Economic: Limaria

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 embargoes imposed by Atropia and Kalaria contributed to a sharp economic decline in the early 1990s. By 1994, however, the Limarian government decided to launch an ambitious, IMF-sponsored economic program 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	Rank in World	Remarks (if applicable)
GDP	20.23 billion USD	121
Labor Force	1.918 million	122
Unemployment	16.4%	153
Poverty	31%		Percent below poverty line
Investment	22.5% of GDP	65
Budget	$3.125 billion revenue $4.033 billion expenditure
Public Debt	34%	84
Inflation	1.5%	45	Very low

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.

International Development Aid

International development aid to Gorgas focuses on infrastructure improvements and government services. Critical shortfalls in the Gorgan economy include public sector finance, medical services, and public infrastructure.

Foreign Direct Investment

Gorgas received $1.05 billion in foreign direct investment (FDI) last year from foreign sources. Thirty-eight percent of FDI went into the energy field, while 25% went to services and 20% to construction. The Netherlands, Britain, and Denmark provide the most FDI in Gorgas.

Economic Activity

Unlike its petroleum-rich neighbors, Gorgas emerged from the shadow of Donovia on the backs of service providers, where one-third of the populace work but generate 62% of the country’s GDP. Agriculture, much of it at subsistence levels, employs the majority of the population but produces  just 11% of the GDP. Within certain sectors such as wine, Gorgas maintains an excellent export position. Gorgas has teamed extensively with Atropia to export hydrocarbon products through pipelines that terminate in Gorgas and Kalaria. Despite all this, Gorgan economic growth will continue to be limited due to ongoing tensions with Donovia that limit economic interactions between the two countries.

Economic Actors

Gorgas maintains a relatively free and open society, and a number of large corporations like the Bank of Gorgas, Gorgan Airlines, and MagniCom dominate the country’s economy. Many sectors in Gorgas, like airlines and banking, only possess one or two large actors along with a smattering of smaller players.

Commercial Trade and Military Exports/Imports

Gorgas maintains a small commercial trade sector with slow but steady growth. The country generally imports its military goods. Most Gorgan trade occurs domestically, with minimal international trade with Atropia, Kalaria, and the EU. Gorgas imports its military hardware primarily from the US, Israel, and other Western nations.

Economic Diversity

Energy Sector

Without hydrocarbon natural resources, hydroelectric power provides the bulk of Gorgan-produced energy supplies. Gorgas imports most of its energy from neighboring states and receives 10% transmission fee for Donovian natural gas that passes through the country. Gorgas continues to  build a strong hydrocarbon transshipment relationship with Atropia and hopes to obtain the majority of its energy requirements from there. Investments in the various pipelines that cross Gorgas and more modern handling facilities on the Black Sea will increase this capability.

Agriculture

Droughts hit the Gorgan agricultural industry very hard over the past five years, but the farmers expect to eventually rebound. For the immediate future, the agricultural field will only grow about 0.5% annually.

Forestry is a traditional Gorgan industry. While forests occupy over 40% of all  Gorgan territory, their qualitative consistency and productivity continue to degrade, thus decreasing production. Worsening conditions in Gorgan forests led to reduction and sometimes even loss of functionality. As a result, avalanches and landslides in the mountainous regions of western areas cause many accidents.

Manufacturing

Manufacturing remains a limited element of the Gorgan economy. A small number of manufacturing plants produce the bulk of the country’s industrial output. Through recent labor reforms and investment laws, the Gorgan government attempted to increase its manufacturing output. While the current economic downturn choked off foreign investment, it remains likely that Gorgan’s low structural costs will attract some investors to its manufacturing sector.

Banking and Finance

Public Finance

The National Bank of Gorgas functions as the central bank and creates the country’s  monetary policy. The Bank operates as an independent entity, with the Gorgan president appointing its members. Gorgan businesses pay no taxes, and individuals pay a 25% flat tax. Gorgan public debt stands at 34% of the GDP, and the country possesses foreign reserves of $1 billion.

Private Banking

Banking remains a primary weakness of the Gorgan economy. Individual entrepreneurs established the Gorgan banks with little capital and virtually no government oversight. The resultant failures created a consolidation in the industry but undercut public confidence. Both international and domestic banks operate in Gorgas.

Employment Status

A lack of economic development and a decline in international trade mean that unemployment remains high in Gorgas. Labor-intensive markets with low productivity, especially in the rural areas, hinder the country’s overall productivity. Many non-agricultural employment opportunities exist in export-driven market sectors and remain highly susceptible to international market forces. Gorgas’ unemployment rate increased from 13.6% in 2007 to 16.4% at present. Employment status  nationally is assessed as medium.

Illegal Economic Activity

A great variety of criminal activity occurs throughout Gorgas. The country serves as a prime transshipment point for drugs from Central Asia, and corruption exists, driven in part by organized crime. The Gorgan state apparently lacks the resources to effectively tackle crime, especially crime  in the mountainous northeastern border with the Republic of Failaq in Donovia. It remains likely that much of the support provided to anti-Donovian elements in Failaq comes from criminal and terrorist organizations that operate in this region. Zabzimek and South Ostremek are also dangerous, and organized crime permeates both areas. In addition, while Gorgas enacted a limited official trade embargo against Limaria in order to placate Atropia and Kalaria, it purposefully turns a blind eye to illegal Gorgan-Limarian cross-border trade.

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 free-standing economies 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.