North Caucasus: The Challenges of Integration (IV): Economic and Social Imperatives

North Caucasus: The Challenges of Integration (IV): Economic and Social Imperatives

International Crisis Group


This report is also available in: Russian


For two decades the North Caucasus conflict has been among Europe’s deadliest. Victims are less, 1,149 killed or wounded in 2013 to 525 in 2014, but risks associated with growing Islamic State (IS) influence in the insurgency are high. Leaders of the former al-Qaeda associated “Caucasus Emirate”, which has done attacks in the region and terrorism countrywide since 2007, are swearing allegiance to IS. Counter-insurgency remains heavy-handed. With Russia’s economic crisis becoming acute, conflict may be entering a new stage. Violence is often seen as feeding on religious, ethnic and historic tensions, but causes are more complex. Russian authorities and local elites must debrutalise counter-insurgency, free electoral processes, bring accountability and transparency to government, end impunity for official corruption and bureaucratic malpractice and improve services. Islamist and jihadi projects in the region largely respond to social inequality, corruption and failing social services. Addressing these issues is essential to reduce the risk of a new surge in deadly violence and insurgency.

The region’s economy was crushed by the collapse of the Soviet Union and ensuing ethnic and sectarian conflicts. The six national republics of the North Caucasus Federal District (NCFD) remain heavily dependent on central state funding. State institutions are responsible for most economic output and jobs; levels of unemployment are Russia’s highest. Industry has shrivelled, insecurity and terrorism cramp economic growth, and extortion frightens off both foreign and local investors.

In recent years, the federal government has invested generously in the region’s economies and social services. Government funding has ensured a certain level of consumption and social services but has not been conditioned on improving governance, so is much less effective than planned. Funds were embezzled, often fuelling conflict. In 2014, as the need to replace self-sanctioned European imports with domestic goods brought additional attention to North Caucasus agriculture and industry, the government promised to significantly increase financial support. Steps to combat corruption, clanship and organised crime in official institutions since 2013 are positive but should be reinforced prior to significant additional state investment.

The North Caucasus societies have tried to adapt to the region’s economic challenges through self-employment and an informal economy. Agriculture has developed significantly but is held back by land disputes, inadequate infrastructure, corruption in disbursement of state funds and credits and a lack of processing and logistical facilities. Land privatisation would likely boost growth, though it can be a source of conflict if not carried out effectively and fairly. Large projects like hydroelectric power stations, factories and resorts fuel discontent if not carefully planned to avoid destroying local ways of economic subsistence and shifting ethnic and economic balances. Targeted support for small business is needed, especially in multi-ethnic areas with high unemployment. Special attention must be paid to improve socio-economic conditions in east Caucasus mountain areas that are underdeveloped and often home to insurgent groups.

Quality of life is much lower than elsewhere in Russia. State-organised services like heating, water and electricity are badly run. High birth rates overwhelm already under-equipped health care and education infrastructure. Recent health-care investment resulted in visible improvements, but there is still an acute lack of polyclinics, hospitals and professional medical cadres. Health care is mostly free, but patients are commonly expected to pay bribes for treatment and medicine. Along with increased religiosity, this has drawn more people to private Islamic medical centres, especially in the east of the region.

Education should play a major role in the region’s integration and conflict management: kindergartens help children learn Russian, while teaching ethnic languages buttresses local cultures and defuses minority grievances. However, overcrowded North Caucasus schools must operate in multiple shifts, and parents face significant expenses despite the formal free-education policy. Religion classes can prepare children to resist extremism but often impose beliefs. Secular education is contested. Funding for education increased in recent years, but much money is diverted, and quality is falling due to corruption and de-professionalisation of teachers.

The fundamental obstacle to change – and a major contributing factor to insurgency – remains corruption at all levels of state administration. Bribes can purchase almost anything, including academic degrees, medical certificates, jobs and driver’s licenses. Endemic corruption and clanship perpetuate the rule of regional elites whose main virtue is loyalty to the federal centre. This increases citizens’ alienation from the state and promotes the search for alternatives, including an Islamic state and jihad. In recent years, moreover, insurgents’ primary capital has come from extortion of officials and businesses linked to the public sector. Until corruption is confronted, including at the federal level, additional government funding will have little impact on socio-economic problems.

Popular frustration with this state of affairs is a major conflict driver. The authorities are perceived as unable to solve either structural concerns or daily problems. Many feel local elites have privatised the state. Those who want better services try to leave, increasing pressure on neighbouring regions and Russia’s big cities. Many problems analysed in this report are serious challenges for Russia in general but visibly more dramatic in the North Caucasus. The situation is further complicated by alternative concepts of statehood. Islamists instrumentalise social problems and offer a state based on Sharia (Islamic law) that they say will be better equipped to deliver social justice. Unresolved social problems and ineffective institutions contribute significantly to the appeal of Islamist ideology, erode trust in the state and are a major reason why the conflicts are so difficult to solve.

This is Crisis Group’s fourth and final report in its introductory series on the region, rounding out a comprehensive survey of the root causes of the conflicts.


To improve the quality of social services

To the government of the Russian Federation:

  1. Allocate funds and control their distribution to implement federal free-education and health-care policies effectively.
  2. Launch a vigorous campaign to train medical staff, including outside the region; and focus immediately on improving pre-natal health care.
  3. Support secular education in state schools, while ensuring individual freedom of conscience, also in private schools.
  4. Increase control over management of housing and provision of utility services.

To advance socio-economic development

To the governments of North Caucasus republics:

  1. Focus on legalising the shadow economy and strengthen vocational education programs.
  2. Take extra care with mega-projects that shift ethnic or economic balances and destroy traditional ways of economic subsistence.
  3. Design and implement a security policy that protects businesses from extortion by insurgents.
  4. Pursue effective, fair privatisation of state land where it has not yet occurred.

To the government of the Russian Federation:

  1. Consider allowing elements of Islamic banking in the North Caucasus so as to improve trust in banking services.
  2. Continue efforts to rebuild the Chechen economy; intensify clearing of all land­mines in Chechen mountain areas close to settlements, pastures and farms; and conduct an independent feasibility assessment of current and proposed large projects in the republic supported by the state budget.
  3. Adopt a federal law on remote mountain territories to facilitate their development, and support relevant republic programs, while carefully assessing their feasibility.

To the governments of the Russian Federation and the regional republics:

  1. Offer long-term low-interest credits to farmers and small businesses; target more support to small and medium-size businesses in areas of ethnic conflict and tensions; and reduce administrative hurdles and simplify reporting requirements for small businesses.
  2. Review the onerous laws on individual entrepreneurs’ social security payments to encourage them to hire and operate openly.

To fight corruption and criminal business activity

To the government of the Russian Federation:

  1. Take more vigorous, transparent, and non-partisan steps to investigate and, if necessary, prosecute officials of all ranks suspected of corruption, including in all republics and at the federal level.
  2. Support security service efforts to investigate and prosecute economic crimes and increase federal investigators’ involvement.
  3. Make consistent efforts to ensure that recruitment to the civil service is open and based on merit and relevant laws.

To the governments of North Caucasus republics:

  1. Root out illegal practices, including corruption, in medical universities and health care, especially in perinatal facilities; in the granting of disability status and allocation of quotas for technologically advanced treatment; and in the Unified State Exam.


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Photo: Original photo in the article by International Crisis Group by Reuters/Eduard Korniyenko

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