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Russia: Kabardino-Balkaria Seeks To Break Out Of Economic Stagnation

(RFE/RL) On January 23, the Russian website posted a detailed analysis of the political and economic situation in the Kabardino-Balkaria Republic (KBR), highlighting in particular how corruption, nepotism, and incompetence within the republic's leadership since the collapse of the USSR  has contributed to economic decline, and how failure to reverse that decline and address popular grievances is in turn eroding support for Arsen Kanokov, whom Russian President Vladimir Putin named as KBR president in September 2005 in the apparent hope that he would eradicate corruption and reform and revitalize the economy.

The website construes the appointment of Kanokov, formerly a highly successful Moscow-based businessman, as reflecting a new "business approach" by the Kremlin to the North Caucasus in which appointees are given carte blanche to take whatever measures they consider appropriate in return for delivering the required political and economic results. The website does not, however, speculate whether that new approach, which it dismisses on the basis of Kanokov's track record as having failed dismally, may have been prompted by the trenchant criticism of corruption in the North Caucasus addressed to Russian President Vladimir Putin in 2005 by then-presidential envoy to the Southern Federal District Dmitry Kozak.

The anonymous authors of the analysis trace the current crisis situation in the KBR to the privatization process that transferred total control of the economy to a small group of local elites, a process that was facilitated by the lack of legislation protecting the interests of small-business owners. Moreover, privatization "from the top down" placed Balkars and members of other minorities at a disadvantage vis-a-vis the Kabardian elite. The Balkars, who are concentrated primarily in mountainous districts, suffered disproportionately from the introduction of legislation that transferred ownership of land located between villages (used by Balkars for grazing purposes) from the local authorities to the republic's government, which has hopes of using it to build lucrative exclusive ski resorts. The Balkars staged protests in 2005 against that legislation, which Kanokov has since suspended; the Russian State Duma has formed a working group to study it, according to on January 29.

Over the past 16 years, noted, the industrial base of the KBR has virtually collapsed. The industrial flagship, the Tyrnyauz Mining Complex, is standing idle and no potential investors have yet shown an interest in it, even though it is reportedly located in close proximity to half the world's reserves of wolfram and molybdenum. Most defense-industry plants too have closed, or continue to operate at limited capacity purely on the basis of government subsidies. The only flourishing branch of industry is the production of vodka and other alcoholic beverages.

The agricultural sector is likewise run-down, with the result that unemployment in the KBR is officially estimated at 23 percent -- three times the national average -- although the true figure is believed to be far higher. Almost 20 percent of the population lives below the poverty line.

Statistical data cited by Kanokov at a government session on January 10 attended by visiting Russian Prime Minister Viktor Zubkov and several other federal ministers only serve to substantiate the conclusion the KBR has made only modest economic progress in the two years since Kanokov's appointment. True, Kanokov noted that whereas two years ago federal subsidies accounted for 65 percent of the republic's annual budget, the figure has now fallen to 57 percent, and he predicted that by 2010 it will be down to 50 percent, and by 2022 to zero, reported on January 10.

But Kozak, in his current capacity as federal minister for economic development, noted that while the percentage of federal subsidies in the republic' s budget has declined, the actual sum of money involved has trebled over the past seven years, according to And Zubkov pointed that the greater part of those subsidies still goes on salaries for budget-sector employees, rather than the modernization of obsolescent enterprises or creating new jobs, according to Kozak also observed that the KBR has a total of 1,600 federal officials and 3,000 republican officials; the republic's total population is approximately 900,000. Regional Development Minister Elvira Nabiullina deplored the fact that not a single foreign investor has channeled money into the republic since 2003, a failing that Kanokov blamed on sensational Russian media reporting that depicts the North Caucasus as inherently unstable and thus frightens away potential investors.

Addressing the January 10 meeting with Zubkov and other federal ministers, Kanokov identified as a top priority increasing or resuming production at four unidentified Defense Ministry enterprises, and the federal representatives reportedly agreed to provide funding to modernize the plants in question. Kanokov predicted that the resumption of production at those plants would help reduce unemployment, but, according to, most of the highly qualified workers who were pensioned off when the plants closed or reduced production have since died. The federal ministers did not, however, immediately agree to Kanokov's request for additional federal funding for the reconstruction of Nalchik airport and selected highways.

Kanokov identified as further potential growth areas agriculture and tourism. He predicted that investment in tourism, particularly ski resorts, could raise the contribution made by that sector to the republic's budget from 1 percent to 25 percent by 2010. Some federal funding will be provided from the "South" federal program to develop ski resorts that will be used during the 2014 Olympic Games in Sochi.

At a cabinet meeting on January 25, Industry Minister Kazim Uyanayev unveiled a three-year industrial development program for the period 2008-10, reported. That program includes the modernization of the four defense-industry plants, and that of the Tyrnyauz Mining Complex. The total cost of the program, which will create some 2,965 new jobs, is estimated at 4.6 billion rubles ($188.6 million). But even those measures are implemented within the planned time frame, they will take time to bear results; meanwhile, political instability and the alienation of much of the republic's population from the leadership is only likely to increase.

RFE/RL Caucasus Report

RFE/RL Caucasus Report

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