Books on Georgia
Update No: 319 - (26/07/07)
South Ossetia broke away from Georgia following a bloody
conflict in the early 1990s. Georgia's Western-oriented leaders, who came to
power in 2003, have been trying to bring the republic under their control ever
Russia has supported South Ossetia in its diplomatic standoff with Georgia, and
Tbilisi has accused Moscow of fuelling separatist sentiments in the unrecognised
Georgian-Russian relations on hold
Georgia could make sweeping concessions to Russia if Moscow stops supporting the
breakaway region of South Ossetia on its territory, a leading Russian daily said
on July 9th. According to Kommersant, Georgian Foreign Minister Gela
Bezhuashvili met his Russian counterpart, Sergei Lavrov, at the Black Sea
economic summit in Turkey to discuss the settlement of a protracted
Georgian-South Ossetian conflict.
Bezhuashvili said in early July that Tbilisi had "a number of serious and
interesting proposals for Russia," in exchange for Moscow's promise to
break off all contacts with the unrecognised government of South Ossetia, led by
Eduard Kokoity, and to deal in the future only with the Georgia-supported
provisional administration, headed by Dmitry Sanakoyev. Sanakoyev, the winner of
an "alternative" presidential election in Georgia's breakaway region
of South Ossetia, was inaugurated by Georgian authorities in the conflict zone
Saakashvili to the fore at GUAM summit
The outspoken Georgian leader, Mikheil Saakashvili, said in early July that
the south Caucasus state would regain control of South Ossetia, one of two
breakaway regions on its territory, in the next few months. "[South
Ossetian President Eduard] Kokoity's tenure is expiring, and we will finally
resolve all problems in the next few months, demonstrating to the world how
ethnic conflicts should be tackled," Saakashvili said at a GUAM summit of
four ex-Soviet countries, Georgia, Ukraine, Azerbaijan, and Moldova.
A Georgian government source told Kommersant that stripping Kokoity's government
of Russia's economic and political support was central to Tbilisi's plan to
regain control of the separatist region. The source said if Russia accepted the
proposals, Tbilisi would allow Moscow to assume the role of official guarantor
in future agreements on granting South Ossetia broad autonomy within Georgia.
"We are even ready to officially recognize the presence of Russian troops
on our territory for an indefinite period and lift all obstacles to Russia's
accession to the World Trade Organization," Kommersant quoted the source as
Georgia earlier said it would cease to block Russia's bid to join the WTO only
after Moscow honours its commitment to close its border checkpoints.
Sochi Olympics could unblock frozen conflicts
A sporting event of some significance is in the offing. In Ancient Greece
truces were held to any ongoing conflict for the duration of the original
Olympic Games, that began in 776 BC. Diplomats attended the games and many a
peace was declared. The irenic function of Olympic Games was never needed more
than in the Caucasus today, as we have seen.
Although the Georgian government has lauded the decision to hold the 2014 Winter
Olympic Games in Sochi, Russia, on the Black sea near Georgia, some regional
experts believe the event could create yet another obstacle to the resolution of
the so-called frozen conflicts in Abkhazia and South Ossetia, rather than the
Georgian President, Mikheil Saakashvili, offered hearty congratulations to
Russian President Vladimir Putin after the International Olympic Committee (IOC)
awarded the 2014 winter games to the Russian resort city. Sidestepping his own
country's bid to host the 2014 winter games, Saakashvili claimed on July 4th
that he had supported Sochi's candidacy "from the very beginning."
However he was quick to tie the event to the frozen conflicts. Noting that
"ethnic cleansing" took place a mere 50 kilometres (approximately 30
miles) from Sochi, Saakashvili said, according to news reports, that he expected
the IOC's move to promote a more "civilized approach" to the peace
process. "I really want Russia to get this right," Saakashvili was
quoted as saying in Russia Today on July 6. "The Olympics in the Caucasus,
which has long been seen as unstable, will promote peace and understanding
Analysts, however, are divided on exactly how, or if the games will hasten
agreement on the separatist territories' political future. Like Tbilisi, the de
facto governments of both Abkhazia and South Ossetia issued statements hailing
the Russian-hosted games. According to Abkhazian de facto President Sergei
Bagapsh, Sochi's victory is "our own victory. Together with you, dear
neighbours, we were looking forward to this moment," he reportedly wrote in
a congratulatory telegram on July 5thy.
