(Geo)Political Economy of Authoritarian Consolidation in Georgia: the many faces of the foreign influence law

The article discusses the geopolitical and economic implications of the Law on Transparency of Foreign Influence, which was recently adopted in Georgia despite the loud protest of different societal groups. The author contextualizes strengthening authoritarianism in Georgia through the prism of its economic development model. The paper thus reflects on the possible ramifications of the Law on Georgia’s infrastructure and debt-led development mode, highlights the importance of international financial institutions and questions the intention of the government of strengthening sovereignty.

Reading time: 18 minutes

Striving for Sovereignty?

The events that led to the passing of Law on Transparency of Foreign Influence unleashed a major civic protest in Georgia this spring, leading tens of thousands of people onto the streets of Tbilisi over a period of two months. The law is perceived as a legal tool for control and repression by most students, academics, major NGOs, media outlets, social movements, trade unions, and the wider public  in Georgia, contesting the government’s framing of the law as enhancing the transparency of funding of non-profit and media organizations. Already last year, when the law was initially introduced by the government, opponents labelled it a “Russian law,” and since then, it has been commonly referred to this way. Russianness refers here not only to the similarities of this law with its Russian version but also to the kind of an  authoritarian state that the Georgian Dream government is consolidating, as well as to Georgia’s foreign policy turn away from Europe and the United States. As the Georgian government is trying to silence the actors critical to its policies and consolidate its power through establishing the legal mechanisms of surveillance and demoralisation, it has also clearly articulated a geopolitical shift. The government has been openly critical of US and EU involvement in Georgian affairs, all in the name of regaining sovereignty. Simultaneously, it has signaled the strengthening of alliances with countries like Hungary, China, Russia, and Iran. The Georgian government is thus trying to capture and weaponize the concept of sovereignty to legitimise a shift in internal and external politics. Yet, the government understands sovereignty not as gaining autonomy in policy making and acting in the best public interest, but rather as turning to one of Georgia’s main historical imperial powers (read: Russia) and acting against the will of many, especially the young generation. 

The weaponization of sovereignty has not only (geo)political, but also economic underpinnings. This is not surprising, as consolidation of authoritarianism needs a ‘proper’ economic base, which the political power can rely on. On the one hand, the government supporting media and civil societal actors have blamed the EU and American financial assistance for not supporting the development of the Georgian economy sufficiently and on the other hand, economic sovereignty has been used to legitimise a recent government decision to let the Chinese-Singaporean Consortium build the strategically important Anaklia deep-sea port. Not that this critique towards the West is illegitimate or something is wrong with economic sovereignty, but the way it has been framed is misleading, populistic and does not serve justice to the very notion of sovereignty per se. It remains unclear how the peripheral economy of Georgia with foreign capital and debt-dependent development model, as well as Russian capital-controlled strategic infrastructures (hydropower stations, the natural resources sector), can achieve any degree of economic sovereignty by only changing the sources of foreign capital. Therefore, this article aims to contextualise strengthening authoritarianism in Georgia through the prism of its economic development model and geopolitical tensions. 

Anatomy of a peripheral economy and immediate impacts of the Law

Georgia has a small and open economy, largely dependent on its service sector. The engines of economic growth are tourism, real estate, and construction, as well as finance. The Georgian economy faces structural economic risks in terms of its triple dependency on foreign capital, foreign currency and foreign goods. The reasons for these dependencies lie in the history of Georgia’s post-socialist transition since its independence in 1991. Shock therapy and Washington Consensus-based market reforms, early liberalization policies, and the lack of funding for the recovery of industries and agriculture made the peripherality and underdevelopment of Georgia’s economy, expressed in the above-mentioned dependencies, inevitable. 

Even at a later stage, after Georgia achieved a certain degree of macroeconomic stability, most of the foreign capital was diverted to finance, real estate, energy and communications, leaving the so-called real sectors of the economy underdeveloped and export structure deteriorated. Even though the above-mentioned sectors turned into the engines of economic growth, the dependence of Georgia’s economy on the continuous inflow of capital increased. Moreover, the post-Rose Revolution economic growth did not result in significant decline of poverty and income inequality. 

