Information about the socio-economic state of the Republic of Abkhazia.
Today, the socio-economic model of the Republic of Abkhazia (RA) is as follows:
- by the achieved level of economic development, the RA is ranked as a country with a transitional economy;
- in terms of the development of productive forces – pre-industrial;
- by the degree of openness of the national economy – open;
- in areas of development – socially oriented;
- in terms of economic development – with an average level of GDP per capita.
The main strategic guideline of the socio-economic development of the Republic of Abkhazia is a transition to an innovative and socially oriented model of the state’s long term economic growth.
Population and employment
The state finance of the Republic of Abkhazia consists of:
1. State budget (the republican budget and local budgets — the city of Sukhum and the districts);
2. The system of state non-budgetary funds.
The main financial document of the Republic of Abkhazia is the State budget. The People’s Assembly — Parliament of the Republic of Abkhazia reviews, approves and monitors the execution of the State budget. Thus, according to the Law of the RA “On the State Budget of the Republic of Abkhazia for 2018”, the State budget for revenues is equal to 9,501.7 million rubles and for expenditures 9,607.9 million rubles.
In 2018, the revenues of the republican budget are planned to amount to 7,432.4 million rubles, including the financial help of the Russian Federation for the purpose of the socio-economic development of the Republic of Abkhazia (2,671.6 million rubles) and budget investments as part of the “Investment program of assistance to the socio-economic development of the Republic of Abkhazia for 2017-2019” (1,620.5 million rubles).
It should be noted that in recent years, the growth of own revenues in the structure of the consolidated State budget is to be observed. Thus, for example, in the last five years, the own revenues of the state budget of the RA have increased by 168.6%. These revenues are mostly generated by means of VAT, income tax, corporate tax and customs duties.
With regards to the remaining part of the consolidated State budget of the RA, it is formed by means of the funds that are received from the Russian Federation on the basis of intergovernmental agreements. These funds are received as financial help and also as part of the “Investment program of assistance to the socio-economic development of the Republic of Abkhazia for 2017-2019”.
The sectoral structure of the economy of the Republic of Abkhazia
Among the leading sectors of the economy of the Republic of Abkhazia, the following sectors can be pointed out:
· the financial sector;
· communications, etc.
The Abkhazian industry was once highly developed, and it consisted of more than 500 enterprises. Yet, after the Patriotic War of the People of Abkhazia of 1992-1993 and the subsequent blockade that lasted for seven years and was brought about by the economic sanctions of the CIS countries, the Abkhazian industry went into decline. The main infrastructure facilities were destroyed, looted or fell behind technologically, which led to a significant outflow of qualified specialists. However, despite the abovementioned circumstances, the industry of Abkhazia is being revived.
Thus, currently, the industrial complex of the RA is one of the three main industries that form the GDP. In 2017, the volume of industrial production amounted to 3,541.1 million rubles. Today, more than a hundred industrial enterprises exist in Abkhazia out of which 87 are non-state enterprises. According to the data of the Department of State Statistics of the RA for 2017, 1,956 people are employed in this industry. The main part of the Abkhazian industrial enterprises is located in Sukhum (more than 40%).
The sphere of industrial production is represented by such industries as:
- processing (logging, production of veneer and furniture, production of fishmeal and fish oil);
- extractive (extraction of inert materials, limestone, coal);
- manufacturing (processing of ferrous and non-ferrous metals, production of paving slabs, blocks, concrete);
- food (production of bakery, alcoholic and non-alcoholic products);
- light (manufacture of garments);
- printing industry (production of printed products), etc.
It should be noted that of great importance to the Abkhazian economy are also the export-oriented wine-making, as well as fish processing industry. Thus, for example, the largest export item from the Republic of Abkhazia is wine production, which covered 75% of all exports in 2017. Along with countries like Spain, Italy, Georgia and France, Abkhazia is one of the five principle suppliers of wine on the Russian market. Only in 2016-2017, wine products worth 2.7 and 2.5 billion rubles were exported from the RA to the RF.
The production of honey, beer, adzhika, mineral waters and lemonades are represented in smaller volumes in Abkhazia. In 2012, as part of the Comprehensive plan of assistance to the socio-economic development of the Republic of Abkhazia for 2010-2012, the Sukhum milk factory was opened. Also, state investment in the processing industry is being planned.
The grown of construction as part of the financial help of the Russian Federation that aimed, mostly, at capital construction and the restoration of social infrastructure, has had a positive effect on the volume of internal production of construction material leading to the growth in the volume of the extractive industry.
The increase in the export of inert materials which are used in the construction of sports and infrastructure facilities as part of the preparation to the Sochi Olympics of 2014 has also had a positive effect on the volumes of production of the construction materials and the extractive industry. It should be noted that the export of inert materials from the Republic of Abkhazia to the Russian Federation is ongoing.
