President Bagapsh on Security

Abkhazia's President Bagapsh recently spoke about the country's security.  He was quoted in the Voice of Russia as saying that people in Abkhazia " believe that war is a thing of the past."  This is a subject I am familiar with from many trips to and much time in Abkhazia.  I encounter a lot of people there in all walks of life, everyone from taxi drivers to government leaders, from guest house owners to friends and the near universal sentiment is that Abkhazia will not again fall under Georgian domination and that the wars are over.  The ease in tensions is something I have picked up upon and is one of the reasons I am confident about Abkhazia's economic prospects.

Another question that I usually ask is about the Russian Army base in Gudauta.  I personally believe that it is a stabilizing factor in the region and has contributed to the feeling of security in Abkhazia.  Tourists confirm this to me.  Earlier this month, an Abkhaz with a lot of personal connections told me that "no one, not one person is against the Russian military presence."  Unanimous opinion is rare, but at least those who live from Sukhum to the border appear to be solidly behind the policy.  

Summer in Abkhazia

I travelled to Abkhazia from Russia twice in August.  Usually when I arrive in Abkhazia, I use the pedestrian border crossing.   On the first of the two trips, I crossed mid-morning on a Monday.  There was a striking difference from my first travels there 4 years ago.  This time there were hundreds of people in line.  Most had come a great distance in Russia for their summer holidays on the beach in Abkhazia. 

 The vehicle crossing was even busier;  there was a line of buses over a mile long from cities like Stavropol and Krassnodar.  

At the border and the train station there were dozens of people offering rooms for rent in the modest guest homes that have sprung up in Gagra, Alahadze, Pitdunda and other towns.  In Abkhazia, there are no credit card clearing systems and hospitality has no real web presence.   So, tourists use a travel agency to find a room or book it themselves on arrival.  The system clearly has its flaws; I had reserved a room in Gagra on a previous trip, but the owner had sold it to someone else who showed up with cash because there was no way for me to financially reserve the room.  

Four years ago, there were only a fraction of the guest houses that are available now.  Everywhere, I saw signs of expansion.  Homes were being converted or expanded to meet the crush of tourists.  however, it seems clear to me that this is only an intermediate step on the way to real development of hospitality in Ablkhazia.  When compared with Antalya, Turkey, for instance, Abkhazia has many advantages to Russian tourists.  It is a much more beautiful environment, everyone speaks Russian and it is closer to home.  Russia's President Medvedev made a trip to Abkhazia between my visits and mentioned the same issue.  When 3,4 and 5 star resorts are built in Abkhazia, there will be escalation of Abkhazia's recent rapid growth in tourism.

Abkhazia Development

The Republic of Abkhazia sits just a short distance from Sochi, Russia.  In fact, many of the event venues and the airport (at Adler) that services Sochi are only several kilometers from the border with Abkhazia.  So, with Russia's commitment of billions to the 2014 Winter Olympiad that will be held in Sochi and the nearby mountains, there is a tremendous amount of development occurring on Abkhazia's doorstep.  

When traveling from Sochi to Abkhazia, there is a very noticeable change from Russia.  The Russian side of the border is overwhelmed with construction and traffic,  There is only one main north-south arterial in the largest and most important Russian Black Sea resort city.

Abkhazia has far fewer people than Sochi, but has a spectacular coastal road that follows the sea down to Gagra.  It is reminiscent of a sub-tropical Big Sur, California. 

 Abkhazia does not have the hotels and resorts that have sprung up on Russia's coastline.  Due to isolation from the international community, Abkhazia has very few quality rooms.  But with the security guarantee from the Russian government, Russian, Ukrainian and other tourists feel safe to return to what many view as the ultimate vacation spot.  In 2009, tourism in Abkhazia rose more than 100%.  I don't think too many places in the world experienced that kind of growth.  

Abkhazia has an estimated $10 billion in investment needs.  There was very little done in the late Soviet period and through the 1990's the country was isolated, despite its tremendous physical beauty and warm climate. Now all of that has changed and the government has a number of projects that they are seeking investment for.  Since most tourists stay in modest guest homes near the beach, there is an obvious need for quality hotels to accommodate the millions of tourists flooding across the border.  The port in Sukhum needs to be redeveloped, there are partially finished apartment buildings and with mountains to 14,000 feet there are locations for ski resorts, also.  Much of Abkhazia's infrastructure needs to be rebuilt.   There are no real shopping centers there for the locals or the tourists.  A Russian firm has rebuilt the rail line and it is currently being used to transport gravel to Russia for construction purposes. Limited passenger rail service from Russia just started this summer.  The government hopes that flights from Russia will begin this year and a firm is already revamping the passenger air terminal at the airport in Sukhum.  Until this summer, tourists came by train or airplane to Sochi (both the station and the airport are located very close to the border) or took cars and buses to Abkhazia from all over Russia.  Many people will travel by train for 3 or 4 days from all over Russia to enjoy the beaches and spectacular mountain scenery.  But with expanded transportation links, more visitors will come  particularly from the colder northern and Siberian cities.