Zurab Bendianishvili, a conflict-resolution expert currently serving on the
Georgian parliament's temporary commission for territorial integrity issues,
believes that the Sochi Olympics will have a "direct" effect on the
conflicts, especially in Abkhazia. He noted that over the next seven years,
while the region is in the spotlight, Russia will have to be on its best
behaviour. "Now Russia cannot support the separatists so openly," he
said, noting that Moscow will have to prove to the international community that
it is playing the role of honest mediator. "Russia must consider our
But other analysts believe that the Olympics could possibly do more to enhance
Abkhazia's independence aspirations than to promote Georgia's territorial
re-integration aims. According to Ana Jelenkovic, an associate at the New
York-based Eurasia Group specializing in the Caucasus, while regional
instability is not in Russia's interests, the Winter Games give Moscow the
opportunity to invest more heavily in Abkhazia and in the regional
infrastructure. She noted that with the additional government funds earmarked to
prepare for the Games - a reported US$12 billion according to media reports -
Moscow will have more resources to help Abkhazia. A significant boost in Russian
assistance would work directly against Georgia's current strategy of showcasing
itself as Abkhazia's best economic provider.
"The more Russia can offer [Abkhazia]…the less [the territory] will be
interested in [rejoining] Georgia," Jelenkovic said
Jelenkovic noted that, conflict resolution aside, the Olympic Games could have a
direct benefit for Georgia since increased international attention should act as
an incentive for Moscow to improve relations with its southern neighbour.
"It is important to the overall relations between Russia and Georgia,"
she said, adding that aggressive sanctions, such as the economic embargo, are
not in Russia's "interests" as it gears up for the games.
Over the past few weeks, however, there has been little evidence of a possible
thaw in Russian-Georgian relations. Shortly after the official announcement
about the Sochi Games, Moscow Mayor Yuri Luzhkov stated that Russian investments
in the conflict zone would continue, despite Georgian opposition. "We have
chosen a number of investment projects in Abkhazia, particularly in the energy
and healthcare sectors," Luzhkov said on July 9th according to a report by
the official RIA Novosti news agency. "We are glad that the socio-economic
situation is improving in Abkhazia and we are ready to further support this
In response, officials in Tbilisi warned that privatisation and investment in
Abkhazia is illegal. "Everyone should know that the time will come when
illegally purchased property will be returned to the legal owners,"
Georgian Foreign Minister Gela Bezhuashvili said on July 9th during a press
conference in Tbilisi.
Dubious advantages of belonging to the CIS
The Commonwealth of Independent states (CIS) held its most recent summit in
June. The member states are supposed to enjoy benefits for being a member of the
organization, but Georgia is a clear example that this is not guaranteed. In
principle, the CIS member states should have visa free regimes between member
countries as well as trade privileges.
Since the spy row last September, Georgia has basically no visa regime with
Russia much less a visa free regime. In fact it hasn't had a visa free regime
with Russia since December 2000. It also not only enjoys no trade privileges
with Russia, it suffers from trade sanctions. Last spring, Russia banned
Georgian wine and mineral water as well as other products from their market.
Many in the opposition have been calling on the authorities to withdraw from the
CIS, not only for these reasons but because of Georgia's intention to integrate
into NATO and other Euro-Atlantic structures. The Baltic states show the way
forward here. The leader of the Labour Party, Shalva Natelashvili, said it was
"irresponsible" for President Saakashvili to have attended the
informal summit of CIS leaders and once again called on the administration to
withdraw from the body. Though the administration hints that they would like to
leave the CIS space, they argue that the time isn't right as they are trying to
patch things up with Russia.
And patching things up, it appears, they are. Most statements were markedly on
the positive side compared to statements from the last meeting between the two
heads of state in November. All kinds of commitments seemed to be made though
mostly coming from the Russian side. They've moved in Georgia's direction in
talking about lifting sanctions as well as commenting on the importance of
Georgia's territorial integrity. Some Georgian media even commented that
statements were made about handing the Lars checkpoint over to Georgia. Rustavi
2 reported that Saakashvili stated that the message of the Russian side to not
review positions about Georgian borders and to question Georgia's territorial
integrity was "very important."
