Much of the region lies more than 1, metres above sea level. A source of tension since the break-up of the Soviet Union, South Ossetia hosted a brief war between Russia and Georgia in Moscow subsequently recognised South Ossetia as an independent state, and began a process of closer ties that Georgia views as effective annexation. South Ossetia is inhabited mostly by Ossetians, who speak a language distantly related to Persian. Most ethnic Georgians have been displaced from the region by the two conflicts.
They had accounted for about a third of the population prior to the fall of the Soviet Union. The Ossetians are believed to be descended from tribes which migrated into the area from Asia many hundreds of years ago and settled in what is now North Ossetia. And yet, thanks to Russian economic assistance, the country is surprisingly well-developed, with an impressive new university building, rebuilt government offices, a hospital and even a luxury hotel nearing completion.
The Ossetians are speakers of an ancient east Iranian dialect descended from the language of the Scythians. Their unique culture is most visibly preserved in the heroic epic known as the Nart sagas , which are comparable to the works of Homer or the Indian Mahabharata in their style, scope and content.
In contrast to North Ossetia, where Russian is dominant, in South Ossetia, the language and cultural traditions are alive and well. So why has the international community, for the most part, withheld recognition of the South Ossetian state? The main reason would seem to be an unquestioning support for Georgia and fear of Russian expansionism.
But because South Ossetians will never agree to re-integration with Georgia, any policy based on such an outcome is destined to fail.
In fact, international recognition of South Ossetia, which would allow for increased economic, political and cultural contacts with the outside world, would be the most effective way to prevent the country eventually integrating into Russia — as well as the best guarantee for the preservation of its unique language and culture.
Portsmouth Climate Festival — Portsmouth, Portsmouth. The triangular dynamic among Georgia, Russia and the breakaway regions hinders cooperation. Tbilisi blames Moscow for the conflict, though some in Georgia admit the Georgian-Abkhaz and Georgian-Ossetian conflicts would not go away even were Tbilisi and Moscow to find common ground.
Tbilisi is loath to put itself on a par with the de facto authorities in Sukhumi and Tskhinvali, whom it views as Russian puppets. Hide Footnote Moscow, while saying that Georgians, Abkhaz and South Ossetians must work out their differences among themselves, eyes any actual exchanges warily. Notwithstanding the political gridlock, openings may exist for increased trade between Georgia and the breakaway regions and between those regions and the outside world. For years, goods have trickled over the conflict divides between Georgia-controlled territory and the breakaway regions.
At the same time, and despite occasional violent outbursts and regular exchanges of hostile rhetoric, fears of major bloodshed have greatly subsided over the past decade. Notwithstanding the distrust among the conflict parties, the relative quiet has prompted thinking about increased cooperation, with trade first on the agenda.
This report examines and offers ideas on how to advance these initiatives. Research involved interviews with officials, diplomats and analysts, as well as businessmen and consumers, between May May in Georgia-controlled territory, in South Ossetia and Abkhazia, as well as in Brussels and Moscow. According to Georgian law, there can be no trade between Georgian-controlled territory and the breakaway republics — or between those republics and the outside world.
Since the wars of the early s, Tbilisi has denied the legitimacy of the de facto authorities in Sukhumi and Tskhinvali and refused to recognise their regulations. It rejects the customs declarations, certificates of origin and other paperwork issued by those authorities. Hide Footnote But it bans products with Abkhaz and South Ossetian labels from the shelves of Georgian shops because they lack proper documentation, including certificates of origin.
Hide Footnote It also fines anyone selling Russian products that have arrived via the breakaway territories, on the grounds that those goods have bypassed Georgian customs. In one case in March , Georgian officials fined a villager from Tserovani named Olga Pavliashvili for carrying Russian-produced sour cream, candies, canned beef and fruit drink mix from Akhalgori into Georgian-controlled territory. The officials apparently suspected her of intent to sell these products without paying duties.
