Economic: Limaria

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The Caucasus countries that possess hydrocarbon resources will continue to depend on the oil and gas industries to drive their economies, while those that do not possess such resources will attempt to tie themselves to hydrocarbon-rich nations. Both Ariana and Atropia face geopolitical difficulties in exporting their oil and natural gas. Bordered by adversaries, the Arianians and Atropians must rely on tenuous routes to export their resources. For Gorgas and Limaria, which lack extractive or mature industries, transshipment of hydrocarbon products or providing other services to oil-wealthy countries will be their primary short- to medium-term means to achieve economic development. Donovia continues to recover from a collapse two decades ago that crippled its economy. All nations of the Caucasus have relatively high inefficiency due to corruption, government involvement in the economy, and/or lack of export industry development.

Under former Donovian influence, Limaria developed a modern industrial sector that supplied machine tools, textiles, and other manufactured goods to Donovia in exchange for its raw materials and energy. Since Donovian influence waned two decades ago, the lack of access to raw materials has forced Limaria to switch from a large agro-industrial based economy to an economy based on small-scale agriculture. The agricultural sector suffers from the need for long-term investment and modern technology. While industrial privatization in Limaria continues to occur at a slow pace, it remains ahead of neighbors in the region. Limaria imports much of its food and possesses very few mineral deposits. The Lower Janga regional conflict and the related embargo imposed by Atropia contributed to a sharp economic decline two decades ago. Three years later, the Limarian government decided to launch an ambitious economic program, sponsored by the International Monetary Fund (IMF), that resulted in positive growth rates. Limaria also cut inflation and privatized most small- and medium-sized enterprises. Limaria’s nine primary hydroelectric power plants partially offset the country’s chronic energy shortages. At present, these plants supply 33% of the country’s energy needs. Moreover, Limaria continues to expand its energy imports from Ariana. Like Gorgas, Limaria wants to build an export-driven economy, characterized by openness and transparency.

Table of Economic Data

Measure	Data	Remarks (if applicable)
Nominal GDP	$16.24 billion	Agriculture 22.0%, Industry 46.6%, Services 31.4%
Real GDP Growth Rate	7.3%	5 year average 0.2%
Labor Force	1.5 million	Agriculture 46.2%, Industry 15.6%, Services 38.2%
Unemployment Rate	7.1%
Poverty Rate	26.5%	% of population living below the international poverty line
Net Foreign Direct Investment	$6.24 billion	No outbound FDI
Budget	$1.923 billion revenue $2.484 billion expenditures
Public Debt	27.2% of GDP
Inflation	3.4%	5 year average 9%

Participation in the Global Financial System

Over the past decade, the Caucasus nations made considerable efforts to integrate themselves into the global financial system. While focused on local conflicts, the Caucasus region opened to other countries to increase global markets for its products, especially petroleum, and looked to the West for economic developmental aid, usually in the form of loans and grants.

World Bank/International Development Aid

World Bank and other international aid programs in Limaria focus on the development of  agriculture and infrastructure, especially in more rural areas. Like many countries in the region, aid focuses on the stabilization of public finances to reduce Limarian vulnerability to global macroeconomic events.

Foreign Direct Investment

Donovia, Lebanon, Argentina, the US, and the EU provide the majority of foreign investment in Limaria. In recent years, Donovia and Argentina provided over $100 million in FDI to Limaria, with primary emphasis on the country’s energy, telecom, and transportation sectors.

Economic Activity

Limaria has the least developed economy of the Caucasus region due to a combination of structural elements that stifle growth and trade embargoes by Atropia and Gorgas, with the latter participating in a limited fashion. The US, along with the EU, continues to pressure the Limarians to limit their interaction with the Arianians, but with only limited success. The Limarians, physically separated from their primary Donovian patrons, must form an economically beneficial relationship with the Arianians to their south to survive without causing additional Western antagonism.

Economic Actors

One or two major actors dominate in each economic sector, with the organizations’ leaders typically connected with the political elite through a variety of relationships. Limaria operates a generally anti-competitive economic environment that inflates costs, stifles innovation, and restrains competition. The close connection between the economic and political realms also creates a climate of corruption and self-dealing.

Commercial Trade and Military Exports/Imports

Limarian trade occurs primarily with Donovia and Ariana; there is very limited trade with the EU. Limaria primarily imports military equipment, mainly from the US and Donovia. A current key point of contention in the Limarian trade environment revolves around the slow encroachment of Donovian ownership into previously Limarian-owned businesses, such as robotics, machine plants, and energy production facilities.

Economic Diversity

Energy Sector

Without any hydrocarbon resources, Limaria must import a large portion of its energy requirement, mostly from Ariana and Donovia. Limaria imports both petroleum and coal, but the government wants to use more natural gas to solve its electrical production problem.

