Georgia Looks East

Nino Chibchiuri

Contributor

Wednesday, 3 February, 2021

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Analysts say that Georgia needs to expand its traditional role as a transit hub to ensure its economic future amid changing international dynamics.

Due to its geo-strategic location, the country has long served as an entry point to both the Caucasus and landlocked Central Asia, and this continues to be a foreign policy goal.

However, ongoing developments may mean that Tbilisi needs to diversify its options. Most recently, Russia, Azerbaijan and Armenia began talks on transit projects. The plan is for a railway to connect Armenia to Russia via Azerbaijan. At the same time, Azerbaijan will be able to access Turkey through Armenia.

While many experts predict that the Russian-led railway project will be delayed or abandoned due to numerous ongoing tensions, if it does go ahead then the transit corridors will completely exclude Georgia and deprive it of its current significant role.

In addition, China recently signed a comprehensive agreement on investment with the EU after seven years of negotiations, although this still requires approval from member states and ratification from the European Parliament.

This potentially historic deal, however, may end up again sidelining Georgia from its potential status as a strategic hub for the EU and China.

According to economics professor Vladimer Papava, Georgia should now instrumentalise its relations with China - the world’s second largest economy after the US - to its benefit. 

“China has ambitions of an economic nature, which are being realised under the global Belt and Road initiative,” he continued. “The project intends to involve countries on different continents in one economic sphere. This means that aside from communication channels, transit corridors will also exist between regions, which will transform into economic corridors.

“Given that from the beginning Georgia has defined its function as a transit corridor between the east and the west, this project is important for the country. For Georgia to use the above-mentioned transport channels, it should itself become a producer of something.” 

However, Papava stressed that Beijing’s tensions with Washington had created difficulties for economic development between Georgia and China, citing the failure of the Anaklia deep sea port development as an example.

“The Chinese wanted to be involved in the construction of the port,” Papava continued. “I believe the port would have genuinely been built and would have serious prospects. This is a deep-sea port where the shipment of goods would have taken place. The goods would have been delivered by China, which is now transporting goods to the West through Russia. Why would China orient itself to Georgia if it didn’t have any interest in the Anaklia port? Chinese projects are of economic nature and don’t have political components. We should remember that when Russia initiated a question of recognising Abkhazia and South Ossetia in the United Nations, China did not support it.”

David Batashvili, a researcher in the Rondelli Foundation, said that the conflict between China and the US was a battle for global leadership comparable to the Cold War – and which might also last for decades. 

“Georgia should consider this, especially given the growing potential of Chinese influence in our region,” he said. “Closing our eyes to this reality will not make it disappear. It is possible that in the future we will have to make a choice between China and the US on specific matters, which Georgia should consider ahead of time.”

Analyst Otar Kvirikashvili also said that Georgia should avoid over-reliance on its ties with China.

“It is vital that we search for additional markets for diversified trade relations,” he continued. “Together with the EU, India provides one of these alternatives. India has a huge market and has upgraded its payment system. The country also has an interesting feature for us - excise tax, which the Indian government regulates for alcoholic drinks.  Given Georgian wine’s growing popularity, intensive effort is needed by working groups on this subject. It is also noteworthy that we have an agreement with India to avoid double taxation, together with direct flights. Consequently, the sooner we diversify our economy in these giant markets, the more we will reduce political and economic risks and the more we will develop the Georgian economy.”

Talks on a free trade agreement with India were supposed to begin in 2020 but were delayed because of the pandemic. Georgia currently has limited exports to India; 13 million dollars in 2019.

According to information from the Georgian ministry of economy and sustainable development, recent research showed that a free trade agreement between Georgia and India would have a positive effect on their economic prosperity and bilateral trade. This would also include services and investment, as well as and new opportunities for businesses.

“According to the results of our research, these products can lead to growth in export for Georgia:  ore, slag, metallurgical products, medical products, wine and other alcoholic and non-alcoholic drinks, processed agricultural products, and so on,” said deputy minister Genadi Arveladze.  “When it comes to India, their exports are estimated to grow with the following products: cement, ore, mineral [and] fossil fuels, plastic products, electrical equipment, etc.”

Economics professor Giorgi Ghaghanidze said Georgia would develop an important role for its trading partners in India’s huge import market, which made up 479 billion US dollars of the Indian economy in 2019.

“Our main trading partners – Turkey and EU member states – do not have free trade agreements with India, so this agreement could be of interest for them,” he continued. “It will become possible to produce certain products in Georgia with the label ‘produced in Georgia’ and export it to India. All the more so [because] the EU and Turkey’s route from the West to the East goes exactly through Georgia.”