Exporters of Georgian goods to Russia, who had to seek new markets in Asia during a near four-year closure of the country’s border with their northern neighbor, are looking to a sales boost from the scheduled reopening of border crossings this month.
Despite lingering tensions between the two countries, Russia is due to allow imports of Georgian goods for the first time since 2006, when it was Georgia’s number one trading partner. It had cited impurities and health risks when it closed the border and initiated an embargo of Georgia’s main exports, wine and mineral water. The Georgian economy was flattened and companies exporting to Russia have yet to fully recover, a process further
delayed by the brief war between the two countries in August 2008, which caused an estimated US$1 billion in damage.
Today, although Georgians remain highly suspicious of their huge northern neighbor, Vladimir Papava, senior fellow at the Georgian Foundation for Strategic and International Studies, said the benefits of reinitiating trade with Russia cannot be ignored.
“The Russian market is so huge, it’s really impossible for Georgian wine producers to replace the Russian market with other countries,” he said. “So, if the Russian market will be open for Georgian goods, it’s perfect for our business, for our economy.”
The 2006 ban was particularly hard on Georgia’s wine companies. In the second quarter of 2005, Georgia exported 10.6 million liters of wine compared with fewer than 2 million liters during the same period in 2009, according to the Georgian Ministry of Economic Development.
Although Georgian wine has been historically treasured in Russia, wine consumers elsewhere have had little exposure to it, even in Western markets.
Russian President Dmitry Medvedev in December said he saw “no obstacles” to reopening the Russian-Georgian border and resuming direct flights between the two countries. He also said products “legally” imported from Georgia “should be received and sold like other products”.
Papava, who served as Georgian minister of the economy from 1994 to 2000 and as a parliamentary deputy from 2004 to 2007, remains unconvinced of the offer because of Russia’s previous justification for the embargo.
He said the bans based on impurities and counterfeit concerns were a pretext “to punish” Georgia as relations between the Kremlin and Georgia’s pro-Western government worsened. Russia’s desire to pressure Georgia’s government has not changed, he said, as Moscow still refuses to speak directly with Georgian President Mikheil Saakashvili.
Nonetheless, if the offer is legitimate, Georgian companies that once thrived off exports to Russia said they would be interested in a return to the market.
Nitsa Cholokashvili, public relations manager for Borjomi, Georgia’s leading mineral water exporter, said the company would “definitely” be interested in returning to the Russian market despite the risk of another ban. “The Russian ban was a really good lesson for us and for all companies selling products just on one market,” she said.
When Borjomi water was banned in 2006, the company’s total sales plummeted 43% for the year. At the time of the ban, 80% of Borjomi’s products were exported, compared with 64% in 2009. Since then, the company has widened its portfolio and refocused on the domestic market with some success. Still, Cholokashvili said, Borjomi does not expect revenues to reach pre-embargo levels until 2011 or 2012.
To replace the loss of its primary market, Borjomi has expanded to new markets and now exports 10% of its production to Asian countries.
Shota Kobelia, commercial director for Teliani Valley, Georgia’s leading wine exporter, said that while he considers a reopening of the Russian market “important” for his company he also sees much potential in Asian markets.
Georgia does not produce peripheral products needed to package wine and must import bottles, corks and boxes from a variety of countries, making it difficult to compete on price in the West.
However, wine is becoming increasingly popular in Asian countries and these fast-growing markets and consumers are more open to new wine countries and brands, Kobelia said. China’s retail consumption of wine is predicted to increase 18.2% year-on-year in 2010, boosted by domestic consumption and income growth, according to a recent report by Beijing-based Renmin University.
Kobelia said Chinese officials have requested a tasting of Teliani Valley’s wines, which recently competed in Singapore’s annual Wine for Asia competition, and China is one of 30 countries were Borjomi can be found since 2008.
By Nick Clayton
Nicholas Clayton is a Tbilisi-based journalist and blogger covering the Caucasus and the world. His blog can be found at http://www.threekingsblog.com/.
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