**ECONOMIC OVERVIEW OFTHE REPUBLIC OF DAGESTAN**

**By Judith Robinson,International Trade Specialist, BISNIS**

**January 2000**

** **

Dagestan suffered greatly after the breakup of the SovietUnion, with nearly all of its economic enterprises suffering great declines inproduction as supplier relationships were disrupted and consumption all butdisappeared in some cases.  Withoutbreaks of violence in nearby Chechnya, resources otherwise earmarked foreconomic restructuring and development have been necessarily diverted to carefor the inflows of refugees from outlying areas of Dagestan and from Chechnyaitself.  Nevertheless, the futureof Dagestan appears to be brightening, partly due to its strategictransportation and communications location, providing the alternativenorth-south Russia - Azerbaijan rail and pipeline routes along the Caspian Sea,and partly due to Dagestan’s own natural resources.  

 

**Geography andPopulation:** The Republic of Dagestan, a part of the Russian Federation, isthe largest in the North Caucasus, with a population of 2.1 million and 50.3thousand square kilometers (sq. kms.). It borders on two states, Azerbaijan and Georgia with a southern borderrunning along the Watershed of the Great Caucasus mountain range, and it sharesthe Caspian with three others: Kazakhstan, Turkmenistan and Iran.  Within Russia, its regional neighborsare the Stavropol Krai, Kalmykia and Chechnya.   Dagestan stretches about 400 km from north tosouth,  and about 200 km from eastto west, and has the longest Caspian Sea shoreline in Russia – about 530kms.   Dagestan’s 10 cities,with Makhachkala the capital and Derbent the oldest by far also the largest,and its 14 settlements and 14 districts, straddle five climate zones from theCaspian lowland 28 meters below sea level to mountainous areas at over 4000meters in height.  Three rivers,the Terek, Sulak and Samur have long been viewed for their potential forhydropower construction and irrigation, as well as sources of local publicwater supplies.  In all but thealpine sections of the country, the summer growing season tends to be long andwarm.  Three major spas complementa long history of use of medicinal herbs and vegetable, organic and inorganicmedicaments.    

 

**Natural Resources:**Dagestan has mineral wealth.  Itsoffshore oil deposits, only partially explored and minimally produced, aredeep, but very clean, in contrast to its deposits of brown coal, bituminousshale and peat.   The republichas substantial deposits of ferrous and non-ferrous and rare earth metals; theKizil-Dere range is the largest deposit of copper ore in the NorthCaucasus.   Dagestan hassubstantial supplies of building material resources: the largest reserves oflimestone and easy to access glass-making sand  (Severnoye deposit) in the North Caucasus and Russiarespectively, and huge reserves of dolomites, molding sands, rubble stone,gravel and raw materials for cement.   Underground fresh, mineral, thermal and industrialwaters are plentiful, with about 3,000 artesian wells in operation to tapthem.  Finally – solar energy, asubject of research by the local branch of the Russian Academy of Sciences, hasyielded solar energy technology now used in the republic’s spas, hospitals,children’s camps and oil towns, in the form of heating and more recentlythrough multi-rechargeable, powerful, pocket sized heat accumulators.

 

**Manpower:**Russianis the lingua franca and the language of business.  58% of the 2.1 million Dagestani people live in rural areas(overall average population density is 42.5 per sq. km.) but there is a strongmovement into the cities, especially from the mountainous areas.  Most of the people are Sunni or ShiiteMoslem, although the Christian (mainly Russian, Armenians and Georgians) andJewish (the Mountain Jews) faiths are represented.   Official unemployment has reached 7.2%, with anunfavorable situation in the rural areas where unemployment has sometimesreached 75% with an average of 9.7%. 

 

**Multi-Ethnicity**:  Dagestan has a rich and varied history,a developed civil society, arts, architecture and a literary traditionreflected in 78 newspapers and 6 magazines in 14 languages!  A great asset to business people maywell be the fact that 30 different ethnic groups and over 100 nationalitieshave long coexisted peacefully in Dagestan, a situation supported by policy andas well as practice.   TheAvar people make up the largest group (495 thousand), followed by the Karghins,Kumyks and Lezghins (each just over 200 thousand). 

 

# GOVERNMENT

 

Dagestan’s government operates within the limits of theConstitution of the Republic of Dagestan. Administratively, the government consists of:

n      alegislative branch exercising its power through the People’s Assembly, theParliament of the Republic of Dagestan

n      ajudicial branch, with the Republic’s Constitutional Court, Supreme Court(civil) and Superior Arbitration Court

n      anexecutive branch, with The State Council of the Republic, a Security Council,and the government: ministries, tax authorities, customs as well as permanentrepresentatives of the Republic of Daghestan in the Federation Council of theRussian Federation and in the Russian State Duma.

