North Caucasus hopes to use the Sochi Winter Olympics to attract investment through improvement in tourism. Yet, insecurity, corruption and broken infrastructure make such dreams difficult to realize.
The President of the North Caucasus republic of Dagestan and his administration recently hosted a conference with the General Director of the North Caucasus Resort Joint Stock Company, Sergei Vereshagin, on the resumption of the company’s operations in the Russian republic. The visit was part of a broader tour by Vereshagin across the various republics and regions of the North Caucasus Federal District that included visiting the company’s first venue, the Arkhyz resort in the republic of Karachevo-Cherkessia, which opened in December.
During the conference, Dagestani President Ramazan Abdulatipov noted that “Dagestan is a region where the tourism sector could become the most profitable area of the economy.” This may be true, but the North Caucasus is still years from achieving such a goal.
The upcoming Winter Olympic Games in Sochi have given the greater North Caucasus region expectations that it can one day become a center for international tourism. Building on these hopes, the North Caucasus Resort Company was founded by the Russian government in 2010 to facilitate the development of the war-torn and impoverished region into an attractive center for tourism. The company has made a serious effort to attract international investors to the project, particularly from Turkey’s booming construction sector.
Given the region’s reputation for underdevelopment and political instability, it comes as no surprise that the North Caucasus Resort company has fallen prey to the corruption that characterizes North Caucasus business and politics. In May 2013, investigators opened a case on the embezzlement of $8.8 million in state funds by managers of the company.
This followed investigations into the former chairman, Akhmed Bilalov, who is accused of spending almost $100,000 in company funds on luxury travel, as well as misappropriating several million dollars. He subsequently fled the country. In December, Russia’s Audit Chamber criticized the company for only spending 20 percent of the funds that had been allocated for investment, reflecting poorly on the number of viable projects in the company’s portfolio.
In addition to political instability and corruption, the infrastructure of the region is in a deplorable state: Novaya Gazeta, an independent Russian newspaper, published an expose in December which revealed that electricity distribution in the region has never been in worse shape. Last year the North Caucasus republics reached a record $700 million debt for energy payments.
The infrastructure is so underdeveloped that half of the supplied electricity is lost in some areas. The former director of the Interregional Distribution Network of the North Caucasus, the company that runs the grid supplying most of the electricity, was recently arrested for fraud.
The violence that plagues the region has also targeted tourist infrastructure. In February 2011, three tourists in Kabardino-Balkariya were shot dead, and a ski lift was bombed at a resort near Mount Elbrus, Europe’s tallest mountain. Fortunately, violence has declined over the past several years, but the recent suicide bombings in Volgograd and the extraordinary security regime at Sochi highlight how the region’s instability is a continuing threat to the surrounding area.
Despite the positive announcements made at the meeting, hopes of making tourism the most profitable sector will remain especially difficult for Dagestan, which is the most violent and unstable republic in the region. The recent purge of high-ranking officials will do little to mitigate the image of the republic, and the broader North Caucasus, as an area of unacceptable political risk. The Sochi games will be a decisive moment in either softening or solidifying this image.
