“The people have made their decision – Abkhazia is an independent country,” says Sergey Shamba. But in the eyes of the rest of the world, Shamba is the foreign minister of a country that doesn’t exist. Abkhazia, a boot-shaped strip of land – current population approaching 250,000 – on the Black Sea, was an autonomous region within the Georgian republic of the Soviet Union. It was also the communist superpower’s place in the sun – everyone from party bosses to schoolchildren came to relax among the palm trees and sanatoriums on its Caucasus Mountain-fringed coast.

In 1992, with the Soviet Union buried, the Abkhazians did not want to be part of the newly independent Georgia, instead demanding full independence. Along with other local ethnic groups and volunteers from Russia, they fought and won a bitter war with Georgian forces. The Georgian population fled, a constitution was implemented in 1994 and independence was proclaimed.

However, nobody was paying much attention and, to this day, not a single country recognises Abkhazia as a legitimate state, instead insisting it must return to the fold of Georgia. Even Russia, which is the only major ally of Abkhazia, has stopped short of officially recognising it, although it does provide financial and logistical support.

But while the rest of the world sees them as merely an unruly province of Georgia, the Abkhazians have created many of the institutions of a functioning state. Elections were held to the 35-member parliament in March, with 17 of the single-mandate seats so hotly contested that a second round of voting was held. Shamba expresses pride that Abkhazia has recently been denoted “partly free” by Freedom House, the US NGO that ranks countries according to democratic credentials.

“Our situation with freedom of speech is better than anywhere else in the former Soviet Union,” says Nugzar Ashuba, the parliament’s speaker. This might be an exaggeration but, by regional standards, the Abkhazians aren’t doing too badly. In the run-up to the vote, every candidate was given time on a live televised debate to talk about their manifesto and answer voters’ questions. “The only time we had to interrupt the programme was when one candidate said all the members of a political movement of war veterans should be killed,” says Guram Ankuab, chairman of Abkhazian State Television. The channel broadcasts three hours of its own programmes a day; the rest of the time is taken up with shows from Russian TV. There are also two news bulletins in Abkhaz. “We look at websites like the BBC and, if something serious happens in the world, we report it,” says Ankuab.

Abkhazia is far from a perfect democracy, but people are happy to talk politics – a rarity in this part of the world. “Of course, you can’t compare it to western Europe,” says Sergei Markedonov, Caucasus expert at the Institute of Political and Military Analysis in Moscow. “But, by regional standards, it’s very democratic. Just look at the presidential elections.” Abkhazian president Sergey Bagapsh, a 58-year-old former Komsomol leader, was elected after a fierce campaign in 2004, beating the Kremlin-supported candidate Raul Khajimba, who is now vice-president.

President Bagapsh might not attend international summits or have a private jet but thanks to Joseph Stalin, he does have official residences that would be the envy of any recognised leader. Stalin had five dachas built along the Abkhaz coast; the most impressive a pastel-green mansion hidden in the trees 250 metres above the sea at Gagra. Tired from purges and five-year plans, the generalissimo would visit during the summer, with the house surrounded by 3,000 guards. Now it’s used by President Bagapsh to receive guests and, according to the guards, who now number two, he last visited early this year, when he took a working break with Russia’s economy minister German Gref.

Abkhaz is a Caucasian language that uses the Cyrillic script, but Russian is spoken by all and used as a lingua franca. Abkhazia has a green-and-white striped flag, with a white hand “of friendship” and seven white stars on a red background in the upper left corner. It has a national church and a national anthem (first line: “Join forces, sons of Abkhazia”), but not its own currency.

“After the conflict, we decided to use the Russian rouble,” says Minister of Economy Kristina Ozgan, who has been in the cabinet for two years and is studying for an economics doctorate in Moscow. We meet in her office, which features a portrait of President Bagapsh and three telephones that ring at 30-second intervals, often simultaneously with her mobile. She takes every call without apologising and dishes out curt orders to the people on the other end. For now, she says, Abkhazia will stay with the rouble. “Maybe at some point in the future we’ll think about developing our own currency, but for now it suits us.”

Georgia accuses Russia of running Abkhazia as a protectorate and certainly without Moscow’s support, the economic position would be even worse than it is now. But from the Abkhaz side, the Russian influence is more pragmatism than anything else. For example, Russia has been criticised for giving out Russian passports to anyone who wants one over the past few years – and it’s true that this is a calculated policy by Moscow to increase its influence in Abkhazia. But the green Abkhazian passports are useless for international travel, making Russian passports the only option for those who want to leave or travel.

