Azerbaijan, Baku, August 14 / Trend /
Russia's decision to lift its trade embargo on Georgian wine, mineral water, and other agricultural products will have a limited effect on the latter's creditworthiness, a report by Standard & Poor's Ratings Services titled "How The Lifting Of The Russian Trade Embargo Will Benefit Georgia" said.
According to the report, although the lifting of the embargo should be a net positive for Georgia's external accounts, S&P believes it will be insufficient to significantly improve the country's high external vulnerabilities, which stem from its large gross external financing needs and net external debtor position.
"We do not expect these developments to have a tangible bearing on Georgia's creditworthiness in the near term," Standard & Poor's credit analyst Ana Jelenkovic said. "But they could lead to improvements in key economic and external indicators over the medium to longer term."
According to Jelenkovic, he 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 strengthening of relations between Georgia and Russia," she said.
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 percent of Georgia's total exports in 2005, now accounts for more than 20 percent, while the U.S. now accounts for 10 percent of Georgia's total exports, up from 3 percent 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, the report said. 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 percent of the total in 2005, to nearly 50 percent 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 percent in nominal terms and 180 percent in volume terms. Ukraine, for instance, now accounts for more than 40 percent of Georgia's wine exports, while China accounts for 10 percent, the report said.