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Occupied Abkhazia and the Tskhinvali Region: Trade “Legalization” and Prospects of the Russian Transit Corridor

2023 / 06 / 21

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Occupied Abkhazia and the Tskhinvali Region
Trade
Russia

Author: Mamuka Komakhia, Analyst

Since the start of Russia's full-scale military aggression in Ukraine, the Russian-occupied regions of Georgia have faced a number of challenges, including economic ones. The sanctions imposed on Russia put the mentioned regions at risk of a reduction in Russian funding and economic support. The occupied regions are trying to adapt to the new reality. The territory of Abkhazia and the existing infrastructure there has acquired further attractiveness for the sanctioned Russia, which considers it as an opportunity to circumvent the sanctions. For his part, the de facto government of Abkhazia also views this as a source of additional income. This article discusses some interesting developments in Abkhazia which indicate the possible progress of new economic processes in that region.

Expected Cuts in Russian Funding

On March 10, 2022, two weeks after the start of the war in Ukraine, in an interview with TASS, the Russian Deputy Minister of Economic Development, Dmitry Volvach, who supervises the occupied regions, spoke about the expected reduction in funding, noting that the Ministry of Economic Development of Russia hopes that Abkhazia and the Tskhinvali region will become more independent and less reliant on Russian subsidies in the near future. Volvach's message was well understood in Sokhumi and Tskhinvali, where they no longer expect open-handed help from Russia at war.

Despite the fact that Russia remains the donor of the “budgets” of Abkhazia, and especially the Tskhinvali region, and the main economic partner of these regions, funding has already decreased in some fields: both regions will receive RUB 3.5 billion within the 2023-2025 investment program promoting socio-economic development, while the previous three-year program allocated RUB 4.5 billion for each region.

Alan Gagloyev, the de facto President of the Tskhinvali region, has also confirmed the decrease in funding. During his speech in the de facto parliament on May 29, while summing up his first year of “presidency,” Gagloyev spoke openly about the expected decrease in Russian funding: “We are experiencing difficult times. Our ally is at war, and we are supporting them as best we can. The time when Russia could provide financial aid is over. Now it is a very tough period for Moscow, and we should understand it. That is why it will also be challenging for us.”

Trade “Legalization”

The economic sanctions imposed on Russia have already affected the occupied regions, especially Abkhazia, which sees a way out by eliminating the shortage of some products through encouraging economic relations with the Georgian side.

Despite the fact that it was possible to transfer a limited amount of products from the territory controlled by the central government of Georgia to the territory of occupied Abkhazia through the so-called Enguri crossing checkpoint, the de facto authorities of Abkhazia have expanded the list of products which are “officially” allowed to be transported. On March 31, 2023, the de facto President of Abkhazia, Aslan Bzhania, issued a decree, according to which the transfer of certain categories of products (seedlings of perennial and annual plants, seeds of agricultural crops, live poultry, feed for farm animals, agricultural machinery, equipment for the production and processing of agricultural products, motor transport, auto parts, and motor oils) will be simplified.

Bzhania's opponents claim the de facto government wants to “legalize trade with Georgia” by doing so. In response to this criticism, a number of explanations were made by representatives of the de facto government, which, in addition to justification, are aimed at proving the need for the decision taken:

According to the so-called Customs Committee, said change will affect only individuals who, after paying the customs fee, will be allowed to transport cargo. As Otar Khetsia, the Chairman of the “Committee,” stated, they have only legalized those products which were already transported in the de facto republic. According to him, “they only register cargoes which Abkhaz citizens (entrepreneurs) bring from the neighboring country (meaning Georgia), using a simplified procedure. The value of the cargo should not exceed RUB 600,000.
As the de facto Minister of Agriculture and the Deputy Prime Minister, Beslan Jopua, stated “no-one is going to legalize trade with Georgia.” The Russian side is helping Abkhazia, although it is impossible to import some types of plants and equipment due to the sanctions. “They have to ask citizens to import scarce products which are imported from Turkey and maybe from Georgia,” Jopua added.
According to Aslan Bzhania, “the thesis that we support Georgia’s economy is unfounded.” He said that the decision meets the interests of the people.

At this stage, it is difficult to say precisely how the March 31 resolution works in practice; however, the fact is that they hope to supply products in deficit to occupied Abkhazia through territory controlled by the central government of Georgia.

An August 18, 2022, a decision made by the de facto Security Council of the Tskhinvali region can also be viewed in the context of supplying products in deficit to the region. As per the decision, residents of the occupied Akhalgori and Java regions are allowed to enter the territory controlled by the Georgian authorities through the so-called Odzisi/Mosabruni and Perevi/Kardzmani crossing checkpoints on the 20th to the 30th of each month. Despite the fact that the population of the Tskhinvali region is much less than that of Abkhazia, and the economic life is also passive, the decision enables the population of Akhalgori and Java to carry hand luggage without restriction, including products that are subject to sanction in Russia.

