An economic development campaign in Georgian-controlled areas of the breakaway region of South Ossetia is being touted as the latest vehicle for promoting a political settlement in conflict zone.

For Dmitri Sanakoyev, the de facto leader of the region's Georgian-controlled territories, the development program is part of his overall strategy to unite South Ossetia within a Georgian federation. "We want a united Ossetian federation. Our aim is for Georgia to recognize the federative agreement," Sanakoyev stated in a recent interview with EurasiaNet in his headquarters in a revamped hospital, surrounded by well-armed police, in the Georgian-controlled village of Kurta, several kilometers north of the South Ossetian capital, Tskhinvali. "And unlike [de facto South Ossetia President Eduard] Kokoiti, we want to show people that life can be better without war."

The hope is that the sight of infrastructure improvements and new businesses in the Georgian-controlled portions of South Ossetia will prompt residents in the region's Ossetian-controlled areas to push the separatist leadership to accept a Tbilisi-backed political deal, under which South Ossetia would operate as an autonomous part of a Georgian federation.

Economic development has been a recurring theme for Sanakoyev, a former de facto prime minister and defense minister of South Ossetia, and his supporters since he began campaigning in so-called "alternative" presidential elections held last November in the breakaway region's Georgian-controlled territories. [For background see the Eurasia Insight archive]. The poll also featured a referendum on holding talks with Georgia about setting up a federation with autonomy for South Ossetia. The region's separatist leadership in Tskhinvali, however, has dismissed Sanakoyev's election and the referendum as part of a Tbilisi ploy to regain control over all of South Ossetia. Both votes were unrecognized by the international community. [For background see the Eurasia Insight archive].

The development campaign, which dovetails with a recent show of interest by the Georgian government and businesses in developing Georgian-controlled South Ossetia, is likely to be no less controversial. Georgian President Mikheil Saakashvili himself has promoted the campaign lately. On February 12, the president visited a school in Kurta to stump for developing an ethnicity-blind Georgian patriotism. In January, Saakashvili visited the village of Tamarasheni, about one kilometer from Tskhinvali, to express his determination to improve the region's infrastructure.

At the same time, a number of private business ventures have been announced for Georgian-controlled South Ossetia, including a movie theater, under construction in the village of Tamarasheni, and a Kurta supermarket and hairdresser that are scheduled to be finished in July. Purchase of land to build a hotel in Kurta is also under consideration by Center Point Construction, a prominent Georgian real estate developer, according to a company spokesperson.

Developing business and infrastructure in these territories, however, is no small challenge. Kurta, where Sanakoyev, 37, makes his headquarters, is strategically located on the Roki Pass highway, five minutes between the South Ossetian capital of Tskhinvali and the Ossetian-controlled town of Java. It is dangerously close to the front line. Only half a kilometer away, along a ridge overlooking the village, is an Ossetian post.

The tension does not appear to be dissuading Georgian investors. The privately run People's Bank has even opened a branch in Sanakoyev's headquarters, complete with an automated teller. Bank President Giorgi Goguadze told Rustavi-2 television's Business Courier program that the bank intends to issue loans to small and medium-sized businesses in the region, and also to conduct financial training sessions for local residents. But while describing the region as developing rapidly, Goguadze stated that the loan plan was more of a social program.

A similar desire to help apparently drives Georgia's Aversi-Pharma, a pharmacy chain that has been donating pharmaceuticals to Kurta's hospital since 2005. On January 9, the company announced plans to open a pharmacy in the village as well. The project is part of a company plan to set up pharmacies in every region of Georgia.

One Aversi-Pharma official maintains that patriotism alone -- not the Saakashvili administration -- motivates the company's interest in the conflict zone's Georgian-controlled villages. "We are doing this on our own initiative. Nobody has persuaded us to invest in South Ossetia," said Dr. Eduard Tskhovrebadze, director of Aversi's Medicine and Charity Department "In all honesty, we are driven by a patriotic desire to assist people who live in poor conditions -- not just in the Tskhinvali region, but [in] all of Georgia."

The projects, if realized, could significantly alter the social climate. At present, aside from regular militia patrols, the Georgian-controlled territory's villages have little or no street life, and jobs are scarce.

Meanwhile, internationally funded projects are taking off. Thanks to a 7.5 million euro ($9.87 million) European Commission grant for the ongoing rehabilitation of the South Ossetian conflict zone, a gas and water distribution network, hydropower plant and waste management system are being constructed for all of South Ossetia, while schools in each of the nine Georgian villages in South Ossetia have been renovated.

Sanakoyev hopes for more investors, both Georgian and international, and maintains that their safety will be guaranteed "on all our controlled territory." He stated that he has a long list of own plans to develop the region; from building a hydroelectric station with an annual output capacity of 100 megawatts, to constructing processing plants for local fruits and vegetables, milk and wood. To target the development needs of each village, Sanakoyev said he is creating what he calls an "investment passport," a database of the local population of Georgian-controlled territories in South Ossetia. Residents are also invited to meet with representatives of his "administration" for four hours each day. "I strongly believe that by giving people an opportunity to work and invest, you'll prevent war," Sanakoyev said.

The separatist South Ossetian government in Tskhinvali, however, argues that Sanakoyev's presence in the region is only likely to foster further discontent. A February 19 statement, issued by the Tskhinvali leadership's "State Press and Information Committee" website, claims that trucks headed into Kurta are now being charged an entrance fee of 5,000 Russian rubles (about $191) at "illegal customs posts."

For now, though, Sanakoyev appears to be gaining the support of at least some of the residents in South Ossetia's Georgian-controlled villages. "We need time to see the effects, probably by spring," Eliso Basishvili, director of Kurta's School #1, said of the various investment plans. Two of her colleagues nodded in agreement. "Most important is peace, for us and them."