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THE CAUCASUS & GLOBALIZATION
Amil MAGERRAMOV
D.Sc. (Econ.), Professor at Baku State University
(Baku, Azerbaijan).
Hajiaga RUSTAMBEKOV
D.Sc. (Econ.), Professor at Baku State University
(Baku, Azerbaijan).
ECONOMIC POTENTIAL OF THE CENTRAL CAUCASUS UNDER THE PRESSURE OF TERRITORIAL CONFLICTS
Abstract
This article examines the reasons for and consequences of the territorial conflicts in the Central Caucasus from the perspective of the discriminating pressure they are putting on the economy of the region as a whole and each of the countries situated there in particular. An analytical and situational review leads to the conclusion that conflicts which pursue
interests alien to the peoples of the Central Caucasus significantly undermine development potential and inhibit the positive steps the regional states are taking toward integration in world economic relations. Consequently, progress can only be achieved by restoring territorial integrity and gradually establishing economic integration relations among the states of the region.
Introduction
It is impossible to talk about the Central Caucasus as a whole today, not taking account of perhaps the geographic aspect. This region, comprised of states with different levels of economic devel-
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opment and different geopolitical models in the contemporary world, is too fragmented to be considered a single whole. Moreover, the Caucasian peoples, even though they have many of the same social and everyday traditions owing to their long history of coexistence, nevertheless have different national and identification roots and ways of looking at the world. It seems that, based on the aforesaid, a formula for Central Caucasian interaction should be mainly sought by identifying those economic interests that, through integration cooperation, will clearly benefit all the peoples of the region.
The Caucasus in the Global Trends of Economic Integration and
Regionalization
Contemporary interstate interaction in the economy is, more often than not, taking the upper hand over other primarily historical and ideological considerations as the most rational option. It is becoming increasingly clear that socioeconomic progress in the regional states will only slow down if they move ahead with their backs constantly turned to the future. This rather banal truth has already been grasped by the peoples of North America, Western Europe, and for the most part Eastern Asia; that is, those regions of the world in which the greatest achievements have recently been observed in science, technology, and the quality of economic growth. Otherwise, the past will predominate over the present and the future, enfeebling peoples and making them vulnerable to external threats. Unfortunately, in the Central Caucasus, such an unproductive scenario of regional relations is still being actively played out.
At the same time, the national and consolidated economic development potential of the Central Caucasus, where the sovereignty of the three states (Azerbaijan, Georgia, and Armenia) has been restored, can be significantly raised not only by economic integration factors, but also by overcoming the growing losses from the existing conflicts. Only in this way will these countries be able to free themselves from the discriminating pressure the territorial conflicts are putting on the regional economic situation. Discrimination manifested in restricted socioeconomic development resources at the national or regional level, regardless of whether it is imposed from the outside (exogenous) or generated by internal reasons (endogenous), puts the target of discrimination in an invariably unfavorable position. If we keep in mind that the endogenous and exogenous factors of economic discrimination have become entangled in a complex knot of problems not only in the Central Caucasus, but also throughout the entire region, the situation can only be rectified by following the global development trends, among which regionalization occupies a prominent place. In this respect, we can only agree with the opinion that "integration into the world economy requires understanding the intraregional integration capabilities."1 In our opinion, the Central Caucasus has all the objective prerequisites for this. These prerequisites comprise,
■ first, the national economic interests of the Central Caucasian states that are putting forward basic criteria for regulating the dimensions, forms, and vectors of foreign economic relations;
■ second, the formation, preservation, and development of an integrated national economic system;
■ third, the need to create favorable conditions for the economic activity of domestic manufacturers within the country and beyond it;
■ and fourth, the economic and social gain from integration at the micro, macro, and subregional levels.
There are also sufficient conditions (economic, technological, and communication) for utilizing the aforesaid prerequisites through regional integration processes. However, the political factor, the
1 E. Ismailov, V. Papava, Tsentralnyy Kavkaz: istoriia, politika, ekonomika, Mysl Publishers, Moscow, 2007, p. 9.
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effect of which is hampered in the Armenian link of the potential Central Caucasian trio, remains insufficient for manifesting the consolidated potential of regional economic integration. However, paradoxically, this link is the weakest in the resource and economic respect and, it seems, needs the region's integration potential more than the others. However, by engaging in territorial claims and aggression toward neighboring states, Armenia has essentially hampered the long-term capabilities of the most available and efficient alternative for realizing its own economic interests. It stands to reason that its regional neighbors will also incur losses from this policy, which runs counter to global economic development.
