Georgian exports to CIS slump

By bne IntelliNews July 23, 2015

Naubet Bisenov in Almaty -

 

Georgia’s exports were hit severely in the first six months of 2015, falling by nearly a quarter, with exports to Russia almost halving because of the country's recession. 

Georgia’s foreign trade decreased by 12.6% year-on-year to $4.76bn in the first half of 2015, the country’s National Statistics Office (Geostat) said in a report on July 21. The foreign trade deficit fell by 0.4% year-on-year to $2.6bn, with imports down by 8.6% year-on-year to $3.68bn and exports down by 23.8% to $1bn.

Despite economic troubles in the EU, the country’s trade with the EU went up by 1.8% year-on-year to $1.43bn, with exports falling by 2% to $293mn and imports up by 3% to $1.14bn. The EU accounted for 27% of the country’s exports and 31% of imports. Trade with the EU, especially Georgian exports to the EU, has been helped by the signing of the Association Agreement between Tbilisi and Brussels in June 2014 which envisages creating a Deep and Comprehensive Free Trade Area.

Trade with the CIS went down by 21% to $1.35bn: exports plummeted by 45% to $417mn (39% of the total) and imports by 2% to $939mn (26%). Georgia’s trade with Russia totalled $336.7mn, with exports plummeting by 47.3% to $70.6mn but imports increasing by 16% to $266mn, and trade with Azerbaijan totalled $408.6mn, with exports diving by 54.9% to $130.7mn and imports by 5.6% to $277.8mn.

Georgian observers do not link the slump in Georgian exports to CIS countries, namely Russia, to the signing of the Association Agreement with the EU which Moscow fiercely opposed. Following the signing of the agreement, Russia said it would suspend a 1994 agreement on a free trade zone with Georgia. Giorgi Gaganidze, a professor of economics at the Tbilisi State University, said that the decrease in exports to Russia was mainly because of the Western sanctions imposed on Russia over its annexation of Crime in March 2014 as the sanctions combined with the low price of oil have resulted in an economic slowdown in Russia, reducing demand for exports.

“The decrease in Georgia-Russia trade wasn’t caused by the creation of the DCFTA,” said Gaganidze, referring to Russian threats to suspend the free-trade agreement. “Trade with Russia decreased due to the sanctions imposed on Russia by Western countries,” Gaganidze tells bne IntelliNews. “The sanctions caused the lower level of demand on all products, including [Georgian] products exported to Russia.” Gaganidze said that Georgia mostly exported to Russia wines, spirits, mineral waters and agricultural produce.

Geostat did not break down Georgian exports to Russia by item, but the total of exports of Georgian mineral waters and wine – the main items of Georgian exports to Russia – decreased from $72.6mn to $45.6mn and $84.8mn to $39.9mn respectively.

Some of Georgian exports to CIS countries, namely Azerbaijan, constitute re-exports of mostly used cars and other vehicles. The decline in exports to Azerbaijan was because of a fall in re-exports of cars from $147.5mn in January-June 2014 to $41.8mn in the first half of 2015: Georgia’s re-exports of cars to Azerbaijan fell to 2,207 units in the first half of 2015 from 11,957 in the same period of 2014, a slump of 81.5%.

The decrease is explained by Azerbaijan’s adoption of the Euro-4 fuel standards in April 2014, which applies to all cars imported into the country. This hurt Georgia’s re-exports of cars as most vehicles exported are old and do not meet the new Azerbaijani fuel standards.

Generally, Georgia’s trade with CIS countries are fraught with political risks, Gaganidze believes. The country’s important regional trading partner Armenia joined the Russia-led Eurasian Economic Union in January 2015, which changed the trade regime between the two countries. As a result, Georgian exports to Armenia decreased by 37% year-on-year to $98.8mn in the first quarter of 2015.

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