“The Abkhaz see Russia as a very fickle ally, but it’s the only ally they’ve had for many years,” says Jonathan Cohen, of the NGO Conciliation Resources, who has worked on the conflict for more than a decade. As Abkhazia is an unrecognised country, there are no foreign embassies. In fact, the diplomatic community based in the Abkhazian capital Sukhumi numbers one – Astamur Kakalia, who is the special representative of Transdniester, another breakaway state, fighting for independence from Moldova. “Our peoples want to join forces to achieve independence,” says Kakalia, who is working on organising a football match between the two “national” sides – after all, they have nobody else to play against.

Communication is also a problem. The post office at Gali is a chilly, cavernous building; the clerk has been working here since 1969. She last sent a letter in 1991 and when we visit she is reading a book to her daughter. Telegrams are the best means of communication on offer, filled out on forms marked “USSR Ministry of Communications”.

“When a telegram arrives, we write it down and give it to someone who works at the market to give to the recipient,” she says. But the ancient coexists with the modern and the post office is also the place to top up mobile phone credit. Local operator Aquaphone, reportedly financed by Russia’s MegaFon, advertised its 50,000th SIM card sale in April this year.

“Salaries have risen between 30 and 50 per cent in the state sector over the past three years – and even faster in the private sector,” says Ozgan. But, despite the growth, incomes are low – Minister of Justice Ludmila Khodzhashvili estimates the starting salary for a judge could be 800 roubles (around €23) a month. According to the Tax Ministry, 404m roubles (around €11.5m) of taxes entered the state budget in 2006, not much with which to run a country.

In the regional administration building in Gali, local tax service head Yevgraf Vardania, a cheerful ethnic Georgian, explains how the system works on the ground: “In each village there is a head collector, who has enthusiastic volunteers to help him to collect the money. There are never any problems with not paying.”

With almost all of the region’s industrial infrastructure destroyed in the war, the Abkhazian economy is heavily reliant on tourism, which has begun to pick up again, although it’s still at only a third of its pre-war levels. According to tourism minister Tengiz Lakerbaia, 600,000 tourists visited Abkhazia in 2006, the vast majority of them Russians. “I went to a tourism fair in Moscow recently and ­the operators were all saying they need more places – there’s high demand for Abkhazia,” insists Lakerbai.

The oddly named Near Gagra was the former “Sanatorium of the 17th Congress of the Communist Party of the Soviet Union”, where former top brass from Moscow came to relax. A giant cast of Lenin still greets visitors in the foyer. During the war it was taken over, first by Georgian and then Abkhazian forces, but has now reopened under the name Hotel Amra. The most expensive room costs 2,400 roubles (€68) a night, which includes full board, use of the private beach and medical examinations.

But away from the northern tourist resorts, the scars of war are all too visible. Even in Sukhumi, ruined buildings provide a reminder of the conflict on every street. It’s rare to find a person who didn’t lose family or friends during the war, before which Gali was populated almost exclusively by ethnic Georgians. Around 40,000 have returned and find themselves viewed with suspicion by both the Abkhazian authorities and the Georgian government in Tbilisi. The central railway station stands in ruins and an uneasy air hangs over the town. Unemployment is high and criminal gangs from both sides prey on the population.

An hour’s drive away, along a badly potholed road, is Tkvarchal, a coal-mining town and once the industrial centre of Abkhazia, which is celebrating 65 years since its foundation with a concert and dancing. Since the war, the population has shrunk and the mines have lain idle. Alexei Shonia, his chest decorated with Second World War medals, tells how he came to Tkvarchal in 1946, “straight from the siege of Berlin”. He then spent 45 years working in the coal mines before heading for the front in 1992, aged 72, to fight the Georgians.

“Both wars were hard on us,” he says. “But, since the war with Georgia, life has become really difficult. This used to be a beautiful town. Now everyone has gone.”

The area did not see fighting, but was under siege – and time has been almost as hard on the buildings as bombs. Down the road, in the small town of Akarmara, custom-built for coal miners, handsome, salmon-pink, five-storey houses stand decaying and deserted, save for the occasional goat or rummaging piglet. From a second-floor window, a moustachioed drunk appears and begins to shout incoherently. He disappears as quickly as he had emerged and the silence returns.

