It is difficult to understand the contemporary economic situation of Georgia without first understanding its tumultuous history since achieving independence from the Soviet Union (USSR) in 1991. Independence exposed the extreme reliance of the Georgian economy on the Soviet Union. At the time of independence, the vast majority of Georgia's trade was conducted within the USSR. Trade with the Newly Independent States (NIS), the name given to the states that emerged from the collapse of the USSR, was disrupted by the wars in Abkhazia and South Ossetia and by civil war. When Georgia was a part of the USSR, heavy-industrial enterprises were established throughout Georgia but fell into disuse when the country became independent. Net material product experienced an unprecedented decline in the immediate years after independence. It declined by 11.1 percent in 1990, by 20.6 percent in 1991, by 43.4 percent in 1992, and 40 percent in 1993.
Most of Georgia's recent economic problems can be attributed to the weakness of centralized authority and to an insufficiently developed civil society. The legacy
The economic path followed by the breakaway republics of Abkhazia, Adjara, and South Ossetia diverged considerably from that of the rest of the country. The Abkhazian victory in September 1993 led to an economic blockade by Georgia followed by a similar Russian blockade in 1996 as Moscow tried to improve relations with T'bilisi. The Russian ruble is the only currency in widespread use in Abkhazia and the region operates under Moscow time, 1 hour behind T'bilisi. Despite a flourishing unofficial trade with Russia, the Abkhazian people had to rely heavily on humanitarian handouts as a means of subsistence. The once dynamic tourism industry is in tatters. Despite maintaining the trappings of an independent state, lack of economic potential has forced South Ossetia to consider closer ties with the rest of Georgia. Adjara maintains the closest links with T'bilisi and has benefited accordingly.
Corruption has been a persistent feature of Georgian society for several decades and has been entrenched since the establishment of an independent state in 1991. The weakness of the central government is clear in its lack of control over its employees. Small and medium size businesses, which could provide a vital base for economic growth and employment are hindered by lack of resources to withstand persistent demands for bribes. Few citizens see the point in engaging in political protests as they perceive the members of the government as hopelessly corrupt and their situation as unavoidable.
For most of the 1990s, Georgia was torn between dependency on Russia and the West. Georgia relies heavily on Russia for fuel, and an estimated 800,000 Georgians who work in Russia repatriate a substantial sum to their families in Georgia every year. This economic lifeline was suddenly put at risk when the Russian government imposed a visa regime on Georgia. Before 5 December 2000, Georgians could travel freely to Russia but now are required to obtain permission from the Russian embassy in Georgia. An apparent punishment for alleged tolerance of Chechen guerrillas who take refuge in Georgia, the visa regime is symptomatic of a cooling of relations between Moscow and T'bilisi. Georgia has increasingly turned to the West for assistance. It has deepened relations with the European Union (EU) and declared its intention of joining the North Atlantic Treaty Organization (NATO) at some point in the future.