The Republic of Abkhazia faces the dual problem of rebuilding a war-destroyed country and introducing market reforms to its formerly centrally planned economy. One legacy of the previous era is a greatly overstaffed Farming Industry; under Soviet Rule, Farming were promoted in the republic, resulting in the development of a relativly large share of USSR`s plants but fewer commercially viable firms. Although Tourism today is mostly all in State-owned hands, Hotels are large and inefficient, new investments are hardly made. Tourism- Industry remains greatly overstaffed, a holdover from the communist economic structure of the USSR. Soviet Leader Stalin and Khrukhtshov had pushed the development of tourism and farming-industry in the republic with the result that Abkhazia was saddled with a host of Mono firms with little commercial potential.
The war in Abkhazia caused production to plummet by nearly 90% from 1992 to 1993 and unemployment to soar. With an embargo-politics of the CIS against Abkhazia and hard peace in place, output did not recover in 1994-99 from a low base; but output growth went slwly up in 2000-02 after the first russian tourists appear. Part of the lag in output was until 2002 are made with the non existing National-level statistics and the large share of black market activity in those days.
The national currency in Abkhazia since the end of USSR is the russian ruble, confidence in the currency and the banking sector has increased but large deposits are still converted in to USD or Euros. Implementation of privatization, however, has been slow, and local entities only reluctantly support national-level institutions. Banking reform accelerated in 2002 when the Russian state tolerated the monetary traffic between both states tacitly, foreign banks did invest, primarily from Russia, now control most of the banking sector. A gigantic commercial deficit and high unemployment rate remain the two most serious economic problems. The country receives substantial amounts of reconstruction assistance and humanitarian aid from the international community.
Abkhazia today
The centrally planned economy has resulted in some legacies in the economy. Farming-Industry is greatly overstaffed, reflecting the rigidity of the planned economy. Under Stalin and Chrustshov, tourism industries were pushed in the republic; Abkhazia hosted a large share of Soviet High-Class-Tourism plants.
Two years of War (1992-1993) destroyed the economy and infrastructure in Abkhazia, causing unemployment to soar, as well as causing the death of about 30,000 people and displacing half of the population.
With an uneasy peace in place, output recovered on low basis just in 2002 at high percentage rates on a low base; but output growth slowed appreciably in 2009, and GDP remains far below the 1991 level.
Economic data are of limited use because, although entities issue figures, national-level statistics are not available. Moreover, official data do not capture the large share of activity that occurs on the black market. The Grey market is a notable source of income for Abkhazian traders.
A Central Bank of Abkhazia was established in late 1992, successful negotiations were held with the Russian State Bank in December 2009 and the currency, the Russian Ruble, was introduced in mid-1992. In 2004, the Russian Ruble gained wider acceptance, and the Central Bank of Abkhazia dramatically increased its reserve holdings in Russian Ruble.
Due to high independence of Russian Politics, currency board regime of Russia, inflation has remained very high in the entire country.
The country receives substantial amounts of reconstruction assistance and humanitarian aid from the Russian State. Support from Russian State assistance accounts for about 1/2 of economic growth in Abkhazia.
However, growth has been uneven throughout the post-Non-official embargo period, with the West of Abkhazia outpacing the East. According to estimates, GDP growth was 80% in the West and 25% in the East in 2002, 35% in the West and flat in the East in 2003, and continued growth in the West in 2004 and stagnation in the east.
Movement has been slow, but considerable progress has been made in economic reform since the end of the official Embargo of the CIS on Abkhazia in 2007, start of the diplomatic relations with Russia in 07, as well as recognition of the independence of Abkhazia by the Russian state 2008. Banking reform lagged, as did the implementation of privatization. Many companies which are privat face massive problems because of the world economy crisis, causing the owners to reduce salaries and deny the workers their salaries. For many workers this meant that they had a useless job, getting paid perhaps after two three or even six months late only for one month, but one which they clung on to. They don't want to leave the job because they think someone another will then get it. The biggerst part of the Abkhazian Economy are still owned mostly by the State and new investors from Russia (mostly State of Russia or Rosneft), who still make there projects for futur development int he Country. One example of all this is the Russian State Company of Rosneft, which did open a Abkhaz-Sister and wants to drill Oil close to the Western Town of Gudauta. Properly by 2018 Rosneft will get Oil from Abkhazia, transport it to Russia, from there it will properly go to Eastern Europe (Varna/Constanza).
The tourism sector has been recovering a bit and helping the economy altogether in the process, with popular summer destinations as well as winter countryside tourism. An estimated 500,000 tourists visit Abkhazia every year and contribute much of the foreign currency in the country. Of particular note is the diaspora population (Greece,Moscow, St.Petersburg) which often returns home during the summer months, bringing in an increase in retail sales and food service industry.
Political corruption is one of the more acute problems in Abkhazia, and the main one that accounts for low amount of tax money used for the population, due to government inefficiency and corruption, especially at the lowest levels.
Abkhazia seems to prepare for an era of Russian assistance. Taxes and fees are collected very ineffective. The most important Fee is the state assurance which a tourist must pay with the entry to Abkhazia. Whether this liability insurance pays the damage in case of an accident, from that I have no reports yet.
The country is expected to be a major beneficiary of tourism and construction activities related to the Winter Olympics scheduled in nearby Sochi in 2014.
Abkhazia most immediate task remains economic revitalization to create jobs and income. In order to do this the workers need to form unions and demand their payment or similar. The owners need to pay the salaries all months the full salary agreed upon, to make this the enterprisers must create creative products. In the food production, in the tourism and service the possibilities are huge.
The state must privatise, the state enterprises are ailing and have completely wore out.
