Economy of Varkana
|Currency||Lari (VAL) 1 lari = 100 tetri|
|1 January – 30 December|
|GDP||₭1.081 trillion (nominal, June 2016)|
₭1.376 trillion (PPP, June 2016)
|GDP rank||??th (PPP)|
|1.04% (June 2016)|
GDP per capita
|₭29,721 (nominal, June 2016)|
₭37,848 (PPP; ??th; June 2016)
GDP by sector
|agriculture: 2.1%, industry: 30.3%, services: 67.6% (2016 est.)|
Population below poverty line
|23.12 million (2016)|
Labour force by occupation
|agriculture (7.2%), industry (32.5%), services (62.3%)|
|Unemployment||3.7% (2016 est.)|
|textiles, clothing, footwear, optical and medical apparatus, pharmaceuticals, paper, chemicals, plastics, production machinery, vehicles, trains, lithium, uranium, dairy products, wine and other foods, technology, telecommunications; ship construction and refurbishment; tourism, building materials|
|Exports||₭235.962 billion (June 2016 est.)|
|agricultural products, food products, chemical products, lithium, wood pulp and paper, textile materials, clothing, footwear, minerals and mineral products, machinery and tools, vehicles and other transport material, optical and precision instruments|
Main export partners
| Aetolia 23.3% |
|Imports||₭239.168 billion (June 2016 est.)|
|oil products, chemical products, textile materials, clothing, footwear, minerals and mineral products, machinery and tools, computer accessories and parts, electrical equipment, pharmaceuticals, passenger cars new and used, food and beverages|
Main import partners
| Aetolia 25.2% |
|2.3% of GDP (June 2016)|
|Revenues||60.8% of GDP, ₭657.126 billion|
|Expenses||61.2% of GDP, ₭661.449 billion|
All values, unless otherwise stated, are in Breislandic krone.
The economy of Varkana is the ??th largest in Adonia in terms of purchasing power parity (PPP). Varkana has an aristocratic communalist participatory mixed economy, which is sometimes qualified of a knowledge economy, characterized by interconnected local economies.
- 1 History
- 2 Banking system
- 3 Government spending and economic management
- 4 Physical properties
- 5 Sectors
- 6 Largest companies
- 7 Currency
- 8 Trade
Post-War Varkana and Varkan Miracle
Varkan revolution and aristocratic communalism
Varkana's financial services industry is primarily based in the Klow and Kaspi. Klow houses the headquarters of the Bank of Varkana and the Varkan Stock Exchange. Several communal branches of both institutions are present in all 83 Varkan communes.
The Varkan government may borrow only from the Bank of Varkana, with no interests, as proclaimed by law. During the Varkan revolution, Varkana defaulted all its foreign and public debts, declaring these debts "illegitimate" due to the context and manner in which they were contracted.
Government spending and economic management
Government involvement throughout the economy is primarily exercised by the Department of Finance. In recent years, the Varkan economy has been managed in accordance with principles of aristocratic communalism with popular participation and regulation. Government expenditures came to 69.2% of GDP in 2014. Fiscal policy has been very disciplined since the Varkan revolution. The overall budget deficit for 2014 was 0.4% of GDP, with a total national debt of 2.3% of GDP in the same year. These new debts since default in 2001 are explained by deficits attained through borrowing from the Bank of Varkana, to fund major infrastructure projects and modernization projects in the military.
Taxation in Varkana may involve payments to at least two different levels of government: communal government and national government. Communal government is financed by grants from national government funds, business rates, tax on wealth, gift tax, council tax and increasingly from fees and charges such as those from on-street parking. National government revenues are mainly income tax, value added tax, corporation tax and state-owned companies.
Valued added tax
The VAT is a general consumption tax, which applies to goods and services located in Varkana. It is a proportional tax on output collected by the companies and ultimately completely supported by the final buyer, i.e. the consumer, since it is included in the price of goods or services. Indeed, VAT is applied to the "added value", i.e. the added value to the product or service at each stage of production or marketing, so that at the end of the economic circuit, the overall tax burden corresponds to the tax calculated on the final price paid by the consumer. The current standard rate is at 20%. Two reduced rates exist: a 10% rate for books and restaurant meals, and 5.0% for most groceries. A specific rate of 2.0% applies only to prescription drugs covered by National Health Insurance.
