Independence at the cost of isolation from the world

Sophiko Sichinava

After 10-year long reflections on the ways of regaining the lost territories, after numerous unsuccessful negotiations and confrontation of the parties, there gradually arose a very reasonable and correct approach to the issue that suggested a solution to the problem through economic measures.

Very often the issues to which should be paid particular attention during the work on the ways of regaining the territories remain in the shadow behind the framework of political discussions. These are such issues as economic situation in Abkhazia and Tskhinvali region, and everyday problems of their population. From this point of view, approach of the present government and, in particular, of the president are most pragmatic: it is necessary to know the needs of ordinary people and make them feel cared about!
Saakashvili is ready to grant Abkhazia the status of wide autonomy within Georgia. He made this statement at the session of the UN Security Council saying that the new government of Georgia was changing its approach towards the Abkhazian problem. He hoped that Russia would do the same. “The train should move forward as this kind of relations can not continue for long”.
The president is well aware of the fact that Georgia needs strong economy in order to recover Abkhazia. “Today, the budget of Georgia totals 600 million dollars. Our budget should make up 2-2,5 billion so that negotiations on regaining the territory should be no more groundless”. This is natural enough as people of Abkhazia and Tskhinvali region are exhausted by their own problems. As for Tskhinvali region, certain measures have already been taken, and the society is well aware of this. Despite the fact that Abkhazia has restored the ruins of the war, acquired many “symbols” peculiar to a state (excluding currency) as well as certain experience in economy, the situation is still difficult due to low standard of living, lack of medicine and products, high criminality level, isolation from the rest of the world and uncertain future.
As far as we know, part of Abkhazian political and business elite is trying to find common language with the official authorities of Georgia, so to say, at the expense of Abkhazia’s independence. In this sense the grouping of the former internal affairs minister Alexander Ankvab is most active. In Abkhazia he was known for his connections with Yinal Kazan, the leader of Abkhazian Diaspora in the US and with the ex-president Edward Shevarnadze. Rumours were going about that there was a promise to finance the opposition for the struggle with Ardzinba’s clan. Many Abkhazian businessmen try to legalize their business by regulating their relations with Georgia. On their part, western countries have openly expressed their attitude to investments in Abkhazia that are so necessary for the region. The attitude is in direct ratio to the concessions envisaged by Abkhazia’s status within Georgia. The 10-years of unpromising independence has shown the Abkhazian people that such approach is more pragmatic.
Abkhazian newspapers say that Abkhazian opposition also has followers in Moscow who think it necessary to immediately change the present unpromising authorities of Abkhazia that are blamed for corruption, close ties with smugglers and drug mafia. Besides, it is known that in 2001-2002 several unofficial meetings between the Georgian and Abkhazian businessmen were held through the mediation of the Georgian Embassy in Russia.
Added to this is the fact that three ministers of the Abkhazian republic have recently retired from their posts: Astamur Tarba – the first vice premier of the Cabinet, Sergei Shamba – foreign affairs minister and Givi Agrba – head of the State Security Service.
In his letter to Vladislav Ardzinba Sergei Shamba explained his decision saying that the state was no longer able to fulfil its main function ? provide security for the citizens. Other ministers refer to the same reasons. It is said that the reason of political crisis in Abkhazia was the assassination of Gari Aiba, the famous public figure of Abkhazia, former mayor of Sukhumi and one of the organizers of the veterans’ movement of Georgian-Abkhazian conflict “Amtsakhara”. Gari Aiba was killed by a machine-gun burst near his house. The fact overshadowed all other events. No one in Abkhazia doubts that the assassination was masterminded in Tbilisi. The fact became a subject of sharp criticism of the government by the oppositional groups of “Aitairasa” and “Akhatsa”, and demarche of the three ministers is viewed by observers as stirring up of severe struggle for power and the presidential post.
Elections in Abkhazia are planned towards the end of the year, and the fact of the assassination will become a main trump card for the opposition. Yet, there is another unpleasant circumstance ? in fact, there are no pro-Georgian political forces in Abkhazia.
Today, Abkhazian economy is fully oriented towards the Russian market. According to the not completely reliable statistical data, 70% of Abkhazian population has Russian passports though the Abkhazian government does not have information on the exact number of the population in the republic.
