International Master Programme in European Spatial Planning and Regional Development The Russian Baltic exclave of Kaliningrad: Prospects for economic development
International Master Programme in European Spatial Planning and Regional Development
Master Thesis
Supervisor: Jan‐Evert Nilsson
Author: Natalia Ryzhkova
2008
B LEKINGE T EKNISKA H ÖGSKOLA The Russian Baltic exclave of Kaliningrad: Prospects for economic development
Acknowledgements
I would like to express my sincere gratitude to all those who helped me to accomplish my thesis. I am very thankful to my supervisor Jan‐Evert Nilsson for his very helpful observations and interesting discussions during the process of writing my thesis. I also very much appreciate the assistance I received from Vicky Gatzouras with regard to improving my English and general writing techniques. Not less important was the help I received from my classmates, Jan Exner and Gbemi Falade. I wish to thank them for finding time and providing me with very useful feedback about coherence and the logic of my ideas. Finally, I am glad to express my gratitude to the Swedish Institute which provided me with a scholarship for the whole period of my studies at the BTH thereby allowing me to pursue my goals in life.
Page 2 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
Figure 1. Europe Source: Vinokurov, 2007
Page 3 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
Abstract
The thesis focuses on the question of the regional economic development of the part of Russia with unique location within the EU territory – the region of Kaliningrad. The region has a relatively short but eventful history as a Russian exclave. A small territory has been facing numerous challenges in its development owing to the region’s detachment from the mainland. In addition to this, the position between two major players on European arena – the EU and Russia – defined a particular political significance of the small region. Complexity and interdependence of Russia‐EU relationship is reflected in their ways of perception and treatment of the region.
The objectives of the work are to understand specifics of development of small territories surrounded by other states and to define challenges the territories have to tackle; to apply theoretical findings for analyzing a particular case of the detached part of Russian territory – Kaliningrad ‐ and to identify future prospects for the region.
Methods to achieve stated objectives include an analysis of relevant literature on specifics and challenges of development of detached regions, an investigation of Kaliningrad’s historical background and the current situation as well as an examination of the EU’s and RF’s policy lines towards the Kaliningrad region.
The main findings of the work comprise several future prospects for the Russian region of Kaliningrad in the view of its specific geopolitical position which implies intricate combination of such factors as EU‐Russia relationship, WTO expansion, energy prices and globalization.
Page 4 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
Table of Contents
Introduction ...... 6 Study questions and methods ...... 8 Structure ...... 8 1 Enclaves and exclaves: definitions, classification, common features and economic problems ...... 10 1.1 The classification of enclaves in the context of political geography ...... 13 1.2 Common features and economic problems of enclaves ...... 17 2 Background information on Kaliningrad ...... 20 2.1 An analysis of Kaliningrad’s historical characteristics ...... 20 2.2 Economic and political trends in the region of Kaliningrad in the 1990s ...... 22 2.2.1 Economic problems in the 1990s ...... 26 2.2.2 Political trends in the 1990s ...... 28 3 The current situation in the Kaliningrad region ...... 31 3.1 The economy ...... 31 3.2 The Special Economic Zone regime and its impact on local economy ...... 33 3.3 Kaliningrad’s economic and social situation in comparison ...... 42 3.4 Kaliningrad’s demographical situation ...... 44 3.5 The political dimension of Kaliningrad’s identity ...... 46 3.6 The main obstacles to economic and social development of the region ...... 48 4 EU’s approach ...... 52 5 Russia’s policy towards the exclave ...... 55 6 Critical examination of the RF’s and EU’s approaches towards Kaliningrad ...... 60 7 Conclusion ...... 62 7.1 Kaliningrad’s development prospects ...... 63 8 Bibliography ...... 70 9 Figure index ...... 74
Page 5 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
Introduction
The Kaliningrad region1, as it appears today, is the Russian territory sandwiched between Poland and Lithuania. It has a population of almost one million people, of whom about 430,000 are concentrated in the capital, Kaliningrad. In 1990 when Lithuania declared its independence from the Soviet Union, the region found itself cut off from the mainland. In 2004 Lithuania and Poland joined the EU and Kaliningrad became surrounded by EU territory (Figure 2). These two global events heavily effected the economic and social situation of the Kaliningrad oblast. WTO expansion and NATO enlargement are two other external processes with a huge impact on the region´s development.
Figure 2. Europe after the 5th enlargement Source: http://newsimg.bbc.co.uk/media/images/41260000/gif/_41260177_kaliningrad_map2_416.gif (2005)
1 Here and elsewhere in the text Kaliningrad is used to refer to the Kaliningrad region. The terms ‘Kaliningrad region’ and ‘Kaliningrad oblast’ are used intermittently as well.
Page 6 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
The break up of the Soviet Union hit the region’s economy tremendously. Kaliningrad was left with a fragmented and obsolete industrial system. The effects of the following economic crisis of the 90s on society have been arduous. The region has suffered high rates of poverty, unemployment, subsequent health and education problems. The Kaliningrad economy started however to recover with rapid pace following the financial crisis of August 1998 in the Russian Federation. Nevertheless, the social situation in the region remains problematic, especially, when compared with the European neighbors. The anticipated EU enlargement of 2004 caused new worries for the region. According to the official reports from the Commission (EC, 2001) the enlargement should have benefited Kaliningrad substantially. However, the negative implications of the enlargement in form of limitations on transit of goods and people to and from Kaliningrad affected development patterns in the oblast. The main concerns included extremely low economic competitiveness of the region compared to its neighbors. This lack of competitiveness was at the same time one of the causes for and consequences of Kaliningrad’s exclusion out of the main trade and transport flows. Profound social problems, economic isolation of the region and environmental threats caused by Kaliningrad’s activities to the whole Baltic Sea region required attention and joint actions from both sides – the RF and the EU. Finally, the common nature of these problems was acknowledged by the European countries. Some kind of agreement was reached between the EU and Russia in the beginning of the new century. According to the official documents (EC, 2006) the main goal of the EU policy for Kaliningrad that time was to support the Russian Federation in pulling Kaliningrad out of its protracted economic crisis of the 90s and increasing its socio‐economic situation afterwards. The Russian Federation has also developed a new strategic approach towards the region’s future. A number of the acute concerns found solutions and the Kaliningrad region received a new urge for development. However, the perspectives on Kaliningrad of the two sides – the EU and the RF – are still very diverging. Thus, specific challenges
Page 7 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
peculiar to the geopolitical position of the region haven’t been tackled yet threatening sustainability of economic growth in Kaliningrad.
Study questions and methods The main questions that this thesis will discuss and the corresponding research methods that will be used are as follows:
- What is an enclave region? The theoretical tools that will be used here are definitions of enclave and exclave regions, classification of detached regions in the context of political geography, discussion of enclaves’ common features and analyses of the economic problems of enclaves. - What are the prospects of Kaliningrad´s development? To answer this question an analysis of the historical background and the current socio‐economic situation of Kaliningrad and an examination of the European Union’s and Russia’s approaches in relation to the development of the region will be conducted. - Which are the elements of an efficient development policy for Kaliningrad in light of its specific status, current economic activities and the impact of external actors and processes? To arrive at a comprehensive answer to this question, a synthesis of the findings on the issues of enclaves, the objectives of the policies of the EU and the RF towards the region and development trends inside Kaliningrad will be provided. The internal and external factors underlying the region’s present and future situation will serve as tools to answer the question.
Structure The thesis has the following outline. Chapter 1 is dedicated to the defining enclaves and exclaves. It presents a discussion of enclaves’ common features and economic problems. Chapter 2 provides a historical analysis of the Russian Baltic enclave’s emerging and describes its specific characteristics. Thereafter follows a discussion of
Page 8 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
the economic and political trends of the region in the 1990s. Issues of foreign trade, demilitarization and federal support are also examined in this chapter. The state of the economy from 2000 onwards, demographical challenges and the issue of the regional identity in Kaliningrad are investigated in Chapter 3. Chapter 4 presents an analysis of the main obstacles for the socio‐economic development of the Kaliningrad region. Chapter 5 proceeds by focusing on the EU’s objectives for Kaliningrad. Chapter 6 looks into the Russian interests in the region. This comprises an investigation of Russia’s policy line for the region as well as a study of Kaliningrad’s development programme elaborated by the regional authorities. The following chapter, Chapter 7, presents a critical examination of the EU’s and the RF’s agendas on Kaliningrad. Finally, Chapter 8 summarizes the main findings of this study. It identifies possible prospects for Kaliningrad’s development and proposes elements of an efficient development trajectory.
Page 9 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
1 Enclaves and exclaves: definitions, classification, common features and economic problems
There was a time when researchers deemed detached regions as abnormal geographical objects which were not sufficiently viable and, thus, would eventually cease to exist. The second half of the 20th century proved to refute this notion. The number of emerged enclaves exceeds the number of those that ceased to exist from the World War II onwards (Vinokurov, 2005). Presently, enclaves are widely perceived as specific spatial formations with similar but not universal attributes. The similarities allow classifying such regions while unique characteristics compel to use different approaches for understanding them. The main commonality of these territories is their high dependence on external circumstances and exogenous relationships. This dependence entails, on the one hand, extreme vulnerability and instability of such regions but, on the other hand, it provides the regions with the experience of surviving in a dynamically changing and interdependent environment as they have to develop vital skills for their continued existence.
Evgeniy Vinokurov in his research of enclaves (2005, 2006) points out the need for developing a theory of enclaves in order to create a theoretical framework which would help to understand them and, consequently, deal with the problems of such regions. He claims that the theory would contribute to defining crucial factors that influence an enclave’s life cycle. This, in turn, would help to clarify why some enclaves prosper while others decay. The major goal of the enclave’s theory would be to manage regional development in these specific areas and, ultimately, improve people’s lives there (Vinokurov, 2005).
A number of definitions of enclaves and exclaves can be found in current literature on the topic. First of all, a clarification of these two expressions which often create confusion need to be made. Despite the difference in meaning that exist between the Page 10 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
words “enclave” and “exclave” they are often applied to all detached regions. Some refer to “exclave” as a sub‐category of an “enclave” group while others consider two concepts as referring two equal types of geographical objects with the only difference in respect to which territory they are considered. Wikipedia offers unambiguous graphical explanation of their distinction:
Figure 3. Enclave and exclave types Source: Wikipedia.com C is A's enclave and B's exclave. D is an exclave of B, but not an enclave of A since it also shares a border with C. The criterion of being separated from the proprietor state is crucial for understanding of the exclave’s definition and the notion of enclavity denoting enclosure by a single alien territory is important for the enclave’s meaning.
Most commonly, an exclave can at the same time be an enclave, but not necessarily. Characteristics specific to an enclave region may be absent in this case. And other way around – an enclave can also be an exclave, but does not necessarily need to (in this case it is an independent state). Examples of pure exclaves can be found in history – these are the East Pakistan and the East Prussia – two largest exclaves which didn’t have a singe surrounding state, thus, cannot be enclaves. The most notorious world enclaves are the Kingdom of Lesotho locked within the boundaries of the Republic of South Africa and the independent city of Vatican embedded inside Italy –both of these Page 11 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
enclaves don’t have proprietor states and, thus, cannot be exclaves with respect to any states.
Therefore, we can conclude that the difference between the two terms is to be found in the region’s relation and location. The term exclave identifies that the region has an owner state the part of which it substitutes and the term indicates the region’s relation to the state. The term enclave specifies whether the region is surrounded by a single country or not and defines its relation to the surrounding state. Based on this discussion Kaliningrad can be considered an exclave to Russia but not an enclave to any state.
The two terms – enclave and exclave ‐ present politico‐geographical point of view on enclaves. Yet, both expressions are widespread in many other contexts. For instance, in sociology the words describe a community which is different from the neighboring areas in national, political, cultural or other ways. The terms are also used in economic theory, geology, agriculture and medicine, among other subject areas. The definition from Answers.com is broad and, thus, applicable to enclaves within various contexts. It determines enclave as “a distinctly bounded area enclosed within a larger unit”.
Another approach to viewing enclave regions as proposed by Vinokurov (2006) is to split the regions into two categories: “external” and “internal” enclaves. The above discussed politico‐geographical standpoint presents the “external” type of enclaves which are spatially external in relation to the state they constitute. At the same time, there is the second type of enclaves called “internal” the existence of which influences the lives of millions of people. “Internal” enclaves may not have political independence or territorial remoteness according to the Vinokurov’s model. Lots of examples of “internal” enclaves can be found in social and economic contexts. The second subcategory of “internal” enclaves has a clear administrative nature expressing an existence of borders. An example of this type of enclave is Moscow within the limits of
Page 12 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
Moscow oblast in Russia. Admittedly, defining this type of enclave makes sense only in federal states where the regions are characterized by significant political and economic autonomy. By definition of this terminology Kaliningrad can be called an external enclave.