Taxes on wealth
Wealth may be subject to taxation when transmitted for sale or for free (gift, inheritance). In these cases, inheritance or gift tax may be payable in Varkana.
In addition, it may be taxed when owned: wealth is subject to annual taxation through a "wealth solidarity tax" and local property taxes are payable on real estate. Capital gains is payable when assets are disposed of, but this tax is a tax on the profit.
The corporate tax is an annual tax in principle that affects all profits made in Varkana by corporations and other entities. It concerns about half of Varkan companies. Depending on the size and revenues of the company, different rates are applied for all of their activities. The taxable income is equal to the difference between gross profit and costs and deductible expenses. The gross operating profit is made by the difference between sales and costs. In addition to the gross operating profit, all income or profits made apart are normally taxable: income from the rental of property, interests, deposits and bonds.
Income tax is a tax on all income available to individuals in a year. With certain exceptions, net income is determined from total income, whatever its origin, after applying certain deductions, and then a single scale of taxation is applied. This scale is characterized by rates applied to slices of income according to the principle of progressivity. However, there are numerous provisions, so there are many systems of taxation depending on the type of income received. In addition, some income and capital gains are subject to a fixed rate of tax. The tax is payable each year on the total taxable income of a household.
The income subject to income tax is divided into seven categories: industrial and commercial profits, non-commercial and agricultural profits, land income, salaries and wages, pensions and annuities, movable income, and capital gains. Individuals' total income is taxed if they are resident in Varkana, whether they have Varkan citizenship or not. Individuals not living in Varkana are taxed only on their income from Varkan sources. The tax is calculated for each "fiscal household", i.e. the family unit composed of either a single person, or two partners (in civil union) and their children or other dependents. Whatever the nationality, a person who is a tax resident in Varkana is taxable on their worldwide income. People not living in Varkana are subject to limited tax on their income from Varkan sources only.
The amount of taxable income is not equal to the income received by the household in the year. Instead, the amount is determined by dividing the income by the number of "parts" in the fiscal household (1 part for every adult and 0.5 parts for each child), and then diminished further by a standard deduction and any other deductions the taxpayer may have claimed in the year.
The table below shows the percentage of income tax applicable to taxable income (rather than gross income).
|1 Unit (=1 Adult household)||2 Units (=2 Adults household)||2.5 Units (=2 Adults + 1 child household)||3 Units (=2 Adults + 2 child household)||3.5 Units (=2 Adults + 3 child household)||Rate|
|Below 10,000₾||Below 20,000₾||Below 25,000₾||Below 30,000₾||Below 35,000₾||0%|
|From 10,000₾ to 15,000₾||From 20,000₾ to 30,000₾||From 25,000₾ to 37,500₾||From 30,000₾ to 45,000₾||From 35,000₾ to 52,500₾||5%|
|From 15,000₾ to 30,000₾||From 30,000₾ to 60,000₾||From 37,500₾ to 75,000₾||From 45,000₾ to 90,000₾||From 52,500₾ to 105,000₾||15%|
|From 30,000₾ to 50,000₾||From 60,000₾ to 100,000₾||From 75,000₾ to 125,000₾||From 90,000₾ to 150,000₾||From 105,000₾ to 175,000₾||30%|
|From 50,000₾ to 100,000₾||From 100,000₾ to 200,000₾||From 125,000₾ to 250,000₾||From 150,000₾ to 300,000₾||From 175,000₾ to 350,000₾||45%|
|From 100,000₾ to 500,000₾||From 200,000₾ to 1,000,000₾||From 250,000₾ to 1,250,000₾||From 300,000₾ to 1,500,000₾||From 350,000₾ to 1,750,000₾||60%|
|Beyond 500,000₾||Beyond 1,000,000₾||Beyond 1,250,000₾||Beyond 1,500,000₾||Beyond 1,750,000₾||75%|
For a single unit filer earning a salary of 500,000₾, they would pay 271,000₾ in income taxes on that salary, thus earning a net salary of 229,000₾ per year. This is equivalent of a flat rate of 54.2%. Comparatively, for a person earning a salary of 1,000,000₾ for example, they would pay 646,000₾ in taxes, earning a net salary of 354,000₾ per year, which is equivalent to a flat rate of 64.6%. Meanwhile, for a person earning a salary of 10,000,000₾, their net salary would be 2,604,000₾, equivalent to a flat rate of almost 74%.
