Georgia Mulls Closer Economic Ties To Russia

Publication: Eurasia Daily Monitor Volume: 1 Issue: 22

The first conference on Russian business investment in Georgia held on May 28-30 was a logical consequence of warming Georgian-Russian political relations after the recent “rose revolutions” in Tbilisi and Ajaria. Continuous economic hardship requires Georgia to seek foreign investment from wherever it is offered. The new Georgian government’s interest in Russian investment is likely spurred by both economic and political considerations. The arrival of Russian President Vladimir Putin’s close confidant German Greff, minister of economic development and trade, as head of the delegation emphasized the political undertones behind his visit. In addition, Greff is known as a supporter of the concept of a “Liberal Empire” nurtured by Anatoly Chubais, chief of the Russian RAO EES. This concept implies that continuing Russian influence in the post-Soviet period has been caused by economic leverage.

Prior to the conference, many top Georgian officials seemed upbeat about Russian investment in Georgia. Georgia’s Minister of Economics Irakly Rekhviashvili stated that US and European investors show little interest in still-precarious Georgia, while Russian investors are ready to invest. Rekhviashvili attempted to dispel the fear that Russian investment would be used as “political leverage” to pressure Georgia. “At present we are not afraid of this,” he said (Prime News, Utro.Ru May 27).

Nikoloz Lekishvili, chairman of Parliament’s economic policy committee, said that Georgia must create particularly favorable conditions for Russian investment, which in his opinion has greater potential than European investment. “The prospect of Georgian-Russian business relations is great and we have to use this chance,” he said (Inter Press, May 28).

President Mikhail Saakashvili of Georgia was also lavish with promises. He assured Russian businessmen that their investments would be safe in Georgia. According to Georgian Prime Minister Zurab Zhvania, the key focus for Russian investment should entail restoring energy infrastructure, including creation of new power transmission lines for export of Russian electricity to Turkey; construction of railroads and motorways; development of agricultural processing facilities; and, recovery of former Soviet industrial giants in Georgia. The head of the Russian delegation, German Greff, said that Moscow’s main interests in Georgia are the energy sector, tourism, culture and education. Also mentioned were seaports, railways and the industrial sector. “An agreement about securing the safety of Russian investments will be signed by the end of the year,” he said (PNA, May 28, Mtavari Gazeti, May 29). Greff noted that both Georgia and Russia have specific business plans focusing on Abkhazia, which could contribute to settlement of the Abkhazian problem. Alexander Shokhin, ex-minister of economics and chair of the Russian taxpayers union, was more specific. He considers protection of existing Russian investments in Abkhazia as necessary, despite the fact that Georgian authorities did not sanction these investments. He said that, if Georgia legalizes these investments, the Russian business elite would become a strong lobby in the settlement of the Abkhazian conflict.

However, amid optimistic assessments of the conference, concerns are still being voiced. The main concern of Georgian pessimists is a close link between the Russian private business sector and Kremlin politics. The Georgian-Russian summit and negotiations between Russian Prime Minister Mikhail Fradkov and his Georgian counterpart Zurab Zhvania preceded the business conference. Fradkov made no secret that the Russian business delegation had received detailed instructions from the government about issues to be discussed. The expression: “What Russia failed to do in Georgia by tanks it will do by banks,” attributed to former Vice Premier Roman Gotsiridze (1992-1994), who is now chairman of Parliament’s finance/budget committee, was rekindled before the conference. However, Gotsiridze seemed optimistic, preferring to focus on positive aspects of the Russian economic presence in Georgia. Meanwhile, Deputy MP Vladimir Papava, ex-minister of economics (1994-1999), noted that Russian investments could be fraught by the economic subjection of Georgia (Resonance May 27). However, Niko Melikadze, director of the Center for Strategic Studies, views the danger more in the poorly designed political and economic strategy of the new Georgian government rather than in Russian investment. “We don’t have a strong and professional government. The system created by Shevardnadze remains unchanged. The reasons for the interest in Russian investors might be either the return of Georgia to a Russian orbit or the failure to attract other investors,” he said (Mtavari Gazeti, May 29). There are pessimists within the Russian establishment as well. For example, Mikhail Alexandrov of the Russian Institute of CIS, warned that by attracting Russian investments, Tbilisi would try to use the influence of Russian business leaders on the Kremlin to restore control over breakaway Abkhazia and South Ossetia by economic means. “Our business would not play this game,” he added (News Info May 26).

Mikhail Saakashvili particularly underlined the primary importance of economic factors in the restoration of control over Abkhazia in his televised news conference on May 25 (Rustavi-2, Imedi TV). The attraction of Russian capital is not the focus of Saakashvili’s government. Last year, Shevardnadze’s government submitted a package of 54 investment proposals worth US$10 billion. But the Kremlin’s traditional distrust of Shevardnadze and the “Rose Revolution” undermined this plan. What is noteworthy is that Shevardnadze and his government underwent a fierce attack from Saakashvili, Zhvania and their supporters for letting of the Georgian energy sector to the Russia’s Gazprom and RAO EES. The latter replaced the American company AES in the Georgian power distribution market. Despite statements by Russian business leaders that they came only to assess the investment climate in the country, some agreements achieved suggest that the Russians plan to strengthen their economic foothold in Georgia. Russian airline Aeroflot plans to buy a controlling interest in Georgian flag carrier Airzena-Georgian Airlines, and Vneshtorgbank will become a large shareholder in the United Georgian Bank.

Russian natural gas exporter Itera wants full ownership of Georgian chemical giant Azoti in exchange for writing-off a US$103 million debt, owed to Itera. Whether Georgia plans to follow Armenia, which paid off its Russian debt last year by relinquishing controlling interests in its largest enterprises remains to be seen. Currently, Georgia owes Russia US$150 million. At the conference, Georgia and Russia also signed an agreement by which Georgia will no longer oppose Russian entry to the World Trade Organization.

The appointment of ethnic Georgian Kakha Bendukidze, 48, was announced at the conference. A former businessman, Bendukidze becomes the second expatriate member of Saakashvili’s government. The first appointment was Foreign Minister Salome Zurabishvili, a descendent of Georgian immigrants to France. The Bendukidze appointment is as an indication of Georgia’s maneuvering between the West and Russia. Bendukidze said that he would not be the “hand of the Kremlin” in Georgia and plans to make Georgia’s economic policy ultraliberal (“Rustavi 2”, “Imedi TV, June 1).