Tricky business in Abkhazia

Since Abkhazia declared its independence from Georgia in 2008, Russian money has been pouring in. But when it comes to doing business there, Russians can find themselves coming badly unstuck, as one investor from the Urals found. Anton Katin reports
Anton Katin
16 September 2010

At the end of the summer student archaeologists brought home some unique artefacts from friendly Abkhazia: a very rare object dating from the 2nd century AD. Everyone was delighted. Before that the Russian president Dmitri Medvedev had paid a short visit to Abkhazia.

“We are working to develop good relations between Russia and Abkhazia, including in the areas of the economy and security”, the President assured the Abkhaz President Sergei Bagapsh.  Returning the compliment, Bagapsh promised that everything to do with Russian-Abkhaz relations would be just fine, especially the economy and security of investments. I hesitate to make an unequivocal judgement, but Bagapsh is either not in the loop or he's just shamming. For Russian businessmen in Abkhazia the security of investments is far from problem-free.

The «big neighbour»'s overt political protection made business in Abkhazia particularly attractive for Russian businessmen. The most promising areas were the hotel business, the construction industry and property. Property in Abkhazia is a choice (and relatively inexpensive) morsel. At least in comparison with the neighbouring «Red Glade» in Greater Sochi, to which the whole world will be coming for the Winter Olympics in 2014. The distance is insignificant – some 40km – but prices for land and construction there are several times higher than in the mountain republic by the sea, devastated by war and its chaotic «aftertaste». It was in this republic that the inhabitant of a Urals town Valerii Stepanov (name changed for reasons of security) took the risk of doing business.

Friends had persuaded Stepanov to invest in a plot of land on a mountain road, 4 hectares of land in Gagri for the construction of a hotel and 4 more projects. Also of interest was the construction materials market, virtually a monopoly in Abkhazia. An Abkhaz friend had promised help in the mountain villages. He not only befriended the Urals visitor, but actually took him to his home. The laws of oriental hospitality dictate that he must meet the Abkhaz friend's parents and the whole of his numerous family.  He was also introduced to the «right person» in the administration – the friend's brother, head of property relations in the district. The brothers trilled in unison that their small, proud republic simply couldn't manage without its «big Russian brother». They swore eternal friendship and promised help.

There were however some odd points which emerged during the negotiations. It was politely explained to Stepanov that Russian citizens are not allowed to buy land in Abkhazia. The «partners» offered 2 solutions:  either register the land purchase in the name of an Abkhaz resident, or set up a company with local participation. A fairly absurd situation, as the overwhelming majority of people in Abkhazia hold Russian passports and old people get Russian pensions. But there is no restriction on them buying land.

A joint venture was organised.  Money to pay for the land and the property was dispatched against a signed receipt. But Valerii didn't get any help from the «right man» in the district administration. There didn't appear to be any problems – not for nothing had they made friends with «Mr Local Property». But he was completely unable to help them acquire the land and for two months the project stalled and no decisions were taken. There was no intention of returning the money of course. The brothers maintained they had been let down.

In Abkhazia what works best is what professional lawyers call «common law». This is in the sense that if your great-grandfather built a hovel on a patch of land 150 years ago, then the land is considered to be his property, his grandchildren's, great grandchildren's, even if there are no documents to prove it. So land has to be bought first from the heirs to the head of the village and then only can it be registered as yours. With all the necessary payments to the government budget. And double-entry accounting doesn't seem to bother anyone.

The «friend» finally came clean about his intentions. He demanded that he and his brother should be cut in. Valerii's reaction to this was quite reasonable – how come, when all the calculations have been made and agreed?  It was suggested to him that he should sell up and leave Abkhazia. The conflict in the house where Stepanov had been greeted in accordance with the laws of oriental hospitality ended in a temporary truce.  The friend's mother suggested sitting in the kitchen, drinking some of her wine and forgetting the grievances. The guest from the Urals drank the wine, but refused the brothers' request.

His refusal provoked quiet rage. Several days later the offer was repeated and Valerii once more refused. The quiet rage then took another form.  Valerii was beaten up for 3 hours and forced to transfer the plots of land and the property to the locals. He received the generous assurance that his family would be left in peace. But the generosity didn't last long: the car carrying Valerii's wife, 3 children, her friend and 2 year old child was stopped on the mountain road. The Merc was taken and the passengers abandoned by the roadside.

One of the locals described the situation as outrageous. But «one» doesn't mean «all». Valerii's mother made a statement to the militia, but she was forced to retract it. The fate of the land plots and the property is wreathed in mist. How can it be any other way, when the so-called friend has the seal and the right to sign documents relating to the properties?  Even the Russian Deputy Consul, Evgenii Zabolotnikov, couldn't do anything much to help.  He did manage to arrange safe passage home for Stepanov's family 3 days after the incident. They were accompanied by officers from the Criminal Investigation Department. Had it not been for his assistance and that of another Abkhaz family, who were on good terms with Valerii and helped to get the car back, then it would have been quite tricky for him to get out of friendly Abkhazia.

The work Stepanov and his partners were doing was absolutely in line with government aims: Abkhazia is extremely interested in building up construction and the hotel business. Everyone knows this. Except individuals who are interested only in filling their own pockets. The post of Head of Property Relations for one of the central districts of Abkhazia is hardly a sinecure. Given the almost total absence of any real estate companies in Abkhazia, this man is lord and master of all.  He not only signs the documents, but takes, as people maliciously point out,  a cut from every transaction. 

He also helps draw up documents. In the day he's a very respectable gentleman in a white shirt and smart suit. At the end of the working day he's transformed and you don't want to cross his path.

To say that the Urals businessman was just «unlucky» is about as stupid as saying that the mouse in the cat's paws is unlucky. It looks as though he was doomed from the start. Stepanov's case is not unique, though by no means all Russian businessmen in Abkhazia have problems. I can see that Valerii may just have tried to punch above his weight. After all, no one would choose to stand in the path of the heavyweight mayor of Moscow, Mr Luzhkov.  But it's not only Luzhkov working in Abkhazia - there are other Russians there and they have no protection.

One could just have shrugged it off. But recently in South Ossetia voices have been heard saying that Russian government money allocated for building up the economy is going elsewhere. Similar questions arise from time to time in Abkhazia too. Given the size of the Russian government budget, the sums are not eye-watering. But there is one snag. At his meeting with President Bagapsh, Mr Medvedev announced that Russia would be offering assistance in the reconstruction of the airport and increasing air travel. Charity? No way. For Russia this is vitally important because the planes bringing sportsmen and spectators for the Winter Olympics in 2014 will have to land in Abkhazia, at Sukhumi. The difficulties of the runways at Adler airport, and other problems there, mean that it will not be able to cope with increased numbers of flights. So guests and sportsmen will have to travel by bus through Abkhazia, which is not always that friendly towards the Russians. It'll be interesting to see how they treat other nationalities.

Incidentally, Stepanov and his partners invested about 3 million USD in the Abkhaz projects. The whereabouts of the money is as yet unknown.



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