Russian Companies Winning State Tenders in Georgia

Executive Summary:

• The number of Russian companies registered both in Russia and Georgia that are winning Georgian state tenders is increasing, even though Russia has occupied 20 percent of Georgia’s territory since Moscow’s 2008 invasion of Georgia.
• Russian companies winning Georgian state contracts became more common after Russia’s full-scale invasion of Ukraine in 2022, when Russian citizens escaping from the Kremlin’s mobilization established thousands of enterprises in Georgia and obtained the right to participate in state tenders.
• State tenders won by Russians are just one manifestation of the reality in Georgia over the past decades, where a large share of strategically important assets belong to Russian companies or even to the Russian state.

Russian companies are profiting from the Georgian taxpayer. Over the past ten years, Georgian state agencies have signed 379 contracts with Russian companies worth 16 million Georgian Lari (GEL) (approximately $6 million). In August, it was reported that the Government of the Autonomous Republic of Abkhazia recently signed a contract to purchase more than 100 kilograms of candy for refugee children. KDV, a Russian company registered in Siberia, received the contract for about 1,700 GEL ($630) (iFact, August 13). While this seems to be an insignificant amount of money and a trivial purchase, many Georgians displaced from Abkhazia are wondering why the organization meant to represent them would do business with a Russian company when several Georgian companies also produce popular candies. The founder of KDV, Denis Shtengelov, is a businessman sanctioned by Ukraine and an active supporter of Russian President Vladimir Putin’s regime (iFact, August 13). Beyond candy, the Georgian state purchases sports equipment, car parts, engineering, and construction support from Russian companies (TV-Formula, August 29). Out of the 16 million GEL paid from Georgian state agencies to Russian companies, 6 million GEL ($2.22 million) went to companies that were registered in Georgia after Russia’s full-scale invasion of Ukraine in 2022 (iFact, August 13).

The Georgian government’s choice to do business with Russian companies directly contradicts the attitude of the vast majority of Georgian citizens, who stand against Russia and support Ukraine (Civil Georgia, March 10, 2022). Some Georgians participate in a boycott of Russian products led by several non-governmental organizations (NGOs). Meanwhile, staff in cafés, bars, restaurants, and even ordinary shops often refuse to speak Russian and serve Russian customers only on the condition that they condemn Russia’s aggression against Ukraine. There is another segment of the population in Georgia, however, that believes greater economic integration with Russia will prevent the Kremlin from taking military action against Georgia again, as it did in 2008.

Russia’s penetration into Georgia’s economy is not limited to tenders. Between 2022 and June 2024, Russian citizens established 20,347 businesses in Georgia. Most of these are “individual enterprises,” meaning a Russian citizen is registering as a sole proprietor. In many cases, these businesses take away jobs from Georgians—eight percent of all active companies in Georgia are registered to individuals with Russian citizenship (IDFI, September 17, 2024). The Association of Georgian (Tour) Guides filed a complaint with the Georgian government, outlining how Russian businesses are taking jobs from Georgians. Russian guides often arrive with Russian tourists and gloss over the Kremlin’s crimes against Georgia, never discussing that 20 percent of internationally recognized Georgian territory, Abkhazia and South Ossetia, is illegally occupied by Russia (IDFI, September 17, 2024).

In many cases, Georgia gains no material benefit from the activities of Russian tourists and residents. They open cafés, restaurants, shops, and salons that primarily serve Russians. They prefer patronizing “Russian” cafés and restaurants rather than Georgian ones, because there they find a familiar environment and a Russian-speaking space. Georgian cafés and restaurants often struggle to withstand the competition and close (iFact, August 29). In the tourist cities of Batumi and Tbilisi, numerous catering establishments have been opened by Russians, which mainly serve Russians and, in many cases, do not even pay taxes, exploiting various “loopholes” in Georgia’s tax legislation (iFact, August 29).

The Georgian government is paving the way for Russian tourists and residents in Georgia. Russian citizens can live in Georgia for up to one year as a non-resident (tourist), without requiring any registration. In many cases, Russians who own businesses in Georgia leave the country for a short period after the one-year term expires, then return, at which point the one-year period starts again (IDFI, September 17, 2024).

Determining how many Russian “relocanty” (релоканты) live in Georgia is difficult because they do not have to register unless they have been continuously in Georgia for more than a year. Estimates put the number of Russian citizens living in Georgia at 100,000, but since many avoid registration, determining the exact figure remains challenging. According to iFact’s research released at the end of August, since 2022, Russian citizens have established 229 restaurants, cafés, and bars in Georgia, mainly in Tbilisi and Batumi, with Russian customers as their primary clientele. Additionally, Russians are actively opening schools, kindergartens, travel agencies, and hotels in Georgia (iFact, August 29).

Georgia has also become a “paradise” for Russian information technology (IT) workers. Today, of the 21,047 IT companies registered in Georgia, more than half—57 percent—are Russian-owned. The Georgian government has introduced special benefits for Russian IT companies. The founders, employees, and family members are granted residence permits in Georgia; they pay 5 percent income tax instead of 20 percent; 5 percent corporate tax instead of 15 percent; and they are exempt from property tax altogether (Kommersant, June 4). Russian specialists often operate using bitcoin or other virtual currencies, meaning that their activities in Georgia may pose state security risks, given the potential sensitivity of their work and the difficulty in tracking their virtual payment systems.

The infiltration of small Russian businesses into Georgia is occurring against the backdrop of the large-scale intervention of Russian big businesses, including Kremlin-owned companies, over the past 20–25 years (see EDM, February 15, 2024). The Russian financial organization Zolotaia Korona operates actively in Georgia, with services available in about 500 banks and other financial institutions. The Georgian–Russian joint energy company Sakrusenergo owns Georgia’s high-voltage transmission lines, including those connecting Georgia’s energy system with both Russia and Azerbaijan (IDFI, September 17, 2024). Russia’s state-owned energy company Inter RAO owns Tbilisi’s electricity distribution network and several hydroelectric power plants. One of Georgia’s main importers of dairy products is the Russian company Wimm-Bill Dann (IDFI, September 17, 2024). Russian citizens in Georgia own Lukoil gas stations, as well as the Gulf network of gas stations and the Poti Oil Terminal. They also control precious metal mining companies RMG Gold and RMG Copper, the mineral water producer Borjomi, the locomotive manufacturer Elmavalmshenebeli, the mobile operator Beeline (now rebranded as Selfie), and many other companies (IDFI, September 17, 2024).

With increasing financial integration, Georgians are wondering how their government can withstand the growing pressure from Russia to abandon its pro-Western course and become part of the so-called Russkiy Mir (Русский Мир, Russian World).