

The Law of Georgia on Social Assistance outlines several types of social welfare programs aimed at addressing the needs of vulnerable populations. These include living allowance, reintegration assistance, foster care allowance, adult family member care allowance, non-monetary social assistance, and social package. Among these, the targeted social assistance program, commonly referred to as the “living allowance“, holds particular significance. This program is designed to provide financial support to families living in extreme poverty. Eligibility for the living allowance is determined through a proxy means test that evaluates the socioeconomic conditions of applicants, ensuring that the assistance reaches those most in need. For this policy brief, the focus will be on beneficiaries of the living allowance (hereafter social assistance beneficiaries), as their numbers and electoral behavior present a unique opportunity to analyze the intersection of social assistance and voting patterns in Georgia.

As of October 2020 (previous parliamentary elections’ date) 142,870 families in Georgia received social assistance, benefiting a total of 510,343 individuals. The total amount of social assistance transfers during this period amounted to 28,825,259 GEL. Over the next four years, leading up to the 2024 Parliamentary Elections, social assistance grew significantly. By October 2024, the number of families receiving assistance had increased by 25 percent to 178,107 families, while the number of individual beneficiaries rose by 34 percent, reaching 684,432. The most notable expansion occurred in the total amount of social assistance transfers, which surged by 143 percent to 69,936,512 GEL. This corresponds to a cumulative annual growth rate of 25 percent (Social Service Agency of Georgia, 2024).

In 2022, an important modification was introduced for social assistance beneficiaries aged 18 years to retirement age and without disabilities or serious health conditions, offering employment opportunities mainly, in the public sector with a salary of up to 300 GEL per month. These wages did not affect recipients’ existing social assistance benefits. Participants had the option to take suitable public sector jobs, formalize any informal employment, or, if formally employed in the private sector, provide necessary documentation. The modification covered also new beneficiaries who were not already formally employed. Notably, families or individuals enrolled in the program were guaranteed eligibility for a living allowance for four years, as their social assistance status would not be reassessed during this period.

As of October 2024, 50,962 families were enrolled in the program with guaranteed social assistance, accounting for 28.6 percent of all families receiving social assistance. The monthly spending of social assistance transferred to these families amounted to 22,766,706 GEL, representing 33 percent of the total social assistance transfers.

The significant increase in social assistance beneficiaries and the introduction of the 2022 program for employing social assistance recipients, guaranteeing them four years of social assistance transfers, highlight the growing scope and influence of targeted social welfare initiatives in Georgia. While these developments may have addressed pressing socioeconomic challenges, they also raise important questions about the potential political motivations. Specifically, the substantial increase in the number of beneficiaries and the guaranteed eligibility linked to employment programs could be interpreted as mechanisms to foster voter loyalty and mobilization in favor of the ruling party.

Methodology and Results

To examine the relationship between the increase in social assistance beneficiaries and electoral outcomes, particularly the votes garnered by the incumbent Georgian Dream party, we employ a regression analysis framework. This statistical method allows us to explore whether and to what extent the growth in social assistance recipients is associated with the changes in the vote share of the incumbent party. Since social assistance depends on the varying levels of poverty across municipalities, we incorporate control variables that isolate the effect of economic well-being, minimizing potential confounders.

The study utilizes data from two primary sources: information on social assistance recipients, including families, and individuals, and the total amount of transfers across municipalities, was retrieved from the Social Service Agency of Georgia. This dataset covers 64 municipalities (and self-governing cities) in Georgia. From 2022, data includes families and individuals guaranteed to retain their socially vulnerable status for four years under the State Program for Promoting Public Employment. Second, election data was sourced from the Central Election Commission of Georgia, covering both the 2024 and 2020 parliamentary elections. The 2024 data covers the results from both electronic and non-electronic voting. Key variables include the number of registered voters, total votes cast, and votes obtained by the Georgian Dream and opposition parties. This election data is also aggregated at the level of the 64 municipalities (and self-governing cities).

Information on poverty levels in Georgian municipalities is not publicly available; therefore, we utilize control variables for employment and economic activity with the latter proxied by either the municipalities’ tax revenues or the value added generated in the private sector. Information on employment and value added are gathered from the National Statistics Office of Georgia, while data on tax revenues is retrieved from the Ministry of Finance.

The following table describes the results of the regression analysis.

Table 1. Regression analysis results

Source: Author’s calculations.
Note: The values in parentheses indicate the p-value. *Significant at the 10 percent level; **Significant at the 5 percent level; ***Significant at the 1 percent level.

The first regression (column 1) investigates the relationship between the change in social assistance beneficiaries as a share of the population and the change in the Georgian Dream party’s vote shares, displaying a significant relationship between the two. Specifically, the coefficient (0.49) is significant at the 5 percent level, suggesting that a 1 percentage point increase in social assistance beneficiaries as a share of the population, increases the vote share for the Georgian Dream by approximately 0.49 percentage points.

To control for the effect of poverty, we first use employment rates in 2023 (the latest available data) as a proxy for poverty. Column 2 presents these results. In this specification, the coefficient for the change in social assistance beneficiaries remains significant at 5 percent level and its value (0.47) remains consistent with the previous specification. The model further suggests that poverty is also positively and significantly (at the 1 percent level) associated with incumbent votes – the higher the poverty (lower employment) in municipalities, the higher the Georgian Dream vote share.

In the next step (column 3), we model the relationship between the change in the Georgian Dream’s vote share, change in employment as a share of the population, mobilized local tax revenues per capita, and the change in number of social assistance beneficiaries as a share of the population. Change in employment, calculated as the difference between 2019 and 2023 employment levels (as a share of the population), is used as a proxy for change in poverty.  Tax revenues per capita for 2023 reflect economic activity across municipalities and self-governing cities, serving as a proxy for well-being. As seen in the table, change in employment is not statistically significant, however, the amount of tax revenues mobilized across municipalities is modestly significant. The coefficient for change in social assistance beneficiaries is once again statistically significant and consistent with the other specifications in terms of magnitude (at 0.51).

As a robustness test (column 4) we replace the previously used proxy for economic well-being (tax revenues), with the private sector value added per capita for 2023, which significantly (at the 1 percent level) correlates with an increase in the vote share for the incumbent party. Changes in employment remain insignificant. Importantly, the coefficient for change in social assistance beneficiaries remains positive (0.53) and statistically significant at the 1 percent level.

The discussed regression models were tested for a different dependent variable as well. In addition to observing the impact of change in vote shares, we also analyzed the impact on the number of votes cast for the Georgian Dream party between the 2020 and 2024 Parliamentary Elections. Changes in social assistance beneficiaries remain a significant explanatory variable in this specification as well.

The estimated impact of social assistance is consistent across all models, both in magnitude and significance, reinforcing the finding that increases in living allowance beneficiaries are strongly associated with higher vote shares for the Georgian Dream party, underscoring the critical role of social assistance in shaping electoral outcomes.

Conclusion

The analysis demonstrates a strong and statistically significant relationship between the increase in social assistance beneficiaries and the vote share obtained by the incumbent Georgian Dream party in the 2024 parliamentary elections. Even after controlling for poverty and economic well-being, the results highlight the impact of social assistance in shaping electoral outcomes. The findings suggest that a 1 percentage point rise in social assistance beneficiaries as a share of the population translates into a 0.47–0.53 percentage point increase in the Georgian Dream’s vote share. When contextualized within the overall election results, these estimates suggest that the expansion of the targeted social assistance program may have garnered the Georgian Dream an additional 45 ,500 to 50,000 votes, representing 2.2–2.5 percent of the total votes.

The results raise critical questions about the potential use of social assistance programs as a strategic political tool. The robustness of the relationship across multiple models suggests that the observed trends are not merely byproducts of economic conditions but reflect a deliberate link between social assistance expansion and electoral outcomes. The implications are significant for democratic governance in Georgia. The strategic use of social welfare programs risks undermining public trust in the electoral process and highlights the need for greater transparency and accountability in the implementation of social assistance policies. Recognizing the dual impact of these programs – alleviating poverty while potentially shaping political behavior – will be critical in fostering fairer electoral conditions and ensuring that social assistance remains focused on addressing the needs of vulnerable populations without undue political influence.

References

Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.

Development Day 2024: Integrating Ukraine, Moldova, and Georgia into the European Union

Flags of Ukraine, Moldova, and Georgia alongside EU flags in a conference setting.

For Ukraine, Moldova, and Georgia, integration into the European Union (EU) is a pathway to modernization, economic development, and increased resilience against authoritarianism. At this year’s Development Day Conference, hosted by the Stockholm Institute of Transition Economics (SITE), policymakers, researchers, and experts convened to discuss the shared challenges, opportunities, and reforms required for these countries’ successful EU accession.

This policy brief draws on the insights from the conference, briefly outlining the discussions across panels and presentations on governance reforms, hybrid threats, economic transformation, and security challenges.

The Geopolitical Context for Enlargement

The Russian invasion of Ukraine has intensified the European Union’s strategic focus on enlargement. Ukraine, Moldova, and Georgia find themselves at a crossroads, where integration into the EU is not merely aspirational but essential for safeguarding sovereignty and ensuring economic and political stability. The urgency of this enlargement stems from the need to counteract Russian aggression and bolster the EU’s geopolitical standing.

At the opening sessions of the Development Day Conference, three special guests offered their respective countries’ perspectives. Yevhen Perebyinis, Ukraine’s Deputy Minister of Foreign Affairs, underscored how Ukraine’s integration process aligns with its defense of European values against Russia’s aggression. Cristina Gherasimov, Moldova’s Deputy Prime Minister for European Integration, highlighted Moldova’s efforts to advance reforms while countering persistent Russian hybrid threats, including systematic election interference. Christian Danielsson, Sweden’s State Secretary to the Minister for EU Affairs, accentuated the necessity of ensuring that the EU is ready for enlargement, something political leaders now see as an imperative in the shadow of Russia’s war on Ukraine. Similarly, discussions emphasized Georgia’s historical and policy-oriented commitment to Europe, despite recent democratic backsliding and a recent pivot toward Russia.

Challenges on the Pathway to EU Accession

The integration paths of Ukraine, Moldova, and Georgia face numerous challenges. Critical areas for alignment with EU standards include governance reforms, anti-corruption efforts, and institutional capacity building. Moldova has made strides in public administration reform and jumped significantly on the Corruption Perceptions Index from 120th place in 2019 to 76th in 2023. However, persistent gaps in judicial independence and public procurement transparency remain hurdles. Similarly, Ukraine has enacted sweeping reforms under extraordinary wartime circumstances, reflecting a persistent and widespread commitment to European values. Yet, continued progress in judicial and financial oversight is essential, with the administrative framework in these areas needing improvement in both countries.

Russia’s hybrid warfare poses a persistent and evolving threat to democratic resilience across the region. Moldova’s elections in 2024 showcased large-scale, sophisticated interference by Russian actors. This interference began well before election day and continues in the form of disinformation campaigns and energy blackmailing in the Transnistria region. In Georgia, Russian influence compounds the challenges of domestic political unrest, particularly as the ruling party engaged in substantial electoral fraud and manipulation to secure its position in the 2024 October elections. These challenges highlight the need for robust countermeasures, including enhanced cybersecurity and strengthened democratic institutions across the candidate countries. It also points to the need for support from the international community, especially in the case of Georgia, where protesters are currently taking to the streets to challenge the widely recognized electoral fraud.

Economic transformation and alignment also remain a critical challenge. Ukraine’s economy, suffering wartime devastation, requires extensive reconstruction, with the cost of infrastructural damage alone nearing its annual GDP. Ukraine’s vast agricultural sector, a major player in global markets, will require careful integration into the EU to address compliance costs and alignment with the Common Agricultural Policy while maintaining its competitive edge. Moldova faces significant challenges in effectively communicating the benefits of EU integration to its population, a critical issue in countering Russian influence and maintaining public support for reforms. Despite clear economic progress, such as the increase in Moldovan exports to the EU, many Moldovans remain skeptical about the long-term benefits of EU alignment. This skepticism is particularly pronounced in regions like Gagauzia, where pro-Russian sentiment is strong and local populations are vulnerable to disinformation and propaganda.

As emphasized by multiple panelists, targeted communication strategies are vital to ensuring that the benefits of EU integration are understood across populations. Concrete examples—such as enhanced economic opportunities, improved infrastructure, and access to EU funding—must be clearly communicated to counteract Russian narratives and build broad-based support for EU accession.

In this regard, pre-accession funding offers a potentially transformative tool. The successful use of pre-accession funding in Poland in the 1990s and early 2000s demonstrates the potential for such resources to modernize infrastructure, connect markets, and build institutional capacity, a capacity that has later proved pivotal to overcoming democratic backsliding. Poland serves as a reminder that alignment and integration may take time, but also clearly showcases the economic and social benefits it can yield.

During the conference, security concerns were at the core of the enlargement discussion, with several panelists emphasizing NATO’s historical role as a critical security complement for EU member states. However, Ukraine’s potential EU accession may advance without parallel NATO membership. This raises significant challenges, as the absence of NATO guarantees leaves Ukraine vulnerable to further Russian aggression. Panelists highlighted the urgent need for the EU to adopt concrete security measures, such as strengthened hybrid defense capabilities, cybersecurity frameworks, and coordinated responses to disinformation—threats already witnessed in Moldova and Georgia. Additionally, ensuring Ukraine’s security would require increased military and financial support from EU member states to safeguard territorial integrity and maintain resilience against Russia, argued a necessity by several panelists.

The Opportunities of Enlargement

The integration of Ukraine, Moldova, and Georgia into the European Union offers profound opportunities for these states. It represents access to the single market, pre- and post-accession funding, and vital structural support that can accelerate modernization efforts. Overall, this can reduce the countries’ infrastructure gaps and cause an increase in foreign direct investment. Beyond economic gains, EU support drives crucial institutional reforms, enhances public administration capacity, and provides a framework for addressing corruption and strengthening the rule of law—key challenges across all three countries.

For the EU, enlargement would entail strategic benefits aligned with its new geopolitical focus and long-term economic goals. Ukraine’s reserves of critical raw materials, including lithium and titanium, are essential for Europe’s green transition. Furthermore, Ukraine and its defense industry offers strategic benefits to Europe by bolstering collective security. Its agricultural capacity remains pivotal not only for the EU but for global food security, and its IT sector provides additional growth potential. Moldova and Georgia, on the other hand, offer untapped market potential and workforce integration opportunities, which could strengthen the EU’s competitive edge. Enlargement also represents a critical opportunity to counter the threat from Russia, manifesting the Union as a geopolitical leader committed to stability, democracy, and shared values.

However, as voiced throughout the conference, the EU must prioritize clear communication of these benefits. Concerns about increased competition in existing member states need to be met with transparency while communicating the long-term economic and security advantages of enlargement. Involving the business perspective in the enlargement process and ensuring that both candidate countries and current EU citizens and businesses see tangible benefits early in the process will be key to sustaining both momentum and public support. Such messaging could include the fact that the EU is originally a peace project and that the counterfactual scenario to the current enlargement ambitions is Russia and its wars creeping even closer to the Union’s border. In regard to the business sector, it could be emphasized that enlargement associated risks can be met with risk sharing instruments and credit guarantees.

As emphasized by several speakers, the EU also needs to ensure that it is ready for enlargement in terms of capacity. As the EU was not initially built to be this large, a further expansion requires the Union to critically reflect on how to ensure it will stand up for the rule of law and all member states’ adhesion to EU principles in the years to come.