Ethnic enclaves, apparently, belongs to the “internal” type. These are communities or suburbs of an ethnic group located within an area where another ethnic group dominates. There are also religious enclaves, territories with a special economic regime and other subcategories of enclaves built on various socioeconomic specifics in the group of “internal” enclaves.
1.1 The classification of enclaves in the context of political geography It seems reasonable to proceed with a classification of enclaves and exclaves on the basis of their territorial specifics (“external” enclaves), as it will be helpful for understanding the case of the Kaliningrad region.
In his attempts to create a theoretical base for explaining the phenomena of enclaves and exclaves, Vinokurov achieved significant results by elaborating with the classification of these spatial objects. He uses the basic classification of enclaves but substantially expands it by applying other conditions to the basic criterion of a legal status (Vinokurov). The graph below represents a combination of the criterion of a legal status on the upper level with the practical accessibility criterion on the lower levels.
Page 13 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
Figure 4. The main typology of territorial enclaves, exclaves and enclave states. Source: Vinokurov, 2007
The most important sub‐category for this work is the group of so‐called international enclaves and exclaves. The expression “international” basically means “external” enclaves distinguishing these types of regions from sub‐national enclaves and exclaves which can also be called “internal”. The difference between first category “enclaved sovereign states” and “international enclaves and exclaves” is whether the territory has an owner state or is independent. The principal definitions of an enclave and an exclave have already been given above. The term “true enclaves” is necessary in order to make a distinction between an area entirely enclosed within another state and other types of detached or landlocked regions for which the word “enclave” is used. “Coastal enclaves” are basically the same kind as semi‐enclaves – enclaves surrounded by another state but in possession of a sea border – Alaska and Gibraltar are two examples of this type of enclave. “Mere” or “pure” exclaves are landlocked regions which are surrounded by more than one state, so they cannot be considered as enclaves in relation to any of their surrounding states – the Russian Baltic exclave of Kaliningrad is one such example. Finally, “a pene‐enclave” or “a practical enclave” is a
Page 14 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
region which is not separated from the mainland but could be reached only through the territory of another state. Canadian Yukon presents an interesting historical case of this type: before the construction of the Alaska Highway in the 1940s it was reachable only through USA territory.
The group of sub‐national enclaves and exclaves includes regions with administrative borders, which are enclosed inside another region of the same country. Then, according to Vinokurov “an enclave state” and “a semi‐enclave state” are sovereign countries surrounded by a single state or several states with or without a sea border. Yet, Jan S. Krogh does not recognize “a semi‐enclave state” type and contends that an independent country that has access to the sea can not be considered as an enclave‐ state or any other enclave formation. In line with this definition, the Gambia in the Krogh’s system of enclaves, exclave and the like categories falls into the latter group (the like categories) while Vinokurov refers to the country as a semi‐enclave state.
It seems important to clarify why Vinokurov considers it necessary to identify “a semi‐ enclaved state” type at all. Many countries can meet the technical criteria for inclusion in this group (bordered with a single state and having access to a sea – for example, Portugal); however, the geographical similarity with semi‐enclave non‐sovereign regions does not provide such countries with enclave‐specific characteristics which are important for understanding enclaved states.
The region of Kaliningrad presents a special case. The main reason for this is a unique nature of the EU’s organization – the EU is not a single state but the countries inside it do not relate to each other in a common way. Accordingly, the Kaliningrad region can be considered a mere exclave since it borders with more than one state, at the same time, it could be a semi‐enclave relative to the EU as the region is surrounded by EU territory yet with possession of a sea border. Furthermore, the deeper is the integration of the EU, the more relevant will the enclave perspective be since more and
Page 15 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
more activities become integrated between Poland and Lithuania, thereby distinguishing Kaliningrad. The two figures below illustrate the case.
B.
A.
Figure 5. A. Mere exclave: mere exclave with sea connection to the mainland. Figure 5.B. Kaliningrad region, Poland and Lithuania. Source: Vinokurov, 2007
Yet, Jan S. Krogh (2006) classifies the region of Kaliningrad not as an enclave or an exclave at all but as a fragment of the Russian Federation. His main argument, as in the case with the Gambia, is that the region has a sea border and, thus, falls into the category of “an incomplete or isolated portion of land belonging to a country situated with a territorial boundary to a neighbouring politically alien territory”.
What the above discussion has indicated is that classification of enclaves can be built on numerous different criteria, which essentially confirm that they share lots of common features while at the same time remaining very specific. Therefore, it appears to be inaccurate to use the same approach for fostering development in such regions. A specific development tactic needs to be elaborated in every single case which should take the common features into account.
Page 16 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
1.2 Common features and economic problems of enclaves Vinokurov proposes several main common characteristics of enclaves. The first of these is their size which is regularly small. Normally, enclaves are characterized by a relatively compact area which neither offers a sufficient internal market nor an adequate base for large‐scale production. Implications of this characteristic in the form of specific economic policies oriented to export, the need for openness and integration of the local economy into the world economy reveal the second common feature of enclave regions – a high level of dependence on external influence. The dependence of enclave independent states and enclave non‐sovereign regions is rather different and can, thus, be classified. Enclave states are highly exposed to internal processes and activities of the surrounding countries while enclave regions are, in addition to this, dependent on their owner state, often to a much greater degree. Economic, defense and to a certain degree political or foreign relations dependencies on the surrounding states appear to be important for independent enclave states. At the same time, law making dependency and reliance of military nature on the mainland can be added for enclave regions on the top of economic and political dependencies on both the surrounding states and the owner state.
Double peripherality, as stated by Vinokurov with referring to other authors, can also be a common feature of enclaves. It stems from the geographical location of a region which determines its peripherality relative to both the state a part of which it constitutes and the surrounding states. The region of Kaliningrad is a good example of this peculiarity. The region is situated on the outskirts of the EU and Russian economy. The main negative consequence of double peripherality as noted by Vinokurov is that the region is located next to remote and, accordingly, possibly underdeveloped areas of the surrounding states. However, there are examples of several West European enclaves that do not confirm to this situation. For instance, a number of Belgium
Page 17 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
enclaves in the Netherlands are positioned right in the middle of a dynamic and prospering European territory.
Therefore, we may conclude that these common traits do not reflect enclaves’ specificity but only define some common traits which are shared by all enclave regions and can also be attributed to small independent states. For example, Luxemburg has a landlocked area of only 2,586 square km. The country is highly dependent on trade relationships with Belgium and the Netherlands, thus, the economy is dependent on the external shocks and cycles of these states and the global economy. Amstrong and Read (2000) point out that microstates are also particularly vulnerable to external forces of many kinds due to their small size and high degree of openness. Therefore, the described above features seem to be common for enclave regions but not specific.
Further on, a number of economic problems stem from the enclaves’ characteristics. The smallness of enclaves in terms of size causes lots of challenges for their economy. Some of these have already been mentioned: a limited or undiversified natural resource base sometimes coupled with a lack of work force. Interestingly, these obstacles have successfully been overcome by several enclaves, such as Singapore, whilst they hamper economic development in others. Without a doubt, this problem is also faced by small independent states.
Next, the most specific feature of non‐sovereign enclaves and exclaves ‐ their political dependency – may cause sound economic implications. Often political significance of small regions considerably overtakes their economic weight. Thus, economic policies of enclaves are determined not by the criterion of efficiency (as in case of microstates) but as a result of political factors and objectives. Interestingly enough, consequences of high enclaves’ dependencies on external processes are greater volatility of their economies but also higher growth rates.
Page 18 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
Another economic obstruction challenging the economy of enclaves is related to the transport problem. Such difficulties relate to two factors: distance and separation by the territory of a foreign state, such as high transportation costs, transport monopoly and many others transport‐related issues create hinders for export‐oriented economies, increase enclave’s dependence on neighboring countries and strain relations with an owner state. These problems could be also experienced by islands and landlocked microstates which can or cannot be considered as enclaved states. However, the key element of this problem ‐ the mainland ‐ exclave communication – is deeply rooted in the nature of exclave and, so, is exclave‐specific. Intensity of the problem largely varies depending on an enclave’s type: true enclaves surrounded by a single country have to cope with one, probably, stubborn state while semi‐enclaves have more access opportunities and are, thus, not so vulnerable to this factor.
Among other economic burdens are asymmetry between consumption and production markets, tariff barriers and political and economic instability. Yet, it should be noted that some enclaves’ peculiarities and consequential economic and political problems such as tariff barriers or political instability have been eliminated in most West European enclaves owing to the development of the European Union. Perhaps, special socio‐cultural and ethno‐demographical challenges still bother these regions.
The Kaliningrad region shares most of these common features and faces the economic problems discussed above. Therefore, a conclusion which can be drawn is that the meaning of the exclave position for economic development of the region is huge and future prospects are to a great degree determined by Kaliningrad’s exclave status. Yet, an analysis of the region’s peculiarities needs to be done in order to get a comprehensive picture.
Page 19 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
2 Background information on Kaliningrad
2.1 An analysis of Kaliningrad’s historical characteristics The Kaliningrad oblast is one of the most unique Russian regions. Besides being the smallest region in the Russian Federation – 15,100 square km (half the size of Belgium) – it is also the newest. Before the Second World War it was part of the German East Prussia (Ostpreussen). In April 1945 it was vanquished from Nazi Germany and yielded to the Soviet Union by the allies at the Potsdam Peace Conference in August 1945. In 1946 the region was integrated as an oblast into the Russian Socialist Federal Soviet Republic (RSFSR). The name of the main city was changed from Königsberg to Kaliningrad in honor of the Soviet Head of State Mikhail Kalinin, who had recently died. The larger southern part of East Prussia was granted to Poland, and the northern Memel (Klaipeda) area of the Russian part was converted into the Lithuanian Soviet Republic.
The next unique feature of the Kaliningrad oblast is its total change of population. After II World War all surviving Germans fled or were expatriated to the West, so the left territories became inhabited by residents from Russia, Ukraine, and Belorussia as well as by other nationals from the cosmopolitan Soviet Union. 50 years after the split a new generation arose in the oblast and a typical Russian community was formed. About two thirds of the present population, which are born in the region now, are forming their own regional identity.
Another distinctive characteristic of the region is its militarization. The main purpose of the Soviet Union’s claim on the region was its strategic position. The offensive Soviet strategy against NATO forces in the postwar period comprized the development of a military bastion in the region. The headquarters of the Soviet Baltic flotilla moved from Leningrad to the city of Kaliningrad and the port of Baltiisk (formerly Pillau) became a major naval base. The region became tailored to the military needs; the military Page 20 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
industry was the major employer and the civilian structure of the oblast was redesigned for the needs of the armed forces. This is seen as one of the main hampers for economic development in the region during that period of time (Kempton, 2001). The temporary concentration of the military forces in the Russian Baltic enclave during the process of the troops’ withdrawal from the Central Europe and the Baltic States in the early 1990s caused lots of worries for Poland and the Baltic States and inclined them to joining NATO.
Kaliningrad’s geographical position is certainly very exceptional. It became separated from the mainland when Lithuania and Poland gained independence in 1991 and hereafter the only free connection with Russia was possible by the Baltic Sea. In this regard, interesting comparisons with such cases as Hong Kong, Gibraltar and Alaska have been made. However, the best analogy is with East Prussia ‐ a predecessor of the Kaliningrad region – German province which was cut off from Germany following the World War I by restructuring Poland. Implications of the Kaliningrad’s separation from Russia became problems with transit. Major transport routes had to cross Lithuanian territory, so Russia strived to make these transit modes as smooth and quick as possible by exploiting trade relations with Lithuania as leverage. This, in turn, resulted into negative trade accidents which have been causing troubles for both countries throughout the years.
Lots of territorial disputes about the Kaliningrad region have been stirring up troubles in almost all neighboring countries. Nationalist groups in Germany, Poland and specifically in Lithuania claimed their rights on the land based on different historical, legal, ethic and economic reasons. There were also proposals to create a separate Russian Baltic State or to divide the region between Germany and Russia. Lithuania was particularly active in demanding separation of the Kaliningrad oblast from the Russian Federation what is mainly explained by its fairly justified and intensive fear of the country. Anyhow, Russian territorial integrity has been acknowledged by the Page 21 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
governments of the neighboring countries. Mostly due to the reasons of maintaining relations with Russia and each other but also because the acceptance of the Russian rights for the region included possible economic burden of taking over the region to any states, minority problems with the Russian population and compatibility with the principle of inviolability of borders important for NATO membership.