The power generation is a strategic part of the industry. It should be noted that all electricity generated in Abkhazia is being generated at the largest in the Caucasus hydroelectric station on the Ingur River. Given the water resources of Abkhazia, which consist of more than 13.5 million cubic meters of streamflow per year, the potential of hydropower, according to various estimates, exceeds 3.5 million kW. The development of hydropower of the republic is both a strategic and a promising task facing the country's leadership.
One of the fastest growing and promising economic sectors in Abkhazia is tourism. Due to a number of competitive advantages (climate, nature, historical and architectural moments etc.), Abkhazian tourism has a solid place in the tourist markets attracting more than 1.5 million people to Abkhazia annually. According to the Ministry of the Economy of Abkhazia, the tourism industry accounts for up to a third of all tax revenues in the budget.
Educational tourism is one of the most sought after types of tourism in Abkhazia. On average, it accounts for more than 60% of the total tourist flow. Along with educational tourism, recreational tourism also develops successfully.
The majority of the tourists who come for the purpose of rest or medical treatment stay in the Gagra District, since more than 70% of the operational sanatorium and resort facilities are located in Gagra and Pitsunda. It should also be noted that New Athos and Gudauta are also becoming popular with tourists. In recent years, the tourist industry in these towns is characterised by rapid development.
Despite the relatively positive dynamics of the development of tourism in Abkhazia, due to a number of circumstances, the potential of the republic’s tourist sector is used only to a small degree. One of the most essential of the abovementioned competitive advantages of Abkhazia is the ecological cleanliness of the republic. Tourists are attracted by the humid warm climate, subtropical plant species and clear sea. There are many tourist centres, hotels, holiday homes and boarding houses located in the seaside area in Abkhazia. Most of them were built in Soviet times, and the history of some of them dates back to the period of Tsarist Russia.
In 2017, the total volume of resort and sightseeing services in Abkhazia amounted to 1,908.6 million rubles. Alone in 2017 more than 709 thousand people have visited the republican unitary enterprise “The New Athos Cave” and the Ritsa relic national park.
Abkhazia is a traditionally agrarian republic. Before the Patriotic War of the People of Abkhazia of 1992-1993, agriculture was focused on the use of the unique climatic conditions of Abkhazia to meet the needs of the USSR. Therefore, subtropical crops predominated, such as citrus fruit (tangerines, oranges), tea, tobacco, walnut, hazelnut, tung trees, etc. Corn, grapes and vegetables were also grown. After the war, due to the economic sanctions that were imposed on Abkhazia, foreign trade has stopped, and agriculture has become the means of survival. Herds of cattle and small ruminants have thinned out.
At present, the area of the Abkhazian land used by land users engaged in agricultural production is 397.3 thousand hectares. Among the main directions of development of modern agriculture are fishing (anchovy, horse mackerel) and crop production (citrus fruit, feijoa, persimmon – 7.2 thousand hectares; vineyards – 2.6 thousand hectares; hazelnut, etc.). Most of the agricultural products are exported to the Russian Federation and Turkey.
Trade occupies the first place in terms of GDP (in 2017), it accounts for over 25% of the total value added. In 2017, the total volume of wholesale in the Republic of Abkhazia amounted to 11,784.14 million rubles and retail – 17,109.5 million rubles. The following commodity groups prevail in the trade turnover of the Republic: petrol, construction materials, bread and bakery products, meat and poultry, milk and dairy products, vegetables, wheat flour, confectionery and so on. About 5% of the total number of people employed in different sectors of the economy work in this sector.
The indicators of paid services to the population give a complete picture of the real standard of living of the population and include, in a generalised form, the results of the activities of the following services:
- domestic services;
- housing and communal services;
- passenger transport and communication services;
- services of the education system, culture, physical culture and sports;
- medical services;
- tourist and health-improving services;
- legal services.
The volume of paid services in recent years is growing rapidly over the entire Republic. According to the information of the State Statistics Office, for 12 months of 2017, the volume of paid services to the population, including the estimated sales of services provided by individual entrepreneurs, amounted to 7,077.9 million rubles.
The largest share in the structure of paid services is occupied by communication services and sanatorium and health services.
Construction is one of the most important sectors of the economy that forms the GDP of the Republic. A favourable factor of development of construction is the availability of large and diverse reserves of mineral resources, including marble, dolomite, granite, sand, brick-tiled clay and so on.
Both legal entities and individuals are employed in construction. On the whole, 230 companies are registered in the Uniform State Register of Enterprises and Organisations. This industry employs 1800 people. The majority of enterprises are non-governmental. The companies offer a variety of services, such as object design, construction, reconstruction of different types of buildings, the holding of necessary preparatory works, and finishing and roofing works. The main activity for the majority of construction companies is reconstruction. The volume of contract work performed by construction companies of Abkhazia for 2017 amounted to 2,690.6 million rubles.