The charges were dropped after media reports prompted higher-level officials to intervene. Locals spoke of other instances when Georgian police summarily confiscated goods. Tbilisi is likewise tough on efforts by Abkhaz and South Ossetian businesses to make deals with foreign companies, fearing a slippery slope toward recognition of the breakaway entities.
Russia and other CIS states adopted the sanctions to pressure the Abkhaz side into implementing political agreements, foremost among them the return of displaced ethnic Georgians to the breakaway region.
Russia in effect sustained the sanctions until the early s. It resumed official trade in the spring of , five months before the war with Georgia, claiming the Abkhaz side had fulfilled its obligations.
Hide Footnote Its Law on Occupied Territories tightened existing trade restrictions and introduced new ones, stipulating, among other things, that any foreign company wishing to do business in Abkhazia and South Ossetia must obtain a special permit from the Georgian government. Prospective investors in the breakaway regions must also get the permit, as must anyone seeking to transport goods by sea or overland through the de facto entities to Russia.
Tbilisi does not see these requirements as onerous. Hide Footnote But according to official data, not a single company engaged in trade has applied for the permit. The majority related to the Enguri hydropower plant, the only joint enterprise of the Georgian and Abkhaz sides.
Hide Footnote Meanwhile, the Georgian government has sanctioned foreign companies opening offices in the breakaway regions without the permit and sought to prevent businesses in those regions from conducting outreach abroad. Abkhaz and South Ossetian regulations are similarly restrictive. Officially, goods are also banned from moving in the opposite direction. The only exception is Abkhaz hazelnut exports, which the de facto leadership authorised in Sukhumi banned this trade in after clashes with Georgian forces in the Kodori gorge, but informally locals continued to export hazelnuts to Georgia-controlled territory.
In August , the de facto president signed a decree authorising collection of fees on hazelnut shipments crossing the checkpoint on the Inguri bridge. Despite these constraints, trade between the breakaway regions and both Georgia and the outside world is growing.
The uptick is largely due to rising demand for cheap consumer goods amid the economic downturn in Russia. Abkhazia and South Ossetia use the Russian ruble, which has declined in value with the fall in oil prices and the sanctions imposed on Russia in due to its intervention in Ukraine, thus diminishing the purchasing power of Abkhaz and South Ossetians.
The breakaway regions traditionally have relied on locally produced goods or Russian imports, both of which are more expensive than commodities from elsewhere. The increased trade supports links between individuals and communities in Abkhazia and South Ossetia and Georgia-controlled areas. But because it is all informal, it has fuelled corruption and strengthened grey economy networks. Ten years ago, no one wanted to marry Vato. Hide Footnote Back then he was hauling firewood in an old truck, the sole breadwinner for his elderly parents and siblings, poor ethnic Georgians living in South Ossetia.
Today, he is one of the wealthiest people in the settlement of internally displaced persons IDPs where he lives. Every day, the year-old climbs into his van and delivers some three tonnes of food from markets in Georgia to customers in South Ossetia.
In one day he can earn twice what his friends make in a month. He and his wife have two sons and a savings account; they own two apartments in a fashionable Tbilisi district and a small house in the IDP settlement. He made his fortune in trade that, officially, does not exist.
Trade has been rising since at the only crossing for motor vehicles between South Ossetia and Georgia proper, connecting the South Ossetian town of Akhalgori to the Mtskheta-Mtianeti region of Georgia. Since , de facto authorities have worked hard to integrate the region by building highways, repairing local government institutions and issuing South Ossetian identity papers.
Akhalgori is the only South Ossetian district with an ethnic Georgian majority. It has some 2, residents, about 1, of them in Leningor town, and most past the age of retirement. Crisis Group interviews, local residents, Georgian officials, June-July The checkpoint itself is near the village of Mosabruni South Ossetians also call it Razdakhan. It is manned by Russian border guards as well as locals. Georgian police are stationed about 2km down the road near the village of Odzisi, but they only occasionally stop passing vehicles.
