Vladimir Papava, Senior Research Fellow at the Rondeli Foundation, discusses the dangers of Georgia’s consumerist model of development, the differences between the Eurasian Economic Union and the Belt and Road Initiative and the importance of newly established free trade agreements to Georgia.
1:55 : Minister of Economy, 2000, 2004 a member of Georgian Parliament
3:10 : TRACECA. Operational
3:23 : Xi Jinping
3:55 : For any country in world, important to have a global economic function, a visible international function, some because of size, some because they are rich in hydrocarbon resources, for Georgia, which is a very small country located between Russia and Turkey, Georgia’s population is a little bit more than 3.7 million, and Georgia is not rich with different natural resources, we have some hydrocarbon resources but the amount of these resources are so small it cannot be taken seriously into account
5:20 : TRACECA and Silk Road Economic Belt, they both use crossings the same way, but differences TRACECA initiated from the West, and Silk Road Economic Belt is a part of the BRI coming from Beijing, from the east. Another key difference is TRACECA is a transport corridor, only a transport corridor, Silk Road is an economic belt, it is more complicated, it is transport, but also economic activity.
6:29: Third difference is that TRACECA finished in Central Asia, not reaching China, now when we discuss Silk Road Economic Belt, it seems a bit strange that TRACECA did not consider China.
7:43: Georgian economy has a lot of problems, first of all Georgian economy, the real sector is very undeveloped, and mostly Georgia implemented a consumerist model of economic development which was a huge mistake, imports 3.5x more than it exports, in consumer basket, imported goods are nearly 80%, only 20% were produced by ourselves… another question:
8:33 : how we manage to consume 3/4 times more than we produce… the answer..many Georgians left Georgia from the very beginning of our independence, some of them left Georgia because of Abkhazia and South Ossetia because of economic difficulties, many of them are living in neighbouring countries like Russia, and they send part of their earnings to their relatives, and so the role of remittances in consumerist model of economic development is very very significant. That is why Silk Road Economic Belt gives Georgia a new chance, new chance to develop real sector of economy,
9:45 : I have to recall two very important agreements. First of all, Georgia has already signed a Free Trade Agreement with the European Union, in May 2017 Georgia also managed to sign a free trade agreement with China, so it promotes Georgia’s situation in the region, now having free trade agreements with China, Europe and Turkey as well – three major players in the region, and what it means, for example, discussions about Free Trade Agreements.
11:13 : For Chinese businesses, it is very complicated to reach European markets. Having Free Trade Agreement with Georgia and with European Union, it promotes Chinese investors to make investments in Georgia, and for example to produce Chinese goods in Georgia, and the label will not be Produced in China, but Produced in Georgia which means that these goods will have free access to European markets; and the same situation vice versa, if European businesses have some interest to reach Chinese markets, for them it is much easier to start their production in Georgia, having free trade agreement with China and sending European goods again labelled Produced in Georgia, those versions promote the development of Georgia’s real economy, and to change this model from a consumerist model of economic development to one based on production.
12:40 : For example our neighbour, Turkey, they have an economic model based on production, they are producers, Georgia are mostly consumers, which is a pity story of my country
12:50: And you mentioned Russia, and Russia is also based on a consumer model of economy, they have the more established Eurasian land…
13:00: So excuse me to interrupt you, yes I agree that Russia has a consumerist model of economy, but Russian experts, Russian researchers, they are against all this and this interpretation. When in 2015, I published an article in Moscow, this article appeared in the US in English they were very unhappy, because when I compare economic models of Georgia and of Russia, and their position, it was impossible because of the size of the countries, but size of countries I not a matter that changes the situation, the model, because Russian economy is mostly based on exports of hydrocarbon resources, and if you exclude this influence of exporting hydrocarbon resources, then you have only a consumerist model of Russia’s economic development.
14:43 : at present we don’t have any response from Russia about Silk Road Economic Belt, but we have not positive history of our relations with Russia, when TRACECA was implemented, Russia was the main actor against the implementation and realisation, and Russia did everything to create barriers for Georgia participating in TRACECA.
