Russians Open Record Number of Businesses in Georgia Amid War in Ukraine

 Executive Summary:

• Russia has significantly increased its influence in Georgian business, particularly after the beginning of the war against Ukraine. More Russian businesses have opened in Georgia since the start of the war in Ukraine than in the past 30 years combined.
• Russian business penetration into Georgia is seen as a soft power policy from Russia, leading to an increase in Russian influence in the social fabric of Georgia through demands for residence permits and Russian-language schools.
• The increase in Russian businesses poses a grave political threat and risks to national security. This also deepens Georgia’s economic dependence on Russia, strengthening Moscow’s influence.

In 2023, Georgia was the top country where Russian citizens opened businesses. From January to December 2023, Russians registered 13,000 legal entities in Georgia. In second place was Kazakhstan, where Russians created 6,100 companies in the past year. Third place is shared by Armenia and Montenegro, where 3,400 legal entities with Russian owners were registered each (News.On.ge, January 18). There are over 32,000 companies owned by Russian citizens or companies operating in Georgia. Out of these, approximately 26,000 were registered in the last two years, specifically after the beginning of Russia’s aggression against Ukraine (see EDM, August 10, 2023; Forbes.ru, January 17).

Roman Gotsiridze, former Deputy Prime Minister in 1992–1993 and former President of the National Bank of Georgia (NBG) in 2005–2007, said in his February 12 interview with this author that the majority of Russian businesses registered in Georgia are individual enterprises. Gotsiridze emphasized: “The Russians need the status of an individual entrepreneur to open accounts in Georgian banks for money transfers. But not only that: Russians also used their status as businessmen in Georgia to open cafes, restaurants, and other small businesses.” He further argued: “They really like that in our country there is a very liberal tax regime: in the case of a turnover of 500,000 lari ($190,000), an individual entrepreneur pays 1 percent taxes. But on the other hand, this means that the share of Russians in the formation of Georgia’s budget is minimal.”

According to Gotsiridze, the second problem is that Russian businessmen do not create jobs in their enterprises for Georgians, but instead hire Russian “relocants” (релоканты). He observed that “in 2022, 100,000 Georgian citizens left the country and went to Europe in search of jobs. But at the same time, even more Russians came to Georgia, taking jobs.”

The former NBG president claimed that in addition to individual enterprises, citizens of the Russian Federation also create limited liability companies (LLCs). This process leads to significant consequences in the social sphere. Gotsiridze contended that “12,000 Russians bought apartments in Georgia. This means that 30–40 thousand Russians have already become residents in our country; they demand that they be given official residence permits. Also, they require the opening of Russian kindergartens, Russian schools, and so on.”

He recalled that in any Western democratic country, an increase in the share of Russian business in the national economy is perceived as a grave political threat and a risk to national security. Gotsiridze stipulated: “Turkey has become the main source of ‘parallel imports’ for Russia under Western sanctions, and Georgia, as a neighboring country, is involved in this process objectively and subjectively, despite numerous statements by the Georgian authorities about compliance with sanctions against Russia.” According to him, a visa-free regime between Moscow and Tbilisi and a constant increase in the number of direct flights between Russian and Georgian cities helps the free movement of capital and the “infiltration” of Russian business and, therefore, Russian political influence in Georgia.

Subsequently, Georgian researchers identified the sectors in which more than two thousand companies have registered since 2022. According to the research conducted by Transparency International-Georgia, 80 percent of these companies operate in the field of information technology (IT). IT specialists often register as entrepreneurs and enter into partnership agreements with employers, benefiting from tax advantages. Following closely, design and advertising activities constitute 5.3 percent of newly registered companies. Additionally, 4.7 percent operate in education, arts, and entertainment, while 3.5 percent are in retail, restaurants, and hotels.

Since February 24, 2022, Russians have opened three times more businesses in Georgia than in the past 27 years combined—from January 1995 to February 2022. Only 7,788 such enterprises were registered with the National Agency of Public Registry during that period. Thus, according to these conclusions, after the start of the Kremlin’s all-out war against Ukraine, Russians have registered an average of 1,300 enterprises in Georgia every month.

Petre Ciskarishvili, General Secretary of former President Mikheil Saakashvili’s United National Movement party, is sure that becoming a “second home” for the Russians fleeing the war and mobilization does boost Georgia’s GDP, but it also bears different risks (Author’s interview, February 12). Ciskarishvili noted: “[allowing] one’s economy [to become] dependent on trade with Russia [will] result in enhancing the leverage and influence of [the] Kremlin to pull the plug … at any moment.” He further contended: “Besides this vulnerability, the Russian influx degrades Georgia’s ability to attract investors and trade from other mainly Western countries who have adopted sanctions against Russia. Politically, the more Russian citizens you accept and try to integrate into the country, the [greater the risk of Russian President Vladimir] Putin using their presence as a pretext for invasion.”

The processes that have arisen out of Russian aggression against Ukraine have deepened Georgia’s economic dependence on Russia and further strengthened the influence of Moscow, which has been constantly growing over the past 20 years. Several major Russian companies have established themselves in Georgia, including:

• In the energy sector, companies include:
  • Joint Stock Company (JSC) Telasi, which holds the exclusive right to supply and distribute electricity in Tbilisi.
  • SakRusenergo United Energy System, which has a 50 percent ownership split between the Russian state-owned company Federal Grid Company of the Unified Energy System (FGC UES PJSC) and the Ministry of Economy and Sustainable Development of Georgia.
• In industry, companies include:
  • IDS Borjomi Beverages Company LLC, which was registered in Georgia in 1997. This branch is licensed to utilize the Borjomi Gorge and other water sources in Georgia. Russian billionaire Mikhail Fridman is one of the company’s owners.
  • Wimm-Bill-Dann Georgia LLC, a dairy producer and importer, which is wholly owned by Wimm-Bill-Dann JSC, registered in Russia.
•  In the service sector, companies include:
  • JSC VTB Bank Georgia, which is a subsidiary of the Russian VTB Bank, a majority state-owned bank based in Saint Petersburg.
  • KaDeWe Georgia LLC, which is owned by the Russian company KaDeWe.
  • JL “Ineo,” which is owned by Alexei Volchkov and Alexei Sonka, Russian citizens.
•  In the natural resources sector, companies include:  
  • RMG Copper JSC and RMG Gold LLC, which are owned by Mining Investment LLC and Russian citizen Dmitry Troitsky.
• Fifty percent of Poti Grain Terminal LLC is owned by Tower Capital Trading, a company registered in the British Virgin Islands. It is controlled by Russian citizens Alexei Chemerichko and Marat Shaydaev.
• Established in 2002, Lukoil-Georgia LLC is owned by CJSC Litasco and is registered in Switzerland. The ultimate beneficiary of Litasco is the Russian company Lukoil (Jam news, February 1).

This is only part of Russia’s “penetration” of the Georgian economy. The process is encouraged by the Kremlin as a policy of “soft power” in the unoccupied territory of Georgia—one should not forget that the Russian army continues to occupy 20 percent of the country following its invasion in 2008. The influence of these businesses and the continued migration of Russians to Georgia due to the war in Ukraine will hold substantial consequences for the future of the Georgian economy and the country’s fight against Russian influence.