Concluding Remarks

How to facilitate the accession of Ukraine, Moldova, and Georgia into the European Union was the topic for discussion at the 2024 Development Day. The discussions highlighted the substantial early progress and rapid reforms undertaken by Ukraine while being a country at war. Moldova’s steady progress toward its ambitious 2030 accession target underscores its commitment to reform, though challenges remain in securing public trust and countering Russian interference. Georgia, meanwhile, serves as a warning of how quickly democratic gains can erode, with political turmoil and Russian influence threatening its European path. These examples underscore the need for sustained support and clear communication of the benefits of EU integration. Panelists and participants also underscored that integrating these nations is not merely about expanding the EU—it is a vital response to ongoing geopolitical threats, in particular from Russia, and an affirmation of the EU’s foundational values.

Ultimately, the enlargement of the EU to include Georgia, Moldova and Ukraine holds significant potential, both for the aspiring members and the EU itself. However, as the discussions at Development Day 2024 showcased, such enlargement requires robust partnerships, unwavering and early support, and a recognition that integration strengthens the EU as a whole, ultimately positioning the EU as a much-needed major democratic geopolitical actor.

List of Participants

Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.

Gender Gap in Life Expectancy and Its Socio-Economic Implications

Silhouetted crowd of people walking in a public square, symbolizing societal impacts of the gender gap in life expectancy.

Today women live longer than men virtually in every country of the world. Although scientists still struggle to fully explain this disparity, the most prominent sources of this gender inequality are biological and behavioral. From an evolutionary point of view, female longevity was more advantageous for offspring survival. This resulted in a higher frequency of non-fatal diseases among women and in a later onset of fatal conditions. The observed high variation in the longevity gap across countries, however, points towards an important role of social and behavioral arguments. These include higher consumption of alcohol, tobacco, and fats among men as well as a generally riskier behavior. The gender gap in life expectancy often reaches 6-12 percent of the average human lifespan and has remained stubbornly stable in many countries. Lower life expectancy among men is an important social concern on its own and has significant consequences for the well-being of their surviving partners and the economy as a whole. It is an important, yet under-discussed type of gender inequality.

Country Reports

Belarus Country Report FROGEE POLICY BRIEF
Georgia Country Report FROGEE POLICY BRIEF
Latvia Country Report FROGEE POLICY BRIEF
Poland Country Report FROGEE POLICY BRIEF

Gender Gap in Life Expectancy and Its Socio-Economic Implications

Today, women on average live longer than men across the globe. Despite the universality of this basic qualitative fact, the gender gap in life expectancy (GGLE) varies a lot across countries (as well as over time) and scientists have only a limited understanding of the causes of this variation (Rochelle et al., 2015). Regardless of the reasons for this discrepancy, it has sizable economic and financial implications. Abnormal male mortality makes a dent in the labour force in nations where GGLE happens to be the highest, while at the same time, large GGLE might contribute to a divergence in male and female discount factors with implications for employment and pension savings. Large discrepancies in life expectancy translate into a higher incidence of widowhood and a longer time in which women live as widows. The gender gap in life expectancy is one of the less frequently discussed dimensions of gender inequality, and while it clearly has negative implications for men, lower male longevity has also substantial negative consequences for women and society as a whole.

Figure A. Gender gap in life expectancy across selected countries

Source: World Bank.

The earliest available reliable data on the relative longevity of men and women shows that the gender gap in life expectancy is not a new phenomenon. In the middle of the 19th century, women in Scandinavian countries outlived men by 3-5 years (Rochelle et al., 2015), and Bavarian nuns enjoyed an additional 1.1 years of life, relative to the monks (Luy, 2003). At the beginning of the 20th century, relative higher female longevity became universal as women started to live longer than men in almost every country (Barford et al., 2006). GGLE appears to be a complex phenomenon with no single factor able to fully explain it. Scientists from various fields such as anthropology, evolutionary biology, genetics, medical science, and economics have made numerous attempts to study the mechanisms behind this gender disparity. Their discoveries typically fall into one of two groups: biological and behavioural. Noteworthy, GGLE seems to be fairly unrelated to the basic economic fundamentals such as GDP per capita which in turn has a strong association with the level of healthcare, overall life expectancy, and human development index (Rochelle et al., 2015). Figure B presents the (lack of) association between GDP per capita and GGLE in a cross-section of countries. The data shows large heterogeneity, especially at low-income levels, and virtually no association from middle-level GDP per capita onwards.

Figure B. Association between gender gap in life expectancy and GDP per capita

Source: World Bank.

Biological Factors

The main intuition behind female superior longevity provided by evolutionary biologists is based on the idea that the offspring’s survival rates disproportionally benefited from the presence of their mothers and grandmothers. The female hormone estrogen is known to lower the risks of cardiovascular disease. Women also have a better immune system which helps them avoid a number of life-threatening diseases, while also making them more likely to suffer from (non-fatal) autoimmune diseases (Schünemann et al., 2017). The basic genetic advantage of females comes from the mere fact of them having two X chromosomes and thus avoiding a number of diseases stemming from Y chromosome defects (Holden, 1987; Austad, 2006; Oksuzyan et al., 2008).

Despite a number of biological factors contributing to female longevity, it is well known that, on average, women have poorer health than men at the same age. This counterintuitive phenomenon is called the morbidity-mortality paradox (Kulminski et al., 2008). Figure C shows the estimated cumulative health deficits for both genders and their average life expectancies in the Canadian population, based on a study by Schünemann et al. (2017). It shows that at any age, women tend to have poorer health yet lower mortality rates than men. This paradox can be explained by two factors: women tend to suffer more from non-fatal diseases, and the onset of fatal diseases occurs later in life for women compared to men.

Figure C. Health deficits and life expectancy for Canadian men and women

Source: Schünemann et al. (2017). Note: Men: solid line; Women: dashed line; Circles: life expectancy at age 20.

Behavioural Factors

Given the large variation in GGLE, biological factors clearly cannot be the only driving force. Worldwide, men are three times more likely to die from road traffic injuries and two times more likely to drown than women (WHO, 2002). According to the World Health Organization (WHO), the average ratio of male-to-female completed suicides among the 183 surveyed countries is 3.78 (WHO, 2024). Schünemann et al. (2017) find that differences in behaviour can explain 3.2 out of 4.6 years of GGLE observed on average in developed countries. Statistics clearly show that men engage in unhealthy behaviours such as smoking and alcohol consumption much more often than women (Rochelle et al., 2015). Men are also more likely to be obese. Alcohol consumption plays a special role among behavioural contributors to the GGLE. A study based on data from 30 European countries found that alcohol consumption accounted for 10 to 20 percent of GGLE in Western Europe and for 20 to 30 percent in Eastern Europe (McCartney et al., 2011). Another group of authors has focused their research on Central and Eastern European countries between 1965 and 2012. They have estimated that throughout that time period between 15 and 19 percent of the GGLE can be attributed to alcohol (Trias-Llimós & Janssen, 2018). On the other hand, tobacco is estimated to be responsible for up to 30 percent and 20 percent of the gender gap in mortality in Eastern Europe and the rest of Europe, respectively (McCartney et al., 2011).

Another factor potentially decreasing male longevity is participation in risk-taking activities stemming from extreme events such as wars and military activities, high-risk jobs, and seemingly unnecessary health-hazardous actions. However, to the best of our knowledge, there is no rigorous research quantifying the contribution of these factors to the reduced male longevity. It is also plausible that the relative importance of these factors varies substantially by country and historical period.

Gender inequality and social gender norms also negatively affect men. Although women suffer from depression more frequently than men (Albert, 2015; Kuehner, 2017), it is men who commit most suicides. One study finds that men with lower masculinity (measured with a range of questions on social norms and gender role orientation) are less likely to suffer from coronary heart disease (Hunt et al., 2007). Finally, evidence shows that men are less likely to utilize medical care when facing the same health conditions as women and that they are also less likely to conduct regular medical check-ups (Trias-Llimós & Janssen, 2018).

It is possible to hypothesize that behavioural factors of premature male deaths may also be seen as biological ones with, for example, risky behaviour being somehow coded in male DNA. But this hypothesis may have only very limited truth to it as we observe how male longevity and GGLE vary between countries and even within countries over relatively short periods of time.

Economic Implications

Premature male mortality decreases the total labour force of one of the world leaders in GGLE, Belarus, by at least 4 percent (author’s own calculation, based on WHO data). Similar numbers for other developed nations range from 1 to 3 percent. Premature mortality, on average, costs European countries 1.2 percent of GDP, with 70 percent of these losses attributable to male excess mortality. If male premature mortality could be avoided, Sweden would gain 0.3 percent of GDP, Poland would gain 1.7 percent of GDP, while Latvia and Lithuania – countries with the highest GGLE in the EU – would each gain around 2.3 percent of GDP (Łyszczarz, 2019). Large disparities in the expected longevity also mean that women should anticipate longer post-retirement lives. Combined with the gender employment and pay gap, this implies that either women need to devote a larger percentage of their earnings to retirement savings or retirement systems need to include provisions to secure material support for surviving spouses. Since in most of the retirement systems the value of pensions is calculated using average, not gender-specific, life expectancy, the ensuing differences may result in a perception that men are not getting their fair share from accumulated contributions.

Policy Recommendations

To successfully limit the extent of the GGLE and to effectively address its consequences, more research is needed in the area of differential gender mortality. In the medical research dimension, it is noteworthy that, historically, women have been under-represented in recruitment into clinical trials, reporting of gender-disaggregated data in research has been low, and a larger amount of research funding has been allocated to “male diseases” (Holdcroft, 2007; Mirin, 2021). At the same time, the missing link research-wise is the peculiar discrepancy between a likely better understanding of male body and health and the poorer utilization of this knowledge.

The existing literature suggests several possible interventions that may substantially reduce premature male mortality. Among the top preventable behavioural factors are smoking and excessive alcohol consumption. Many studies point out substantial country differences in the contribution of these two factors to GGLE (McCartney, 2011), which might indicate that gender differences in alcohol and nicotine abuse may be amplified by the prevailing gender roles in a given society (Wilsnack et al., 2000). Since the other key factors impairing male longevity are stress and risky behaviour, it seems that a broader societal change away from the traditional gender norms is needed. As country differences in GGLE suggest, higher male mortality is mainly driven by behaviours often influenced by societies and policies. This gives hope that higher male mortality could be reduced as we move towards greater gender equality, and give more support to risk-reducing policies.

While the fundamental biological differences contributing to the GGLE cannot be changed, special attention should be devoted to improving healthcare utilization among men and to increasingly including the effects of sex and gender in medical research on health and disease (Holdcoft, 2007; Mirin, 2021; McGregor et al., 2016, Regitz-Zagrosek & Seeland, 2012).

References

About FROGEE Policy Briefs

FROGEE Policy Briefs is a special series aimed at providing overviews and the popularization of economic research related to gender equality issues. Debates around policies related to gender equality are often highly politicized. We believe that using arguments derived from the most up to date research-based knowledge would help us build a more fruitful discussion of policy proposals and in the end achieve better outcomes.

The aim of the briefs is to improve the understanding of research-based arguments and their implications, by covering the key theories and the most important findings in areas of special interest to the current debate. The briefs start with short general overviews of a given theme, which are followed by a presentation of country-specific contexts, specific policy challenges, implemented reforms and a discussion of other policy options.

Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.

Why the National Bank of Georgia Is Ditching Dollars for Gold

Gold bars on US dollar bills representing Georgia's recent acquisition of gold valued at 500 million dollars to diversify reserves

The National Bank of Georgia (NBG) recently acquired 7 tons of high-quality monetary gold valued at 500 million dollars, constituting approximately 11 percent of the banks’ total reserves. This marked the first occasion that Georgia acquired gold for its reserves since regaining its independence. The acquisition is a significant event, prompted by the NBG’s stated aim to enhance diversification amidst increased global geopolitical risks. However, diversification is just one of the reasons many countries are extensively purchasing gold. Another reason for increasing gold reserves is to lessen one’s reliance on the US dollar and to protect against sanctions, as seen with Russia and Belarus following the annexation of Crimea. While the NBG’s gold acquisition aligns with economic rationale, recent domestic developments suggest other motives. Actions like sanctions on political figures, anti-Western rhetoric, and recent legislation (the Law of Transparency of Foreign Influence), diverging Georgia from an EU pathway call for speculation that the gold purchase is driven by fear a of potential sanctions and as a preparedness strategy.

Introduction

The National Bank of Georgia (NBG) has broken new ground by adding gold to the country’s international reserves for the first time ever. Georgia has thus become the first country in the South Caucasus to purchase gold for its reserves. In line with its Board’s decision on March 1, 2024, the NBG procured 7 tons of the highest quality (999.9) monetary gold. The acquisition, valued at 500 million US dollars, took the form of internationally standardized gold bars, purchased from the London gold bar market and currently stored in London. Presently, the acquired gold represents approximately 11 percent of the NBG’s international reserves (see Figure 1).

Figure 1. NBG’s Official Reserve Assets and Other Foreign Currency Assets, 2023-2024.

Bar chart showing Georgia's reserve assets breakdown by type, including securities, dollars, gold, IMF reserve position, and other reserve assets, for the years 2023 and 2024.

Source: The National Bank of Georgia.

The NBG emphasizes in its official statement that the acquisition of gold is not merely symbolic but rather reflects a deliberate strategy of diversifying NBG’s portfolio and enhancing its resilience to external shocks. The NBG’s decision was made during a period marked by significant economic and political events both within and outside Georgia. Key among these were global and regional geopolitical tensions that amplified concerns about economic downturns and rising inflation. The Covid-19 pandemic in 2020 led to stagflation across many countries, including Georgia. Despite some recovery in GDP, high inflation continued into 2021. Furthermore, the Russian war on Ukraine disrupted supply chains, and pushed global inflation to a 24-year high 8.7 percent  in 2022. In response, stringent monetary policies aimed at controlling inflation were implemented across both developing and advanced economies. Looking ahead, there is an expectation of a shift toward more expansionary monetary policies that should help lower interest rates (and lower yields on assets held by central banks). These global conditions provide context for the NBG’s strategic focus on diversification.

However, alongside these economic events, Georgia also faces significant political challenges. Since the beginning of Russia’s war in Ukraine in 2022, political tensions in Georgia have escalated. Notable actions such as the U.S. imposing sanctions on influential Georgian figures, including judges and the former chief prosecutor, have, among other things, intensified scrutiny into the Russian influence in Georgia. Concerns about the independence of the Central Bank, which changed the rule of handling sanctions applications for Georgia’s citizens, and legislative initiatives like the Law of Transparency of Foreign Influence, which undermines Georgia’s EU accession ambitions, have triggered reactions from the country’s partners and massive public protests. Moreover, anti-Western rhetoric from the ruling party has raised concerns. In addition, the parliament of Georgia recently approved an amendment to the Tax Cide, a so-called ‘law on offshores’. The opaque nature of the law, as well as the context and speed at which it was advanced, sparked outcry and conjecture about its true purpose. These elements lead to speculation that the decision to purchase gold may be motivated by a desire for greater autonomy or a fear of potential sanctions, rather than purely economic reasons.

