ISET Economist Blog

Playing Against the Odds: What’s at Stake for Georgia as It Bets on the Tourism Revival Strategy?
Friday, 12 June, 2020

Georgia reacted to the COVID-19 pandemic by immediately introducing aggressive measures. Closing international borders, declaring a state of emergency, shutting down public transportation, banning local travel and public gatherings, closing restaurants and shopping malls, and introducing a nighttime curfew—these are all instruments that were used by the country’s government and health authorities to stop the spread of the virus. As a result, the health system was not overwhelmed with COVID-19 patients. As of June 12th, Georgia has had 837 confirmed coronavirus cases, 697 of whom have recovered. Mortality also remained low with 13 deaths. Overall, the epidemiological situation in Georgia is much better than in the neighboring countries of Armenia, Azerbaijan, Turkey, and Russia.

However, the success achieved in fighting against the coronavirus had its costs. Due to emerging uncertainties and the restrictions imposed, economic activity slowed down. Thousands of people in both the official and unofficial sectors of the economy lost their job and source of income; the risk of poverty emerged. Various support programs implemented by the Government marginally softened the shock and accelerated the following recovery.  According to GeoStat, real GDP contracted by 2.7% YoY in March and 16.6% YoY in April.

Under the pressure of COVID’s economic impacts, Georgia accelerated the process of easing restrictions.  Most restrictions had already been lifted by the end of May with restaurants, hotels, and inter-city transportation resuming operations on June 8. All sectors, and especially tourism, are expected to benefit from these actions. The importance of tourism for Georgia is difficult to overestimate. According to GeoStat, tourism-related sectors accounted for 11.6% of GDP in 2019. At the same time, the direct contribution of tourism to employment was 10.9% (WTTC, 2020).1

The Government elaborated a tourism revival anti-crisis plan which includes tax relief and postponements for accommodation and food facilities, travel companies, and guides. Loan guarantees and subsidized interest rates will also be provided. According to the anti-crisis plan, domestic travel to special "safe" tourism zones will be resumed from June 15. From July 1, the country will accept international tourists from so-called “safe corridors”—utilizing direct flights with countries where the epidemiological situation is under control. The initial list of potential countries as elaborated by the Georgian Government includes Israel, Latvia, Lithuania, Estonia, Austria, Germany, the Czech Republic, Hungary, and probably Poland and Greece.

By opening its borders, Georgia is among the first group of countries cautiously restarting their tourism industries. The competition for tourists in 2020 is expected to be fierce, as the main European tourist destinations (Greece, Italy, Spain, etc.) are also planning to partially open their borders starting in June. Some countries are going to use innovative measures to stimulate international tourism. For example, Cyprus will back pay all holiday costs (except for expenditures on air tickets) to visitors infected in the country.2 Meanwhile, Georgia’s main comparative advantage for attracting tourists is safety. As a fact, according to the European Centre for Disease Prevention and Control data only Andorra, the Faroe Islands, Gibraltar, Malta, Monaco, Montenegro, and San Marino have fewer total coronavirus cases. The Washington Post, CNN, and Forbes have already picked Georgia as a major tourist destination in the post-COVID world. Furthermore, Forbes named Tbilisi and Batumi respectively the first and seventh safest tourist destinations in 2020 with “wow effect guaranteed”.

To maintain the success achieved so far and the image as a “COVID free” country, Georgia announced standards and regulations for hotels, swimming pools, and restaurants. These new requirements intend to further improve safety for visitors and tourism service providers by ensuring social distancing and additional sanitation measures. Furthermore, tourists visiting Georgia will be required to provide the results of a PCR test not more than 72 hours old.

How many tourists will visit Georgia this year? While it is impossible to predict even an approximate number, it will not reach anywhere near the numbers in recent years. Visitors from shortlisted “safe” countries accounted only for 6.4% of total international visitors in 2019 (on the positive side, they spend more per visit than visitors from neighboring countries).

To estimate the potential effects of coronavirus on Georgian tourism and the economy as a whole, we used GeoStat data on inbound and domestic visits. It should be mentioned that outbound travel does not contribute to Georgia’s economy as it is an import of services (money is spent on goods and services produced in other countries). On the other hand, the incoming spending of international and domestic visitors stimulates local production and supply of services.

