By Nurzhan Zhambekov (04/01/2015 issue of the CACI Analyst)
Azerbaijan and Kazakhstan face a tough year as oil prices plummet. A dramatic shift has occurred in the international oil market in recent months as oil supply has gone up, particularly with the U.S. oil production increase, and demand has weakened with the economic slowdown in China and the EU. Saudi Arabia, the world’s second largest oil producer, did not reduce its oil production despite the oil price decline, indicating that it would like to maintain its international oil market share. The precipitous decline in oil prices has resulted in a sharp fall in export revenues for Azerbaijan and Kazakhstan, the third and second largest oil producers respectively in the former-Soviet Union after Russia. This dramatic price drop has put the two countries’ currencies under severe pressure.
By Oleg Salimov (02/18/2015 issue of the CACI Analyst)
Tajikistan’s President Emomali Rakhmon addressed the parliament in his annual speech on January 23, 2015. Rakhmon reviewed Tajikistan’s accomplishments in the socioeconomic sphere in 2014 and outlined his proposals for the country’s development in 2015. Rakhmon presented a highly detailed review of the work done by the Tajik government in 2014, highlighting numerous improvements supported by meticulous statistical data. In the speech, summaries of specific accomplishments were followed by appeals for further improvement.
In his annual address, Rakhmon focused mostly on economics, social problems, energy independence, transportation infrastructure, water resources, education and youth problems, and terrorism. Rakhmon specifically addressed the importance of developing a strong ideological basis in order to unify the people of Tajikistan and enhance their patriotism. Rakhmon also announced 2015 as the “Year of the Family,” translating into a separate set of tasks for the government and legislature in 2015. The president only cursorily mentioned Tajikistan’s parliamentary elections, even though these are scheduled to take place on March 1, 2015.
A few points in Rakhmon’s speech require closer attention. When speaking about economics, Rakhmon stressed the role of heavy industry, natural resources extraction, and Tajikistan’s hydroelectric power potential as it seeks to find its niche in the global market. In Rakhmon’s vision, the development of the agricultural sector is essential mostly for the country’s internal consumption and substitution of imported produce. According to Rakhmon’s speech, Tajikistan’s mid-term goal to transform from a largely agricultural society into a resource-supplying country with a perspective, in the long-run, to become a self-sufficient industrialized economy.
This enormous task can encounter such problems as insufficient human capital, technological deficiency, and inability of the state to attract necessary financial investments. Rakhmon touched on these problems as part of Tajikistan’s broader socioeconomic challenges, yet he made no direct reference to his proposal for economic transformation. The country’s transportation gridlock creates another obstacle for Tajikistan on its way to industrialization. The Turkmenistan-Afghanistan-Tajikistan railroad project, which started in March 2013 and would have provided Tajikistan with access to the Caspian and South-Asian markets, stalled as the participating countries disagree on the route of the railroad.
Tajikistan also continually suffers from an energy crisis. Although the country possesses a significant hydroelectric power capability, it suffers from a constant deficit of electricity vital for industrialization. While Rakhmon reports a significant increase in electricity production, the power limit for residential consumption remains at 6 hours daily in the winter time. Additionally, the hydroelectric power company Barki Tojik, which Rakhmon sees as an important player in advancing Tajikistan’s energy independence and hydroelectric power export, struggles with considerable financial difficulties. The company’s debt to suppliers and Tajikistan’s Taxation Department totals US$ 300 million as of August 2014. Tajikistan’s state budget is also cash strained as the export of aluminum, the main income-generating item, was cut from 216,000 tons in 2013 to 121,200 tons in 2014, according to the Minister of Economic Development and Trade Sharif Rakhimzoda.
Another significant part of Rakhmon’s speech was an appeal for constructing an ideological platform for Tajikistan, which must encourage patriotism, pride of the national and cultural heritage, and loyalty to the country’s interests. This task was in large part delegated to the Tajik Academy of Sciences. The ideology has to counterbalance propaganda hostile to Tajikistan. Rakhmon also underlined that, among other tasks, the Academy has to intensify its efforts to study the Tajik Civil War of 1992-97 and presenting more accurate and objective information on the issue as compared to other sources. It should be noted that last year a Tajik scholar from Canada was arrested in Tajikistan when trying to conduct research on the Tajik Civil War, unauthorized by the Tajik government. The apparent motive behind these proposals is to increase the legitimacy of the current regime. Rakhmon’s image as a peacemaker has helped him retain power for almost two decades and he intends to continue to do so in the future.
In general, Rakhmon’s annual address to parliament presented the same set of issues that the country has been trying to resolve since independence. As in last year’s speech, the current proposals for export increases, industrialization, energy independence, and resolution of the transportation impasse lacked specific plans for action and follow-up reviews. Besides, several factors and actors supposedly assisting the economic development process have collapsed or struggle to function, as seen in the example of the TAT railroad and Barki Tojik. Therefore, Rakhmon’s proposals constitute the acknowledgment of problems rather solutions to them.
