research reports

COVID-19 and its Impact on Georgian Economy

Georgia temporarily suspended the movement of visitors from China and Iran to prevent the spread of coronavirus. We hope that virus will not take the form of a global pandemic and economies will revive. However, uncertainty persists and it is difficult to make accurate estimates. With this in mind, we try to identify threats to the Georgian economy and allow for the development of various adverse scenarios.

Total international visitor (tourists and same-day combined) growth accelerated to 19.8% y/y in Jan-20 after growing 16.3% y/y in Dec-19. Out of total 0.52mn visitors, Georgia hosted 0.36mn tourists (up 18.9% y/y) and 0.16mn same-day visitors (up 21.9% y/y) in Jan-20.

Georgia suspended flights to and from China till Apr-2020 to prevent the spread of the coronavirus. Notably, Georgia’s dependence on tourism from China is very limited with just 48K (0.6% of total visitors) Chinese traveling to Georgia in 2019. So direct hit from weaker Chinese tourism on Georgia will be minimal (Chinese spent US$ 3.8mn in 1Q19 or 0.7% of total revenues), and expected arrival growth from other countries will fully compensate this shortfall. Expectations can change if virus is not contained and willingness to travel globally weakens or many avoid Asia and start traveling to other countries. 

Please see the full note here, which brings together tourist arrival data for reporting month, most recent statistical information available in the sector and 2020 forecast

Electricity trade deficit widened to US$ 70.5mn in 2019. In 2019, electricity consumption increased by 1.4%, while hydro generation was down by 10.1% due to unfavourable hydrological conditions. Under reduced hydro generation, local demand on electricity was met by increased imports (+7.8% y/y) and thermal generation (+ 34.3% y/y), additionally the exports were down by 58.8% y/y. In overall, cost of imported electricity amounted to US$ 78.3mn (+ 3.4% y/y), while export revenue was mere US$ 7.8mn. Consequently, the electricity trade deficit widened by 24.5% y/y and reached a historic maximum of US$ 70.5mn. 

Electricity consumption in Georgia is expected to grow by 5.0% in 2020. Ministry of Economy and Sustainable Development approved annual forecasted balance of electricity on December 28, 2019. According to the forecasted annual balance, 72.6% of total demand on electricity in 2020 will be met by hydro generation, 18.2% by thermal power plants, 0.6% by wind generation and 8.6% by imports. The forecast defined May, June, July and August as potential export months of 2020.

In 2019 and beginning of 2020, 9 hydro power plants were commissioned, with a total capacity of 72 MW. The largest of them were Mestiachala 1&2 (50MW in total) and the rest were small HPPs with average capacity of 3.5MW. Additionally, 230MW Gardabani-2 thermal power plant was put into operation by end of 2019.  

GNERC made significant tariff modifications for TPPs, Enguri, Vardnili and Georgian State Electrosystem by end of 2019. These changes will also affect the balancing market prices. Moreover, GNERC approved natural gas tariff for residential users.