In the context of the above, this policy brief seeks to explore the motivations behind gold acquisitions by Central Banks, drawing on the experiences of both developed and developing countries. It aims to review existing literature that explores various reasons for gold acquisitions, providing a comprehensive analysis of economic and potentially non-economic factors influencing such decisions.

The Return of Gold in Global Finance

Over the past decade, central bank gold reserves have significantly increased, reversing a 40-year trend of decline. The shift that began around the time of the 2008-09 Global Financial Crisis is depicted in Figures 2 and 3, highlighting the transition from a pre-crisis period of more countries selling gold, to a post-crisis period where more countries have been purchasing gold.

Figure 2. Gold Holdings in Official Reserve Assets, 1999-2022 (million fine Troy ounces).

Line chart showing gold holdings in official reserve assets from 1999 to 2022 in million fine Troy ounces, reflecting Georgia's diversification efforts with dollars and gold.

Source: IMF, International Financial Statistics.

Figure 3. Number of Countries Purchasing/Selling Monetary Gold, 2000-2021 (at least 1 metric ton of gold in a given year).

Bar chart showing the number of countries purchasing and selling at least 1 metric ton of gold annually from 2000 to 2021, relevant to Georgia's dollar and gold reserves.

Source: IMF, International Financial Statistics.

In 2023, central banks added a considerable amount of gold to their reserves. The largest purchases have been reported for China, Poland, and Singapore, with these nations collectively dominating the gold buying landscape during the year.

China is one of the top buyers of gold worldwide. In 2023, the People’s Bank of China  emerged as the top gold purchaser globally, adding a record 225 tonnes to its reserves, the highest yearly increase since at least 1977, bringing its total gold reserves to 2,235 tonnes. Despite this significant addition, gold still represents only 4 percent of China’s extensive international reserves.

The National Bank of Poland was another significant buyer in 2023, acquiring 130 tonnes of gold, which boosted its reserves by 57 percent to 359 tonnes, surpassing its initial target and reaching the bank’s highest recorded annual level.

Other central banks, including the Monetary Authority of Singapore, the Central Bank of Libya, and the Czech National Bank, also increased their gold holdings, albeit on a smaller scale. These purchases reflect a broader trend of central banks diversifying their reserves and enhancing financial security amidst global economic uncertainties.

Conversely, the National Bank of Kazakhstan and the Central Bank of Uzbekistan were notable sellers, actively managing their substantial gold reserves in response to domestic production and market conditions. The Central Bank of Bolivia and the Central Bank of Turkey also reduced their gold holdings, primarily to address domestic financial needs.

The U.S. continues to hold the world’s largest gold reserve (25.4 percent of total gold reserves), which underscores the metal’s enduring appeal as a store of value among the world’s leading economies. The U.S. is followed by Germany at 10.5 percent, and Italy and France at 7.6 percent respectively. At present, around one-eighth of the world’s currency reserves comprise of gold, with central banks collectively holding 20 percent of the global gold supply (NBG, 2024).

Why Central Banks are Buying Gold Again

A 2023 World Gold Council survey (on central banks revealed five key motivations for holding gold reserves: (1) historical precedent (77 percent of respondents), (2) crisis resilience (74 percent), (3) long-term value preservation (74 percent), (4) portfolio diversification (70 percent), and (5) sovereign risk mitigation (68 percent). Notably, emerging markets placed a higher emphasis (61 percent) on gold as a “geopolitical diversifier“ compared to developed economies (45 percent).

However, the increasing use of the SWIFT system for sanctions enforcement (e.g., Iran in 2015 and Russia in 2022) has introduced a new factor influencing gold purchases of some governments: safeguarding against sanctions (Arslanalp, Eichengreen and Simpson-Bell, 2023).

In addition, Arslanalp, Eichengreen, and Simpson-Bell (2023) conclude that central banks’ decisions to acquire gold are primarily driven by the following factors; inflation, the use of floating exchange rates, a nation’s fiscal stability, the threat of sanctions, and the degree of trade openness (see Figure 4).

Figure 4. Determinants of Gold Shares in Emerging Market and Developing Economies.

Source: Arslanalp, Eichengreen, and Simpson-Bell (2023).

Gold as a Hedging Instrument

Gold is considered a safe haven and an attractive asset in periods of significant economic, financial, and geopolitical uncertainty (Beckman, Berger, & Czudaj, 2019). This is particularly relevant when returns on reserve currencies are low, a scenario prevalent in recent years.

A hedge against inflation: Inflation presents a significant challenge for central banks, as it erodes the purchasing power of a nation’s currency. Gold has been a long-standing consideration for central banks as a potential inflation hedge. Its price often exhibits an inverse relationship with the value of the US dollar, meaning it tends to appreciate as the dollar depreciates. This phenomenon can be attributed to two primary factors: (1) increased demand during inflationary periods; and (2) gold tends to have intrinsic value unlike currencies (Stonex Bullion, 2024).

Diversification of portfolio: Diversification is a cornerstone principle of portfolio management. It involves allocating investments across various asset classes to mitigate risk. Gold, with its negative correlation to traditional assets like stocks and bonds, can be a valuable tool for portfolio diversification. In simpler terms, when stock prices decline, gold prices often move in the opposite direction, offering a potential hedge against market downturns (see Figure 5).

Figure 5. How Gold Performs During Recession, 1970-2022.

Source: Bhutada (2022).

Hedge against geopolitical risks: de Besten, Di Casola and Habib (2023) suggest that geopolitical factors may have influenced gold acquisitions for some central banks in 2022. A positive correlation appears to exist between changes in a country’s gold reserves and its geopolitical proximity to China and Russia (compared to the U.S.) for countries actively acquiring gold reserves. This pattern is particularly evident in Belarus and some Central Asian economies, suggesting they may have increased their gold holdings based on geopolitical considerations.

Low or Negative Interest Rates: When interest rates on major reserve currencies like the US dollar are low or negative, it reduces the opportunity cost of holding gold (gold is a passive asset that does not generate periodic income, dividends, and interest benefits). In other words, gold becomes a more attractive option compared to traditional investments that offer minimal or no returns. The prevailing low-interest rate environment, particularly for major reserve currencies like the US dollar, has diminished the opportunity cost of holding gold.

This phenomenon applies to both advanced economies and emerging market economies (EMDEs). Notably, EMDEs with significant dollar-denominated debt are particularly sensitive to fluctuations in US interest rates. Arslanalp, Eichengreen, and Simpson-Bell (2023) conclude that reserve managers are increasingly incorporating gold into their portfolios when returns on reserve currencies are low. Figure 6 illustrates the inverse relationship between the price of gold and the inflation-adjusted 10-year yield.

Figure 6. Gold Price and Inflation-Adjusted 10-Year Yield.

Source: Bloomberg, U.S. Global Investors.

In addition to its aforementioned advantages, gold offers central banks a long-term investment opportunity despite its lack of interest payments, unlike traditional securities. While gold exhibits short-term price volatility, its historical price trend suggests a long-term upward trajectory (see Figure 7).

Figure 7. Gold Price per Troy Ounce (approximately 31.1 grams), in USD.

Source: World Gold Council.

Gold as a Safeguard Against Sanctions

Gold is perceived as a secure and desirable reserve asset in situations where countries face financial sanctions or the risk of asset freezes and seizures (see Table 1). The decision by G7 countries to freeze the foreign exchange reserves of the Bank of Russia in 2022 highlighted the importance of holding reserves in a form less vulnerable to sanctions. Following Russia’s annexation of Crimea in 2014, the Bank of Russia intensified its gold purchases. By 2021, it had confirmed that its gold reserves were fully vaulted domestically. The imposition of sanctions on Russia, which restrict banks from engaging in most transactions with Russian counterparts and limit the Bank of Russia’s access to international financial markets, further underscores the appeal of gold as a safeguard.

While the recent sanctions imposed by G7 countries, which limit Russian banks from conducting most business with their counterparts and restrict the Bank of Russia from accessing its reserves in foreign banks, are an extreme example, similar sanctions have previously impacted or threatened financial operations of other nations’ central banks and governments. This situation raises the question of whether the risk of sanctions has influenced the observed trend of countries’ increasing their gold reserves (IMF, International Financial Statistics, 2022).

Table 1. Top 10 Annual Increases in the Share of Gold in Reserves, 2000-2021.

Source: IMF, International Financial Statistics; Global Sanctions Database (GSDB). Note: Excludes countries with central bank gold purchases from domestic producers.

As outlined in Arslanalp, Eichengreen and Simpson-Bell (2023), there were eight active diversifiers into gold in 2021, each purchasing at least 1 million troy ounces (Kazakhstan, Belarus, Turkey, Uzbekistan, Hungary, Iraq, Argentina, Qatar), exhibiting distinct international economic or political concerns. Kazakhstan, Belarus, and Uzbekistan maintain ties with Russia through the Eurasian Economic Union. Turkey has faced sanctions from both the European Union and the U.S. Iraq has experienced disputes with the U.S., while Hungary has faced similar issues with the European Union. In 2017-21, Qatar was subjected to a travel and economic embargo by Saudi Arabia and neighboring countries. Argentina may have had concerns about asset seizures by foreign courts due to sovereign debt disputes.

Furthermore, according to the Economist (2022), gold is costly to transport, store, and protect. It is expensive to use in transactions and doesn’t earn interest. However, it can be lent out like currencies in a central bank’s reserves. When lent out or used in swaps (where gold is exchanged for currency at agreed dates), it can generate returns. But banks prefer gold to be stored in specific places like the Bank of England or the Federal Reserve Bank of New York, which brings back the risk of sanctions. For instance, During the Iranian Revolution in 1979 and the subsequent hostage crisis, the United States froze Iranian assets, including the gold reserves held in U.S. banks (Arslanalp, Eichengreen  and Simpson-Bell, 2023). The National Bank of Georgia intends to transport its acquired gold from England to Georgia for storage, which could potentially reduce storage costs, but further decrease liquidity.

Arslanalp, Eichengreen, and Simpson-Bell (2023) conclude that since the early 2000s, half of the significant year-over-year increases in central bank gold reserves can be attributed to the threat of sanctions. By examining an indicator that tracks financial sanctions by major economies like the United States, United Kingdom, European Union, and Japan, all key issuers of reserve currencies, the authors have confirmed a positive correlation between such sanctions and the proportion of reserves held in gold. Furthermore, their findings suggest that multilateral sanctions imposed by these countries collectively have a more pronounced effect on increasing gold reserves than unilateral sanctions. This is likely because unilateral sanctions allow room for shifting reserves into the currencies of other non-sanctioning nations, whereas multilateral sanctions increase the risks associated with holding foreign exchange reserves, thus making gold a more attractive option.

The NBG’s Historic Decision

The National Bank of Georgia’s (NBG) recent acquisition of gold for its reserves is likely motivated by a desire to diversify its portfolio and hedge against inflation and geopolitical risks. However, recent developments in Georgia raise questions about the timing of this policy decision, bringing political considerations into the picture.

Among these developments is the 2023 suspension of the IMF program for Georgia, due to concerns about the NBG’s governance (Intellinews, 2023). The amendments to the NBG law in June 2023, which created a new First Deputy and Acting Governor position – superseding the existing succession framework – contradicted IMF Safeguards recommendations and raised concerns about increased political influence (International Monetary Fund, 2024). How the recent gold purchase reflect on the future of IMF cooperation is thus a relevant question to ask.

Another ground for concern is the recent approval by the Georgian Parliament of the anti-democratic “Foreign Influence Transparency” law and the anti-Western rhetoric of the ruling party, which have sparked intensive public protests. European partners warn that the law will not align with Georgia’s European Union aspirations and that it could potentially hinder the country’s advancement on the EU pathway. Rather, the law might distance Georgia from the EU. This law has also increased the concerns for further sanctions on members of the ruling party, government officials, and individuals engaging in anti-West and anti-EU propaganda.

Furthermore, the recent amendment of the Tax Code, the so-called “offshores law” allows for tax-free funds transfers from offshore zones to Georgia. This, combined with other developments, raises questions about whether the government is preparing for potential sanctions, should its relationship with Russia continue to strengthen.

Conclusion

In conclusion, this policy brief highlights that central banks’ acquisition of gold reserves, especially in emerging economies, is motivated by a combination of economic and political factors. The economic incentives include the need for portfolio diversification and protection against inflation and geopolitical instabilities, a trend that became more pronounced following the 2008 global financial crisis. Politically, the accumulation of gold serves as a strategic move to lessen dependency on the U.S. dollar and as a defensive measure against potential international sanctions, as highlighted by the post-2014 geopolitical shifts following Russia’s annexation of Crimea.

In 2024, Georgia purchased gold for the first time since regaining its independence. While its gold purchasing strategy seems to align with these economic motives, the recent domestic political dynamics suggest a deeper, possibly strategic political rationale by the National Bank of Georgia. The imposition of U.S. sanctions on key figures, and recent legislative actions deviating from European Union standards, all amidst increasing anti-Western sentiment, indicate that the NBG’s gold acquisitions might also be driven by a quest for greater safeguard against potential future sanctions. Thus, while economic reasons for the purchase are significant, the political underpinnings in the NBG’s recent actions raise numerous unanswered questions.

References

Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.

 

Russian Wheat Policies and Georgia’s Strategic Trade Policies

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Russia is known for periodically halting its grain exports to impact global wheat prices. This has become a significant policy concern in recent years, most notably during the Covid-19 pandemic and in the wake of Russia’s war in Ukraine. Georgia heavily depends on wheat imports, and over 95 percent of its wheat has historically been sourced from Russia. Despite Russia’s periodic bans and restrictions on wheat exports occurring every 2-3 years, Georgia is yet to effectively diversify its sources of wheat imports. This policy brief analyses the impact of Russia’s most recent wheat policies on Georgia’s wheat market, examines Georgia’s response, and provides policy recommendations in this regard.

In June 2023, the Georgian government introduced a temporary import duty on wheat flour imported from Russia in response to requests from the Georgian Flour Producers Association. The association began advocating for an import duty after Russia, in 2021, imposed a so-called “floating tariff” on wheat which made it relatively more expensive to import wheat in comparison to wheat flour. As a result of the “floating tariff” on wheat, wheat flour imports skyrocketed and almost fully substituted wheat imports. Eventually, many Georgian mills shut down and local wheat producers struggled to sell domestically produced wheat. Such an increase in flour imports raises the risk of completely replacing domestically produced flour with flour imported from Russia.

To address the above, the government has implemented a temporary import duty of 200 GEL (75 USD) per ton on wheat flour imported from Russia (the average import price ranges between 225 USD/ton and 435 USD/ton). In turn, millers have agreed to purchase 1 kilogram of wheat from Georgian farmers for 0.7 GEL (0.3 USD). This policy measure is in effect until March 1, 2024.

