Armenia, Azerbaijan, and Georgia weathered the political and economic turbulence of the early 1990s but have yet to develop fully functional market economies. Carnegie hosted several experts from the South Caucasus to discuss economic trends and long-term prospects for economic development in each country. Clifford G. Gaddy from the Brookings Institution moderated the discussion.

Armenia

David Grigorian from Policy Forum Armenia outlined three stages of Armenia’s economic development since independence:

  • Post-Transition Progress: In the mid-1990s, following an initial crisis period in which the country suffered from a devastating earthquake (1988) and war with Azerbaijan (1991-1994), Armenia experienced remarkable economic growth. At the same time, however, “the seeds of authoritarian governance were sown” as former military generals began to participate in fraudulent elections, Grigorian noted.

  • Qualitative Stagnation: Despite double-digit growth from 2000-2007, concentrated mostly in the construction sector, Armenia failed to diversify its economy, he said. Government spending on health and education remained low while “large oligarchic clans” gained more influence over Armenia’s economy.

  • Hopeless Stagnation: As of 2008, Armenia’s economy and political sphere remain intertwined, he noted. The absence of a developmental agenda and the presence of corruption and weak property rights continue to stunt growth. On a more positive note, he highlighted the potential of Armenia’s human capital but stressed that “Armenia needs to depoliticize its economic decision-making.”

Azerbaijan

Ingilab Ahmadov, an economist at the Public Finance Monitoring Center in Baku, discussed the strengths and weaknesses of Azerbaijan’s resource-based economy:

  • Regional Leader: Due to its oil and natural gas reserves, Azerbaijan has the strongest economy in the South Caucasus. Its gross domestic product (GDP) far exceeds that of Armenia and Georgia and accounted for 74 percent of regional GDP in 2010. Baku has also attracted high levels of foreign investment and has successfully integrated Azerbaijan’s economy into global markets.

  • Resource Dependency: Although Azerbaijan has enough energy resources to last until 2025, its economy lacks innovation and competitiveness. Economic stability is contingent upon available reserves of oil and natural gas. As a result, Azerbaijan’s economy “is not self-sufficient,” he concluded.

  • Other Challenges: Ahmadov questioned whether Azerbaijan was a true market economy since it has yet to join the World Trade Organization. He noted that business, politics, and bureaucracy are all inextricably linked. Azerbaijan’s economy still suffers from widespread corruption, unemployment, and the loss of Soviet industry, he said.

Georgia

Vladimer Papava from the Georgian Foundation for Strategic and International Studies and Dr. Mamuka Tsereteli from American University examined some of the key economic challenges facing Georgia and the South Caucasus in general. 

  • Russia’s Impact: Despite the destruction wrought by the August 2008 war with Russia, Georgia has benefitted tremendously from an influx of international financial assistance, a phenomenon that Papava referred to as a “paradox of war.” Today, he added, Russia still controls much of Georgia’s electricity sector despite a downturn in diplomatic relations. 

  • Economic Myths: Papava dispelled several popular myths about Georgia’s economy, explaining that Georgia has had economic relations with Russia even after the 2008 war and challenging the assumption that Georgia is fully oriented towards Europe. Despite Georgia’s impressive reform record, he added that neo-liberal reforms are not a distinct feature of Georgia’s economy and argued that “elite corruption” in the form of high-level monopolies still remains a serious issue.

  • Lingering Challenges: Despite reforms implemented after the 2003 Rose Revolution, Georgia still faces major challenges, especially very high unemployment, noted Tsereteli. In Georgia and throughout the region, he added, governments remain wary of free entrepreneurship and treat businesses as sources of revenue, which inhibits economic growth. From a regional perspective, the unresolved conflict over Nagorny Karabakh remains the key obstacle to creating an open economic space in the South Caucasus, he concluded.

  • Possible Trajectories: According to Papava, Georgia has three potential developmental paths: rapprochement with the European Union; “Singaporization” of the economy; or incorporation into Russia’s “liberal empire,” but it is not following any of these paths in a coherent fashion.