While these risks  are not only bout the dependence on foreign capital, the presence of Russian capital in the country is alarming. Russian businesses are well represented in such strategic areas as energy, heavy industry, and transportation. Russian influence on Georgia’s economy has increased since the start of the war in Ukraine, in terms of rising volume of capital inflow (real estate and finance) and remittances transferred to Russian immigrants in Georgia, as well as registration of Russian businesses. Trade relations with Russia have also been intensified in the last few years, as both the volume of imports (12% of total imports) and exports (12% of total exports) have been rising.

Dependence on foreign capital is not only expressed in the importance of foreign direct investment (8,6% to GDP) and remittances (15%to GDP) for economic growth and exchange rate stability, but is also crucial for funding Georgia’s current account deficit. Foreign capital plays an important role in Georgia’s financial sector as well, where most of the banks are owned by foreign shareholders (both individual and institutional investors). The Law on Foreign Influence might influence the inflow of foreign capital negatively and therefore the overall economic stability. The hearings of the Law had an immediate negative impact on the prices of the two largest banks’ stocks. While there are good reasons to criticize these oligopolist banks, the Georgian economy immensely depends on them. Therefore, it cannot be in anyone’s interest to see these banks going down or their reputation damaged, as this would eventually mean the collapse of the whole economy. Moreover, the adoption of the law creates additional pressure on those Georgians to emigrate, who are employed in the non-governmental sector and beyond – academia, arts, media, etc., as spaces for critical voices will shrink and make it impossible for many to pursue their professional lives. This would increase the volume of remittances, but sustainably damage the development of the country through the drain of brains and critical voices.

Dependence on foreign development banks and their responses to the Law

Another dimension of Georgia’s foreign capital dependence is its foreign debt, which is 75% of its total public debt.  More than half of the foreign debt is owed to European and American development banks (EBRD, EIB, IBRD), France and Germany, while 43% of debt is owed to the Asian Development Bank (ADB). Most of this money is used for financing the government budget, infrastructural projects, as well as banking sector and health programs. Thus, development banks are in an especially powerful position in this constellation, and the socio-economic future of Georgia will have to correlate with strategic decisions of the World Bank Group, ADB or EBRD, as some of these institutions lay as much value on democracy as on strengthening private initiatives and market economy. For now, it remains an open question - will they still cooperate with the Georgian government and stabilise their authoritarian rule or stop providing it loans? 

Even though Bankwatch published a statement in mid-May, raising alarm about shrinking spaces in the Georgian civil society and expressing hope that the development banks (EBRD, ADB) and the World Bank Group put on hold funding public projects in Georgia, in case of escalation, not to enable this government to stabilise its power, no such statements have been made by these institutions so far. In the beginning of May EBRD expressed its concerns about the law, that it would damage the Georgian economy in terms of worsening its investment climate, but without mentioning anything about their loans. This was followed by the statement of the regional director of EBRD in the Caucasus, that the EBRD was observing the ongoing situation and hoped for the continuation of its funding of energy, banking sector, and SMEs in Georgia. The statement of the WB group regional director was also careful, expressing its concern about Georgia appearing in the world press with negative headlines, but offering no warning regarding future funding. 

Risks related to foreign currency dependence

Georgia’s economy is also highly dependent on foreign currency, which can be observed in the high level of unofficial dollarization of loans (45%) and deposits (51%). Even though the rate of dollarization has been decreasing, the indebtedness of households and business in foreign currency is still high. More than 88% of gross external government debt is also dollarized. Therefore, exchange rate fluctuations pose a significant risk for households, businesses and the government not only in terms of increasing their debt burden but also due to the impact of lari depreciation on prices. The Georgian lari has been losing its value to the US dollar and Euro since the adoption of the law and the National Bank of Georgia had to sell 167 million USD to stabilise the exchange rate. However, if the trend of lari depreciation continues, everyone in the country will have to face the impacts of a depreciated currency, higher prices, and more debt. 

Falling of the lari makes imported goods more expensive for Georgian consumers. Georgia’s economy depends on foreign goods and has a significant trade deficit (deficit for goods is -9,514.9 mln USD). Georgia’s main trade partners are its neighboring countries. Despite the DCFTA agreement that freed Georgia’s trade with the EU, CIS countries remain more important trade partners for Georgia in terms of exports. Currently, only 9% of Georgia’s exports are sold in the EU, while 67% of its exports go to the CIS countries. 