These forgotten towns in the south of Abkhazia make it obvious that, even if the tourists are returning, there’s a lot to do before anything like normality returns. “If we want to develop our resorts, we need the parallel development of an agricultural and industrial sector,” says Ozgan. In order to stimulate investment, the tax burden is low – VAT is 10 per cent, profit tax is 18 per cent and income tax a flat rate of just 10 per cent.

One businessman to benefit from this is Rauf Dzhikirba, a charismatic Abkhaz, who has set up a small business making adzhika, a fiery local condiment. He expects his product to be a big hit on the Russian market, where it will sell for around 150 roubles (about €4) a jar. The enterprise is currently being run from a small hut behind a former psychiatric hospital in central Sukhumi, but demand is so high that Dzhikirba is building a factory on the outskirts of the city. The problem is that the commercial credit he took carried a 42 per cent interest rate – it’s not easy to take out a loan in Abkhazia. Oh, and then the Slovakian jars Dzhikirba uses to package the product have to come through Moscow, where the labels are also printed. Then the jars and labels are transported to Sukhumi where they are filled with adzhika before being transported back to Moscow for sale. It’s a logistical nightmare.

“Business needs guarantees, which can only be given by a stable, recognised country,” sighs Ozgan. “De facto, we are a real country, but the thing that is holding our economy back more than anything else is that we are not recognised. Even if we massively increase our production, we’ll have problems with export codes and documentation.” That’s what discussions always come back to. True economic progress could only come with some kind of international status, either as part of Georgia or as an independent country. The former option is discounted by everyone from schoolchildren to ministers, without exception, while the latter is not on the cards.

“The history of humanity has shown borders are always changing,” says Shamba. “Think how many times in the 20th century borders in Europe changed. To think the moment has come when this process is over is absurd.” The Georgians would point to the fact that, before the war, ethnic Abkhazians numbered just 17 per cent of the population and that there are thousands of Georgian refugees waiting to return to their homes in Abkhazia. But today in Abkhazia, nobody sees their future as part of Georgia.

On the outskirts of Sukhumi is the Abkhazian State University, where Shcharidan Tyrkba, a young English teacher, leads a class of first-year students. She won a scholarship to spend a year in Pennsylvania and then studied English at Rostov University in Russia. “I had the opportunity to stay in the United States or get a job in Russia, but I love my country and I wanted to come back,” she says. “If people like me don’t come back, what hope is there?”

In the international relations faculty, five second-year students discuss their ambitions over coffee and cigarettes. “The most prestigious thing for us would be to enter the foreign ministry,” says 20-year-old Irakli Dzhishkariani. “That’s what we’re all dreaming of – to become diplomats and travel the whole world.” When confronted with the fact Abkhazia has no embassies, he sighs. “Yeah,” he says. “That’s a big problem.”

01 Open a guesthouse. Some 600,000 tourists go there every year and only 100,000 stay in big hotels. Renting rooms to visitors is a vital source of income.
02 Open a hotel. Otar Kakalia has opened Sukhumi’s first “boutique hotel”. With rooms at €70 per night, he makes a profit despite the fact he can’t take credit cards.
03 Become a shuttle trader. Almost everything comes into Abkhazia via the border with Russia. Hundreds of people drive to Sochi every day to bring back fruit, meat and other produce to sell on Sukhumi’s market.
04 Start a gang. In the hazelnut and mandarin seasons, gangs of all nationalities leap into action smuggling Abkhazia’s major homegrown products out of the country.
05 Go to Moscow. Many Abkhazians head to Russia to work and send money home.

There are three other breakaway states among the rubble of the former Soviet Union. Nagorno-Karabakh (population 138,000) is officially part of Azerbaijan, but functions as a protectorate of Armenia. The Azerbaijani and Karabakh armies still face off against each other from trenches 200 metres apart. The region recently held elections to press its case for independence.

Transdniester, a sliver of land with 550,000 inhabitants, broke away from Moldova 15 years ago. Last year its people voted to join Russia, but for now the region remains in limbo.

South Ossetia is the least viable of the three. Like Abkhazia, it is officially part of Georgia, but has no coastline, no industry and a population of just 70,000.