Russia and Eurasia

Georgia: Armenian-Turkish Rapprochement Could Have Significant Economic Impact On Tbilisi

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Nino Patsuria

As prospects dim for a quick reopening of the Turkish-Armenian border, Georgian business executives remain quietly content. Trouble with the Turkish-Armenian reconciliation process can mean continued economic benefits for Georgian traders.

 

Turkey and Armenia signed reconciliation protocols last October that specified that their mutual border would be reopened to trade upon ratification by both countries’ parliaments. Strong domestic opposition, however, has delayed the ratification process, and some experts now question whether the protocol provisions will ever be implemented.

 

For the past 16 years, since Azerbaijan and Turkey closed their borders with Armenia during the Nagorno-Karabakh conflict, Georgia has been Armenia’s sole route for exports to both the West and Russia. Cargo bound for Armenia enters Georgia at the Black Sea ports of Poti and Batumi and then travels south several hundred kilometers to Yerevan via road or rail. A shorter overland route from Russia via a border-crossing point in the Georgian highland region of Upper Larsi has been closed since 2006. In December, Georgian and Russian officials agreed to reopen the Upper Larsi crossing, pending the resolution of technical details. Georgian diplomats hinted that the transit route could be operating again in March.

 

The reopening of the Armenia-Turkey border could diminish Georgia’s status as a transit hub. A spokesperson for the Association of Armenian Freight Forwarders, Diana Sarkisian, indicated that the Turkish Black Sea port of Trabzon or the Mediterranean Sea port of Mersin are more attractive shipping points for Armenian exporter/importers because of significantly lower transit fees and costs.

 

Data from the Georgian Ministry of Economic Development shows that Armenia-bound cargo accounted for 13 percent of Georgia’s overall transit traffic for the first nine months of 2009. The ministry could not, however, put a monetary figure on the value of that traffic. Georgian regulations exempt transit traffic from taxes and fees; economic benefits come via related jobs and demand for improved infrastructure, claimed Maumuka Vatsadze, head of the ministry’s Transportation Department.

 

Gia Tsipuria, general secretary of the Georgian International Road Carriers Association, estimated that cargo traffic bound for Armenia might drop by 40 percent if the Turkish-Armenian border reopened.

 

But Georgia plays a greater role than just a transit corridor. Despite the 1993 Turkish embargo on trade with Armenia, Turkish products abound in Armenian stores. The key to their access lies in Georgia, where Armenian entrepreneurs regularly register trading companies that import goods from Turkey and then re-export them to Armenia, Georgian shipping company executives say.

 

The Georgian Ministry of Economic Development’s Vatsadze acknowledged that the practice exists. Turkey, Vatsadze said, chooses to turn a blind eye to the practice. The Georgian government, in turn, maintains that it cannot restrict transit via Georgia to other countries.

 

Giorgi Tsomaia, general director of CaucasTrans Expeditor, a private shipping company, agreed. “Business is business,” commented Tsomaia, whose firm once handled an Armenian order for Turkish tractors. “It always finds routes and ways to contact people who need a product.”

 

No data exists about the extent of re-exports to Armenia since Turkish products bound for Armenia name Georgia as their final official destination.

 

This Georgian competitive advantage of sorts would lose its value if the Turkish-Armenian border reopens. But some in Georgia are banking on Georgia’s railway system to make up the difference. One senior executive at Georgian Railway Ltd, the state company that runs Georgia’s railway network, believes that the system could help Georgia fend off Turkish competition over trade routes.

Like Georgia, Armenia uses Soviet-style railroad tracks that would require trains to adjust wheels when moving between Turkey and Armenia — a factor that would add cost and time to trade, noted Georgian Railways Freight Transportation Director Davit Jinjolia.

 

“Turkey has an underdeveloped railway infrastructure. Its key transit tool is road transportation, which is twice as expensive as the railway. . . . [This factor makes] railway transportation cheaper and more convenient between Georgia and Armenia,” Jinjolia said. “No direct railway connection exists between Trabzon and Yerevan.”

 

A representative of the Turkish Embassy in Tbilisi did not respond to a request for information about railway or port tariffs in time for publication.

 

If the Turkish border re-opens, Jinjolia predicted a drop of no more than 2 percent in Georgia’s Armenia-bound railway cargo traffic.

 

Sarkisian, the Association of Armenian Freight Forwarders spokesperson, also indicated that exporters would not be inclined to make any drastic changes, given that Turkish railway tariffs make this option not attractive for Armenia.

 

“Of course, the situation may change if the Turkish Railways changes its tariff policy,” she added. She also downplayed the difficulty posed by different rail gauges in Armenia and Turkey. A depot in the western Armenian town of Akhuryan is capable of expediting wheel alignments for rolling stock, she asserted.

 

Editor’s Note: Nino Patsuria is a freelance reporter based in Tbilisi.

 

07/01/2010

 

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