Azerbaijan, Georgia and Armenia, the nations that make up the region of the Caucasus, are all working hard to improve their business and economic climates, but with varying degrees of success.

While the southern states in the Caucasus—Azerbaijan, Georgia and Armenia—are forever bound by geography, they are, at the present, moving in distinctly different directions. Azerbaijan is by far the wealthiest of the three, but the oil-rich nation has been hit hard by the sharp fall in the price of crude. Last year domestic production grew by 2.8%. That was less than half the GDP growth in 2013.

In a bid to prime the economic pump, president Ilham Aliyev has been championing new pipelines for exporting oil and gas from the Caspian Sea to Turkey and then on to Europe—the so-called Southern Gas Corridor. He’s also backing projects that could turn the region into a trade corridor. Indeed, The Baku-Tbilisi-Kars railway, linking the Caspian basin to the Black Sea, is expected to get the go-ahead this year.

Such transport networks will likely provide substantial economic benefits to Georgia. The country lacks its eastern neighbor’s hydrocarbon reserves, but its business output has been on the upswing over the past few years. In 2014, Georgia’s GDP grew by a solid 4.7%.

“One of the country’s key strengths is its successful diversification of the economy,” says Giorgi Shagidze, CFO of Georgia’s second-largest bank, TBC Bank, which last year listed its shares in London. No single sector dominates the business landscape in Georgia. That’s in stark contrast to its oil-exporting neighbors. Moreover, Georgia has a wide range of main trading partners. The European Union tops the list. Those links should be further strengthened by the recent signing of a Deep and Comprehensive Free Trade Agreement as part of a broader EU Association Agreement.

Azerbaijan, however, remains Georgia’s most important single export market, accounting for some 14.2% of total exports in the first two months of this year. Turkey, Georgia’s southwestern neighbor, is the top importer, with nearly 18% share of the import market. An added bonus: Shagidze notes that Georgia’s exposure to Russia and Ukraine, representing 4.8% and 3.0% of total exports, respectively, is well below the region’s average.

Top Trading Partners


Top Export Partners

Russia 22.6%

Bulgaria 10.3%

Belgium 8.9%


Top Export Partners

Italy 25.6%

Indonesia 11.1%

Thailand 7.4%


Top Export Partners

Azerbaijan 24.3%

Armenia 9%

Turkey 7%

CIA World Factbook
(2014 estimate)


Admittedly, the slowdown across the region will slow GDP growth in Georgia, with officials projecting a modest 2.5% jump this year. Shagidze believes those forecasts are about right. “Much of this [growth] will come from infrastructure spend and strong FDI,” he says. Last year TBC hiked its lending by 25%.

The hopped-up investment has been fueled, at least in part, by Georgia’s commitment to reshaping the business climate in the country. The nation repeatedly finishes near the top of global league tables that rank countries based on the successful implementation of commercial reforms.

Where Georgia has embraced much-needed internal reforms—and moved closer to the EU—Armenia’s efforts to improve the country’s business environment and diversify the economy have fallen flat.

The nation’s close ties to Russia also pose a problem. Case in point: Armenia is a member of the Eurasian Customs Union, led by Russia. What’s more, during the boom years for Russian commodities, remittances from Armenians working in the Russian Federation accounted for more than 17% of total GDP. That dependence makes Armenia vulnerable to a further decline in the Russian economy.

How vulnerable? Data from the Central Bank of Armenia show that private money transfers from Russia accounted for nearly 83% of all remittances in the country. Last year, however, the inflows from Russia dropped by close to 11%, which put a sizable dent in Armenia’s production. Forecasters have already shaved GDP predictions down to a 1.6% growth rate. Inflation is high—close to 5%—and rising.


Although Armenia depends on trade with Russia and Azerbaijan depends on oil revenues, the two share a common bond: Neither seems all that interested in embracing internal reforms and moving its economy into the 20th century—let alone the current one.

In Armenia, farming and associated activities account for a fifth of GDP, around 30% of exports, and more than a third of all available jobs. But lack of government and private investment has retarded almost all attempts to make farming more efficient. Azerbaijan does provide subsidized loans to its farmers, and this should help in boosting agricultural output by around 4% this year. But little of the income generated from energy projects goes beyond Baku, leaving farmers stuck in neutral.

Georgia, on the other hand, has been more aggressive in getting private-sector companies to invest in agriculture. TBC recently merged with Constanta, a specialist in microfinance for farmers and agribusinesses. According to Shagidze, the move “will strengthen our ability to finance micro customers.” He also notes that the bank assists farmers in nonfinancial ways—in particular, by helping educate them on the full implications of business decisions.

It’s a far different approach than state-funded subsidies. But it could bear fruit in the long run.