Научная статья на тему 'The Central Caucasian countries: trends in foreign trade relations'

The Central Caucasian countries: trends in foreign trade relations Текст научной статьи по специальности «Социальная и экономическая география»

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Аннотация научной статьи по социальной и экономической географии, автор научной работы — Tokmazishvili Mikhail, Silagadze Avtandil

This article presents an analysis of the institutional changes in the foreign trade policy of the Central Caucasian countries and reveals the special features of their foreign economic activity at the current stage. The authors also look at the main development trends in the regional market and at the factors promoting and impeding foreign trade in these countries which have an impact on their economic development.

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Текст научной работы на тему «The Central Caucasian countries: trends in foreign trade relations»

C o n c l u s i o n

Over the past twenty years Azerbaijan has been experiencing a difficult time of radical economic transformation. After achieving political independence it also acquired economic sovereignty, since it now controls its own resources and potential and independently determines the models and priorities of its own economic development, thus confirming its own financial validity. During this period Azerbaijan essentially completed the main reforms aimed at transferring to market methods of economic regulation, achieving predominance of the private sector in the economy, establishing a sufficiently liberal system of price formation, and ensuring acceptable freedom of foreign economic interactions. The country has managed to create a more competitive economy than its neighbors, particularly with respect to the material conditions of business activity.

Nevertheless, in the short and medium term, more complicated tasks will have to be solved. The main one is to remove the political restrictions on economic development. This applies in particular to liberation of the currently occupied territories with their subsequent full-scale socioeconomic rehabilitation. Reducing the informal economy to a minimum and improving the sectoral and territorial make-up of the economy are among the priority goals for the near future.


D.Sc. (Econ.), professor, member of the board of the National Bank of Georgia, researcher at the Case-Transcaucasus Foundation

(Tbilisi, Georgia).


D.Sc. (Econ.), professor, Corresponding Member of the National Academy of Georgia

(Tbilisi, Georgia).




his article presents an analysis of the institutional changes in the foreign trade policy of the Central Caucasian coun-

tries and reveals the special features of their foreign economic activity at the current stage. The authors also look at the main

development trends in the regional market and at the factors promoting and impeding

foreign trade in these countries which have an impact on their economic development.

I n t r o d u c t i o n

After they gained their independence, the Central Caucasian countries (Azerbaijan, Armenia, and Georgia) began to elaborate measures for making the transition to a market economy and for creating institutional conditions to facilitate their integration into the world economy. In contrast to the other post-Communist countries which unexpectedly found themselves at this historical milestone, the Central Caucasian countries began reforming their domestic and foreign policy amidst acute national conflicts. They came up against the complicated but necessary task of forging a radical change in their foreign economic policy in order to obtain benefits from commerce both within the region and throughout the world. In order to successfully accomplish this task, they first had to introduce a free trade model. The governments of the Central Caucasian countries expressed their political will and desire to join the WTO at the beginning of this century.1 However, conservatism and regionalism, on the one hand, and ingrained views about protectionism as protection of national interests, on the other, impeded implementation of the free trade scenario in these countries. Practical approval of the market principles of foreign trade began at the same time as the abovementioned processes took off. At present, efforts to integrate the Caucasian market into the global economic space and implement a free foreign trade policy in the Central Caucasian countries are becoming more important than protectionism and protection of the national economy. Moreover, reciprocity in foreign trade among the Central Caucasian countries is still a thorny issue. This is explained by the fact that along with globalization and the successful development of the international market in this region, which is largely associated with the export of Caspian oil and petroleum products, there are still internal markets in the region that are divided into parts and isolated, which in turn is largely due to the frozen ethnopolitical conflicts in the region.2

Development Stages of Foreign Trade in the Central Caucasian Countries

Until independence was restored in 1991, the economy of the Central Caucasian countries was part and parcel of the economy of the other Soviet republics. But during the first years of independence, there were essentially no foreign trade relations among the Central Caucasian countries due to the breakdown of the old cooperation and commerce system, the emergence of political and military conflicts, as well as the discrimination in trade policy, etc. There can be no doubt that all these issues had a direct effect on international trade in the region and, in addition to other factors, hindered its development. So these countries had to deal with the major structural upheavals and intense unrest that went hand in hand with the severe deterioration in trade conditions.

Three development stages of foreign trade relations can be traced in the Central Caucasian countries:

1 Georgia has been a member of the WTO since 2001 and Armenia since 2003, whereas the Azerbaijan Republic has expressed its political desire and has begun making preparations to join this organization.

2 The ethnopolitical conflicts in Abkhazia and South Ossetia (Georgia) and Nagorno-Karabakh (the Azerbaijan Republic) have affected a total of more than 10% of the entire population of the Central Caucasus.


