Strategic Analysis: Russian Business Activity in Georgia (Abstract)

Located on a strategically significant transit corridor between Central Asia and Europe and situated on the Black Sea, Georgia has sought closer ties to the EU and the West in the period since the 2003 Rose Revolution that overturned the rule of Eduard Shevardnadze (the former Minister of Foreign Affairs of the Soviet Union from 1985 to 1991). Russia, however, which neighbors Georgia to the north, has taken a number of measures, to undermine the political hold on power of Western-leaning politicians in the country as well as in its breakaway regions of Abkhazia and South Ossetia. It has done so targeting the countrys power generation sector, financially underwriting Abkhazia and South Ossetia and through military action in the case of the August 2008 war.

With Russian support, particularly in the aftermath of that war, both Abkhazia and South Ossetia have established their own respective parliaments and act, in many ways, as independent states (that are kept afloat primarily by Russian financial aid and investment in critical infrastructure). Treaties have been signed between these governments and Moscow covering an array of topics ranging from border control to economic projects and, indeed, in certain cases, these regions have been used as leverage over the economic and financial domain of Georgia proper.

Georgias relationship with Azerbaijan has played an important role in the countrys ability to navigate Russian economic and financials measures taken against it. Most significantly, Georgia is to be a key pipeline transit country for oil and gas resources moving from Azerbaijan (and the Central Asian states) to European and global markets, via the BTC and BTE pipelines, as well as for Russian gas moving to Armenia. Accordingly, the country has considerable strategic value and economic assets (notably pipelines) that play a fundamental role in ensuring the independence and growth prospects for a number of countries throughout the region that are seeking to capitalize on their energy resources (separately from Russia).


Excerpted Deals and Transactions:

  • In late May 2008, Moscow sent 400 railway construction troops to Abkhazia to carry out what they referred to as humanitarian work. The construction workers instead conducted bridge and railway track repairs that were reportedly utilized when Russia moved troops into Georgia in August 2008.
  • Under both President Shevardnadze (1995 to 2003) and President Saakashvili (2004 to 2012), there was a pattern of strategic privatizations that went awry. Many entities were swiftly resold soon after initial privatization sales. There was also a pattern of turning over critical assets to Russia in debt-for-asset swap arrangements in which Russian state-owned enterpris gained strategic assets in return for debt relief for Tbilisi. These deals included Russias acquisition of: Tbilgaz; Telasi; the Mtkvari power plant; the Madneuli mining company; Tbilisi Water; JSC Sakrusenergo; and the Khrami 1 and Khrami 2 hydroelectric power plants (which provide roughly 16% of the countrys power generation).
  • The country has been targeted with Russian agricultural sanctions which have been directed at the countrys food products and, most importantly, its wine exports (for which Russian consumers have been a major market). When wine was first targeted, Russia received 80% of the countrys wine exports (which has since diminished). The Kremlin levied allegations of contamination with heavy metals and pesticides against Georgia as a means of punishing Tbilisi (in a move that has been repeated for other countries, including Moldova, Ukraine and the Baltic states).
  • Russia has created and funded various anti-Western/pro-Russian non-governmental organizations in Georgia to project Moscows soft power. Two primary organizations are responsible for the promulgation of pro-Russian propaganda in the civil sector: Eurasian Institute (EI) and Eurasian Choice (EC). Both NGOs have numerous offshoot organizations with the shared goal of promoting a pro-Russian narrative in Georgia.