There are three pedestrian-only crossings, two in the north-west, between the villages of Perevi and Sinaguri, between Perevi and Kardzmani, and the third in the south between Khelchua and Zardiantkari. Hide Footnote In , commerce boomed: long queues of trucks were common, particularly during the summer harvest. Hide Footnote An average of twenty per day were passing through the checkpoint to deliver goods from Tbilisi to South Ossetian markets, which have no other source of affordable food.
Georgian comestibles cost two or three times more in South Ossetia than at Tbilisi markets, but they are still up to five times cheaper than Russian imports.
Hide Footnote Nearly 1, tonnes of cargo arrive in Akhalgori each month, with only a negligible portion going on to Russia. According to Russian Federal Customs Service statistics, imports of fruits and vegetables via South Ossetia have risen since , including citrus from outside the region.
Local entrepreneurs say the biggest exports to Russia are herbs, blood oranges and mandarin oranges. When produce arrives in Akhalgori, it gets local labels that say it was grown in the de facto entity before it is transported across the state border to Russia.
Crisis Group interviews, businessmen and local residents, July-August Almost 70 per cent of the population are natives of the Akhalgori district. Former Akhalgori residents also live in the neighbouring IDP settlements of Tsilkani houses and Preseti houses. Crisis Group interview, leaders of the Akhalgori region in exile, July According to South Ossetian regulations, each person going through the crossing leading to Akhalgori may carry up to 50kg in personal belongings.
In response, in the spring of , the de facto authorities tried to introduce new weight limits. Drivers retaliated with a series of short boycotts that emptied South Ossetian markets. The restrictions were lifted, and guards stopped blocking overloaded vehicles. In late , South Ossetian authorities tasked a special commission with calculating the revenue from the informal trade with Georgian-controlled territory. The estimates were not made public. But they appear to have influenced the December decision by Tskhinvali — after a lengthy debate among politicians — to open a customs post at the crossing leading to Akhalgori.
Officials also fear that if the trade is formally regulated it would force up prices. As a result, their actions are half-hearted — charging duties to send money to the treasury but not strictly enforcing regulations that could limit or even end the trade with Georgian-controlled territory on which many South Ossetians depend.
Hide Footnote But they say that they expect also to pay bribes on top of those duties, costs they will then pass on to consumers. Similar patterns are evident in Abkhazia, where informal trade has not paused since the ceasefire, not even during the clashes in or the tension that accompanied the war over South Ossetia. According to the Abkhaz authorities, tonnes of commercial cargo cross the conflict divide daily, in both directions. Hide Footnote Processed food and furniture made in Georgia enter Abkhazia, while citrus and hazelnuts grown in Abkhazia exit in , Abkhaz hazelnuts made up 10 per cent of the total quantity of the nut exported from Georgia.
Crisis Group interviews, Abkhazia, August Hide Footnote Georgian products are found in Abkhaz markets close to the conflict divide, in Sukhumi shops and in the tourist spot of Gagra, a town 30km from Sochi, the main Russian Black Sea resort.
Most of the products come without labels to hide that local merchants are doing business with Georgia. Georgians also call the crossing Rukhi, after the last Georgian village on the road to the conflict divide. Hide Footnote Russian and Abkhaz guards inspect documents, while Abkhaz customs officials check bags, sometimes inviting travellers into their office for further checks.
Hide Footnote There are customs forms, but traders expect to pay bribes in addition to an exit tariff, which de facto laws prescribe only for the main local produce — hazelnuts.
Hide Footnote Abkhaz leaders reportedly have tried to instill order in their customs controls. There used to be six crossings along the de facto boundary with Georgia-controlled territory. Trade in hazelnuts was possible at each. By March , the de facto authorities had closed four of the crossings, formally allowing trade only at the Inguri bridge. Importantly, the increased trade is one of the few ways for residents of Abkhazia and South Ossetia to forge links across the conflict lines.
