Work Package 3 – Economic Interdependencies
Research Approach and Geographical Focus
WP3 studies economic dependencies on the macro-level through the lenses of the "Dutch Disease" concept. Micro-level dependencies are studied with reference to theoretical work on de-territorialization and transnational flows. The micro-level analysis links transnational flows and the ability of communities to economic reproduction. The researchers see economic reproduction as an important source of social stability.
The macro-level analysis concentrates on the South Caucasus. In Georgia WP3 explores the potential economic impact of the Association Agreement. Another focus is the influence of the diaspora communities on developments in Armenia. In Azerbaijan the impact of oil rents on the countries policy towards Nagorno-Karabakh was studied. The micro-level analysis concentrates on flows from Turkey to Abkhazia, Adjara, Nagorno-Karabakh and to the North Caucasus.
The researchers used data on macro-level dependencies from public sources on trade, foreign investment, development finance, migration and remittances. In addition, they conducted expert interviews. The team also mapped micro-level trade flows which are not covered by public statistics. This has been done through qualitative interviews and local market analysis.
Armenia, Azerbaijan and Georgia may be growing apart politically, but they continue to be dependent on each other and on the rest of the former Soviet space to a surprisingly large extent. Armenia's dependency on Russia is commonly acknowledged. Often understated is the political role of Armenia's diaspora and Armenia's dependence on Georgia. The politically organised US-based Armenian diasporas have little political relevance. In contrast, the less organised Russia-based diaspora plays a more significant role. Individual self-interest rather than broader political goals drive their involvement.
Azerbaijan seems to be the most independent. However, once the oil is cut out of the picture, its dependence on the region is also pronounced. Azerbaijani budget is highly dependent on hydrocarbon revenues and energy represent a very high percentage of the total exports of the country. If the energy projects promoted by the Azerbaijani government require regional stability, the military build-up financed on hydrocarbons revenues led to a power asymmetry with Armenia. It enhances uncertainties of the current stand-off in the Nagorno-Karabakh conflict. At the same time, it provides considerable incentives against going to war. Georgia's Western orientation is not aligned with regional interdependencies. This particularly applies to the EU Association Agreement. The country's Western orientation is therefore relatively fragile.
According to the micro-level studies on Turkey's influence, Turkey is Abkhazia's second largest trade partner, despite the trade and transportation embargo. Turkish-Abkhaz diaspora groups are the main driver behind Turkish investment and trade, most of which is conducted through Sochi, Russia. They also lobby for the lifting of the embargo. Turkish business actors use informal ties within the diaspora to gain access to the Abkhaz market. Regional actors in Turkey have also challenged the official restrictions on trade with Armenia. Trade with Armenia is conducted via Georgia or Iran. Turkey also emerged as Georgia's leading trade partner over the past ten years. Turkish economic presence is particularly pronounced in the Black Sea region of Adjara.
A study on Turkey's tourism activities shows that these are influenced by domestic and international market conditions. Individual tourism is affected by the political and economic stability in Russia and Ukraine. Turkey's domestic labour market is currently filled predominantly by Georgian women and not any other Caucasus or ex-Soviet citizens and Turkey is one of the easiest destinations of illegal male labour as a result of the high unemployment in Georgia.
Ankara Policy Center
German Institute for International Studies and Security Affairs
Kabardino-Balkaria State University