Last year, just 25 thousand people spent their holiday at the Abkhazian resorts, but the indicator increases yearly. From this point of view, it is quite difficult to see the real picture as in expectations of investments Abkhazians pass desirable things for reality. Abkhazians are well aware of the fact that investments solely are not enough for achieving the past scales of tourism, as both holiday-makers and investors are first of all worried by the safety issues. Only “extreme-tourism lovers” spend holiday in Abkhazia as there is information that Russian tourists who come here are enslaved. One of the Internet sites contains a story of Natalia Petrovna, a Russian woman, who was deceived by a tourist firm in Russia. He and her husband went to Abkhazia attracted by low prices. They were captured and Abkhazians kept them there until the citrus harvest time came. They were made to work on plantations like slaves. The woman has somehow managed to escape, but nothing is still known about the fate of her husband Igor Nikolaevich. Though the story happened in 2001-2002 (in comparatively recent past), the region still lacks labour force.
The Bichvinta (Pitsunda) coast is still considered the cleanest. As it turned out, curative baths cost 30 roubles a day (2 lari), a cup of coffee in a city cafe costs 3 roubles (approximately 20 tetris), a litre of wine – 30 roubles. Today, there are 25 sanatoria and holiday homes where up to 4500 can have a holiday. Almost each sanatorium tries to organise part-time farms and thereby receive cheap agricultural products by evading direct expenses. Abkhazian sanatoria offer holiday-makers different prices depending on services and category of holiday-makers. The hotel prices are as follows: in June and July one day’s living with three meals a day costs 400-500 roubles in average (28-35 lari). Traditionally, there are discounts for children, and in 2003 special conditions were created for VIP customers. The services range from 500-600 roubles (35-25 laris) to 850-1500 roubles (59-105 laris) and include excursions to Lake Ritsa, Stalin’s summer cottage, Novo aphon caves and monastery (150 roubles ? 10 laris), excursion to Bichvinta (30 roubles ? 2 laris). One-room flat (in Gagra or Bichvint) costs approximately 5 thousand dollars. As it turns out, there are restaurants and casinos in Abkhazia.
Agrarian sector of economy as well as food processing industry are in fact on zero level. Reserves of silver, tin and lead as well as marganese, barite and coal have not still lost their significance. Of important agricultural objects, Tkvarcheli mines and Inguri hydroelectric power plant are an exception. Due to mass migration of population after the war and decrease in labour force, recovery of all sectors of economy is still a great problem. According to the data of the Abkhazian party there is about 100 thousand able-bodied population in the region. Yet this is a dubious figure taking into account the fact that (after the census of 1989) 526,8 thousand people lived in Abkhazia. Today the number of refugees makes up 300 thousand people. Many people from the Abkhazian as well as from the Georgian side died during the war. It is hardly imaginable that 100 thousand able-bodied people live in Abkhazia nowadays. Moreover, young people leave the region and go to work or study to Russia and more often, to Turkey.
Nowadays, Abkhazian main revenues include amounts from the export of traditional products: citruses, tobacco, tea, corn, bean and nuts. Yet, local tea and tobacco are not in great demand here as well as abroad. This does not concern Abkhazian citruses.
Comparative revival has recently been observed in the wood-processing industry of Abkhazia. These products are mainly exported to Turkey. Approximately, 60% of arable lands are not in use. The population breeds cattle, pigs, horses and poultry. People mainly live on the incomes from the so-called part-time farms. Private persons have the right to lease land; the rent depends on the location of the plot ranging from 25 to 42 dollars. The only possibility to fill the budget with land profits consists in granting private persons lands on lease. Almost all agricultural produce is meant for export. There is state ownership for land in Abkhazia. All sectors of economy including forestry, fishing, energy sector, transport, processing industry and tourism are under state control. Despite the direct financing, state economy is in deplorable state. Taxes for all kinds of agricultural produce excluding the land tax are abolished in Abkhazia. Gudauta, Gulripsha, Ochamchira and Gali are agricultural regions. As mentioned, 100% of the region’s produce is exported to Russia. Producers avoid local market due to insufficient demand and population’s insolvency. Meat and dairy products are in great demand in Abkhazia. Their deficit is mainly covered by import. Trade links with Russia are obstructed by the transport network badly damaged after the war. As far as we learn from Abkhazian newspapers, main investors are Russia and Turkey. The Abkhazian party has concluded two ten-year agreements with Turkish companies. According to the agreements, Turkish partners will work coal in Tkvarcheli mines. Despite the fact that they are Abkhazian repatriates, they represent Turkish companies. According to invalid data, about 135 million dollars have been invested in the Abkhazian region over the past ten years though these were small investments, mainly, in the resort sphere that were returned within the shortest time ? during one resort season or within a year. In their interviews Abkhazian officials say with regret that there are only potential investors, but there are no real investors who would invest large amounts in the region. When some persons approach officials with the request for rent and when they are asked to present a business plan, the persons simply answer that they know the people who are ready to make investments. Thus, investment is hindered by mediators. By the way, it is said that Canada is one of the countries wishing to make investments, though neither the amount nor the sphere of investments are known. As far as we can see, Gagra is the most economically active region with some of joint Russian-Abkhazian organisations located there. Most part of population, about 50 thousand people, live in Gagra. The region has completed budget-2002 with proficiency. As for the regions that much damaged by the war, now they care only for survival. Nowadays, IDPs live in sanatoria and holiday-homes, and they have nowhere to go to. Gulripsh and Tkvarcheli regions are, in fact, unpopulated. Local population had to settle in Gagra and Gudauta – regions almost unaffected by the war.