Territorial Conflicts versus Economic Interests
After decades of world "hot" and "cold" wars, mankind now has the opportunity to develop a universal system capable of safeguarding it from various forms of military gambles and battles for supremacy in geostrategic races. Nevertheless, this opportunity has still been far from tapped, and the Central Caucasian region is a good case in point. There are many reasons for this, primarily the fact that the international balance of power, which changed after the collapse of the Soviet Union, has made the region a target of the political and economic interests of the states situated around its perimeter and on the wider international arena. The situation today has reached the point where it is entirely possible that the region could detonate a global clash. This is graphically demonstrated by the hostilities against Georgia in the summer of 2008 and the subsequent international response to them. It has also confirmed once again that the world community cannot ignore the conflicts in any, particularly a pivotal, region, which the Caucasus undoubtedly is.
Nevertheless, conflicts differ in genesis in every region. In the Central Caucasus, they are territorial-separatist and, as a rule, supported from the outside. Furthermore, the incontestable fact is ignored that separatism is easily proliferated and often has a boomerang effect. For example, support of separatism in Azerbaijan (Nagorno-Karabakh) and in Georgia (Abkhazia and South Ossetia) has to a large degree promoted its growth in the Russian Northern Caucasus. All the same, it is the people of the so-called self-proclaimed territories who are suffering the most from the separatist processes. For example, it is a well-known fact that with respect to the important socioeconomic indices of their development when they were part of the Azerbaijan S.S.R., the residents of Nagorno-Karabakh were in a more favorable position than the population of other regions of the republic and were not subjected to any pressure with respect to realization of their legal and linguistic-cultural needs.2 These indices were much higher in Nagorno-Karabakh than in Armenia. That is, separatism in this region of Azerbaijan had no economic undertones, rather it was artificially stirred up, organized, and guided in order to meet alien geopolitical interests. However, separatism was of no benefit to the people living there themselves. The same can also be said of the territories of Georgia engulfed in conflict.
When analyzing the situation in the Central Caucasus, we must primarily proceed from the fact that external geopolitical influences should not cast aspersions on the historically developed and institutionally formed economic territorial integrity of the region's internationally recognized states. Only if this is avoided will local conflicts be prevented from escalating from zones of increased attention of the rest of the world into hot spots of global dimensions. Consequently, international security should be perceived not as abstractly global, but as specifically regional.
Where does this lead us?
■ First, it must be clarified that now more than at any time in the past the fate of international security depends on the resolution of local, isolated conflicts.
This is statistically proven in: Z. Samedzade, Nagornyy Karabakh: neizvestnaia pravda, Baku, 1995, pp. 21-32.
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■ Second, a mechanism must be drawn up that makes use of prolonged regulation to overcome the local conflicts rather than freezing them. And here it is important to look for, find, and implement a paradigm of regional economic coexistence based on integration forms of cooperation.
The peoples of the Caucasus are neighbors by divine intervention rather than by choice. The region is a vast melting pot of religions, cultures, languages, and traditions. Almost all the ethnicities of this region live alongside neighboring nationalities and ethnic groups in the latter's territory, and many people of the same nationality lived and continue to live on both sides of the state borders. But this has proven insufficient for establishing good neighborly relations. Moreover, too close interpenetration harbors the danger of borders being redrawn where states are reestablished. What is more, the Caucasus has suffered from the negative energy generated by the breakdown of the single state, the Soviet Union, with its irresponsible attitude toward building national-territorial structures along the lines of Russian nesting dolls (matryoshkas). What must be done to ensure that genies of war do not escape from the small dolls nestling in the center of the stack? It stands to reason that the Central Caucasus can only become a zone of peace and cooperation if the territorial integrity of Azerbaijan and Georgia is restored. Without this, full-fledged, region-wide economic cooperation is impossible. However, there is hope today that progress can be made in this vector. For example, the prospects for establishing the Caucasian Common Market, a project that has long been discussed without much success and into which other neighboring countries, foreign investors, and innovation technology could later be drawn, are not so far-fetched. The dangerous delay in settling internal and regional conflicts is discouraging large-scale investments and widening the cracks in relations between the countries in the region. Nevertheless, people are becoming more aware of the fact that only "by means ofjoint efforts can the region's countries overcome the grievous inheritance of the recent past and build a safe future. In these conditions, studies based on objective criteria of the prospects for economic integration, collective security, conflict settlement, and democratic development in the Southern Caucasus are becoming immensely important."3
Keeping in mind that sufficient production capacities, energy resources, rare mineral supplies, intellectual potential, and internationally important transport infrastructure are concentrated in the Central Caucasus, which forms a kind of bridge between two seas and many civilizations, it would be illogical, to say the least, not to talk about economic integration in this region. Permitting artificial fanning of the territorial conflicts and raising them to the level of hostility and war, while all the developed regions of the world are, on the contrary, engaging in integration, looks even more irrational. Integration is opening up borders and making them so transparent that we are already talking about the population of dozens of countries with a far from perfect history of interrelations becoming one nation. Against this background, attempts to establish increasingly new borders in the Central Caucasus signify regression and can only lead to socioeconomic deceleration in globalization rates.
