Abkhazia’s airport and bakeries: Why profitability remains elusive

Abkhazia’s airport and bakeries: Why profitability remains elusive

Sukhum – Abkhazia’s economy is transitioning toward a market-based model, yet success has been limited and the economy largely retains government control. The government continues to attempt investment stimulation, a strategy that has proven ineffective. These assessments highlight systemic, rather than isolated, economic challenges, discussed in a significant parliamentary debate involving MPs, the economy minister, and academic and business representatives.

The model’s effectiveness is questioned, with authorities supporting business while many projects fail to meet expectations. A lack of accountability for unsuccessful decisions further complicates the situation. Economy Minister Teimuraz Mikvabia acknowledged that past mistakes, stemming from insufficient oversight, contributed significantly to the problems.

“Functions related to oversight were not assigned to state bodies, and government agencies did not take part in the selection process,” he stated. To prevent recurrence and ensure profitable projects receiving budget support, the Ministry of Economy is increasing its involvement in project selection. A new procedure for preferential loan eligibility has been established, with the Ministry maintaining constant interaction with creditors and borrowers, including requesting financial information and tracking loan servicing.

This represents a shift toward a more managed economic model, though questions remain about its ability to offset accumulated losses. Particular attention was given to state-owned enterprises. The example of bakeries illustrated low competitiveness, compounded by administrative factors—contracts awarded based on official recommendations led to reduced output.

While profitable enterprises like Abkhazian Railways and the state shipping company exist, a substantial portion of the state sector remains loss-making. One MP suggested disposing of unprofitable investments. The government, however, favors a cautious approach to protect assets.

The Sukhum airport, a large-scale Russian investment, remains a key indicator. Despite significant investment, low passenger traffic and high ticket prices limit demand, prompting concerns about affordability and airport efficiency. The airport has been exempted from VAT, but this has not yet translated into increased flights.

Legislation and formal requirements also present obstacles, with businesses failing to meet registration standards. Balancing domestic and foreign capital, and ensuring national interests alongside investment, remains a critical challenge. The situation is described as “doomed to poverty” by one observer.

Topics: #abkhazia #remains #airport