War and the collapse of the Soviet economic system have devastated Abkhazia’s industrial production, physical infrastructure and agriculture and restricted Georgia’s progress to economic stabilisation. But Georgia has been able to attract international investment and has begun to overcome the economic chaos that enveloped it in the early 1990s. This is not the case for Abkhazia where the long-term viability of the economy remains questionable, social distress is considerable and the likelihood of international investment minimal. Although both sides could benefit economically from peaceful cooperation economic interests work both to prolong the political stalemate and to provide an incentive to conflict resolution.
Many black marketeers, local monopolists, border guards, troops and militia members benefit from the unregulated economy and are unlikely to promote an end to the conflict. Economic and ethnic relationships between entrepreneurs and criminals are blurred when profits are to be made. Despite the sanctions imposed on Abkhazia which have severely restricted trade and the mass displacement that has reduced the skilled workforce hazelnuts, citrus fruit, petrol, scrap metal and timber continue to be traded across the Inguri and Psou Rivers and across the Black Sea with Turkey. Trade restrictions cause much hardship in Abkhazia but instead of forcing the Abkhaz to make political concessions isolation generates a siege mentality that reduces the propensity to compromise. It also contributes to the development of a criminal and national resistance economy that undermines prospects for the entrenchment of the rule of law.
Both sides might benefit economically from the return of displaced people to the Gali region – Abkhazia through reinvigoration of the agricultural sector and Georgia through the easing of the economic and political burden of catering for a substantial displaced population. But proposals for the joint administration of Gali, the lifting of sanctions and the reopening of the railway through Abkhazia which would accompany repatriation are politically sensitive. Additionally, the prospect for Abkhazia of being left out of oil and freight transport developments (including the EU’s TRACECA programme) which the Georgian government regards as the foundation of future economic prosperity, could be severe. Without a resolution Abkhazia will be unable to benefit from its position as a key link between Russia and the South Caucasus and, while a trickle of Russian tourists may have returned to Abkhazia’s beaches, as long as the conflict remains unresolved Abkhazia will be unable to develop the infrastructure to become once again the Black Sea’s Riviera.
Yet the prospect of economic development appears to be an insufficient temptation to encourage the Abkhaz to compromise their long-term political goals, despite the cost of isolation. An infrastructure for cooperation between Georgians and Abkhaz is not yet in place and removing the trade restrictions will not on its own change this. In the past two years mutual economic interests have become part of the negotiations and in some cases, such as the Inguri hydroelectric operation, economic cooperation has taken priority over political confrontation. So far, however, these discussions have not broken the political deadlock.
The Inguri power complex
The Inguri dam and hydroelectric power plants, which lie in the heart of the Georgian–Abkhaz conflict zone, have become integrally related to the struggle between the two parties. The complex has enormous economic importance. It is the only source of electricity in Abkhazia and is vital for sustaining de facto independence, rebuilding infrastructure ravaged by war and maintaining economic and social well-being. For Georgia the facility is important to state building since it provides most of the country’s electricity. Both sides therefore need the complex to continue to generate electricity, but with the dam on the Georgian side of the border and the power plants on the Abkhaz side they have been forced to cooperate.
In the absence of a formal structure of management, decisions on operational matters are made by senior officials from both sides who meet on site twice monthly in the presence of the Russian commander of the CIS forces. Since September 1997 they have also attended UN-facilitated co-ordinating committee meetings. Even during the periods of heaviest fighting, Abkhaz and Georgian officials and engineers maintained electricity generation to the benefit of both sides.
Despite the cooperation there remain serious differences between the parties. Ownership of the complex is undecided. The Abkhaz insist that ownership value should be determined by the cost of building the physical structures (giving forty per cent ownership to the Abkhaz) and that the generated electricity should be distributed accordingly. The Georgians argue that the criterion for the complex’s value should be the amount of electricity each side consumes (giving the Georgians eighty per cent ownership). The Abkhaz counter that the Abkhaz need for electricity will increase with economic development and that if it has more electricity than it needs it can sell the surplus to Russia, Georgia or elsewhere. The facility also has military and strategic importance. If Abkhazia retains control of the power plants and the ability to turn off the electricity supplied to Georgia it maintains de facto independence. If Georgia were to gain full control of the complex, depriving Abkhazia of bargaining power, it would be in a strong position to force Abkhazia to remain part of the Georgian state. Both sides have, as a consequence, used the site as a weapon against the other. In April 1997, the Abkhaz cut off electricity to Georgia in response to the Georgian disconnection of long-distance telephone lines in Abkhazia. Talks led to the restoration of electricity to western Georgia in return for the restricted use of long-distance telephone lines in Abkhazia.
The complex is also important in the international arena. It provides the Russians with electricity and it is not surprising, therefore, that CIS troops guard the complex. The European Bank for Reconstruction and Development agreed in October 1998 to allocate $38.5 million to finance badly needed reconstruction. In making a joint memorandum on cooperation a condition it not only accepted an economic and security interest in the complex but also helped reinforce the joint management arrangement.
The cooperation over Inguri River water resources was born of economic and social necessity. It demonstrates that even in the context of an unresolved war, economic and security considerations can force parties to collaborate. Engineers and managers working on the Inguri complex and politicians believe that this joint management effort is leading the peace process, not following it, and could become a model for cooperation in rebuilding railway, communication and transport ties, but to date there has been little tangible influence on other areas of cooperation.