Your guide to Baltics business information!
Baltic Economy
The Mutating Vision of Kaliningrad: From Casinos to Iskander

Vadim Volovoj


The Russian exclave of Kaliningrad is an important part of the Baltic region that has substantial economic potential. In a 2013 the Russian edition of Forbes singled out Kaliningrad as the best place for business in a list of Russian cities. The region’s inhabitants and government want to use their economic opportunities and have more cooperation with their European neighbours, however the problem is that Kaliningrad (as almost all regions in Russia) is a political hostage of Russia. What exacerbates the problem even more is that the Kremlin doesn’t know itself what it wants to make of its exclave, whether it should be a successfully developing special economic zone, an area full of giant casinos, a regional centre for nuclear energy, a region that is a testing grounds for relations with Europe, or a military outpost that could be a threat to NATO and the European Union. The experiments Moscow has carried out on the Kaliningrad region is essentially a reflection of the unclear vision it has for Russia as a whole: Putin can’t make a decision whether it should be an economically vibrant and open country, or just one huge military base, which is the desire of supporters of a great Russian power. Kaliningrad is simply an unfortunate testing ground in all of this. .


Economic Successes and Hardships


In 1996, the Kaliningrad region was declared a Special Economic Zone. In 2006, the law was changed with a new one that is in effect until 2016. According to this legal act, a resident of the SEZ does not pay any income or property tax for the first six years, and for the next six years after this period pays only half of these taxes, depending on what their amount is in Russia. According to statistics from the Kaliningrad region’s government, eleven thousand new jobs were created, and investments were made in the range of 40.5 billion rubles. Until 2008 the economic development of the Kaliningrad region was quite successful – this is shown by the constantly rising direct foreign investment in the region’s economy (2005-2009 it amounted to $943 million, while in the future it should be further encouraged by Russian’s membership in the WTO, though its long-term effect on Kaliningrad’s economic development is unclear).


All of this confirms that Kaliningrad truly does have great economic potential, and that the 2008 slump should be looked at only as a temporary phenomenon (the gross regional domestic product grew 7.3 % in 2011, and another 3.6 % in 2012). However not all that glitters is gold: for example, a total of 164 companies went bankrupt in 2009, which is 12.3 % more than in 2008, with one of the more resonant cases of bankruptcy being the liquidation of regional airline company KD Avia. In order for the growth of the Kaliningrad region to stabilize and gain speed, its government has to work at it. This task, as experts says, is complicated by the new conditions (both before and after the crisis) of a clear economic strategy and lack if independence in the sphere of Moscow’s economic policy, not to mention the weakness of the transport ties with Russia proper. As Stanislav Voskresensky, who is Deputy Presidential Plenipotentiary Envoy to the Russian Northwestern Federal District, said in speaking about the Kaliningrad region, “according to unused potential, this territory perhaps occupies first place in the country. Europe is nearby, there’s access to the sea, the exclave’s location (there’s minuses, but also pluses). There is a regime of a special economic zone for business. At the same time local companies are living in conditions of fierce competition from the Baltic countries and Poland. Today the food products and health as well as educational services are cheaper and of higher quality there. And that is being with a transport system that is separated from Russia. This is why economic development must be supported by the creation of a better environment for business, investments and the creation of the quality appearance of new jobs so that the conditions foreseen for the special zone would start operating at full capacity.” At the same time, Voskresensky emphasize that “Kaliningrad is unique, and policy should be unique in its case, I am certain of that.”


Casinos, A Nuclear Power Plant and Corvettes for the Baltic Fleet


The economic expression of such a unique view became the decision of the Russian government to award Kaliningrad the status of a special gambling zone. However as Valery Ivanov, who is the council chairman of the Russian Association for Gaming Business Development, stated in 2010 that “up to this point there has been no shift in the Kaliningrad region. Serious – huge – investments are needed there. Which means long money. Investors are not ready and it’s doubtful whether they will decide to invest.” Experts from companies like Dress & Sommer, MCB and BRT believe that the American format of project implementation, which calls for building on a large plot of land “out in the open air”, as they are currently planning to do in the Kaliningrad region, is highly unlikely. According to them, in the case of Kaliningrad, they need to discuss the possibility of a “European” option, where the casinos work on the basis of an existing tourist infrastructure (first of all in luxurious hotels). However that is only in theory. In reality, the Kaliningrad region’s government was still looking for a plot of land for their gambling heaven in 2013 (the auctions that were organized did not provide any results), while in 2016-2018 they planned to invest 14 billion rubles into this idea according to a specific federal programme.


An example of the politically unique view toward Kaliningrad is embodied in the idea from Moscow that was born at the beginning of this century of the area as a testing region for relations with Europe. Putin developed the idea of having closer ties with the European Union, hoping for greater help from the EU in modernizing the region, which is why he attempted to build “bridges of friendship.”  However the Kremlin was soon afraid of its own plans, as the inhabitants of the Kaliningrad area met this news with great enthusiasm and began to actively europeanize in both a social and economic sense. And though there were no clear traits that Kaliningrad smelled of separatism, Moscow decided not to risk anything. In this way, the pilot project finished without even being able to get off the ground. For example, today the Russian government is looking for a free visa regime with the entire European Union all once, instead of starting with the Kaliningrad area, which is harder to achieve, thus Vladimir Putin is more at ease.


