Although popular protests do visibly affect the daily routine of economic life, there are surprisingly few academic studies on the economic costs of unrest. Partly this could be explained by the fact that the probability of occurrence of social protests in any given month is relatively low - less than 1% according to the IMF. However, the likelihood quadruples if a country experienced a similar event in the last six months, and doubles if such an event occurred in a neighboring country.
The region of Central Asia and Caucasus (CCA) have a rich history of civil strife. The revolutions of the 2000s swept the established regimes in Georgia and Kyrgyzstan (twice), followed by Armenia in 2018. In Kazakhstan, the series of local confrontations between workers and security forces throughout the last decade culminated in the week-long violent clashes in January 2022 across the entire country. The so-called "January Tragedy" resulted in hundreds of casualties and led to fundamental changes in the country’s power structures and elites.
Among those events, the economic effects of protests in Kazakhstan, a major oil & gas and raw materials exporter integrated with global financial markets, were the most evident. The 10-day protests resulted in short-term disruption to supply chains for international businesses, stocking fears of rising oil prices globally, and up to 30% drops in valuations of some of the publicly listed Kazakh companies.
However, the negative economic effects go beyond the stocks and short-term price volatility. An IMF study finds that major unrest may result in notable contractions of the affected economies - up to 1% GDP in six quarters after the events, with an even sharper dip if the events were driven by socioeconomic grievances. Another study (Kollias, Tzeremis) proved that civil strife had adversely affected the economic performance of Central Asia and Middle East countries between 2000 and 2018.
(Source: IMF)
While the current protests in Georgia have not yet crossed the threshold of violence seen in Kazakhstan and other countries, the economic effect has already been evident. Since the service sector is usually the one affected immediately by street protests, the Georgian economy where services account for almost 60% of GDP already took a toll. Georgian lari exchange rate fell relative to all other traded currencies, forcing the National Bank of Georgia to sell an additional $60mln to support the domestic currency.
With the protests currently showing no signs of abating, the costs of continuing stand-off may well exacerbate further. For example, during the year-long protests of youth and students in Hong Kong, the city’s retail lost 11% of its revenues and tourism fell 40% from the pre-protest year's levels. For all the differences between Hong Kong and Tbilisi, both of these industries are critical to the Georgian economy as well, with tourism, in particular, being the leading source of the country’s foreign revenue, and continuing street protests may derail the sector’s robust post-COVID recovery.
(Photo by DerFuchs)
With social unrest affecting the stock market returns, the country’s two largest banks (Bank of Georgia and TBC Group) lost over 10% of their stock value on the London Stock Exchange since the start of daily protests in May. Furthermore, the country’s economic growth may be hampered by the lowering of investors' confidence amidst the protests, warned EBRD, With over half of FDIs last year coming from the EU, the country can ill afford souring relations with its main trade partner.
While the sharp decline of economic indicators may well be short-lived, the popular protests often result in brain drain, depleting the country’s workforce and affecting its long-term prospects. There are plenty of recent examples of educated youth and professional cadres leaving their homeland following government crackdown on popular movements. With Georgia’s youth aspirations clearly leaning towards the EU, this is where the country’s disillusioned young people may well move instead of betting on their country’s troubled accession. Should this happen, the positive effect of the country’s hard-won reversal of migration may run into the net negative territory once again.
Overall, the researchers seem to agree that higher standards of governance allow societies and governments to reconcile their differences and find compromises and that stronger institutions mitigate the adverse impact of protests on the country’s economy. It remains unclear how Georgian standards and institutions will pass this test amidst the rising tensions. What is clear, however, is that the longer the government and protesters are locked in a standoff with no sign of either side giving in, the more pronounced negative economic consequences will become.
Cover mage credit: @natiatalks