The Rodina Hotel in Sochi has summer rates from about $1,200 to $5,000 per night.  This is just a few miles away from the most spectacular coast on the entire Black Sea- Abkhazia.  It is only a matter of time until there are competitive properties in Abkhazia.  Commercial property in central Sochi costs at least $3 -$$ million per acre.  And luxury apartments may run $1million for a 1,000 square feet.  Abkhazia is far less costly and has a much greater upside.

Meeting with Prime Minister Shamba

I met with Prime Minister Sergei Shamba in his office in Sukhum, May 28, 2010.  We spoke about Abkhazia's developing economy.  There are plans for airline flights from Russia into Abkhazia and passenger rail service should begin this summer.  Abkhazia is poised for a flood of tourists that will continue to grow for the foreseeable future.  There is a much pent up demand from Russia, especially, as well as Ukraine and the Baltic states.  A problem is the lack of infrastructure and accommodation for tourists due to damage in 1992-93 and the lack ond investment since then. The Republic of Abkhazia has a number of state-owned projects (including seaside resorts) that could be developed, but they lack the investment capital.  Another issue is the dearth of knowledge about Abkhazia in investing circles.  The Prime Minister is aware of my history working in American capital markets and in property ownership in Russia.  I told him that a real impediment to attracting outside investors was the lack of specific information on projects.  I said that I thought that a firm based in Sukhum that had could research projects, utilize 3rd party reports, negotiate terms with the government and write deal proposals in business English would be necessary to attract outside institutional capital.  I also told him that I would like to open the firm and to put summaries of specific projects along with photos, videos and maps on a website devoted to development and investment opportunities in Abkhazia.  The Prime Minister thanked me for my interest in Abkhazia's future and invited me to open a firm in order to bridge the gap between Abkhazia and the capital it needs.

Abkhazia late May- early June 2010

I took the late train from Krasnodar to Adler on May 26th and arrived early the next morning.  Then I took the short cab ride to the border.  The border crossing was the easiest and fastest I have ever had.  I always walk across the border with my bag, rather than sitting in traffic.  The morning of the 27th, I arrived before 6 at the border, so there were almost no people at the border and none of the small peddlers taking fruit and nuts from Abkhazia and consumer goods from Russia.  After walking across the bridge into Abkhazia and passing control there, I took another cab down the coast past Gagra to Sukhum.  It was very clear and the bright early morning sun cast shadows from the mountains on the Black Sea.

 It is about 20 kilometers from the border to Gagra.  After passing Gagra, we followed the road down another 80 kilometers to Sukhum.   Most of the way, the sea is visible.  However, the mountains are never far away.

 

That afternoon, I met with Nadir Bitiev, his second cousin and a friend that Nadir knew from his days in the army.  We had a long Abkhaz lunch at a restaurant with views to the sea.  Later that day, I returned to the Hotel Ritsa where I stayed that night and the next.   A group of mostly older men were playing dominoes across the street and near the water.  They gather every afternoon, weather permitting.  

After my meetings in Sukhum, I went back to Gagra and spent several days viewing prospective projects and enjoying the beach in my free time.  I noticed several things on this trip.  The number of guest homes in Gagra continues to grow.  Because there are not enough accommodations for the tourists, locals have modified their homes to add guest rooms and turned their yards into cafeterias.  The beach area continues to add new cafes.  A few years ago, there were a handful along the beach in the center of town.  Now this zone is many blocks long.  Abkhazia's restaurants would benefit from diversity of food and better service.  But it is plain that with the beaches, sea and spectacular setting tourists are flocking there.  Since Gagra is only about 15 miles south of the border with Russia (and the Sochi Olympics) tourism is going to continue to grow rapidly.  I was told that 2009 saw an increase of over 100% in tourism over 2008.  A big reason for that is the Russian Army base and the security that gives tourists.