The Georgian Flour Producers Association advocates for an extension of the temporary import duty beyond March 1, 2024, to uphold fair competition in the wheat and flour market. According to the Georgian Flour Producers Association, an extension is desirable due to the following (Resonance daily, 2024):

  • Under the import duty, fair competition between wheat flour and wheat has been restored, and Georgian mills have resumed their operations.
  • Following the government intervention, farmers have successfully sold over 50,000 tons (on average half of the annual production) of domestically produced wheat. The Ministry of Environmental Protection and Agriculture has reported a 60 percent increase in local wheat production over the past two years, with expectations of sustained growth.
  • Wheat imports have resumed, with Georgia importing 20,000 to 25,000 tons of wheat monthly, while prior to the government intervention, the average monthly wheat imports amounted to 15,337 tons (in 2022). Additionally, 8,000 to 12,000 tons of wheat flour, on average, are also imported monthly, while in the absence of government intervention, wheat flour imports surged to over 15,000 tons (in 2022).
  • Post-intervention, the price of 100 kilograms of first-quality flour has remained stable, ranging from 45 to 49 GEL. Consequently, the price of bread has not increased but remains steady.
  • The import duty has generated an additional 20 million GEL in government revenue.
  • Through the efforts of the mills, the country now enjoys a steady and strategically managed supply of wheat, in accordance with UN recommendations. Coupled with the seasonal harvest of Georgian wheat, this ensures complete food security in any unforeseen critical scenario.

While many arguments support the decision to preserve the import duty on wheat flour, in order to make an informed decision on that matter, it is essential to thoroughly assess production, trade and price dynamics in the wheat market in Georgia. Additionally, to design adequate trade policy measures, one has also to consider the issue in a broader perspective and assess the risks associated with a high dependency on Russian wheat, especially given Russia’s history of imposing wheat export restrictions.

Russian Policy on the Wheat Market

Russia has long been one of the dominant players on the global wheat market, and its periodic decisions to halt grain exports have heavily affected international wheat prices (see Table 1). This concern became especially stringent in recent years, during the Covid-19 pandemic and Russia’s war in Ukraine.

Table 1. Russia’s policy interventions in the wheat market and their estimated impact on wheat prices, 2007-2023.

Source: United States Department of Agriculture, 2022.
The Government of the Russian Federation.
The Kansas City Wheat Futures, The U.S. Wheat Associates.

One of Russia’s most recent interventions in the wheat market is its withdrawal from the Black Sea Grain Initiative – an agreement between Russia, Ukraine, Turkey, and the United Nations (UN) during the Russian invasion of Ukraine on the Safe Transportation of Grain and Foodstuffs from Ukrainian ports. While Georgia doesn’t directly import wheat from Ukraine and isn’t immediately threatened by famine, Russia’s export policies regarding wheat have raised significant food security concerns in the country. Georgia heavily depends on wheat imports from Russia, with over 95 percent of its wheat historically being sourced from there. Despite Russia’s recurrent bans and restrictions on wheat exports every 2-3 years, Georgia is yet to successfully diversify its import sources.

The Georgian Wheat Market in Figures

Domestic Production

Historically, Georgia’s agricultural sector has struggled to achieve a large-scale and sufficient wheat production due to the prevalence of small-sized farms. However, over the past decade, Georgian domestic wheat production has shown significant growth (see Figure 1). This growth has been particularly sizeable in recent years, with production increasing by 32 and 53 percent in 2021 and 2022, respectively, as compared to 2020.

Figure 1. Wheat production in Georgia, 2014-2022.

Source: Geostat, 2024.

Such increase in local production positively contributes to the self-sufficiency ratio, which increased from 7 percent in 2014 to 22 percent in 2022, in turn implying higher food security levels.

Wheat Imports

Before the introduction of Russia’s floating tariff on wheat, wheat flour imports to Georgia were almost non-existent. However, after the floating tariff was imposed on wheat, imports of wheat flour increased more than 20 times – from 743 tons in January 2021 to 15,086 tons in May 2023 – peaking at 23,651 tons in August 2022 (see Figure 2). At the same time wheat imports declined by almost 60 percent, from 29,397 tons in January 2021 to 12,133 tons in May 2023, with the smallest import quantity being 2,743 tons in May 2022 (as depicted in Figure 2).

Figure 2. Georgian wheat and wheat flour imports, 2021-2023.

Source: Geostat, 2024. Note: Imports include meslin (a mixture of wheat and rye grains).

After the introduction of the temporary import duty on wheat flour in June 2023, wheat imports have picked up, although not reaching the levels seen in 2021. Similarly, wheat flour imports have declined while remaining at higher levels than in 2021. This indicates a change in Georgia’s wheat market dynamics. Historically, Georgia predominantly imported wheat; now it imports both wheat and wheat flour. This shift must be considered in future policy design, as it has implications for domestic wheat farmers and mills.

The continued wheat flour imports, despite the temporary import duty imposed by the Georgian Government can likely be attributed to a smaller price gap between wheat and wheat flour import prices (see Table 2).

Table 2. Average import prices of wheat and wheat flour in Georgia, 2021-2023.

Source: Geostat, 2024.

In 2021, prior to Russia’s introduction of a floating tariff on wheat, the import price of wheat flour in Georgia was 24 percent higher than the import price of wheat. After the introduction of the floating tariff, importing wheat became more expensive, and the import price gap between wheat flour and wheat decreased to 22 percent by the end of 2021. Subsequently, in 2022, this gap further narrowed, and by the first half of 2023, the import price of wheat flour was 5 percent lower than the import price of wheat. This significant decrease in the price gap resulted in nearly full substitution of wheat imports with wheat flour imports. After the introduction of the import duty on wheat flour and as international wheat prices declined, a marginal positive price gap has reappeared, amounting to just 1 percent. As it stands, importing wheat flour remains more advantageous than importing wheat.

Price Effects

Russia’s floating tariff on wheat led to increased bread and wheat flour prices in 2021-2022. In June 2022, bread prices experienced the most significant surge, increasing by 36 percent, while wheat flour prices reached their peak in September 2022 with a year-on-year increase of 41 percent (see Figure 3). The primary reason for this was the record increase in wheat prices, leading to a corresponding surge in wheat flour prices in 2022. This spike occurred as the world price of wheat reached its highest point in five years.

Figure 3. Annual change in bread and wheat flour prices, 2021-2023.

Source: Geostat, 2024.

Nevertheless, in 2023 bread and wheat flour prices decreased, indicating that the import duty on wheat flour did not lead to increased prices. This could partially be explained by the fact that mills pay farmers 0.5 GEL/kg, which is lower than agreed price of 0.7 GEL/kg. Another and more crucial factor is the decline in global wheat prices. They began their descent in June 2022 and have since maintained a downward trajectory. This decrease, combined with increased local production, has so far acted as a barrier to any new bread and wheat flour price increases.

The Way Forward

The question that must be addressed is whether the import duty on wheat flour imported from Russia should be extended.

The import duty may have contributed to increased local production as higher import duties can incentivize local businesses to invest in expanding their production capacity or improving their technology to meet an increased demand. It is however essential to note that the impact of import duties on local production varies depending on the level of domestic competition, the availability of inputs (high quality seed, fertilizer etc.), technological capabilities, and government policies beyond import duties (such as investment incentives, infrastructure development, and regulatory environment). Additionally, import duties can also lead to retaliatory measures from trading partners, affecting overall trade dynamics – potentially incurring unintended consequences. Therefore, while import duties can contribute to an increased local production under certain conditions, it is just one of many factors influencing production dynamics.

Secondly, as previously detailed, the import duty has so far not resulted in increased bread prices. However, the effect of an import tariff on retail prices depends on various factors, including elasticity of demand and supply, market, competitiveness, and the extent to which the tariff is passed on to consumers by importers and retailers. Since demand for bread is inelastic, one has to keep in mind that the importers and retailers can fully pass on the increased cost from an import tariff to consumers.

Given that the floating tariff and the import duty make wheat and wheat flour imports to Georgia more expensive, one should expect future bread price increases. This unless international wheat prices continue to decline and/or producers agree to reduce their profit margins or make supply chain changes. Therefore, an extension of the import duty might be a suitable solution in the short and medium-term, but it should not be seen as a permanent solution.

To limit the risks of food scarcity in Georgia in the long run, it is essential to design strategies helping the country to reduce its dependency on Russian wheat and wheat flour. Some measures to achieve this objective may include:

Further supporting local production. Encourage investment in domestic agriculture to increase the productivity and quality of wheat production in Georgia. This can be achieved through subsidies, incentives for modern farming techniques, and access to credit for farmers.

Improving the quality of local production. Currently, most of the domestically produced wheat is unsuitable for milling into wheat flour. A significant portion of domestically produced wheat is of poor quality and instead used for feeding livestock. It is essential to invest in research and development to improve the quality of domestically produced wheat. This includes developing wheat varieties that are resistant to diseases and better suited for local growing conditions.

Seeking alternative markets for import diversification. One alternative for Georgia may be to focus on the Kazakh and Ukrainian markets (once the war is over) and negotiate possible ways to decrease the cost of transporting wheat to Georgia with state and private sector representatives.

Reducing the Georgian dependence on Russian wheat imports requires a multifaceted approach that addresses various aspects of agricultural policy, trade diversification, and domestic production capacity.

References

Resonance daily. (2024). The Association of Wheat and Flour Producers of Georgia requests an extension of the import tax on imported flour. https://www.resonancedaily.com/index.php?id_rub=4&id_artc=197847

Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.

Gender Equality and Women’s Economic Empowerment in Times of Crisis

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On October 19-20, 2023, the International School of Economics at Tbilisi State University Policy Institute (ISET Policy Institute), in partnership with the Forum for Research on Gender Economics (FROGEE), organized the conference “Gender Equality and Women’s Economic Empowerment in Times of Crisis”. The conference addressed critical issues surrounding gender equality and women’s economic empowerment. By bringing together academics and practitioners from various sectors it served as a dynamic platform for knowledge sharing and collaboration on actionable solutions and commitments to address multifaceted challenges faced by women globally. This policy brief outlines the keynote, academic and other presentations and discussions featured at the conference.

Introduction

Gender equality and women’s economic empowerment are vital issues that have gained increasing global attention in recent years. Their significance is even more pronounced in times of crisis, such as during economic downturns or global health emergencies. Such challenging circumstances often exacerbate existing gender disparities and vulnerabilities, making it crucial to address the specific challenges women face in accessing economic opportunities and resources. Discussions on these matters delve into the complex intersection of gender equality and economic empowerment and how empowering women economically can contribute to more resilient and equitable societies.

The October 19-20 conference was aimed at examining and addressing the various aspects of gender equality and female empowerment. The conference begun with opening introductions by Tamar Sulukhia, Eva Atterlöv and Kaori Ishikawa (see the participant list at the end for all associations). Following the opening remarks were two distinctive keynote presentations, a policy panel discussion, and academic presentations. This policy brief summarizes the key takeaways from the conference.

Keynote Addresses

The conference’s first keynote speaker, Elizabeth Brainerd, deliberated on the impact of World War II on marriage and fertility among Russian women. Brainerd show that the war affected these women’s lives for decades, leading to lower rates of marriage and fertility and higher out-of-wedlock births and divorce rates in urban areas than would have been the case in absence of the war. These effects were likely exacerbated by a war and post-war institutional environment that encouraged nonmarital births (in part by expanding the child benefit program) and increased the cost of binding commitments through marriage, particularly for men (absolving fathers of any financial or legal responsibility for children fathered outside marriage). As shown by Brainerd the shock to sex ratios in the Soviet Union due to World War II was among the largest experienced by any country in the twentieth century. In this sense, the effect on Russian women and men was unique and arguably not directly relevant to other countries or time periods. Yet, highly unbalanced sex ratios characterize many populations – whether due to war, immigration and emigration, or preferences for sons etc., – and the analysis can therefore shed light on the effects of sex ratio imbalance also in other contexts. Brainerd’s work supports the conclusion that sex ratios matter for marital and fertility outcomes, both on the marriage market itself and within marriage. The insights from the Soviet Union also highlights that the institutional context matters for determining both the size and direction of the sex ratio’s impact on marriage markets and family formations.

In the conferences second keynote presentation, Maria Floro discussed the findings from a time-allocation survey in Georgia. Evident from the results, women’s work differs from men’s in the sense that women more often perform unpaid household tasks, and since they are primarily responsible for household and caregiving duties, including childcare and elderly care. Such combined responsibilities, coupled with working in typically low-paid jobs can negatively affect women’s physical and mental wellbeing. As the data shows, 66 percent of Georgia’s population engage in unpaid domestic work, with women (88.3 percent) and men (39.6 percent) participating at starkly different rates. Rural women’s participation is the highest, at 90,3 percent. On average, the Georgian population spends 2.1 hours per day on unpaid domestic services for household and family members – with a large gender disparity. In general, the time spent per day by men is 0.7 hours while, in contrast, the time spent by women on these activities is 5 times higher in rural areas (3.6 hours) and 4.7 times higher in urban areas (3.2 hours). Women working full time spend 2.7 hours per day on unpaid domestic services, five times higher than the 0.5 hours spent by men working full time. For all areas of residence, the time spent on unpaid domestic services by women increases with age up until 64 years of age when the numbers drop. Further, women’s time spent on unpaid caregiving work (0.9 hours per day) is 4.5 times higher than the time spent by men. Even for full time working women, the daily time spent on unpaid caregiving work (0.6 hours) is three times higher than that of their male counterparts (0.2 hours). Women who have completed a higher level of education spend higher time on unpaid caregiving services (0.9-1.1 hours per day) than those with a lower level of education (0.4-0.7 hours per day). The difference in women’s and men’s time spent on unpaid caregiving work is greatest for Georgians aged 25-44. Such unequal sharing of household and caregiving responsibilities limits women’s job prospects and is a major reason behind their low participation rate in the labor force, as well as the gender pay gap.

The South Caucasus Gender Equality Index

Following the keynote presentations, Davit Keshelava, presented the ISET Policy Institute’s most recent work on the South Caucasus Gender Equality Index (SCGEI). The index, developed by ISET Policy Institute in close collaboration with Swiss Cooperation Office in Georgia and updated on an annual basis, draws inspiration from the European Institute for Gender Equality’s Gender Equality Index. It comprises of six domains: work, money, knowledge, time, power, and health, alongside eleven subdomains and nineteen indicators.

The index is calculated for three South Caucasus countries, Georgia, Armenia, and Azerbaijan, and nine benchmark countries: Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, and Slovenia. The 2023 edition, mainly based on data from 2021-2022, reveals that within the South Caucasus Armenia is ahead concerning gender equality in the work domain, while Georgia trails behind its regional counterparts. Gender equality in the work domain is lower in the South Caucasus (64.0) than in the baseline countries (67.3).

Georgia stands out as the South Caucasus leader in gender equality within the money domain but significantly trails the baseline countries (South Caucasus – 51.1 vs. baseline countries – 80.5). This discrepancy is the most prominent across all six domains. Azerbaijan leads in the knowledge domain (with Armenia displaying the greatest inequality), yet the South Caucasus slightly outpaces baseline countries in this domain (South Caucasus – 59 and baseline countries – 58.8). This is however the sole equality domain where the South Caucasus surpasses the benchmark countries.

Georgia and Armenia exhibit higher equality in the power domain than Azerbaijan while, in the time domain, Georgia takes the lead in the South Caucasus. In the health domain, Armenia leads in equality, although the difference in index values is marginal.

In the overall index, Georgia emerges as the regional leader in gender equality (60.4), followed by Armenia (57.5) and Azerbaijan (53.0). However, South Caucasus countries as a whole have a lower index (55.4) than the baseline countries (64.1).

Panel Discussion: Topics and Takeaways

The SCGEI presentation was followed by a policy panel discussion, moderated by Tamar Sulukhia and including the panelists Nino Okribelashvili, Nino Chelidze, Nani Bendeliani and Nino Lortkipanidze. The panelists discussed gender inequalities in different areas such as within academia and the tech industry as well as the role of women during crises and the progress made in Georgia towards ensuring gender equality.