Geopolitics of infrastructure-led development

Georgia’s economic development model has been based on achieving economic growth through foreign capital inflow, which has not necessarily led to the sectoral development of the economy or to its increased resilience against shocks and crises. Quite the opposite, the FDI-oriented economy, where private capital has been taking advantage of the investor-friendly legal framework, taxation system and labour market, as well as easy access to natural resources (without socio-ecological responsibilities) has led to the devastation of living spaces of Georgians at production sites, death of workers and deterioration of ecosystems. 

The key logic for Georgia’s development model over the last 10 years has been growth through state initiated and privately funded infrastructure projects. In the current global discourse of development, which is primarily promoted by the WB and UN, governments are required to initiate development projects and transform them into investable financial assets. Multilateral development banks provide credit for the implementation of such projects. However, governments are not only initiators of such projects, as they are also expected to take over the risks related to their implementation. 

This is because global investors claim that more than half of infrastructure projects, especially in the Global South, do not make profit. These are mostly public projects, where Public Private Partnerships (PPPs) play an important role. Daniela Gabor argues that this shift in the global development discourse replaced the Washington Consensus and what we deal with now can be called the Wall Street Consensus, where global finance is the key partner for states and the logic of de-risking has a crucial role. 

The Georgian government has fully adopted this developmental logic, and this is exactly why development banks are important actors in Georgia’s politics. The foreign development banks have been investing especially in the development of the energy sector in Georgia, be it building the HPPs, repairing old ones or funding new projects such as the Black See Cable. Moreover, EBRD and USAID recently signed a memorandum on the Trans-Caspian International Transport Route, which entails the enhancement of trade in the South Caucasus and across continents, green energy and investments in new digital industries. 

Infrastructure-led development seems to be rather appealing to the Georgian government as a model, as it does not require major structural change in the economy, education or labour market. Initiating infrastructural projects (together with development banks) or privatizing rights on rivers and forests is a relatively easy way of keeping the economy going, guaranteeing inflow of capital and showing publicly demonstrable results (new dam or a road) within a few years. Moreover, public-private partnerships within such projects open avenues of profit making for government loyal businesses, which further consolidates the existing political power and benefits authoritarian rule. The key goal for the government, in this case, is to guarantee the supply of capital for its development regime. 

While the Georgian government shows no intention to alter the infrastructure and debt-led development model, which has mostly been pushed forward by western institutions, it is trying to diversify sources of capital that will be needed to fund future infrastructure projects. The Anaklia Port, which is believed to play a pivotal role in the New Silk Road (China’s Belt and Road Initiative), is a good example of such an action, which will be built by a  Chinese led Consortium. The port represents a contested terrain of geopolitical struggles, especially between China and the USA. Its construction was stopped in 2020, even though an  American company-led consortium had won the tender. Anaklia Development Consortium was backed by the U.S.A. and the EU and funded by western multilateral development banks (OPIC, EBRD) at that time, as well as by ADB and AIIB. Two of the Chinese companies in the current consortium have been sanctioned by the USA and the World Bank, which has contributed to political division in Georgia, outlining geopolitical tensions. Yet, the Chinese participation in the project is most likely not an ad hoc decision. 

Georgia had signed an agreement on strategic partnership with China  which entails economic cooperation in the areas of transportation, communications, infrastructure modernization, development and strengthening of the Middle Corridor, digital technologies, trade, among other areas, as well as partnership within theBelt and Road Initiative.      

Even though the Georgian government will be owning 51% of the Anaklia port, the open question is where will the money come from? Even if Western development banks put credits to the Georgian government on hold, which seems to be rather unlikely, the government is already preparing alternatives. In parallel with the Law on Foreign Influence, the Georgian government adopted two lawsthat can be interpreted as attempts of mobilising additional sources of capital. The first one is a tax law which aims to encourage transfers to Georgia of capital from offshore jurisdictions.. The law offers income and profit tax exemptions, no import taxes on goods (planes, yachts) to all companies registered in an offshore country that would transfer 100% of their assets to a company registered in Georgia by January 1, 2028. The company in Georgia that receives these assets will also be freed from paying property tax until 2030. While the law has been widely criticized for turning Georgia into a black money hub, it should also be contextualized in terms of creating a possibility for capital inflow from alternative sources as it is the case now. It is also beyond logic to understand how the same government can initiate a law on foreign influence in the name of transparency and at the same time adopt a law that encourages money laundering and creates reputational risks to the whole country. 

