Ukrainian unrest challenges Georgia
30 January, 2014
Ukrainian unrest challenges Georgia
Georgia expects repercussions from the unrest in Ukraine, one of its major political and economic allies in the former Soviet Union, especially regarding European Union aspirations. Ukraine is the Georgia’s third most important trade partner, receiving 7% of its exports and sending 8% of its imports.
Moreover, it provides the leading export market for agricultural products such as wine and citrus, and almost replaced the Russian market when Russia imposed an embargo on Georgian agriculture products in 2006. And it contributes
significantly to tourism; after three quarters of last year an estimated 79.5 thousand Ukrainians had visited Georgia, an increase of 69% over the previous year. Trade turnover with Ukraine averages a billion USD yearly.
Prolonged turmoil in Ukraine will affect Georgia both politically and economically, diminishing exports and imports. Already the Chamber of Commerce of the Autonomous Republic of Achara is warning Georgian businesspeople about potential jeopardy to their interests in Ukraine. So far wine producers report no difficulties, but do not rule them out in future.
However, there are positives. In response to developments in Ukraine, the EU has pushed forward to the end of this summer the date for Georgia to sign its association agreement with the EU, meaning freer Georgian access to European markets.
“The Ukrainian scenario forced EU to step up and engage with Georgia while Russia is busy,” Soso Archvadze, an economic analyst, told Georgian Journal. “Now the situation is who will precede who to enhance control in Georgia and in the entire post-Soviet region generally. If the endorsement process would have been protracted longer it might have become more unpredictable.”
However, Georgia has to pass an endurance test. Neither governmental nor non-governmental sectors doubt that Russia will increase pressure on Georgia once Ukraine is stabilized and the Sochi Olympics are over.
Georgian government, however, reassures that Russia has less leverage on it than on Ukraine, and nothing will divert it from its EU course, but some analysts find the argument naïve. Georgia may not be dependent on gas from Russia, but the latter’s investments in Georgian electricity are significant.
Archvadze fears that if Ukraine ultimately opts for Europe, an enraged Kremlin will use Georgia to retaliate against Europe, which meanwhile will avoid direct confrontation since it is dependent upon Russia for gas by some 26%, and has vital yearly exports to Russia valued at around half a trillion USD.
Demur Giorkhelidze, an economic analyst, believes Georgia’s expectations of the EU market are exaggerated since Georgian production is underdeveloped and the country has poor export potential. “We already have a preferential [GSP+] trade regime with the EU that allows more than 7 thousand products to be exported to Europe, but Georgia cannot fill these quotas,” he said. He expects that once trade with the EU is unhindered, its exports will flood Georgia, and government really has to think about how to boost local production to compete.
“The EU is not a charity organization and of course countries with high production and developed exports, particularly Germany, will benefit from their high quality technology and products” to make a big move into the Georgian market, he suggested.

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