The whole public utilities system should be recovered in Abkhazia anew. Poignant process of infrastructure modernisation is planned for the nearest future. For example, electric network has become very outdated: when population uses heating appliances, especially in winter, outdated transformers explode in the air like shells. In newspapers one can see information on the so-called banking system of Abkhazia. Today there are two commercial banks in Gagra region: one of them is Gamma bank that has functioned since the Soviet period, another one is a branch of Sberbank. The bank is commercial, too, but it is controlled by the state. The banks have suffered great losses. Credits taken by leaseholders were not returned but, as Abkhazians say, today banking system is recovering. They think that the main indicator of the process is normative base developed by the so-called Abkhazian National Bank as well as system of electronic transfers with Russia.
After the end of the war, taxes have not been collected in Abkhazia for quite a long period. In fact, there was no economy so that there was nothing to collect. Money came to budget mainly from the export of scrap metal. Nowadays, the main income source of Abkhazia’s budget is VAT with its interest rate amounting to 100% of which 50% remain in the local budget while the rest 50% go to the state budget. Bakery, flour and diary products are not liable to VAT tax. Income tax makes up 10%. The problem of maintaining internal affairs structures is solved very easily in Abkhazia: special local tax is imposed in the amount of 1% from the salary for their maintenance. The interest rate of property tax is 0,2%. This is clear enough as nowadays many Abkhazian enterprises are in a quite unfavourable state.
Sukhumi is still not restored. Local budget is filled mainly at the expense of the so-called head offices of state companies concentrated in the city. According to the available data, Sukhumi port performs well though there are no specific figures. Trade with Turkey is implemented by means of Sukhumi port that is the main supplier of oil to Abkhazia. Forest materials are exported to Turkey and flour is imported from Russia by sea. The flour market of Abkhazia is monopolised by the state company “Abkhazkhleb” (“Abkhazian Bread”).
Customs dues constitute 80% of budget revenues. The prime-minister of Abkhazia Raul Khadjinba said that there were some problems in the budget-2003 implementation though compared to the past year (2002) seasonal profits from resort objects increased by 6,5 times making up 40 million roubles. This indicates at the improvement of economic situation, he said. He also said that budget – 2004 took into account the mistakes that hampered budget-2003 implementation. In particular, budget receipts included revenues from the sale of coal and electric power before the completion the so-called deals with partners. In this sense the present budget is more real, Khadjinba says. Budget of income is expected to make up 451,8 millions with 19,9 million roubles deficit.
There is reliable information on the economy of Abkhazia for 1985-1990. By that period there were up to 500 production units with 30,9 thousand employees. Production fund made up 223,4 million US dollars. In 1990, 1 million 309 dollars’ worth production was released, of which 93-95% was produced by the largest enterprises (See table).
Added to this is tourism and many other things. Given the above-listed figures, the delight of the self-proclaimed republic of Abkhazia with the recovery of economy seems ridiculous as economy is now fully dependent on citruses and tourism. Naturally enough, people who live in this territory did their best to survive. On its part, the government did its best to prove to the world and the population of the region that they could live independently, That is why Abkhazia is not in ruins today.
It is not shadow economy of Ossetia, but it is a shadow of economy.
Unlike Abkhazia, Tskhinvali region can not boast of such resources. Despite the deplorable state of economy, Abkhazians still manage to more or less effectively use resort resources, citruses, coal, ports and thereby fill the budget, while 80% of the whole economy in Osetia is a shadow one. Genadi Kokoiti, the minister of economy of South-Ossetian Republic, openly says that there is no shadow economy in Ossetia, but a shadow of economy. Main source of incomes is the Transcaucasian Road passing through the Caucasian mountain ridge in the direction of the North. It is often called “a big money road” or “a road of life”. The only bright point in the whole of the region is an administrative building in the centre of Tskhinvali, in Stalin street that remained intact during the war. Russian journalists say that nowadays Tskhinvali is similar to a Russian province. There is everything Russian here: money, passport, streets, mood and, as some say, hopes.
