Impact of Sanctions Likely Causes Moscow to Halt North Caucasus Tourism Projects

Moscow’s much-advertised grand project in the North Caucasus since 2010, the creation of a ski tourism industry, has ceased to exist. In a speech to the Federation Council on June 18, Russian Deputy Prime Minister Alexander Khloponin said the government was suspending several projects within the tourism development program known as North Caucasus Resorts. Dagestani businessman Akhmed Bilalov, who was the program’s first CEO, was removed from his position after three years for unsatisfactory performance in building Olympic sites in Sochi (vedomosti.ru). After he was dismissed, Bilalov hurriedly left the country and settled in Europe, hoping to avoid criminal prosecution.

At the start of the project, the plan was to build seven resorts in the North Caucasus: Arkhyz in Karachaevo-Cherkessia, Lagonaki in Adygea, Elbrus-Bezengi in Kabardino-Balkaria, Mamison in North Ossetia-Alania, Matlas in Dagestan, Armkhi-Tsori in Ingushetia and Veduchi in Chechnya. Having stepped down as the Russian president’s envoy to the North Caucasus Federal District (kavpolit.com, May 16), Khloponin suddenly realized that four of the seven projects were not viable and would never be profitable. Only three resort zones remain on the Russian priority list: Arkhyz, Elbrus-Bezengi and Veduchi (lenta.ru, June 25). The first part of the Arkhyz ski resort was launched only several months ago and further massive investment will be required (vesti.ru, January 18).

The second word class ski resort, Elbrus-Bezengi, has been slated for completion by 2020 (ria.ru, July 31, 2013). Finally, the third resort, Chechen Veduchi, which the government approved, exists only on paper thus far. But unlike the other resorts it might be built with minimal state funding and financed mostly through private investment (realty.rbc.ru, November 27, 2013). It is estimated that the resort will be ready to receive its first visitors in 2018.

Moscow’s refusal to fund the North Caucasus Resorts project came as an utter surprise to the regional authorities. Indeed, work on building Dagestan’s Matlas resort was set to begin in August. Suddenly, officials in Moscow realized that the name Mt. Matlas means “No Snow” in Avar (kavkaz-uzel.ru, June 21). For some reason, nobody asked Bilalov, the fugitive businessman, about this at the time. Bilalov originally came from the area and fervently pressed ahead with the project.

As for the Ossetian resort, after four years of strenuous research, the authorities figured out that the road infrastructure and bridge together would cost more than $500 million. Since Russian coffers have been substantially drained lately, the government decided to leave the Mamison Gorge intact (wordyou.ru, June 27).

The future of the Ingush resort, Armkhi-Tsori, however, remains unclear. It is unknown what will become of the infrastructure that has already been built, as a ski slope for novices and children has been constructed. The resort did not really aspire to attract skiers: the expectation was that tourists would come to enjoy the picturesque nature and the mountainous architecture that dates back to the Middle Ages (ingword.su, June 26). Armkhi was constructed at an elevation of only 1,500 meters, where snow coverage is unstable even during the winter. As a result, its inaugural ceremony had to be moved to another location because of the absence of snow. The main reason for dumping the ski project in Ingushetia, however, is that the republic remains unstable (ecpol.ru, July 31, 2013).

The failure of the Adygean resort Lagonaki was tied to the need for large investment and the complete absence of infrastructure (osinform.ru, June 26). The same could be said about the Chechen resort, Veduchi, which also has no infrastructure at the moment. The only difference is that unlike the other projects, in Chechnya there is a leading investor—businessman Ruslan Baisarov—and, of course, there is the personal influence of Ramzan Kadyrov, who does not want to be deprived of having his own ski resort. Kadyrov has aggressively lobbied for the inclusion of Veduchi in the North Caucasus ski resort program for the past three years.

In light of these developments, the conclusion is that Russian authorities have practically jettisoned everything they have been advertising for the past four years. According to the Russian government’s plans, the tourism development program was supposed to resolve many social issues in the North Caucasus—above all, the problems with unemployment and lack of investment in the region. However, the region is obviously not the flagship of investment projects in the Russian Federation. According to Ekspert RA’s investment rankings for 2013, Chechnya and Ingushetia received the lowest possible rating of 3D—low potential, extreme risk. Kabardino-Balkaria, North Ossetia and Karachaevo-Cherkessia were ranked 3C2—insignificant potential, high risk. Dagestan was ranked 3C1—not high potential, high risk. Stavropol region was given a ranking of 3B1—not high potential, moderate risk (sobesednik.ru, June 21).

The outlook for corruption in the North Caucasus is also fairly bleak. In April, a civil organization, Bezopasnoe Otechestvo (Secure Homeland), published a report that designated Chechnya, Dagestan, North Ossetia, along with Chukotka, among the top regions when it comes to corruption in the area of state purchases (Kommersant.ru, December 19, 2013).

Aside from the issue of corruption, there is also the daunting challenge of the regional insurgency. Moscow’s planned tourist infrastructure was supposed to be built in a region where in May 2014 alone, even according to official data, at least 52 people were victims of the armed conflict between the authorities and Islamists, 36 of whom were killed and at least 16 injured (kavkaz-uzel.ru, June 24).

The decision by the Russian government to suspend the development of a tourism cluster in the North Caucasus is an indication that from the very beginning the program was not well thought through from the standpoint of the political, religious, interethnic and criminal situation in the region. The surprise move by Moscow to curb the program is likely related to the Russian occupation of Crimea, Russia’s actions in Ukraine and corresponding sanctions against Russia. The end of the ski resorts program is the first observable impact of the Crimea and Ukraine related sanctions on the North Caucasus.