The second law amends the law on pensions to increase the share of money from the pension fund which can be used for funding projects and infrastructure projects among them. Another amendment to this law also aims at strengthening government control over the governance of the pension fund. The existing investment and supervisory boards will be replaced by one body – the governing board. The appointment of its members will no longer be approved by the parliament, but by the prime minister. 

The Law on Foreign Influence wiping out resistance for a better future?

The above described development model has faced significant resistance from the local population in Georgia, be it protests against dams, or the privatization of forest and rivers. While the logic of development does not change in Georgia, the law on foreign influence will make it close to impossible to resist this model. Initiating development projects gives states in the Global South, where Georgia can be seen as well, some degree of power in terms of initiating development projects together with development banks, which creates a good basis for strengthening authoritarian rule. The foreign influence law can only strengthen such authoritarian rule through wiping out public protest against future projects that would be at odds with public needs and interests. This is not to say that public protests are funded by western money in Georgia, but the government can use the Law to label the protesters as agents to marginalise them. This tactic has already been used in regard to the Namakhvani movement, which was funded by Georgian diaspora, but the government tried to discredit the resistance against the dam by speculations on Russian origin of the funds or calling the protesters agents. 

Even though the Georgian economy is vulnerable due to its dependencies on foreign capital, foreign goods and foreign currency, the Georgian government seems to be taking care of diversifying the sources of capital to stabilise the existing economic model in case western capital flows turn away. Moreover, the government is trying to take advantage of Georgia’s strategic geographic position for energy and infrastructure projects and renegotiate terms of relations with its  old and new allies. Even if the western development banks continue to work with the Georgian government, the mentioned alternative sources of capital will give the government more leverage in their relationship with the development banks. Moreover, the implementation of big infrastructure projects will help them increase their legitimacy among their supporters and enhance their contended development politics. 

Therefore, the critique of authoritarianism must extend to the country’s vision of development, and vice versa, as the two feed each other and further strengthen its underlying political power.

the content of the article is the sole responsibility of the author and can in no way be taken to reflect the views of the Heinrich Boell Foundation Tbilisi Office - South Caucasus Region


Bankwatch Network (13 May, 2024). Statement by Bankwatch’s Executive Director on the shrinking space for civil society in Georgia, Kyrgyzstan and other EBRD’s countries of operation. Available at: https://t.ly/vRcPT 

BM.Ge (2 May, 2024). EBRD-id regionuli direkt’ori rusul k’anonze [EBRD Regional Director on the Russian Law]. Available at: https://shorturl.at/YyAwe 

BM.Ge (2 May2024). Roland Pryce rusul k’anonze [Roland Pryce on the Russian Law]. Available at: https://shorturl.at/MAAKQ 

BM.Ge (16 May 2024). EBRD-m da USAID-ma shua derepnis shesakheb memorandumi gaapormes [EBRD and USAID signed a Memorandum on the Development of the Middle Corridor in the South Caucasus]. Available at: https://shorturl.at/xoHxQ 

BM.Ge (9 June, 2024). Saertashoriso bank’ebi da energet’ika [International Banks Investing      in Energy Sector in Georgia]. Available at: https://shorturl.at/wblkp 

Bm.Ge. Kvanchilashvili, E. (10 June. 2024). Interviu ted jonastan anak’liis p’roek’t’ze [Interview with ted Jonas on Anaklia Port]. Available at: https://shorturl.at/vuNF1 

Civil.Ge, Gabritchidze, N. (20 April, 2024). New Tax Law Fuels Worries of Georgia Becoming Black Money Hub, Available at: https://civil.ge/archives/600399 

Civil.Ge (15 May, 2024). Georgian Companies’ Shares Drop on London Stock Exchange After Adoption of Agents Law. Available at. https://civil.ge/archives/607329 

Civil.Ge (30 May 2024). Domestic Reactions to Granting of Anaklia Port to Chinese Consortium. Available at: https://civil.ge/archives/610451 

