Economy
Following a war with Georgia in the 1990s, South Ossetia struggled economically. South Ossetian GDP was estimated at US$ 15 million (US$ 250 per capita) in a work published in 2002. Employment and supplies are scarce. Additionally, Georgia cut off supplies of electricity to the region, which forced the South Ossetian government to run an electric cable through North Ossetia. The majority of the population survives on subsistence farming. Virtually the only significant economic asset that South Ossetia possesses is control of the Roki Tunnel that used to link Russia and Georgia, from which the South Ossetian government reportedly obtains as much as a third of its budget by levying customs duties on freight traffic.
President Eduard Kokoity has admitted that his country is seriously dependent on Russian economic assistance.
South Ossetia's poverty threshold stood at 3,062 rubles a month in the fourth quarter of 2007, or 23.5 percent below Russia’s average, while South Ossetians have incomparably smaller incomes.
Before the 2008 South Ossetia war, South Ossetia's industry consisted of 22 small factories, with a total production of 61.6 million rubles in 2006. In 2007, only 7 factories were functioning. In March, 2009, it was reported that most of the production facilities were standing idle and were in need of repairs. Even successful factories have a shortage of workers, are in debt and have a shortage of working capital. One of the largest local enterprises is the Emalprovod factory, which has 130 employees.
The South Ossetian authorities are planning to improve finances by boosting the local production of flour and thus reducing the need for flour imports. For this purpose, the area planted with wheat was increased tenfold in 2008 from 130 hectares to 1,500 hectares. The wheat harvest in 2008 was expected to be 2,500 tons of grain. The South Ossetian Agriculture ministry also imported some tractors in 2008, and was expecting delivery of more farm machinery in 2009.
Russia planned to spend 10 billion rubles in the restoration of South Ossetia in 2009.
Much of the economy is based around the presence of Russian military forces.
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“Even the poor student studies and is taught only political economy, while that economy of living which is synonymous with philosophy is not even sincerely professed in our colleges. The consequence is, that while he is reading Adam Smith, Ricardo, and Say, he runs his father in debt irretrievably.”
—Henry David Thoreau (1817–1862)