Caucasus countries Georgia and Armenia, whose economies unexpectedly boomed in the wake of the war in Ukraine, are now facing the prospect of Western retaliation following a spike in trade with Russia.
The two former Soviet states near Russia’s southern border surged to double-digit growth last year as an uptick in Russian workers, wealth and trade supercharged their wider post-COVID-19 recoveries.
Georgia’s economy grew 10.1 per cent in 2022, while Armenia’s jumped 12.6 per cent, according to International Monetary Fund data.
In 2023, their growth is set to slow to around 4 per cent and 5.5 per cent, respectively, reflecting a general moderation across the wider Caucasus and Central Asia region, the U.N. agency said.
Still, analysts say the fundamental growth drivers “haven’t disappeared,” and could put those countries under the international spotlight.
“The reason we haven’t decelerated as much as we could have is that we took advantage of Russia being sidelined by the rest of the world,” Mikheil Kukava, head of economic and social policy at Georgian think tank the Institute for Development of Freedom of Information, said.
‘Intermediated’ trade with Russia
Western leaders have raised alarm bells this year that certain traders are using countries such as Armenia, Georgia, Kazakhstan and Turkey to evade sanctions on Russia.
In its latest economic outlook, the European Bank for Reconstruction and Development noted that such countries were becoming so-called intermediated trade partners for the isolated state.
“Exports from the European Union, United Kingdom and United States to Central Asia and the Caucasus [have] increased dramatically, hinting at the rise of ‘intermediated trade,’ whereby goods are being exported to Central Asian economies and are then sold onwards to Russia,” the EBRD said.
This year, Russia has emerged as Georgia’s second-largest trading partner by imports and its third-largest trading partner by exports, according to preliminary data from Georgia’s National Statistics Office, Geostat.
Through 2022, Russian imports into the country rose 79 per cent, while exports to Russia were up 7 per cent.
Meantime, Russia is Armenia’s largest trading partner in terms of both imports and exports. Kyrgyzstan, Tajikistan and Azerbaijan, as well as other countries in the region, have also recorded a surge in trade with Russia over the past year, IMF data shows.
“Changing trade patterns in the region are an opportunity, but also a risk,” Subir Lall, the IMF’s deputy director of the Middle East and Central Asia, said during a briefing earlier this month.
Spokespersons for the Georgian and Armenian governments did not immediately respond to requests for comment on the uptick, nor did they provide a breakdown of the specific goods traded with Russia.