All main types of transport exist in the Republic of Abkhazia. This industry is considered quite large for a small republic. More than 1.3 thousand people are employed in it.
Traditionally, automobile transport is considered the main type of transport. In 2016, it accounted for 22.3% of the total volume of the transported goods. The road network structure is axial: almost all highways of the republic are tied to the main highway running along the sea coast. The length of the republican roads is 473.8 km and of the roads of local importance — 1830.9 km.
Speaking of railway transport, the length of the railways in Abkhazia is 239 km. There is an electrified single-track coastal railway line Sochi-Sukhum-Gal with a branch Ochamchira-Tkuarchal (which is used to deliver exported coal to the port of Ochamchira). From 1992, railway traffic through Abkhazia is closed. The operation of the network is managed by the republican unitary enterprise “Abkhazian railway”.
In the times of the Soviet Union, the volume of the freight from the republic reached 12-14 million tons per year. Up to 18 pairs of passenger trains ran daily from Sukhum. All parts of the railway were electrified in the 1950-1960s.
Today, from the railway station in Sukhum, daily trains run in the direction of Sukhum-Moscow, Sukhum-Saint-Petersburg and Sukhum-Samara. Also in the summer, to make border crossing more convenient, an electric train runs between Gagra and Sochi.
There are two airports in Abkhazia. The Sukhum airport is located in 25 km from the capital. It has a runway with a length of 4 km, and it is designed to receive wide-body passenger liners and special purpose aircraft with a payload of up to 200 tons. The airport is open for weather conditions 364 days a year (the most favourable weather conditions on the territory of the former USSR). The Bambora airport is located in 40 km from Sukhum, near Gudauta. The runways are designed to receive civil aircraft and all-weather service of naval and transport aircraft. Yet, at present, passenger service through airports located in the territory of RA is not carried out.
Abkhazia has three seaports, including the Ochamchira port which was built for military purposes. The main seaport of Abkhazia is in Sukhum. Before the blockade connected with the Patriotic War of the People of Abkhazia of 1992-1993, cargo and passengers were transported from this port (the port’s cargo turnover reached 290,000 tons per year).
The seaports of Abkhazia are owned by the state. They are managed by the state company “Abkhazian shipping company”.
The financial sector
According to Article 140 of the Civil Code of the Republic of Abkhazia, the Russian ruble is the official currency of the Republic of Abkhazia.
Since Abkhazia is one of the states that have refused to have their own currency, the main source of accumulation of the country’s money supply is the balance of payment surplus.
The Republic of Abkhazia develops and implements a uniform state monetary policy in cooperation with the Cabinet of Ministers of the Republic of Abkhazia and the National Bank of the Republic of Abkhazia. The National Bank of the Republic of Abkhazia is a supervisory authority for banks and other credit institutions that are licensed by the National Bank of Abkhazia. The legal status and functions of the National Bank of Abkhazia are outlined in the Law of the Republic of Abkhazia “On the National Bank of the Republic of Abkhazia (Bank of Abkhazia)”.
The main indicators of the Bank of Abkhazia, which characterise monetary relations:
• refinancing rate of the Bank of Abkhazia – 12%;
• the interest rate on refinancing loans of the Bank of Abkhazia (taking into account the margin of 6 points to the annual rate) – 18%;
• the weighted average interest rate on interbank loans provided in rubles of the Russian Federation – 22%.
As of the start of 2018, the banking system of the Republic of Abkhazia is represented by the National Bank of the Republic of Abkhazia and 10 operating credit institutions (including 9 commercial banks and 1 settlement non-bank credit institution).
In recent years, according to the new political course, the banking system of the republic became actively involved in the process of economic recovery. It has become more socially oriented. Alone in 2015, the National Bank of the Republic of Abkhazia has developed several specialised tools to support individual segments of the economy.
1. Thus, for example, the Bank of Abkhazia together with the Ministry of Economy of the Republic of Abkhazia has developed a support mechanism for small businesses (SMEs). It envisaged the possibility of attracting the funds of the National Bank secured by the rights of claim on loans which were provided to the SMEs that have been selected in accordance with the Regulation of the National Bank of Abkhazia “On the order of providing loans to small businesses”. The ultimate beneficiaries of the loan were individual entrepreneurs and legal entities engaged in the priority sectors for the development of the RA economy – agriculture, tourism, industry, construction, etc. For SMEs engaged in agricultural activities, the interest rate was set at 6% per annum, and for those employed in other industries – at 12% per annum.
