Twenty years ago, the USSR conducted its foreign affairs under the shadow of its impressive army, formidable nuclear and conventional weapons, and a secret service that appeared to have relentless control. After the war in Georgia on 8 August, 2008, it appeared that Russia has slipped back to its old ways. The deployment of missiles to Kaliningrad can be understood in the same light. But such interpretations fall short of appreciating the significant adjustments Moscow has adopted in its methods. Starting with the former Soviet Republics, Russia signed economic cooperation agreements with all states with which it had formed relations. It constructed pipelines, became a shareholder in hydroelectric power plants, established fertilizer plants and purchased banks in these states. Russia was enabled to take these measures with the extra revenue created by the rise of the oil prices after the US occupation of Iraq.
Since 2001, Russian direct investment in Georgia has exceeded 250 million dollars. This is a significant amount for a small economy like Georgia's, which had an average total of 1.5 billion dollars exports between 2001 to 2007.
What has been interesting to watch is that Russian corporations have continued to invest in Georgia even during the Saakashvili presidency. For example, the Russian corporation Interrao owns a 75% share of Georgian Telasi energy distribution company. It also has 100% shares of Engetica and Mtkvari Energy. Interrao is a sharer (50%) of Georgian energy giant Transenergy. Interrao will operate the two of the most significant hydroelectric plants in Georgia, Hrami-1 and Hrami-2, until 2028. Another hydroelectric plant that Interrao owns is Alaverdi. RAO-ES, a sister company of Interrao, has a 50% share of Gruzrosenergo since 1996. Itera Georgia is a part of Russian Itera Company and supplies gas to 103 firms in Georgia. These investments no doubt constitute an expanded area of Russian economic leverage in Georgia.
The amount of capital that the state-run Russian Bank VTB owns in Gerogia is expansive enough to give Saakashvili nightmares. Energy Invest VTB dominates much of energy investments in Georgia; including ownership of the Gordabonskaya gas turbine power plant. It has also bought two gas turbines from American Pratt&Whitney for the power plant in Tbilisi. In total, VBT owns 90% of all fertilizer plants in Georgia. Another Russian energy giant, LUKOIL, has 50 gas stations in Georgia and controls 25% of the Georgian oil market.
On another front, VTB also maintains a significant hold on the Georgian financial system. VBT bought 53.17% shares of the Georgian state-owned bank, United Bank in March 2008, which was changed to VBT Bank Georgia. The financial volume of VTB in Georgia is nearly 40 million dollars.
Russian based corporations figure prominently in other critical sectors as well.
Russian Indistorel bought 97.25% shares of the Georgian Magneuli mining venture factory. The same Russian corporation owns 50% of Transgeorgial.
Russia also controls Georgian mobile communications infrastructure. Russian Vimpelkom has a 51% share of Georgia Mobile, which was worth 12.6 million dollars in 2006, until 2013.
When these factors are all considered, the economic implications of Saakashvili's adventure in August not only endangered his own political future, but threatened to cripple the stability of several industries that meet much of the every day requirements of the Georgian people. The same can also be said for Georgia's neighbors, other states in the region, and even Europe.
Compared to the pre-August situation, Georgians are far poorer today; have little hope as to their common future; and has been propelled to become a nation with a troubled economy struggling to stay alive. The Georgian people, whose pride was wounded and who lost much of what little they owned in one night, are now searching for viable alternative politics. Saakashvili's miscalculated and poorly timed exploit in South Ossetia has turned the tables against him and caused an upheaval in domestic politics. In the wake of these developments, the Georgian opposition has started to rally around former Head of Parliament Nino Burjanadze; and is expected to establish a new opposition party in the near future. .
That the opposition filled the streets of Tbilisi on the anniversary of the November 2007 events are an omen of the severity of the challenges awaiting Saakashvili in the coming days. A year ago, Saakashvili had the power to shut down the independent media after declaring a state of emergency following the demonstrations. Today, however, Saakashvilli's options lie far short of the kind of unrestrained authority he to claimed then. Probably aware of this, he has started to implement precautionary measures to circumvent impending demonstrations by the opposition and the likelihood of early elections in 2009. In trying to hold on to the presidency, Saakashvili is sacrificing his prized princes to the lions.
Saakashvili removed reformist Prime Minister Lado Gurgenidze, who was heralded as a promising hope to realize Georgia's economic development, from office. Gurgenidze presence at some nightclubs in a visit to Istanbul on 6 September 2008 was the formal explanation for the decision. But as the sole reason for removal, this is hardly a credible argument. Actually, Saakashvili changed four prime ministers in the relatively short period of time since he first came into office in 2004. Zurab Jivanya, who was appointed after the Rose Revolution, mysteriously died on 3 February, 2005. Giorgi Baramidze, who was the acting prime minister after Jivanya, ceded the office to Zurab Nogaydelli after only 15 days on 17 February, 2005. Nogaydelli ceded the office to Lado Gurgenidze after a period of turbulence in office on 22 November, 2007. Georgia's ambassador to Turkey Grigol Mgaloblishvili was assigned to the office after Gurgenidze on 27 October, 2008. Former Prime Minister Gurgenidze was assigned as the head of the commission to govern efforts to alleviate the economic crisis. The 37 years old former banker Gurgenidze was appointed as prime minster after a series of opposition demonstrations shook the administration, with a view to attract foreign investment and support policies for economic growth.
The August conflict substantially damaged Georgia's chances as an attractive environment for Western investors. In the eyes of many multinational energy companies and oil supplier countries like Azerbaijan and Kazakhstan, Georgia lost its reputation as a safe energy corridor that bridges east to west. Ilham Aliyev, who was re-elected as president on 15 October, has shifted Azerbaijan more closely to Moscow; Kazakhstan has suspended the construction of a planned oil refinery in Batumi.
After the Georgian war, Moscow openly declared that it wants to see Saakashvili removed from office. Russia will be watching closely the outcome of the Georgian opposition movement. If the opposition groups fall short of bringing about a change in the Tbilisi administration, Russia will intervene in the process; and not for the first time. Russian sanctions in 2006 aimed to compel Georgia from the outside; but this time Russian corporations already situated inside Georgia will try to exert pressure on the administration. Under these conditions, a premature end to Saakashvili's term is highly likely. Given the cold shoulder by the West, the Saakashvili administration could be left in the eternal dark when Russian corporations turn off the switch. Who knows, Saakashvili may opt for returning to his old job in the US rather than entering into this struggle.