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Abkhazia

Economy In Breakaway Abkhazia: Development Or Standstill

The secessionist Authorities of Abkhazia have carried out a number of economic reforms for improving the socio-economic situation, but these measures turned out insufficient and local residents remain impoverished. The Russian state budget allocations have somehow livened up the general picture.

In 2005-2013, the so-called assistance from the invader Russian Federation exceeded 17 billion Rubles (500 million USD under the then exchange rate). The financial inflows were particularly evident in 2010-2013 with 11.9 billion Rubles allocated (340 million USD).

According to the statements by the Russian President and the Prime Minister, the 2014-2016 allocations were to reach 3 billion Rubles. Nevertheless, the current geopolitical realities and intentions of preserving the good attitude of residents of the invaded territory of Abkhazia, the Rubles devaluation, have made the Russian Authorities considerably increase the allocations to 6.7 billion Rubles in 2014 and to 10.7 billion Rubles in 2015.

However, local residents and officials say only insignificant part of these allocations reach the destination and this factor aggravates the existing social and economic situation amid the Rubles devaluation. Consequently, the Russian Federation fails to fulfill the pledged investment projects and co-participation component for growing salaries.

It is worth noting a bulk of these funds comes in the form of loans and this step is a reasonable decision by Russia, because the secessionist Abkhazia will come to a blind alley if Russia claims these funds back. As a result, invaded Abkhazia will turn fully dependent on the Russian Federation. The so-called budget of secessionist Abkhazia is mainly replenished through Russian allocations: 3.875 billion Rubles in 2011 (114 million USD), of which 1.935 million Rubles (60 million USD) was an assistance (Georgia’s state budget in 2011 was 3.6 billion USD). In 2015 the secessionist budget marked 11.8 billion Rubles (2/3 of the budget was replenished by Russian allocations). The figure is a considerable growth since 2011. Nevertheless, the Ruble devaluation has made these allocations very modest – 180 million USD (Georgia’s state budget – 4.2 billion USD in 2015).

In regions, the averaged salary in 2014 was about 10 000 Rubles (150 USD) (about 340 USD in Georgia, GeoStat). The base pension is 20 USD, but in specific cases, the following bonuses are available: 100USD for participants in the 1992-93 War; 130 USD to the families of the died in the 1992-93 War; 150 USD for 1,2 3 category invalids, 160 USD for wounded and injured in the 1992-1993 war. Moreover, a major part of the residents, excluding ethnic Georgians hold Russian passports (about 30 000 persons), and they receive 150 USD a month on average.

In the region with 250 000 residents, only 142 000 persons are able-bodied of which only 40 000 persons are employed, including 26 000 ones in the state sector. In other words, the unemployment level makes up about 70%!

The submitted macroeconomic factors prove that the economy of secessionist Abkhazia is in catastrophic condition. The Ruble devaluation has further aggravated the situation.

Tourism – Engine of Economy in Secessionist Abkhazia

Tourism is locomotive of the economy of Abkhazia, local experts stress. According to the Russian and secessionist media agencies, millions of tourists visit the region every year. Namely, 3.3 million tourists arrived in the region in 2013, about 4 millions in 2014. These figures, if real, are very impressive for such a small territory. For information, according to the Georgian tourism department, 4.4 million visitors arrived in Georgia in 2013, 5.5 million in 2014 (experts cast doubt on these figures).

In reality, amid the deeper collapse in other sectors, tourism genuinely performs as an engine in the economy of secessionist Abkhazia. Nevertheless, tourism contains a number of minuses: seasonal character, affect of political unrest, low-income Russian tourists and misbalance of high prices and so on.

In Addition, the Crimea annexation by the Russian Federation may thwart tourism seasons in the coming years in Abkhazia. Crimea is tourism-oriented Region and the Russian Authorities will try to charge Crimea potential jointly with Abkhazia. These efforts will drive the redistribution of tourist inflows between these two regions, experts assert.

Main Signs of Foreign Trade

The past years have recorded an expansion in the foreign trade balance in secessionist Abkhazia, basically, at the expense of imports, in both percent and absolute indicators. According to the so-called customs office of secessionist Abkhazia, the 2014 trade turnover marked about 20 billion Rubles (nearly 550 million USD), up 1.5 billion Rubles (up 9.6%) year on year, including:

Exports – 2.9 billion Rubles (6.1% grow year on year);

Imports – 17 billion Rubles (10.2% growth year on year).

