Sunday, August 10, 2008

Georgia and Russia at war

I wrote back in October of 2006 on the potential economic implications of the tension between Georgia and Russia. But not in my wildest dream I expected the tension to escalate to this degree. This is nothing short of insane!

While landlocked Armenia imports little from Georgia, about 95 of its trade transit through it, making it effectively the country's most important trading partner; it is blockaded to the west by Turkey and to the east by Azerbaijan, and carries little trade with Iran. See imports and exports.

Much of the country's exports are destined west, and much of its imports, other than Russian natural gas which is piped through Georgia, are also from the west. The infrastructure that makes these transactions possible is Georgia's, which by extension is Armenia's. Unfortunately, this infrastructure is getting degraded with the escalation in hostilities.

From an economic perspective, there will be no winners, and Armenia will be a casualty of this war. There is nothing that the government can do to alter the status quo. But there are a number of steps that it should take immediately. These include (1) maintain contacts with its main benefactor, the United States, to ensure the continuous flow of aid, (2) review the adequacy and the appropriateness of the funded programs given the changing environment, (3) accelerate reforms in the custom's agency, liberalise air transport, and remove any obstacles to trade and commerce. The country is de facto blockaded on all sides, by (1) instability to the north, (2) Azerbaijan to the east, Iran (the terrain and distance) to the south, and (4) Turkey to the west. Unless wisdom prevails, this winter can be very cold!

August 17. ARKA news agency (2008-08-16) reported that the destruction of the bridge linking Gori to Tbilisi by rail has interrupted the shipment of goods to Armenia.

September 4. I should have accounted for the imports/exports of diamonds which don't need to be shipped over Georgian territory. Rough diamonds are imported to the country, polished, and then exported.

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