This essay discusses and analyzes the
current economic situation in South Caucasus, main challenges and developments
in the region. I am going to show the possibilities of economic cooperation
between Georgia, Armenia, and Azerbaijan. Also, Turkey in understanding of
economic cooperation in transportation of regional trade and energy. As we
know, South Caucasus is a meeting point of three great regional powers, which
are Turkey, Iran and Russian Federation. All of them are trying to gain and
increase their influence in this region. South Caucasus has always been geopolitically
and economically important region, that’s the benefits of being at the
crossroad of Europe and Asia with a necessary energy direction. South Caucasus
is an essential part of strategic South Gas corridor, which is giving Caspian-basin
natural gas from Azerbaijan to European markets in the West. It will be the
main resource in European energy security. In addition, we should consider the
South Caucasus’s location on the “New Silk Road” from China to European

The South Caucasus includes three states
of Georgia, Azerbaijan, and Armenia. After 20 years the breakup of the Soviet
Union, the republics of Georgia, Armenia and Azerbaijan are still coming across
with noticeable challenges in building sustainable and inclusive economic
growth and in creating democratic states and pluralistic societies.
Furthermore, all of these countries have potential in creating prosperous
economies with their rich human resources and cultural heritages. After the EU
Eastern Partnership policy was launched, the importance of the South Caucasus
has been increased. The EU is committed to building strong and mutually
beneficial relations with this region. The Association Agreements/Deep and
Comprehensive Free Trade Areas (AA/DCFTAs), concluded in 2014, have brought the
relations between the EU and Georgia to a new level. These agreements aim at
strengthening political association and economic integration and create new
opportunities in the region as increasing economic development. As I already
mentioned, South Caucasus is faced with the strategic Southern Gas Corridor. After
completion, it will deliver Caspian-basin natural gas (first from Azerbaijan,
and later perhaps from Turkmenistan, northern Iraq, or other regional
producers) via Azerbaijan, Georgia, and Turkey, to European markets in the
Balkans and Italy.

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The South Caucasus is situated at the
meeting point of the Russian Federation, Iran, Turkey, Europe, and Central
Asia. The oil and gas reserves in the Caspian Sea and Central Asia and the
pipelines to Europe through the South Caucasus East-West energy corridor emphasize
the geopolitical importance of the region. The turn from the Soviet system to
diverse democratic societies and functioning market economies have been going
through with political and social disruption, governance deficits, wars,
occupation, and conflicts in different regions. For the last two decades the
three South Caucasus countries has experienced very deeply social distress,
severe armed conflicts, and territorial disputes, namely with regard to
Nagorno-Karabakh, Abkhazia and South Ossetia/Tskinvali Region and war against
Russian Federation. Today there are still around 1.2 million internally
displaced persons (IDPs) and refugees in the three countries. Despite
international mediation, the conflicts are still frozen. Armenia remains
completely isolated mainly because its borders with Azerbaijan and Turkey are
closed. The country has friendly relations with Iran and after joining to the
Eurasian Economic Union,2 continues to depend economically and politically on
the Russian Federation. Due to regulatory reforms, an improved business
environment and higher exports of commodities, Armenia’s economy is slowly
recovering. According to World Bank GDP (2015) is 10.561 $billion. However,
poverty and unemployment remain high, particularly in rural areas and have
further increased over the last few years. Remittances from working migrants
and the Armenian diaspora play an important role for family income support and
investments in the country. Subsistence agriculture remains the major
employment sector, accounting for 45% of the working population. Market
liberalization has placed large constraints on the once heavily subsidized
agricultural sector and colluding interests pose threats to fair competition.
The political climate remains difficult: According to Freedom House Armenia is
rated as ‘partly free’ and its media as ‘not free’. The parliamentary elections
in May 2012 were characterized by a competitive, vibrant and largely peaceful

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