Agriculture

Limarian agriculture accounts for 22% of the Gross Domestic Product (GDP), but almost half the people work as farmers or in agriculture-related jobs. Items grown, raised, or processed include fruit (especially grapes), vegetables, brandy and other liqueurs, and livestock. The labor-intensive Limarian agricultural system limits export opportunities due to a high cost compared with other countries. Atropia’s refusal to trade with Limaria has caused considerable hardship, forcing a number of Limarians to turn to subsistence farming as a hedge against starvation.

Mining

Mined products account for 40% of all Limarian exports—mainly copper, zinc, molybdenum, and mineral water. The Limarian government identified the country’s dependence on ore extraction as a key weakness of its economy. Recently, the Limarian government attempted to diversify its export economy, but without much success.

Manufacturing

Limarian industries employ 15.6% of the populace and, despite a recent downturn, still account for 46.6% of the GDP. Products include metal-cutting machine tools, forging presses, electric motors, tires, knit fabric and hosiery, shoes, silk fabric, washing machines, chemicals, trucks, watches, and microelectronics. Most factories date from the 1970s and lack the latest technology. The factories’ dependence on comparatively high levels of labor also drives product costs higher.

Services/Other

Services play a vital role in the Limarian economy, as they employ 38.2% of the people and account for 31.4% of the country’s GDP. Both the services industry and tourism continue to play a major role in the Limarian economy. Limarian dependence on the service industries and tourism, however, papers over the inherent weakness of inadequate manufacturing jobs.

Expat Labor

Expatriate labor serves as a prime Limarian export. Most Limarians work in Donovia, the EU, and North America. Remittances sent to families in their home country provide a vital input to the Limarian economy.

Banking and Finance

Public Finance

The Central Bank of Limaria regulates the country’s monetary policy and establishes bank regulations. Limaria levels a two-tier flat tax, with a small levy for low earners and a higher levy and surcharge for higher earners. Property taxes, excise taxes, social security taxes for the general population, and pension taxes for specific types of government careers also exist. Since Limaria also possesses a value-added tax (VAT), Limarians find themselves heavily taxed but also skilled at tax avoidance. Limaria faces a perennial revenue shortfall because its residents hide their financial assets.

Private Banking

A number of private banks operate in Limaria, and three stock exchanges operate in Yerevan. International banks from Europe, Asia, and Donovia have private bank branches in Limaria. Limaria also likely serves as a hub of Arianian banking to circumvent international sanctions.

Employment Status

The Limarian labor market demonstrates a dichotomy between the large monopolies that provide stable long-term employment and the inability of new businesses to produce additional jobs. Limaria claims an official unemployment rate of about 7.1%, but it is most likely significantly higher. Many Limarians seek employment as expatriates, especially in Donovia, which helps reduce the unemployment rate back in their home country. Employment status in Limaria is high.

Illegal Economic Activity

Crime is an extremely serious problem in Limaria—with organized crime gangs/clans, referred to locally as gerdastans (firesides), running robust human and drug trafficking operations. Due to official corruption, these clans operate nearly openly, mainly in Yerevan, and control much of the country’s economy. The major gerdastans include the Limarian Democratic Socialist Party, Limarian National Labor Union, and Abgar Bozian’s Bozian gerdastan. The latter two are officially fraternal orders that claim to champion the interests of their dues-paying members. In reality, they both are complicit in tax evasion, strong-arm tactics in the realm of imminent domain, and violating Limarian government restrictions on cross-border trade with Gorgas. The Limarian National Labor Union is heavily involved in human trafficking, while Abgar Bozian’s organization has a robust drug smuggling operation.

The US Department of Defense has declared Limaria a country of concern due to human trafficking. Official corruption is not limited to the neglect of organized crime. International watchdog agencies also note the misuse of imminent domain, misappropriation of loans, and tax avoidance as significant problems. Limarian breaches of the Gorgan trade embargo via unofficial cross-border trade are purposefully ignored by both countries. While the Limarian government enacted anti-corruption measures in response to high-level interest, the culture of corruption and crime is a sad fact of Limarian life.

Summary

Complex economic interplay between the Caucasus countries binds them together. Limaria, Gorgas, and Atropia were strongly affected by the reduction of Donovian influence two decades ago. The oil- rich countries of Ariana and Atropia must use their Limarian and Gorgan neighbors to transship hydrocarbon resources to other countries. Limaria and Gorgas must develop a free-standing economy despite significant corruption, lack of developed industries, and natural resource shortages. Over all of this, Donovia seeks to limit Arianian influence and return to its former position as unquestioned regional hegemon. This economic interdependence will likely drive regional conflicts as the nations struggle amongst themselves to exploit riches created by oil and natural gas.