All these specific features of the Kaliningrad region determine its relationship with the federal center as well as shape relation patterns with the EU Member States – as this thesis will show.
2.2 Economic and political trends in the region of Kaliningrad in the 1990s In the 1990s Gorbachev initiated the process of democratization and liberalization of the Russian economy, which was continued by Yeltsin. One of the main consequences of this policy was the possibility for increased political and economic autonomy of Russian regions, including Kaliningrad. The idea of exploiting beneficial geographical location of the region close to Europe was developed already in the late 1980s and made a basis for plans for a free economic zone in the region, called “Yantar” (FEZ Amber). The aim of the FEZ was to restructure and develop economy of the region. In order to do this, the main advantages of the Kaliningrad region were to be exploited. Among these are the already mentioned favorable geographical position, the absence of ethnic conflicts in the area, a well‐developed fishing fleet, 70 percent of all amber assets in the world, and some oil reserves. Favorable taxation and custom rates, a good industrial and social infrastructure and cheap and well‐trained work force would have helped to attract foreign investments. Thus, Kaliningrad had good possibilities of becoming a center for economic cooperation in the Baltic Sea region, a place for testing market reforms in Russia and a launch pad for foreign investors willing to open up the
Page 22 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
vast Russian market. Additionally, increased autonomy would have allowed the region to seek for financial support from European institutions.
The idea of a free economic zone in the Kaliningrad region was actively promoted by the head of the region’s administration since 1991, Yurii Matochkin, and also found significant support by the local population. In 1996, Leonid Gorbenko, formerly supported by the communists, came to power and continued the course to market economy and a free economic zone in the region. He also pointed out the opportunity for Kaliningrad to become a bridge between Russia and Europe and an avant‐garde for Russian reforms. With the assistance of Yegor Gaidar, former Deputy Prime Ministry and initiator of market reforms in Russia, Gorbenko introduced a number of additional measures to promote investments in the region. Nevertheless, despite the officially proclaimed priority of attracting foreign investments, the Kaliningrad’s economy became oriented towards the Russian market and lacked investments from large companies.
Neighboring countries for their own reasons gave support to these movements towards market liberalization. Trade flows with Germany, Poland and Lithuania increased considerably in the 1990s, agreements on visa‐free travel and regional cooperation across the border with the latter two were signed and the tourism sector demonstrated high growth. The Nordic countries also expressed their willingness to support Kaliningrad by getting engaged in trade and aid projects. Particularly, some TACIS aid projects were launched by the EU in the region.
The temporary success of the region can be illustrated by a fivefold increase in foreign trade between 1995 and 1997, a rise in real wages higher than the Russian average in 1996 and a rate of immigration to the region that exceeded emigration (Kempton, 2001, p. 148). Accordingly, the region became one of the most attractive places for foreign companies in Russia. Ambitious plans of Kaliningrad’s authorities for autonomy
Page 23 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
and free trade in the region were getting support from abroad; however, backing from the federal center was vital for success of these plans.
The ambitions of the Kaliningrad administration were supported by Gorbachev and Yeltsin to the extent that they correspond with the general policy of market liberalization and free trade with the West. In 1990 Kaliningrad was given status of one of Russia’s six Zones of Free Entrepreneurship, which in 1991 was followed by the official establishment of the “Yantar” Free Economic Zone in the region. Customs and taxation exemptions were granted to the Kaliningrad oblast and several decrees promising agricultural and infrastructural investments were issued by the federal government. In January 1996, a power division agreement between the center and the region was signed bestowing it the right to sign civil‐law agreements with foreign investors. Yeltsin’s re‐election in 1996 ensured continuation of the course. Reformed‐ minded economists and politicians like Boris Nemtsov, Deputy Prime Minister in 1997, following him Sergey Kirienko, Vladimir Shumeiko and Vladimir Zhirinovskiy, all supported the idea of high autonomy of the Kaliningrad oblast emphasizing its geo‐ political preconditions for a specific role and importance of the region’s economic success to the whole of Russia. Demilitarization of the region proved to help promoting economic and political autonomy in Kaliningrad. Significantly weakened military industry in Kaliningrad eased the fears of the neighboring countries and encouraged them to participate in the economy’s transition process. Thus, it is clear that the region had good prospects and sufficient support from the federal center that time. However, before making a total assessment of Kaliningrad’s situation the signs of the opposite direction and causal problems must be analyzed.
Despite demilitarization of the Kaliningrad oblast, it remained the last base for the Russian Baltic fleet. Demonstrative military exercises were held on a regular basis in the region to show the importance of integrity of the Russian territory. There still were restrictions imposed on civilian activities and international trade by the military Page 24 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
authorities. Another problem was the military property and personnel turned over to the civilian authorities thereby creating burden for them as they were main debtors to private companies for energy consumption, food etc.
The autonomy of Kaliningrad was also limited by the economic and political development in Russia. The new Russian Constitution adopted in December 1993 enlarged the powers of the President and set restrictions on the sovereignty of the ethnic republics. Oblasts like Kaliningrad were not given the same status as the republics. A trade agreement signed by Kaliningrad with Lithuania was rejected and control over borders and visa issues were hold by the federal government.
In January 1996 the law on Kaliningrad was finally accepted by the Federal Assembly and signed by the President. According to the law, the Kaliningrad oblast became a “Special Economic Zone” which means it got all its custom‐free favors but the federal government retained a high level of control. Quota restrictions on import from the West aiming mainly at increasing revenues were crucial flaw of that system. Further, the federal center had considerable power over economy in the region which resulted in under‐financing the economic zone.
The worsened economic situation in 1998 made the federal support almost fictitious. The Russian government were struggling with shocking deficit of the budget and used all possible ways to increase its income including imposing new quotas on custom‐free import in Kaliningrad. The critical situation triggered robust discussions on reasoning the Kaliningrad’s status as a Special Economic Zone with lots of trade privileges. At last, the notion of special conditions for Kaliningrad as compensations for its geographical position got acceptance by the strong parties in the Duma. The main argument was that in the absence of privileges the federal government would have to pay much more to sustain the region than it would receive in the form of customs revenues.
Page 25 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
The financial collapse of August 1998 in Russia changed the situation tremendously. The region was hit especially hard by this due to its dependence on imports and foreign trade. According to the hastily issued “Temporary Ruling” by the State Tax Committee, all import goods sent to the rest of Russia were subjected to customs. The result of this change in the federal law was a scandal when even humanitarian aid from Poland and Lithuania was subjected to very high excise and duties (Kempton, 2001). The following political crisis caused a series of the rapid changes in the government. At last, a communist Yevgeniy Primakov came to the power as a deputy Prime Minister in charge of the economy. Stability by means of increased government control was decided to be prioritized at the expense of market economy. Overall, the economic crisis undermined the possibility of the properly functioning free economic zone in the region as the principle was distorted by imposed restrictions. The economic and political autonomy of the Kaliningrad oblast was also undercut when the country was struggling with consequences of the financial crisis.
2.2.1 Economic problems in the 1990s Apart from the restrictions imposed by the Russian federal government, there were lots of internal problems in the Kaliningrad oblast partly common for the country, partly specific.
Kaliningrad’s exclave position was a problem in many respects. First of all, it found itself cut off from both its raw material base and its market in Russia. For example, the region could not provide itself with electricity and agricultural products. Transit and transport costs made Russian products extremely expensive for Kaliningrad people thus making foreign goods more affordable thanks to the custom and tax privileges. This in turn created obstacles for few local producers.
Concerning foreign trade and investments, the Kaliningrad region itself offered only a small and poor market. Though it could function in interesting ways, as a path to the
Page 26 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
rest of Russia if access to the whole Russian market was free. However, an unstable economic situation and restrictive legislation discouraged foreign investors. The total amount of foreign investments was insignificant. Ten million dollars was the general volume of investments until 1996 (Kempton, 2001, p. 156). Belarus was the biggest but fictitious investor in Kaliningrad as its currency was not convertible and Belarusian “investments” went into the grey economy. Import quotas and customs fees hampered foreign trade greatly. Moreover, it created temptations for engaging in smuggling and increased corruption in the region. The quotas’ limits introduced in 1998 were exhausted very quickly. As there were only few local producers, this led to a sheer increase in prices for the consumers.
Therefore, Kaliningrad heavily yielded to other Baltic States and Poland in terms of attracting foreign investments as these countries offered much more predictable and favorable conditions for doing business. Kaliningrad’s seaport could not compete with such attractive Baltic ports as Klaipeda or St. Petersburg, as the former was located in a well‐functioning free economic zone with all positive consequences of that and the latter did not have the transit problems Kaliningrad had. Thus, all transit trade with the West as well as with Russia went around the port of Kaliningrad.
Poland and Lithuania found it much easier to cooperate with each other. Even before their accession in the late 1990s the two countries had a free‐trade agreement and imposed no visa‐requirements on their citizens while visa‐related problems with the Kaliningrad region created lots of obstacles for the Kaliningrad’s businessmen and obstructed cross‐border cooperation. The absence of consulates of the major Western states in the region forced Kaliningrad businessmen to get visas at the embassies in Moscow which was another impediment for doing business with the Western countries.
Page 27 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
In view of these external and internal problems, Kaliningrad’s economy continued to weaken in the late 1990s even more than the Russian average. According to the data offered by Daniel Kempton (2001), Kaliningrad went down from the 15th position among the Russian regions by the total amount of investments in 1996 to the 32nd one in 1997; in spite of the fact that Kaliningrad makes up the biggest free‐trade area. As Evgenij Vinokurov notes in his research (2007), economic transformation during the post‐communist period deeply destabilized the Kaliningrad oblast. The region was exposed to the economic disruption to a larger degree than a “typical” region on the mainland. The level of industrial decline made 70 percent in 1990‐1998 (Vinokurov, 2007).
Further, the economic crisis of August 1998 caused enormous social problems. Wages that were in average lower than in Russia were not paid on time and even pensions were delayed in 1997. Fourth of the population in the region was unemployed. In 1997 about 60% of the population lived below the official poverty line. Unsurprisingly, fertility declined, the death rate increased and Kaliningrad became ill‐famed for having the highest rate of AIDS in Russia. Many people managed to survive only thanks to the engagement into smuggling, the grey economy activities or working on homestead land. As earlier mentioned, the financial collapse hit Kaliningrad especially hard since it was heavily dependent (by 90%) on food imports which virtually stopped.
Thus, even the status of a special economic zone did not help the economic development of the Kaliningrad region. Compared to its neighbors the oblast was seen as a problematic region. It became a sort of periphery vis‐à‐vis Russia and the EU rather than a bridge between them.
2.2.2 Political trends in the 1990s In the early 1990s the continued economic crisis undermined people’s aspirations about a free economic zone in the region. Additionally, the nationalistic ideas were
Page 28 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
fairly strong during the time mainly due to the need for financial support from the center and also the fear of a Western influence. The latter was largely directed against Germans: wealthy businessmen, lots of visitors and Russian Germans moving from the Volga. The memories of the Second World War were yet very fresh and phobia of being taken over by rich German arose among elderly people. Hence, the Kaliningrad population did not favor separative ideas at that time.
However, the situation changed in the late 1990s. The public opinion was that since the federal center could not help them, then it should allow the region to manage on its own. The results of the poll in 1998 showed that the local population tended to favor closer ties with Poland and Germany. In this new situation Governor Gorbenko strived to defend the region’s special status in relation to the federal center. His initiatives with regards to the controversial land issue and distribution of taxes demonstrated an aspiration for the greater autonomy of the region.
The political paralysis after the crisis of 1998 forced Gorbenko together with other regional leaders to take matters into his own hands to ease the impact of the economic crisis. Among the measures local authorities imposed were regulation of essential supplies and suspension of payments to the federal budget in order to repay at least some arrears to the citizens. Some of the measures taken by Gorbenko and especially his declaration of “a state of emergency” in the Kaliningrad region were technically illegal. All this increased fears of regional separatism in Kremlin (BBC, September 9, 1998). Additionally, Gorbenko made lots of efforts to strengthen the relationship with Belarussia and Lithuania, the efforts that went beyond economic ones.
At the same time, the Governor made decisions which went in line with the federal views. These decisions related to the military interests in the region, which meant keeping the military zone in the naval town Baltiysk. Importantly, he also supported the federal law about imposing quotas on import as a vital measure to protect local
Page 29 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
producers. Quotas, as many politicians have noted, were obvious obstruction for free trade development. Thus, this policy was much criticized by the business community, consumers and the regional Duma. Another reason for disapproval was the fact that decisions about permissions for trade privileges were made through very selective and partial procedure in local administration which invited bribe taking and increased corruption in the region.
