Georgia trade with Moscow rises as Russia-West sanctions take hold

By bne IntelliNews September 29, 2014

Benjamin Rahr in London -


The tit-for-tat sanctions between Russia and the West could provide an opening for Georgia to get its highly popular agricultural products back onto Russian shelves.

Georgia was slapped with a Russian trade embargo for over five years following the 2008 war between the two countries. However, Russia had already begun to lift the embargo against Georgian goods last autumn, following the departure of President Mikheil Saakashvili, a figure reviled by the Kremlin.

“Yes, there is Georgian wine, Georgian mineral water – its two primary exports – heading for Russia, now that the bans are down,” says James Nixey, head of the Russia and Eurasia Programme at Chatham House in London.

This statement was echoed by Georgian President Giorgi Margvelashvili during his visit to the UK in early September to attend the Nato Summit. “Our essential target is to bring back the products that have traditionally been enjoyed by Russians – Georgian wine and Georgian mineral water. We have success in this respect,” Margvelashvili said in a speech to Chatham House think-tank.

Moscow stopped trade with Georgia after Saakashvili cut diplomatic relations with Russia in response to the Kremlin’s recognition of two separatist regions within Georgia – Abkhazia and South Ossetia – as independent states. With the arrival of a new government at the end of 2012 headed by billionaire Bidzina Ivanishvili, and the departure of Saakashvili a year later when his term in office expired, Tbilisi reopened direct communication channels with its powerful northern neighbour.

In the first six months of this year over 2,200 tonnes of Georgian fruit, around 80 tonnes of vegetables, 2,500 tonnes of citrus, nearly 200 tonnes of tea, and one tonne of spices were shipped to Russia. “We have a positive development on our trade agenda that has been initiated since the change of government,” claimed Margvelashvili, who succeeded Saakashvili as head of state ten months ago. “We developed a special format where our special envoy is talking with Russians in Prague, and they are talking about the issues that can be agreed upon, which is trade and culture and which eventually should decrease the tension between our states and create maybe a more favourable format for discussing more complicated issues.”

Georgian fish, mutton, peaches, garlic and honey are also making their way across the northern border. According to Otar Danelia, Georgia’s minister of agriculture, his country is “strongly determined to increase the number of products that are exported to Russia."

Bumpy road

Relations between the two countries are on the mend, but not without setbacks. While Margvelashvili acknowledged that "some of our products are back on the Russian market and this is not only good for our economic partnership, but also good for a reduction in tensions,” he claimed that Russia remains engaged “in putting up barbed-wire fences on Georgian territory, on the occupied territories and kidnapping people.”

Steady Russian support for the breakaway republics of Abkhazia and South Ossetia, coupled with its involvement in the Ukraine conflict, do little to foster trust. “The positive trade balance that we are now experiencing with Russia is a two sided-sword,” said Margvelashvili. “On one hand, we are increasing potential of trade, which is a positive thing to do. On the other hand, we are never sure when this will be stopped immediately or suddenly.”

Hence, Tbilisi is trying to learn from the experience of its European partners, such as the Baltic states and Poland, who have been actively trading with Russia for years, despite similar difficulties. “But this does not stop them from opportunity of trade,” pointed out Margvelashvili.

Georgia is developing mechanisms to attract desperately needed foreign capital, welcoming investors from both Europe and Russia. According to the Georgian head of state, his country wants to “create… positive opportunities for Russian business in Georgia.”

Consequently, the Georgian president does not regard his country’s aspirations to become an integral part of Europe and to join Nato as a danger to Moscow. “We have to persuade everyone to acknowledge that Georgia is not an aggressor to Russia, but an opportunity for Russia,” said Margvelashvili.

However, he admits that there is still "quite a way to go" to appease sceptics in the Kremlin. And US Defence Secretary Chuck Hagel might have inadvertently undermined the Georgian cause during his visit to the Caucasus in early September by pledging Washington’s help for Georgia’s efforts to gain Nato membership, while stressing that “deepening ties between Nato and Georgia are especially important, given the dangerous and irresponsible actions” of Russian President Vladimir Putin.

Therefore, it will likely be up to trade rather than politics to relieve the tensions between Moscow and Tbilisi. Having signed a free trade and association deal with the EU earlier this summer, Georgia is now determined to pursue a more equal dialogue with Russia. “Georgia wishes to have a more realistic relationship with Russia – not to be a sort of quarry, if you like, for food products, groceries, where it will find itself once again dependent upon Russia,” argues Chatham House's Nixey. “I think that Georgia learnt its lesson in 2008 and even beforehand – namely, not to have some umbilical cord connection with Russia.”

However, while Georgia can choose its partners, it cannot change its neighbours. With the Ukraine conflict far from over and renewed escalation of tensions in the ethnic Armenian enclave of Nagorno-Karabakh in Azerbaijan, Georgia is facing the prospect of a further destabilisation in its wider region coupled with a growing reluctance of the West to invest in the area.

Georgian wines, Borjomi mineral water and its agricultural produce are sought after in most former Soviet republics, but remain relatively unknown in Europe. While Georgia is poised for sustained gains on its traditional Russian market, its aspirations to win over European consumers are still far from assured. Rather sooner than later, Tbilisi might realise that trade needs to be guided by demand rather than political preferences.



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