Nino Okribelashvili deliberated on the role of women in academia emphasizing that gender inequalities in higher education attainment become obvious when looking at the representation of women across different fields of science. The share of women in subjects such as social work, education and nursing is more than 80 percent, while it is 20 percent in subjects such as computer science, electrical engineering and mechanical engineering. Science, technology, engineering, and mathematics (STEM) oriented institutions are still generally perceived as male dominated. The second glaring gap concerns the representativeness of women in higher rank and leadership positions in academia, where women remain underrepresented in academic and professorial positions across all subjects.

While Nino Okribelashvili discussed the role of women in academia in general, Nino Lortkipanidze focused specifically on the tech industry. She discussed the industry’s potential to create job opportunities for women through various strategies and initiatives such as STEM education and training, diverse hiring practices, leadership development and flexible work policies – including remote work possibilities. Lortkipanidze emphasized that with the right support and opportunities, the rapidly growing tech industry could allow working mothers to thrive in their careers while also enjoying the advantages of a family-friendly work environment.

Shifting the focus to women in times of crisis, Nino Chelidze emphasized the aggravated impact of war on women using the example of the Nagorno-Karabakh conflict. Chelidze highlighted the need for urgent, coordinated action from the donor community to address the challenges of internally displaced persons, most of whom are women and children.

The panel discussion wrapped up with Nani Bendeliani highlighting Georgia’s advancements in gender equality and female empowerment over the past three decades. Bendeliani mentioned different institutional mechanisms adopted in the country for the advancement of women alongside legislative initiatives implemented in different areas concerning for instance maternity and paternity leave, changes to the labor code and the election code. According to Bendeliani, the progress towards gender equality is visible but slow, with available data and multiple assessments showing there is still much to be done.

Academic Presentations

The remainder of the conference was comprised of several academic sessions all contributing to the overall theme of multifaceted gender-related issues. The topics, as detailed below, were: gender disparities in the labor market, violence against women, gender dynamics during the Covid-19 pandemic, the gender divide in education, women in academia and female empowerment and access to services.

Gender Disparities on the Labor Market

The presenters focused on gender disparities on the labor market, exploring aspects such as the implications of labor protection regulations on both men and women, biases and discrimination in employment and wage negotiation, and the impact of female labor force participation on the advancement of women’s rights.

In his presentation, Michal Myck outlined the consequences of labor protection policies in Poland for employees within four years of retirement (regulation that protects them against layoffs, a lowering of their wages or adjustment of their responsibilities). Preliminary results indicate no economically or statistically significant adverse impacts on the employment of men and women approaching labor protection eligibility. These findings suggest that either the anticipated negative effects are absent, or that any concerns employers may have harbored regarding prospective employment protection were counteracted by robust labor demand during the reform period. The general conclusion is that extending protection to specific groups of workers, both men and women, does not necessarily lead to the adverse outcomes often highlighted in standard economic theory.

While Michal Myck focused on labor protection regulations, Francisco Lagos addressed the topic of weight-related employment discrimination and its impact on hiring outcomes. In an experiment, job applications accompanied either by a facial photo of a normal-weight person or by a photo of the same person manipulated to look overweight were sent out to real job opening across 12 occupations in Spain. The results reveal a significant disparity in callback rates for weight-manipulated male applicants, who received fewer callbacks compared to their normal-weight counterparts, with a more pronounced effect in female-dominated occupations. Conversely, weight-manipulated female applicants experienced a slight increase in callbacks, particularly in female-dominated fields. For men, the weight manipulation effect is attributed to the overweight making them appear less attractive, which translates into an attractiveness wage premium. On the contrary the findings for women suggest evidence of an attractiveness penalty, which is also combined with a weight penalty.

The topics of discrimination and biases were also central to Ramon Cobo Reyes Cano’s presentation, which outlined the results of a field experiment on anticipated discrimination and wage negotiation. The findings show that female applicants ask for a lower salary than male applicants in the baseline treatment group – when the full name of the applicant is visible. In the main treatment group, when the gender of the applicant was no longer visible to the employer, the wage requested by female applicants increased by 86 percent, whereas male applicants’ wage requests were 18 percent lower. Evidently, the gender gap in requested wages completely disappears (and even slightly reverses) when the applicants know that their sex is not visible for the potential employer.

The presentations on gender inequalities in the labor market were concluded by Nisar Ahmad, who empirically investigate the impact of women’s labor force participation on women’s rights.  In general, female labor force participation has a positive effect on women’s rights in countries with at least some legal economic rights for women. In countries where women’s rights are extremely limited or non-existent, female labor force participation has a negative or negligible impact on women’s rights.

Violence Against Women

In the academic session devoted to violence against women, the presenters elaborated on the primary factors influencing such violence in various countries at different time periods, including during the Covid-19 pandemic.

Monika Oczkowska explores how social norms, values, and stereotypes determine beliefs about abuse, including recognition of abuse, what is considered as abuse, whether abuse is ever justified, and societal consent towards gender-based discrimination. In countries where gender inequality is rampant, reported rates of abuse in standard surveys are sensitive to the socio-economic status and beliefs about gender norms of the participants, highlighting a high scale of variation in the perception of gender-based discrimination in Central and Eastern Europe.

These findings are in line with the results presented by Salome Gelashvili, who consider potential determinants of gender-based violence (GBV) in South Caucasus. According to the research, key factors contributing to GBV in Armenia, Azerbaijan and Georgia include alcohol abuse, social stigma, being a member of a marginalized groups, a pervasive patriarchal culture, adherence to traditional gender roles, a high level of bureaucracy when reporting GBV to the police, generally weak legal support, limited awareness about various forms of GBV, and economic factors such as financial dependence on an abusive partner.

Similar outcomes, but with more emphasis put on norms and the patriarchal system, were found by Reina Shehi, who assesses gender-based violence in Albania. The results show that the patriarchal system and gender-based norms are the two main factors contributing to gender-based violence. However, there is a growing awareness of the importance of patriarchal institutions and gender norms when addressing GBV in Albania.

Violence against women increase in times of crisis, as shown by Velan Nirmala, who studies women’s empowerment and intimate partner violence (IPV) in India. The findings reveal that, regardless of socio-economic factors, the main types of IPV during the Covid-19 lockdown were physical and emotional violence. The results also highlight that a large majority of victims, regardless of education, wealth, region, household structure, religion, and caste, do not disclose the abuse due to societal taboos.

Gender Dynamics During the Covid-19 Pandemic

The unequal effect from the Covid-19 pandemic was further examined in an academic session in which the presenters keyed in on repercussions of the pandemic on women in terms of employment outcomes, decisions related to time allocation, and the division of unpaid household labor.

Nabamita Dutta presented work on gender inequality in employment during Covid-19 related lockdowns in India. The results show that during the pandemic, women were, in general, 8 percent less likely to be employed than men. While return migrants generally suffered less in terms of finding alternative jobs, being a female return migrant, increased the probability of joblessness to about 17 percent. For female return migrants belonging to marginalized castes, the probability of joblessness was about 10 percent, an interesting result considering that women belonging to marginalized castes (but not being return migrants) experience a higher likelihood of being unemployed then women that are not part of marginalized castes.

Anne Devlin further elaborated on this topic, assessing the economic impact of the Covid-19 pandemic on people living in disadvantaged areas in Ireland. The results indicate that Pandemic Unemployment Payment (PUP) rates were higher in more deprived areas during lockdown periods and that woman, on average, receive PUP for a slightly longer duration than men. Further, female unemployment has a negative and statistically significant relationship with the length of PUP claims. The findings show that average PUP durations tend to be shorter in areas with a higher share of individuals with lower education levels, and in areas with historically higher levels of female unemployment.

Jacklyn Makaaru Arinaitwe presented work on how gender, culture, norms, and practices contributed to the unequal distribution of unpaid care work during Covid-19 in Uganda. The findings reveal that there are policy gaps in addressing the issue, as current policies don’t acknowledge the value of unpaid care work at a personal and national level. This lack of recognition and failure to come up with new ways to reduce or share women’s disproportionate burden of unpaid care work creates obstacles to girls’ education and hinder women’s economic empowerment in Uganda.

Also, on the topic of the Covid-19 pandemic impacts on women, Alessandro Toppeta presented work on the impacts of the pandemic on the role of parental beliefs in England. The results show that parents believe that the time they spend with their children is more valuable and less risky than the time children spend in formal childcare or with friends and that parents’ beliefs can predict the choices they make in investing time with their children. Further, the findings align with previous indications of the increased burden on women’s time experienced during the pandemic being a consequence of limited availability of alternative childcare options.

The Gender Divide in Education

Within the topic of gender in education, the presenters delved into the connection between education and gender roles and the importance of parental education for children’s education.

Sumit S. Deole presented work on the causal impact of education on gender role attitudes based on evidence from European datasets. The results suggest that an additional year of education prompts egalitarian gender role attitudes. Furthermore, the impact of increases in education is particularly prominent among women and, to some extent, in urban areas.

Fethiye Burcu Türkmen-Ceylan focus specifically on the importance of maternal education for children’s education in Turkey. Preliminary results indicate that maternal education has a distinctive positive impact on households’ budget allocation for children’s education among Turkish households.

Saumya Kumar also presented work on the importance of maternal education, considering the impacts of paternal education as well. The presented research finds that both maternal and paternal education reduce the gender gap in educational enrollment. However, having an educated mother is more important when it comes to increasing girls’ enrollment as compared to boys’ enrollment. The research also indicates that as mothers’ education levels rise, there is a greater increase in spendings on education for both boys and girls.

Further on the gender divide within education, Lubna Naz deliberated on how drought affects school attendance in rural Pakistan. The income decline caused by drought leads to a four-month decrease in schooling for all children, and a six-month decrease for boys. Asset ownership also has a negative impact on school attendance, suggesting a possible reverse causality or Simpson’s paradox. The combined effect of asset ownership and drought, however, has a positive impact on school attendance, Naz concluded.

Women in Academia

Gender inequalities are apparent also in the academic sphere. Liis Roosaar’s research looks into the impact of having children on women’s careers within academia. Roosaar find that becoming a mother doesn’t impact earnings per hour, but that mother’s do work fewer hours. More than four years after having a child, women in academia have lost the equivalent of two years of full-time work. Interestingly, men don’t face the same reduction in work hours after becoming fathers. The study also reveals that the career setback for women in academia after having a child is shorter compared to the general population. However, female academics experience a decline in citations as a consequence of the reduced working hours.

Barbara Będowska-Sójka’s research on women in academia focus on female representation on editorial boards of finance journals.  According to Będowska-Sójka women account for 20 percent of all editors on average, with considerable variance between countries. When it comes to editor’s affiliations they are strongly concentrated in the United States, and to a lesser extent in the United Kingdom. Additionally, a small number of extremely well-connected editors sit on many boards. The gender ratio is consistent in substructures for editors that are better connected (have so-called a high degree of centrality in terms of network analysis) or editors who serve on a large number of boards, yet men outnumber women.

Female Empowerment and Access to Services

Although their research focuses on distinct topics, Fazle Rabbi and Ulrich Wohak both presented research on the overarching theme of women’s empowerment and enhanced access to goods and services.

In his paper, Fazle Rabbi and his co-authors consider a new way to support marginalized individuals, most of whom are women, through the introduction of a new donation model where development agencies provide goats to project beneficiaries. Goat ownership might help beneficiaries generate income and devote more time to education. The research results show that the proposed donation model significantly enhances the economic empowerment of participants, providing them a steady income, better access to education, and more access to the financial system – with the results being more pronounced for women.

Ulrich Wohak evaluated tampon tax reforms (efforts to reduce the taxation of menstrual hygiene products, including tampons, pads, and menstrual cups) as a means to address gender-based tax discrimination. Using transaction-level scanner data, the study finds that when countries lower their standard VAT rates, the extent to which these reductions are passed on to consumers ranges from 57 percent to 119 percent.

Concluding Remarks

The ISET conference “Gender Equality and Women’s Economic Empowerment in Time of Crisis” brought together diverse voices, perspectives, and expertise from various sectors to engage in discussions and knowledge sharing on how to advance gender equality in times of normality and in times of crises. The conference also served as a platform to inspire actionable solutions and commitments to address the multifaceted challenges women face worldwide.

List of Participants

  • Alessandro ToppetaAssistant Professor at SOFI, Stockholm University, Sweden. “Parental Beliefs, Perceived Health Risks, and Time Investment in Children: Evidence from COVID-19” (in collaboration with Gabriella Conti and Michele Giannola).
  • Anne DevlinResearch Fellow, Economic and Social Research Institute, Ireland. “The Impact of COVID-19 on Women’s Employment in Ireland” (in collaboration with Adele Whelan, Seamus McGuinnes, Paul Redmond).
  • Aswathi Rebecca AsokPhD Fellow, University of Portsmouth, United Kingdom. “Unveiling Gendered Dimensions of “Volunteerism”: The COVID-19 Story of Kerala, India”.
  • Barbara Będowska-SójkaHead of Department, Poznań University of Economics and Business, Poland. “Editorial boards of finance journals: the gender gap and social networks” (in collaboration with Claudia Tarantola, C., Mare, C., Ozturkkal, B., Paccagnini, A., Perri, R., Pisoni, G., Shala, A., Skaftad´ottir, H., K.).
  • Davit KeshelavaLead Economist, ISET Policy Institute.
  • Elizabeth BrainerdSusan and Barton Winokur Professor of Economics and Women’s, Gender and Sexuality Studies, Brandeis University.
  • Eva AtterlövDeputy Head of Development Cooperation, Embassy of Sweden.
  • Fazle RabbiDeputy Head of School of Business, Crown Institute of Higher Education, Australia. “From Goats to Education: An Innovative Approach to Community Empowerment” (in collaboration with Laurel Jackson and Zahid Hasan).
  • Fethiye Burcu Türkmen-CeylanResearch Fellow, Ahi Evran University, Turkey. “Educate a Woman, And You Educate a Generation: How Does Maternal Education Affect Intro Household Resource Allocation for Education among the Children?” (in collaboration with Ulucan, H., Çakmak, S.).
  • Francisco LagosProfessor of Economics, Georgetown University, USA. “Weight, Attractiveness, and Gender when Hiring: a Field Experiment in Spain” (in collaboration with Catarina Goulão, Juan Antonio Lacomba, and Dan-Olof Rooth).
  • Jacklyn Makaaru ArinaitweDirector, Ace Policy Research Institute, Uganda. “Gender, culture, norms, and practices that promote gender gaps in the allocation of time to unpaid domestic work in the context of COVID-19 in Uganda” (in collaboration with Twinomugisha David).
  • Kaori IshikawaUN Women Country Representative to Georgia.
  • Liis RoosaarLecturer at the Chair of Economic Modelling, University of Tartu, Estonia. “Child penalty in academia: Event study estimate” (in collaboration with Jaan Masso, Jaanika Meriküll, Kärt Rõigas, and Tiiu Paas).
  • Lubna NazAssociate Professor, Institute of Business Administration. Pakistan. “Left High and Dry: Gendered impacts of Drought on school attainment in Rural Pakistan”.
  • Maria FloroProfessor Emerita Economics, American University in Washington, DC.
  • Michal MyckDirector, Centre for Economic Analysis (CenEA), Poland. “Pre-retirement employment protection: no harm when times are good” (in collaboration with Paweł Chrostek, and Krzysztof Karbownik).
  • Monika OczkowskaSenior Research Economist, CenEA, Poland. “Patterns of harassment and violence against women in Central and Eastern Europe. The role of the socio-economic context and gender norms in international comparisons” (in collaboration with Kajetan Trzcinski and Michal Myck).
  • Nabamita DuttaProfessor of Economics, University of Wisconsin-La Crosse, USA. “Lockdown and Rural Joblessness in India: Gender Inequality in Employment?” (in collaboration with Kar, S.).
  • Nani BendelianiProject Analyst, UN Women Georgia.
  • Nino ChelidzeProgram Director of Women’s Initiative for Security and Equity at Mercy Corps.
  • Nino LortkipanidzeWomen in Tech Ambassador for Georgia and Chief Innovation Officer at The Crossroads.
  • Nino OkribelashviliVice Rector for Research at Ivane Javakhishvili Tbilisi State University.
  • Ramon Cobo Reyes CanoProfessor of Economics, Georgetown University, USA. “Anticipated Discrimination and Wage Negotiation: A Field Experiment” (in collaboration with Gary Charness and Simone Meraglia).
  • Reina ShehiPrimary Appointment Lecturer, Epoka University, Albania. “Patterns of Geographic Gender-Based Violence in Albania” (in collaboration with Endi Tirana and Ajsela Toci).
  • Salome GelashviliLead Economist, ISET Policy Institute, Georgia. “Gender-based violence in the South Caucasus” (in collaboration with Lobjanidze, G., Seturidze, E., Shubitidze I.).
  • Saumya KumarAssistant Professor (Economics), University of Delhi, India. “Gender Differential in Parental Investment in Education: A Study of the Factors Determining Children’s and Adolescents’ Educational Investment in India” (in collaboration with Jawaharlal Nehru).
  • Sumit S. DeoleScientific Assistant, Trier University, Germany. “The Causal Impact of Education on Gender Role Attitudes: Evidence from European Datasets” (in collaboration with Zeydanli, T.).
  • Tamar SulukhiaDirector ISET and ISET Policy Institute.
  • Ulrich WohakTeaching and Research Associate, Vienna University of Economics and Business, Austria. Free the Period? Evaluating Tampon Tax Reforms using Transaction-Level Scanner Data (in collaboration with Kinnl, K.).
  • Velan NirmalaProfessor of Economics, Pondicherry University, India. “Women Empowerment and Intimate Partner Violence in India” (in collaboration with Lusome, R).

Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.

The Impact of Rising Gasoline Prices on Households in Sweden, Georgia, and Latvia – Is This Time Different?

20231201 The Impact of Rising Gasoline Prices Image 02

Over the last two years, the world has experienced a global energy crisis, with surging oil, coal, and natural gas prices. For European households, this translates into higher gasoline and diesel prices at the pump as well as increased electricity and heating costs. The increase in energy related costs began in 2021, as the world economy struggled with supply chain disruptions caused by the Covid-19 pandemic, and intensified as Russia launched a full-scale invasion of Ukraine in late February 2022. In response, European governments have implemented a variety of energy tax cuts (Sgaravatti et al., 2023), with a particular focus on reducing the consumer cost of transport fuel. This policy paper aims to contextualize current transport fuel prices in Europe by addressing two related questions: Are households today paying more for gasoline and diesel than in the past? And should policymakers respond by changing transport fuel tax rates? The analysis will focus on case studies from Sweden, Georgia, and Latvia, countries that vary in economic development, energy independence, reliance on Russian oil, transport infrastructure, and transport fuel tax rates. Through this study, we aim to paint a nuanced picture of the implications of rising fuel prices on household budgets and provide policy guidance.

Record High Gasoline Prices, Historically Cheap to Drive

Sweden has a long history of using excise taxes on transport fuel as a means to raise revenue for the government and to correct for environmental externalities. As early as in 1924, Sweden introduced an energy tax on gasoline. Later, in 1991, this tax was complemented by a carbon tax levied on the carbon content of transport fuels. On top of this, Sweden extended the coverage of its value-added tax (VAT) to include transport fuels in 1990. The VAT rate of 25 percent is applied to all components of the consumer price of gasoline: the production cost, producer margin, and excise taxes (energy and carbon taxes).

In May 2022, the Swedish government reduced the tax rate on transport fuels by 1.80 SEK per liter (0.16 EUR). This reduction was unprecedented. Since 1960, there have only been three instances of nominal tax rate reductions on gasoline in Sweden, each by marginal amounts in the range of 0.04 to 0.22 SEK per liter. Prior to the tax cut, the combined rate of the energy and carbon tax was 6.82 SEK per liter of gasoline. Adding the VAT that is applied on these taxes, amounting to 1.71 SEK, yields a total excise tax component of 8.53 SEK. This amount is fixed in the short run and does not vary with oil price changes.

Figure 1. Gasoline Pump Price, 2000-2023.

Source: Drivkraft Sverige (2023).

Figure 1 shows the monthly average real price of gasoline in Sweden from January 2000 to October 2023. The price has slowly increased over the last 20 years and has been historically high in the last year and a half. Going back even further, the price is higher today than at any point since 1960. Swedish households have thus lately been paying more for one liter of gasoline than ever before.

However, a narrow focus on the price at the pump does not take into consideration other factors that affect the cost of personal transportation for households.

First, the average fuel efficiency of the vehicle fleet has improved over time. New vehicles sold in Sweden today can drive 50 percent further on one liter of gasoline compared to new vehicles sold in 2000. Arguably, what consumers care about the most is not the cost of gasoline per se but the cost of driving a certain distance, as the utility one derives from a car is the distance one can travel. Accounting for vehicles’ fuel efficiency improvement over time, we find that even though it is still comparatively expensive to drive today, the current price level no longer constitutes a historical peak. In fact, the cost of driving 100 km was as high, or higher, in the 2000-2008 period (see Figure 2).

Figure 2. Gasoline Expenditure per 100 km.

Source: Trafikverket (2023) and Drivkraft Sverige (2023).

Second, any discussion of the cost of personal transportation for households should also factor in changes in household income over time. The Swedish average real hourly wage has increased by more than thirty percent between 2000-2023. As such, the cost of driving 100 km, measured as a share of household income, has steadily declined over time. Further, this pattern is consistent across the income distribution; for instance, the cost trajectory for the bottom decile is similar to that of all wage earners (as illustrated in Figure 3). In 1991, when the carbon tax was implemented, the average household had to spend around two thirds of an hour’s wage to drive 100 km. By 2020, that same household only had to spend one third of an hour’s wage to drive the same distance. There has been an increase in the cost of driving over the last two years, but in relation to income, it is still cheaper today to drive a certain distance compared to any year before 2013.

Figure 3. Cost of Driving as a Share of Income, 1991-2023.

Source: Statistics Sweden (2023).

Taken all together, we see that on the expenditure side, vehicles use fuel more efficiently over time and on the income side, households earn higher wages. Based on this, we can conclude that the cost of travelling a certain distance by car is not historically high today.

Response From Policymakers

It is, however, of little comfort for households to know that it was more expensive to drive their car – as a share of income – 10 or 20 years ago. We argue that what ultimately matters for households is the short run change in cost, and the speed of this change. If the cost rises too fast, households cannot adjust their expenditure pattern quickly enough and thus feel that the price increase is unaffordable. In fact, the change in the gasoline price at the pump has been unusually rapid over the last two years. Since the beginning of 2021, until the peak in June 2022, the (nominal) pump price rose by around 60 percent.

So, should policymakers respond to the rapid price increase by lowering gasoline taxes? The perhaps surprising answer is that lowering existing gasoline tax rates would be counter-productive in the medium and long run. Since excise taxes are fixed and do not vary with the oil price, they reduce the volatility of the pump price by cushioning fluctuations in the market price of crude oil. The total excise tax component including VAT constitutes more than half of the pump price in Sweden, a level that is similar across most European countries. This stands in stark contrast with the US, where excise taxes make up around 15 percent of the consumer price of gasoline. As a consequence, a doubling of the price of crude oil only increases the consumer price of gasoline in Sweden by around 35 percent, while it increases by about 80 percent in the US. Households across Sweden, Europe, and the US have adapted to the different levels of gasoline tax rates by purchasing vehicles with different levels of fuel efficiency. New light-duty vehicles sold in Europe are on average 45 percent more fuel-efficient compared to the same vehicle category sold in the US (IEA 2021). As such, US households do not necessarily benefit from lower gasoline taxation in terms of household expenditure on transport fuel. They are also more vulnerable to rapid increases in the price of crude oil. Having high gasoline tax rates thus reduces – rather than increases – the short run welfare impact on households. Hence, policymakers should resist the temptation to lower gasoline tax rates during the current energy crisis. With imposed tax cuts, households will, in the medium and long run, buy vehicles with higher fuel consumption and thus become more exposed to price surges in the future – again compelling policymakers to adjust tax rates, creating a downward spiral. Instead, alternative measures should be considered to alleviate the effects of the heavy price pressure on low-income households – for instance, revenue recycling of the carbon tax revenue and increased subsidies of public transport.

Conclusion

To reach environmental and climate goals, Sweden urgently needs to phase out the use of fossil fuels in the transport sector – Sweden’s largest source of carbon dioxide emissions. This is exactly what a gradual increase of the tax rate on gasoline and diesel would achieve. At the same time, it would benefit consumers by shielding them from the adverse effects of future oil price volatility.

The most common response from policymakers regarding fuel tax rates however goes in the opposite direction. In Sweden, the excise tax on gasoline and diesel was reduced by 1.80 SEK per liter in 2022 and the current government plans to further reduce the price by easing the biofuel mandate. Similar tax cuts have been implemented in a range of European countries. Therefore, the distinguishing factor in the current situation lies in the exceptional responses from policymakers, rather than in the gasoline costs that households are encountering.

Gasoline Price Swings and Their Consequences for Georgian Consumers

The energy crisis that begun in 2021 has also made its mark on Georgia, where the operational expenses of personal vehicles, encompassing not only gasoline costs but also maintenance expenses, account for more than 8 percent of the consumer price index. The rise in gasoline prices sparked public protest and certain opposition parties proposed an excise tax cut to mitigate the gasoline price surge. In Georgia, gasoline taxes include excise taxes and VAT. Until January 1, 2017, the excise tax was 250 GEL per ton (9 cents/liter), it has since increased to 500 GEL (18 cents/liter). Despite protests and the suggested excise tax reduction, the Georgian government chose not to implement any tax cuts. Instead, it initiated consultations with major oil importers to explore potential avenues for reducing the overall prices. Following this, the Georgian National Competition Agency (GNCA) launched an inquiry into the fuel market for motor vehicles, concluding a manipulation of retail prices for gasoline existed (Georgian National Competition Agency, 2023).

The objective of this part of the policy paper is to address two interconnected questions. Firstly, are Georgian households affected by gasoline price increases? And secondly, if they are, is there a need for government intervention to mitigate the negative impact on household budgets caused by the rise in gasoline prices?

The Gasoline Market in Georgia

Georgia’s heavy reliance on gasoline imports is a notable aspect of the country’s energy landscape. The country satisfies 100 percent of its gasoline needs with imports and 99 percent of the fuel imported is earmarked for the road vehicle transport sector. Although Georgia sources its gasoline from a diverse group of countries, with nearly twenty nations contributing to its annual gasoline imports, the supply predominantly originates from a select few markets: Bulgaria, Romania, and Russia. In the last decade, these markets have almost yearly accounted for over 80 percent of Georgia’s total gasoline imports. Furthermore, Russia’s share has substantially increased in recent years, amounting to almost 75 percent of all gasoline imports in 2023. The primary reason behind Russia’s increased dominance in Georgia’s gasoline imports is the competitive pricing of Russian gasoline, which between January and August in 2023 was almost 50 percent cheaper than Bulgarian gasoline and 35 percent cheaper than Romanian gasoline (National Statistics Office of Georgia, 2023). Given the dominance of Russian gasoline in Georgia, the end-user (retail) prices of gasoline in Georgia, are closer to gasoline prices in Russia than EU gasoline prices (see Figure 1).

Figure 1. End-user Gasoline Prices in Georgia, Russia and the EU, 2013-2022.

Source: International Energy Agency, 2023.

However, while the gasoline prices increased steadily in 2020-2022 in Russia, gasoline prices in Georgia increased sharply in the same period. This more closely replicated the EU price dynamics rather than the Russian one. The sharp price increase in gasoline raised concerns from the Georgian National Competition Agency (GNCA). According to the GNCA one possible reason behind the sharp increase in gasoline prices in Georgia could be anti-competitive behaviour among the five major companies within the gasoline market. Accordingly, the GNCA investigated the behaviour of major market players during the first eight months of 2022, finding violations of the Competition Law of Georgia. Although the companies had imported and were offering consumers different and significantly cheaper transport fuels compared to fuels of European origin, their retail pricing policies were identical and the differences in product costs were not properly reflected in the retail price level. GNCA claims the market players coordinated their actions, which could have led to increased gasoline prices in Georgia (National Competition Agency of Georgia. (2023).

Given that increased gasoline prices might lead to increased household expenditures for fuel, it is important to assess the potential impact of recent price developments on household’s budgets.

Exploring Gasoline Price Impacts

Using data from the Georgian Households Incomes and Expenditures Survey (National Statistics Office of Georgia, 2023), weekly household expenditures on gasoline and corresponding weekly incomes were computed. To evaluate the potential impact of rising gasoline prices on households, the ratio of household expenditures on gasoline to household income was used. The ratios were calculated for all households, grouped in three income groups (the bottom 10 percent, the top 10 percent and those in between), over the past decade (see Figure 2).

Figure 2. Expenditure on Gasoline as Share of Income for Different Income Groups in Georgia, 2013-2022.

Source: National Statistics Office of Georgia, 2023.

Figure 2 shows that between 2013 and 2022, average households allocated 9-14 percent of their weekly income to gasoline purchases. There is no discernible increase in the ratio following the energy crisis in 2021-2022.

Considering the different income groups, the upper 10 percent income group experienced a slightly greater impact from the recent rise in gasoline prices (the ratio increased), compared to the overall population. For the lower income group, which experienced a rise in the proportion of fuel costs relative to total income from 2016 to 2021, the rate declined between 2021 and 2022. Despite the decline in the ratio for the lower-level income group, it is noteworthy that the share of gasoline expenditure in the household budget has consistently been high throughout the decade, compared to the overall population and the higher-level income group.

The slightly greater impact from the rise in gasoline prices for the upper 10 percent income group is driven by a 4 percent increase in nominal disposable income, paired with an 8 percent decline in the quantity of gasoline (Figure 3) in response to the 22 percent gasoline price increase. Clearly, for this income group, the increase in disposable income was not enough to offset the increase in the price of gasoline, increasing the ratio as indicated above.

For the lower 10 percent income group, there was a 23 percent increase in nominal disposable income, paired with a 9 percent decline in the quantity of purchased gasoline (Figure 3) in response to the 22 percent gasoline price increase . Thus, for this group, the increase in disposable income weakened the potential negative impact of increased prices, eventually lowering the ratio.

Figure 3. Average Gasoline Quantities Purchased, by Household Groups, per Week (In Liters) 2013-2022.