 

Chairman of the State Council of Dagestan, and head of thegovernment is M.M. Magomedov.  

Federation Council representatives are the Chairman of theState Council of Dagestan and the Chairman of the People’s Assembly ofDagestan.  There are four electedDagestan Deputies to the Russian Duma.

 

The Ministries are:

 

Internal Affairs, Public Health, Culture, Education,Environment and Mineral Resources, Nationalities and External Relations, CivilDefense Emergencies and Disaster Resources, Industry Transport andCommunications, Agriculture, Social Welfare, Construction Housing And CommunalServices, Labor and Employment, Finance, Justice, and Economy.  Three additional organizations haveministerial status: Board of Customs of Dagestan, Taxation Police Department,and Department of the Federal Security.

 

# ECONOMY

 

In late 1997, Russia’s Ministry of Economy and theGovernment of Dagestan adopted a program of social and economic development forthe period of 1998 to 2001 setting forth a detailed crisis plan for jumpstarting the faltering regional economy. The Program was supported by a number of laws and decrees, and financedby federal and republic government budgetary funds, commercial bank credits andinvestment resources.   Thisregional program was based on a policy of using existing production potentialand resources and skilled personnel, with only minimal external financing, onthe principle that a rise in stability and increased economic growth will inthemselves attract foreign investment.   The program attaches particular importance toinfrastructure development, small and medium sized businesses for lightmanufacture and consumer goods and services, and health (spas) and ecologicaltourism.    A number ofcritical projects were begun under this program.   The Russian financial crisis of August 1998 and the1999 invasion of Dagestan by Chechnya with subsequent Russian militaryintervention has set back additional implementation of the economic program,but it is still in force.  

 

A second event (in addition to the start of the economicdevelopment program) is affecting the Dagestani economy.  This is the construction of a major oilpipeline bypass of Chechnya, re-routing Azerbaijan crude oil through Dagestanon its way to the Port of Novorossiysk. Construction of the oil pipeline by the Russian company Transneftstarted abruptly as Chechnya hostilities broke out in 1999.  A railroad along the same general routehas been in operation since the Soviet era.  Construction of Dagestan’s Caspian Sea port at Makhachkalaalso had started.  Both of thesemajor projects and the existence of a well planned framework for thedevelopment of the republic’s natural mineral and agricultural resources shouldbring the republic ultimate status as a major transportation and communicationshub for the Caspian region.  U.S.companies should be poised to explore the considerable business opportunitiesthat should develop as order is restored to the area.

 

The general structure of the economy of Dagestan is asfollows: 

Industry – 24%

Agriculture – 35%

Construction – 26%

Transport and communications – 5%

Trade and services – 9%

Other – 1%.

 

**Industry**

 

Makhachkala, the capital, has a port and an airport, bothclaiming international status. Industrial facilities are concentrated in the capital, the second cityDerbent, and in the cities of Buynaksk, Kizlyar, Caspiysk, Khasavyurt,Izberbash, and Kizilyurt.  The exception is the food processing industry, with enterprisesscattered throughout the republic, which was once known for its wine andbrandies, fruit and fish, and canned vegetables.  Other leading industries are power, oil extraction andmachine building, also chemicals and instrument making.   

 

**Transportation**:  With 465 km of railways, 83,000 km. Ofhighways (300 of federal significance), 535 km of oil and gas pipelines withmore coming, and airports and seaports, Dagestan’s transportation system,though not up to date, is nevertheless a complex and well developed one.  The merchant marine and fishery portsin Makhachkala never freeze and are accessible by railroad, and are equippedalso with an oil terminal for sea to land transshipment.  A ferry is planned for the Caspian, asis reconstruction of the port.

 

**Oil and Gas:Dagestan’s** major exports are oil and fuel, which constitute over half therepublic’s foreign currency proceeds. Dagestan at this point produces only about 310,000 tons of oil and 715million cubic meters of natural gas per year; however it has recoverablereserves capable of much increased production, and has been open to discussionsof their development with both domestic and foreign companies.  The oil is characterized by a highcontent (90%) of “clean” readily boiling fractions (up to 350 degrees) foryielding maximum quantities of gasoline, kerosene and diesel fuel throughsimple distillation.  Oil industryenterprises are concentrated in the northern Dagestan town of Yuzhno-Sukhokumskand in central Dagestan in Izerbash and Achisu.  The National Oil Company Dagneft is a holdover from theSoviet regime, but there are other domestic participants as well.

 

**Power:**  Dagestan has about 30% of the NorthCaucasus’ hydropower resources, with a potential water-power capacity of over4.4 million KW.    Atpresent, 2,760 million KW hours, 1,298 per capita, are generated.  Of 18 planned hydroelectric powerstations to be built on the Sulak River, the Chirkeiskaya Hydrostation is inoperation, the most powerful of the region at one million KW, with a dam is ashigh as 231 meters.  TheMiatlinskaya Hydrostation generates 220,000 KW and is operating.  The Irganaiskaya Hydrostation at800,000 is completed.  

