Dagestan’s Industrial Output Grows Strongly—Thanks to Defense Spending and Loss of Russian Facilities in Ukraine

In the first ten months of 2014, the industrial output index in Dagestan grew by 139.8 percent—record industrial growth among Russia’s regions. Moreover, in 2013, the republic’s industrial output index grew by an enviable 137.5 percent. These astonishing figures for the economically depressed republic led some observers and Dagestan’s leadership to make triumphant declarations. However, Dagestan’s impressive growth statistics are likely due to the infusion of government funds into the republic’s military industrial complex rather than sustained economic growth. Since the starting industrial output base of Dagestan was low, any additional infusion of funding carried a large statistical weight. In 2013, Moscow injected the equivalent of $73 million into Russian military industrial plants in Dagestan, an increase of about 50 percent over the previous year, when the financing level was about $48 million (kavpolit.com, November 18).

At a meeting in July with Russian President Vladimir Putin, Dagestan’s governor Ramazan Abdulatipov said his government had started to reduce youth unemployment in the republic. Young people comprise an estimated 30 percent of Dagestan’s total population, or about 1 million people. According to Abdulatipov, the government created thousands of workplaces in the republic through developing agricultural enterprises that require a significant seasonal workforce (kremlin.ru, July 4).

Dagestan’s economic growth, however, is far less impressive when the situation is viewed from a different angle. On November 27, Dagestan’s parliament passed the republic’s 2015 budget in the first reading. The revenues of the republican budget are estimated to be about $1.6 billion, of which more than $1 billion is expected to come from the Russian federal budget (chernovik.net, November 27).

According to official statistics, Dagestan has 30 industrial plants that produce machinery, 11 of which belong to the Russian military industrial complex. By far the largest industrial plant among them all is a company called Dagdizel in the city of Kaspiisk, which is Makhachkala’s satellite city. In 2013, Dagdizel signed a contract with the Russian Ministry of Defense worth nearly $180 million. This large contract allowed the Dagestani company to increase its output by dozens of times. Dagdizel produces torpedoes, and in the current war climate, its financing is growing accordingly, along with some other, smaller plants that manufacture military equipment. However, the much larger civilian economic sector has suffered losses. Oil production decreased in the republic, while large reserves in the Caspian have remained untapped. Electric energy production has also experienced a slump in production. Alcohol producing industries have reduced their output and are projected to reduce output further in 2015. Machinery-producing enterprises that were unable to secure government funding also face significant reductions in output (kavpolit.com, November 18).

Hailing Dagestan’s new, industrial image, Abdulatipov held a phone-in conference at a new glass producing factory in Kaspiisk. The Dagestani governor reiterated that the republic captured first place among Russia’s regions in terms of industrial growth. Abdulatipov solemnly proclaimed a new era of progress and fast-paced socio-economic success in Dagestan. However, these types of proclamations have been quite common in Abdulatipov’s vocabulary since he was appointed governor almost two years ago. He also pointed to more mundane reasons for Moscow’s sudden interest in the remnants of the Soviet-era military industry of Dagestan. According to the governor, international sanctions against Russia and the precarious situation in Ukraine forced Moscow to turn to the production of torpedoes in Dagestan (kavpolit.com, November 27).

Thus Dagestan, apparently, has unexpectedly benefitted from the Russian invasion of Ukraine and the interruption of supplies for the Russian military industrial complex from Ukraine. However, the larger picture of the republican economy remains bleak and is becoming worse. The infusion of federal funds is outweighed by budget cuts and losses of other Dagestani industries that sold products in the Russian market, such as brandy and other alcoholic beverages. Tax evasion, the precarious security situation, and the embezzlement of government funds have become such significant problems in the republic that some locals are even calling on Moscow to divide Dagestan into ethnic regions that would each take care of their affairs more diligently (forum-dag.ru, November 28).

The infusion of government funds not only gives some boost to the Dagestani economy, but also attempts to shape the republic’s economy in such a way that would increase employment in the government sector. Government employees, it is thought in Moscow, are easier to control and less likely to adopt Islamic ideology that is regarded as hostile to Moscow’s rule in the region.