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Blue Ocean Strategy for South Caucasus

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The recent arrival of Russian peacekeepers in Nagorno-Karabakh has underlined the difficulties for a number of international institutions–the United Nations (UN), the Organization for Security and Co-operation in Europe (OSCE), the European Union (EU) and the Eurasian Economic Union (EAEU)–to provide a diplomatic answer to violent conflicts that emerged in the aftermath of the collapse of the Soviet Union.

Nagorno-Karabakh is the latest example, as most of the ethnic quarrels in the South Caucasus are still ongoing since 1991, with Abkhazia and South Ossetia remaining de facto [1] independent from Georgia, while only one of the three recognized countries (Armenia, Georgia, and Azerbaijan), Armenia, has managed to join a supranational framework [2].

In over three decades, the political-economic context of the region has deteriorated with a continuous decline in birth rates coupled with emigration, difficult economic recovery and the rise of autocratic political regimes and confirmed cronyism. Some experts believe it is time for the South Caucasus countries to develop a Blue Ocean strategy [3] and abandon the idea of joining the Euro-Atlantic institutions (the EU and NATO) or Russian-led alternatives (the EAEU and the CSTO). This may seem challenging, but given the economic and diplomatic achievements of the past decade and the political crisis in the context of the COVID-19 pandemic, it is perhaps a viable option for restoring prosperity and stability in this part of the world.

What is the Blue Ocean Strategy and how can it be applied in international politics?

The Blue Ocean Strategy is a concept developed at INSEAD by Renée Mauborgne and W. Chan Kim. Although the approach usually applies to business strategy, it can be combined with a SWOT analysis to develop new geopolitical alternatives and provide innovative thinking in politics.

Therefore, by looking at the SWOT matrix for the South Caucasus, we can establish similarities between the countries and see how the Blue Ocean strategy approach can develop the “opportunity” part in the region:

SWOT Matrix of the South Caucasus
StrengthsLocated between great players – Russia, Turkey, EU and Asia – the South Caucasus can be successfully used as a platform for the production, transfer and transformation of goods; Favorable climate for the development of renewable energies and products in with a high demand on international markets (e.g. Georgian wine on the Chinese market).
WeaknessesDifficulties to overcome the events following the break-up of the Soviet Union (e.g. rhetoric regarding separatism in Georgia) and political repetition compulsion; Insufficient resilience to international influence, as highlighted by the interest of all parties in joining an alliance (e.g. the European Union), which makes it ambiguous for the state(s) to develop an independent international policy; Corruption and cronyism in governments resulting in a paucity of innovation by the institutions and little support for the growth of innovative businesses.
OpportunitiesUnder-explored markets such as renewable energy, biological agriculture and high-tech; Affordable and skilled labour resources available; Possible regional cooperation between the three main countries – Georgia, Armenia, Azerbaijan – instead of seeking different alliances outside the South Caucasus
ThreatsRemaining ethnic tensions (internal and external) and the constraint of continuous political repetition compulsion regarding the de facto autonomous territories; Laissez-faire the corruption and cronyism at all levels of the state hampering the development of innovative thinking and increasing the human capital flight (brain drain); An emphasis is on external actors to solve internal problems (e.g. the European Union to solve economic issues instead of investment in higher education and entrepreneurship).

By analyzing the SWOT matrix, we can establish similarities between the three recognized countries and the three de facto/partially recognized states–Abkhazia, South Ossetia, Nagorno-Karabakh–having close SWOT profiles.

As such, the SWOT matrix underlines the countries’ profiles in the South Caucasus, and difficulties seem to stem from weak institutions, with an enforced political repetition compulsion [4] by elites and citizens alike, rather than from external threat(s) [5]. Nonetheless, the external threat is presented as the main one (e.g. Russia in Georgia and Turkey/Azerbaijan in Armenia), while the problems seem to be mostly domestic, having a lot to do with corruption or difficulties to accept the change of borders in the post-Soviet order.

