The exclave region in the regional policy of Russia

Alexander G. Druzhinin
Professor, Dr. of Science, Director
North-Caucasus Research Institute of Economic and Social Problems, Southern Federal University
Rostov on Don, Russia

Leading Researcher
Institute of Geography, Russian Academy of Sciences
Moscow, Russia

Olga V. Kuznetsova
Professor, Dr. of Science, Head of the Laboratory
Plekhanov Russian University of Economics
Moscow, Russia

Chief Researcher
Federal Research Center “Computer Science and Control”, Russian Academy of Sciences
Moscow, Russia

The Kaliningrad Region is a relatively densely populated and economically developed “island” of Russia (the population density in the region exceeds the Russian average by 7.8 times; the volume of GRP per km2 by 6.2 times). Having turned out to be a Russian exclave three decades ago, but close to Central Europe, the Kaliningrad Region actively joined the integration processes in the Baltic region, established cross-border ties with Poland and Lithuania, and became an important part of trade, industrial and humanitarian contacts between Russia and the EU. Steady demographic attractiveness of the Kaliningrad Region (the positive migration balance doubled over the past decade, reaching the level of 12-13 thousand people per year), an increased tourist flow (primarily from other Russian regions) were combined with a complex of socio-economic problems and challenges, determined both by the exclave factor and by the changing geopolitical situation. The limited structural, logistical, and marketing potential for positive dynamics of the local economy was compounded by the need for increasing “autonomy” of the region’s life support systems (primarily in the energy and transport infrastructure). This increased the gap between the region’s own financial and investment capabilities and its needs for resources to ensure socio-political stability and economic growth. Under the influence of the global (2008) and Russian economic crises (early 1990s, 1998, 2014), the situation in the region remained constantly unstable, dependent on changing geo-economic and geopolitical conditions, as well as federal support. As NATO moved eastward (1999 and 2004) and the EU expanded (2004), the “barrier” nature of the borders of the Russian exclave intensified, its mission of a “communication corridor” acquired since the mid-1990s was supplemented by the function of a western military-strategic outpost for Russia.

The specific nature and problems of the Kaliningrad Region determine its special place in Russian regional policy. Since the very beginning of the 1990s, federal measures to support the region’s socio-economic development have been implemented. In the Spatial Development Strategy of Russia approved in 2019, the Kaliningrad Region was named among the priority geostrategic territories of the country.

Federal support of the region is aimed at achieving various goals – improving the quality of life of the population (to a level comparable with neighboring countries), creating conditions for accelerated economic growth of the region, ensuring its economic security. Measures to support the Kaliningrad Region are partly standard for Russian regional policy (federal investment, mainly in infrastructure), but to a large extent are determined by the region’s unique exclave location (the special economic zone regime).

The SEZ was established in the Kaliningrad Region in the early 1990s and provided for the import of goods without paying customs duties. This decision was aimed to restrain the growth of prices for imported goods (which were of increased importance in the exclave region) for the population. However, the fall in import prices exacerbated the problems of transition to a market economy for local producers. The situation changed after the crisis of 1998, when assembly plants began to develop actively in Russia and the Kaliningrad Region turned out to be attractive for them. However, in the mid-2000s it became obvious that many enterprises appeared that couldn’t exist without customs benefits. After discussions, it was decided to retain such benefits only for existing enterprises for a 10-year transition period (until April 1, 2016) and provide tax benefits to new investors (full exemption from corporate income and property taxes for 6 years and their payment in half for another 6 years).  Such unprecedented tax benefits for Russia in the mid-2000s gave certain results, but did not provide a radical breakthrough in the economic development of the Kaliningrad Region. Therefore, after the complete abolition of customs benefits, the federal authorities are forced to support enterprises that have used them. Even more extensive tax benefits were introduced – starting from 2018, the rates of enterprises’ payments from the payroll were reduced to the minimum level.

The exclave position of the Kaliningrad Region, compounded by the deterioration of relations with neighboring countries, greatly narrows the range of possible activities in the region and forces increased attention to the search for competitive advantages of the region. Among the promising sectors of the economy, experts call agriculture, tourism, the amber cluster, and fisheries. A desirable option is to ensure the innovative development of the region – in 2022, the federal government decided to create an innovative scientific and technological center based on the Baltic Federal University. Thus, the search for ways to develop the region and its federal support continues.

Email: alexdru9@mail.ru

Email: kouznetsova_olga@mail.ru

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