Georgia Does Not Need Russian Market

John_Theodore_Heins_-_Allegory_of_Trade_-_Google_Art_Project
John Theodore Heins: Allegory of Trade // Public domain

In the past, I already described what the Russian market is and why it is not a good idea for any state to focus their economy on dealing with Russia. Georgia’s goal should not be to fool Russian consumers to sell them Georgian low–quality products, but to improve their quality, so that we can find more demanding, but reliable, customers. This means that Georgia must become more competitive.

Russia is not an ordinary trading country. Leaving aside the high level of politicization, our recent experience clearly warns us that Russia is not a reliable partner and therefore not worth entering into a broad economic relationship with. Focusing our exports on Russia will not do any economic good – it is just a political chimera, as if because of this Russia will choose peace and return the occupied territories to us.

Russia can be viewed emotionally. It occupied 20% of our country and created this and numerous other reasons why we should not trust and grow a connection with it, not fall into the trap again. How many times has Russia betrayed and deceived us in the last few centuries – this is to be studied by historians?

Georgia’s economic role in the Russian Empire (and the USSR) was a colonial practice – as evidenced by tea, citrus plantations, metallurgical and truck industries. The main thing is that Russia has firmly tied Georgia with these economic projects, depriving us as if nothing would happen in Georgia without Russia.

It was not only in the economy and in the very difficult conditions of the last decades after independence, but we also managed to prove in all areas that we do not need any Russian help. On the contrary, the more we distance ourselves from Russia and believe that we can do everything, the easier and better it will be for us. The Russians know this very well and they are angry about it.

However, let us turn the emotions over and see what the Russian economy is like, what objective research thinks about it.

Background

Gross Domestic Product (GDP) – USD 1.7 trillion, GDP per capita – USD 11,600 – slightly less than that in the EU only in Bulgaria. It is important that the GDP per capita of the former Soviet Baltic countries is twice higher than in Russia; the same is in Czech Republic, Slovakia, Poland, and even Romania is ahead of Russia!

It is also interesting to note that the population of Eastern Europe is larger than that of Russia, and the total volume of their economies is larger than those of Russia.

Russia is not a rich country. The EU’s economy is ten times bigger than the Russian one, and, at the same time, the European population is three times bigger than that of Russia. We can be interested in the fact that the EU (excluding Britain) drinks eleven billion bottles of wine – Russia 1 billion – that is, even on average, three times more wine is consumed in the EU than in Russia (Russia also drinks a lot of fruit wines, which is included in these 1 billion bottles; Eastern Europe consumes much more grape wine than Russia). The statistics are clearly not on the Russian side.

Let us Look at the Studies

The Heritage Foundation is an American Conservative think tank and one of the largest privately funded organizations in the world. Its annual survey of the Economic Freedom Index has been in existence since 1991, and Russia ranks 113th in the 2022 survey. There are twelve components in this study and five of them have a very weak position:

Property rights – 36.8%

Court efficiency – 34.7%

Credibility of the government – 29.7%

Investment freedom – 30%

Financial freedom – 30%

Economic Freedom in the World, an annual study by the Fraser Institute, which has been published in Canada since 1981, although its authors and researchers are American professors. Russia ranks 100th in this study (2021) and has very weak achievements in three of its five main components, namely:

Legal system and property rights – 5.14 (out of 10)

Freedom of foreign trade – 6.87

Regulation – 6.83

The 2020 edition of the Easiness of Doing Business, conducted by the World Bankranked Russia in the 28th position. However, one of the lowest scores in the field of foreign trade, which is most interesting to us – had 71 points (out of 100) and 72 in the execution of contracts.

The Global Economic Competitiveness Report, published annually by the World Economic Forum, ranked Russia as the 43rd in its 2019 edition. According to this study, there were such (interesting for you) assessments of Russia (it is interesting that a large part of these assessments was obtained from surveys of Russian businesspeople)):

Organized crime – 60.4 points (out of 100)

Reliability of police services – 50.3

Judicial Independence – 37.2

Burden of government regulation – 37

Freedom of press – 49.7

Efficiency of the legal system for settling disputes – 41.4

Incidence of corruption – 28

Property rights – 44.7

Distortive effect of taxes and subsidies on competition– 46.4

Domestic competition 50.2

Trade openness – 51.2

In short, it can be said that studies do not indicate the advantages of economic relations with Russia either.

Credit Ratings

Other assessments relate to the country’s credit rating. It is made by several global organizations, including three – S&P, Moody’s, and Fitch Ratings – have been around for over a century and are distinguished by a particularly reliable quality of operations and ratings. According to their ratings, Russia looks like this:

S&P – BBB-

Moody’s – Baa3

Fitch – BBB

In these ratings, ‘A’ is the highest grade and ‘C’  the lowest. Consequently, the Russian economy is characterized by medium to low creditworthiness. (Germany, the United States, Switzerland, the Netherlands, Britain, Japan, to name but a few, all have three A’s).

Such are the characteristics of the Russian economy. This is known to all investors. Like the People’s Republic of China, the Russian economy has one advantage – large scale – which explains its high place in the study of competitiveness. Despite this scale and large natural resources (which it wastes with great intensity mostly for militarization and aggressive plans) credit scores are still low, for all the reasons described above.

Experts who advise us and others who agree that we need to trade with Russia should explain how a Georgian businessperson can deal with such challenges in Russia, as well as what to do if he encounters corruption, crime, police, and the courts will not protect, regulations will be costly.

These are not just challenges, there are people behind them and their arduous work that needs to be lost, many people and the Georgian economy to suffer. And what we can achieve through economic and trade relations with Russia is to import large doses of all these problems, – the more relations we have, the more imports we will have of these problems and eventually we will find ourselves in their captivity.

Then, Russia will again force us to buy its own products, such as ugly and low–quality cars. It will force us to focus on sectors that are of interest to it and again alienate ourselves from the world market, its quality requirements, and if it deeply deceives us, this will cost us dearly again, as it happened in the 1990s.

Here I thought I would also answer those who would ask me – if the relationship with Russia is so bad, why does everyone want to cooperate with it? I have already mentioned above that the large Russian market contributes to this. Russia, on the other hand, is actively lobbying for its own interests and pulling everyone in the same corrupt/depriving trap.

Unlike us, their capacities (for example, Germany, more broadly – the European Union) to avoid Russian pressure, their economy is large and resilient enough, – not to fall victim to Russian political hooliganism – for them, relations with Russia are not crucial.

On the contrary, tying the Georgian economy to such an unreliable economy is dangerous. The volume of our economy is as different from that of Germany as that of a cup of coffee and a large barrel, respectively – it is easier to shake and empty our economy. Therefore, it is more crucial for us to calculate any step well.

As for Russia’s allies in the Eurasian Union, most of them are in an unfavorable economic situation and are poorer than us (Tajikistan – 4 times, Kyrgyzstan – 3 times, Armenia), with uncertain prospects (compare again with Eastern European countries). Some of these countries (Kazakhstan, Belarus) are statistically better than us, but in real life most of the population is fighting poverty.

Accordingly, emotionally, and even more so rationally, Russia is a bad choice.


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Gia Jandieri
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