Russia’s Grand Vision for the Development of North Caucasus Remains Unrealistic

Publication: North Caucasus Weekly Volume: 12 Issue: 3

On January 26, the Russian government gave a presentation of the North Caucasus ski resorts project at the World Economic Forum in Davos, Switzerland. It was aimed at attracting much needed foreign investment to the enterprise, which the government hopes will solve this volatile region’s problems (Kommersant, January 27). Moscow’s envoy to the North Caucasus, Aleksandr Khloponin, had a tough time selling the project to potential foreign investors, having himself to admit that the North Caucasus was a “tense territory” where a great deal of work needed to be done to fight terrorism and corruption (Kommersant, January 27).

Russia’s presentation of the North Caucasus ski resorts project took place just days after the suicide bombing attack at Russia’s busiest international airport, Moscow’s Domodedovo on January 24. President Dmitry Medvedev cut his Davos program short because of the attack, delivering a long speech at the beginning of the forum, which included the puzzling remark that the Domodedovo attack was designed to prevent him from attending Davos. Since the North Caucasian insurgents were immediately widely suspected of being behind the attack, the presentation of a multibillion-investment project in the North Caucasus looked like a particularly tough sale to make.

The project, tagged Peak 5642 (the height in meters of Mount Elbrus, the tallest mountain in the North Caucasus), is expected to produce world-class ski resorts in Dagestan, North Ossetia, Kabardino-Balkaria, Karachaevo-Cherkessia, Adygea and the Krasnodar region. The cost of the project is estimated at $15 billion, $13 billion of which is expected to come from private investors. Akhmed Bilalov, a businessman of Dagestani origin and a government official in Krasnodar, was appointed in December 2010 as the head of the government-financed company overseeing the project. The Russian government is certainly aware of the investment risks in the North Caucasus and is trying to attract investors with lucrative tax breaks. Currently, freeing the investments from all taxes except a VAT and allowing investors to bypass environmental and administrative regulations are under discussion (www.vedomosti.ru, January 26).

While Moscow is out looking for $13 billion to invest in an ambitious venture in the North Caucasus, the Russian government is expected to spend at least $30 billion on preparations for the 2014 Winter Olympics in Sochi on the Black Sea coast. This comparison reflects the government’s priorities and the scarcity of financial resources. In December 2010, when Russia unexpectedly won the right to host the 2018 soccer World Cup, Chechen leader Ramzan Kadyrov offered to host some of the games in Grozny. Aleksandr Khloponin rebuked Kadyrov by saying that public safety in the region was still unsatisfactory and “in order to avoid the international community [‘s obstruction] under any pretext, we will not take this risk, since we have many opponents and adversaries who would not like to hold a tournament like that in Russia.” Thirteen Russian cities are expected to host the 2018 World Cup games, and none of them are located in the North Caucasus (RIA Novosti, January 21).

Many observers dismiss the glowing plans for the development of the North Caucasus as unrealistic. “The expression ‘ski resorts’ and the geographic name ‘North Caucasus’ correspond to each other approximately as peace to war,” wrote Moskovsky Komsomolets commentator Yulia Kalinina, suggesting the situation in the region is extremely precarious. Kalinina pointed out that the government would have to attract not only investors, but also tourists. The authors of the project plan to attract 10 million tourists to the future ski resorts every year, but this figure does not seem credible under the circumstances. At best, Kalinina wrote, the government’s efforts might “turn the North Caucasus into an Egypt with its well-defended islands of luxury surrounded by hopeless poverty” (www.mk.ru, January 29).

There are few prospects of attracting foreign tourist-skiers to the North Caucasus in any considerable numbers even though there always are some there. The overall number of foreign tourists in Russia in 2009 was 2.1 million (http://www.atorus.ru/ratings/analitic_mrch/new/4258.html). To Europeans, the region is going to appear not only dangerous, but also fairly distant in comparison to the ski resorts in the Alps. Due to corruption and the government’s inefficiencies, the resorts are bound to be pricey and feature poor service, as do the existing resorts around Sochi and the rest of the Black Sea coast. In addition, they will have to compete with rapidly expanding skiing opportunities in the South Caucasus, especially in Georgia, which has a much better record of maintaining visitors’ safety and other competitive advantages.

The geography of the project also matters. The majority of wealthy Russians who can afford spending considerable sums on skiing currently live in Moscow. The North Caucasus is approximately the same flying distance from Moscow as Austria – 1,000 miles. Even more importantly, the existing ski resorts in the Ural Mountains, to the east, are also about the same distance. The mountains in the Urals may not be as high, but they are certainly much safer.

The pitfalls of massive construction of ski resorts in the North Caucasus are so numerous and obvious that it is hard not to conclude that the Kremlin is using it for certain political ends rather than out of a real economic need. At the same time, it is quite clear that the purpose of this big project is not simply the development of the North Caucasus, but also subduing the region using economic means. Indeed, the Kremlin’s thinking must be that taking full control over the local economies in the North Caucasus would eventually suppress any dissent by the locals as they would be completely co-opted and effectively built into the Russian-owned enterprises. The project may seem attractive because it appears to be alleviating all the perceived and actual issues Moscow faces in the region in one step. However, Moscow’s plans, despite their attractiveness, are on shaky ground that they are hardly feasible for the foreseeable future.