Page 30 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
3 The current situation in the Kaliningrad region
3.1 The economy As was described in detail in the previous chapter, Kaliningrad was hit by the collapse of the Soviet Union harder than other Russian regions because of its territorial detachment. Further, the crisis of 1998 became a watershed for the Kaliningrad oblast’s economy. In the period from 1999 to 2005 the region experienced an annual average growth of 10,6% (The Kaliningrad government, 2006). The economy started to recover after a long period of economic crisis and since 2000 growth rates in the oblast have been higher than the Russian average and those of Poland and Lithuania (EC, 2006). These two distinct periods in Kaliningrad’s economic transition period could be seen on the graph below: 1995‐1998 and 1999 onwards. Kaliningrad was falling behind
190 % 177,8
166,2 170
155,3 150,7 145,8 150 140,6 138,4 145,2 131,6 130 144 124,8 137,1 130 120,2 133,3 131,5 127,9 113,7 126,9 122,8 106,2 119,4 118,2 119,2 110 113,9 112 113 98,5 108,3 100 104,7 92,6 103,3 97,7 90 96,4 94,3 91,2 85,8 74,2 81,9 79,2 70 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Kaliningra ЛитваLithuani ПольшаPoland РоссияRussia Кал d
Figure 6. GDP and GRP growth rates relative to the GDP in 1995 Source: The Kaliningrad government, 2007
Page 31 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
the rest of Russia and its neighbors between 1995 and 1998 when growth in GRP was ‐ 26 % to be compare with +20% in Lithuania, +24 % in Poland and ‐8 % of the Russian average. After the national economic crisis and financial collapse of 1998 the regional economy started showing growth rates higher than those of its neighbors and the Russian average. The Kaliningrad’s accumulated growth rate from 1998 to 2005 amounted to 96% compared with 58% of the Russian average, 48% and 26% in Lithuania and Poland, respectively.
Several industries have developed notably when the economy started to grow: food processing, machine building, pulp and paper production as well as the fishing industry and furniture manufacturing demonstrated remarkable development according to official data. These are, in fact, the areas in which Kaliningrad specialized during the Soviet era. At the same time, Vinokurov (2007) notes the industries underwent a profound restructuring. For instance, the machine building sector shifted almost completely from mechanical engineering production (capital goods) to producing household electronics. The same patterns can be observed in other industrial mainstays. About 60% of the industrial goods produced now in the region are new ones.
Interesting is Kaliningrad’s shift in its economic orientation towards the tertiary sector. The structure of Kaliningrad’s GRP (gross regional product) began to resemble the typical economy structure of developed countries. Yet, Vinokurov (2007) notes that the main rationale of the change is sharp decrease in the industrial sector versus gradual decline in the services sector rather than a natural trend of prevailing tertiary sector in a post‐industrial economy.
Page 32 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
Figure 7. Russia’s GDP and Kaliningrad’s GRP in 1995–2006, annual changes (in %) Source: Vinokurov, 2007
The diagram demonstrating the annual changes of Russia’s and Kaliningrad’s gross domestic products makes evident that the region has been following the Russian pattern (with a certain time lag) but with much greater amplitude (Figure 7). The more intense fluctuations of Kaliningrad’s GRP are an important feature which can be justified by the region’s higher vulnerability to external processes than Russian regions’ vulnerability on average.
The Kaliningrad’s economy operates successfully to a great extent owing to the benefits granted by the federal center in the form of low railway tariffs, less than average European gas and electricity prices as well as the direct support and state investments to the regional economy. Yet, the most influential preferences are those provided by the Special Economic Zone regime.
3.2 The Special Economic Zone regime and its impact on local economy Admittedly, the key reason for such rapid growth is the overall positive trend in Russia. However, the region was affected by the strong rise of the Russia’s economy in a specific way. Devaluation of the rubble created favorable conditions for an expansion of export from Kaliningrad to Russia. Despite the fact that Kaliningrad’s production
Page 33 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
consists of 75‐80% of imported goods (Smorodinskaya, 2007, Lopata, 2007); this industrial output sent to mainland Russia is known as import‐substitution and became an economic engine for the region. The import substitution development is a rather remarkable consequence of the currency depreciation as an exchange rate decline is extremely beneficial for export development. However, the Special Economic Zone (SEZ) regime in the Kaliningrad region has played a crucial role in the growth that has occurred from 1999 onwards. The SEZ’s benefits and privileges made the opportunities for import substitution (deliveries to Russia) much more attractive than for export to other countries.
The Special Economic Zone regime operating in Kaliningrad since 1996 was amended in 2006 by the new federal law. The main characteristic of the new scheme is a transition from customs privileges to taxes and investments benefits. According to the constitutors’ notion, the former provided only compensation for the enclave’s position of the Kaliningrad region whilst the latter is aimed at intensifying economic development in the region in the long run.
Customs privileges constitute the core of the SEZ regime of 1996. There are no import taxes2, i.e. neither customs duties nor VAT on foreign trade transactions or excise taxes have to be paid according to the 1996 law. Additionally, products considered to be of local manufacture and sent to the RF are exempt from customs duties. Therefore, the privileges created an incentive to use cheaper imported components for manufacturing and then selling the products on the Russian markets. In this way, the SEZ have determined the orientation of Kaliningrad’s economy towards the Russian market (though the task of attracting foreign investors was claimed to be a priority). Industries
2 The “import” VAT, an artificial invention of the RF Customs Service of 1997 in concern with reloading the federal budget revenues (Smorodinskaya, 2007). While the SEZ law implies that there is no import VAT in the Kaliningrad region.
Page 34 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
aimed at the Russian market have been developing remarkably meanwhile several economic sectors, e.g. agriculture, could not compete with cheap imports. Nowadays, approximately 80% of the industrial production is sent to Russia using the SEZ preferences, while only 20% is either exported or consumed in Kaliningrad (Vinokurov, 2007). Additionally, the need of servicing growing volumes of industrial outflows to mainland Russia (as a result of a booming consumption in the country) is seen as one of the main factors of the spectacular increase in imports. At the same time, the custom duties privileges through creating advantageous conditions for importers discouraged investors by making investing much less attractive than importing. Accordingly, absence of large investors, which would have been able to produce goods and services competitive on the European market, resulted to almost a stagnation of export to other countries. It created a state of pathological trade deficit in Kaliningrad’s balance. Smorodinskaya (2007) in her research of Kaliningrad’s modernization process stresses the profound detrimental effect of the SEZ regime on the regional economy based on the growing figures of trade deficit. Smorodinskaya even alleges the fake nature of the economy growth in Kaliningrad. Figure 8 illustrates the situation in the region which is deemed by some economists to be rather abnormal and unhealthy from a macro‐ economic point of view.
Page 35 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
Figure 8. Kaliningrad. Growth of GRP, exports and imports in comparison, US$ m Source: Smorodinskaya, 2007
Throughout the years the imports have been greatly exceeding both exports (statistically registered outflows from Kaliningrad’s customs territory) and the value of the regional GDP. The GRP growth is remarkable, however, an escalating import curve, illustrating import flows to Kaliningrad, implies the huge and unlimited growth of trade deficit (80‐95% of GRP). Export (to other countries) remained almost flat in the region until 2004 when the enlarged volume of transit shipments of Russian oil as well as oil extraction from the newly discovered site in the region increased total exports to 63% of GRP (which is seen as a temporary effect owing to the limited volume of the region’s oil reserves). The prevailing share of oil extraction and transit in the region’s export is widely acknowledged as a negative situation bearing in mind that the region’s oil reserves are anticipated to be exhausted by around 2020. Moreover, the low diversification of Kaliningrad’s export increases the vulnerability of the local economy. A more detailed picture of Kaliningrad’s trade transactions is presented in Table 1.
Page 36 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
2000 2001 2002 2003 2004 2005
Trade transactions, US$ m
3.2.1.1 Foreign trade turnover 1345 1542 2203 2691 4022 5683
Export (to other countries) 519 508 547 556 1064 1710
Import (from other countries) 826 1034 1656 2135 2958 3973
Balance ‐307 ‐526 ‐1109 ‐1540 ‐1894 ‐2263
Deliveries to the mainland Russia* 432 619 759 1118 1538 ‐
3.2.1.2 Covering import by export, % 51,0 39,7 25,9 26,0 36,0 43,0
3.2.1.3 Share of the region in Russia’s 1,8 1,9 2,7 2,8 3,8 ‐ import, % Trade transactions as % to GRP 3.2.1.4 Foreign trade turnover 154 140 173 162 197 ‐
Export (to other countries) 52 46 43 33 52 ‐
Import (from other countries) 94 94 130 128 145 ‐
Balance ‐50 ‐48 ‐87 ‐95 ‐93 ‐
Own calculations
Outflows (export plus deliveries to 951 1127 1306 1674 2977 4121 Russia)
Table 1. Trade transactions in Kaliningrad, US$ m *own calculations Source: The Kaliningrad’s government, 2007
Accordingly, Smorodinskaya advocates that the growth of the local economy is led by import rather than by increase in industrial production. Over the years the Russian Baltic exclave has been mediating a tax‐free access of foreign goods to the Russian market which is officially considered as a welcomed import‐substitution development. “Specialization on servicing import flows to Russia’s mainland” (Smorodinskaya, 2007) has been greatly encouraged by the SEZ regime. Only 15 to 30% of value needs to be
Page 37 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
added on imported goods in order to be considered as produced in the SEZ and, therefore, become eligible for customs duty and VAT exempts.
On the other hand, massive import inflows do not have to be a sign of a weak economy. Firstly, we can assume that Kaliningrad’s total export (export to other countries plus deliveries to the mainland Russia) roughly balances its total import (from abroad as well as from other Russian regions). Unfortunately, it is virtually impossible to arrive at precise figures for the inflow from the Russian regions to Kaliningrad: outflows to mainland Russia have to be cleared at the border but there is no data on goods from Russia to Kaliningrad at the customs authorities. Secondly, the Kaliningrad region, as a part of the RF, can experience trade deficit which could be compensated by trade surplus in some other Russian regions – the RF’s trade balance is what matters. Lithuanian economists (Lopata, 2007) provide figures which confirm that despite losses for the national economy in absolute numbers are very big; they are not really substantial in the context of all of Russia. The proficit (surplus) of payment balance of the RF in 2006 made around 95 billion USD and the foreign trade proficit amounted to nearly 140 billion USD (while the deficit of the Kaliningrad Region came to negligible in this context 2‐3 billion USD) (Lopata, 2007).
Vinokurov advocates that the remarkable growth of industrial production in the region was firstly triggered by a consumption boom in the “big” Russia since the 1998 crisis, which is illustrated by the graph below (Figure 9).
Page 38 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
Figure 9. Industrial production (in % to the 1990s, i.e. 1990=100%) Source: Vinokurov, 2007 The rise was particularly remarkable during the last few years: growth in physical terms was around 13%, 10% and 15% in 2001, 2002 and 2003, correspondingly. Yet, it is also notable that industrial production has not yet reached the same level as before the economic crisis of 90s. Several economists (Smorodinskaya, 2007; Lopata, 2007) argues that the growth in production is negligible compared to the increase in imports. Moreover, import‐substitution businesses contribute very little to Kaliningrad’s economic development in terms of their share in tax payments and total investments. The current structure of Kaliningrad’s economy implies that any increase in import‐ substitution would lead to further loss in tax revenues. Yet, the situation is rather acceptable and typical for a free trade zone region – the economy is booming while public incomes are fairly small. Additionally, the lost profit in the form of under received tax payment is estimated much lower than what the federal government would have to pay for the local economy’s survival if customs breaks were abolished. The actual damage to the national economy could be seen an unfair competition from
Page 39 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
Kaliningrad’s producers towards manufacturers of the “big” Russia and even illegal expansion of imported goods to the mainland.
A serious and unquestionably negative consequence of the SEZ favors on the local economy, as pointed out by many experts, is an invention of specific schemes of tax “optimization” by local producers. This includes fictitious breaking into smaller firms and artificially overpricing the imported components in order to meet the SEZ requirements for VAT exempts. The absence of import VAT in the region allows importers to send imported goods duty‐free to the rest of Russia by applying illegal schemes, for example, through concealing products as produced in the SEZ. As a result the local economy experiences fiscal shortages. However, Smorodinskaya (2007) sees in this situation serious macro‐economic risks for the local economy as the regional government’s public deficit has to be compensated by the subsidies from the federal center. This created the vicious circle: shortages – subsidies – growth – shortages – subsidies. Apart from the heavy financial burden on the federal budget the Kaliningrad region creates in this way, the situation does not seem to be secure. The federal funds are based on the oil extraction revenues which is admittedly not reliable source in the long run (in the same way as Russia’s economy in general is not).
