It is Russia’s perennial problem – how to wean the economy off its reliance on oil and gas? The answer, hope Russia’s leaders, lies with high technology and high finance.
Russia already has some world-class companies specializing in cutting-edge sectors. One is Rusnano, a state-owned nanotechnology company that was established in 2007. Rusnano, which is headed by Anatoly Chubais, one of the architects of Russia’s privatization programme in the early 1990s, is spearheading the nation’s push to become one of the world’s leading centres for nanotechnology – the study of controlling matter on an atomic and molecular scale. Rusnano’s projects include developing new materials for use in medicine, electronics and energy production. The government hopes that the nanotechnology industry will generate revenues of $30 billion by 2015.
Rusnano has received about $5 billion from the Russian government and is seeking investment opportunities with other nanotechnology firms around the world.
Russia’s leaders are now hoping to replicate the Rusnano model on a much larger scale with the creation of the country’s Silicon Valley. On December 31, president Dmitry Medvedev signed a decree to form a working committee to oversee the creation of a new technology hub to be built in Skolkovo, near a private-sector business school in the Moscow region. The project is a key point in the president’s strategy to diversify the economy through investment in innovation.
The project will be implemented in two phases and will focus on five areas: energy saving, nuclear technology, space technology, medical technology and information technology. In March Medvedev appointed Viktor Vekselberg, a billionaire oligarch, to oversee the development.
The Silicon Valley project is the latest idea put forward by Russia’s hierarchy to modernize its economy. Another is to make Moscow an international financial centre. Despite the financial crisis, the Kremlin and the city’s leaders are continuing to build the foundations, drafting legislation to boost its securities markets, taxation system and general infrastructure. Although Moscow might never become a dominant financial centre like London or New York it could become a global intermediary for particular products, such as natural resources or equities.
Both are laudable ideas. The country’s vulnerability to commodity prices is well established. The economy needs other engines of growth. Russia has the funds and the human talent for Moscow to become a high-class tech and financial centre.
But for either aim to extend beyond ambition into reality will require more than just money. It will require a complete change in Russia’s business culture. It will require the creation of an environment in which innovation and entrepreneurship are supported, where the rule of law is transparent and consistent, and where opportunities are available to all, not just the well-connected few. In short, Russia needs to bolster its basic institutional framework. Only then will Russia be able to create a viable venture capital industry and grow its pensions and life insurance that are so critical to achieving its aims.
