Georgia rises as a tech hotspot – but for how long?

Georgia’s IT sector, once a fledgling niche, has experienced a meteoric rise, driven by the relocation of international companies and foreign developers amid the ongoing war in Ukraine. Yet, this rapid growth might be under threat as political instability and geopolitical risks mount

 
 

Just four years ago, in 2020, there were only 1,971 IT companies operating in the small Caucasian country of Georgia, with 79 percent of them being locally owned. Fast forward to 2024, and the landscape has shifted dramatically. Official data reveals that the number of IT companies has surged to 24,117, with 84 percent now being international.

A recent study by Galt & Taggart, Georgia’s leading investment banking and management firm, highlights the information and communication technology (ICT) sector as the country’s fastest-growing industry since 2022. This growth has been driven largely by the IT sub-sector, which recorded a turnover of GEL 2.4bn ($816m) in 2023 – a significant boost to Georgia’s economic landscape.

International companies are increasingly relocating to Georgia, with many moving their entire operations. Currently, 72 companies are classified as large or medium-sized, while the majority of the remaining businesses are foreign sole proprietors. The sector’s growth was initially spurred by tax incentives introduced in 2020. To strengthen Georgia’s appeal as a regional hub and attract multinational firms, the government lowered income tax rates to five percent for companies with international status.

However, it wasn’t just fiscal policy driving this growth. According to Kakha Samkurashvili, head of sector research at Galt & Taggart, while tax incentives were vital, the war in Ukraine reshaped the global IT landscape, creating unforeseen opportunities for Georgia. “Following the war in Ukraine, many IT companies and developers relocated to Georgia, primarily from Belarus and Russia. The surge in code production and the number of developers in the country directly aligned with the peak influx of migrants,” Samkurashvili says. According to various studies, the peak of emigration to Georgia – totalling approximately 100,000 people – was recorded in the first and second quarters of 2023. Samkurashvili notes that it was during this period that the IT sector experienced its highest growth rate.

A new strategic location amid the war
Russia’s full-scale invasion of Ukraine impacted one of the leading international companies, Exadel. The war transformed the company’s newly opened Georgian office into one of its major strategic locations.

“We had our offices in Belarus and Ukraine, but the war has brought significant changes and challenges. While we have managed to keep our offices open, the situation for developers working in Ukraine is far from easy; periodical power outages and other disruptions make the work difficult. Additionally, there is an emotional impact on everyone,” said George Khoshtaria, a marketer at Exadel.

The arrival of international companies has played a crucial role in the country’s economy

Exadel, an international technology company with over 25 years of experience in the digital market, entered Georgia in 2021. According to Khoshtaria, there were a few reasons why Exadel initially decided to enter the Georgian market.

“One of the main reasons is the tax incentives offered to international companies. The second is the high proficiency in English among developers, who are generally considered some of the strongest,” Khoshtaria says. “Our clients are American and European companies that require highly qualified developers for international projects, and we can find such talent in Georgia. This is why Exadel operates in the country,” he adds.

However, the war in Ukraine soon underscored the strategic importance of the Georgian office, as it became essential to relocate some operations from Ukraine and Belarus. Georgia, beyond being a base for companies like Exadel, has also become a new home for thousands of foreign developers from Belarus. Once a thriving centre for IT, Belarus saw its tech industry crippled by a crackdown on protests following rigged elections and the government’s complicity in Russia’s aggression against Ukraine, leading to an exodus of talent.

A similar pattern emerged in Russia, where President Putin’s mobilisation order led thousands of developers to flee to neighbouring Georgia, reshaping the local IT landscape.

Looking ahead, Khoshtaria believes Georgia has significant potential to grow its IT industry, and become an even more attractive location for international companies and foreign developers.

“This is just the beginning, and further development is essential. We aim to contribute by offering free training and mentorship programmes, with our developers providing free instruction for beginners. Additionally, we collaborate with universities and participate in their projects,” Khoshtaria said.

Emerging opportunities for locals
International companies have created numerous opportunities in a developing country like Georgia, where the average nominal annual salary is GEL 24,000 ($8,750) and the unemployment rate stands at 13.7 percent.