Economic Development in the Context of the Territorial Problems of the Central Caucasian Countries
The suspended armed conflicts are having a negative effect on the economy, primarily because the large amount of resources in the country or region are not being used for the benefit of people or
3 G. Khutsishvili, R. Mshvidobadze, G. Nizharadze, Integration & Conflict Resolution in the Southern Caucasus: Reality or Illusion? Findings of Sociological Surveys, ICCN, Tbilisi, 2001 (text in Russian). (The authors of the cited book mean the territory that comprises Azerbaijan, Georgia, and Armenia. Today, it is usually called the Central Caucasus. This updated definition of the region appeared after the book was published.)
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for their prosperity and development. Today, the Central Caucasian region is being intensively militarized, which is particularly promoted by the foreign military bases stationed there. Armenia, for example, is openly called an outpost (a front-rank military foothold) and Russian armed forces are consistently being built up in its territory. Foreign authors are also pointing out that with "some 20,000 soldiers Nagorno-Karabakh is one of the most militarized regions of Europe."4 All of this cannot help but prompt Azerbaijan, which has set itself the goal, substantiated by international law, of restoring the country's territorial integrity, to take retaliatory steps in the military sphere. Essential alienation of up to one third of its state territory and the constant external threat are prompting Georgia to increase its military spending too. Given the unresolved territorial conflicts, the increase in military spending could deal a blow to the economic progress of the region as a whole and of each of its states individually, damage the investment climate for a long time to come, and exhaust the possibilities for economic integration, albeit still hypothetical, in the region in the foreseeable future.
However, not everything in the Central Caucasus is so depressing. The close and mutually advantageous economic cooperation between Azerbaijan and Georgia is a kind of antecedent of the region's transformation into a geo-economic integration entity. The Caucasian tandem, a term appropriately coined by E. Ismailov and Vladimer Papava, comprised of Azerbaijan and Georgia, is bringing political stability and specific benefit to the region. Accruing a multitude of infrastructure projects with Turkey and other countries of the Black Sea Basin, the tandem is becoming the central link in economic cooperation in the relatively important geo-economic expanse that encompasses Hither and Central Asia, the Caucasus, and Europe.
The prerequisites for Central Caucasian regional economic integration not only comprise natural and material factors. The Caucasus enjoys multi-century traditions of economic cooperation manifested in its rather well-developed territorial division of labor and production cooperation, the roots of which go back to the period before the Caucasus was conquered and joined the Russian Empire. Its varied natural and climatic conditions and diverse ethnic composition make multilateral specialization of labor, as well as the formation of local interrelated markets, possible in the Caucasus, which is enhancing intensive exchange and commerce. As part of the Empire, the Caucasus long remained a rather economically isolated region, where most of the commodities consumed were products of regional reproduction. That is, there are indeed, albeit in rather hyperbolized form, grounds to maintain that "at all times the Caucasus was a single region: the social and economic ties of the local peoples created an integral and mutually dependent regional economy and common values."5
The common world outlook of the Caucasian peoples, their mutual trust, and their willingness to establish contact played an instrumental part in the evolution of economic cooperation. All of this created additional stimuli for long-term forms of economic communication, made trade routes and stopping places (caravanserai) safe, and established favorable conditions for dealing in commodity loans and money bonds. It was not until much later that the colonizers generated an unfavorable image of the Caucasian. However, the Caucasian people have always been distinguished by loyalty, hospitality, diligence, and business acumen. All of this greatly cut back on transaction expenses and stimulated intraregional trade. Only against this background could complex communication structures be erected and major cities built as craft and trade centers. The products made in the Caucasus were always distinguished by their quality and enjoyed renown throughout the world. It can confidently be said that the level of economic culture in the Caucasus has always been higher than the culture of the conquerors who came there.
