CIPE’s Frozen Conflicts blog series looks at the current situation in seven breakaway regions of the former Soviet Union, with a particular focus on the economic dimension. To learn more about frozen conflicts and what can be done about them read CIPE’s Economic Reform Feature Service article on the subject.
The Russian annexation of Crimea has reignited a divisive debate in Abkhazia, another breakaway de facto state which is still formally part of Georgia. Against the backdrop of the Ukraine crisis and Russia’s attempt to assert a greater role in the countries of the former Soviet Union, some in Abkhazia are now assessing the price of the region’s dependence on Russian assistance.
While in South Ossetia, the other of Georgia’s breakaway regions, the majority of the population was in favor of unification with Russia, Abkhazia is different. On the one hand, the Abkhazian leadership wants to strengthen the de facto state’s strategic partnership with Russia by signing up to elements of the integration process that Russia has initiated. On the other hand, Abkhazia’s leaders have drawn clear lines regarding the limits to integration with Russia, and prefer to seek full independence.
Located on the Black Sea, Abkhazia officially has a population of about 241,000 and was once a prime holiday destination for the Soviet elite. Abkhazia’s ongoing dispute with Georgia, its isolation from the outside world, and the deterioration of relations between Georgia and Russia have had detrimental effects on trade and infrastructure, interrupting a range of business links and leaving the region’s economy in deep crisis.
Since the Russian-Georgian war in South Ossetia in 2008, Moscow has spent at least $465 million to build or restore military infrastructure in Abkhazia, including the largest military airfield in the South Caucasus, as well as a strategic naval base not far from Georgia’s capital Tbilisi. Moscow also provides direct budgetary support, amounting to well above 50 percent of Abkhazia’s state budget, while also providing supplementary funds for aid projects and civilian infrastructure, plus some $70 million annually in pension payments for Abkhazian residents who hold Russian passports.
Interestingly, though, most of the funds transferred from Russia to Abkhazia have been in the form of loans, in what appears to be a deliberate move on the part of Russia to put Abkhazia in difficult financial straits. Abkhazia’s first debt payments are scheduled for late 2015, but the leadership there cannot turn down the demands made by its powerful northern neighbor. Moscow has powerful economic levers, particularly the threat of a reduction or termination of investment. Abkhazians fear, for example, that Russia’s annexation of Crimea could lead Moscow to redirect tourist flows to Crimea, which would hurt Abkhazia’s hotels, restaurants, tour operators, and other small and medium-sized businesses. Abkhazian leaders have never made any secret of the fact that the region’s independence is constrained by its reliance on Moscow, sometimes referring to it as “limited sovereignty” or “asymmetrical independence.”
Meanwhile, Abkhazia has few other options in seeking financial or economic support. The U.S. and EU continue to provide some assistance for humanitarian projects, support of civil society, and so-called “confidence building measures” in Abkhazia. But as an unrecognized de facto state, the territory has no access to international financial institutions. Foreign investors are in no hurry to invest in unrecognized territories, given the lack of a legislative framework needed to engage in international commerce and safeguard investors’ rights. Since 2007, any economic ties with Georgia are considered illegal for security reasons. As a result, commercial products that flow from Georgia to Abkhazia are considered contraband, and all Georgian-Abkhazian trade is carried out informally, mainly via a single narrow bridge across the Inguri River.
At the same time as it provides loans to Abkhazia, Russia is also seeking other ways to deepen strategic ties with the breakaway region. In November 2014, Russia and Abkhazia signed an alliance and strategic partnership agreement, infuriating Tbilisi, which accused Moscow of attempting to annex Abkhazia. Under the agreement, a Russian commander will lead a new joint force of Russian and Abkhazian troops. Russian troops have been stationed in Abkhazia since it broke from Georgia in the early 1990s, but the agreement calls for the formal development of a joint Russian-Abkhazian military force. Abkhazia also agreed to harmonize its foreign and defense policies with those of Russia. The deal augments Russia’s effort to dominate the Black Sea region, long a strategic focus for Moscow.
On the economic front, the agreement calls for Abkhazia to integrate its trade laws with the Eurasian Economic Union, a Russia-dominated body, and envisions that Abkhazian pensions and social benefits will rise to the same level as Russia’s. To that end, the Russian government has promised additional subsidies amounting to $270 million over the next three years.
Given these factors, it could be argued that Georgia’s policy of non-recognition is counterproductive, since isolation is only increasing Russia’s dominance over Abkhazia. A case could be made that only economic engagement by Tbilisi will lead to progress in ending the frozen conflict and boosting the Abkhazian economy, thus creating a virtuous cycle that could further improve relations between the breakaway and parent states.
As long as Abkhazia is financially – and consequently politically – dependent on Russia, and Russian-Georgian relations are strained, Abkhazia will struggle to repair its ties with Georgia. Without any prospect of international recognition, Abkhazia’s economy will become more dependent on Russia. This, in turn, will ensure that Abkhazia’s independence project will fail – but rather than pushing the territory toward Tbilisi, Abkhazia will, like South Ossetia, become a Russian rentier region in the Caucasus.
None of which is to say that a Georgian attempt at engagement – if Tbilisi were to go that route – would be simple. Though civil society actors and some parts of the Abkhazian leadership recognize the pitfalls of Russian dominance, they are wary of Georgia’s aims. In such delicate circumstances, there could be a greater role for the international community to intensify “engagement without recognition” efforts with Abkhazia, to lessen the region’s dependence on Russia and thus easing the way for Georgia to find mutually acceptable ways to engage with Abkhazia.
Ann Mette Sander Nielsen is an undergraduate student at Freie Universität Berlin, where she majors in Political Science. Her research interests include Russian and Eurasian politics, the European Union, and international political economy. In the summer of 2015, she was an intern at the Washington, DC offices of the Center for International Private Enterprise, carrying out extensive research on frozen conflicts in the Eurasia region.