15:15: At the same time we have to take into account that Russia has already initiated and created Eurasian Economic Union, it’s a Russian model, and now Georgia faces some difficulties because two countries: the Eurasian Economic Union, our neighbour countries from Georgia from northern side is Russia, from southern side is Armenia. In Armenia, it is a pity story that Moscow called (15:48) Armenia the outpost of Russia, and as I know from my Armenian colleagues they are very unhappy to have such a type of label because for them it is more important, if foreigners will see Armenia as an independent state and not as an outpost of Russia, but really they are an outpost of Russia because they control 20% of Azerbaijani territory in Nagorno Karrabakh, and without support of Russian military troops and without political support from Kremlin, for Armenia it would be impossible to maintain their position in controlling Azerbaijani territory. (16:40) So that is why for Georgia, it is really a complicated situation. Another aspect of the problem is, that Armenia unfortunately does not have its own economy, all Armenia’s more or less large enterprises now controlled by Russian companies, it started from 2002, and slowly step-by-step, Russian huge companies they are controlling Armenian enterprises, that is why Armenia’s economy is part of Russia’s economy, BUT, it is impossible for any progress in unification of these economies because they do not have direct borders, and Georgia is beside Armenia and Russia, so that is why for Moscow it is very important to control Georgia as well, and then unification with Armenia will be very simple, a simple step. And for Armenia also it is a simple step, we try to have good relations with all of our neighbours and with our historical brothers…
18:58: Georgia also has to take into account its strategic partnership with Azerbaijan and Turkey, you know that Azerbaijan and Turkey they have the same nationality, they have the same language with quite a few differences in their languages, and in economic sense the importance is of our partnership is based on transporting Azerbaijani hydocarbon resources to Turkey and then on to Western directions, you know that three different huge pipeline projects were already implemented like Baku-Tbilisi-Ceyhan oil pipeline; Baku-Tbilisi-Supsa Pipeline; Baku-Tbilisi-Ceyhan Oil Pipeline, and South Caucasus Gas Pipeline, connected from Baku to Erzurum, so all of these projects are already implemented, now it is very important to have railway connections of Azerbaijan to Turkey, the railway connection, Kars-Akhalkalaki (BTK) rail connection also is on the way; that is why I think that for Georgia it is very important to continue strategic partnership with Azerbaijan and Turkey and it promotes Georgia to have more possibilities for development of different sectors in Georgia, different centres of economy.
20:50: And one of the priorities for the Georgian government is investment in education and high-tech sectors, but the FDI into these areas is reasonable small… It’s really a very good question, but for me it is difficult to tell you about the vision for my government, there are so many unqualified persons, that they don’t have any vision of the future of Georgia…what type of economic model will be better for Georgia? I try to explain to you. Fortunately for us, we have an association agreement with the European Union, which creates some framework for Georgia’s economic activity, and Brussles promotes Georgia’s rapproachement to European Union, but the European Union itself does not have a unified economic model, any single model, you know that for example, economic model in Finland or Cyprus is very different, or economic model in Denmark or Malta is very different, or Austria and Portugal, so yes the goal of Georgia and also Georgian government several times manifested that Georgia wanted to be a part of Europe – perfect – but Europe is different, European Union is very different, so what would be the goal of Georgia? To be like Cyprus? Like Malta? Or like Austria? These are different models. (22:52) And what has happened now in Georgia, the main industry promoted by Georgian government is only tourism. Georgia is very touristic country, but promoting only tourism is a huge mistake – why? Because in our consumer basket or food basket, 80% are imported goods, what it means? Now you are staying in Tbilisi, your consumer basket also contains 80% of imported goods, so from 100 dollars you will spend in Goergia only 20 dollars will go to Georgia, 80 dollars will go to imports, which means that the orientation of the Georgian government towards tourism is based on promoting imports. (23:53) Switzerland, France, Italy Great Britain , United States, all of these countries are touristic countries, but not only touristic countries, for example, Greece is only touristic country with economic difficulties, so yes we have some start-up programmes from Georgian government, sometimes they will promote development of business based on innovation but mostly they are focused on promoting tourism.