Most of the means of production used and products consumed belonged to the same space-time context in the Caucasus, which shows that it possessed the necessary level of skills and labor technology. This helped to form intraregional proportions of exchange, prices, and money circulation.
4 H. Krüger, The Nagorno-Karabakh Conflict. A Legal Analysis, Springer-Verlag, Berlin, Heidelberg, 2010, p. 23.
5 R. Metreveli, The Caucasian Civilization in the Globalization Context, CA&CC Press® AB, Stockholm, 2009,
p. 87.
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In Soviet times, despite the prevalence of the vertical and sectoral structures of the Union's centralized management, the economy of the Caucasian region retained coherence in the use of many raw material and energy sources, transportation network, and economic ties at the level of individual economic entities. All of this makes military opposition of the Caucasian peoples absurd and wasteful from the perspective of economic efficiency.
The Negative Impact of War on the Economy of the Caucasian Region Countries
Azerbaijan
The hostilities of 1991-1994 hampered Azerbaijan's positive economic development. At that time, the economic infrastructure of Karabakh, one of the largest historical regions of Azerbaijan, was subjected to mass destruction. If we keep in mind that the country had only just restored its sovereignty and was experiencing a systemic transformation crisis, it becomes clear just how arduous the consequences of this aggression were. During the war on Azerbaijan, Armenia took temporary control over the 198 km border between Azerbaijan and Iran and, after violating Azerbaijan's 360-km-long state borders, occupied almost 20% of the country's territory. Along with the territory occupied outside Nagorno-Karabakh, the Armenians captured a total of 890 cities, villages, and settlements. National economic facilities were destroyed and plundered: 150,000 residential buildings, 7,000 public buildings, 693 general education schools, 695 health care facilities, 800 km of roads, 160 bridges, 2,300 km of water supply lines, 15,000 km of power lines, 280,000 hectares of woodland, and 200,000 hectares of plough land. According to the initial estimates, the Azerbaijan Republic suffered $60 billion in damages. Moreover, all of Azerbaijan's reserves of mercury, obsidian, and perlite, 35-60% of its construction and facing material, 23.8% of its forest resources, and 7.8% of its water supplies are still in occupied territory.6 Despite all of this, Azerbaijan's leadership overcame the odds to sign a truce and begin creating a model for the country's accelerated economic development. This model extricated Azerbaijan from the crisis, advanced its economy to a leading position in the region (almost 3/4 of GDP of the Central Caucasian region), and turned it into one of the most dynamic in the world. Azerbaijan's oil diplomacy played a great role in this process, in which Georgia also became involved on a mutually beneficial basis. In recent years, 33 production sharing agreements have been signed with foreign oil companies, and 53 energy companies from 20 countries are participating in oil and gas operations. Oil production in Azerbaijan has reached a record level of 50.7 million tonnes a year, which makes it possible to invest $20 billion a year in the most diverse, mainly non-petroleum, production and infrastructure projects. Nevertheless, the country has been forced to spend large sums on building up its armed forces (military spending occupies second place in the state budget) to overcome the consequences of the Karabakh war and repel the aggression still going on against its independence and territorial integrity.
Georgia
Like all the post-Soviet countries, in 1992-1994, at the beginning of its independent development, Georgia found itself in an economic, social, food, and energy crisis. The volume of its gross
[http://www.azconsulate.spb.ru/index.php?type=page&id=45].
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industrial product had dropped to the 1958 level and its gross agricultural product had dropped even lower — to the 1945 level. As a result, according to its GDP results, Georgia ranked lowest of the former Union republics. The territorial conflicts and growing separatist trends in Abkhazia and in the Tskhinvali region largely promoted these phenomena.
The conflict in Abkhazia essentially stymied all revenue from tourism, one of the traditional and developed branches of the country's economy. The first refugees appeared, the number of whom grew and reached 300,000 people. All of this time, Georgia relied on economic cooperation with Azerbaijan to resolve its difficult problems. Active use was made of the multi-profile and primarily transit capabilities of economic cooperation among Azerbaijan, Georgia, and Turkey. Acquiring an additional boost from the intensive economic reforms and transfer to contemporary institutions of economic management, Georgia's GDP rose by 6.4% as early as 2010, which is quite high in terms of international indices. However, the country's achievements could be much higher if it were not for the interference of territorial conflicts. The military conflict of 2008 alone cost Georgia $2 billion, while loss of control over a third of the country's national territory lowers the country's potential GDP by almost 15% a year.