2. Along with the implementation of the program for the payment of pensions and social benefits through electronic means of payments, as well as the introduction of “payroll projects” by credit institutions in budgetary and commercial organisations of the republic, in October 2015, the National Bank of Abkhazia developed a specialised credit institutions refinancing loan for subsequent lending to individuals persons who receive wages, pensions and other types of payments through APRA cards.
3. In December 2015, the National Bank of Abkhazia has started the implementation of the target credit program for trade organisations. The ultimate beneficiaries of loans under this program are individual entrepreneurs and legal entities engaged in the retail or wholesale trade. The interest rate for trade organisations does not exceed 18% per year.
Speaking of foreign economic activity of the credit institutions of Abkhazia, due to the absence of wide recognition of the sovereignty of the Republic of Abkhazia, they work through the correspondent accounts in the banks of the Russian Federation. Accordingly, the conversion and further transfer to accounts in other countries are carried out on the above-mentioned accounts, upon prior request. On average, this procedure takes no more than one banking day.
In 2018, an Agreement on the integration of the national payment systems MIR and APRA has been signed. The integration of payment infrastructures is one of the priorities for the banking system of the Republic of Abkhazia. On the one hand, it will enable the citizens of the Republic of Abkhazia to use APRA cards on the territory of the Russian Federation, and on the other hand, to accept Mir cards on the territory of the Republic of Abkhazia. Intersystem integration will help to expand the geography of the acceptance of the cards issued by the member banks of the national payment system APRA. It will also become another link in creating a single payment space to ensure mutual acceptance of cards by various national payment systems.
Communications is one of the fastest growing industries in the RA. After the recognition of the Republic of Abkhazia by the Russian Federation (RF), the RA and RF have signed a Memorandum of cooperation in the field of communications. According to it, Abkhazia has received the territorial telephone code of the seventh world numbering zone in which Russia is located. Now for the fixed-line operator, the geographic code ABC - 840 is defined, for cellular operators the code DeF – 940 is to be used.
At the beginning of 2017, there were 63 communication enterprises in Abkhazia, including their divisions. The total revenue from the sale of products of this industry in the designated year amounted to 2,684.2 million rubles.
The following types of communication exist in Abkhazia:
1. Telephone communication (available in all district centres)
- digital telephony
- analog telephony
2. Cellular communication (available in 96% of the republic’s territory)
- AQUAFON GSM
3. Broadband Internet (available in all regional centres)
International economic activity
According to the data of the State customs committee of the Republic of Abkhazia, the volume of foreign trade of the Republic of Abkhazia for 2017 amounts to 21 billion 444.1 million rubles, which is 3 billion 111.3 million rubles less than in 2016 (declined by 13%).
export - 3 billion 594.0 million rubles, in 2016 – 5 billion 468.0 million rubles (recession rate - 34%);
import - 17 billion 850.1 million rubles, in 2016 - 19 billion 87.4 million rubles (recession rate - 7%).
In general, the positive dynamics of the growth of foreign trade turnover can be explained, first of all, by the positive changes in the economy of the republic. The solvency of the population constantly grows, and the level of consumption grows accordingly, and there is an increase in the number of tourists, etc.
The biggest foreign partner of Abkhazia is the Russian Federation whose share is more than 60% of the total turnover. Next is Turkey, Ukraine, China, Brazil, the Baltic countries, etc.
The most significant categories in the import structure are food, building materials, mineral products, equipment, household appliances and other goods. The list of products exported from Abkhazia, which mainly reaches the markets of the Russian Federation and Turkey, is traditionally dominated by products of the agro-industrial complex, mining and processing industries. Among it are such categories of goods as wine products, fish and fish products, citrus fruit, nuts, minerals, etc.
The natural resources of Abkhazia
Abkhazia is one of the richest countries in terms of natural resources. The republic has coal reserves (more than 5.3 million tons), peat, marble, granite, limestone, gabbro-diabase, chalk, tuff, barite, dolomite, lead, and various building materials. There are also small oil and gas fields on the shelf of Abkhazia. According to preliminary data, oil reserves range from 300 to 500 million tons. Most of the oil reserves are located at a distance of 10 kilometres from the coastline. There are also small gas fields.
The total area of agricultural land is 421.6 thousand hectares.
Abkhazia has one of the first places in the world in terms of water availability: there are more than 1.7 million cubic meters of streamflow per square kilometre per year. The total length of 120 rivers is more than 5 thousand kilometres. These include mostly the rapid mountain streams which offer the possibility of developing small hydropower.
The forests cover 57% of the territory (497 thousand hectares). The estimated total reserve of the forests is 114.5 million cubic meters.
Abkhazia has a huge amount of recreational resources. There are around 200 boarding houses, rest homes, sanatoriums, hotels, children’s health centres which are located in all climatic zones — from the subtropical to the alpine. In addition, there are more than 120 thermal and mineral springs.