How to pull Abkhaz economy out of systemic crisis

Mamikon Babayan, exclusively for Vestnik Kavkaza
How to pull Abkhaz economy out of systemic crisis

According to the Abkhaz scientists, the republic's economy is currently in the phase of systemic crisis. 'The strategy of the socio-economic development of the Republic of Abkhazia until 2025', the '25 steps to develop the economy of Abkhazia until 2025' program  have made little progress so far. Mamikon Babayan, a columnist of Vestnik Kavkaza, raises the question of achieving economic growth in the republic.

The export capacity of Abkhazia is many times greater than its current volume. The coastline is 214 km, which allows to consider it as a basis of potential development. The republic inherited the territory of the sea ports located in Sukhum, Novy Afon and Gagra from the USSR. Abkhazia's favorable geographical position and full use of passengers and cargo transport capacities can provide a significant economic effect for the entire South Caucasus. However, the unresolved problems with Georgia and Abkhazia's political status deters foreign investment, including the development of maritime traffic.

Modernizing sea freight technical equipment is necessary to optimize land routes. Challenges remain in the republic linked to damaged railway infrastructure, risk of accidents, closed road tunnels and bridges. The existing land routes in the future may be overloaded due to the intensively growing freight traffic. According to the Russian Ministry of Transport, the volume of goods traffic exceeded 150 thousand tons by the end of 2017, increasing by 21% compared with 2016. Therefore, it is necessary to seriously consider the reconstruction of sea ports, which have a real prospect of becoming a single transport complex, combining rail, road and air routes, taking into account the fact that most of goods are supplied to the South Caucasus by the Caspian Sea and the Black Sea.

The need to renew the export potential is explained by the trade imbalance of Abkhazia. The analysis of foreign economic activity indicates the growing gap between exports and imports in favor of the latter. According to the latest data published by the Federal Customs Service of the Russian Federation, Russia's trade with Abkhazia amounted to $260,594,058 in 2017, increasing by 4.95% compared with 2016. Exports to Abkhazia in 2017 amounted to $206,958,187, an increase of 3.36%. Imports from Abkhazia were estimated at $53,635,871, increasing by 11.59% compared with 2016. As economic development expands in Abkhazia, the gap would widen, because, first, an increasing part of agricultural products (which is the dominant economic sector) will be sold on the domestic market to serve tourism, and, second, the development of tourism will expand the republic's imports.

At the moment, Abkhazia's main trade and economic partner is Russia. Nevertheless, one of the promising areas of cooperation could be the development of Abkhaz relations with Georgia and Russia's North Caucasus. It requires restoring the main connecting route between Abkhazia and the North Caucasus - the 143-kilometer Sukhumi Military Road. Although the leadership of Abkhazia opposes the restoration of road transport, using the argument of environment, but for the North Caucasus regions it is a direct route to the sea, to ports and resorts, and for Abkhazia it is the shortest way for exports from the industrial sector of the economy, particularly coal sales. Such a project can be extremely beneficial for Georgia, since the Georgian Military road traffic is significantly hampered in winter.

 With regard to the above mentioned, Abkhaz exports needs to be diversified, which can be facilitated by the formation of an economic triangle of Abkhazia, Georgia and Russia, at least in the border zone. Tbilisi has not restored diplomatic relations with Moscow, but it does not prevent the development of economic relations with the Russian Federation, which have a positive dynamic. The transit of goods through Abkhazia will favorably affect the volumes of its own market, turning the transport infrastructure into a transit one. The road will allow Georgia to establish a rail link with Ukraine and Belarus. Finally, Russia will overcome the shortage of land communication with Turkey. Despite the fact that Georgia and Abkhazia have  have chosen diverse approaches in joining multilateral schemes of economic integration, the parties should study all nuances and possible "extraordinary situations" that may occur due to the difference in customs regimes.

However, the main thing that should be taken into account when solving the problems of opening land routes is the need to resolve the Nagorno-Karabakh conflict. Armenia is primarily interested in expanding land transport linkages between the South Caucasus and Russia, because it has closed borders with two (Azerbaijan and Turkey) of its four neighbors. Yerevan raises the problem of transit routes with enviable regularity, refusing from compromises in the Karabakh settlement at the same time. (Pashinyan was curious about transit corridors in Georgia. But was disappointed). In brief, the expansion of land traffic goes back to Yerevan’s unshakable stance, which has not yet realized that it’s impossible to prioritize one's own interests in the Caucasus - natural conditions do not bode well for it.