By Eka Janashia (01/22/2015 issue of the CACI Analyst)
At the beginning of 2015, Russia’s state-owned oil producer Rosneft entered Georgia’s oil retail market by purchasing a 49 percent stake of Petrocas Energy Ltd. Petrocas’ affluent assets include an oil terminal in Georgia’s Black Sea port of Poti with a capacity of 1.9 million tons per year as well as a network of 140 gas stations in Georgia under the Gulf brand.
By launching a joint venture with Pertocas, Rosneft will gain high-quality storage capacity in one of the major oil and oil products hubs in the region, enrich supply routes options and enhance its operations in the Central Asia and South Caucasus oil market. “[It] is a new milestone that will highlight the strategic importance of the South Caucasian energy corridor,” the main shareholder of Petrocas, Russian businessman David Iakobashvili said.
The opposition United National Movement (UNM) party insisted that Rosneft plans to acquire a controlling interest in Petrocas and called on the government to revoke a deal damaging to state interests. The government responded that it was during UNM’s term in power that Russian investments penetrated strategic areas of Georgia’s economy such as finances, electricity, chemicals, ore industry, food and dairy products. For example, at that time, the Russian state-owned electricity trader, Inter RAO, obtained 75 percent of Tbilisi’s electricity distribution company Telasi, thermal power generating plants, as well as the management right of two hydro power plants; Khrami I and Khrami II. The government also lamented that it has no right to influence private business, especially the decisions of Petrocas, which is registered in Cyprus and manages its operations from there.
UNM counter-argued that Rosneft operations in Abkhazia breach the Law on Occupied Territories and that the government is obliged to cancel the agreement granting the Russian company “the most important communications on the country’s Black Sea shore.”
Indeed, in 2009 Rosneft started offshore explorations and development of oil and gas fields in Abkhazia under an agreement signed between the company and Abkhazia’s de facto government. Against this background, three of Georgia’s government agencies began to study the legitimacy of the Rosneft-Petrocas deal. The results are yet unknown.
The recent deal reflects Russia’s strategy to strengthen its infrastructure capabilities in the South Caucasus to ensure an uninterrupted delivery of oil as well as other products to Armenia, which recently became a member of Eurasian Economic Union (EEU) but lacks land access to other EEU members in the absence of common borders. The reconstruction of the railway through Abkhazia and the planned Avro-Kakheti highway from Dagestan to eastern Georgia and then to Armenia, can be understood in this light.
While improving Armenia’s situation is Moscow’s key rationale, the Kremlin is also interested in consolidating its position in the Georgian market. UNM asserts that the Rosneft-Petrocas deal is only the beginning of “a big process” and unless countervailing measures are taken, “Moscow will have no obstacles at all.”
On January 17, Iase Zautashvili, the General Director of Airzena, Georgia’s national airlines, disclosed correspondence between Georgian and Russian state agencies regarding the prospect of restoring flights between the two countries. These clandestine negotiations aim to grant Russian companies a monopolistic position in Georgian airspace, Zautashvili said.
Referring to other covert correspondence taking place between the Russian and Georgian sides via the Swiss Embassy, UNM claims that 11 Russian companies, including Vladimir Putin’s Private Company, will enter Georgia’s airspace by dumping prices and eliminating the competition, including the national airlines, in order to obtain a monopolistic position in the Georgian market. The UNM also claims that some of these companies fall under the international sanctions against Russia while others have violated the Law on Occupied Territories.
The Enguri hydropower plant with a total capacity of 1,300 megawatts could become another target of Russian strategic interest. Russia allegedly intends to register Georgia’s most powerful hydroelectric station in the region in Abkhazia. Although Georgia’s Ministry of Energy categorically denies that the plant’s ownership is under discussion, Aslan Basaria, Director of Abkhazia’s power company Chernomorenergo, claims that negotiations have already been launched with participation of the Georgian side. “The plant is located on Georgian territory and belongs to the Georgian state. The Chernomorenergo Director General’s statement is far from reality,” the Ministry of Energy says. Despite the denial, Sokhumi in fact raised the question of the Enguri hydropower plant’s ownership a month ago when Abkhazia’s de facto leader Raul Khajimba said “what is located on our territory should be owned by the Abkhaz people.”
In fact, the Enguri generators are located on the territory of occupied Abkhazia while its arch dam is in the Georgian-controlled area. According to the informal agreement reached between Tbilisi and Sokhumi in the 1990s, Abkhazia gets 40 percent of the electricity generated by the plant free of charge while the rest goes to Georgia. The fact that the agreement terms are rather favorable to the Abkhaz side suggests that the questions raised over the plant’s ownership comes from Moscow, rather than Sukhumi.
Taken together, signs are emerging of several steps taken by Russia to make inroads into vitally important sectors of Georgia’s economy.
By Eka Janashia (01/07/2015 issue of the CACI Analyst)
The changes taking place in Georgia at the end of 2014 will have crucial implications for next year’s political and economic agenda. In the beginning of December, a bout of reshuffles started both in government and inside the ruling Georgian Dream coalition (GD). It was the second wave of shifts since November, when the Free Democrats, led by the former Defense Minister Irakli Alasania left the GD coalition. This time, the alterations occurred within the GD party itself and affected the senior and mid-level government officials as well as party’s political council.
