Informal trade between Georgia and its breakaway territories, Abkhazia and South Ossetia, has been growing in recent years. But efforts to legalize the trade remain largely stalled over political disputes related to the disputed status of the regions.
That's the conclusion of a new report from the International Crisis Group, Abkhazia and South Ossetia: Time to Talk Trade.
The weakening Russian economy is the main driver of the increasing trade: the fall in the Russian ruble has reduced the purchasing power of people in Abkhazia and South Ossetia, and effectively reduced the value of the Russian aid to the territories. That, in turn, has increased incentives for people in the breakaway regions to buy goods from relatively cheaper Georgia.
“For years, goods have trickled over the conflict divides between Georgia-controlled territory and the breakaway regions,” the report says. “But as Russia’s economy weakens and its financial aid to Abkhazia and South Ossetia dwindles, such trickles appear to have become a steadier flow.”
The trade, being informal, is hard to measure. But the report notes that during the summer harvest season of 2017 there were long lines of trucks carrying Georgian produce queued up at the checkpoint between Georgia proper and South Ossetia. “Georgian comestibles cost two or three times more in South Ossetia than at Tbilisi markets, but they are still up to five times cheaper than Russian imports,” the ICG reports.
Between Georgia proper and Abkhazia, the trade amounts to roughly 1,500 tons per day, worth an estimated $7 to $15 million per year.
Attempts by the breakaway territories to regulate the trade, in order to be able to charge customs duties, have been complicated by corruption: “There are customs forms [for Abkhaz traders taking goods to Georgia], but traders expect to pay bribes in addition to an exit tariff, which de facto laws prescribe only for the main local produce—hazelnuts,” the report says. “Abkhaz leaders reportedly have tried to instill order in their customs controls. After a six-month anti-corruption campaign, the customs revenue in Sukhumi’s budget grew eleven-fold in 2014-2015, but then fell again after the official in charge of the campaign was murdered.”
Georgia, while resistant to any hint of recognizing the status of Abkhazia or South Ossetia as at all sovereign, has nevertheless been open to at least talking about legalizing trade. In the case of Abkhazia, it has taken early steps toward allowing Abkhazian businesses to benefit from the trade deal it has with the European Union.
And it has tried to work with Russia to open a trade corridor that would allow goods to be shipped via South Ossetia, the most direct route between the two countries. This corridor is of particular interest to Armenia, which relies heavily on trade with Russia but has to use Georgia as a transit point. That effort got a boost just recently, when Russia signed a contract with a Swiss company to monitor the trade. (Swiss negotiators worked out a system by which Russia and Georgia could monitor traffic electronically as it passes through South Ossetia, offering a high-tech way out of the political thicket of how to deal with the cargo while it's in the unrecognized territory.) Georgia had already signed an agreement with the company, so in theory the corridor is ready to be used.
“Talks among the parties on increasing mutually beneficial commerce could open lines of communication long cemented shut,” the report concludes. “If opportunities for formal trade do arise, such arrangements could improve both the lives of those in Abkhazia and South Ossetia and communication between Tbilisi and the breakaway republics.”
Read the whole thing here.