Chechnya is one of the most dynamically changing regions of the Russian Federation and is a traditional priority within the Russian security agenda. The republic has been plagued by violent conflict for almost two decades. Currently, its fragile stability is threatened by ISIS infiltration, which could fundamentally change the regional security balance. However, the major risk for businesses could emerge not from an actual increase of physical violence, but from re-securitization of North Caucasus politics as a response to the ISIS presence.
Securitization in the North Caucasus
The Copenhagen School of Security Studies defines “securitization” as a set of socio-psychological biases which shift the political perspective of decision-makers to a security-oriented, threat-based, panic-thinking vision. In Chechnya, the political system was formed to fulfill the desire of both the Russian federal center and the local administrations to terminate large-scale violence and the threat to physical security. Securitization determined the decision-making process in such structures promoting the merger between economic and political goals while seeing local businesses from the lenses of counter-terrorism and counter-insurgency.
Since 2010, the federal center started to implement more flexible (link in Russian) and less militarized strategies. However, with the current new threat of ISIS, the impact of security-oriented structures could increase. As a result, policies empowering centralized governance, informal networks, neo-patrimonial relations, as well as promoting expropriation and nationalization, could become dominant, becoming the major source of political risk for business.
Centralized authoritarianism
Within the securitization bias, a monopoly on violence is associated (link in Russian) with a monopoly on revenue from natural resources. Such a view leads to strong centralization. In this context, central authorities in the Caucasus could develop a strong suspicion against any economic activity which is not directly controlled by the state system, since otherwise it may be seen as a security threat.
Currently, Chechnya is shrinking (link in Russian) the space for non-state-affiliated business. For instance, Gazprom Mezhregiongaz Grozniy, the company with the largest revenue, is directly affiliated with the state-owned Gazprom. Out of the top ten companies of Chechnya, four, Inkom-Alliance, High-Tech Project, Chechen-Plast, and Art, are receiving their revenues almost entirely from state contracting. These four companies control almost all the construction market, which is the most developed and lucrative investment segment of the Chechen economy.
Corruption and informal relations
In the 1990s, Chechnya faced a strong institutional (link in Russian) crisis which was aggravated by the two brutal wars. As a result, fragmentation of the society empowered informal social hierarchies of teips (clans) and virds (religious brotherhoods). This informal nature determines the political-business relationships in the region.
The revival of informal structures geared towards the needs of security-oriented strategies could lead to the resurgence of neo-patrimonialism in which officials exercise powers and hold positions as a form of their own private property. The strengthening of Akhmad Kadirov’s Foundation could pose even further risks. Established by Kadirov family and governed by top security officials personally loyal to Kadirov’s clan,this organization could drastically increase its market presence in order to provide more power and resources for Kadirov’s struggle against ISIS.
The Foundation has already established (link in Russian) its presence in the market via its affiliated companies: Liner-1, engaged in the manufacture of food products; Sapphire, which produces electrical equipment; Megastroyinvest, a government contractor for construction projects; and Layner-1, which controls (link in Russian) 49% of the shares of Grozniy-Avia, the major airline in Chechnya. For the purposes of risk-mitigation and prevention, these areas and companies should be considered strategic for the investment negotiation process.
Nationalization and expropriation
With the growing influence of ISIS, local power-holders would perceive themselves as constant crisis-managers, thereby assuming their unlimited rights to redistribute wealth and property as a manageable supplement to security needs. In this context, recent changes in the Chechen oil industry are particularly disconcerting. In 2014, the Russian government decided to set measures strengthening the local security apparatus in the Caucasus. One of the core initiatives was to create a strong economic monopoly on the major export resource – oil. In December 2015, the Russian government gave (link in Russian) full possession of the Chechenneftekhimprom company to Ramzan Kadirov, with control of the major oil fields in Chechnya.
Although Chechenneftekhimprom was owned by state-affiliated Rosneft, which possesses most of the oil industry in Chechnya, the case could be seen as a strong precedent (link in Russian) for rapid property re-distribution without an actual legal framework and could certainly affect private companies. Since 2013, Ramzan Kadirov has had an open conflict (link in Russian) with Rosneft. In this sense, the recent expropriation of Chechenneftekhimprom could be viewed as resource nationalism – an expropriation of property by a strong political leader to promote a political and security agenda.
Re-securitization as an opportunity?
In the field of political risk, the same event could become simultaneously a threat and an opportunity. In the case of Chechnya, the aspiration to increase regional security would most likely lead to stronger state investment in the region, leading (link in Russian) to the creation of new business projects. For instance, experts agree that the expropriation of Chechenneftekhimprom would lead to the modernization of the oil industry in Chechnya and investment (link in Russian) in oil refineries..
Empowered informal networks would not necessarily increase corruption, as, to a certain extent, they are ingrained in the local culture. This very same culture values collectivism, strong family cohesion, and communal solidarity. In Chechnya, clans often serve (link in Russian) as both providers of initial capital and safety nets. Village elders use their informal leverage to promote (link in Russian) small and medium-sized businesses in rural areas, increasing business opportunities. On an administrative level, a system of informal violation reports from citizens directly to Ramzan Kadirov through his Instagram web page promotes some guarantees for business. This is a neo-patrimonial relationship but it proves (link in Russian) to be efficient in defending private enterprises from unfair practices of state officials.
Therefore, the nature of security policy in the Caucasus, not infiltration by ISIS, would presumably create the most political risk for investors. As stated (link in Russian, and not found) by one of the most successful regional entrepreneurs, Vyacheslav Derev, in the context of the risk for doing business: “A fierce state official may inflict harm to business. which is many times more than all the terrorists combined.”
