In the Russia pavilion at MIPIM 2011 – always among the showiest stands at the international property extravaganza in Cannes – was an eye-catching new entrant to the series of cities and regions promoting their real estate and tourism potential. A backdrop image of snowy mountain peaks was the setting for passers-by to have their picture snapped while wearing a shaggy, sheep fringe-style hat, displaying gold trophies (presumably won in ski sports) and standing next to women in ski-bunny suits. Nearby, a traditional Caucasian cafe, draped in patterned rugs and decorated with rustic accoutrements, offered teas and tasty snacks, while an accordion player in regional dress serenaded visitors.

At the cafe, Akhmed Bilalov, vice-president of the Russian Olympic Committee, told fDi of the Russian government’s push for tourism investment into the Northern Caucasus, believing the economic benefits of the 2014 Winter Olympics in nearby Sochi could be extended to the region known largely to the world as the site of the bitter Chechnya conflict.

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“North Caucasus is a very depressed region economically, as everyone knows. But it is close to Sochi – 20 minutes by helicopter – and if we can create jobs in the region, it will improve the situation greatly. The experience around the world is that the tourism industry creates jobs. In France there are 59 million tourists coming just to the ski resorts,” says Mr Bilalov, who is also chairman of the Northern Caucasus Resorts Company (NCRC), which plans to build five ski resorts in the region.

An audacious plan

NCRC is the central instrument of the Kremlin’s plan to remake the troubled region economically, and thereby improve the social and security situations, by developing it as a resort area for both winter and summer leisure pursuits. The initiative was announced a year ago by Russian Federation president Dmitry Medvedev.

During the first stage of development, resorts will be built in the currently obscure locations of Lagonaki (in the Republic of Adygea), Arkhyz (Karachay-Cherkess Republic), Elbrus-Bezengi (Kabardino-Balkar Republic), Mamison (Republic of Ossetia, Alania) and Matlas (Republic of Dagestan). There will also be beach resorts created along the Caspian and Black Seas, with the Caspian cluster coming first.

A popular vacation spot during Soviet times, the Northern Caucasus has since become notorious for violence and lawlessness, and remains a breeding ground for Islamist insurgents and separatist groups. The hope is that it can be restyled as a resort area after the Olympics.  

The plan is ambitious, bordering on audacious. Planners estimate the headline project of creating a tourism cluster for the Northern Caucasus will require more than Rbs450m of investment. As part of a massive regeneration scheme, the Russian government is putting $2bn into infrastructure in the area, according to Mr Bilalov, and financing for the tourism projects will be arranged through Russian banks. This includes $1.6bn in state guarantees for investors (the Russian government will guarantee 70% of investment capital). There is talk of creating a trio of special economic zones that would offer 10-year tax holidays to investors, as well as reductions in social taxes and zero property tax, pending legislation being considered by the Duma.

Growth potential

In a press conference this summer, Mr Bilalov told the media he expects five million people will visit the new ski resorts every year. “When summer and thermal components of the cluster are put into operation, this figure may increase up to 50 million according to the optimistic scenario and up to 20 million according to the pessimistic one. We have enormous growth potential and a huge unsatisfied internal market of tourism services,” he says.

Promoters point out that the region has reliable snowfall lasting 240 days in places, and its mountains are higher than the Alps. The domestic tourism market they hope to capitalise on is large and growing, although only 1% of Russians can ski.

“There aren’t so many big skiers in Russia but we think it is a great chance to establish the market. Right now, we have just a few ski resorts in Russia, like Sochi, but once our new resorts are built we need to advertise to people so they know they don’t have to spend the money required to go to France to ski or even have a passport as they do to go to Bulgaria’s resorts. If they know they could stay close to home and try skiing, we think they will decide it’s a good idea,” says NCRC director general Alexey Nevskiy in an interview with fDiin Moscow.

The target market for the new resorts will be largely locals and neighbours – 50% are expected to come from south Russia and the Caucasus, 30% from the Commonwealth of Independent States and eastern European countries, and less than 5% from western Europe. There will be a range of types of skiing on offer, from bunny to black slopes and heli-skiing. Prices will be pitched at the budget to mid-level range. “This will not be St Moritz,” as Mr Nevskiy puts it.