On the one hand, masking imported goods as produced in the SEZ (through falsely adding 15‐30% VAT) implies that the figures of industrial production could also be artificially high. On the other hand, calculations made by many experts give rather evident indications that real production is much higher than provided by some official sources ‐ enterprises are not interested in disclosing their factual volumes of added value as they would lose the SEZ preferences. Considerable discrepancies in the data available at Kaliningrad’s Statistical Office and the regional tax committee made it especially difficult to define the region’s economic situation. Kaliningrad has an image of being a region with a particularly high level of grey economy. Therefore, it is especially important to account for the regional grey economy when assessing the local Page 40 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
economy. Various experts come to a consensus that the turnover of shadow assets reaches around 40‐50% (many argues it reaches up to 90%) of statistically registered GRP (Smorodinskay, 2007, Stepura, 2006, Vinokurov, 2007). Particularly, the earnings from the region’s export to Russia (import substitution) are much higher than presented by the official statistics. Thus, the real volume of GRP after the correction is estimated to about one‐third of Kaliningrad’s official GRP.
Interestingly enough, the new SEZ law is designed to make the applying of tax “optimization” unprofitable according to the official statements. Yet, the first year of its functioning demonstrated that skillful enterprises managed to make use of the advantages of both the old and the new SEZ regimes: an enterprise operating according to the old zone regime passes the raw materials on preferential terms over for processing to an enterprise that receives tax preferences according to the new law and later sends the manufactured good to mainland Russia without paying any import duties (Lopata, 2007). The scheme became possible thanks to the provision of the new SEZ that two regimes, the old SEZ and the new one, will co‐exist during the 10 years period.
As mentioned earlier, the focus of the new SEZ law, which entered into power in 2006, lies on the shift from customs preferences to tax incentives. This shift is expected to stimulate large investments to the regional economy. One of the main requirements to become eligible for the new regime is a minimum of 150 million rubbles in the form of investments during the first three years of the company’s operation. Most experts (Vinokurov, 2007, Smorodinskaya, 2007, Lopata, 2007) agree that in this way the law discriminates small businesses and individual entrepreneurs. This appears to be paradoxical as SMEs are deemed to be a powerful engine of innovation, growth and employment. Furthermore, the new SEZ introduces preferences on income and property tax thereby supporting more industrial projects but not services. At the same time, development of large industrial projects can be difficult in Kaliningrad bearing in Page 41 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
mind the problem with scarce resources in the region. Finally, some authors declare that the SEZ regime is created in a formal manner in order to satisfy the requirements for Russia’s joining the WTO rather than to restore the local economy. The new law has been reportedly prepared in a compliance with the WTO norms. Yet, several experts have already stated some infringements of the WTO rules by the SEZ system (Smorodinskaya, 2007; Lopata, 2007) which can be indication of possible incompatibility.
Briefly, it is widely acknowledged that the SEZ regime in the Kaliningrad region has become one of the crucial factors of the economic revival there. At the same time, the regime has determined several fairly unique characteristics of the local economy. While an assessment of the SEZ regime is very much dependent on angles from which it is viewed (besides an assessment changes dramatically over time); the necessity of adjusting the existing system to new external and internal realities should be recognized.
3.3 Kaliningrad’s economic and social situation in comparison Even with the encouraging trends in Kaliningrad’s economy since the end of the last century the situation, in many aspects, still remains problematic, especially when compared with the neighboring countries’ situations.
Page 42 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
Despite very impressive dynamics of the region’s GDP since 2000, the gross regional product per capita in Kaliningrad is considerably lower than the average in the RF (77.3% of the Russian average) and lower than in the North‐West Federal District – one of the most dynamic federal districts in Russia and a part of which the Kaliningrad region makes up (Figure 10). Therefore, the social situation is far from being favorable
120
107,1
100 101,2 83
80 80,7 67,1 69,2 Ths.rub
60 65,2 53,2 53,9
53,4 42,8 43,5 35,6 40 42,7 29,8 25,7 17,2 28,4 16,9 20 16,5 9,1
0 1998 1999 2000 2001 2002 2003 2004 The Russian Federation The North-West Federal District The Kaliningrad region
Figure 10. Gross regional product per capita, ths.rub Source: The Kaliningrad government, 2006
in Kaliningrad as reflected by the substantial difference in the standards of living with Russian regions. Yet, it should be noted that the gap between Kaliningrad and Russia and the NW District reduced from 81% and 89% in 1998 to 46% and 55% in 2004.
The disparities within the Baltic States are even more visible (Figure 11). Though, again the positive trend of Kaliningrad’s situation is also evident in this comparison. In 1999 GDP per inhabitant was 8‐9 times as high in Lithuania and Poland as in Kaliningrad. The difference dramatically decreased to 2.6 times in 2004.
Page 43 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
GDP (GRP) per capita, EURO
6000
5000Euro 5219 5119 5102 4863
4000 4710 4314 4028 4014 3982 3783 3000 3771 3566
1979
2000 1464 1358 1317
992 625.5 1000
0
1999 2000 2001 2002 2003 2004 Kaliningrad Lithuania Poland
Figure 11. Gross regional products per capita, EURO Source: The Kaliningrad government, 2006 However, in order to find out exactly what the quality of life in Kaliningrad is, the official statistics should be supplemented by the assessments of the shadow economy. According to the results of the Delphi survey (Vinokurov, 2007) the grey incomes of citizens of the Kaliningrad region make up around 45% of their official average income. Overall, questionable but still impressive figures of the shadow economy in Kaliningrad make us consider that the local economy is growing remarkably and, accordingly, the quality of life in the region is increasing at an outstanding pace.
3.4 Kaliningrad’s demographical situation It should be noted that the region’s main objectives such as high standards of living, a stable economic growth and an extensive use of the region’s potential are dependent on the demographical situation in the Kaliningrad region.
The specifics of the demographical situation in Kaliningrad in the 90s was characterized by a substantial migration inflow. This fact determined significant changes in the national structure of the Kaliningrad population. Between 1991 and 1992 it was prevailing over the natural increase in population and since 1992 migration became the only one cause of population growth in Kaliningrad. The annual migration rate has been Page 44 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
4.8 times higher in Kaliningrad than in the RF on average. As a result, the population has decreased in the period from 1992 till 1999 in the rest of Russia by almost 2%, whilst it has increased in the Kaliningrad region by 6.4% (The Kaliningrad government, 2007). The situation has changed dramatically since 1999. The immigration flow in the Russian exclave went gradually down and the population has been declining since then. The situation is deemed problematical even compared to the Russian average indicators. Along with the population reduction, the Kaliningrad region has also faced the problems of an ageing population, the rise of mortality and sickness rates, and a flow‐out of the young skilled workers to the EU’s countries. These problems resulted in a deficit in labor force and a burden on the health care system.
Interestingly enough, the migration flow dropped roughly at the same time as the region started to demonstrate outstanding positive trends in the local economy. It seems to be paradoxical that people are not attracted by reportedly improving standards of living in the Kaliningrad oblast. The one possible explanation could be that previously the migration inflow was reasoned by highly unfavorable living conditions or a troubling situation in some other Russian regions or CIS countries which later were composed.
Kaliningrad’s demographical problem has been recognized by the Russian federal government and addressed in the “State Programme for the Assistance to the Countrymen Volunteering to Resettle in the Russian Federation” which was approved by the President in June 2006. The Programme suggests a solution to the demographic problem in several Russian regions which experience the same problem and express their willingness and readiness to participate in this venture. The Kaliningrad region is reportedly the foremost case as the regional authorities claimed to resettle there the enormous number of around 300,000 people by 2012 (only around one thousand resettlements have been registered by now (“Delfi”, 2008). The specialized resettlement center is planned to be set up in the region to coordinate the processes of Page 45 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
resettlers’ arriving, accommodating, employing among other things. The plan is to attract a qualified labor force for specific positions which Kaliningrad lacks. However, rather low rates of population growth in Lithuania and Poland imply that the Russian exclave will face severe competition in this field. Overall, a number of factors ‐ among which are bureaucratic difficulties and rather instable socio‐economic situation in the region ‐ may seriously hamper the implementation of the Federal Programme.
3.5 The political dimension of Kaliningrad’s identity The issue of regional identity and the way it develops are of great importance for the Federal center. The question is directly connected with concerns about the integrity of the Russian Federation and, thus, seen as one of the key factors of Russia’s Kaliningrad policy. The position within alien states determines a significant influence of non‐ Russian environment on regional identity formation which results in a kind of tension in co‐existence with national identity. Socio‐economic specifics add to some strain in this relation as Kaliningraders perceive their social and economic situation as being worse than the Russian average while in reality it is close or even higher (Wellman, 2007). The reason for this biased perception is that they tend to compare their living standards not with their compatriots somewhere far in Russia, but with their closer European neighbors which have much higher standards of life. Naturally, they blame the federal authorities for such an “unfair” situation. Further, statistics confirm (Vinokurov, 2007) that people in Kaliningrad are strongly attached to their local community and identify themselves much more with the region rather than with the country as a whole. It should be noted that the alienation of the population of Kaliningrad from Russia may happen due to a number of internal and external reasons. Christian Wellman (2007) advocates that there is no deliberate intention whatsoever to push people towards separatism, but only the long term impact of different determinants on people’s minds.
Recognizing Russia’s problem with Kaliningrad is extremely important for understanding the federal government policy towards the region. Russia’s policy line Page 46 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
becomes very consistent and “conceptually grounded” (Wellman, 2007) once we look at it from the standpoint of maintaining the territorial integrity of the country influenced by the process of identity formation in the region.
Wellman proposes several possible scenarios of developing regional identity in Kaliningrad. The first two rather opposite alternatives present very radical cases: first, an alienation of Kaliningrad’s population could happen, thereby confirming the Moscow’s worries. At the same time, strong nationalistic trends can be observed in the region revealing a kind of “diaspora mentality” or an opposition to alien cultures there (Wellman, 2007, p.11). The factor of extremely high turnover of people in the Russian exclave makes highly possible the option of absence of any coherent regional identity at all which can be substituted by migrants’ identities. Finally, creating a pan‐European identity is presented as a rather idealistic but advantageous opportunity imagining Kaliningrad as a perfect place for combining Russian and European cultural traditions and values. According to Vinokurov (2007), recent surveys show that the majority of the population in Kaliningrad is satisfied with the special status the region has been granted by Moscow and are not in favor of any radical changes in its standing. So, the conclusion which can be drawn from these results is that the local population appreciates the benefits of being a part of the wealthy country as well as its position within Europe. Accordingly, an alienation option does not seem to be possible under the current conditions, especially, in the case of achieving an bjective of improving the socio‐economic situation in the region. While an acceptance of the European culture by Kaliningraders or a dominance of the nationalistic state of public opinion is very much dependent on Russia’s activities in the region.
Page 47 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
3.6 The main obstacles to economic and social development of the region The economy of the Kaliningrad region has been demonstrating impressive growth for almost a decade. On the other hand, its high vulnerability to numerous external and internal processes makes most experts consider that it is rather fragile (Lopata, 2007, Smorodinskaya, 2007). Among the most important factors are the Russia’s accession to the WTO, changes of the SEZ regime, the federal authorities’ decisions, growing prices of energy resources and transport and general economic situation of Russia. All these factors have great impact on the GDP of the region and affect the modernization process.
The Russia’s Kaliningrad policy seemingly doesn’t take into account challenges for the local economy related to the country’s approaching joining the WTO. The event will accelerate Russia’s economic Europeanization much more rapidly than any EU‐Russia agreements and Kaliningrad will be affected all the more. The privileges of delivering goods to Russia on preferential terms (provided by the old SEZ law which still will be in use by some entities according to the new law) will lose their attractiveness as most import customs tariffs of Russia will be cut. The region inevitably will have to face severe competition with both other Russian regions and foreign producers as a result of more liberalized Russian market. Thus, many entities will have to speedily shift from the activities relying on SEZ privileges to new sectors of business or terminate. More important, one legal collision of the existing system in Kaliningrad with WTO norms has been already observed by Lopata in the Assessment of the socio‐economic development Programme of the Kaliningrad region (2007). Lopata considers as an infringement of the WTO norms the possibilities created by the old regime to import duty‐free raw materials and adding of some fixed VAT rate in Kaliningrad. Some experts claim more conflicts with the WTO rules will be disclosed during the process of liberalization. The challenge for the local economy to adjust to the new rules is
Page 48 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
aggravated by almost neglecting it by the federal and regional authorities (Lopata, 2007).