Towards the effective implementation of a Blue Ocean strategy in the South Caucasus

A major obstacle to effective implementation of a Blue Ocean strategy in the region will come from the phenomenon of repetition compulsion and the fact that elites and citizens are not used to listening to another political discourse, often asking for outside help to solve domestic issues. As such, we can assume that states in the South Caucasus will be more likely to continue to focus on finding external alliances instead of using their own internal resources to develop their potential.

This phenomenon is linked to the in-group bias, which is the tendency to assume that ‘your’ problems are coming from the outside (e.g. Russia in Georgia) instead of assuming the responsibility related to ‘your’ own failing policy [6]. Thus, a nation will tend, even more so in times of crisis, to assume that the problem is due to an outside event.

The second obstacle that states will face in the South Caucasus is that neighboring countries have an incentive in keeping the states located next to them under control. At present, the main outsiders–Russia, the EU/NATO and Turkey– have little or no interest in seeing the South Caucasus enjoy greater autonomy.

In fact, some have even developed the rhetoric of ‘grandiosity [7],’ which refers to an unrealistic sense of superiority, characterized by a sustained view of oneself as better than the other, which is expressed by disdainfully regarding them as inferior. This approach is implemented in numerous forms through instruments of power, such as the Eastern Partnership (EaP) which aims to promote European values without taking into account the possibility that a state in the South Caucasus may differ in the way it wishes and should develop.

In the eyes of many EU citizens, the EaP is a means of promoting EU’s identity such as democracy, while non-Europeans would point out such an instrument has been implemented to achieved an economic and/or political superiority (the rhetoric of ‘grandiosity’) over participating states as they can only wish, in the mind of the one implementing them, to be like the EU member states [8]. The rhetoric of grandiosity is identified when the proponent refuses to assume that it may be wrong (cognitive dissonance).

The South Caucasus nations will therefore have to change their internal thinking and concentrate more on what they have and develop strengths instead of waiting for outside assistance. For instance, rather than focusing on how to get the separatist territories back and who could help them achieve this geopolitical goal, in order to increase their internal performance and economic capacities they could focus on fighting corruption, thus making themselves in fine more attractive in the eyes of autonomist regions (soft power) and a valuable political alternative.

Once this is achieved, there will be resistance from the major players–Russia, the West, and Turkey–to seeing the South Caucasus states outside their sphere of influence, which will be another obstacle to the long-term development and continued implementation of the Blue Ocean strategy for self-development.

In many ways, the strategy for the South Caucasus can be inspired by South Korea, a country that, instead of focusing on recovering control over North Korea and explaining a poor economic performance because of the difficult regional context (proximity to the USSR and the People’s Republic of China), managed to see its national advantages and emerge as a self-sustaining economic power.

While North Korea remains a priority in foreign affairs, as does the relationship with Beijing, Seoul has focused on internal development after 1953, subsequently or complementarily on international alliances. Like South Korea, the South Caucasus might focus on solving internal issues before outside matters, especially considering the stagnation with para-states for already more than three decades.

  • [1]de jure according to some states such as Russia, Syria and Venezuela
  • [2]Armenia is a member of the Eurasian Economic Union, however without Nagorno-Karabakh which is recognised to be de jure part of Azerbaijan.
  • [3]Blueoceanstrategy
  • [4]Edward Bibring (1943). The Conception of the Repetition Compulsion. The Psychoanalytic Quarterly. 12 (4): 486–519.
  • [5]The situation in Abkhazia and South Ossetia is stabilised since 2008, and the rhetoric of a Russian interest in occupying the whole Georgia does not goes in line with a geopolitical reality. As such, Tbilisi could develop its internal policy on the short run and focus on the two “occupied” territories (Abkhazia and South Ossetia) on the long run instead.
  • [6]Hall. Taylor, Donald M.; Doria, Janet R. (April 1981). Self-serving and group-serving bias in attribution. Journal of Social Psychology. 113 (2): 201–211.
  • [7]Elsa F. Ronningstam (2005). Identifying and Understanding the Narcissistic Personality. Oxford University Press.
  • [8]Women’s rights, democracy, freedom of expression, human rights are all examples of what EU citizens believe they can bring to the South Caucasus through the Eastern Partnership. This does not mean that they are not valuable to the countries, but rather that the lack of debate on whether and why to promote them expresses ‘grandiosity’, the assumption of values superior to any others, similar to what happened during colonialism, when Europeans considered Christianity to be superior to any other religion in colonised countries.

