Georgia: Lifting of Russian Wine Embargo to Have Limited Economic Impact?
While the recent lifting of the Russian embargo on Georgian wine was a cause for celebration -- both for Russian consumers, who had to go without their favorite bottles of Saperavi for some seven years, and for Georgian winemakers, who had to make due after losing access to a large market with a less-than-discerning wine palette -- questions are being about just how much of an impact this development will have on the Georgian economy.
From a report in the Financial, a Georgian economic news website:
"We do not expect these developments to have a tangible bearing on Georgia's creditworthiness in the near term," said Standard & Poor's credit analyst Ana Jelenkovic. "But they could lead to improvements in key economic and external indicators over the medium to longer term."
"The lifting of Russia's trade embargo on Georgian agricultural goods, including wine and mineral water, marks an important improvement in relations between the two countries. In our view, however, the direct economic effect--the potential recovery in net exports of wine and mineral water to Russia--is unlikely to be significant relative to the weakness of Georgia's external accounts. Eventually, though, we believe accelerated investment inflows and a higher number of Russian tourists could arise through the Lifting Of Russian Trade Embargo Will Have Limited Effect On Georgia's Credit Profile, Says Report strengthening of relations between Georgia and Russia." As the report points out, the Georgian government actively sought to diversify exports away from Russia when the trading ban was first imposed in 2006 in order to reduce the country's dependence on its large neighbor. The government supported exporters in targeting other neighboring countries as well as niche markets in the U.S., Canada, and Europe. For example, Azerbaijan, which accounted for 10% of Georgia's total exports in 2005, now accounts for more than 20%, while the U.S. now accounts for 10% of Georgia's total exports, up from 3% in 2005.
Efforts to diversify away from Russia are most evident in wine and mineral water, which suffered the largest loss of market share through the embargo. It took Georgia until 2010 to reach pre-embargo export levels of mineral water, but there is still some way to go to reach the pre-embargo level of wine exports. In 2012, Ukraine , Kazakhstan, Lithuania, Belarus, and Azerbaijan accounted for the bulk of mineral water exports. Exports of mineral water to Ukraine increased from 15% of the total in 2005, to nearly 50% in 2012.
In terms of wine exports, Georgia has significantly diversified its markets since 2006. Exports to neighboring countries such as Ukraine , Kazakhstan, Belarus, and Azerbaijan have leapt by 270% in nominal terms and 180% in volume terms. Ukraine , for instance, now accounts for more than 40% of Georgia's wine exports, while China accounts for 10%.
The full article can be found here.
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