The economics of the vicious circle
By Demis Polandov, special to Prague Watchdog
Although to many Russians the economy of the North Caucasus often seems like a never-ending drain on the federal budget, it does in fact play an important part in the economy of Russia as a whole. The region accounts for 8% Russia’s industry, and 16%. of its agriculture. The North Caucasus is a major supplier of oil, gas and coal, and a manufacturer of agricultural machinery. It possesses significant resources of rare and nonferrous metal ores (lead, zinc, silver, tungsten and molybdenum), which are found particularly in Kabardino-Balkaria, and its hydropower resources exceed 50 billion kilowatt hours.
At the same time, however, Russian government subsidies to the North-Caucasian republics are indeed extremely high. They contribute some 50% of the budgets of Kabardino-Balkaria and North Ossetia-Alania. In Karachai-Cherkessia and Adygeya the figure is approximately 60%, in Dagestan a little over 70%, and in Ingushetia and Chechnya it is around 85-90%, though the subsidies paid to Stavropol Krai, Krasnodar Krai and Rostov Oblast are much smaller.
For this there is a simple explanation. The political system that was forcibly built during Yeltsin’s presidency continues to exist virtually unchanged in the North Caucasus under Putin's “vertical of power”. Investment in the region, including domestic investment, is still driven by the North Caucasian warlords. The economically active members of the republics’ populations have moved to neighbouring regions in order to conduct their business in a more transparent and secure environment. In itself, this process of migration raises many problems. If one picks up any Stavropol newspaper one will see headlines like "Krai Losing Its Russian Face", and that is just for starters.
The ethnic Russian population is also leaving the North Caucasus republics – not because of any upsurge of Russophobia (in Dagestan, Karachai-Cherkessia, Kabardino-Balkaria and North Ossetia that is the lot of a few outsiders), but for the same economic reasons.
Nor is the ethnic nationalism limited to the private sector: the federal authorities are in no hurry to invest in the economies of the ethnic regions. The highway from Adygea to the Krasnodar Coast still has an 8-kilometre stretch of dirt road. The highways from Cherkessk to Abkhazia via Dombay and to Adler via Arkhyz exist only as projects, although everyone knows what a major effect they could have on Karachai-Cherkessia's economy. In Kabardino-Balkaria the Tyrnyauz Mining and Metallurgical Combine has stood idle since 2002. The combine, which operates on the eponymous deposit of tungsten ores, was the USSR’s largest producer of tungsten and molybdenum. Now the capital investment required for its technical upgrading and refurbishment amounts to 2.5-3 billion rubles, but the authorities have been unable to find investors to run the plant. And no wonder, for the launching of pointless counter-terrorist operations such as the one that took place this year in the Tyrnyauzsky district does not sit well with the search for investors.
It is not hard to imagine the hungry eyes with which residents of the North Caucasian republics view the golden rain that is now pouring down on Krasnodar Krai in the approach to the 2014 Sochi Winter Olympics. Moreover, the number of hungry eyes is steadily growing. By the beginning of 2009 the official unemployment figure in the North Caucasus stood at 600,000, yet in the first six months of the year alone it increased by another 80,000.
These hundreds of thousands of people stuck on what are essentially ethnic reservations constitute an ideal audience for the Islamists and local nationalists. In addition, the political elites of these ethnic republics make use of the local nationalists to scare the federal centre with the spectre of possible problems, and thus to retain their power. It is a vicious circle which today’s Russian government is either unable or unwilling to break.
(Translation by DM)