The first stage covers the first years of these countries’ independent development (19911995) and is characterized by a huge slump in their economy. The reforms were carried out at different rates and times, which made the drawing up and coordination of foreign trade policy even more complicated. Assistance from international organizations aimed at advancing the reforms in these countries was very ineffective. The governments’ lack of preparation and experience in generating major transformations took its toll, on the one hand, while ethnic wars and lack of definition of the state borders made it impossible for the Central Caucasian countries to expand their trade boundaries, on the other. At the same time, the states of this region essentially continued carrying out the old policy, only with a few modifications. The main talks were held between Georgia and Armenia and Georgia and Azerbaijan with the aim of opening customs services.3 Since the commerce and taxation system of the Soviet period had already broken down and efficient mechanisms of international exchange had still not been introduced, export in these countries ultimately inevitably decreased. Between 1989 and 1998, the share of export and servicing in the GDP in the Central Caucasian countries decreased on average from 55% to 20%.4

At the second stage (second half of the 1990s), Georgia and Armenia and Georgia and the Azerbaijan Republic entered several agreements, and laws on trade liberalization in these countries were adopted.5 The postulate that a strategy aimed at liberalizing free trade would assist rapid and stable growth in the GDP was regarded as the main principle of economic policy.6 Reform of foreign trade became the main way to create market competition conditions for domestic producers. But the absence of a legal and organizational base at this stage that met the demands of the market economy impeded the reforms. Under these conditions, several measures were carried out aimed at gradually removing the prohibitions and limitations on the export of certain goods and services.

At this stage, Armenia’s foreign trade policy became more liberal. Armenia’s maximum import customs duties were fixed at a level of 10% (while in Georgia and Azerbaijan this level was 20%), which is partially explained by this country’s geopolitical position. Armenia does not have direct transportation access to its main trade partner, Russia, and depends on neighboring countries. Since the Armenian-Azerbaijani Nagorno-Karabakh conflict closed this route through Azerbaijan, transit routes through Georgia remained the only trade communication with Russia. But after interstate relations between Georgia and Russia became aggravated (2006-2008), all the control and check points were closed down, which greatly reduced the goods turnover between these two countries and Russia.

3 For example, the Agreement between the Customs Committees of the Republic of Georgia and the Azerbaijan Republic on the Opening of Customs Checkpoints on the Border of the Two States (3 February, 1993); the Agreement between the Governments of the Republic of Georgia and the Republic of Armenia on the Development of Cooperation in Economic Trade Relations (17 June, 1992).

4 Due to the absence of reliable statistics many foreign trade parameters in the region are fragmented and contradictory. This problem is also aggravated by the high percentage of contraband. The article presents the official data of the republics and of international organizations. They may differ from each other.

5 See, for example: On Liberalization of Foreign Trade in the Azerbaijan Republic, Presidential Decree Enacted on 15 November, 1995; On Further Development of Foreign Trade Regulation, Presidential Decree Enacted on 17 December, 1996; On Further Liberalization of Foreign Trade, Presidential Decree Enacted on 24 June, 1997; On a Commission for Bringing the Activity of Control and Check Points in the Azerbaijan Republic into Harmony with International Standards, Presidential Decree Enacted on 20 May, 2000; Agreement between the Government of the Republic of Georgia and the Government of the Republic of Armenia on Free Trade (1995); Agreement between the Governments of the Republic of Georgia and the Azerbaijan Republic on Free Trade (10 June, 1996); Declaration between the Republic of Georgia and the Azerbaijan Republic on Intensifying Strategic Cooperation (1998).

6 The positive influence of foreign trade on the country’s economic growth was first noted as early as the 18th century by Adam Smith (1776). At present, this concept is the basis of the policy of international organizations, the EU, and the countries that have joined the WTO.

So these countries, after finding themselves in unfavorable conditions, are trying to carry out a liberal foreign trade policy in order to make their market more attractive. At the end of the 1990s, it was precisely these conditions that became the determining factor of Armenia’s foreign trade policy.

■ The third stage covers the period from the beginning of the 21st century and is characterized by Armenia’s and Georgia’s membership in the WTO, as well as by the emergence of new institutional interrelations between Georgia and Azerbaijan regarding gas and oil transit.7 The Baku-Supsa and Baku-Tbilisi-Ceyhan oil pipelines and the Baku-Tbilisi-Erzurum gas pipeline have turned the Central Caucasus into an important center for the delivery and transit of the Caspian’s energy resources to the world market. Europe primarily ensures its energy security and relative liberation from its dependence on Russia in this respect precisely by means of Caspian oil and gas deliveries. Thus the Central Caucasian countries have determined promising vectors for themselves in international trade—these are liberation (Armenia, Georgia) and increasing the export and transit of energy resources (Azerbaijan, Georgia), which have helped to accelerate both growth in the GDP and an increase in export and import compared with 1996-2001 (see Table1).

