By Steven Luber

Georgian Prime Minister Giorgi Kvirikashvili suddenly announced his resignation on 13 June 2018, following weeks of protests in the Georgian capital Tbilisi and “disagreements on fundamental issues” with Bidzina Ivanishvili, the billionaire chairman of the ruling Georgian Dream coalition. His cabinet followed him out of government, leading to a major shake-up in Tbilisi.

Finance Minister Mamuka Bakhtadze has been named Prime Minister-Designate, promising a series of structural reforms and a new vision of business-friendly “small government” rule. In addition to removing ministers close to Kvirikashvili, he has announced plans to reduce the number of government ministries from fourteen to eleven. In a posted to his official Facebook page, he clarified that such changes will go through legitimate legislative processes.

While these developments have been widely reported in the Georgian press, Bakhtadze’s long-standing economic vision for Georgia is less well-known to English-speaking audiences. As outlined in an address to the Russia/CIS Energy Panel at Global Energy 2016, Georgia’s unique geographic position leaves it well-situated to be an economic conduit between Europe and Asia, especially where Iranian trade is concerned. His insight that a significant portion (nearly 70 per cent) of the Iranian population lives in the northern-most regions of the country, directly to the east of Georgia and Azerbaijan, may seem intuitive to geographers but has not been widely grasped by economic strategists. Bakhtadze’s aim is to make this market readily-accessible to European companies using Georgia and Azerbaijan as conduits. Only minor infrastructure investments are necessary, a reality his previous profession left him well acquainted with.

As former CEO of Georgian Railways, Bakhtadze has had direct involvement in economic modernization where East-West trade is concerned. Should relations between Iran and Europe continue to thaw, which looks likely given Europe’s continued dedication to the Iran Nuclear Deal despite the United States’ recent announcement that it will withdraw from the agreement, Georgia stands to greatly benefit. Tbilisi’s already well-established road and rail networks would allow for the easy movement of people and goods between Europe and Iran through a business-friendly environment, reaching Europe either via Turkey or the long-anticipated Anaklia Deep-Sea Port, expected to be operational by 2020. These factors bode well for a country which, according to the Asian Development Bank, already has a predicted economic growth of 4.7 per cent in 2019.

In Bakhtadze’s view, shipments from Asia to Europe face two major options – overland across Eurasia or by sea through the Suez Canal. The land route is more direct but requires multiple modes of transportation. The objective for Eurasian states therefore should be to modernize and make compatible transportation infrastructure as much as possible.

To this end, Georgia is a founding member of the Trans-Caspian International Transport Route  (TITR) protocol, along with Kazakhstan and Azerbaijan. The new agreements allow for easy access of goods from Central Asia and China to Georgian transit routes. Combine these factors with Tbilisi’s strategy to develop its tourism industry (the country is already a major destination for Iranian visitors) and Georgia’s long-term potential as a mediator between Europe and Iran looks increasingly promising. Tbilisi is ideally situated to serve as both a transit hub and tourist destination along the oft-discussed “New Silk Road”.

Implications for the Russian Economy

Yet, deepening economic ties often come with political risk. Iran, a partner of convenience in Syria rather than a true ally, has the potential to be a serious economic competitor for Russia, especially in the area of energy exports. Should Iranian access to Europe deepen, Moscow would be left at a disadvantage. Pressure coming from Russian allies in Abkhazia and especially South Ossetia (given the latter’s direct proximity to major road and rail networks – and the fact that the de-facto border continuously shifts) could disrupt Tbilisi’s development efforts if left unchecked.

It also remains unclear how the TITR will interact with the Moscow-led Eurasian Economic Commission (EEC), in which Kazakhstan plays a central role but which Georgia has firmly avoided. Astana has pursued a strategy of pragmatism, willing to work with any-and-all economic partners and avoiding political confrontation, a model Tbilisi may seek to emulate. TITR and the Eurasian Economic Union (of which the EEC is the executive body) do not necessarily need to be opposing projects. Though having no desire to join Moscow’s economic projects and the political strings attached with them, Georgia and Russia have been steadily increasing business ties over the past ten years since the end of the 2008 war. Russia is the largest destination for Georgian exports (worth over US$229m annually) and the second largest source of imports (approximately $695m). Though political tensions persist, the business communities of both countries are pragmatic in the cause of mutual benefit.

Bakhtadze’s initial impulse seems to be in support of such pragmatism, and, in contrast to his predecessors, extends this even to Georgia’s breakaway republics. His vision of reconciliation between Georgia, Abkhazia, and South Ossetia is to attract the latter by becoming as successful as possible, moving them out of Russia’s orbit by offering a better alternative. If his economic vision for Georgia is realized – that of a prosperous, business-friendly trade conduit between East and West – the separatist entities may seek reconciliation on more favorable terms. As Bakhtadze said in his acceptance speech, “it is exactly the enthusiastic, educated, entrepreneurial and confident youth who will place Georgia on the map of developed economies,” he said. “It is exactly such a Georgia we offer to our Abkhaz and [South] Ossetian brothers, so that we can return to a single family.”

Such sentiments may seem overly-optimistic to long-term Caucasus watchers, but Bakhtadze seems convinced that Tbilisi’s previous strategy of confrontation has been unsuccessful. It is still too early to make confident long-term predictions, but for serious Russian economy watchers, such developments certainly warrant close attention.