24:42: when we were in Anaklia we noted the importance of light industry to its development – light industry? – yes – are there any international companies you could see getting inv- so again it’s a very important question, Georgia is a very small sized economy, Georgia cannot be attractive because of its size, and because of difficulties in the Caucasus, you know the difficulties in the conflict between Armenia and Azerbaijan, it is also impossible to have a situation when all south Caucasus markets with have relations without any restrictions, yes we have Free Trade Regime with Armenia, Free Trade regime with Azerbaijan, but Azerbaijan and Armenia, because of conflict they do not have any trade relations. Because of small size of Georgia, how we can resolve the problem, because small size of Georgia creates barriers for Georgia’s economic development, how can we solve this problem? (25:51) Only using our location, using our geoeconomic location, Silk Road Economic Belt, Silk Road Transport Corridor will promote Georgia that if something is produced in Georgia, then using this transport corridor, it can be exported in different countries, and having free trade regimes with main economic partners for Georgia also promotes development of economy, and resolves the problem related with small scale economy.
26:27: You have already touched on this but if you are able to discuss possible collaborations between the Belt and Road Initiative and the Eurasia Economic Union – is this something that is going to be possible with – (26:37) – No. Nothing is possible. Nothing. I think nothing. I try to explain why. Because Russian economic union is an economic union only in the title, but really it is a political union and Russian government is ready to have some losses, economic losses, and only this leverage promotes the Kremlin to control this Russian Economic Union then the position of Moscow, the position of Russia, Russia if you compare with Armenia, Belarus, Kygryzstan, these are several times its economy than these small countries. Kazakhstan a little bit bigger, parallel player but again Russia’s economy is much more, and Russia will never allow the members of the Eurasian Economic Union to have the same influence in the union as it has now, Moscow. It’s our history, based on our Soviet past.
27:58 But what is the Silk Road Economic Belt? I don’t know what will be tomorrow. What will be the position of Xi Jinping or Beijing? But at present it’s a quite flexible framework of relations, nothing like orders have come from Beijing, so it’s a framework, it’s a framework of economic collaboration, of economic cooperation, when all partners can realise their interests, economic interests, that is why at this stage there is a huge difference in models of Eurasian economic union, or great eurasian partnership, Moscow’s goal is to have some control, know that the concept of Eurasianism, which was established at the beginning of the 20th Century in Russia is based on main role of Russia in Eurasia, where Russia has to control all neighbours, close neighbours, far neighbours, and to be a leading country in Eurasia. China’s goal is different, but at present, and what is strange for me but at the same time interesting is that there is not any concept of Chinese style Eurasianism, but now some Chinese and not only Chinese researchers started publications about papers of Chinese style of Eurasianism, I don’t know what it means.
30:13: It is very complicated to discuss, I by myself I cannot write something promoting Chinese Eurasianism because it is against my visions, and I am not a Chinese researcher, but it is dependent on China, China itself has its own serious problems, because Chinese economy is not a simple economy, there are a lot of zombie companies, high tech companies, a large scale economy, so China itself has many difficulties, and I think that this Belt and Road Initiative is one of China’s ways of how to overcome these difficulties because China needs new markets, China needs new economic contexts, and Silk Road Economic Belt and Belt and Road Initiative will promote China to do it, but now for me it is very important to have some transparent role of the United States and nobody knows what is their position.
Because now what has happened in the United States, having President Trump’s administration, many things are not transparent, I don’t know for example, a couple of days ago it was made a very important statement that American government is ready to start negotiations with Georgia to sign free trade agreement with the United States, but I am not sure it will be possible under Trump’s administration because he is against any trade liberalisation.