By 2023, the number of employees in Georgia’s IT sector reached 30,200, a sharp increase from just 5,000 in 2021. Meanwhile, the average annual salary in the industry has doubled, now standing at GEL 83,280 ($30,400). Nika Kapanadze, an economist at the Policy and Management Consulting Group (PMCG), states that the arrival of international companies has played a crucial role in the country’s economy.

“International IT companies serving clients across different continents hire Georgian personnel and conduct operations locally. This effectively acts as an export of labour, and it is crucial that these individuals are physically present in Georgia. The money generated stays within the country’s economy, contributing significantly to its growth,” Kapanadze said.

Samkurashvili believes that highly paid developers created a ripple effect across various sectors such as retail and real estate, where they have become key consumers. “Additionally, the IT sector, which employs most of these high earners, has boosted the economy by exporting services and bringing in foreign currency. This inflow of dollars has strengthened the GEL, contributing to its appreciation,” he notes. Lineate is another international software development company that entered the Georgian market in 2022, establishing a regional hub to expand its business across Europe. With an investment of $14m, the company has contributed to the country’s technological development by creating 200 new jobs. Beyond job creation, Lineate has also launched the Lineate Dev School programme to support aspiring developers. The company collaborates with schools and leading Georgian universities to promote education in the field. Giorgi Tsikolia, Vice President at Lineate, outlines several reasons the company established its regional office in Georgia.

“The company found hiring qualified staff in Georgia highly attractive. Additionally, the tax system is quite flexible, especially regarding technology. Furthermore, Georgia’s geography provides the opportunity to access both European and Asian markets,” Tsikolia said.

However, Tsikolia also notes the importance of monitoring geopolitical risks. “We, like all international businesses engaged in the region, are concerned about the escalation of hostilities across the wider geography. Similarly, the company is actively monitoring political developments in Georgia,” Tsikolia says.

Political turbulence threatens industry
In March 2024, the ruling Georgian Dream party reintroduced a Russian style draft law on transparency of foreign influence. This law requires non-governmental organisations receiving over 20 percent of their funding from foreign sources to register with the Ministry of Justice as organisations serving the interests of a foreign power.

Following the war in Ukraine, many IT companies and developers relocated to Georgia

Although President Salome Zourabichvili vetoed the law, Parliament overruled her decision. Despite widespread protests and international condemnation, the Speaker of Parliament signed the law on June 3, 2024.
The protests, which saw tens of thousands of demonstrators, lasted nearly two months and were frequently met with excessive force by Georgian security forces. The crackdown, combined with the passage of the law, has severely strained Georgia’s relations with the West. The country’s EU accession process has stalled, and the EU has frozen €30m in financial assistance.

Meanwhile, the US has imposed sanctions on two high-ranking Georgian officials – Ministry of Internal Affairs Special Task Department Chief Zviad ‘Khareba’ Kharazishvili and his deputy, Mileri Lagazauri – for their involvement in human rights abuses during the violent suppression of protests. The US State Department also introduced visa restrictions on more than 60 individuals and their families, citing their role in undermining democracy in Georgia. Secretary of State Antony Blinken warned that further actions might follow if the situation does not improve.

In the October parliamentary elections, the ruling Georgian Dream party declared victory, according to the Central Election Commission, igniting further protests across the country and widespread international condemnation over alleged election fraud.

These developments have sparked widespread concern in Georgia, with fears that the impact will extend beyond politics, affecting the business environment and the overall well-being of the population.

Kapanadze is convinced that the overall political environment must remain stable, with no ambiguity regarding Georgia’s Western orientation. “I wouldn’t say that companies already established here will leave, but the real concern is that talent may start to exit the country as they no longer feel comfortable. We are talking about high-income individuals who seek a comfortable lifestyle. Now, with discussions around cancelling the visa-free regime with Europe, this could deliver a significant blow to the entire economy, especially the IT sector,” Kapanadze explains. He further emphasises that maintaining Georgia’s reputation is key to becoming a regional IT hub. “We are the connecting link between the West and the East. If this connection is severed with either side, the potential to thrive as a hub will disappear.”