Russia Pressures Kazakhstan’s Ties With Georgia

Kazakhstan is increasingly uncomfortable within the Customs Union with Belarus and Russia due to the constant attempts by the Kremlin to politicize the structure originally intended to boost trade relations and ensure free movement of citizens, goods and capital within the union. Recently, Grigoriy Onishenko the head of the Russian sanitary and epidemiology service, urged Kazakhstan to ban the imports of wine and non-alcoholic drinks from Georgia. Clumsily trying to substantiate his statement Onishenko said Georgian wines did not conform to quality standards and the ban was necessary to ensure the proper functioning of the Customs Union.
Onishenko’s statement sparked negative comments both in Kazakhstan and Georgia. Kazakhstan’s ministry of economic development and trade declared that the issue should be discussed exclusively by way of multilateral talks. Most experts in Kazakhstan identify the political implications behind Onishenko’s demarche (KTK TV, May 6).

The Georgian media cited Amirzhan Kaliev, the Director of the KazAlko Association of Kazakakhstan’s wine traders as stating to the Tengri News information agency that the ban runs counter to Kazakhstan’s economic interests and the import of Georgian wine and mineral water does not infringe any regulations of the Customs Union. Moreover, Kazakhstan does not intend to re-export Georgian alcoholic beverages to a third country (www.apsny.ge, May 6).

Interestingly, some Russian sources hastened to suggest that Onishenko’s words were regrettably misinterpreted by the Kazakh media. But these “regrets” came at a time when Russia is contemplating gradually lifting the ban on Georgian mineral waters on Russian markets (Rossiyskaya Gazeta, May 6).

Proceeds from the wine trade form an important part of the largely oil-dependent economy of Kazakhstan. The country with moderate drinking habits rapidly shifted from strong alcoholic drinks, earlier monopolized by Russia, to lower alcoholic beverages in recent years, mainly brought in from Georgia, Kazakhstan’s second largest wine supplier after Ukraine. According to the tax committee of the Kazakh finance ministry in 2010 the national budget earned 12 billion tenge ($82.34 million) in excise duties from the wine trade, showing 35 percent growth from 2009. Already in the first quarter of 2011 the figure climbed to 3.31 billion tenge ($22.71 million) exceeding forecasts by 114.4 percent. As compared to the corresponding period last year, the trade volume had increased by 180.3 percent (www.zakonh.kz, April 14).

With a traditionally weak wine industry, Kazakhstan welcomes foreign investment to enhance the profitable wine business. Since 1997, Efes Beverages Group transnational holding and the Swedish Baltic Beverages Holding, affiliated with Carlsberg Breweries A/S and Scottish Newcastle, have dominated the beer market in Kazakhstan. Successful inroads by Western companies into wine markets in Kazakhstan concerns Russian wine producers.

But the attempt by Moscow to pressure Kazakhstan into banning imports of Georgian wine has greater political implications. Russia ceased the imports of alcoholic and soft drinks from Georgia in 2008, in the wake of the August war with Georgia. Before the military clashes between Tbilisi and Moscow, Kazakhstan was among the largest investors in the Georgian economy. Kazakhstan’s, KazMunaiGaz national energy company, took control of the gas distribution system in Tbilisi and set up the Kaztransgaz-Tbilisi joint venture with its Georgian partners. In February 2008, KazTransOil Oil Shipment Company took over the management of the Georgian Batumi seaport. Kazakhstan’s largest banking groups, BTA-Bank and Halyk Bank also opened branches in Georgia.

According to Georgian sources, the bilateral trade volume with Kazakhstan in 2010 was $139.6 million, almost three times higher than the 2009 figure. However, many of the earlier planned projects, notably the construction of a grain terminal on the Georgian Black Sea coast by Kazakhstan were stalled after the August war, outlining the fragility of bilateral relations greatly swayed by the political whim of Moscow. Consequently, KazMunaiGaz abandoned the construction of an oil refinery in Batumi, citing technical problems as an excuse.

Obviously, Kazakhstan ceding to pressure from the Kremlin, at the same time realizes the economic consequences of losing economically lucrative and politically important ground in Georgia. This double game makes Kazakhstan’s stance vague and unpredictable for Georgia. In May 2010, Kazakhstan’s State Secretary and Foreign Minister, Kanat Saudabayev, held talks with his Georgian counterpart, Grigol Vashadze, and reaffirmed Astana’s commitment to honor all the previous agreements on investment projects, including the construction of a grain terminal. Leonid Gusev, an analyst from the Moscow-based Institute of International Relations, believes that Kazakhstan can gain from cooperation with Georgia politically and economically, particularly if it decides to join the project to enlarge the Baku-Tbilisi-Kars railway line designed to link Europe and Asia (www.mgimo.ru, March 3).

But Russia’s reviving imperial ambitions in the CIS space is likely to set new obstacles for Kazakh-Georgian rapprochement. A clear signal of this was the recent session of the integration committee of the Eurasian Economic Community which discussed the possible acceptance into the Customs Union of Ukraine and Kyrgyzstan (Delovaya Nedeli, May 6).

Seeking to join the Customs Union, each of these countries pursue their own interests. Economically weak Kyrgyzstan views the Customs Union as the last straw to chase, while Ukraine hopes for cheap Russian gas. But they both risk becoming a tool in the hands of Kremlin seeking the regional isolation of Georgia.