Developing interests

After a year defined by pandemic-driven policies, the government is eager to shift the focus back onto development projects, from the National Projects to the National Development Goals. The core problem is still the question of how to stimulate investment, including into social infrastructure, in regions and in cities, which risk becoming protest hotspots, without significant private investment and without ceding political and fiscal power to regions. Development policies remain a mixture of projects driven by short-term political interests and grandiose long-term visions, but the government is an increasingly important player and the focus is shifting.

Regional finances bounced back in the first half of 2021. Own resources – incomes beyond federal transfers – grew by 24 percent overall, although from a very sharp drop in 2020 as the pandemic forced lockdowns and “non-working weeks” on the regions. Improvements were also uneven. The country’s main oil and gas producing regions did not register significantly higher incomes, but the drop last year was also smaller. Profit tax receipts grew in regions with strong industries, such as metallurgy, while some of Russia’s poorest republics – Dagestan, and the Republic of Altai – where workers were forced to return in large numbers registered higher incomes from personal income taxes, as did large cities with more resilient local economies. These are the two most important sources of incomes for regional budgets.

In spite of the pandemic, which is still raging across the country, it seems that most regions did not maintain last year’s elevated levels of spending on health care. What did grow, by 16 percent overall, is the amount of money spent on capital investments. This is driven by spending in Moscow as well as road construction, a usual feature of an election year. It is also in line with the federal government’s desire to nudge regions towards spending more on specific capital investments. Even as federal transfers to regional budgets slightly declined, the proportion of subsidies – money that comes with strings attached, as opposed to grants that regions are free to use – grew considerably.

Putting out fires

On August 23 the government announced the first loans offered to regions in the so-called “infrastructure loans” program. These are cheap fifteen-year loans with an interest rate of only 3 percent, of which the government is planning to offer more than 500 billion rubles in 2021-23 to incentivize governors to invest public funds more actively, which they might otherwise be reluctant to do due to funding shortages and mandatory spending on health care, education and social policies. These loans are intended to create some fiscal space in the short term, all without ceding political and fiscal power to the regions.

And it seems that the focus of development policy is increasingly city infrastructure and housing; unsurprisingly so, given that mid-sized cities, many of them long suffering from neglect (and more recently from the effects of the pandemic) have become emerging protest hotspots this year, while accelerating inflation also exacerbated the long-standing problem of housing. In the framework of the first two infrastructure loans the Nizhny Novgorod region will receive 8.3 billion rubles for urban reconstruction and public transport development – a subway network that Putin specifically mentioned in April when he presented the program – and Yakutia will receive 4.1 billion rubles to develop housing and waterways. The government will also expedite the transfer of more than 19 billion rubles to regions to spend on housing projects.

Perhaps not coincidentally, Putin and Mishustin personally visited Nizhny Novgorod, which celebrated its 800-year jubilee earlier this month – a feast that itself came with a price tag of 32 billion. Also perhaps not coincidentally, Nizhny Novgorod is one of the handful of mid-sized cities where locals turned out in surprisingly large numbers for protests organized by Team Navalny this year. By one estimate, Nizhny Novgorod saw ten thousand people on the streets on 23 January and more than seven thousand on 21 April. The region will also elect a new regional parliament in September.

Old and new cities

Another good excuse to throw money onto emerging protest hot spots is the development of large agglomerations from cities in neighboring regions by building high-speed transport links between them and unifying their tax base, an idea that seems to have taken precedence over oft-raised and discarded ideas of merging regions to pool their resources and moving head offices of big companies to the regions (which make little sense in a highly centralized fiscal and political environment). The idea itself is of course not new. It has been going around in the expert community for at least a decade. Alexey Kudrin, then the head of the Center of Strategic Development, a government-affiliated think tank, for instance suggested selecting twenty cities and developing their agglomerations in order to improve Russia’s competitiveness. It has also been raised as an alternative – in Tatarstan – to creating a Mid-Volga superregion where Tatars would have been a minority. Deputy Prime Minister Marat Khusnullin, himself a former  construction minister of Tatarstan, specifically mentioned the Tatar capital Kazan and Volzhsk in Mari El as one such prospective agglomeration. Overall, there are now forty-one planned agglomerations and several of them are going to involve several regions.

Others look elsewhere. You know a year has passed every time defense minister Sergey Shoigu mentions his vision of building big cities in Siberia. This time Shoigu was almost breezy as he suggested that “three, or even five” such cities should be built. The details are as blurry as the idea is lofty, but Shoigu pointed at the Minusinsk Hollow, south of Abakan, the capital of Khakassia, as a possible location for one such city. Abakan is on a branch line of the Transsiberian Railway, which, along with the Baikal-Amur Mainline, another important railway artery, is being renovated under Shoigu’s political sponsorship, with a focus on the Kuzbass, a coal region (it is also conveniently close to Shoigu’s home region in the Tuva Republic). Ultimately both this and the creation of agglomerations along rapid transit lines are based on the assumption that cities will naturally spring up near important transit junctions (an idea that has driven Russian development policies for a century).

The new overseers

As Nick Birman-Trickett pointed out, Shoigu’s vision is perhaps grandiose enough to capture the attention of the boss, but it is still unlikely that completely new cities will grow out of the earth in Siberia, given the exorbitant costs of building new infrastructure and moving people to what are presently some of Russia’s most rapidly depopulating regions. Instead, it looks likely that the idea will be folded into the broader development program of the Angara-Yenisei macroregion, which covers most of the Siberian Federal District and is overseen by deputy prime minister Viktoria Abramchenko who is the government’s point-woman on Siberia.

Mishustin appointed deputy prime ministers to oversee federal districts in July. They are responsible for the “complex social and economic development of the territories, their investment climate and the results of budgetary expenses”, planning major development projects and overseeing financial aid to regions. The underlying purpose seems to have been a separation of development policies and political kuratorstvo, which in recent years has increasingly been the turf of the president’s plenipotentiaries and local FSB representatives. This does not always check out, given that Yury Trutnev, the Far East plenipotentiary is also the deputy prime minister responsible for the region, and Siberia presently does not have a presidential envoy, but the direction is firmly in Mishustin’s hands. A new project office under the government’s Coordination Center which will evaluate development projects in the regions will be led by two of the prime minister’s closest associates in the government, deputy prime ministers Dmitry Grigorenko and Dmitry Chernyshenko.

The constraints of development policies remain: private investment lags behind expectations, regions do not have the necessary political and fiscal autonomy to initiate truly transformative projects, and an increasingly paranoid politics raises unnecessary barriers. However, there are also important changes. It seems that the government is reacting to the changing political landscape by shifting its focus to cities; and it seems that notwithstanding the hyperactivity of leaders like Shoigu, the government increasingly has the decisive word over the planning and the financing of development projects. It remains to be seen whether this has any implications on the quality and the political conditions of regional development.

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