National minimum wage is 12.25₾/hour or 25,480₾ yearly. The average annual salary is 45,320₾ in 2016.
The Varkan soil is relatively limited in raw materials. Only lignite (brown coal), bauxite, pegmatite and uranium are available in abundant quantities. Lignite was historically extracted in the western parts of the country, mainly in industrial areas in the Naruja-Borjomi-Chiatura triangle, which became the backbone of the Varkan industrial region in the 19th century and early 20th century since transporting lignite over far distances was not economically feasible, therefore power plants were located practically next to the extraction sites. Bauxite is present in the northwest of the country, near the Echian border, and along the Sinora valley bordering Aetolia. It is used to make aluminum. Pegmatite sources are located near the Kaspian mountains, on the eastern shores of [Lake Paravani]], and are mainly used to extract lithium.
Uranium, on the other hand, is present in the south of the country in large quantities, south of Pitsunda. In recent decades opposition to uranium mining in Varkana has increased, resulting in many government inquiries into its extraction. Uranium is used domestically for electricity production and is also exported to other countries, mainly to Aetolia. Varkan uranium is mined and sold only for electrical power generation or nuclear research. Almost all the uranium is exported under strict International Atomic Energy Agency safeguards.
Varkana has important water and hydroelectric potential and has developed one of Adonia's largest hydroelectric industries and important aluminum industry.
The railway network of Varkana, which as of 2014 stretches 11,829 kilometers is the fourth most extensive in Northern Illypnia. It is managed by SARK, which operates the MSM, a high-speed train which travels up to 350 km/h in commercial use, and the InterCommunal railway network covers intracommunal and intercommunal transport. Rail connections exist to all neighboring countries in Illypnia, except Sakalia which is connected through the pass tunnel in Svaneti. Intra-urban connections are also well developed with both underground services and tramway services complementing bus services.
There are approximately 408,778 kilometers of serviceable roadway in Varkana. Varkan roads also handle substantial international traffic, connecting with cities in neighboring Aetolia, Echia, Sakalia and Svaneti. Since 2006, Varkana has banned gasoline road, train and sea vehicles from being used in Varkan territory with the exception of cargo ships and airplanes. In other words, all road vehicles must be fully electric, as provided by law, with several electric recharge facilities all over the country installed over the last decade. Drivers who wish to cross the Varkana border with a conventional combustion engine may do so only if they cross to a neighboring country without stopping in Varkana and it includes a heavy fee. This is to ensure that foreign drivers will not be stuck in Varkana without the possibility to refuel their vehicle. Conveniently, both Echia and Aetolia have several gas stations before crossing the Varkan border to accommodate drivers. The new car market is dominated by domestic brands such as Qhar (72% of cars sold in Varkana in 2014), due to the restrictions on engine types.
There are 112 airports in Varkana, of which 10 are open for commercial flights, all of them being international airports with no commercial domestic flights permitted. President Inga Korsantia International Airport, located in the Greater Klow Area, is the largest and busiest airport in the country, although Varkana has historically focused on developing regional hubs instead of focusing on hub-and-spoke strategy. SAK Varkana is the national state-owned airline and flag carrier as provided by law, although numerous private airline companies provide international travel services.
There are several major ports in Varkana along the northern coast, the largest of which is the Port of Vale, followed by the Port of Klow and the Port of Kaspi. Several waterways run along the principal rivers of Varkana, including the Mtkvari River up to Naruja and the Alazani River up to Sioni, connecting the Alazani and Mtkvari from Chiatura to Borjomi and connecting with the Sinora River through Gali.
Varkana is a net agricultural exporter and produces around 113% of its agricultural needs. Government policy towards the lucrative agrarian sector is a subject of contentious debate in Varkana, while in recent years, farmers have generally favored government involvement and its participatory policies. Agriculture accounted for 2.1% of GDP in 2016, and employed 7.2% of the workforce, due mainly to government programs to rehabilitate former prisoners and provide jobs for students and the unemployed. The majority of farms (57%) are family-operated and small, but an increasing number are cooperatives held by several farmers and other locals.
