Russian Companies Say Moscow Stopped Urging Them to Invest in the North Caucasus

On March 6, the government-funded company Northern Caucasus Resorts reported that the Russian Ministry for Regional Development approved including the Veduchi multi-purpose resort project in Chechnya’s special economic zone. The decision opens the way for investing in this enterprise under preferential conditions. According to the government’s plans, 520 hotel rooms, 32 kilometers of mountain ski routes and other relevant infrastructure will be built in Chechnya, making it possible to serve 14,000 tourists per hour. Construction is expected to start this year, and the cost of the project is estimated at nearly $500 million. Despite its inclusion in the special economic zone, all investment is expected to come from the government and government-supported banks (https://www.ncrc.ru/ru/news/zayavka-ooo-veduchi-na-poluchenie-statusa-rezidenta-odobrena-ekspertnym-sovetom).

The Russian government’s promise of investments, however, may not materialize any time soon, given that such promises have not materialized elsewhere in the region. Following years of optimistic statements about the region’s economic development, Moscow’s envoy to the North Caucasus, Alexander Khloponin, has been much more reticent lately. Increasingly squeezed economically, the Russian government has less to invest in projects in the peripheral areas, even important ones like the North Caucasus. Also, after the Olympics in Sochi, Moscow is no longer under pressure to provide incentives to the North Caucasian republics that would approximately match government spending in neighboring Krasnodar region, which is geographically located in the North Caucasus.

While Moscow previously attempted to pressure private and government companies to invest in the North Caucasus, experts note that the government is now doing the opposite. The RusGidro hydroelectric company reregistered its subsidiaries located in the North Caucasus in Moscow after conflicts with the North Caucasian republican authorities in 2013. The Russian government did not oppose this decision, even though the company will now pay taxes in Moscow instead of the cash-strapped North Caucasus, where some of its hydroelectric plants are. The behemoth Russian government oil company Rosneft planned to build an oil refinery in Chechnya that would have a capacity of 1 million tons per year. However, the manager of the company, Igor Sechin, recently said: “We cannot implement it [the refinery project] at a loss. Rosneft has good relations with the leadership of Chechnya, but we have to be realists when it comes to implementation of large investment projects.” The only companies that continue to have some interest in the North Caucasus are the large Russian retailers that have come to the region, although even they are not particularly enthusiastic (https://kommersant.ru/doc/2404986).

The archaic political regimes promoted by Moscow in the North Caucasus create a climate hostile to business. In 2013, the Russian government ordered that the governors in Dagestan, Ingushetia, North Ossetia and Kabardino-Balkaria be appointed instead of being directly elected. Significant security risks also preclude long-term investment.

Some South Caucasian analysts hinted that the Sochi Olympics necessitated close cooperation between the Russian security services and the South Caucasian authorities to improve the security situation in the Caucasus (https://www.ng.ru/regions/2014-02-19/3_kartblansh.html). However, cooperation between Russia and the South Caucasus states is highly questionable and it is unclear how and why exactly such cooperation would improve the security situation in the North Caucasus. The Russian government is not simply a government struggling with an insurgency in the North Caucasus: it is part of the problem itself. Moreover, Moscow may in fact be the largest part of the security problem in the North Caucasus, as no similar levels of violence have been reported in the South Caucasus countries, which have similarities to their northern neighbors.

Russian experts blame the Russian government’s failures to develop the North Caucasus on Alexander Khloponin. Moscow’s envoy reportedly failed to take hold of power fully in the North Caucasus, which meant that strong regional governors like Ramzan Kadyrov, Ramazan Abdulatipov and other actors resolved their problems through direct interaction with Moscow, rather than with Khloponin. Initially, Moscow promised to give Khloponin over $10 billion for various economic projects in the North Caucasus, but then withdrew those promises. Khloponin’s greatest problem, according to experts, was that he could not control the Russian law enforcement agencies operating in the North Caucasus (https://kommersant.ru/doc/2404986). Having limited resources, Moscow’s envoy became only one of many actors in the North Caucasus, with no influence whatsoever on the local heavyweights like the leaders of Chechnya and Dagestan.

The economic revival strategy half-heartedly implemented by Moscow using a typical Russian top-down approach has essentially been pronounced dead. The peculiarity of the Russian expert community, let alone the government, is that they do not take into account the North Caucasians themselves. The people of the North Caucasus are seen as subjects of Moscow’s experiments, rather than subjects with their own will, aspirations and skills. Instead of allowing the region to develop at its own pace and on its own terms, of allowing the locals to elect their regional authorities, and of opening the region up to the world, Russia consistently deprives the region of a future by limiting personal and political freedoms and supplying cash to its appointees. This strategy is good for producing docile regional leaders, but is certainly harmful for regional development.