Thomas White Global Investing
Russia
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June 11, 2010
A Postcard from Europe
Russia: A New Silicon Valley

R&D heading with the word product highlighted in yellow

President Medvedev is trying to establish a ‘knowledge economy,’ with focus on innovation and research.

During the annual state-of-the-nation address in November last year, Russian President Dmitry Medvedev proposed what was seen as an unorthodox idea. Russia, he said, should seriously consider reducing the number of time zones that crisscross the length and breadth of the country. The concept raised a furious debate in Internet circles. But during the same speech, Medvedev announced another idea, a plan to transform Russia into a ‘powerful center for research and development.’ Now that thought sparked some positive attention.

Unlike the time zones idea, which fizzled, establishing Russia as a research center is the President’s pet project. Technological innovation has always been at the forefront of Medvedev’s vision. So the President really means business when he states that Russia will build its own Silicon Valley. And to punctuate his intent, he will visit the original Silicon Valley in San Jose, California later this month.

Skolkovo near Moscow is the proposed location for the new Russian Silicon Valley, an area that will have its own tax structure, and police and customs department. Currently known for hosting one of Russia’s premier business management schools, Skolkovo will focus on research and innovation in five sectors: energy, biotechnology, information technology, telecommunications and nuclear technology. And Medvedev can’t wait for it to begin functioning. “We will build it in a place where we already have the solid groundwork for doing it quickly. Speed is of particular importance,” he told Reuters.

Already, he has submitted a draft legislation for the Skolkovo region to the State Duma. In addition, in an amendment to the housing law, Medvedev has promised to reward innovative projects with free land.

Not all share Medvedev’s enthusiasm though. Critics, like Vladimir Ryzhkov, an opposition politician, have said that this kind of single-minded focus on the knowledge economy comes at the cost of deflecting attention from some of Russia’s more serious problems, such as rampant corruption, deteriorating living standards, and an economy which plummeted 7.9% last year. But it was Russia’s dependence on resources like oil, gas and metals that led to the kind of crash witnessed in 2009. Diversification of the nation’s economy is one way to help reduce Russia’s reliance on its exports sector.

For years now, Russia has struggled to establish itself at the forefront of innovation. Remember, in Russia, there always hangs the sword of suspicion – the government involvement and influence. The original Silicon Valley thrived because it was allowed the freedom to create; it established an open culture of innovation, and an entrepreneurial culture. Russia has the individuals to create such a culture, with human resources capital comprised of many of the world’s best engineers, technicians and IT experts. But Russia’s venture capital infrastructure remains weak, and government interference is always a worrisome issue.

But these obstacles, apparently, do not deter Medvedev. Vladislav Surkov, the Russian President’s deputy chief of staff, and the overseer for the Skolkovo project, mused to Vedomosti, “The appearance of great ideas, like life itself, is still considered a miracle.” Medvedev’s idea is to create the environment for such a miracle, if his pet project may so be called. These may be baby steps, but Medvedev’s forthcoming visit to Silicon Valley may be one giant leap for Russian innovation.

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