Southern Varkana is characterized by large wheat and corn farms. Dairy products, pork, poultry, and apple production are concentrated in the eastern region. Beef production is located in western Varkana, while the production of fruits, vegetables, and wine ranges from central to northern Varkana. Varkana is a large producer of many agricultural products and is currently expanding its forestry and fishery industries. Quality goods in which Varkana specializes, particularly wines and regional cheeses, owing to its long viticultural history dating back to the Antiquity.
Ecoagriculture as well as sustainable agriculture are increasingly practiced and heavily encouraged, especially due to regulations put in place by the governments since the Varkan revolution. Vertical farming is also emerging, while greenhouses are becoming common, especially in dense areas in the north of the country. Livestock are less important in Varkana than in most other countries, while the Varkan government has supported alternatives to livestock. Dairy production is still higher than in most Illypnian countries. Poultry farming is also an established agricultural field in Varkana. The Constitution of Varkana guarantees rights to animals, that must be respected in agricultural practices, including providing similar natural environmental conditions for livestock and other animal husbandry and requiring the use of natural methods for breeding animals. These regulations have reduced the production of livestock, but increased its quality, according to the government and several NGOs and animal rights activists who supported these reforms after and during the revolution.
Varkana has a large construction industry which employed 9.4 percent of the labor force in 2012 and contributed some 8.5 percent of GDP. The highest percentage share was contributed by construction of residential buildings which recorded 34.6%. This was followed by civil engineering sub-sector (30.6%), non-residential buildings (29.7%), and special trades (5.1%). Since the Varkan revolution, the sector has received major domestic investments with large government contracts for infrastructure development. Varkana's most important and most recent large infrastructure project is the expansion of the MSM network, the construction of the KMR Senaki, and the Akhali Vale project.
Electricity and water supply
Erelko, the sole electricity generation and distribution state-owned company in Varkana, is also one of Adonia's largest producers of electricity. In 2014, it produced all of Varkana's electricity needs, generated mainly by its numerous hydroelectric dams. Erelko only produces electricity from renewable energy resources and has a mandate to preserve the environment. The energy balance of Varkana has undergone a large shift over the past 15 years. In 1998, electricity ranked as the main form of energy used in Varkana (47.6%), followed by oil (38.2%) and natural gas (4.7%). By 2002, natural gas was no longer used, replaced by electricity, and as of 2014, electricity reached 99% of the total energy used. The remaining 1% consists of airplane and ship fuel. Considering the full electrification of ground transports completed from 2002 to 2009, Varkana's electricity consumption has almost doubled during that period. As a result, Erelko reduced considerably its electricity exports to neighboring nations. Varkans consumed 27,585 kWh per capita in 2018, ranking third globally in large part due to the electrification of ground transport in the country.
Varkan water cannot be privatized and is considered by the Constitution as a public good, and a basic living necessity. Varkan water cannot be sold, but it is highly regulated under consumption quotas to avoid over-consumption. Water supply is a communal responsibility, though the national government provides assistance in dealing with routing water from communes with more water resources to communes with less.
Manufacturing is the largest single sector in the nation's economy (15% of GDP), and is well-integrated into other sectors of the economy. Leading sectors by production value are: Food processing and beverages; motor vehicles and auto parts; trains and other vehicles; pulp and paper; chemicals and pharmaceuticals; uranium and aluminium; and industrial and farm machinery; electronics and home appliances. These latter include big ticket items, as well as an array of electronics, kitchen appliances and cellular phones, among others.
Varkana's automotive industry produced 995,000 motor vehicles in 2014, mostly intended for domestic consumption due to national laws. Qhar is the leading automobile manufacturer, while Motoko leads for motorcycles, and BYD Auto for commercial and industrial vehicles. Beverages are another significant sector, and Varkana has long been among the top five wine producing countries in Adonia; beer overtook wine production in 1998, and today leads by nearly two billion liters a year to one. Argo AK is the largest brewery in Varkana and one of the largest in Adonia. Other manufactured goods include: glass and cement; plastics and tires; lumber products; textiles; tobacco products; recording and print media; furniture; apparel and leather.