Civil.Ge (13.06.2024). NBG Sells More US Dollars in One Month than in 2023. Available at: https://civil.ge/archives/612714 

Embassy of the People’s Republic of China in Georgia (2023). Joint Statement of the People's Republic of China and Georgia on Establishing a Strategic Partnership. Available at: http://ge.china-embassy.gov.cn/eng/xwdt/202308/t20230807_11123383.htm 

Eradze, I. (2024). Visia ek‘onomik’uri k’etildgheoba? [Who does Economic Welfare Belong to?]. Indigo. Available at: https://indigo.com.ge/articles/ekonomikuri-ketildgeoba 

Eradze I. (2024). Sad midis chveni pensia: tsvlilebebi sap#ensio danazogebis k’anonshi [Where do our Pensions flow to? Last Chnages in the Law on Pensions]. Komentari. Available at: https://komentari.ge/article/sad-midis-chveni-pensia-bolo-tsvlilebebis-anatomia-dagrovebithi-pensiis-shesakheb-kanonshi/ 

Gabor, D. (2021). The Wall Street Consensus. Development & Change. https://doi.org/10.1111/dech.12645 

Gugushvili, D. (2017). Lessons from Georgia's neoliberal experiment: A rising tide does not necessarily lift all boats, Communist and Post-Communist Studies, 50 (1), https://doi.org/10.1016/j.postcomstud.2016.11.001 

Khalvashi, T. (2024). In the Name of Sovereignty: Georgia’s Second Attempt to Pass the “Foreign Agents” Bill. E-flux. Availbale at: https://shorturl.at/kUSUk 

Ministry of Finance of Georgia. Public Debt. Avilable at: https://mof.ge/en/4409 

National Bank of Georgia. Key Macroeconomic Indicators and International Ratings. Available at: https://nbg.gov.ge/en/statistics/international-rating 

National Bank of Georgia (2023). Gross External Debt of Georgia. Available at: https://nbg.gov.ge/en/media/news/gross-external-debt-of-geor-53 

National Statistics Office of Georgia. External Merchandise Trade. Available at: https://www.geostat.ge/en/modules/categories/765/external-merchandise-trade 

Rekhviashvili, L., & Lang, T. (2024). Chinese investments as part of infrastructure-led development: multi-scalar contestations around Georgia’s flagship infrastructure projects. Eurasian Geography and Economics, 1–30. https://doi.org/10.1080/15387216.2024.2311712 

Radio Free Liberty & Standish, R. (May 29, 2024). Chinese-Led Consortium To Build Massive Port Project On Georgia's Black Sea Coast. Available at: https://shorturl.at/Jg539

Rekhviashvili, L., Nakhutsrishvili, L., Eristavi, K., Aroshvili, A., Eradze, I. (2024). There’s more at stake in the fight against the Foreign Agents Law than liberal NGOs: Why the left should show solidarity with the protests in Georgia. Lefteast. Available at https://shorturl.at/Q4PS6

Rekhviashvili, L. (2023). From Being a River to Becoming a Hydro Resource and a Financial Asset, Rekhviashvili. Tbilisi Architecture Biennial, January-february-march. Available at: https://shorturl.at/5cv5r 

Reuters (May 7, 2024). EBRD warns Georgia 'foreign agents' law could hit economy, investor confidence. Available at: https://t.ly/6D6A8  

Topuria, S., Khundadze, T. (2022). Neoliberal Lock-in: Why Georgia-EU Free Trade Does Not Work. Friedrich Ebert Foundation South Caucasus. Available at: https://library.fes.de/pdf-files/bueros/georgien/20145.pdf 

Transparency International Georgia (2022). Georgia's economic dependence on Russia: Trade, tourism, remittances, and Russian companies in Georgia. Avilable at: https://shorturl.at/pmxv0 

Transparency International Georgia (2023). Georgia's Economic Dependence on Russia Continues to Grow: January-June 2023. Available at: https://shorturl.at/ZdQBj 

World Bank Group Data. Foreign direct investment, net inflows (% of GDP) – Georgia. Available at: https://shorturl.at/zfk59 

World Bank Group Data. Personal remittances, received (current US$) – Georgia. Available at: https://t.ly/fA-5m