Further on, Russia’s ability to maintain subsidies for energy and transportation which ensure Kaliningrad’s survival is not unlimited. Firstly, the low tariffs are provided at the expense of GASPROM and Russian Railways (national monopolists on gas and transport) which are very much interested in abolishing these subsidies (the federal government stipulates already for transition from this type of support to direct subsidies and investments). Secondly, anticipated global decrease in volume of oil extraction will definitely result to rise in prices for all energy‐related resources. The region is highly dependent on Russian macro economic performance which in turns depends essentially on the price of oil and gas on the world market.
Finally, the sound impact of globalization on the Kaliningrad’s development is widely acknowledged. The 2004 EU enlargement as a kind of predecessor of the forthcoming process of globalization, demonstrated already that the current non‐market based pattern of interactions between Kaliningrad and Russia is not economically viable. Globalization is placing the Russian Baltic exclave in more competitive market environment thereby increasing costs Russia has to pay for maintaining its relations with the exclave and disclosing limitations of these relationships.
Further on, there are a number of obstructions which complicate and threaten the efficiency of the process of modernization. As emphasized by the Kaliningrad government the key hampers to the socio‐economic development are as follows:
First, there is still an uncertainty of long‐term relations between the RF and the EU and position of Kaliningrad in this relationship. The history of the region of Kaliningrad as a Russian exclave within the EU’s territory counts already one and a half decade. Yet, no efficient mechanisms of adaptation of the region to new realities have been developed so far. Clear and sustainable perspectives of interaction between the EU and the RF are
Page 49 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
necessary for developing long‐term strategy for Kaliningrad which would enable to exploit the potential of Kaliningrad and attract “long” investments to the region.
Secondly, dependence on import and shortage of direct foreign investments obstruct setting up sustainable economic growth in the Baltic exclave (investments come mainly from Russia so far). Without direct foreign investments the region falls out of the world economic relations. The amount of foreign direct investments is thrice less in Kaliningrad than in the rest of Russia and differs by levels with the Baltic states (the Kaliningrad government, 2006). Apart from the objective reasons for the problem (linked with the structure of the regional economy), absence of the management system of accepting and maintaining investment flows aggravates the situation.
Then, institutional obstacles for macro‐regional integration are deemed to be a hamper for the region’s development. An important role in the economic development of the region plays not only the growth rate and amount of the regional GDP but also quality of the growth including character of the involvement in the world economic processes, the place of regional economy in the world “chains” of creating added value. One of the key problems of Kaliningrad’s integration into the most promising processes of the economic development is inconsistency of the law and technical regulations, differences in the management and qualification standards of the labor market. The main problem Kaliningrad has been facing relative to the existence of these institutional barriers is impossibility of exploiting the opportunities appearing as a result of the economic growth in the Baltic macro‐region. The Kaliningrad’s economy can be found on the periphery of the processes of development and integration of the regional economic systems into the European and global markets.
Problem with reliable and stable access to sufficient volume of energy as a result of the detachment of the region also greatly impedes the economic modernization in Kaliningrad. The Russian exclave is fully dependent on electric energy from Lithuania
Page 50 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
while 98% of natural gas and 100% of coal coming from the RF. Completion of the construction of the second block of Kaliningrad powerful thermal power plant by 2010 as provided in the Programme for the socio‐economic development is supposed to resolve the most urgent energy‐related difficulties; however, the problem is seen to reappear soon owing to the growing needs in the region.
Last but not least is the problem of high share of “shadow economy” jeopardizing all possible positive effects of changes in the macro‐economic regime of the region. Attempts of the local government to restore the regional economy become vain until there are opportunities for doing profitable business evading taxation.
Thus, the greatest crises of the 1990s have been overcome. Nevertheless, the specific problems related to the oblast´s unique situation remain. As a result, the economic development of Kaliningrad is still under question.
Page 51 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
4 EU’s approach
Initially, the EU didn’t know how to deal with the Baltic enclave of Kaliningrad and simply neglected it. Only when accession negotiations started with Lithuania and Poland for the EU membership, it became clear that the position of the Kaliningrad region in the middle of the EU territory will bring up certain inevitable concerns. Both Polish and Lithuanian leaderships quickly realized the necessity for building and reinforcing cooperation areas with Kaliningrad. Consulates of these countries were established in the region and several cooperation projects ran between the neighbors. The EU still mused on its approach towards Kaliningrad. Such existing frameworks for cooperation with Russia as the Partnership and Cooperation Agreement (PCA) as well as the Common Strategy on Russia (CSR) didn’t provide a clear tactic to deal with Kaliningrad3 .
Perhaps, the main reason for the absence of a constructive approach towards Kaliningrad was the EU’s ignorance of the situation and lack of understanding specifics of the problems with the Russian exclave. The Commission simply didn’t have any rational proposals for the oblast. Another explanation would be that the EU deliberately didn’t interfere in the situation with Kaliningrad due to political reasons – EU active ambitions in this sensitive area could be perceived negatively in Kremlin. In addition, there is a clear inconsistency between some areas of the EU’s internal and external policies that time. While the former strived for ensuring secure and strong borders, the latter aimed at promoting cross‐border cooperation with outside countries. This ambiguity obstructed shaping a constructive approach.
3 The PCA aimed at developing more favorable business climate between the EU and Russia and moving their economies closer. Whilst the CSR goes far beyond the PCA promoting integration of Russian economy into the world economy, offering a permanent dialog on the EU’s political and security issues.
Page 52 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
Interestingly, the Russian sources (The Kaliningrad government, 2006) claim that the EU’s and NATO’s leaderships have been considering the Russian Baltic enclave for the last decade of the 20th century as a serious obstacle for their main objective – expansion to the East. So, it determined their rather unfriendly positions towards the region. Perhaps, this perception of the Russian authorities reflects their fairly sensitive attitude towards any EU initiative what made the EU reluctant to take any.
The establishment of the Northern Dimension in 1999 proved to help the EU in defining its attitude. The main aims of the Northern dimension were engaging Russia in the areas of cooperation that are important for the Baltic and Barents Sea regions such as trade, energy and the environment among others (Stephen, 2004). Kaliningrad was given a priority status in the ND Action Plan and Russia together with Lithuania developed a number of constructive proposals which could ease the region’s isolation. Although lack of expertise, coordination problems within the EU and shortage of available funds didn’t allow to achieve significant improvements.
The situation changed when Sweden took over the presidency of the EU in first half of 2001. The Commission introduced its communication called “The EU and Kaliningrad” (2001) to the European Council where areas for actions concerning Kaliningrad from both the EU and Russia were emphasized (EC, 2006). This was essentially a comprehensive programme for expanding cooperation between the two sides which launched a dialog about the possible challenges after the fifth enlargement (Stephen, 2004). Decisions on setting up a Tacis local support office as well as about extending Phare aid for Kaliningrad were taken.
True, the EU policy has been rather judicious since the European politicians recognized the importance of Kaliningrad after its enlargement to the East (Lopata, 2007). The EU’s goal is nowadays to promote socio‐economic development in the region in order to stabilize it and prevent the formation of a socio‐economic tension flashlight there.
Page 53 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
Kaliningrad’s integration into the Baltic Sea space is deemed to be an important prerequisite to achieve this goal. Various instruments of regional policy, such as inclusion of the region into projects implemented in the formats of the Baltic Sea Region and Northern Dimension, are used to facilitate the integration. Around 130 million EUR are planned to be allocated for the development of cooperation between the Russian exclave of Kaliningrad and the neighboring countries in line with the ENP (European Neighborhood Programme) as indicated in the research of Latvians experts on Kaliningrad issue (Lopata, 2007). According to the Kaliningrad government, the official position of the EU leadership is unambiguous acknowledgement of the Russian sovereignty over the Kaliningrad oblast. The European Commission accents that the matters of life support and the region’s development are exclusively covered by the Russia’s terms of reference while the EU is ready to provide certain support and assistance on mutually acceptable base.
Page 54 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
5 Russia’s policy towards the exclave
For a long time the Russian federal government seemingly did not understand how it could support its Baltic enclave. Firstly, it generated the idea of a Free Economic Zone in the oblast which was supposed to attract foreign investments. Further, substantial powers were granted to the regional authorities for shaping the region’s own policies. Both initiatives admittedly did not pay off. The lack of a coherent policy towards the region significantly aggravated Kaliningrad’s problems. Basically, the oblast was left to fend for itself during the most difficult period of the economic crisis.
When a pro‐European and liberal Governor Yegorov came into power in December 2000, the situation began looking more optimistic. The oblast could have received now more federal support thanks to the good relations of the new governor with president Putin. The Russian informal principle of governance is that the country is ruled by personalities while the EU is managed through its institutions. The conception is highly popular nowadays among Putin’s followers as it validates concentration of power in hands of one person who is allegedly able to decide objectively about the future of the country. Researchers have been often using historical examples of this concept to explain various trends and paradoxes in history of the country.
Perhaps, putting a Putin’s appointee on the governor post created favorable situation for the Kaliningrad region. A person with power could achieve better results in Russia than any programme according to the abovementioned notion. The assignment of Georgiy Boos on the Governor position by the President in September 2005 guarantees implementation of the Kremlin’s policy course in Kaliningrad. The new governor initially made attempts to pursue his own initiatives (such as economically reasonable export orientation and more efficient cooperation with Poland and Lithuania) using his powers as a local chief. However, his very first actions towards bringing the region together with the EU’s states were radically cut down by the federal center. So, the global Page 55 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
Russian trend of centralization of power is clear visible in the region. Apparently, Moscow determines the future of the region and efficiency of the regional powers (the same as governor’s political future) is largely dependent on their relationship with the federal center. It should be noted that G. Boos gradually succeeded this political balancing and, despite continuous friction between the federal center and the periphery, the governor managed to achieve significant results in restructuring of the region’s administration, consolidation his position in the international arena and setting the vector “Kaliningrad Region – a window of Russia to Europe” with the federal center’s support.
Approaching EU enlargement made the Russian leadership to look for a strategically new approach towards its Baltic enclave what is confirmed by recent trends and processes. The Kaliningrad development problem was stated among Russia’s five national policy priorities. Kremlin adopted in 2001 the Federal Target Programme “Development of the Kaliningrad region for the period till 2010” anticipating an extensive reconstruction in the region. Putin also assembled a special Security Council meeting to discuss the exclave’s matters. He presented a critical scrutiny of the shortcomings of the previous policies which disclosed a number of the root problems such as a lack of coordination among ministries and an absence of suitable legal and administrative framework. Besides, the President has been repeatedly emphasizing the idea of developing Kaliningrad as a pilot project for Russia’s cooperation with the EU which remained to be a vague idea so far. Reportedly, the Federal Programme on the Baltic exclave does not consider Putin’s critical statements.
In 2006 the Kaliningrad government developed a major strategic document ‐ the Programme for the socio‐economic development of the Kaliningrad region in the period of 2007‐2016 (hereinafter Programme) ‐ which is to guide the region in its development course. The Programme covers all key problematic areas and address important issues of economic development of the Kaliningrad region. Though, experts Page 56 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
claim there are certain indications pointing to substantial obstacles to the Programme’s implementation (Lopata, 2006). First of all, the measures for achieving proclaimed objectives of the Programme in many cases are not substantiated with financial resources (for developing in energy and transport sectors only 1/5 of necessary funds will be allocated from the government budgets) and, thus, look rather impractical (Lopata, 2007). Then, one of the biggest problems is deemed an incompatibility of different goals of the Programme, most importantly, with the region’s fairly optimistic migration plan. The implementability of the Programme under the existing demographic situation and trends would seemingly be complicated. Perhaps, the regional authorities tried to achieve several rather contradictory strategic aims when preparing the development Programme. On the one hand, the regional powers understand importance of the federal support for their initiatives (or necessity of this aid due to the long history of reliance on abundant rental advantages) and tried to present their ideas in line with the Kremlin’s main perceptions on Kaliningrad’s development; on the other hand, the regional leadership is well aware of the local challenges the region has to face with and the opportunities it could use, so they also attempted to express some ideas of an efficient economic development (integration into the Baltic Sea region) and address acute contradictions of the regional realities with the federal decisions (the new SEZ regime). The fathers of the regional development Programme had to please both sides: the federal center and the regional elite as support from both sides appears to be necessary for the region’s progress. As a result, the Programme serves as a political instrument to show that the region is in hands of Moscow and fails to provide a clear picture of Kaliningrad’s development. Whereas the need for more flexible and coherent tactics towards Kaliningrad has been recognized by the federal authorities, the course of European integration of the region has been curbed by Kremlin as a part of the general strategy of consolidating central control over Russia’s regions. The close ties with the West the same as any major political and economic decisions that might influence the development of the Page 57 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
Kaliningrad region are allowed only through Moscow otherwise it could stir up disturbing separatist pressures according to perception of the federal center.