The foreign trade turnover constituted 919 million Rubles in 2001. The figure since then increased 20 times. However, the exports-imports correlation in the trade turnover points to the consumer-style economy: in 2014 the imports surpasses the exports 6 times.

Deeper exploration shows that the export in secessionist Abkhazia mainly relies on agro industrial complex (88%), the ratio of the processing sector is insignificant (12%). Wine and vodka business constitutes 3/5 of the exports that are made of cheap Moldovan and Russian wine materials.

Citrus records 22% ratio in total export. Fishing is third with 5% ratio and sand, coal and scrap iron exports constitute 3-3% in total exports. Nevertheless, these resources are exhaustive and in the coming years the ratio of these items are expected to decline, even more so large-scale construction works in Sochi were finished after the 2014 Olympic Games and the demand for construction materials has fallen to minimum.

As to imports, it is diversified and consists of the following goods: food products (19%), fuel and lubricants (16%), building materials (16%), transport (11%), machineries (9%) and so on.

According to the official report of the ruling regime in secessionist Abkhazia, main trade partners are: Russia (62%) and Turkey (14%). The region has arranged land (automobile and railway) and seaborne routes, while only seaborne transport connects the Region with Turkey. As to exports markets, the ratio of Russia accounts for 85% and Turkey – 15%. These figures, indeed, do not reflect the reality amid corruption and excessive ratio of shadow economy, but they give approximate picture.

The Gali District as Economic Hub

According to UK based international peace building organization – International Alert and its special research “Trans-Ingur/i economic relations”, which estimates the scale and structure of trans-Inguri trade and which was conducted by Georgian and Abkhaz specialists together, such cooperation really exists and is very important for the food security issues not only in the Gali region, but for the whole Abkhazian region.

According to the so-called Abkhaz President’s decree of 2007, all economic relations with Georgia are considered illegal (in terms of security), all trade goods delivered from the remaining part of the Republic of Georgia are considered as smuggled goods.

At the same time, nor official Tbilisi has set evident legal frames for similar relations: on the one hand, goods transportation from the remaining part of the Republic of Georgia to the invaded territory of Abkhazia is considered a domestic turnover, on the other hand, the 2008 law on Invaded Regionsa considers all trade activities in Abkhazia as illegal (however there are certain exceptions too).

According to the International Alert, the trans-Inguri trade turnover is carried out through one official (the main bridge over the river Inguri) and three unofficial routes, namely:

  1. The Enguri Bridge – goods turnover 80% and people turnover 75%
  2. The so-called upper zone – nearly 5% of total turnover of residents and goods;
  3. The so-called lower zone – goods turnover 15% and residents’ turnover 20%.

Trans-Enguri Trade and Origin of Goods

According to the International Alert, the Trans-Inguri trade with the special focus on the city of Gali implies trade with the good not only from Georgia, but also imported ones from third countries, such as:

  1. Food products. Potato – Georgia (Akhaltsikhe, Tsalka, Akhalkalaki), Turkey;

Carrot – Armenia; Cucumber – Georgia (Kutaisi, Tskaltubo, Marneuli); Greenery – Georgia (Samtredia, Kutaisi); beef, frozen – Brazil; pork, frozen – Argentina and so on.

  1. Equipment, furniture and other nonfood products are mainly bought in wholesale markets (Tbilisi, Kutaisi and Zugdidi) and specialized stores for equipment. It is also worth noting about 80% of the goods that are transported to the Gali district from the Zugdidi District are delivered to the Gagra and Sokhumi markets and only 20% remains in the Gali District.

The existing restrictions aggravate the being of the Gali district residents of Georgian ethnicity, who have no other source of income (the Gali district residents’ dependence on agriculture sector is 97%, 2% on industry and 1% on tourism), besides 45 GEL assistance allocated by the Georgian Government.

Conclusion

Despite the heavy social situation, the economic situation in secessionist Abkhazia has advanced for the last decade. At the same time, the dependence on the Russian Federation grows. The high-level corruption, criminal circles and inexperience in management have generated the existing heavy reality.

Since the end of 2014, amid the 100% devaluation of the Russian Ruble and 35% depreciation of the Georgian GEL, the economic indicators expressed in USD point to the real progress in the GEorian Economy and this is a good precondition for negotiations with the Abkhaz party.

The Trans-Enguri economic relations include much potential and it may fully replace the Turkish and Russian trade influence in the Region.

Vakhtang Charaia Director for TSU Analysis and Prognosis Center