The following is self-explanatory:-
New foreign investors are entering the Georgian market
By Lili Di Puppo in Tbilisi
Attracting foreign investment has been the Georgian government's number one
objective since the Rose Revolution. Foreign investors are expected to bring
well-needed capital inflow, contribute to the building of new infrastructure,
the transfer of management skills and the creation of jobs. Kazakstan has gained
a prominent position in the Georgian market in the last years with a total of
approximately US$300 million Kazak investment in 2006. New investors are
entering the Georgian market in 2007, in particular the United Arab Emirates (UAE)
and the Czech Republic, while Iranian investments are anticipated this year.
Transport and tourism are the two major investment sectors in Georgia, while the
agriculture sector has also potential. A recent U.S. Agribusiness Trade and
Investment Mission to Georgia in June 2007 was aimed at increasing investment in
the agricultural sector, in particular wine and beverages. Since Georgia's
independence, the largest investors are the United States, the United Kingdom,
Georgia's neighbours Azerbaijan and Turkey and until recently, Russia. Political
tensions between Russia and Georgia in 2006 have led to a sharp decrease in
Russian investment in 2006. The completion of the Baku-Tbilisi-Ceyhan (BTC)
pipeline in 2005, whose construction has provided a major boost to foreign
investment in 2003-2004, was also a factor behind decreasing investment in 2005.
Nonetheless, the Georgian government's liberal reforms seem to bear some fruits
with FDI reaching US$539 million in 2005, and expected to exceed 1 billion US$
in 2007. Georgian Prime Minister Zurab Nogaideli recently announced that foreign
investments will amount to 2-2.5 billion USD in 2007 due to anticipated huge
investments from the United Arab Emirates (UEA) and Iran.
New investment projects in 2007
Among new investors that have entered the Georgian market in 2007 are the
Gulf emirate of Ras-al-Khaimah in the north of the United Arab Emirates (UAE)
and the Czech Republic. During a February visit by Georgian President Mikhail
Saakashvili to Ras-al-Khaimah, a business partnership worth US$3 billion was
established between Georgia and Ras-al-Khaimah aimed at tourism, real estate and
shopping. Part of the business partnership is the real estate development plan
"Tbilisi Heights" that envisages the construction of a spa-like
resort, business and residential era covering 200,000 square meters in
Tabakhmela, near Tbilisi. A similar real estate project is "Uptown Tbilisi",
which will cover an eight hectare plot of land in Tbilisi's Digomi District.
Other investment in tourism facilities in Tbilisi are planned under the
partnership. During his visit to Ras-al-Khaimah, President Saakashvili declared
his interest in attracting Arab tourists to Georgia in the future.
Rakeen Development, a real-estate company owned by the Gulf emirate of
Ras-al-Khaimah, RAK Airways and RAK Properties, plans to invest up to US$1.5
billion in Georgia. The company has purchased the Sheraton Metechi Palace hotel
in Tbilisi in June 2007. The purchase was followed in the same month by a visit
of the Deputy ruler of the Gulf emirate Sheikh Saud bin Saqr Al-Qassimi to
Georgia. The Sheikh visited Georgia's Black Sea port of Batumi on June 16. The
Rakeen company has also expressed interest in the development of a free economic
zone in the Georgian Black Sea port of Poti. A law was recently voted in the
Georgian Parliament on the establishment of a free economic zone in Poti.
During a visit to Czech Republic in June 2007, Georgian Prime Minister Zurab
Nogaideli declared that the Czech Republic could potentially become Georgia's
top investor in 2007. Several Czech companies are reportedly interested to
invest in infrastructure projects in Georgia, in particular in railways and road
networks. The biggest Czech investment to date is the purchase this year by the
Czech company Energo-Pro of six hydro power plants and two electricity
distribution companies. The Czech company has become the leading electricity
distributor in Georgia, controlling 62.5 % of the market. Some opposition
politicians have argued that the Czech company is linked to the Russian
electricity monopoly UES, which owns the Telasi electricity distribution
company. The Georgian government underlined that the Energo-Pro's investments
were backed by the Czech government with the Czech state-run Export Bank acting
as financial guarantor. Some observers also see Russian capital behind the
numerous Kazakh investment projects in Georgia.
Favourable investment climate?
Structural reforms after the Rose Revolution have been aimed at creating a
favourable investment climate. Reduction in the number of licenses, reduction in
taxes, the introduction of the one-stop shop principle and liberal labour
regulations are some of the measures introduced by the government to help boost
business. As a result, Georgia was named a top world reformer by the World Bank
in its 2006 Doing Business Survey.
Nonetheless, several factors are still impeding foreign investments in Georgia.