Overall, the main goals of the Russia’s policy line as interpreted by several experts (Lopata, 2007) are consolidation of ties between Russia and Kaliningrad coming along with consequential socio‐economic modernization and securing potential influence on the EU through the region. More precisely, the latter means emphasizing the problematic character of the Kaliningrad region, especially in the context of the enlargement of the EU eastwards, thereby Moscow tries to use the region as a tool to exercise pressure on the EU in an attempt to get concessions in other fields of the EU– Russia relationship. Three branches of the main policy line can be distinguished which correspond to particular federal actions in the region:
First goal is related to increasing Russian national identification in order to maintain territorial integrity of the country. A number of concrete activities are organized by the federal government to reach this goal. Among the most recent are celebration of the 60th anniversary of the Kaliningrad oblast‘s founding and the construction of Russia's second largest orthodox cathedral in Kaliningrad. From the federal government perspective these actions are aimed at intensifying Russia’s weight and counterbalancing the non‐Russian influences in the region thereby calming down the worries about the national integrity. From the first sight, the goal clearly contradicts with the ambition of the region to become more integrated in Europe. Nevertheless, the Russian leadership argues that the aim is not to isolate the region nationalistically from its environment, but to allow it to intertwine with it compensating foreign impacts by strong regional identity.
Second unambiguous goal of the Moscow’s policy towards Kaliningrad is increasing self‐sufficiency of the region (mainly in terms of energy supply but also economically) as well as strengthening interdependence between the exclave and the mainland. The
Page 58 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
measures used to achieve this target are building gas powered electric power plant in the region and subsidizing air and railway transit tariffs among others. The new Special Economic Zone law is admittedly designed to restructure the business links so to ensure Kaliningrad’s strong connection with the mainland Russia.
Last but not least is the goal of improving socio‐economic situation of the Baltic exclave up to its neighbors’ level in order to avoid separatist trends based on dangerous jealousy thoughts. The new SEZ regime implies attracting big investments to the region, thereby stimulating long‐term competitiveness of the region. Yet, the new regime also oppresses small businesses in Kaliningrad which is perceived a serious blunder on the way to economic prosperity. Apart from the Special Economic Zone regime, the region of Kaliningrad rests upon other benefits such as lowered fuel, energy and transportation tariffs. An extremely wide package of federal favors compose very high price the RF has to pay for achieving the stated goal at the same time creating “irrational non‐market based pattern” (Smorodinskaya, 2007) of the mainland‐exclave relations.
All three aims are tightly intertwined and interdependent as justified by the Russian federal government. Improved social and economic situation in the region, partly as a result of consistent federal support, would help to intensify the national identity. This, in turn, would contribute to focusing on building relationship with the mainland and ignoring claims for European integration. So, the Russia’s agenda on Kaliningrad seems to be coherent and reasonable if enclave‐specific features and global world trends are disregarded.
Page 59 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
6 Critical examination of the RF’s and EU’s approaches towards Kaliningrad
Undeniably, the European Union and the Russian Federation have common goals of securing political stability and improving economic situation in the region of Kaliningrad. However, the approaches of the two sides are rather divergent. It is deemed that the Russian policy is based on an “old alarmist approach” (Smorodinskaya, 2007) upon security and geopolitics which neglects the latest modern shifts and, thus, greatly outdated. This means that the policy doesn’t take into account (or can’t tackle) new challenges which the region faces nowadays and doesn’t use the knowledge and experience from other countries in the area of regional development. Such policy may both fails to solve the region’s problems and misses the existing opportunities for development. Accordingly, Kremlin’s agenda, first of all, ensures preventing a rise of local separatism or autonomy in Kaliningrad, even at the expense of its economic progress possible through convergence with the EU neighbors. This is where the Russia’s policy contradicts with the EU’s tactics. The current European approach to regional development implies high level of liberalization and the region’s self‐engagement into different infrastructural and cooperation networks. The ideology called “Europe of regions”, which emerged in the 80s in the context of European integration, implies among others the notion of high degree of regional identity versus national devotion. This position of most Europeans seems to be still dominant and, thus, influential on the EU’s spatial development policies. Further, the EU’s priorities are totally opposite to Russia’s values for the region’s development. Control over time and progress in innovations are pursued before control over territory; development of transnational clusters and regionalism is promoted instead of national sovereignty; and flexible horizontal networks are appreciated versus strict vertical subordination.
Page 60 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
Further on, an idea of Russia’s leadership to use the Kaliningrad region in order to get concession in other fields seems already outdated and inefficient. Many severe problems the region had to face just after the 5th EU enlargement have eventually been solved or faded away. The Baltic exclave has been growing enormously for almost a decade already which makes it difficult to profit on its problematic situation within the EU.
Additionally, the main lines of the Russia’s approach are clear divergent with the local interests. The Kaliningrad region has a very little economic meaning for the RF in both national and international perspectives. The exclave’s political role is much weightier for the state. Russia’s agenda towards the region is, thus, to a great extent determined by Kaliningrad’s great symbolic and military strategic and political importance rather than by the factor of its economic prosperity. In spite of claiming the aim of economic development for the Kaliningrad region, the federal government in reality strives to strengthen economically inefficient exclave‐mainland relationship and neglects other opportunities for sustainable economic growth (the SEZ regime). The underlying rationale of Kremlin’s initiatives in Kaliningrad is to ensure both political and economic dependence of the region in order to influence the integration process in the EU. The prospect of increasing dependence is obviously unattractive for the politicians of the region which results in a persistent battle between the centre and the periphery.
To sum up, the uncertainty of relationship between Russia and the EU clearly obstructs shaping a long‐term strategy for the Russian Baltic exclave of Kaliningrad. The relationship, in its turns, is to a great extent determined by a Russia’s new positioning on the world arena. Thus, we can realize how important the global trends for the small region of Kaliningrad are.
Page 61 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
7 Conclusion
In this study I have analyzed historical, societal, economic and political information in order to understand the complex situation of the Kaliningrad region. I started my work with a consideration of enclave and exclave regions with the aim to define the common features and economic problems of enclaves. The main conclusion of the theoretical part of the thesis is that several commonalities, which can be found among all enclave regions, do not determine the main development course for an enclave but help to define important prerequisites for an efficient trajectory. Thus, chapter 1 has shown that Kaliningrad shares such common features of enclaves as the small size and a high dependence on relationships with mainland and surrounding states. However, it has become clear from an analysis of Kaliningrad’s specific characteristics in chapter 2 that features particular to the Kaliningrad region (militarization of the region, geopolitical position etc.) played an even more important role in the exclave’s development than enclave‐specific traits. Thus, the military past of Kaliningrad and its position between the states, which were not deeply integrated with the RF, determined a rather closed economy of the region. Although, the small size of enclaves is one of the prerequisites for an open economy. An examination of economic and political trends in the last decade of the 20th century has clarified the specificity of the Russian exclave in the Baltic Sea region. Chapter 3 has provided an insight into the period of outstanding growth of the region since the late 1990s. The dominating role of the federal government in the region’s progress has become evident after an analysis of the main causes of this extraordinary economic success. The impact of the SEZ (Special Economic Regime) on the local economy and subsequent economic problems such as a high dependence on import, a reliance on tax privileges and a low diversification of the regional economy have been disclosed. A profound analysis of Kaliningrad’s economic state complemented by a study of the demographical situation has demonstrated a certain instability of the region’s economic growth. Further, an examination of the two Page 62 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
different perspectives – the EU’s and the RF’s – has presented the highly divergent prospects the two powers aim at. Russia’s policy line towards its Baltic exclave is seen to be eventually established, though, without taking the region’s interests into consideration and without an efficient correlation with the EU’s approach. The findings of all previous chapters have provided the basis for drawing a picture of future prospects of Kaliningrad’s development under the existing conditions which is presented in the following section.
7.1 Kaliningrad’s development prospects The future prospects of the Kaliningrad region’s development are determined by numerous factors ranging from enclave‐specific problems (such as the small size of the territory) to global processes (as, for example, Russia’s accession to the World Trade Organization). It is interesting, first, to look at the theoretical possibilities of an exclave’s development as proposed by Vinokurov (2007) and, then, add up Kaliningrad’s specificity to these options. Vinokurov proposes four basic possibilities for an exclave’s development:
• the strengthening of mainland‐enclave economic ties as a means of binding an enclave to its mainland and ensuring comparable levels of economic development;
• the mainland ‐ surrounding states integration as an overarching scenario that may effectively ‘wash out’ the enclavity and solve most of the enclave‐specific problems;
• the economic inclusion of an enclave in the surrounding state; and
• the economic opening of the enclave to the outside world.
An enclave can develop an economic orientation towards its mainland, the surrounding states and the rest of the world. It can also be self‐sufficient or combine several orientation vectors. The self‐sufficiency option is usually a consequence of isolation or a closed economic regime according to Vinokurov’s analysis of enclaves’ economy Page 63 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
(2007). Successful enclaves tend to develop a multi‐vectored orientation, avoiding a concentration of trade and economic connection solely with the mainland. Dynamic economies and economic growth appear to depend on the existence of liberal and open economic regimes. Multi‐vectored economic connections with the surrounding state and with the rest of the world are natural consequences of an open economy.
The four development prospects open for an exclave should be complemented by Kaliningrad‐specific factors in order to receive a picture of prospects for the Russian Baltic exclave. The region’s unique position between the two major players of the continent – the EU and Russia ‐ determines Kaliningrad’s significant political role and greatly influences its development prospects. Accordingly, two major factors have crucial impact on Kaliningrad’s future: Russia’s approach towards Kaliningrad’s development and Russia ‐ EU relationships. Additionally, global changes such as Russia’s accessing WTO and the process of globalization are deemed to be very influential for the region’s possibilities of modernization.
Moscow’s agenda on Kaliningrad, despite its contradictory nature and vagueness with regard to financial resources, appears to be quite rigid. The key priority for the metropolis is maintaining territorial sovereignty by any means. As long as the national political course remains at the hands of the current ruling “party”, the matter of national sovereignty and security can be expected to be treated as the most important ones. Therefore, the region’s strong ties with the mainland and the metropolis’s control over the region can be accepted as inevitable elements of Kaliningrad’s development path.
The state of Russia‐EU relations is less sturdy and less predictable: several scenarios are possible, which could impact the resolution of the Kaliningrad issue in different ways. An analysis of two options is presented, although more variations appear to be plausible. Depending on which direction the relationship will take, the Russian Baltic
Page 64 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
exclave may be given the possibility of integration into the Baltic Sea Region space or remain to be a “geopolitical hostage” (Lopata, 2007, p.56) without a chance for liberalization. The former would mean opening Kaliningrad’s economy for global processes. Most experts suppose that the integration is the most important component for the process of Kaliningrad’s modernization. Some believe that is the only way for the Russian exclave in the Baltic Sea Region to achieve sustainable social‐economic improvement. From the economic standpoint integration with the states of the Baltic Sea region is much more prioritized for Kaliningrad than maintaining relationship with the RF. In case of the active position of Russia in the region of the Baltic Sea (as a integral part of its relations with the EU) Kaliningrad’s integration could be a real opportunity of getting involved in growing markets of labor, capital and technology within the European space which would benefit the whole North‐West of Russia. The prospect seems to be feasible even in the view of Moscow’s fears of separatist trends and European influence in the region. Particularly, local powers in the regional government and business community seem to hope for finding a balance between an enlarged cooperation with the Baltic States and active economic relations with Russian regions. The idea to become a gate of Russia’s cooperation with the EU has been promoted by the current governor and received some support from the metropolis.