Source: National Statistics Office of Georgia, 2023.

Conclusion

The Georgian energy market is currently fully dependent on imports, predominantly from Russia. While sharp increases in petrol prices have been observed during the last 2-3 years, they do not seem to have significantly impacted Georgian households’ demand for gasoline. Noteworthy, the lack of impact from gasoline price increases on Georgian households’ budgets, as seen in the calculated ratio (depicted in Figure 2), can be explained by the significant rise in Georgia’s imports from the cheap Russian market during the energy crisis years. Additionally, according to the Household Incomes and Expenditures survey, there was in 2022 an annual increase in disposable income for households that purchased gasoline. However, the data also show that low-income households spend a high proportion of their income on gasoline.

Although increased prices did not significantly affect Georgian households, the extremely high import dependency and the lack of import markets diversification poses a threat to Georgia’s energy security and general economic stability. Economic dependency on Russia is dangerous as Russia traditionally uses economic relations as a lever for putting political pressure on independent economies. Therefore, expanding trade and deepening economic ties with Russia should be seen as risky. Additionally, the Russian economy has, due to war and sanctions, already contracted by 2.1 percent in 2022 and further declines are expected (Commersant, 2023).

Prioritizing actions such as diversifying the import market to find relatively cheap suppliers (other than Russia), closely monitoring the domestic market to ensure that competition law is not violated and market players do not abuse their power, and embracing green, energy-efficient technologies can positively affect Georgia’s energy security and positively impact sustainable development more broadly.

Fueling Concerns: The True Cost of Transportation in Latvia

In May 2020, as the Latvian Covid-19 crisis began, Latvia’s gasoline price was 0.99 EUR per liter. By June 2022, amid the economic effects from Russia’s war on Ukraine, the price had soared to a record high 2.09 EUR per liter, sparking public and political debate on the fairness of fuel prices and potential policy actions.

While gas station prices are salient, there are several other more hidden factors that affect the real cost of transportation in Latvia. This part of the policy paper sheds light on such costs by looking at some of its key indicators. First, we consider the historical price of transport fuel in Latvia. Second, we consider the cost of fuel in relationship to average wages and the fuel type composition of the vehicle fleet in Latvia.

The Price of Fuel in Latvia

Latvia’s nominal retail prices for gasoline (green line) and diesel (orange line) largely mirror each other, though gasoline prices are slightly higher, in part due to a higher excise duty (see  Figure 1). These local fuel prices closely follow the international oil market prices, as illustrated by the grey line representing nominal Brent oil prices per barrel.

The excise duty rate has been relatively stable in the past,  demonstrating that it has not been a major factor in fuel price swings. A potential reduction to the EU required minimum excise duty level will likely have a limited effect on retail prices. Back of the envelope calculations show that lowering the diesel excise duty from the current 0.414 EUR per liter to EU’s minimum requirement of 0.33 EUR per liter could result in approximately a 5 percent drop in retail prices (currently, 1.71 EUR per liter). This at the cost of a budget income reduction of 0.6 percent, arguably a costly policy choice.

In response to recent years’ price increase, the Latvian government opted to temporarily relax environmental restrictions, making the addition of a bio component to diesel and gasoline (0.065 and 0.095 liters per 1 liter respectively) non-mandatory for fuel retailers between 1st of June 2022 until the end of 2023. The expectation was that this measure would lead to a reduction in retail prices by approximately 10 eurocents. To this date, we are unaware of any publicly available statistical analysis that verifies whether the relaxed restriction have had the anticipated effect.

Figure 1. Nominal Retail Fuel Prices and Excise Duties for Gasoline and Diesel in Latvia (in EUR/Liter), and Nominal Brent Crude Oil Prices (in EUR/Barrel), January 2005 to August 2023.

Source: The Central Statistical Bureau of Latvia, St. Louis Federal Reserve’s database, OFX Monthly Average Rates database, The Ministry of Finance of Latvia, The State Revenue Service of Latvia.

The True Cost of Transportation

Comparing fuel retail prices to average net monthly earnings gives insight about the true cost of transportation in terms of purchasing power. Figure 2 displays the nominal net monthly average wage in Latvia from January 2005 to June 2023 (grey line). During this time period the average worker saw a five-fold nominal wage increase, from 228 EUR to 1128 EUR monthly. The real growth was two-fold, i.e., the inflation adjusted June 2023 wage, in 2005 prices, was 525 EUR.

Considering fuel’s share of the wages; one liter of gasoline amounted to 0.3 percent of an average monthly wage in 2005, as compared to 0.12 percent in 2023, with diesel displaying a similar pattern. Thus, despite recent years’ fuel price increase, the two-fold increase in purchasing power during the same time period implies that current fuel prices may not be as alarming for Latvian households as they initially appeared to be.

Figure 2. Average Nominal Monthly Net Wages in Latvia and Nominal Prices of One Liter of Gasoline and Diesel as Shares of Such Wages (in EUR), January 2005 to June 2023.

Source: The Central Statistical Bureau of Latvia.

Another factor to consider is the impact of technological advancements on fuel efficiency over time. The idea is simple: due to technological improvements to combustion engines, the amount of fuel required to drive 100 kilometers has decreased over time, which translates to a lower cost for traveling additional kilometers today. An EU average indicator shows that the fuel efficiency of newly sold cars improved from 7 liters to 6 liters per 100 km, respectively, in 2005 and 2019. While we lack precise data on the average fuel efficiency of all private vehicles in Latvia, we can make an informed argument in relation to the technological advancement claim by examining proxy indicators such as the type of fuel used and the average age of vehicles.

Figure 3 shows a notable change in the fuel type composition of the vehicle fleet in Latvia. Note that the decrease in the number of cars in 2011 is mainly due to a statistical correction for unused cars. At the start of the 21st century, 92 percent of Latvian vehicles were gasoline-powered and 8 percent were diesel-powered. By 2023, these proportions had shifted to 28 percent for gasoline and 68 percent for diesel. Diesel engines are more fuel efficient, usually consuming 20-35 percent less fuel than gasoline engines when travelling the same distance. Although diesel engines are generally pricier than their gasoline counterparts, they offer a cost advantage for every kilometer driven, easing the impact of rising fuel prices. A notable drawback of diesel engines however, is their lower environmental efficiency – highlighted following the 2015 emission scandal. In part due to the scandal, the diesel vehicles growth rate have dropped over the past five years in Latvia.

Figure 3. Number of Private Vehicles by Fuel Type and the Average Age of Private Vehicles in Latvia, 2001 to 2023.

Source: The Central Statistical Bureau of Latvia, Latvia’s Road Traffic Safety Directorate.

Figure 3 also shows that Latvia’s average vehicle age increased from 14 years in 2011 to 15.1 years in 2023. This is similar to the overall EU trend, although EU cars are around 12 years old, on average. This means that, in Latvia, the average car in 2011 and 2023 were manufactured in 1997 and 2008, respectively. One would expect that engines from 2008 have better technical characteristics compared to those from 1997. Recent economic research show that prior to 2005, improvements in fuel efficiency for new cars sold in the EU was largely counterbalanced by increased engine power, enhanced consumer amenities and improved acceleration performance (Hu and Chen, 2016). I.e.,  cars became heavier, larger, and more powerful, leading to higher fuel consumption. However, after 2005, cars’ net fuel efficiency started to improve. As sold cars in Latvia are typically 10-12 year old vehicles from Western European countries, Latvia will gradually absorb a more fuel-efficient vehicle fleet.

Conclusion

The increase of purchasing power, a shift to more efficient fuel types and improvements in engine efficiency have all contributed to a reduction of the overall real cost of transportation over time in Latvia. The recent rise in fuel prices to historically high levels is thus less concerning than it initially appears. Moreover, a growing share of cars will not be directly affected by fuel price fluctuations in the future. Modern electric vehicles constitute only 0.5 percent of all cars in Latvia today, however, they so far account for 10 percent of all newly registered cars in 2023, with an upward sloping trend.

Still, politicians are often concerned about the unequal effects of fuel price fluctuations on individuals. Different car owners experience varied effects, especially when considering factors like income and location, influencing transportation supply and demand.

First, Latvia ranks as one of the EU’s least motorized countries, only ahead of Romania, with 404 cars per 1000 inhabitants in 2021. This lower rate of vehicle ownership is likely influenced by the country’s relatively low GDP per capita (73 percent of the EU average in 2022) and a high population concentration in its capital city, Riga (32 of the population lives in Riga city and 46 percent in the Riga metropolitcan area). In Riga, a developed public transport system reduces the necessity for personal vehicles. Conversely, areas with limited public transport options, such as rural and smaller urban areas, exhibit a higher demand for personal transportation as there are no substitution options and the average distance travelled is higher than in urban areas. Thus, car owners in these areas tend to be more susceptible to the impact of fuel price volatility.

Second, Latvia has a high Gini coefficient compared to other EU countries, indicating significant income inequality (note that the Gini coefficient measures income inequality within a population, with 0 representing perfect equality and 1 indicating maximum inequality. In 2022, the EU average was 29.6 while Latvia’s Gini coefficient was 34.3, the third highest in the EU). With disparities in purchasing power, price hikes tend to disproportionately burden those with lower incomes, making fuel more costly relative to their monthly wages.

These income and location factors suggest that inhabitants in rural areas are likely the most affected by recent price hikes. Distributional effects across geography (rural vs urban) are often neglected in public discourse, as the income dimension is more visible. But both geography and income factors should be accounted for in a prioritized state support, should such be deemed necessary.

References

Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.

Risks of Russian Business Ownership in Georgia

Image of Tbilisi at night representing risks of Russian business ownership in Georgia

This policy brief addresses risks tied to Russian business ownership in Georgia. The concentration of this ownership in critical sectors such as electricity and communications makes Georgia vulnerable to risks of political influence, corruption, economic manipulation, espionage, sabotage, and sanctions evasion. To minimize these risks, it is recommended to establish a Foreign Direct Investment (FDI) screening mechanism for Russia-originating investments, acknowledge the risks in national security documents, and implement a critical infrastructure reform.

Russia exerts substantial influence over Georgia. First and foremost, Russia has annexed 20 percent of Georgia’s internationally recognized territories of Abkhazia and South Ossetia. Further, it employs a variety of hybrid methods to disrupt the Georgian society including disinformation, support for pro-Russian parties and media, trade restrictions, transportation blockades, sabotage incidents, and countless more. These tactics aim to hinder Georgia’s development, weaken the country’s statehood, and negatively affect pro-Western public sentiments (Seskuria, 2021 and Kavtaradze, 2023).

Factors that may also increase Georgia’s economic dependency on Russia concern trade relationships, remittances, increased economic activity driven by the most recent influx of Russian migrants, and private business ownership by Russian entities or citizens (Babych, 2023 and Transparency International Georgia, 2023). This policy brief assesses and systematizes the risks associated with Russian private business ownership in Georgia.

Sectoral Overview of Russian Business Ovnership

Russian business ownership is significant in Georgia. Recent research from the Institute for Development of Freedom of Information (IDFI) has addressed Russian capital accumulation across eight sectors of the Georgian economy: electricity, oil and gas, communications, banking, mining and mineral waters, construction, tourism, and transportation. Of the eight sectors considered by IDFI, Russian business ownership is most visible in Georgia’s electricity sector, followed by oil and natural gas, communications, and mining and mineral waters industries. In the remaining four sectors considered by IDFI, a low to non-existent level of influence was observed (IDFI, 2023).

Figure 1. Overview of Russian Ownership in the Georgian Economy as of June 2023.

Source: IDFI, 2023.

There are several reasons for concern regarding the concentration and distribution of Russian business ownership in the Georgian economy.

First, it is crucial to keep Russia’s history as a hostile state actor in mind. Foreign business ownership is not a threat in itself; However, it may pose a threat if businesses are under control or influence of a state that is hostile to the country in question (see Larson and Marchik, 2006). Business ownership has been a powerful tool for the Kremlin, allowing Russia to influence various countries and raising concerns that such type of foreign ownership might negatively affect national security of the host country (Conley et al., 2016). Similar concerns have become imperative amidst Russia’s full-scale war in Ukraine (as, for instance, reflected in Guidance of the European Commission to member states concerning Russian foreign acquisitions).

Further, Russian business ownership in Georgia is particularly threatening due to the ownership concentration within sectors of critical significance for the overall security and economic resilience of the country. While there is no definition of critical infrastructure or related sectors in Georgia, at least two sectors (energy and communications) correspond to critical sectors, according to international standards (see for instance the list of critical infrastructure sectors for the European Union, Germany, Canada and Australia). Such sectors are inherently susceptible to a range of internal and external threats (a description of threats related to critical infrastructure can be found here). Intentional disruptions to critical infrastructure operations might initiate a chain reaction and paralyze the supply of essential services. This can, in turn, trigger major threats to the social, economic, and ecological security and the defense capacity of a state.

Georgia’s Exposure to Risks

Identifying and assessing the specific dimensions of Georgia’s exposure to risks related to Russian business ownership provides a useful foundation for designing policy responses. This brief identifies six distinct threats in this regard.

Political Influence

Russia’s business and political interests are closely intertwined, making it challenging to differentiate their respective motives. This interconnectedness can act as a channel for exerting political influence in Georgia. Russians that have ownership stakes in Georgian industries (e.g. within electricity, communications, oil and gas, mining and mineral waters) have political ties with the Russian ruling elite facing Western sanctions, or are facing sanctions themselves. For instance, Mikhail Fridman, who owns up to 50 percent of the mineral water company IDS Borjomi, is sanctioned for supporting Russia’s war in Ukraine. Such interlacing raises concerns about indirect Russian influence in Georgia, potentially undermining Georgia’s Western aspirations.

Export of Corrupt Practices

The presence of notable Russian businesses in Georgia poses a significant threat in terms of it nurturing corrupt practices. Concerns include “revolving door” incidents (movement of upper-level public officials into high-level private-sector jobs, or vice versa), tax evasion, and exploitation of the public procurement system.  For instance, Transparency International Georgia (2023) identified a “revolving door” incident concerning the Russian company Inter RAO Georgia LLC, involved in electricity trading, and its regulator, the Georgian state-owned Electricity Market Operator JSC (ESCO). One day after Inter RAO Georgia LLC was registered, the director of ESCO took a managerial position within Inter RAO Georgia LLC. Furthermore, tax evasion inquiries involving Russian-owned companies have been documented in the region, particularly in Armenia, further highlighting corruption risks. We argue that such corrupt practices might harm the business environment and deter future international investments.

Economic Manipulation

A heavy concentration of foreign ownership in critical sectors like energy and telecommunications, also poses a risk of manipulation of economic instruments such as prices. The significant Russian ownership in Armenia’s gas distribution network exemplifies this threat. In fact, Russia utilized a price manipulation strategy for gas prices when Armenia declared its EU aspirations. Prices were then reduced after Armenia joined the Eurasian Economic Union (Terzyan, 2018).

Espionage

Russian-owned businesses within Georgia’s critical sectors also pose espionage risks, including economic and cyber espionage. Owners of such businesses may transfer sensitive information to Russian intelligence agencies, potentially undermining critical infrastructure operations. As an example, in 2022, a Swedish business owner in electronic trading and former Russian resident, was indicted with transferring secret economic information to Russia. Russian cyber-espionage is also known to be used for worldwide disinformation campaigns impacting public opinion and election results, compromising democratic processes.

