Inconsistencies Inhibit Moscow’s Attempts to Boost the North Caucasus Republics’ Economies

Publication: Eurasia Daily Monitor Volume: 8 Issue: 89

On May 4, Russian Prime Minister Vladimir Putin presided over a government meeting on the socio-economic development of the North Caucasus. Putin announced the decision to allocate nearly $2 billion for an investment protection fund for this risk-prone territory. In addition the government corporation for North Caucasus development opened a credit line of $250 million for the five prioritized economic projects in the region that require over $2 billion in investments. The $2 billion protection fund was designed to insure potential creditors, including Russian and foreign banks and international organizations, against losses of up to 70 percent of their long term investments (three to 10 years). Only projects worth $11 million or more are eligible to receive government guarantees (http://premier.gov.ru, May 4).

The direct government investment of $250 million that has been confirmed so far is a rather modest piece of the grandiose plans announced in 2010 to flood the North Caucasus with money — up to $15 billion — to create five major ski resorts in the mountains. The obvious trimming down of the government investment plans may have been caused by reluctance on the part of private investors to come to the region, as well as overall belt-tightening and resource reallocation in Moscow. Moreover, with widespread skepticism among experts about the development of tourism in the North Caucasus at a time when security concerns seem to overwhelm political decision-making in the region, wide-ranging promises of injections of cash may have been designed as pure bluff for political ends.

At the May 4 government meeting, which took place in the town of Yessentuki in the Russian-speaking Stavropol region, Putin scolded the responsible ministries for the fact that Chechnya had not come up with any investment projects that would make use of the government guarantees for investors. “Minfin [the Russian finance ministry] refers to the poor design of the projects [in Chechnya],” Putin told the ministers. “You know what? One can refer to anything one likes. If they are poorly designed, help them. Help them!” (http://premier.gov.ru, May 4). This incident would seem to point to a low level of confidence in Ramzan Kadyrov’s government, which is apparently unable to come up even with satisfactory descriptions of economic projects.

The five priority projects that the government is determined to support now are a project for extracting copper and zinc in southern Dagestan, developing a chemical plant in Stavropol region, building resort areas in Karachaevo-Cherkessia and Chechnya, and developing a tourist and resort area in the southern areas of Stavropol region. It is worth noting that two out of the five projects are located in the Russian-speaking Stavropol region, which is significantly better off in terms of unemployment and per capita income than the North Caucasian republics. Besides, Stavropol already has a big chemical plant near the city of Nevinnomysk and considerable tourism and resort infrastructure in place in its southern areas, commonly referred to as Caucasian Mineral Waters and partly dating back to the tsarist period. Tourism infrastructure had also seen some development in Karachaevo-Cherkessia prior to the government’s most recent announcement.

The fate of the copper and zinc extraction project in Dagestan is uncertain. The Russian Copper Company won the tender for the development of Kizil-Dere extraction point as early as 2006. However, according to the head of Dagestan, Magomedsalam Magomedov, “practically nothing has been done since then.” Preliminary estimates of copper deposits are about 1 million tons and zinc deposits of about 130,000 tons. In current prices the copper alone is worth about $3 billion. However, the copper and zinc deposits were discovered in Kizil-Dere in the early 1960s, but because of the environmental risks the project dragged on and eventually was abandoned completely in 1984. The Kizil-Dere area is populated by Lezgins and they are one of the major ethnicities of Dagestan that are capable of serious ethnic mobilization. So it is unclear whether the Russian Copper Company, even with Moscow’s backing, will be able to overcome local opposition to the project (www.kavkaz-uzel.ru, May 6).

The only project that would potentially be built from scratch is the resort area in Chechnya’s mountains. Earlier, in November 2010, a well-known Moscow businessman of Chechen origin, Ruslan Baisarov, announced plans to build a world-class ski resort in his home village of Veduchi in Chechnya. Baisarov promised to invest $400 million in the project over the course of the next three years. The project envisioned building 17 ski tracks, with a capacity of 12,000 skiers per hour, hotels and other infrastructure. The existing ski resorts in Kabardino-Balkaria and Karachaevo-Cherkessia received an estimated 4,000 tourists in 2010, while the flow of “lower end” tourists from central Russia was decreasing because of the growing travel costs (Kommersant-Daily, November 23, 2010).

Either because the Russian government’s plans for the economic development of the North Caucasus are still in the making or because the government is not particularly serious about its statements in the pre-election period, its announcements often contradict each other. Initially, ski resorts were planned to be built in Dagestan, North Ossetia, Kabardino-Balkaria, Karachaevo-Cherkessia and Adygea. No plans existed in the Russian government’s strategy published in September 2010 for building a ski resort in Chechnya. Later, Moscow’s envoy to the region, Aleksandr Khloponin, even further narrowed the government plans to developing resort areas in Kabardino-Balkaria, Karachaevo-Cherkessia and North Ossetia at the initial stages. Now, the construction of a ski resort in Chechnya seems to have been prioritized over Moscow’s previous priorities. Nothing precludes the Russian government from changing the priorities once again in a few months.

It must be said, though, that there are circumstances outside of Moscow’s control that also influence its decisions, illustrated most graphically by the February 2011 attack in which suspected militants killed several tourists from Moscow in Kabardino-Balkaria. Shortly afterwards, the Russian government expressly banned tourists from coming to the republic and imposed a counterterrorism regime in most areas of Kabardino-Balkaria that has been in place to this day. Economic project-mongering appears to be one of the primary trends in Moscow’s approach to the North Caucasus, which leaves the region with bleak prospects and many disappointments in the near future.