Table 1

Dynamics of the GDP and Export-Import (%)

Growth in GDP Growth in Export Growth in Import

Countries 1996- 2002- 1996- 2002- 1996- 2002-

2001 2007 2001 2007 2001 2007

Azerbaijan 108.8 119.1 126.9 150.8 108.3 127.2

Armenia 105.8* 113.1 116.2** 118.9 98.7** 128

Georgia 104.6 109 114.6 126 110.3 139.2

Note: * 1997-2001;

** 1998-2001.

S o u r c e s: Internet resources of the countries' statistic boards and national banks, and the authors' estimations.8

Special Features of Foreign Trade Relations in the Central Caucasian Countries

All the Central Caucasian states have certain characteristics in common: extremely limited production resources, the impossibility of developing a multi-vector economy, and difficulties due to this

7 Host Government Agreement Between and Among the Government of Georgia and the SCP Participants (2001); Agreement Between Georgia and the Azerbaijan Republic Relating to the Transit, Transportation and Sale of Natural Gas In and Beyond the Territories of Georgia and the Azerbaijan Republic Through the South Caucasus Pipeline System (2001); Convention between the Republic of Armenia and Georgia for Advance of Double Taxation with Respect to Taxes on Income and Capital and for the Prevention of Tax Evasion (3 June, 2000).

8 State Statistics Board of Azerbaijan: [www.azstat.org/]; National Bank of Azerbaijan [www.nba.az/]; Central Bank of Armenia [www.cba.am/]; National Statistics Board of the Republic of Armenia [ww.armstat.am/]; Department of Statistics at the Georgian Ministry of Economic Development [www.statistics.ge/].

in meeting their diverse internal needs by means of domestic production. As a result, they are experiencing an objective need for deeper integration into the world economy than other countries (large states like Russia for example) in order to meet their own demand for diverse goods and services.

The current state of political relations among the Central Caucasian countries essentially reduces to naught the possibility of creating a regional market and strengthening the integration processes here. So these countries are primarily oriented toward international markets where they deliver their main export products (oil and petroleum products, precious metals, manganese, fruit, subtropical products, wine and wine products, etc.).

For example, in 2007, the share of oil and petroleum products in Azerbaijan’s export structure amounted to 82%; Armenia’s main export products, ferrous alloys and precious stones (diamonds), accounted for 21% and 18%, respectively, and in Georgia the share of ferrous metals and wine products amounted to 22% and 12%. Armenia’s and Georgia’s export potential is not high. In addition to a high share of imports, these countries are characterized by a lower level of exports vis-a-vis the gross domestic product, which also determines these countries’ place in the international division of labor.

In 1995-2006, the share of export in Armenia’s and Georgia’s GDP lagged 2.5-fold behind Azerbaijan’s indices (see Fig. 1). In large industrially developed states, the share of export and import with respect to the gross domestic product fluctuates between 20-25% (France, Italy, Great Britain, and Sweden) and 50-55% (Belgium, Ireland, the Netherlands).9

Figure 1

Studies show that Azerbaijan has high economic growth rates, which are primarily achieved by exporting its energy resources. In the other Central Caucasian countries the share of export in the

9 Data of the World Bank, available at [http://ddp-ext.worldbank.org/ext/DDPQQ/showReport.do?method=show Report].

goods turnover is falling, while import is steadily rising, which is ultimately explained by their somewhat limited export potential. Over the past five years (2003-2007), the growth in the GDP in Armenia and Georgia amounted to an average of 13% and 10%, respectively, while the share of export in the goods turnover dropped by 15-20 percentage points. However, in Azerbaijan the opposite trend is occurring—with a 3.5-fold increase in the positive trade balance, the growth rates in the GDP amounted on average to 20% (see Table 2). In so doing, it should be noted that the share of oil and petroleum product production has been steadily rising in Azerbaijan’s GDP structure since 2000. Whereas in 2000, these products accounted for 1.2% of the GDP, in 2006-2007, their share increased to 13-15%.10

Table 2

Ratio of Export to Import and Growth in the GDP in the Central Caucasian Countries (%)

Years Azerbaijan Armenia Georgia

Ratio of export to import Growth in GDP Ratio of export to import Growth in GDP Ratio of export to import Growth in GDP

2002 1.26 110.6 0.51 113.2 0.43 105.5

2003 0.96 111.2 0.54 114.0 0.40 111.1

2004 1.05 107.0 0.54 110.5 0.35 105.9

2005 1.76 126.4 0.54 113.9 0.35 109.6

2006 2.52 134.5 0.45 113.3 0.25 109.4

2007 3.52 125.0 0.35 113.7 0.24 112.4

S o u r c e s: Data bases of the central banks and statistics boards of the indicated countries.