Most manufacturing is based along the northern coast of the country (Klow, Telavi, Vale, Kaspi, Zestafoni) and major river valleys, including the Sinora valley (Abasha, Mestia, Gali, Anaklia), the Alazani valley (Rustavi, Chiatura, Senaki, Pitsunda, Sioni) and the Mtkvari valley (Agara, Borjomi, Naruja). Nevertheless, there are industries in every commune across the country. The production of computers, laptops, and servers grew by 150% in 2010 and covered 45% of local demand. Varkana has also become an important manufacturer of cell phones, providing about 88% of all devices sold in the country. Another important rubric historically dominated by imports - farm machinery - was similarly replaced by domestic production, which covered 92% of demand by 2014.
Mining and quarrying
Mining and other extractive activities are growing industries in Varkana. The southeast and northwest are the main regions of activity. Uranium is mined in the south of the country, south of Pitsunda. Metals and minerals mined include bauxite, magnesium, tungsten, uranium, silver, and gold. Varkana is an important aluminium producer, heavily used in its automotive and trains industries. Potash salt is mined in the center and northeast of the country.
Varkana has considerable amount of lignite deposits, commonly known as brown coal. Because the wood is not yet completely transformed into coal, brown coal contains less energy than bituminous coal. Lignite used to be extracted in the Mtkvari valley, along the Naruja-Borjomi-Chiatura triangle, which developed considerably during the 18th, 19th and early 20th centuries into Varkana's major industrial region. Considerable amounts were at the time burnt in coal plants near to the mining areas, to produce electricity, since transporting lignite over far distances is not economically feasible, therefore the plants were located practically next to the extraction sites. Despite significant reserves remaining, Varkana does not exploit any of its coal resources.
The tertiary sector has grown, producing 74.4% of the GDP and providing jobs for 65.9% of the working population. The most significant growth rates are found in the trade sector, due to the introduction of modern means of distribution, transport and telecommunications.
Some large Varkan companies in the services' sector have committed themselves to internationalize their services, such as Televar, the largest domestic telecommunication company in the country. Worth to notice is also SARK, a company often used by transit passengers traveling between the Western and Eastern Mesogean.
Tourism is a huge sector of the Varkan economy, attracting over 80.8 million tourists in 2016, of which 42.5 million were foreign tourists, a growth of 11.4% in foreign tourists over 2015.
The leading source markets of Varkan coastal tourism are Breisland, Kalinova and Aetolia (around 15-16% each), followed by Volisania and Echia (around 7% each) and Skade (around 5%). The nightlife in Varkana is very attractive to both tourists and locals. Varkana is known to have some of the best nightlife in the world, due to a context of young drinking age (16 years old) and age of consent (16 years old as well). Varkana also attracts many religious pilgrims on their way to Armazia, or to other major Armazist temene. The city-state of Armazia is Adonia's most important sites of Armazist pilgrimage as the seat of the religion. In the west and south of Varkana there are several skiing resorts in the Kasus and Apennine Mountains.
Varkana is served by an extensive system of automatic telephone exchanges connected by modern networks of fiber-optic cable, coaxial cable, microwave radio relay, and a domestic satellite system; cellular telephone service is widely available, expanding rapidly, and includes roaming service to foreign countries. As of 2012, there were 14,342,000 operational landline telephones in Varkana; while there were 24,824,000 registered mobile phones in the country, during the same year.
The telecommunications liberalization process started in 1992, with the Telecommunications Act, effectively deregulating the market, allowing for various foreign companies to compete and successfully lowering service prices. Currently, Volisanian, Echian and Aetolian companies dominate the market alongside some domestic service providers, including Televar.
As of 2012, there were 42 AM, 207 FM, and 12 shortwave radio stations in the country. Varkana also hosted the most successful telephone newspapers, before the radio was invented and widespread, in Klow, Senaki and Kaspi especially.
As of 2015, there were 32,363,000 internet users in Varkana; while as of 2015, there were 9,855,000 internet hosts in the country. Additionally, Varkans are active users of the country's Intranet, available to every Varkan citizen for free and allowing easier information and data exchanges between citizens, contributing to the participatory economy and democratic process.
Wholesale and retail trade
The trade operations of wholesalers and retailers has often been denigrated by other nations as a barrier to trade, as well as being called antiquated and inefficient. Small retailers and "mom and pop" stores predominate. In 2013, there were 377,483 retail outlets in Varkana. Small businesses are a large voter base of the left and have a strong stance in government-business relations. The business situation for non-Varkan companies has declined sharply since the early 2000s.
