The Decline of Foreign Direct Investment in Georgia: Challenges and Implications for Sustainable Growth

According to Geostat, the volume of Foreign Direct Investment (FDI) in Georgia fell to about 966 million USD in the first three quarters of 2024, a significant decrease from the previous period. In the third quarter alone, investments amounted to about 198 million USD, also showing a notable decline.

One of the primary factors behind this drop is the reduction in equity capital. In the third quarter, equity capital reached about 131 million, roughly two-thirds of total investments, yet markedly lower than before. Reinvestments also fell points to growing economic uncertainty.

In Georgia’s economic sectors, diverse trends are observed. In the third quarter, the manufacturing sector attracted about 64 million. The energy sector saw 43 million, and the trade sector garnered 32 million. Investments in these top three sectors highlight the lack of diversification.

Among the leading investor countries, the Netherlands (60 million), Malta (58 million), and the United Kingdom (55 million) stand out, reflecting a high concentration of FDI from a small number of foreign investors. Attracting new investors remains a significant challenge.

Despite an estimated 8% economic growth in 2024, the decline in FDI poses substantial risks to Georgia’s sustainable development. FDI plays a critical role in transferring capital, technology, and management practices, enhancing productivity and diversifying the economy. A reduction in FDI hinders these processes, limiting long-term growth.

Studies show a strong link between FDI and GDP growth, as FDI brings capital, technology, and expertise that boost productivity. Countries with higher FDI generally grow faster, especially under robust local institutions. For Georgia, declining FDI may weaken this connection, reducing access to vital resources.

The high growth rate amidst falling FDI can be explained by other factors, but such growth is usually temporary and may not ensure sustainable development. A low FDI level cannot guarantee stable long-term growth. Foreign investments foster technological innovations, job creation, and stronger export-oriented sectors. Their absence heightens several risks: dependence on domestic markets, reduced global competitiveness, and potential financial deficits.

The prolonged decline in FDI and stalled technological and infrastructure projects significantly limit Georgia’s potential. Achieving sustainable growth requires policies aimed at diversifying the economy, restoring investor confidence, and creating conditions conducive to attracting international capital.