South Ossetia: Single Market Economy

Outside of Tskhinvali, capital of the breakaway republic of South Ossetia, lies a small, unkempt village flush with smuggled and stolen goods. Up to 3000 stall holders gather here daily, selling everything from petrol to chocolate. Most of the goods here are contraband en route from Russia to Georgia.

The village of Ergneti lies at the very heart of the economy of this region which cut loose from Georgia following a two-year civil war in the early Nineties. For a while, the self-proclaimed Autonomous Republic of South Ossetia found itself subsisting on Russian hand-outs. These soon dried up and Tbilisi has said that it won't send one cent of aid unless it returns to the Georgian fold.

South Ossetia has managed to get by in the only way it has seen possible - by acting as the conduit for goods smuggled from Russia into Georgia, a trade in which Georgians, from humble policemen to top officials, actively participate.

There's nothing covert about the smuggling. Caravans of trucks pour in from the Russian federation with petrol, diesel, paraffin, cigarettes, alcohol, drugs and a panoply of other goods. Petrol, for example, which retails for 35 cents a litre in South Ossetia, rises to 60 cents a litre in Tbilisi.

Even upscale supermarkets in Georgia proper use the Ergneti market for supplies. When we visited it, a supermarket owner, a fur-coated woman, was being driven around on a motorbike and trailer buying up stock. The locally-hired transport is necessary not merely because of the amount of goods people purchase but the size of the market which is around the size of three football pitches..

Smuggling is certainly lucrative. Customs authorities estimate that nearly 70 per cent of petrol revenues alone are lost through smuggling.

Some of the traders have been ferrying contraband for years and make a mockery of the supposed division of the two states. Aslan B, who lives in Tshkinvali, and his partner Gocha Z, from Tbilisi, "specialise" in oil and spare parts - occasionally picking up orders for other goods.

They say they're able to operate with the collaboration of the police, who are always on hand to warn them of checks by officers who actually do their job. "Our contacts in the police always tip us off. Of course we have to share our profits with them - but that's inevitable," said Gocha.

The police presence at the market is conspicuous. They take a cut from the traders but no-one is too greedy. It's usually ten roubles a time, but given that hundreds of dealers descend on the market everyday, the officers come away with handsome profits. "During a couple of days in Ergneti I earn more than a years salary," said lieutenant George S.

A study by the Georgian Green Party estimates that something in the region of 1.7 billion US dollars in customs revenues are being lost. A significant percentage of this is disappearing on the South Ossetian route. The party's leader George Gachechiladze said that some Georgian officials earn as much as multi-national executives.

Small wonder that little is being done to wind up the trade with Ergneti. As the former minister of justice Mikheil Saakashvili said earlier this year, the fight against corruption in Georgia is a pure waste of time in the present political climate.

This is a view also taken by Transparency International, a leading anti-corruption NGO. "Corruption is so pervasive that anti-corruption fighters are often not sure whom to target first," they stated in their 2001 Global Corruption Report.

Some have looked to President Eduard Shevardnadze to do something about the scourge but he has inspired little confidence. "So many people are involved in corruption," he said, "that there are not enough prison cells to hold them all."

The Ergneti market is now gearing up for the busiest time of the year - New Year and Christmas. Candy and sweets are already coming in from Russia alongside the regular goods.

And as the traffic flow increases, tax officials will be lining their pockets and police officers will collect extra cash for presents. And in Tbilisi, shoppers will be saving on the contraband goods.

Irakli Chikhladze is a freelance journalist based in Tbilisi.