There were several changes in wholesaling and retailing in the 2000s. An increase in mom-and-pop stores was expected as a result of the Large-Scale Retail Store Law of 2007, which greatly increased the power of small retailers to block the establishment of large retail stores. Low land prices are another major cause of the increase of mom-and-pop stores. Many mom-and-pop stores have great distribution networks and as a result have been more competitive with each other, and are member of various communal business federations.
Recently, online shopping has been steadily increasing in popularity. Large department stores remain unpopular and rare due to government restrictions.
(2017; billion ₭)
(2017; billion ₭)
(2017; billion ₭)
(2017; billion ₭)
|Bank of Varkana||Banking||144||2.7||3,724||N/A||365,000||Klow|
|Veolia||Environmental services||29.1||0.73||45.28||N/A||163,226||Akhali Vale|
|Argo AK||Alcoholic beverage||23.69||0.69||39.5||55.43||77,241||Chiatura|
|SAK Internationale||Airline||10.67||1.17||12.36||22.23||29,580||Akhali Vale|
|Stereo||Streaming on-demand media||5.2||0.52||5.18||N/A||4,385||Kojori|
The only legal tender in Varkana is the lari. Since 2001, Varkana has transitioned from the lari being a fiat currency in a fractional reserve system to the energy standard, officially joining and founding the Energy Standard Organization a year later in 2002. The lari was equivalent in September 2014 to 12.04 kWh of electricity, while in June 2015 it went up to 12.12 kWh, a 0.66% deflation in that period. During the transition from fiat to energy standard, the lari was not internationalized from June 2002.
In recent years, the Bank of Varkana has tried to keep a steady exchange rate with fiat currencies. In June 2015, the lari traded at 1.00₾ for 1.11₭, and has remained steady since then. On February 2008, in an interview with STV 1, Giorgi Latso, who was a member of the Council of Ten at the time and responsible for the Department of Finance said that keeping the lari stable compared to foreign currencies will help the economy.
External trade as a share of GDP in 2016 was at 43.96% compared to a MOZ average of 58.73% and a global average of 33.62%. Complex and important environmental and labor regulations in Varkana have restricted foreign companies from entering the Varkan market, thus reducing trade with other countries outside the MOZ. Varkana's largest trading partner by far is Aetolia, and trade with its neighbor represents over 10.66% as a share of GDP. Trade with the Mesogean Economic Area represented over 95% of all external trade.
Varkan exports are fairly well diversified. Industrial goods today account for over a third of Varkan exports. Motor vehicles and auto parts are the leading industrial export, and over 12% of the total merchandise exports. Chemicals, uranium, aluminum, machinery, and processed food and beverages account for most of the remaining industrial exports. Trade in manufactures has historically been in deficit for Varkana, however, and its trade deficit in that sector exceeded ₭5.2 billion in 2016.
Despite still being a net petroleum importer, Varkana's fuel imports began to drop rapidly starting in 2002 and in 2015 accounted for about ₭15 billion. Historically a net exporter of electricity, Varkana's electricity exports have decreased rapidly as domestic consumption increased dramatically after 2002. The country nevertheless exports some electricity to its neighbors, accounting for around ₭1.5 billion in 2015.
Varkan imports have historically been dominated by the need for industrial and technological supplies, machinery, and parts, which have averaged ₭131.5 billion since 2016. Consumer goods including motor vehicles make up most of the rest. Trade in services is on the other hand experiencing a slight surplus of nearly ₭1 billion.
Foreign direct investment
Foreign direct investment in Varkana is divided between manufacturing (36%), natural resources (24%), and services (40%). The chemical and pharmaceutical sector (10%) and the automotive sector (6%) lead foreign investment in local manufacturing; agriculture (12%) and mining (6%), in natural resources; telecommunications (11%) and real estate (4%), in services. Aetolia was the leading source of foreign direct investment in Varkana, accounting for 8.7₾ billion (28%) in 2015; Echia was the second leading source, with 5.28₾ billion (17%); and Volisania grew to become the third-largest source of FDI by 2016. Investments from Monsora, Burawa, Lagash and Orma have also been significant.