Right after the war broke out in South Ossetia economic experts came up with a forecast that the war’s economic aspects are unlikely to be sizeable. So far, their forecasts proved quite accurate today, given that hostilities are over and the major helper of Saakashvili, the United States, despite their official statements, seems to be more and more concerned about promising him more support. The assistance sent by the Pentagon’s this week was military aircraft filled with humanitarian aid to the victims of the war rather than arms and ammunition. There is little hope for the Georgian economy to grow soon.
Disregarding his rather small country’s foreign debt of close to 4 billion dollars (98.448 billion roubles. 2.711 billion euros. 2.139 billion UK pounds) and an economy that is nearing collapse, the Georgian president made a pledge to the nation to do his best to drag Georgia out of the Commonwealth of Independent States (CIS), the association of the former constituent republics formed in the wake of the break-up of the USSR. “The Baltic states quit this powerless organisation a long time ago, it and they are only better off after that”, Mr Saakashvili said at the International Conference “The Common View of Neighbourhood” attended by the leaders of Lithuania, Poland, Moldova, the Ukraine, Bulgaria, Romania, Latvia, and Estonia last week. What makes Georgia different is it is a rather poor country. It has a very limited number of mineral resources, exporting chiefly wine and fruit to Europe and the United States, with a foreign trade deficit of close to 3.8 billion dollars (93.526 billion roubles. 2.576 billion euros. 2.032 billion UK pounds). The major source of its revenue is the remittances of Georgians working abroad, who send back home an annual 1 to 2 billion dollars (24.612 to 49.224 billion roubles. 678 million to 1.356 billion euros. 535 million to 1.07 billion UK pounds).
Now, with Saaksahvili pledged to quit the CIS, they would face more and more obstacles to getting registration and work permits they enjoyed as residents of a CIS member state. Georgia’s neighbours, Azerbaijan and Armenia, are not yet willing to discard this membership, enjoying many preferences owing to approved tax, customs, and transport rules. What Georgians are also wary of is rumours that in the wake of the war with South Ossetia the national currency, the lari, may tumble down rapidly. If recently 1.38 laris bought 1 US dollar, today, it is worth 1.7 laris. It is getting harder and harder to buy dollars.
Another important source of Georgia’s revenues could be the NABUCCO project for the construction of oil and gas pipelines from Central Asia to the West across Georgia’s territory, but, potential investors had trouble contracting enough gas for it from Azerbaijan or Turkmenistan. Shipping the gas from Turkmenistan would require building a separate pipeline across the bed of the Caspian Sea, which has yet to be divided by the sea’s five littoral states, Russia, Azerbaijan, Kazakhstan, Turkmenistan, and Iran. Now, Georgia’s vulnerability may have dealt a lethal blow to Nabucco and plans for a trans-Caspian pipeline. According to Konstantin Simonov, director of the Fund for National Energy Security, “Europe was shocked by the instability in the region and realised that hardly anyone would invest money in new projects associated with Georgia”. The BP-operated Baku-Tbilisi-Ceyhan pipeline, which now carries oil from Azerbaijan to the Turkish Mediterranean, was already out of commission because of an explosion in Turkey last week that Kurdish separatists claimed responsibility for.
The Russia-Georgia trade turnover last year amounted to a mere 647 million dollars (15.924 billion roubles. 438.537 million euros. 345.951 million UK pounds), with only 67 million dollars (1.644 billion roubles. 45.379 million euros. 35.812 UK pounds) worth of Georgian exports to Russia. Russia still has a number of economic levers to bring pressure against Georgia. These include embargoing the tiny imports of Georgian goods, the energy sector where the Russian UES has control of close to 75 percent of Georgia’s entire energy market and Russian ITERA‘s affiliation company engaged in Georgia’s natural gas distribution network. Georgia, too, has political leverage to bring pressure upon Russia. It blocks Russian entry into the WTO, saying it is due to Russia’s support of Abkhazians and South Ossetians with Russian passports. But, that has to do with politics, rather than economy, and can hardly be the pretext for a refusal to grant any country an entry to a global regulator of economic relations.
14 August 2008
Voice of Russia World Service