Let’s go back to its strategic view toward Kaliningrad. One can say that after the rather unsuccessful experiments with the SEZ zone along with the gambling zone, the head of the Kremlin decided to take up what is dearest to him, which is energy. The concept of Russia as an energy superpower was born in his mind, which did not hope in friendly relations with its neighbours, but be able to demand it. At one point it seemed that Moscow wanted to turn Kaliningrad into a regional centre for nuclear energy. There were efforts to build a powerful Baltic nuclear power plant (with an overall strength of 2300 MW) in Kaliningrad, which would have produced too much electricity for the district itself. A greater part of local and foreign experts were unanimous in saying that it was more of a geopolitical project than an economic one, the goal of which was to export Russian electricity to neighbouring countries that in this way solidify the influence of Russian energy (and along with it, its politics) in the Baltic region. In this context, there was a desire to lay an electricity bridge to Poland and through it to the Western Europe market (first and foremost that of Germany), and perhaps lay a direct electric cable to Germany and turn Lithuania into the junction for the distribution of electricity made in the Baltic’s nuclear power plant (the Visaginas nuclear power plant that the Baltic countries planned in this case would be then rendered moot). However Warsaw, Berlin, Vilnius and various international investors that were actively encouraged by Russia to take part in the building of the nuclear power plant viewed Moscow’s intentions rather sceptically, which forced Russia to re-look at their initial plans. It is likely that there will be further attempts to implement the Baltic nuclear power plant project in 2014 (as Russia is able to financially support their own nuclear power industry with such projects): first of all efforts will be made to convince the neighbours of the Kaliningrad region of its pluses and necessity for the expansion of electricity connection (after all, the Baltic’s nuclear power plant needs back-up capacity and a market) to neighbouring countries. However whether or not this power plant will be built first of all depends on how neighbouring countries and the EU will succeed in carrying out their energy strategy, the goal of which is the integration of the European energy market and the lessening of its dependence on Russia.


In other words, Putin’s nuclear strategy in Kaliningrad essentially was unsuccessful, and now it seems that he decided to return to an old but trusted method – to turn Kaliningrad into a Russian military outpost that could be a threat to NATO and the EU, which gets the hearts of the brainwashed neo-imperialists longing for old Soviet times to beat ever faster and support their president.  The argument is that it’s necessary to have an answer to the West’s plans to have an anti-missile defence system in the area. To show that this is not empty talk is proved by the facts that confirm that recently Moscow has strengthened the military might of its exclave: the Baltic Fleet has received modern war ships, strengthened their air force, while the region now has the S-400, one of the best anti-aircraft and anti-missile defence systems in the world, the range of which (up to 400 km) allows them to control a large part of the air space of the Baltic region. It also possesses a powerful Voronezh radar system, the range of which is from 4000 km to 6000 km, plus there is still talk about the deployment of the mobile theatre ballistic missile system Iskander, which can be armed with nuclear warheads. What’s more, as was shown by the Zapad-2013 joint military exercises of Russia and Belarus, Kaliningrad together with Belarus hold a special place in Moscow’s defence (or perhaps attack) strategy in the Baltic.


In short, one can say that the militarization of the Kaliningrad region as a priority option in its development is rather short-sighted, because the growth of its economic potential seems to have much better prospects, and more effective by implementing things like the Special Economic Zones. In the latter case, the Kaliningrad region could become not only attractive for Russian investment, but also foreign investment (especially from the countries of the Baltic region), but as a political hostage of an undecided Moscow in the broader sense, it can only hope for a more sober view by Putin at this Russian exclave that has great economic prospects.


Quotes


Recently Moscow has strengthened the military might of its exclave: the Baltic Fleet has received modern war ships, strengthened their air force, while the region now has the S-400, one of the best anti-aircraft and anti-missile defence systems in the world, the range of which (up to 400 km) allows them to control a large part of the air space of the Baltic region. It also possesses a powerful Voronezh radar system, the range of which is from 4000 km to 6000 km, plus there is still talk about the deployment of the mobile theatre ballistic missile system Iskander, which can be armed with nuclear warheads.


An example of the politically unique view toward Kaliningrad is embodied in the idea from Moscow that was born at the beginning of this century of the area as a testing region for relations with Europe. However the Kremlin was soon afraid of its own plans, as the inhabitants of the Kaliningrad area met this news with great enthusiasm and began to actively europeanize in both a social and economic sense.

Subscription form
Name: *
Last name: *
Email address: *
Phone number: *
City: *
Street: *
Postcode: *
Other comments


Strongest in 2012 Lithuania
© FCR MEDIA LIETUVA
FCRMEDIA LIETUVA is not responsible for advertisers content or information published graphical material
Contacts: +370 (5) 236 1010, info@fcrmedia.lt