The second prospect of being used as a political instrument in “the game” between the EU and RF would imply a continuation of dependence of Kaliningrad’s economy on the rental advantages and a reliance of the regional government on the federal subsidies. The local economy has been booming under such conditions led by advantageous import development and expansion of export to Russia as a result of the granted privileges. However, the processes of globalization and Russia’s accession to the WTO will gradually demolish the existing system of customs and tax privileges and based on them schemes of tax evasion which feed the region. The regional economy will have to make a rapid transition towards new sectors which would be competitive in a
Page 65 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
liberalized market. Furthermore, the rapid growth of transport and energy tariffs soon will make business connections with the mainland unprofitable (or even impossible in the case of a negative scenario for the Russia’s economy). Therefore, the path for Kaliningrad based entirely on strong relations with the mainland Russia without opening its economy seems to be unpromising.
The idea of “pilot region” – a certain model of successful cooperation between the EU and the RF ‐ which was suggested in 1999 did not receive proper continuation. As argued by some experts (Lopata, 2007) the concept was justified by temporary political needs from the Russian side which gradually lost their value as did the model.
The above discussion suggests that in the particular case of the Russian exclave in the Baltic Sea region only the first and forth of Vinokurov’s possibilities seem to be plausible. The strengthening economic ties with the mainland coupled with a fairly high degree of openness to the outside world could be Kaliningrad’s model of multi‐ vectored orientation. The prospects of integration between the RF and Poland and Lithuania (or the EU as a whole), the same as the economic inclusion of Kaliningrad in one of these states, appear unrealistic in view of the existing RF‐EU relationship and currently prioritized matters of national sovereignty and territorial security in the RF’s policy.
The need for transition from the present economy model, based on profound rental advantages to a new competitive economy has been acknowledged by all parties. The Programme on socio‐economic development of the Kaliningrad region, which was discussed above, declares the direction towards an innovative, export‐oriented economy. In reality the accent is made on resource‐intensive branches of industry which does not look promising due to the growing deficit of resources. The deficit of human resources may also significantly affect the region’s possibilities for modernization. A knowledge‐based economy appears to be highly attractive for
Page 66 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
Kaliningrad (or even the only one feasible in the view of the current demographical situation) versus the human resources intensive economy. Many years of resting upon enormous rents granted by the federal government made the local business very reluctant to participate in a competitive market‐based economy and very skillful in operating in shadow economy. So, the transition process could become very challenging for Kaliningrad’s economy but necessary in the view of coming changes related to the WTO expansion, globalization and energy scarcity.
Lithuanian researchers (Lopata, 2007) suppose that the modernization process in the Kaliningrad region will be determined by the development processes of two sectors of the economy: transformation of the “old sector” based on SEZ benefits and formation of the “new” one oriented towards activities independent from the SEZ regime (including export to other countries). The approaching of big investors in the region means that manufacturing for export can be developed. It should be acknowledged though that the export sector will have to start almost from scratch and will face with severe challenges such as low competitiveness of Russian goods in foreign markets (including Kaliningrad products) with a high VAT rate, stagnation of the EU and other potential markets and the growing competition of China. Nowadays, 72% of the region’s export earnings come from oil transit through and extraction in the region. WTO rules will not allow Kaliningrad to benefit from its privileges on duty‐free oil export and other favors. Thus, a diversification of export is extremely necessary.
Tourism and gambling zones appear to become the promising sectors for Kaliningrad (1 of 4 gambling zones are set up in the region). Big western companies have already expressed an interest in investing into the gambling zone and tourist‐recreation in the Kaliningrad region (Lopata, 2007). The region possesses some comparative advantages in the sector of tourism and gambling (such as good location and relatively cheap communication with the mainland Russia). However, the visa‐regime makes
Page 67 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
Kaliningrad’s touristic facilities rather attractive for Russian visitors but not for West European tourists.
The necessity to focus on high‐tech industrial or service branches versus resources‐ intensive industrial production with a comparatively low VAT is stressed by several experts (Lopata, 2007). The importance of “knowledge economy” which can ensure high standards of living and competitiveness in world markets (through facilitating the manufacture of unique products and lessening dependence on the market) is also emphasized. A serious obstacle for these sectors’ development would be the problem of finding qualified labor force – the scientific potential of the region is at the moment admittedly insufficient for this ambition. Nevertheless, a direction of development of the high‐tech sectors looks attractive from the federal and regional authorities’ standpoints (as could be seen from the analysis of the Programme on social‐economic development of the Kaliningrad region), thus, determination and an efficient strategy of the region’s authorities are now crucial for resolving the situation.
The formation of clusters could help to make the Russian exclave more competitive on the world arena. The idea of clusters development is nowadays very popular among the federal authorities in Russia. Yet, the objectives of creating several clusters and the development of medium and small businesses in Kaliningrad stated in the strategic documents of the region (the Programme on socio‐economic development of the Kaliningrad region for the period 2007‐2016) are in clear contradiction with the new SEZ regime. The regime obviously discriminates the medium‐sized and small enterprises by introducing the 150 million rubbles (around 4 million EURO) cost for becoming a resident of the privileged zone. So far, the abundance of small enterprises in the region is determined by extensively applying tax “optimization” mechanisms. Among the most promising clusters in the Kaliningrad region the following sectors can be mentioned: ship repair and shipbuilding ‐ the sector with the highest innovative potential, and the amber‐processing cluster, which shows proof of the highest possible Page 68 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
VAT. It is also assumed that marine transport in the future will become one of the most important elements of the specialization of Kaliningrad exclave in the North‐Western Region of Russia as well as in the Baltic region. Yet, an accidental emerging of clusters has been observed in the world history rather than a manageable formation of the preferred sectors – the fact should be taken into account when developing an efficient strategy for Kaliningrad.
The main findings of the thesis demonstrate that it is now a very important period in Kaliningrad’s history which could become the next turning point not only for the region but for the whole country. A period of adjusting to the WTO norms is an opportunity for the Russian Baltic exclave to open eventually its economy and include its own resources (production, labor, position) into the macro‐regional economic processes and find its place in its international context thereby providing the Kaliningrad region’s competitiveness in a long‐term perspective. The exclave of Kaliningrad could become not only an economically prospering region but a ground for development of patterns and cooperation guidelines between Russia and the European Union in case of successful integration into the Baltic growth belt – one of the most dynamic areas of the modern Europe. Economic realities push the region towards the integration meanwhile the political situation may obstruct development of this scenario. Therefore, the exclave of Kaliningrad has a chance to move from being a political hostage to a cooperation platform between two powers, though, important political decisions need to be taken first.
Page 69 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
8 Bibliography
Amelyushkin K. (April, 2008). Resettlement with snail’s pace. (Pereselenie tempami
ulitki). Retrieved April 17, 2008 from Lithuanian web‐portal Delfi:
http://ru.delfi.lt/news/live/article.php?id=16637256
Amstrong H.W., Read R. (2000). Comparing the economic performance of dependent
territories and sovereign miscrostates. Electronic version. Retrieved March 13,
2008 from LIBRIS.
BBC World Service (September 9, 1998). World: Europe. Russian governors taking their
own measures. Retrieved February 22, 2008 from
http://news.bbc.co.uk/2/hi/europe/167823.stm
Birckenbach H.‐M., Wellman C. (2004). The Kaliningrad challenge. Options and
recommendations. Electronic version. Retrieved March 13, 2008 from Google
book search.
Centre for European Security Studies (2002, April). A viable future for Kaliningrad after
EU enlargement. Retrieved January 11, 2008 from
http://www.euractiv.com/en/enlargement/viable‐future‐kaliningrad‐eu‐
enlargement/article‐110195
Delegation of the European Union to Russia. (December, 2006). Official web‐portal
http://www.delrus.ec.europa.eu/en/p_575.htm Page 70 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
European Commission (EC) (2001). “The EU and Kaliningrad”. Communication from the
Commission to the Council. Retrieved March 3, 2008
http://ec.europa.eu/comm/external_relations/russia/intro/index.htm
European Commission (EC) (2006). EU‐Russia relations – Kaliningrad. Factsheet.
Retrieved December 20, 2007
http://ec.europa.eu/comm/external_relations/russia/intro/index.htm
European Commission (EC) (January, 2001). Communication from the Commission to
the Council. The EU and Kaliningrad. Electronic version. Retrieved February 6,
2008 from http://ec.europa.eu/external_relations/north_dim/kalin/index.htm
Kempton, D. R.(2001). Unity or separation: center‐periphery relations in the former
Soviet Union. Electronic version. Retrieved February 6, 2008 from BTH ebrary.
Krogh S. J. (2006). The Jan S. Krogh’s geosite. http://geosite.jankrogh.com/index.htm
Larrabee, F. S..(2004). NATO's eastern agenda in a new strategic era. (pp. 65‐80).
Retrieved February 27, 2008 from BTH ebrary
Lopata R., Jonavicius L., Sirutavieius V., Zdanavicious L. (2007). Assessment of the long‐
term development programme and strategy (2007‐2016) of Kaliningrad region of
the Russian Federation. Electronic version. Retrieved March 13, 2008 from LIBRIS.
Patrick J. (2001). Evolutionary theory & ethnic conflict. (pp. 165‐195). Retrieved
February 27, 2008 from BTH ebrary Page 71 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
Smorodinskaya N. (2007). Kaliningrad on its crooked way to economic modernization.
Electronic version. Retrieved March 13, 2008 from http://www.iet.ru
Stepura E. (December, 2006). The sediments into the shadow. (Osadki v ten’). Retrieved
April 18, 2008 from New Koenigsberg web‐site:
http://newkenigsberg.ru/index.php?type=501&newsid=140
The Kaliningrad government. (December, 2006). The program of social and economic
development of the Kaliningrad region for the period 2007‐2016.(Programma
social’no‐ekonomicheskogo razvitiya Kaliningradskoy oblasti na 2007‐2016 gody).
Retrieved April 4, 2008 from http://www.gov.kaliningrad.ru/zip/progser2016.zip
Vinokurov E. (2005). Theory of enclaves. Electronic version. Retrieved March 7, 2008
from http://vinokurov.info/enclaves.htm
Vinokurov E. (March, 2007). Kaliningrad. Enclaves and economic integration. Centre for
European policy studies. Special report. Electronic version. Retrieved December
26, 2007 from www.ceps.be
Vinokurov E. (no date). Toward a theory of enclaves. From the web‐site of the project
"Rationality in global and local contexts". Electronic version. Retrieved January
20, 2008 from http://rationality.albertina.ru/index.html
Wellman C. (2007). The political dimension of Kaliningrad identity formation. An
attempt to understand Russia's Kaliningrad policy. Plenary lecture at the seminar
Page 72 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
“Kaliningrad identity – crucial to democracy and development in the Baltic Sea
Region”. Retrieved March 13, 2008 from http://www.schiff.uni‐kiel.de
Zhdanov V.P., Fedorov G.M., Zverev Y.M., Hlopetskiy A.P. (2003). Kaliningrad. Region of
cooperation (Region sotrudnichestva), 1(19). Electronic version
Knyaginin V.N. (2006). Russian exclave: basic scenarios of the Kaliningrad oblast’ socio‐
economic development. Center for Strategic Research “North-West”. Electronic
version. Retrieved May 4, 2008 http://kaliningradexpert.org/publications
Internet sources: http://wikipedia.com, February 2008 http://wisegeek.com, February 2008 http://answers.com, March 2008 http://bbc.co.uk, March 2008
Page 73 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
9 Figure index
Figure 2. Europe Source: Vinokurov, 2007
Figure 2. Europe after the 5th enlargement Source: http://newsimg.bbc.co.uk/media/images/41260000/gif/_41260177_kaliningrad_map2 _416.gif (2005)
Figure 3. Enclave and exclave types Source: Wikapedia
Figure 4. The main typology of territorial enclaves, exclaves and enclave states Source: Vinokurov, 2007
Figure 5. A. Mere exclave: mere exclave with sea connection to the mainland. Figure 5.B. Kaliningrad region, Poland and Lithuania Source: Vinokurov, 2007
Figure 6. GDP and GRP growth rates relative to the GDP in 1995 Source: The Kaliningrad government, 2007
Figure 7. Russia’s GDP and Kaliningrad’s GRP in 1995–2006, annual changes (in %) Source: Vinokurov, 2007
Figure 8. Kaliningrad. Growth of GRP, exports and imports in comparison, US$ m Source: Smorodinskaya, 2007
Figure 9. Industrial production (in % to the 1990s, i.e. 1990=100%) Source: Vinokurov, 2007
Figure 10. Gross regional product per capita, ths.rub Source: The Kaliningrad government, 2006
Page 74 of 75
The Russian Baltic exclave of Kaliningrad: Prospects for economic development
Figure 11. Gross regional products per capita, EURO Source: The Kaliningrad government, 2006
Table 2. Trade transactions in Kaliningrad, US$ m Source: The Kaliningrad’s government, 2007
Page 75 of 75