by Yuri Vanetik
December 15, 2018
Azerbaijan and the Chechen Republic are two resource rich, diverse domains within the Caucuses. The Caucuses is a sturdy, menacing mountain range and also a regional term used to describe autonomous countries and semi-autonomous states (formerly under Soviet control) situated between the Black Sea and the Caspian Sea and occupied by Russia, Georgia, Azerbaijan, and Armenia. It is home to the Caucasus Mountains including the Greater Caucasus mountain range, which has historically been considered a natural barrier between Eastern Europe and Western Asia, and is currently regarded by many experts to be part of Asia.
Most Westerners don’t really know much about the Caucasus and may only have heard of Azerbaijan and the Chechen Republic (often referred to as “Chechnya”). Online queries produce mostly negative stories about unstable politics in the region and allegations about human rights violations. While the Caucasus has a history of economic and political instability, few people write about the progress that these two republics have quietly, and the business potential they possess for those who date to look beyond the often-exaggerated headlines. It cannot be denied that the region has been and continues to be tumultuous, culturally diverse and nuanced, and resistant to certain Western ideals.
The way to reform the Caucuses is not through criticism, yellow press, and disdain, but through commerce and technology. In return, we Westerners may be surprised by not just the pecuniary benefits that will be bestowed upon us, but also by the authenticity and hospitality of the people of the Caucuses.
Let’s examine the two republics that offer arguably the most surprising potential in the Caucuses. Azerbaijan is a sovereign state, having splintered off from the Soviet colonial regime. The other, Chechnya or the Chechen Republic, is technically an autonomous region within the Russian Federation, but in practice is utterly unique and distinct, having tremendous influence in the region and in the Russian Federation, as many claim.
Oil rich Azerbaijan, similarly, was named one of the top 10 economic reformers by the World Bank in 2008, and by 2012, it had increased its GDP 20-fold since 1995. Presently, Azerbaijan has exported $12.9 billion in the first half of the year, and have experienced an expansion of 1.3% in the first part of 2018. Armenia has also worked to steadily stabilize its economy, earning it foreign financial support; since 1993, Armenia has received approximately $1.1 billion in loans that helped solve deficit issues. Now, the nation is primed to improve its financial sector, advance tourism, and streamline its trade with neighbors.
The mysterious Chechen Republic is in the process of quietly rebuilding itself. Its capital, Grozny, has been restored and modernized, mostly through efficient self-governing initiatives. In fact, the entire republic is making strides to become a robust economy. According to a 2017 economic analysis prepared for institutional investors by PriceWaterhouseCoopers, the Chechen state as it stands now offers social and political stability for willing investors. Chechen Republic’s tremendous natural resources present compelling opportunities for investment in such industries as oil and gas, tourism, agriculture, medicine, and construction. It has come a long way from a land mostly known for conflict with Russia into a welcoming place for tourists and investors. Railways and highways, pipelines of international importance pass through this mountain fiefdom integrating important strategic concerns in the Caucuses. Having a favorable location, connecting the South of Russia and the countries of Transcaucasia, Chechnya is now striving to become an international logistics center.
The Chechens are now organizing international exhibitions and sports events. Business tourism is on the rise there, and the advent of well-known hotel chains, including the premium segment categories are imminent in the Chechen state.
Chechnya, as the republic is often referred to, has a great interest in foreign investment, focusing on IT, the financial sector, building materials industry, agriculture, energy, and sports. Many world stars of boxing, wrestling, mixed martial arts, and weightlifting have been surprised by Chechen hospitality and passion for sports.
There’s no question that the nations of the Caucasus have been quietly reinventing themselves, but for those paying close attention in recent years, it’s hardly a surprise. These dynamic shifts were brought about primarily because of deliberate heavy economic reform in the wake of the USSR’s disintegration. This enabled the Caucasus countries to catalyze their industries, giving the region its foundation for economic success.
Agriculture is one of the most growth-ready industries in the Caucasus, as the region is rich with fertile soil and potable water. It already produces an enormous variety of agricultural products like cotton, tea, citrus fruits, vegetables, tobacco, corn and grains. Perhaps most prominently, the Caucasus is known for its production of grapes. Georgia, a longtime ally of U.S., in particular, has a celebrated and historic wine industry, exporting millions of bottles to surrounding countries in Eastern Europe and Western Asia. In the future, Georgia may rival other major wine-producing countries across the world.