 

**Agriculture**

 

Sheep breeding, gardening and viticulture (grapes) are themain products in a land-poor region with only .3 hectares of arable land percapita.   

§       Gardening: The peaches, apricots, plums, cherries andother garden fruits cover about 30,000 hectares.

§       Wine and Brandy: The Dagestan wines are famous for area/productionrates of the grapes (in the southern, central and northern lowlands) and forthe quality of the wine.  Theaward-winning Moskva Brandy comes from the 150 year old Derbent brandydistillery, but has not until now reached the West.

§       Fish:** **Fish from the Caspian Sea,sturgeon, salmon, herring and the freshwater species from the mountains andlakes, also fish products including caviar 

 

# Banking

** **

Dagestan’s two tier banking system is represented by theNational Bank of Dagestan and the Central bank of the Russian Federation on onelevel and about 60 commercial banks functioning in the Republic – these lasthave 30 of over one hundred branches located outside Dagestan.  The largest of the commercial banks isthe National Bank of Dagestan, which regulates finance and credit flows,controls the budget allocations, money turnover, hard currency transactions,and also arranges for interbank settlements, provides cash services to otherbanks.  

 

# USEFUL INFORMATION

 

During the current period, there are travel warnings inforce for American citizens in Dagestan, and there have been kidnappingsapparently associated with the Chechnya disorders.  Any travel at this time should be undertaken only under thesponsorship of a reputable government or business entity that can guaranteesecurity of travel and wellbeing during a business stay.   

 

**Contact point inMoscow:**

Permanent Representative Office of the Republic of Dagestanwith the President of the Russian Federation, Moscow:  7-095-916-1536; 928-3375. 

 

**In Dagestan:**

Currency is the ruble. Credit cards not yet in common use.

Common language is Russian.

Take into account the customs of Islam, especially whenordering in restaurants.

General hours of business: 9 a.m. – 6 p.m.

Electricity is 220V as in Moscow, with three pronged plugs.

Public travel: taxi, bus or train.  Some internal plane flights, also helicopter and charter.

 

# Hotels

Leningrad – 68-17-22

Kaspiya – 67-30-91

Dagestan – 67-37-08

Kavkaz – 67-10-55

Tourist – 62-83-41.

 

# Restaurants

Lezghinka (Caucasus)

The Spicy Bites (Indian)

The Baron (Dagestan and European, has discotheque and caf�too)

** **

**Telephone Codes ofTowns in Dagestan and elsewhere in area:**

From Makhachkala, dial 8, wait for signal and dial code.

Derbent – 240                                    Moscow – 095

Buynaksk – 237                                 St. Petersburg - 812

Khasavyurt 231-0-                             Baku 892-2

Kaspiysk – 246                                  Tbilisi – 883-2

Kizlyar – 239                                     Krasnodar 861-2

Kizilyurt - 234

Izerbash -245-0-

Dagestanskiye Ogni – 275

 

**Government andEmergency Numbers:**

** **

First Aid: 03                  Police – 02                        Fire - 01

Taxi – 005                      City Information – 05

 

Intercity Telephone Information – 68-17-95, forinternational, dial 07.

 

Makhachkala Airport: 67-52-80

Railway Station: 67-27-61

Bus station: 64-91-84               

 

City of Makhachkala Administration  – 67-21-57

City of Derbent Administration – 2-6845 

Dagestan State Council – 67-30-60

Dagestan People’s Assembly – 67-30-55

Dagestan Government (executive) – 67-19-94

** **

**Travel:**

Dagintourburo

House of Trade Unions

1 Central Square

Mkhachkala

Tel: 67-83-72, 67-8380, 67-83-83

Others:

Intourist – 67-86-38

Touruniversal – 62-84-84

 

**National Holidays:**

 

January 1 – New Year

January 7 – Christmas

March 8 International Women’s Day

May 1 – Spring and Labor Day

May 9 – Victory Day

June 12 – Russian Independence Day

July 26 – Russian Constitution Day

November 7 – Day of the October Revolution

No fixed dates for religious holidays.  

 

 

A note on sources: "Federalnaya Tselevaya Programma Tsotsialno-EkonomicheskovoRazvitiya Respubliki Dagestan Na Period do 20001 Goda"  by the Government of Dagestan and theRussian Ministry of Economy (1998); "Echo of the Caucasus" No. 1 (11)1997 (10/2 Bersenevskaya Nab. 103790 Moscow); various newspaper articles andinternet sites.  For moreinformation on sources, contact Judith Robinson at BISNIS.