Armenia
At the beginning of the 1990s, a serious economic slump was observed in Armenia. Many plants and factories ceased to operate due to the lack of raw material and energy resources, while agriculture regressed to small commodity production. The limited export resources and monopolization of the main economic sectors made Armenia particularly sensitive to the crisis phenomena in the world and the Russian economy, on which the country greatly depends. The imbalance in foreign trade caused by economic isolation from neighboring countries, Turkey and Azerbaijan, right down to the present time is compensated for to some extent by international assistance (mainly from the Armenian diaspora), remittances from Armenians working abroad, and foreign (mainly Russian) direct investments. In 2010, Armenia ranked 76 according to the human development index, which is the worst rating among the Central Caucasian countries (Azerbaijan ranks 67 and Georgia 73). In 2011, Forbes, one of the most prestigious and well-known economic publications in the world, ranked Armenia second after Madagascar in the rating of the world's worst economies. Armenia's national statistics service published salary statistics that surprised many of the world's analysts: the average salary in Armenia has dropped by a whole 7.7% and amounts to $238, writes the electronic economic publication Stock Exchange Leader. This is the lowest average wage index in the Caucasian region. For example, in Georgia this index amounts to $318 and in Azerbaijan to $396.
No serious achievements were registered in the Armenian economy in 2011. The population's standard of living continues to drop, while there is also a low level of competitiveness, increased monopolization, polarization of income, and growing emigration rates. Some very small advances have been made, but they cannot be described as achievements.7
The greatest problems of Armenia's socioeconomic development are related to the aggressive policy being pursued in the region. As a result, it has lost the opportunity to establish economic cooperation with the most economically strong state of the Central Caucasus—Azerbaijan. Armenia found itself removed from the transnational projects in which Azerbaijan participates and does not have the opportunity to trade directly with Turkey. This has caused Armenia's economy to lose its independence, acquiring the nature of an outpost supplied from the outside, while the Armenian population is becoming poorer and emigrating from the country.
7 See: A. Minasian, "V usloviiakh regressa ekonomiki Armenii pravitelstvo ne imeet moralnogo prava ostavatsia u vlasti," Vestnik Kavkaza, 1 February, 2012.
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Where to Go and How
Only consistent economic integration in the Central Caucasus aimed at restoring the economic and political ties among the states can direct the region into an entirely new channel of development. In the factorial respect, the Central Caucasus, perhaps even more than other regions, is prepared for such economic trade relations leading to a peaceful world. So integration policy in search of peace in the Central Caucasus could and should be successful. It can offer essentially different approaches based on unification and not division of the region into opposing countries relying on different external forces.8
Mutual gain, voluntariness, economic cooperation, and equality of all the countries and peoples could become the driving forces behind the Caucasian Common Market. Implementing comprehensive measures could lead in the future to a duty-free and non-visa zone in the Caucasus and the formation at the regional level of something like the Schengen Area. But the difficulty is that this issue concerns countries and peoples, the relations between which are still rather complicated. So there is no way of knowing whether it would succeed. But the main thing is moving toward a goal. Azerbaijan and Georgia have already taken the first confident steps in this direction, which, by advancing the idea of creating a Common Caucasian Home, have opened up new prospects for economic cooperation among the peoples of the region. There is even talk of possible confederative relations between Azerbaijan and Georgia, which is not hypothetical, but substantiated by the real state of interdependence that has developed between the economies of these two countries.
Another detail should be noted—the at times semi-serious rivalry among the Caucasian peoples on an entire range of aspects of thinking or behavior. There is nothing wrong in this and it could even be of benefit if the talk is shifted to economic competition. Margaret Thatcher writes that globalization "ensured that national economies were opened up to international competition"9 and made their weak and strong positions obvious, which could be leveled out by means of economic cooperation and integration of factors and efforts to achieve mutual gain.
Economic integration can only be achieved in the Caucasus if the conflicts and wars in the region are overcome and Armenia gives up its pro-empire policy with respect to its neighbors. In addition to everything else, this is of detriment to the economic interests of the region's peoples who have found themselves under the discriminating pressure of the territorial conflicts. The sooner the supporters of aggressive separatism, nationalistic supremacy, and territorial conquests understand this, the sooner the Caucasus can become a region of economic growth and social prosperity.
8 See: A. Abasov, A. Khachatrian, Varianty resheniia karabakhskogo konflikta: idei i realnost, LTD "Eni Nesil" Publishing House, Baku, 2002, p. 38.
9 M. Thatcher, Statecraft: Strategies for a Changing World, HarperCollins Publishers, New York, 2002.