From our partner RIAC

Ph.D. in History of Europe & International Relations, Sorbonne University - INSEAD Business School, (Geo)political scientist working on Sino-European/Russian relations and soft power in the 21st century

Eastern Europe

Latvia developed new tasks for NATO soldiers

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Member of the Latvian Saemas’ national association “Everything for Latvia!” and Freedom”/LNNK Jānis Dombrava stated the need to attract NATO troops to resolve the migration crisis. This is reported by la.lv.  In his opinion, illegal migration from the Middle East to Europe may acquire the feature of an invasion. He believes that under the guise of refugees, foreign military and intelligence officers can enter the country. To his mind, in this case, the involvement of the alliance forces is more reasonable and effective than the actions of the European border agencies. Dombrava also noted that in the face of an increase in the flow of refugees, the government may even neglect the observance of human rights.

The Canadian-led battlegroup in Latvia at Camp Ādaži consists of approximately 1512 soldiers, as well as military equipment, including tanks and armoured fighting vehicles.

Though the main task of the battlegroup in Latvia is country’s defence in case of military aggression, Latvian officials unilaterally invented new tasks for NATO soldiers So, it is absolutely clear, that Latvian politicians are ready to allow NATO troops to resolve any problem even without legal basis. Such deification and complete trust could lead to the full substitution of NATO’s real tasks in Latvia.

It should be noted that NATO troops are very far from being ideal soldiers. Their inappropriate behaviour is very often in a centre of scandals. The recent incidents prove the existing problems within NATO contingents in the Baltic States.

They are not always ready to fulfill their tasks during military exercises and training. And in this situation Latvian politicians call to use them as border guards! It is nonsense! It seems as if it is time to narrow their tasks rather than to widen them. They are just guests for some time in the territory of the Baltic States. It could happen that they would decide who will enter Latvia and who will be forbidden to cross the border!

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Eastern Europe

Changes are Possible: Which Reforms does Ukraine Need Now?

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Photo: Robert Anasch/Unsplash

The past 16 months have tested our resilience to sudden, unexpected, and prolonged shocks. As for an individual, resilience for a country or economy is reflected in how well it has prepared for an uncertain future.

A look around the globe reveals how resilient countries have been to the COVID-19 pandemic. Some have done well, others less so. The costs of having done less well are almost always borne by the poor. It is for this reason the World Bank and the international community more broadly urge—and provide support to—countries to undertake economic and structural reforms, not just for today’s challenges but tomorrow’s.

One country where the dialogue on reform has been longstanding and intense is Ukraine. This is particularly true since the economic crisis of 2014-2015 in the wake of the Maidan Revolution, when the economy collapsed, and poverty skyrocketed. Many feared the COVID pandemic would have similar effects on the country.

The good news is that thanks to a sustained, even if often difficult, movement on reforms, Ukraine is better positioned to emerge from the pandemic than many expected. Our initial projection in the World Bank, for example, was that the economy would contract by nearly 8 percent in 2020; the actual decline was half that. Gross international reserves at end-2020 were US$10 billion higher than projected. Most important, there are far fewer poor than anticipated.

Let’s consider three reform areas which have contributed to these outcomes.

First, no area of the economy contributed more to the economic crisis of 2014-2015 than the banking sector. Powerful interests captured the largest banks, distorted the flow of capital, and strangled economic activity. Fortunately, Ukraine developed a framework to resolve and recapitalize banks and strengthen supervision. Privatbank was nationalized and is now earning profits. It is now being prepared for privatization.

