Economic Development as a Challenge for “De Facto States”: Post-Conflict Dynamics and Vision of Prospects in South Ossetia

The importance of economic factors in the emergence and existence of “de facto states” remains insufficiently studied and debatable. The article examines the case of the Republic of South Ossetia (RSO), one of the six unrecognized republics that emerged in the post-Soviet space. Based on the study of statistical data, secondary sources, and expert interviews with representatives of local authorities, business and the academic community, the authors analyze the structural shifts and the state of the economy of the RSO, views on the prospects of development in the context of state-building. It is shown that as a result of large-scale economic assistance from Russia, a structurally weak hyper-service economy has been formed, the key sectors of which depend on government demand and Russian investments. Limited economic self-sufficiency, trans-border settlement of Ossetians and Georgians, as well as numerous family ties contribute to the emergence of various cross-border practices (shuttle trade, smuggling, peculiar settlement systems) that reduce social tension. The case of the RSO confirms that the unrecognized status is not in itself a challenge for economic development. However, the lack of external legitimacy restricts access to markets, creates barriers for financial and trade transactions. As a result, Eurasian integration has become rather a source of problems for the RSO, creating obstacles that are difficult for local businesses to overcome in trade with Russia, the only EAEU country that recognizes the RSO as a sovereign state. As a result, RSO economic problems serve as a key argument for supporting the idea of the republic’s accession to Russia.

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