For 10 years Ossetian people degraded in political, economic and, what is more terrible, moral sense. The population of the republic decreased much making up 30 thousand people. There is no local production. Average salary is 300 roubles and pension is 100 roubles.
Ossetian economy is Ergneti market and the above-mentioned “big money road”. In fact, the region lives on smuggling. Everything – from foodstuffs, fuel, to banknotes and newspapers – is imported to the region from the highway. There is, in fact, no heating system. Gasification of the city is said to have begun already. There is, in fact, no electric power in Tskhinvali region though after the campaign recently launched by the Georgian government Tskhinvali region will receive pensions and fertilizers as well as electric power from the centre. This will be organized through the country’s energy distribution company. The company will install current meters in 4,5 homes. The Georgian government plans to restore Kekhvi hydroelectric power plant in the nearest future, which will partly solve the energy problem of Tskhinvali region.
There is no Internet in Tskhinvali. This will really be a revolution in the conditions of the much outdated communications system. The operating automatic telephone exchange was manufactured in 1966. It has been operating for 36 years. It is in deplorable state. Ossetia’s telephone communication has become a subject of anecdotes. Yet, the South Ossetia has recently concluded contract with the Chinese company HUAWEI TECHNOLOGIES about the import of new automatic telephone equipment to Tskhinvali. The Ossetian party has purchased digital automatic telephone equipment on leasing. As expected, the equipment will be put into service this year.
Enamel-producing factory stopped functioning long time ago; plants have been lost, workshops ruined and plundered or they work in half capacity. There are no customers for the production. Most important thing is that there is no money. The principal industrial fund: equipment, plants and technics ? has not been updated for a long time, approximately 50-60 years. For instance, there is outdated equipment in the local bread-baking plant. Equipment in printing-houses seem to date back to the times of Gutenberg. There were 7600 tractors and combines in Tskhinvali region before the war, now there are only 70. Though the Ossetians admit that the war has nothing to do with it, only 5000 units remained intact after the war while the rest equipment has been lost in subsequent years. There are 730 heads of cattle in the so-called state farms of which 220 cows produce 800 litres of milk annually. “Our children drink imported, pasteurized milk filled with preservatives. Such milk is less useful for their health. We cannot even provide the population with bread; flour is imported ? and figures only testify to the depth of the abyss in which we have found ourselves through our own fault”, says the minister of economy of South Ossetia.
Labour force has either left the region (60 thousand Ossetians are in Russia nowadays) or found new “jobs” in Ergneti market. Cargoes are imported to the Tskhinvali region mainly by persons of Ossetian nationality. Kvaisi reserves, mineral water and agriculture is everything what the region has. Almost all Caucasian republics have such wealth. Therefore, the local government lays all hopes on Moscow and Vladikavkaz. The main concern of the South Ossetian government is strengthening and deepening of relations with them, which has no prospects. Creation of joint customs services and taxauthorities is planned along with personnel rotation in law enforcement agencies. The lion’s share of the Ossetian budget includes amounts such as customs dues, VAT, migration dues and road fund obtained from the Transcaucasian Road. Real salary makes up only 17% of the subsistence level. According to the UN standards, subsistence level makes up 1000 dollars a year, otherwise it is considered that population lives below the poverty line. In Ossetia the indicator amounts to 80 dollars a year. Statistic data do not always reflect reality as theoretically it is impossible to live on 80 dollars for a year. Ossetians have themselves found additional sources of income from trade in Ergneti market. There is another profitable kind of business such as cafes at the customs crossing points. “Cafe” is a too loud name for such establishments. The “cafes” are shashlik-houses in a carriage. Their clients are mainly traveling petty merchants. Usual everyday profit of the cafes is 100-120 roubles though owners of the cafe have only one third of the sum with the rest of the money being spent on necessary foodstuffs and local authorities for “protection”. Others live on the purchase and sale of unsold goods, some work as night-shift sellers or loaders. Compared to others, these persons have really had luck.
Tskhinvali region faces sharp deficit of human resources. Higher education establishments of the region do not provide young people with appropriate education. Education level decreases year by year. Old staff leaves the region, but there is not any new one to substitute for them.
The expenditure budget-2004 of the South Ossetia is planned in the amount of 5644317 while the budget of revenue is planned in the amount of 5399817 rubles.
The short analysis reveals that economic situation in our lost territories is really catastrophic. The main thing is that, in fact, there is no way out of the situation. Their independence means isolation from the rest of the world. Ten years is quite a long time for us to guess that it is really so. Yet, Georgia undoubtedly has a great chance of fast development and economic recovery together with Abkhazia and South Ossetia.