Kavkaz Files ISSN 2975-0474 Volume 31 Issue 3
Author: Giuliano Bifolchi

Executive Summary

The North Caucasus, a region of strategic and socio-economic importance for the Russian Federation, presents a multifaceted picture of progress and challenges as it marks its 15^th year since the establishment of the North Caucasian Federal District (NCFD). The region blends significant developmental achievements and socioeconomic advancements with persistent security and political risks.

This report, based on local sources and previous SpecialEurasia’s analyses, aims at underlining the NCFD positive trends and the local challenges which might undermine regional stability and the Kremlin’s efforts to improve the socioeconomic conditions.

Key Developments and Achievements

• Economic Growth and Infrastructure Development:
  • Industrial and Agricultural Expansion: The region has demonstrated consistent industrial growth and a notable increase in agricultural output. Livestock and poultry production have risen substantially, contributing to local food security and economic diversification.
  • Housing and Infrastructure: In the past 15 years, local authorities supported by the Kremlin have constructed over 72 million square metres of housing, marking a significant improvement in living standards.
  • Tourism Growth: The North Caucasus has emerged as a major tourism destination, with its resorts meeting global standards and the number of accommodation facilities tripling since 2010. Tourist arrivals reached 5.7 million in 2023, an increase of 12.8% from the previous year.
  • Investment in Capital Projects: Investments in fixed capital have increased 5 times in the last three years, supported by federal and regional initiatives to drive economic growth and modernisation.
• Labour Market and Employment: Job creation has been robust, with the number of employed individuals increasing from 3.6 million to 4.5 million since 2010. Unemployment has halved, declining from 16% in 2010 to 8.1% by late 2024.
• Strategic Initiatives and Foreign Policy: The NCFD plays a pivotal role in Moscow’s foreign policy, acting as a hub for engagements with the Middle East, Africa, and Central Asia. Initiatives like the International North-South Transport Corridor and forums such as “Kavkaz Investment Forum” underscore its role as a bridge to non-Western markets.
• Islamic Banking and Regional Diplomacy: Pilot projects in Islamic banking in Chechnya and Dagestan aim to attract investors from Arab-Muslim nations, fostering stronger ties with Gulf countries and diversifying the region’s financial ecosystem.

Challenges and Risks

• Security Threats: Despite significant counter-terrorism efforts, the region remains vulnerable to Islamist radicalism, exemplified by recent activities of the Islamic State Wilayat Kavkaz. The return of jihadist propaganda and terrorist plots shows that the root causes of radicalisation, including socio-economic inequality and ideological brainwashing, are still present. Several counter-terrorism operations in 2024 highlight ongoing security challenges, with multiple arrests and neutralisations of militants in Dagestan, Ingushetia, and Kabardino-Balkaria.
• Ethnic Tensions and Political Dynamics: Long-standing ethnic and religious divisions continue to pose risks to regional stability. The Kremlin’s centralised control sometimes conflicts with local desires for more autonomy, causing tension between the federal and regional governments.
• Economic Disparities and Development Gaps: Despite overall progress, uneven development in the North Caucasus means some areas still face poverty, poor infrastructure, and limited access to quality services.
• External Influence and Geopolitical Pressures: The region’s geostrategic location attracts external actors seeking to leverage local dynamics for geopolitical gain. Competition with Turkey, the West, and Gulf nations adds further complications, especially to Russia’s wider foreign policy goals in a time characterised by the Ukraine conflict.

North Caucasus Federal District:
Scenarios Assessment

1. Continued Growth and Stability. Federal investments, infrastructure projects, and counter-terrorism successes lead to sustained stability and economic progress. The North Caucasus region might experience growth as a hub for trade and tourism.
2. Resurgence of Ethnic and Religious Tensions. Unaddressed grievances and external provocations may reignite ethnic unrest and Islamist extremism, undermining stability and progress.
3. Enhanced Regional Autonomy. Local demands for decentralisation gain momentum, causing political reforms and compromises, potentially reshaping governance structures within the federation.
4. Proxy Geopolitical Conflicts. Increased external involvement transforms the region into a battleground for influence, complicating development efforts and straining Moscow’s resources.
5. Integration and Collaboration. Effective implementation of development strategies fosters integration with Eurasian initiatives, enhancing trade and connectivity while addressing local needs, leading to long-term stability.

Conclusion

The North Caucasus stands at a crossroads between progress and challenges. While socio-economic indicators show marked improvement, enduring security risks, ethnic tensions, and external pressures require vigilant management.

The Kremlin’s dual focus on economic modernisation and security enhancement is crucial for the region’s future trajectory. The region’s future heavily depends on Russia’s economic modernisation and Moscow’s ability to overcome Western sanctions and improve national and local socioeconomic standards.

Recent events in the Eurasian geopolitical chessboard, as Assad’s fall in Syria and the affirmation of Hayat Tahrir al-Sham, a terrorist group which recruited a significant number of North Caucasian fighters, might influence the region, especially in security and counterterrorism.

The Kremlin faces the challenge of managing the Islamic banking pilot project to prevent economic collapse and limit increased foreign influence, particularly from Arab-Muslim countries seeking to advance their political and religious agendas within the NCFD.

Closely observing events in North Caucasus and Russia’s local policies is crucial for predicting the region’s future and determining whether it will become a stable Russian entity or, as in the 1990s, a threat to national security.

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