Second, COVID halted and threatened to reverse a five-year trend in poverty reduction. Thanks to reforms of the social safety net, Ukraine is avoiding this reversal. A few years back, the government was spending some 4.7 percent of GDP on social programs with limited poverty impact. Nearly half these resources went to an energy subsidy that expanded to cover one-in-two of the country’s households.

Since 2018, the Government has been restructuring the system by reducing broad subsidies and targeting resources to the poor. This is working. Transfers going to the poorest one-fifth of the population are rising significantly—from just 37 percent in 2019 to 50 percent this year and are projected to reach 55 percent in 2023.

Third, the health system itself. Ukrainians live a decade less than their EU neighbors. Basic epidemiological vulnerabilities are exacerbated by a health delivery system centered around outdated hospitals and an excessive reliance on out-of-pocket spending. In 2017, Ukraine passed a landmark health financing law defining a package of primary care for all Ukrainians, free-of-charge. The law is transforming Ukraine’s constitutional commitment to free health care from an aspiration into specific critical services that are actually being delivered.

The performance of these sectors, which were on the “front line” during COVID, demonstrate the payoff of reforms. The job now is to tackle the outstanding challenges.

The first is to reduce the reach of the public sector in the economy. Ukraine has some 3,500 companies owned by the state—most of them loss-making—in sectors from machine building to hotels. Ukraine needs far fewer SOEs. Those that remain must be better managed.

Ukraine has demonstrated that progress can be made in this area. The first round of corporate governance reforms has been successfully implemented at state-owned banks. Naftogaz was unbundled in 2020. The electricity sector too is being gradually liberalized. Tariffs have increased and reforms are expected to support investment in aging electricity-producing and transmitting infrastructure. Investments in renewable energy are also surging.

But there are developments of concern, including a recent removal of the CEO of an SOE which raised concerns among Ukraine’s friends eager to see management independence of these enterprises. Management functions of SOE supervisory boards and their members need to remain free of interference.

The second challenge is to strengthen the rule of law. Over recent years, the country has established—and has committed to protect—new institutions to combat corruption. These need to be allowed to function professionally and independently. And they need to be supported by a judicial system defined by integrity and transparency. The move to re-establish an independent High Qualification Council is a welcome step in this direction.

Finally, we know change is possible because after nearly twenty years, Ukraine on July first opened its agricultural land market. Farmers are now free to sell their land which will help unleash the country’s greatest potential source of economic growth and employment.

Ukraine has demonstrated its ability to undertake tough reforms and, thanks to the COVID-19 pandemic, has seen the real-life benefits of these reforms. The World Bank looks forward to providing continued assistance as the country takes on new challenges on the way to closer European integration.

This article was first published in European Pravda via World Bank

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Eastern Europe

Liberal Development at Stake as LGBT+ Flags Burn in Georgia

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Photo: Protesters hold a banner depicting U.S. Ambassador to Georgia Kelly Degnan during a rally against Pride Week in Tbilisi, Georgia July 1, 2021. Credit: REUTERS/Irakli Gedenidze

Protests against Georgia’s LGBT+ Pride parade turned ugly in Tbilisi on July 5 when members of the community were hunted down and attacked, around 50 journalists beaten up and the offices of various organizations vandalized. Tensions continued the following day, despite a heavy police presence.

On the face of it, the Georgian state condemned the violence. President Salome Zourabichvili was among the first with a clear statement supporting freedom of expression, members of parliament did likewise and the Ministry of Internal Affairs condemned any form of violence.

But behind the scenes, another less tolerant message had been spread before the attacks. Anxiety about this year’s events had been rising as a result of statements by the government and clergy. Prime Minister Irakli Garibashvili suggested the march “poses a threat of civil strife.” The Georgian Orthodox Church meanwhile condemned the event, saying it, “contains signs of provocation, conflicts with socially recognized moral norms and aims to legalize grave sin.”

