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

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Russian Companies Say Moscow Stopped Urging Them to Invest in the North Caucasus
Publication: Eurasia Daily Monitor Volume: 11 Issue: 45
March 10, 2014 05:59 PM Age: 1 day
By: Valery Dzutsev

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 (http://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 (http://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.