The party’s executive secretary, and PM Irakli Garibashvili’s relative, Zviad Jankarashvili resigned. Until April, 2014 he was head of the General Inspection of the Ministry of Internal Affairs (MIA). Meanwhile, first Deputy Interior Minister Giorgi Zedelashvili, a distant relative of Jankarashvili and one of the most influential figures in the MIA, was detached from the ministry and moved to the post of Deputy Secretary of the State Security and Crisis Management Council.
The head of the Special State Protection Service (SSPS) – an agency responsible for the security of high-ranking officials, state facilities and buildings – Teimuraz Mgebrishvili, was replaced by Ivanishvili’s former chief bodyguard Anzor Chubinidze. Another close associate of Ivanishvili, Nodar Javakhishvili, replaced Zurab Kopadze on the post of Deputy Minister of Regional Development and Infrastructure.
The heads of the State Security Service (SSS) and the General Inspection of the MIA, Malkhaz Chikviladze and Irakli Samkurashvili, also resigned. Ivanishvili’s crony, Mirian Mchedlishvili became head of the SSS.
Nearly all opposition parties detect Ivanishvili’s hand behind the recent relocations. Rumors swirled about Ivanishvili’s growing mistrust toward Garibashvili. Allegedly, Ivanishvili appointed his trusted associates to tactically important posts in order to control the PM.
The United National Movement (UNM) accused Garibashvili’s family of bribery long before the reshuffles. At the beginning of this year, the party disclosed an apparent corruption scheme run by Garibashvili and his father-in-law, Tamaz Tamazashvili. The scheme allegedly envisaged the establishment of fake firms and companies to participate in state tenders and accumulate large amounts of money. UNM asserts that the total volume of corrupt deals amounts to US$ 8 million.
The changes in government and GD were accompanied by a drastic depreciation of the Georgian Lari (GEL) which lost around 12 percent of its value against the U.S. Dollar in mid- December. Although Garibashvili’s government insisted that the drop was mainly caused by external factors, economic analysts argue that the government’s inefficient economic policy disrupted the balance between the US$ and GEL.
According to some economic analysts, the toughened visa regulations for foreigners imposed by the government last year have damaged the overall investment climate. The volume of investments has dropped by 10 percent for two quarters in 2014 compared to the same period of 2013. Although another source of external financing – export – has recently increased, the growth rate of imports is still much higher than that of export. Meanwhile, the ongoing economic recession in Russia contributed to a drop in the volume of remittances to Georgia.
As a result, abridged US$ inflows instigated a depreciation of the GEL, especially harmful for those who get their incomes in the national currency but have taken loans in Dollars. Data from Georgia’s National Bank disclose that 60 percent of all loans and 77 percent of mortgages are dollarized, implying that a significant share of the population is affected by the Lari depreciation.
Moreover, the appreciation of USD against GEL connotes that imported goods will become more expensive for Georgians. Taking into account that import comprises 49 percent of Georgia’s GDP while imported products constitute 70 percent of Georgia’s consumer basket, the ongoing depreciation of the GEL appears to be especially troubling.
Economic concerns amplified the uncertainty triggered by the shifts taken place inside the GD party. Several analysts and politicians have discussed Ivanishvili’s changing confidence in Garibashvili, which could end with the PM’s reassignment. Many speculations have also been devoted to the question who might be the next PM and whether Ivanishvili himself may officially return to politics.
Although the expected changes will heighten the political turbulence and economic fluctuations in the country, instability seems to be growing even without further shifts in the government. GD’s pattern of ruling deprives Georgia of institutional development and instead benefits crony networks, clan clashes and personality politics.
Meanwhile, if economic predicaments are not dealt with timely and efficiently by pursuing a more liberal economic policy, the country may face both political and economic crises. Alarmingly, these problems could derail Georgia’s Euro-Atlantic course and seriously slow the country’s democratic development.
In 2015, the Georgian government will have to address the most critical issues to maintain social stability. Thus, this year may present the true litmus test for GD and its ability to preserve its status as Georgia’s dominant political force.
By Mamuka Tsereteli (10/01/2014 issue of the CACI Analyst)
Newly emerging geopolitical and economic realities are dictating an increased focus on developing the land transportation corridor between Asia and Europe. Asian producers and European importers are seeking faster ways of delivering business orders to European consumers at competitive prices, while there is also an increased flow of goods from Europe to Asia. Maritime routes are cheap but slow, and there is a growing competition between different land transportation options from China, India, Pakistan and other countries via Central Asia to Europe. One of them is a multimodal transportation option from Central Asia through the South Caucasus to the Black Sea or Turkey and beyond to Europe. Regional leadership and U.S. and EU support is required for it to succeed.
The Central Asia-Caucasus Analyst is a biweekly publication of the Central Asia-Caucasus Institute & Silk Road Studies Program, a Joint Transatlantic Research and Policy Center affiliated with the American Foreign Policy Council, Washington DC., and the Institute for Security and Development Policy, Stockholm. For 15 years, the Analyst has brought cutting edge analysis of the region geared toward a practitioner audience.