In our calculations, we used an alternative estimation of tourism’s share in GDP. First, the share of value-added in gross output was calculated in the following tourism-related economic sectors: 1) Hotels, campsites, and provision of other short-stay accommodation, 2) Retail trade, including trade of motor vehicles and motorcycles, 3) Transport via railways and other land transport; the sea and coastal water transport, and 4) Activities of travel agencies and tour operators; tourist assistance activities. Second, the estimated shares corresponded to visitors’ expenditure structure.3 Finally, visitors’ expenditures and their corresponding shares were used to estimate the value-added they created during their visit.

According to GeoStat, international visitors spent 8,512 million GEL in 2019. At the same time, Georgians spent 1,843 million GEL on travel inside the country, while their spending abroad was 2,082 million GEL. Our estimations suggest that the overall contribution of tourism to the economy was 14.5% in 2019.

To simplify the estimations of potential tourism revenues and their contribution to the economy in 2020, we assumed visitors spent the same amount in the first quarter as a year ago and zero spending in the second quarter. After that, different scenarios are applied to estimate the economic indicators for the third and fourth quarters of 2020.

Table 1. Economic indicators of visitors’ trips

  Expenditure (million GEL) Share in 2019 GDP (%) GDP loss in 2020 (%)
  Incoming Outgoing Domestic Total Incoming Domestic Total  
Baseline (2019) 8,512 2,082 1,843 12,436 11.8 2.6 14.5  
Scenario 1 1,186 359 1,485 3,031 1.7 2.1 3.8 10.7
Scenario 2 1,186 359 2,038 3,583 1.7 2.9 4.5 9.9
Scenario 3 1,186 359 2,590 4,136 1.7 3.6 5.3 9.2
Scenario 4 2,420 636 2,314 5,369 3.4 3.3 6.6 7.9
Scenario 5 3,653 912 2,038 6,602 5.1 2.9 7.9 6.5
Scenario 1 – no incoming or outgoing visits, domestic visits are fully restored in Q3 and Q4 2020;
Scenario 2 – no incoming or outgoing visits, domestic visits are fully restored + 50% of outgoing visits are substituted by domestic trips in Q3 and Q4 2020;
Scenario 3 – no incoming or outgoing visits, domestic visits are fully restored + 100% of outgoing visits are substituted by domestic trips in Q3 and Q4 2020;
Scenario 4 – 25% of incoming and outgoing visits are restored, domestic visits are fully restored + 75% of outgoing visits are substituted by domestic trips in Q3 and Q4 2020;
Scenario 5 – 50% of incoming and outgoing visits are restored, domestic visits are fully restored + 50% of outgoing visits are substituted by domestic trips in Q3 and Q4 2020;

Source: GeoStat, authors’ calculations

Scenario 1 can be considered the most pessimistic. In this case, the tourism sector relies only on domestic visitors. According to this scenario, the economy will lose 10.7% of 2019 GDP.

In scenarios 2 and 3, outgoing visits are assumed to be substituted by domestic visits. In other words, instead of going to popular tourist destinations in Europe, Georgians will spend their vacation on luxury sea resorts in Adjara and scenic mountain resorts in Tusheti or Svaneti. According to the third scenario, in which the total spending of Georgians on outbound tourism is fully allocated for domestic visits, GDP loss is estimated to be 9.2%.

Scenarios 4 and 5 reflect the effect of opening international borders to specific “safe” countries. In these scenarios, we assume that the number of international visitors recovers to 25% or 50% of the 2019 level.

So, how many visitors from the “safe countries” should Georgia attract to compensate for COVID-19 losses, and which countries should be targeted in an international tourism promotion campaign? The answer to these questions will be discussed in the next issue of the ISET Economist blog on this subject.

1 World Travel & Tourism Council.
2 Forbes, 2020
3 According to GeoStat, visitors’ total expenditures include spending on: Accommodation, Cultural and Entertainment Services, Shopping, Domestic Ground Transportation, Served Food and Drinks, Other.

The views and analysis in this article belong solely to the author(s) and do not necessarily reflect the views of the international School of Economics at TSU (ISET) or ISET Policty Institute.