Trade since the war in Ukraine: shifts likely to be temporal
Since the start of the war in Ukraine, Georgia’s trade dynamics have shifted significantly. Car re-exports have surged, especially to Kyrgyzstan, Kazakhstan and Armenia, most of which is later re-exported from there to Russia. Car re-exports now account for 35% of total exports, though the future of the sector remains uncertain. Goods exports to Russia have seen limited change in volume, but the country continues to be an important market for some goods, especially in the agro-food sector.
Meanwhile, imports of oil products from Russia have risen sharply due to the discount on Urals oil, though Georgia has shown flexibility in sourcing from other suppliers when needed. While these trends reflect shifts in Georgia’s trade structure, many may prove to be temporary.
Significant shifts in trading dynamics
The war in Ukraine has had significant repercussions on the global economy, impacting trade patterns across numerous regions. As a transit hub and a bridge between Eastern Europe and Central Asia, Georgia’s economy is heavily influenced by global economic developments and changes in trade patterns, particularly those involving Russia, and has thus experienced notable shifts in its trade dynamics due to the war.
Strong increase in re-exports of motor cars
Even before the war in Ukraine, car re-exports played an important role in the economy as Georgia’s favourable geographic location and relatively liberal trade policies turned it into a hub for car re-exports in the region. Used (and oftentimes damaged) cars are mainly imported from the USA and to a lesser degree from Europe and then repaired. Many of those cars are then re-exported. The business grew over the years, with cars reaching an average share of 12% of total exports between 2015 and 2021. The high significance of the car re-exports for current trends in trade can be illustrated in the following way: total exports (incl. motor cars) increased by 43% between 2021 and 2023, whereas exports excluding cars increased by only 5%.
When analysing developments since the war in Ukraine, two points stand out: 1) the increase in the value of car re-exports and 2) shifts in the regional structure of these exports. While car re-exports reached a value of USD 457 m in 2021, they rose sharply to USD 2.1 bn by 2023. From a share of 11% of total exports in 2021, it amounted to 35% in 2023.
Click the button below to load the content of Datawrapper.
Russia has only played a relatively minor role as a (direct) destination market for car re-exports before the start of the war and this has not changed substantially (although the export value increased in 2022 and early 2023). A key factor were additional sanctions packages by the US and the EU (11th package) in summer 2023, which restricted exports to Russia for most types of cars. While Georgia did not join Western sanctions, it has committed to preventing sanctions circumvention. As a result, exports to Russia ceased almost completely. The sanctions do not apply to exports to other countries. Re-exports to Kyrgyzstan, Kazakhstan and Armenia, previously relatively small export destinations, have increased significantly as these countries have become hubs for further re-exports to Russia. Their importance can be illustrated by looking at the development of the share in total car re-exports: starting at 10% in 2021, they accounted for 71% in 2023 and 82% in 6M2024.
Goods exports to Russia stable, limited changes
With the start of the war in Ukraine, economic relations with Russia have received further attention. Russia still remains an important export market, especially in the agro-food sector. Goods exports to Russia increased by 8% between 2021 and 2023, a modest increase when compared to an increase of 49% to other destinations. The share in total exports fell to 11% (2021: 14%). However, as outlined above, cars currently have a much higher significance for export statistics. However, as shown above, cars are currently much more important for export statistics. Excluding cars, exports to Russia remained almost unchanged between 2021 and 2023, while those to other countries increased by around 6%.
Selected good exports to Russia 2023 vs. 2021
Most visibly, exports of ferro-silico-manganese went down strongly, but this is mainly the result of a global price decline. In the agro-food sector, Russia has always been an important market. Goods such as wine (66% exported to Russia in 2023), spirits (43%) and water (51%) are mainly exported there. Overall, however, neither the structure nor the volume of goods exports to Russia has changed significantly.
Oil products: developments are largely price-driven
Regarding imports of goods from Russia, the development of oil products (especially fuel) is particularly noteworthy. Before the war, these were well diversified, with Russia accounting for around 18% of the total.
Click the button below to load the content of Datawrapper.
On the international markets, Russian Urals oil has been trading at a discount compared to other types since the beginning of the war. As a result, the Russian share increased strongly in 2022 (49% on average) and early 2023 (up to 76% in Feb-23). However, between Sep-23 and Nov-23, Russia instituted a temporary export ban on oil products, which led to a decline. In 6M2024, the share stood at around 46%. Overall, the increased imports of oil products are a temporary reaction to the price development. As seen by the reaction after the export ban, Georgia can relatively easily source oil products from other countries so that economic exposure is limited.
Outlook
The war in Ukraine has had a significant effect on trading patterns worldwide and Georgia is no exception to this development. Arguably, the most visible change is the increase in car re-exports and the resulting change in the regional structure of exports. This regional shift has also caused Kyrgyzstan, Kazakhstan and Armenia to make up a much larger share in total exports, which is important when analysing Georgia’s trade structure. While the re-export business was thriving in the last two years, the future of the sector is less certain. The development will not only depend on the war in Ukraine, but also on China’s increasing role as a car exporter for the Central Asian and Russian market. The current figures may thus well be a temporary development. Russia’s share in Georgian exports, especially of domestically produced agricultural goods, has remained largely stable. Imports have grown strongly, but this was on the back of price developments of oil products and should not be interpreted as a permanent change. Overall, while the war has caused significant shifts in Georgia’s trade structure, many of these developments may be temporary.
Further information on Georgia’s economic exposure to Russia, also beyond trade in goods, can be found in Newsletter No. 53.