32:34: The Hambantota Port in Sri Lanka, does this takeover suggest that the Belt and Road has more geopolitical aspects? I think that at present it is more a geoeconomic project, but geoeconomics is not far from geopolitics, so maybe later, I don’t know when, five years later, ten years later, maybe tomorrow, this geoeconomic project will change its face and look more like a geopolitical project, but first it has to be established as a geoeconomic project. For example, let’s look at the European Union, integration was started in the economy, it was an economic relation and until present day it is a more economic integrated space than a politically integrated space. At least you remember that the European Union did not manage to have a single constitution, but it was a huge projection so it is not unified, it is more economic integration rather than political, so now about the ambitions of Beijing, yes it is a huge country, huge amounts of population, yes I am sure that they will have some ambitions to have some political influence, (34:28): but is it possible to have political influence from Beijing on Georgia, I think that there is not a serious threat from Georgia than political influence from Russia – why? First of all cultural component, knowledge of language, Georgians still remember Russian language, we have young generation they don’t know Russian but people like me, a little bit younger all of them they know the Russian language. Relatives of Georgia, many Georgian families their relatives are living in Russia, then Russian language is used in our communications with our neighbouring countries like Azerbaijan, Armenia, Ukraine, Belarus and Central Asian countries as well. And then, religious, orthodox church in Russia, orthodox church in Georgia, so influence of Russia is more significant, and what type of influence can come from China? I don’t know, and main barrier will be language, writing, so I think it is a barrier not only for China-Georgian relations, but worldwide.
36:16 : cultural exchanges between Georgia and China… it is an interesting question because there are no huge projects but there are some initial stages of cooperation in educational assistance, for example there are some interesting universities in China, and they offer to Georgian students services in studying high tech, but education is in English, not in Chinese, because having a knowledge of Chinese language is very complicated, but there is no huge cooperation, only initial stages.
37:35: what are changing perceptions of China? So yes it is five years old, but Georgia-China free trade regime this agreement is only one years old, and without having such free trade regimes, Silk Road Econmic Belt cannot promote many activities. There is a problem of mentality of Georgian businessmen, why? In 1999, Georgia became a member of WTO and later Georgian businessmen arrived at the question: so why Georgia join WTO ? What was the goal, the WTO brought nothing to us, yes, WTO is an organisation, it promotes you to open the door, and then you have to use this open door for having your business activities, so the same as having your free trade agreement with China it opens the door of free trade relations with European Union but for example, European Union needs high quality standards of goods, so it means that Georgian producers need to produce much better quality of goods, to have some certificates of standards, the same in the China direction, and I think this should be the main type of activity of the Georgian government promoting Georgia’s economic development based on free trade regimes with European Union and China.
39:55: as I know at present, Brussels are not so optimistic [for the Belt and Road] Washington the same situation. India is really against it, because I have participated in different international conferences and most criticism comes from India, Brussels and Washington they are in the position not to criticise but in positions of waiting, so it is very complicated to have a forecast of what will happen in five years, but for Georgia what is important is not to wait but to start activities, to promote implementation of business projects in Georgia – Chinese style projects, European style projects, Turkish style projects, using these free trade agreement with all different sides. (41:03) Finally I want to tell you one joke, in the beginning of the 90s when Georgia became an independent state and when I met with my foreign colleagues and the question was about my country and I told them that I am from Georgia but they understand that I am from Georgia in the United States, and it was very complicated to explain what means Georgia: that Georgia is an independent country, and I recall such persons like Stalin, Shevardnadze and sometimes it did not help. Then I try to move to geography, and explain that, ‘do you know Russia? Yes Do you know Turkey? Yes. Ok Georgia is between Russia and Turkey, and you know this looks like a geopolitical hotdog, and you know that the sweet part of the hot dog, the tasty part is in the middle, Georgia is in the middle. (42:25) For Georgia, it is very important to use all possibilities coming from different neighbours, all possibilities for economic development, as I have mentioned our strategic partners in the region are Azerbaijan and Turkey, we have very good relations with our historical brothers Armenians, and we try not to spoil more our relations with Russia, but Georgia’s position is very difficult because Russia is already occupying 20% of Georgia’s territory, so Georgia’s geopolitical position is very complicated, but geoeconomic position is very promising, so I hope using different initiatives like BRI will promote this economic development.