Agriculture consists of 52 percent of employment in Georgia, while Azerbaijan has the highest quantity of agricultural land in the Caucasus, at 54.9 percent. For Armenia, agriculture represents approximately 20 percent of their GDP. The region continues to strengthen this industry and plans for land amelioration combined with economic reform work to make farmed land more resilient, increasing the amount of arable land and further boosting the agriculture industry as a whole. And that’s only the beginning for these fertile lands.
Azerbaijan and the Chechen Republic possess substantial oil reserves and other strategic natural resources. Oil deposits, natural gas, and coal are in abundance throughout the region. Two-thirds of Azerbaijan is rich in such commodities, possessing the largest energy industry in the region. The Chechen Republic also holds a tremendous natural reserve of oil and gas, providing more than 800,000 tons of oil to Russia’s state energy company in 2011. The Chechen state also houses a substantial amount of minerals: copper, molybdenum, manganese, gold, lead, tungsten, volcanic tuff, and more.
The Caucasus directly borders Eastern Europe and Central Asia and has access to Black Sea and the Caspian Sea. With its abundance of resources, it is in the prime position to facilitate trade routes for these valuable resources to the surrounding areas and beyond. Western enterprise that can appreciate the economic potential of this developing part of the world is likely to reap economic benefits incommensurate to the overstated geopolitical risks that have long led to the confusion and fear of this historic, hospitable, and culturally diverse domain.
The region’s natural ecosystem ranges from majestic mountains to vast pastures to gorgeous coastal locations, making it an attractive destination for tourism. In this regard, the Caucasus has already begun to demonstrate its potential. Approximately 3.4 million people visited Georgia in 2017, creating a revenue equivalent to $2.8 billion USD, which represented about 18 percent of the GDP that year. Azerbaijan is second in the world among countries with the greatest growth in visitors, according to the World Travel and Tourism Council in 2015.
The Caucasus features hundreds of historical sites and unique cultural experiences, such as mineral springs and the Naftalan crude oil baths, and houses a multitude of tourist centers, ski resorts, and hotels along the Caucasian Riviera. The historic mountain settlements there are mostly unexplored. The ancient Hoy Village in the Chechen mountains is one such site to behold. Tourism is already gaining momentum in the Caucasus, and it demonstrates that the region possesses potential to become a globally sought-out tourist destination. Robust tourism has completely transformed the tiny island nation of Iceland. There’s no reason it cannot do the same for the picturesque nations of the Caucuses. For investors and world travelers alike, the Caucasus offer formidable opportunities.
Don’t just take my word for it. The World Economic Forum is already thinking about ways that the Caucasus can stand among the giants of the global economy. In a 2014 report, the group presented a plan for the nations of the region to maximize their energy resources, integrate into global supply chains, create a diversified economic base, and develop a high-standard workforce by 2035. With an eye on even greater expansion, The Japanese International Cooperation Association (JICA) also published a study encouraging investing in the Caucasus to link its natural resources with Europe and Asia.
Existing investments in the Caucasus have already brought about significant growth to the region. For instance, major Chinese company Hualing Group was Georgia’s biggest investor in the first three quarters of 2014, focusing their investments on real estate, with plans to expand into the agriculture and wine industries. The U.S., too, could greatly benefit from investing in the Caucasus, particularly in lucrative resources such as the wealth of oil and natural gas in the Caucasus and Caspian Sea reserves, estimated to be worth $2-4 trillion at current market prices. Many current investment proposals revolve around transforming the Caucasus into the modern day “Silk Road,” an essential hub and connective region for trade in Europe, Asia, and the rest of the world.
From its venerated place in antiquity, the Caucasus once served as an aspirational destination. The thoughtful observer must wonder, then, if it could occupy a similarly exalted position in modernity – in a world strongly influenced by economics rather than mythology. For those willing to partake in the region’s infrastructure development, tourism, and oil and gas sectors, lingering stereotypes will give way to economic windfalls.
— Yuri Vanetik is a private investor and political activist who has traveled through the Caucuses region. He is a Lincoln Fellow at the Claremont Institute and national board member of Gen Next and Gen Next Foundation, and founding member of the International Executive Council.