Transport Corridor

On March 23, 2023, the movement of a container freight train (a total of 62 containers carrying 2700 tons of cargo) was recorded in Abkhazia for the first time. Reportedly, the cargo was loaded onto a ship in the port of Ochamchire which then sailed to Turkey. At this stage, it is not known what type of cargo was transported or whether the container freight train returned to Russia with or without cargo.

This was the first container freight train, although transit traffic through the port of Ochamchire began to be carried out to circumvent Western sanctions much earlier. According to the so-called Deputy Chairman of the Customs Committee, Alias Labakhua, “this was not the first time; there were other transits, but in small batches; the route was checked.” The Assistant General Director of Abkhazian Railways, Oktay Khazirish, stated that freight shipments and railway revenues have increased of late. He cited external (the logistics chain changed due to the sanctions imposed on Russia, as well as increased prices and demand for coal and other cargoes) and internal (the throughput capacity of the Abkhazia railway increased) factors as the reason.

According to media reports, Russia had used the Abkhazia railway and the Ochamchire port to smuggle in various products earlier. In particular, in 2015, Russian train wagons loaded with coal were observed in Sokhumi. There was an opinion that this coal was obtained in Ukraine, in the so-called Luhansk People's Republic, and was transited to Turkey. Such schemes are a proven method for Russia, which has been using them since 2014, following the start of Russian military aggression in Ukraine. In 2015, for example, the International Settlements Bank was registered in Tskhinvali for the purpose of illegal trade with the occupied regions of Ukraine. According to the journalistic investigations of Meduza (October 2018) and the Washington Post (November 2018), the “Bank” was created for an extraordinary black scheme. In particular, due to the fact that Russia had not formally recognized the separatist republics of Ukraine until 2022, trading with them through banking operations would have led to Western sanctions. The “Republics” purchased fuel, food, and construction materials from Russia, and sold their own products in Russia through the “Bank.” In wartime, the need for such a scheme disappeared.

The railway infrastructure of Abkhazia has yet to be fully rehabilitated, and its throughput capacity is limited, although the infrastructure has improved in recent years. Some rehabilitation was carried out on a railway line connecting the railway station and the port of Ochamchire, although the capacity of the Ochamchire port itself is limited.

It is obvious that the rehabilitation of railways in Abkhazia comes not only due to a desire to increase passenger shipments and tourism promotion. The fact alone that in recent years the scale of railway cargo transportation and the revenues from that transportation have increased indicates that this cannot only be the result of economic growth in the de facto republic. The increased interest of Russia is clearly visible. According to a report by Abkhazian Railways, in 2022, a total of 796 thousand tons of cargo were received in Abkhazia by rail (11,902 wagons in total), which is a significant increase compared to previous years: in 2021, this number totaled 455.4 thousand tons (7,057), and in 2020 – 216.2 thousand tons (3,517). It is interesting that in just the first two months of 2023, a total of 206,576 tons of cargo (3,036 wagons) was received.

High-ranking Russian officials openly express their interest in the transit potential of occupied Abkhazia. In this regard, on May 12, during an interview with the Russian media, the President of the Russian Chamber of Commerce and Industry, Sergey Katyrin, while talking about the prospects of Georgian-Russian relations, said that railway transit should be planned within the Silk Road route, which runs through the territory of China, Iran, Azerbaijan and Georgia, including the territory of Abkhazia. At this stage, the prospect of realizing this project seems less realistic due to the geopolitical challenges, however, the fact that Russia considers the South Caucasus and occupied Abkhazia as an alternative route in the face of confrontation with the West is important.

Key Conclusions

Under the conditions of confrontation and sanctions from the West, Russia is trying to develop new transit corridors. Moscow’s interest in occupied Abkhazia should be viewed as an attempt to circumvent Western sanctions. Although the technical resources of the Abkhazian route are limited, the situation is so critical that all options are acceptable for Moscow. Therefore, in the near future we should expect an increase in Russia's demand for the transit corridor passing through the territory of Abkhazia.
Recent decisions from the de facto government on trade facilitation are due to the difficulty of importing certain categories of products from Russia, since it is difficult to bring these products into Russia itself due to the sanctions, or its import to Abkhazia has become more expensive. In this case, the de facto government sees one of the ways to eliminate the created deficit in encouraging economic relations with the Georgian side in a certain area.
For Abkhazia, which is isolated from international economic relations, the sanctions imposed on Russia have opened a window of opportunity, which will allow the occupied region to play the role of a transit corridor for Russia and earn income from the illegal economic activity.
After the election of Aslan Bzhania as the de facto president in 2020, representatives and supporters of the de facto government made several statements regarding the development of economic relations with the Georgian side. The Abkhaz side several months ago removed some of the restrictions imposed on trade with Georgia, which in the future may contribute to increasing the economic influence of official Tbilisi over occupied Abkhazia. However, the response of the Georgian government to the initiatives from the other side of the occupation line, as a rule, takes a passive form and mainly serves to maintain the existing status quo. Since official Georgia does not follow a broader and well-thought-out policy, it is difficult for the gains made in any area to become the harbinger of larger changes.

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Occupied Abkhazia and the Tskhinvali Region: Trade “Legalization” and Prospects of the Russian Transit Corridor

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