Consequently, the trade balance indices of the Central Caucasian countries (apart from Azerbaijan) are negative. In Armenia, import exceeds export by 2.8-fold and in Georgia by almost three-fold. A negative payment balance has also become a chronic phenomenon in these countries.

In the Central Caucasus, economic interrelations are built in keeping with the principle of “economic gravitation” toward large historical or geographical partners. At present, the regional market here is developing exogenously. Internal regional economic relations and trade ties among the Central Caucasian countries are mainly developing in the Georgia-Azerbaijan and Georgia-Armenia vectors. For well-known reasons, these relations are totally absent between Azerbaijan and Armenia (see Fig. 2).

It should be noted that the economies of the Central Caucasian countries are still closely tied to the Russian economy. Russia is the main trade partner of all the Central Caucasian countries. Russia occupies first place in Armenia’s foreign trade turnover, although recently the share of Germany, the Netherlands, Belgium, and Switzerland has been gradually increasing. Georgia’s main partners are Turkey, Azerbaijan, Ukraine, Germany, and the U.S. Russia’s share in foreign trade relations with the Central Caucasian countries is on the decline (see Table 3).

10 Data of the National Bank of the Azerbaijan Republic.

Figure 2

Trade between Georgia and Armenia (left-hand side) and Georgia and Azerbaijan (right-hand side)

-♦— Export Import

S o u r c e: Georgian Department of Statistics.

Table 3

Trade with Russia (%)

Export to Russia Import from Russia

Countries (share in total export) (share in total import)

2003 2004 2005 2006 2007 2003 2004 2005 2006 2007

Azerbaijan 5.7 5.8 6.6 5.4 8.7 14.6 16.2 17 22.4 17.6

Armenia 13.8 10.8 12.2 12.3 17.5 13.7 11.8 13.5 13.9 15.1

Georgia 18 16.1 17.8 8.1 3.7 14 14 15.4 15.2 11.06

S o u r c e s: Data bases of the statistical boards of the Central Caucasian countries.

Turkey, Ukraine, Azerbaijan, and Germany are becoming Georgia’s main trade partners._Tur-key, Italy, and Russia occupy the leading places in Azerbaijan’s foreign trade relations. Russia is still Armenia’s main partner, although an increase in the share of the European Union countries is also noted.

C o n c l u s i o n

The Central Caucasian countries regard the development and diversification of their foreign economic relations as a significant guarantee of their own development. So comprehensive work in

being carried out in these states to bring their economies into harmony with the requirements of the liberal market and free trade. Great efforts are being exerted to make efficient use of their geographic conditions and natural resources and develop export-oriented production units in order to offer a wider assortment of products for the international markets. In the future, this trend will lead to greater international integration of the Central Caucasus and a decrease in its dependence on traditional historical markets.


Ph.D. (Hist.), researcher at the Institute of World Economics and International Relations, Russian Academy of Sciences

(Moscow, Russia).



This article focuses on two of the main migration processes in the post-Soviet states: first, the so-called great migration of nations generated by the collapse of the U.S.S.R. and the formation of independent states on the basis of the former

Soviet republics and, second, the labor migration prompted by the significant differences in the level of socioeconomic development of the new states and, correspondingly, in the material status of the broad population.

I n t r o d u c t i o n

Widespread interstate migration is a stable trend of contemporary world development. For historical reasons, the post-Soviet expanse has found itself in the epicenter of cross-border migration. According to the U.N., in 2005 there were 26 million people living in the Commonwealth of Independent States (CIS) who were born beyond the border of their place of residence. In absolute terms of this category, Russia ranked second (12.1 million people) in the world this year after the U.S., followed by Germany in third place. Ukraine, which has 6.8 million residents who were born outside the country, ranked fourth, while Kazakhstan with 2.5 million people in this category took 17th place. More than one million people in Uzbekistan and Belarus each were born beyond the border of their place of residence.1 According to the World Bank’s estimates, which differ slightly from the U.N.’s

1 All of the estimates in this article, unless otherwise stipulated, were made in compliance with the data bases of the UN and its specialized organizations, the World Bank, and Soviet and post-Soviet population censuses. To save space, references to these sources are not given.

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