Recent privatisations have been criticized for their lack of transparency. A
weak judicial system and concerns on property rights are also perceived as
obstacles to the protection of foreign investments. Local businesses are more
affected by this lack of predictability than foreign businesses. For this
reason, local businesses often seek to form a joint venture with foreign
companies to protect themselves against possible pressures from the government.
Several observers criticize the attention given by the government to big
businesses, while local or foreign small and medium-size enterprises (SMEs) are
not benefiting from it. Large capital inflows due to increased FDI have led to
an increase in imports, while exports have strongly decreased, resulting in a
negative trade balance. The development of the domestic economy and exports are
crucial elements if Georgia's economic growth is to become sustainable. Foreign
investors can contribute to the development of a domestic economy through the
transfer of management skills and an improved infrastructure, which can in turn
contribute to increase exports. However, the government must also intervene to
help local production. A recent government programme is aimed at boosting the
tourism sector through credits to tourism-oriented SMEs. The lack of human
resources in developing sectors such as tourism and construction also
necessitates a government intervention to invest in the training of professional
staff through the opening of training centres and schools.
It remains to be seen whether the Georgian government will meet its challenge of
boosting the country's economy by counting primarily on huge foreign investments
and pursuing a radical deregulation policy, while neglecting at the same time
local production and the development of SMEs.
The privatisation process initiated after the Rose Revolution has also been
criticized for its rapid pace. A recent draft law was presented to the Georgian
parliament which aims at redefining the list of assets that qualify for
privatisation, including strategic assets such as the railway system. Some
opposition politicians see in this measure the risk that Georgia might lose its
strategic potential as transit country.
Airzena Airways drops plan for Moscow flights
Plans for Georgia's Airzena Airways to run charter flights between Tbilisi and
Moscow for three months starting on July 3rd have been dropped because "we
still haven't received an official confirmation from the Russian side,"
Airzena spokesman, Aka Sanikidze, said on July 2nd, Interfax News Agency
reported. "There has been an oral understanding" on the proposed
flights, Sanikidze said.
Air traffic between Russia and Georgia has been suspended by Russia since
October 3rd, 2006, after relations between the two countries soured. Russia
claimed the reason for the air traffic ban was alleged Georgian debt of more
that three million Euro for air traffic control services. There have been just a
few charter flights between the two countries since the ban was introduced.
There were three such flights between Tbilisi and Moscow at Easter organised by
the Georgian Orthodox Church. Airzena was to do three round trips per week.
FOOD & DRINK
Tbilisi, Moscow start wine consultations
Georgia and Russia have started consultations on re-launching sales of Georgian
wines in Russia, Union of Georgian Winemakers head Levan Koberidze said on July
2nd, Interfax News Agency reported.
"It is important to further the dialogue at a working level and get in
touch with all agencies whose approval is vital for restarting sales of Georgian
wines in Russia," he said. "Russia's attitudes are mostly positive,
which inspires hope for successful talks," Koberidze said.
Earlier reports said that Russia and Georgia reached an agreement at a
Commonwealth of Independent States chambers of commerce's meeting in Tbilisi in
June, to negotiate the return of Georgian wines and other products to Russia.
Before March 2006, when a ban on Georgian wine imports was imposed, Georgian
wines had accounted for nine per cent of Russia's wine imports and some five per
cent of the Russian wine market, Vadim Dhobis, spokesman for the National Union
of Alcohol Market Participants reported. Over 80 per cent of Georgian wines had
been exported to Russia, he said.
Foreign investments expected for 2007
Georgian Prime Minister, Zurab Noghaideli, recently announced at a government
session that Georgia has spent US$575 million in foreign investments in the
first quarter of 2007. According to Noghaideli, foreign investments for the
entire year should amount to US$2.0-2.5 billion. The biggest investors were
Denmark, Turkey, and Netherlands, The Messenger reported.
Over the past few years the government was attracting western investors but this
year promises attention from the East. About US$ one billion in investments are
anticipated from Iran and United Arab Emirates. Political opposition members
find cause for concern in this, saying that the business interests of particular
government officials are behind the Eastern investments. "Small and
medium-sized European entrepreneurs are not entering the country. The reason for
that is the unstable economic situation. Instead of them, states including
Kazakstan and Turkey are entering Georgia," newspaper Alia quoted the
leader of the political movement Georgia's Way, Salome Zourabichvili, as saying.