But because the trade is informal, so, too, are the relationships it helps strengthen. Thus far, the growing commerce has not improved ties or even opened fresh lines of communication between Georgian and Abkhaz or South Ossetian authorities. Unregulated, it has fuelled corruption in the breakaway regions, where vested interests have developed around the informal cross-boundary trade. Hide Footnote While there may be political will to promote more transparent and effective governance, the Abkhaz and South Ossetian leaders lack the necessary expertise to reform their systems.
According to Western diplomats and Georgian officials, he had been jailed, along with two associates, allegedly after refusing to pay an increased bribe to a de facto official. Relatives and local journalists claim he was tortured. Tskhinvali denied these allegations, said the cause of death was a heart attack and accused the deceased of involvement in a Georgian terrorist plot that was to be carried out before the March Russian presidential election. Local legislation leaves private companies room to avoid declaring all of their income.
Crisis Group interviews, current and former officials, Sukhumi, August Hide Footnote Russia remains the main trading partner of both. Russian products comprised 80 per cent of Abkhaz imports in , while Abkhazia sent 60 per cent of its exports to Russia in the same period.
Hide Footnote In South Ossetia these proportions are even higher. Hide Footnote The biggest exports from the breakaway territories to Russia are citrus, nuts, fish, alcoholic beverages, raw wood and lumber. Imports are oil, tobacco, flour and other consumer goods. Only the few countries that recognise Abkhazia accept its customs documents and product certificates. Hide Footnote The main import deliveries thus go through Russian intermediaries. Outgoing cargo is registered in Russian towns before continuing on its way west.
The use of middlemen doubles, or in some cases triples, the cost of doing business, but it remains the safest means of transporting goods.
In Turkey, the Abkhaz diaspora helps businesses back home register subsidiary companies. Hide Footnote Unlabelled cargo from Abkhazia is delivered by sea to Turkish ports, where the subsidiary registers it for sale in local markets. Crisis Group interview, Abkhaz businessman engaged in trade with Turkey, August Hide Footnote A similar scheme is used for imports to Abkhazia from Turkish companies, which are major suppliers of cheap building materials.
Hide Footnote Sukhumi-based suppliers reportedly have quietly sought partnerships with European companies ready to accept either Georgian or Russian customs codes for shipping by land via Russia or direct by sea to Abkhazia. Wary of the Georgian authorities, most Abkhaz engaged in trade with Western countries prefer not to discuss details of whom they partner with.
Hide Footnote Abkhaz entrepreneurs and officials note that Georgia has moved to limit their international business ties. Hide Footnote Those Russian companies sanctioned by Western governments in — and thus less concerned about Western opprobrium — began to explore options in Abkhazia that same year.
But according to Abkhaz officials, their investment has been small. Hide Footnote In terms of imports, local businessmen hope to develop routes for European goods, which tend to be considerably cheaper than their Russian equivalents.
Some also wish to export specific Abkhaz produce, for example hazelnuts, which reportedly fetch almost five times the price in the West than in Russia. Hide Footnote But the interest in diversifying trade relations does not equate to an openness to developing political ties with Tbilisi.
Abkhaz merchants are careful not to undermine the state-building project lest they appear insufficiently committed to it. Without more formal arrangements between Georgia and the de facto authorities, in other words, opportunities for trade with the outside world, particularly lucrative European markets, may be growing but nonetheless are likely to remain limited.
Beyond the informal trade, two projects for formal trade involving the breakaway republics are being explored. Russia has a contingent of peacekeepers in the disputed areas of Georgia. Georgia claims that the peacekeepers actually favor the separatist governments. But we are seeing Russia and Georgia try to put forward two different narratives to the international community. Georgia, which is angling for eventual NATO membership, would like to paint this as internal Georgian affair that Russia is interfering in.
Russia, on the other hand, claims it is protecting its own legally-stationed peacekeepers and its fellow citizens.
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