Georgia should be vigilant toward Russian market and capital
28 November, 2013
Georgia should be vigilant toward Russian market  and capital
Georgia should cautiously consider its Russian market and investments if it wants to withstand a blackmail policy from Russia, and escape the fate of Ukraine.
Money does smell, they say. As a matter of fact, it always smells of politics. The economic pressure of the Kremlin toward Ukraine has proved fruitful: Ukraine has long cherished EU integration, yet declined to endorse an agreement on associated membership almost on the eve of the dates, 28-29 November, when it was scheduled to
take place at the Vilnius Summit. Meanwhile, Georgia and Moldova, other aspirants, are only required to initial a similar agreement.
Russia hates to allow enhancement of European influence near its borders, and has tried to confront it by introducing the Eurasian Union – a unified customs space including Russia, Belarus and Kazakhstan, at the moment, though other former Soviet satellites are being courted. Here Russia does not shy from means, both fair and foul, even including blackmail.
Russia used Ukraine’s heavy dependence on Russian gas and oil, and threatened to halt the supply of gas unless Ukraine paid off the almost USD one billion it currently is in arrears for gas previously received. Additionally, it threatened to inhibit trade by introducing customs tariffs, knowing that Ukrainian trade and industry still greatly depend on Russia. Heavy industry and technology may suffer particularly, Ukrainian analysts have said.
Unlike Ukraine, Georgia does not depend on Russian gas and oil but Russian investments figure largely when it comes to electricity. The Kremlin owned RAO AES holds a controlling share of Telasi, the electricity distribution network for the Georgian capital. Besides, the Czech-based Energo-Pro, which owns the electricity distribution network that serves 70% of the Georgian regions and six hydro power plants, is believed to be a front figure for the Kremlin.
Soso Archvadze, an economic analyst, never rules out sabotage of the electricity system if Russia finds it necessary. He expects that Russian pressure on Georgia will increase by all means necessary, as soon as the date for signing the agreement with the EU comes closer next year. To mitigate economic pressure, Archvadze recommends Georgian business to be cautious toward the recently opened Russian market, and not send more than one-third of their exports there. Moreover, he advises that the inflow of Russian capital into Georgia be restricted within reasonable limits.
But the fact remains that the Russian market that reopened to Georgia this past May, after six years of embargo, looks very enticing; for example, the demand for Georgian wine exceeds the supply, wine producers say. Though Russia received just 1% of Georgian exports in 2012, it is now the number four trade partner, and accounts for 5.7% of total Georgian exports, mainly wine and mineral water.
But Archvadze warns that all should remember the lesson of 2006, when Russia (to which 70% of Georgian wine was exported) one day closed its market to wine and mineral water, and these industries scarcely survived the blow.
“Georgian business should look toward the western markets and markets other than Russia to diversify their sales, especially this year when the Russian market reopened and looks so enticing,” Archvazde said.
Ditrikh Muller, a co-founder of Georgian Investments Group +, believes Georgia may be a trump card for the EU, now that Ukraine has reversed its position. He expects that the EU will accelerate the process of integration for Georgia as an associated member, to show to Ukraine the trade and financial benefits of EU membership, of which Georgia may prove to be a good example.

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