Sabotage

The presence of Russian-owned businesses in Georgia raises the risk of sabotage and incapacitation of critical assets. Russia has a history of using sabotage to harm other countries, such as when they disrupted Georgia’s energy supply in 2006 and the recent Kakhovka Dam destruction in Ukraine (which had far-reaching consequences, incurring environmental damages, and posing a threat to nuclear plants). These incidents demonstrate the risk of cascading effects, potentially affecting power supply, businesses, and locations strategically important to Georgia’s security.

Sanctions and Sanction Evasion

Russian-owned businesses in Georgia face risks due to Western sanctions as they could be targeted by sanctions or used to evade them. Recent cases, like with IDS Borjomi (as previously outlined) and VTB Bank Georgia – companies affected by Western sanctions given their Russian connections – highlight Georgia’s economic vulnerability in this regard. Industries where these businesses operate play a significant role in Georgia’s economy and job market, and instabilities within such sectors could entail social and political concerns. There’s also a risk that these businesses could help Russia bypass sanctions and gain access to sensitive goods and technologies, going against Georgia’s support for international sanctions against Russia. It is crucial to prevent such sanctions-associated risks for the Georgian economy.

Assessing the Risks

To operationalize the above detailed risks, we conducted interviews with Georgian field experts within security, economics, and energy. The risk assessment highlights political influence through Russian ownership in Georgian businesses as the foremost concern, followed by risks of corruption, risks related to sanctions, espionage, economic manipulation, and sabotage. We asked the experts to assess the severity level for each identified risk and notably, all identified risks carry a high severity level.

Recommendations

Considering the concerns detailed in the previous sections, we argue that Russia poses a threat in the Georgian context. Given the scale and concentration of Russian ownership within critical sectors and infrastructure, a dedicated policy regime might be required to improve regulation and minimize the associated risks. Three recommendations could be efficient in this regard, as outlined below.

Study the Impact of Adopting a Foreign Direct Investment Screening Mechanism

To effectively address ownership-related threats, it’s essential to modify existing investment policies. One approach is to introduce a FDI screening mechanism with specific functionalities. Several jurisdictions implement mechanisms with similar features (see a recent report by UNCTAD for further details). Usually, such mechanisms target FDI’s that have security implications. A dedicated screening authority overviews investment that might be of concern for national security and after assessment, an investment might be approved or suspended. In Georgia, a key consideration for designing such tool includes whether it should selectively target investments from countries like Russia or apply to all incoming FDI. Additionally, there’s a choice between screening all investments or focusing on those concerning critical sectors and infrastructure. Evaluating the investment volume, possibly screening only FDI’s exceeding a predefined monetary value, is also a vital aspect to consider. However, it’s important to acknowledge that FDI screening mechanisms are costly. Therefore, this brief suggests a thorough cost and benefit analysis prior to implementing a FDI screening regime in Georgia.

Consider Russian Ownership-related Threats in the National Security Documents

Several national-level documents address security policy in Georgia, with the National Security Concept – outlining security directions – being a foundational one. Currently, these concepts do not specifically address Russian business ownership-related threats. When designing an FDI screening mechanism, however, acknowledging various risks related to Russian business ownership must be aligned with fundamental national security documents.

Foster the Adoption of a Critical Infrastructural Reform

To successfully implement a FDI screening mechanism unified, nationwide agreement on the legal foundations for identifying and safeguarding critical infrastructure is needed. The current concept for critical infrastructure reform in Georgia envisages a definition of critical infrastructure and an implementation of an FDI screening mechanism. We therefore recommend implementing this reform in the country.

Conclusion

This policy brief has identified six distinct risks related to Russian business ownership in several sectors of the Georgian economy, such as energy, communications, oil and natural gas, and mining and mineral waters. Even though Georgia does not have a unified definition of critical infrastructure, assets concentrated in these sectors are regarded as critical according to international standards. Considering Russia’s track record of hostility and bearing in mind threats related to foreign business ownership by malign states, this brief suggests regulating Russian business ownership in Georgia by introducing a FDI screening instrument. To operationalize this recommendation, it is further recommended to consider Russian business ownership-related threats in Georgia’s fundamental security documents and to foster critical infrastructural reform in the country.

References

Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.

Potential Climate Change Impacts on Women’s Vulnerability in Georgia

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Climate change can increase the vulnerability of women to various risks, including natural disasters, food insecurity, water scarcity, and health problems. Women may also face unique challenges in accessing resources and services, which can limit their ability to adapt to a changing climate. Developing countries, with their more traditional gender roles, are even more likely to experience disproportionate impacts of climate change on women, and Georgia is no exception. Thus, the country needs to address this problem through a comprehensive approach which accounts for the social, economic, and environmental factors that contribute to gender inequality.

Introduction

According to Georgia’s fourth national communication report to the United Nation’s Framework Convention on Climate Change, the negative impacts of climate change on ecosystems and the economy can hinder Georgia’s path toward sustainable development. Therefore, a key focus for the country should be to develop climate-resilient practices and reduce the vulnerability of communities exposed to these impacts.

The climate scenarios in the communication report present a worrying picture of warming trends in the country, mainly due to increased temperatures in the last summer and autumn seasons, as depicted in Figure 1 (MEPA, 2021). Such alterations in weather patterns often lead to glacier retreat, water scarcity, coastal erosion, and biodiversity loss in different regions of Georgia (ibid).

Figure 1. Average summer and winter temperatures in Georgia, 1900-2021.

Source: Climate Change Knowledge Portal (World Bank, 2021).

An increasing body of international research has demonstrated that climate change can have adverse effects on agricultural production, food security, water management, and public health. Furthermore, research has revealed that these effects are not gender-neutral, with women and children being among the most affected groups (World Bank Group, 2021).

Climate Change Impacts on Women – A Georgian Perspective

Women in developing countries like Georgia experience various impacts of climate change, which affect them differently than men. The effects might vary according to region or community, but some common signs can be identified. The main channels through which women are disproportionally affected by climate change are discussed in the following sub-sections.

Health Impacts

Climate change has a significant effect on human health, with women being more vulnerable due to various cultural, social, and economic factors (Sbiroli et al., 2022). In particular, women appear to be more susceptible to infectious diseases and undernutrition, especially in middle and low-income countries (ibid).

Springmann et al. (2016) found that, by 2050, Georgia could experience about 32.36 climate-related deaths per million due to malnutrition caused by a lack of fruits and vegetables in people’s diets and due to increased health complications associated with undernutrition. In Georgia, malnutrition is a significant gender equality concern. According to the Global Nutrition Report, women in Georgia disproportionally experience exposure to undernutrition translated into underweight. Similarly, women represent the majority of Georgians with obesity (26.8 percent, compared to 22.2 percent among men). Both these issues may be further exacerbated by climate change in the future.

Furthermore, in Georgia, women are more likely to care for sick family members. According to Geostat, 31 percent of women who have sick or dependent family members are involved in providing them care, compared to only 15 percent of the men. This puts women at greater risk of exposure to climate change-induced infectious diseases, given that research has demonstrated an increased risk of such diseases worldwide, including in areas in Europe that have climate profiles similar to Georgia (Mora et al., 2022; Gray et al., 2009).

Figure 2. Prevalence of underweight among adults (>18) in Georgia, 2000-2016.

Source: Global Nutrition Report (2023).

Water and Food Scarcity

Climate change is also known to affect food and water supply through changes in agricultural conditions, droughts, and floods. In developing countries as women are often responsible for food and water supply, they are disproportionally affected by water shortages resulting from climate change (Figueiredo & Perkins, 2013). Women in poor rural households in Georgia are likely to face similar challenges.

Women in Georgia also play a crucial role in agriculture (according to Geostat, 47 percent of workers in agricultural holdings were women in 2021). Fluctuations in temperature and precipitation patterns can reduce crop yields, leading to lower income and food insecurity. This may disproportionately affect female farmers, as access to agricultural technologies, land ownership and lack of necessary knowledge and skills are some of the significant barriers for women involved in agriculture in Georgia (Gamisonia, 2015).

Economic Impacts and Access to Resources

One of the main reasons to why women are disproportionally affected by climate change is that their underlying economic conditions are less favourable than men’s (Yadav & Lal, 2018). In 2021, the majority of people outside the labor force were women (65 percent), while men constituted 35 percent (Geostat). It is important to mention that in the same year, only 33 percent of women were employed in Georgia, compared to 49 percent of men. Additionally, the average salary for women was 1056 GEL (813 GEL in the agricultural sector), while men earned an average of 1538 GEL (1006 GEL in the agricultural sector). Finally, although poverty rates among women in Georgia are slightly lower than among men, 17.1 vs. 17.9 percent respectively (absolute poverty rates in 2021), the poverty data does not account for the gender-biased distribution of household resources. Women face larger barriers in obtaining financial resources (collaterals, loans, etc.) than men because they own less property. For different types of property, only 44 percent are owned by at least one woman, according to the National Agency of Public Registry of Georgia. The corresponding number for men is 56 percent.  Geostat data further indicates that households headed by men make up 63 percent of the total number of households, whereas households headed by women account for only 37 percent. These unfavorable conditions hinder women’s access to vital information and resources required for climate change adaptation and mitigation.

The discussed impacts may be especially prominent for women in poor rural households. Climate change-induced natural disasters are typically more detrimental for households dependent on agriculture (Dagdeviren et al., 2021), especially subsistence farmers and poor agricultural workers (in particular those without access to technology or resources). In Georgia, women are in majority in both these categories.

Natural Disasters and Displacement

Climate-driven disasters are over 14 times more likely to cause fatalities among women and children than men, according to UNHCR (2022). Additionally, women in agrarian societies impacted by climate change are less likely to use adaptive measures, putting them at higher risk of displacement (Palacios, Sexsmith, Matheu & Gonzalez, 2023). Such risks are also likely to pertain to the rural areas of Georgia.

Georgia’s International Obligations and Policies

In previous decades Georgia has made significant progress when it comes to incorporating gender equality and climate change into the policy agenda. In particular, Georgia follows numerous international legislative initiatives regarding sustainable development, gender equality, and climate change.

Georgia is a party to the Paris Agreement and the Beijing platform (a comprehensive roadmap for women’s rights and empowerment, which lists the problems associated with gender inequality and different strategies to overcome them, signed by Georgia in 1995). It is also a signatory of the Gender Action Plan (GAP), adopted a year after the Paris Agreement to integrate gender into targets and increase effectiveness, fairness, and sustainability.

The updated Nationally Determined Contribution (NDC) of Georgia includes a dedicated section on gender and climate change. This section aims to promote gender mainstreaming, encourage equal participation, empower women, build capacity, and develop climate policies that are responsive to gender considerations. Furthermore, the Long-term Low-emission Development Strategies for Paris Agreement parties (including Georgia) has a communication and awareness-raising strategy that seeks to address gender, youth, and people with disabilities in its outreach efforts (United Nations, 2022).

Despite these commitments, Georgia is lagging when it comes to tackling the issues of climate change and gender in coordination. For example, even though Georgia has adopted a Gender Equality Law and Action Plan, it does not address climate change issues. Therefore, municipalities are not required to consider gender aspects of climate change impacts.

Identified Gaps and Policy Recommendations

Despite the number of policies and measures undertaken, unsolved problems hinder the country’s ambition to adhere to gender-mainstreamed climate change-addressed policymaking.

For example, there is a lack of gender-disaggregated data on the impacts of climate change in Georgia, which prevents policymakers from developing targeted strategies to address women’s needs. Therefore, collecting and analyzing disaggregated data with gender-specific impacts in mind is recommended. Additionally, involving women in decision-making and ensuring their participation in climate change efforts is crucial as their unique experiences and perspectives can inform more effective and equitable responses to climate change impacts.

As previously mentioned, climate change in Georgia is expected to exacerbate water and food scarcity, which can disproportionately affect women. Therefore, implementing climate-resilient water management strategies and increasing access to climate-resilient agricultural practices, such as crop diversification and improved irrigation systems, can help increase farm productivity and reduce the adverse impacts of climate change on women.

Furthermore, there is a need to provide women with access to financial resources and services and to address gender-based inequalities that may limit women’s ability to access information and resources necessary for climate change adaptation and mitigation.

Finally, addressing the impacts of climate change on women in Georgia will require a coordinated and sustained effort from a range of stakeholders, including governments, civil society organizations, and local communities, so that women are not left behind in the global effort to address the impacts of climate change.

Conclusion

To effectively address the impacts of climate change on women in Georgia, it is essential to recognize that various social, economic, and cultural factors shape women’s experiences. For example, women in rural areas may face different challenges than women in urban areas; women with few economic means may be disproportionately affected by climate change. Therefore, policies should not only integrate gender-mainstreaming, but also account for these heterogeneities, to ensure that different parties of the society are adequately addressed within the climate change policy agenda.

References

  • Dagdeviren, H., Elangovan, A., & Parimalavalli, R. (2021). Climate change, monsoon failures and inequality of impacts in South India. Journal of Environmental Management.
  • Figueiredo, P., & Perkins, P. E. (2013). Women and water management in times of climate change: participatory and inclusive processes. Journal of Cleaner Production, 188-194.
  • Gamisonia, N. (2015). Climate Change and Women. Heinrich Böll Stiftung.
  • Global Nutrition Report. (2023). Global Nutrition Report. https://globalnutritionreport.org/resources/nutrition-profiles/asia/western-asia/georgia/
  • Geostat. https://www.geostat.ge/en
  • Gray, J. S., Dautel, H., Estrada-Peña, A., Kahl, O., & Lindgren, E. (2009). Effects of Climate Change on Ticks and Tick-Borne Diseases in Europe. National Library of Medicine.
  • MEPA. (2021). Fourth National Communication of Georgia to the UNFCCC. Tbilisi: UNDP.
  • Mora, C., McKenzie, T., Gaw, I. M., Dean, J. M., Hammerstein, H. v., Knudson, T. A., Franklin, E. C. (2022). Over half of known human pathogenic diseases can be aggravated by climate change. Nature Climate Change.
  • National Agency of Public Registry of Georgia. https://www.napr.gov.ge/
  • Palacios, H. V., Sexsmith, K., Matheu, M., & Gonzalez, A. R. (2023). Gendered adaptations to climate change in the Honduran coffee sector. Women’s Studies International Forum.
  • Sbiroli, E., Geynisman-Tan, J., Sood, N., Maines, B. A., Junn, J. H.-J., & Sorensen, C. (2022). Climate change and women’s health in the United States: Impacts and opportunities. The Journal of Climate Change and Health.
  • Springmann, M., Mason-D’Croz, D., Robinson, S., Garnett, T., Godfray, H. C., Gollin, D., Scarborough, P. (2016). Global and regional health effects of future food production under climate change: a modelling study. National Library of Medicine.
  • UNHCR. (2022). Gender, Displacement and Climate Change. Potsdam Institute for Climate Impact Research.
  • United Nations. (2022). Long-term Low-emission Development Strategies. United Nations.
  • World Bank Group. (2021). Climate Risk Country Profile: Georgia. World Bank Group.
  • World Bank. (2021). Climate Change Knowledge Portal. https://climateknowledgeportal.worldbank.org/country/georgia
  • Yadav, S. S., & Lal, R. (2018). Vulnerability of women to climate change in arid and semi-arid regions: The case of India and South Asia. Journal of Arid Environments, 4-17.

Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.