For many, these statements signified tacit approval for the abuse of peaceful demonstrators. Meanwhile, the near-complete absence of security at the outset of the five-day event was all too obvious in Tbilisi’s streets and caused a public outcry. Many alleged the government was less focused on public safety than on upcoming elections where will need support from socially conservative voters and the powerful clergy, in a country where more than 80% of the population is tied to the Georgian Orthodox Church.

The violence brought a joint statement of condemnation from Western embassies. “Violence is simply unacceptable and cannot be excused,” it said. The Pride event was not the first and had previously been used by anti-gay groups. Violence was widespread in 2013 — and the reality of attacks against sexual minorities in Georgia remains ever-present.

In a socially conservative country such as Georgia, antagonism to all things liberal can run deep. Resistance to non-traditional sexual and religious mores divides society. This in turn causes political tension and polarization and can drown out discussion of other problems the country is marred in. It very obviously damages the country’s reputation abroad, where the treatment of minorities is considered a key marker of democratic progress and readiness for further involvement in European institutions.

That is why this violence should also be seen from a broader perspective. It is a challenge to liberal ideas and ultimately to the liberal world order.

A country can be democratic, have a multiplicity of parties, active election campaigns, and other features characteristic of rule by popular consent. But democracies can also be ruled by illiberal methods, used for the preservation of political power, the denigration of opposing political forces, and most of all the use of religious and nationalist sentiments to raise or lower tensions.

It happens across Eurasia, and Georgia is no exception. These are hybrid democracies with nominally democratic rule. Armenia, Georgia, Kyrgyzstan, and others have increasingly more in common, despite geographic distance and cultural differences.

Hungary too has been treading this path. Its recent law banning the supposed propagation of LGBT+ materials in schools must be repealed, European Commission President Ursula von der Leyen said on July 7. “This legislation uses the protection of children . . . to discriminate against people because of their sexual orientation . . . It is a disgrace,” she said.

One of the defining features of illiberalism is agility in appropriating ideas on state governance and molding them to the illiberal agenda.

It is true that a mere 30 years since the collapse of the Soviet Union is not enough to have built a truly liberal democratic state. Generations born and raised in the Soviet period or in the troubled 1990s still dominate the political landscape. This means that a different worldview still prevails. It favors democratic development but is also violently nationalistic in opposing liberal state-building.

Georgia’s growing illiberalism has to be understood in the context of the Russian gravitational pull. Blaming all the internal problems of Russia’s neighbors has become mainstream thinking among opposition politicians, NGOs, and sometimes even government figures. Exaggeration is commonplace, but when looking at the illiberal challenge from a long-term perspective, it becomes clear where Russia has succeeded in its illiberal goals. It is determined to stop Georgia from joining NATO and the EU. Partly as a result, the process drags on and this causes friction across society. Belief in the ultimate success of the liberal agenda is meanwhile undermined and alternatives are sought. Hybrid illiberal governments are the most plausible development. The next stage could well be a total abandonment of Euro-Atlantic aspirations.

Indeed what seemed irrevocable now seems probable, if not real. Pushback against Georgia’s Euro-Atlantic choice is growing stronger. Protesters in front of the parliament in central Tbilisi violently brought tore the EU flag. Twice.

The message of anti-liberal groups has also been evolving. There has been significant growth in their messaging. The anti-pride sentiment is evolving into a wider resistance to the Western way of life and Georgia’s Western foreign policy path, perhaps because it is easily attacked and misrepresented.

To deal with this, Western support is important, but much depends on Georgian governments and the population at large. A pushback against radicalism and anti-liberalism should come in the guise of time and resources for the development of stronger and currently faltering institutions. Urgency in addressing these problems has never been higher — internal and foreign challenges converge and present a fundamental challenge to what Georgia has been pursuing since the days of Eduard Shevardnadze – the Western path to development.

Author’s note: first published at cepa

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