Virtuous circle

Investors will need some enticements and guarantees before looking too seriously at the war-ravaged region, but Mr Bilalov believes perceptions of security risk are highly relative and ever shifting. “No place today has total safety, not even Davos, and there are security problems in the US, UK, France – all the major tourist destinations,” he says. “Events in north Africa have recreated the security map. In this context, Russia is one of the most stable places in the world.”

He points out that crime statistics show the number of crimes in the Caucasus both per capita and in absolute terms is much lower than in Moscow or Saint Petersburg, just that those incidences in the Caucasus “are more noted and cruel”. “Nevertheless, the criminality and terrorism in the Caucasus is a problem that, if left unhandled, may hinder the implementation of the project,” he acknowledges.

Mr Bilalov and Mr Nevskiy agree that once the locals see tourism is creating livelihoods – and those livelihoods depend on the safety of tourists – then they will have a stake in maintaining good security. This creates a virtuous circle of improved security bringing economic benefits, and economic benefits bringing improved security. 

If the scheme succeeds, the payoff could be substantial, in economic as well as sociopolitical terms. According to projections by NCRC, by 2020 the project will have contributed around Rbs700bn to the gross regional product, bringing more than twofold economic growth to the regions of the North Caucasus Federal District.

At the same time, fiscal revenues at all levels will amount to around Rbs200bn, about Rbs120bn of which will go to federal coffers and Rbs80bn to the regional and municipal budgets. The total taxable financial flows for industries for 20 years would amount to more than Rbs2000bn; taxation of the related industries for the same period would add more than Rbs640bn.

These estimates also assume the creation of as many as 200,000 permanent jobs. After full completion of the creation of the tourism cluster, this would increase to around 320,000. Job creation is critical to the region, where the unemployed number some 50,000.  

“It could be a great step forward for local people as many of them, especially young people, don’t have jobs. We are working with local authorities and village leaders to make the residents aware of the opportunities the resorts will bring,” says Mr Nevskiy.

Putting the stabilisers on

“But our project is not only a business proposition," he adds. "One of our targets is to socially stabilise the region. That is why the leaders of the Russian Federation are supporting it and why local leaders are receptive. Tax flows to local governments will be several billion US dollars per year and that will be money to develop the social sphere. When people realise the tourism programmes actually work towards their own prosperity, they will kick out the terrorists and bandits.”

Only time will tell. The completion of most of the resorts is five or six years away but the first, at Arkhyz in Karachay-Cherkessia, should be open by the end of this year. It will feature alpine skiing routes 100 kilometres to 300 km in length and a capacity for up to 50,000 visitors. It may take a while before large numbers of travellers expand their horizons to include this beautiful location, but the idea of the scheme is to think big and look long term. 

“This is the first, but not the last, project of such large scale,” vows Mr Bilalov.

The Northern Caucasus tourist cluster is the latest, and among the boldest, attempts in recent world history to replace guns with butter, and to answer the loaded question: which comes first, peace or prosperity?

IN FOCUS: How will skiers get to the new resorts?

Air

Mineralnye Vody international airport is intended to be the main transport hub of the Northern Caucasus tourism cluster. The airport currently serves flights from Moscow, St Petersburg, Yekaterinburg, Kazan, Krasnoyarsk, Murmansk, Novosibirsk, Khabarovsk and other large Russian cities. It also works with international carriers from Germany, Azerbaijan, Armenia, Kazakhstan, Uzbekistan and Georgia. Airports in Krasnodar, Vladikavkaz, Maykop and Makhachkala will be also used to transport tourists. Construction of airfields directly near the new resorts is also being considered.

Rail

Railways will also play a big role in support of the tourism cluster. At the moment, the region has operational railway stations in Beslan (15 km from Vladikavkaz), Prokhladnoye (54 km from Nalchik), Ust-Dzhegut (15 km from Cherkessk), Cherkessk (the capital of the Karachay-Cherkess Republic), Hadzhoh (26 km from Tulsky regional centre in Maykop District of Adygea), and Alagir (45 km from Vladikavkaz).

Road

Roads will need to be improved. The highway system will be expanded, with new roads built and exiting ones upgraded and extended. The possibility of building bus interchange stations has also been mooted.