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Analysis & Opinion
17.03.10 Silicon Russia
By Tai Adelaja

President Dmitry Medvedev must be growing pretty impatient with the habitual state of lull in the country’s high-tech sector. Over the past several weeks, he has stressed on no fewer than three occasions the need to “speed up” work on the construction of a planned high technology park. With eyes set on pooling together Russia’s finest talents, the president told a session of the Commission for Economic Modernization and Technological Development in the West Siberian city of Tomsk last month that he had decreed to create a major innovation development center in Russia. But how plausible is this idea in times of economic hardship?

Again, last Tuesday, Medvedev told participants of a special conference called to discuss the issue to “step up efforts” to create what could become the nation’s version of the “Silicon Valley.” Yet, the strongest signal so far of the Kremlin’s eagerness to see some activity on the ground came from Kremlin's senior economic aide Arkady Dvorkovich. Dvorkovich told the Vedomosti newspaper last week that president Medvedev “will indicate where the future Russian Silicon Valley will be created” when he meets with Rusnano Head Anatoly Chubais on March 22.

Meanwhile, Medvedev has directed that a managing company be created to work out a business plan for the project. The government has also committed itself to financing all nonprofit projects and scientific infrastructure for the project from the federal coffers, Dvorkovich told the business daily.

Yet this flurry of official declarations of intention has raised legitimate questions. Why did the president opt to re-jig the nation’s high-tech sector during a period of economic convalescence? Is there a compelling business case to be made? Or is he just challenging the high-tech community to wake up and play catch-up?

Industry leaders believe that the Kremlin’s persistent anxiety underscores not just the need to put the growing Russian high-tech communities on the map in the 21st century, but also a determination to rejuvenate the sector as part of a muted plan to diversify Russia’s resourced-based economy. One lesson from the recent global economic downturn, they said, is that it showed the precariousness of relying on a largely mono-functional, resource-based economy. “By pumping money into the construction of a techno-park right in the midst of economic recovery, the president intends to kill two birds with a stone,” said Andrei Zakrevsky, the senior vice president at Knight Frank, a real estate fund. “First and foremost, this is a job creation project, meant to support sustainable economic growth not just in the construction industry, but in related sectors as well. Secondly, the project will boost all segments of the real estate sector – from cement factories to suppliers of building equipment - which bore the brunt of the global financial crisis. One way of looking at the president’s latest step is to consider it as a conscious effort to revive the flagging economy as a whole.”

One rare dissenting voice is Olga Pavlik, the head of research at Praedium Oncor International, a consultancy. “A techno park is a targeted project, which is not intended for commercial purposes,” Pavlik said. “Commissioning a new Research and Development Center is very unlikely to affect the structure of supply for commercial or residential space in the metropolitan region.” However, Pavlik said a project of this kind “can set new standards for a modern real estate market, serving as an example of a major intellectual center outside of Moscow.”

The need to promote high-end industries in the economy and diversify the industrial base was a recurrent theme under Vladimir Putin’s presidency, and has tended to escalate as the country’s commodity-driven economy became less resilient under pressure from the global economic distress.

In 2004, Russia’s Ministry for Economic Development teamed up with the IT and Communications Ministry and drew up a plan for development of technology parks in seven regions across Russia — in the Moscow Region, Tyumen, Nizhny Novgorod, Kaluga and Novosibirsk, the Republic of Tatarstan and St. Petersburg.

There have also been discussions on how to revitalize and modernize a number of research centers left over from the Soviet Union in the so-called “science cities,” scattered around a few closed cities like Korolyov, Troitsk and Obninsk.
The plans received government approval in 2006, but little else had happened since. The onset of the global economic crisis only further dampened the enthusiasm for the program. Valentin Makarov, the president of Russoft, an association of Russian software developers, said that there have always been delays in starting actual work on the construction of high-tech parks despite plans being completed years ago. “This time, the president may have decided it is time to offer special privileges in terms of giving financial assistance to the projects, as well as eliminating red tape,” Makarov said. “My understanding is that the president is trying to give a jolt to the hi-tech sector without necessarily trying to reinvent the wheel.”

Look no further

If president Medvedev is eager to transform the country’s high-tech landscape into a homegrown Silicon Valley, he needs look no further than the Nagatino i-Land Techno-park. Nested in a wooded valley of the Moscow River eight kilometers from the Kremlin, the Nagatino i-Land industrial park occupies a sprawling expanse of land where the battered Soviet ZIL auto plant once enjoyed the pride of place.

The Moscow Business Incubator, a joint-venture between City Hall and private investors, is not technically an R&D center, but it could well serve as a perfect model for Kremlin’s hi-tech ambitions. Over the past few years, businessmen and real estate firms have worked feverishly and spent lavishly in Nagatino, adding business centers, a metro line, sprawling high-technology parks, bridges, roads and other facilities to prepare Moscow for a shift toward higher-value, service-sector employment.

Even as the global economic downturn hits harder home, dampening employment prospects, the project has given the city over 40,000 jobs and reclaimed enormous orphaned spaces, Alexander Kuzmin, the city’s chief architect, said.

The business park already features energy-saving technologies, and there are plans to use Isothermal glass to reduce reliance on artificial lighting systems. The park’s parking lot can accommodate 6,000 cars, and rooftops of buildings, which house exhibition halls and offices, are equipped with special pads for helicopters. “While the Nagatino i-Land Techno-park is more of a business incubator than an R&D center, it is a point of reference for the government’s efforts to consolidate the country’s innovative research and development in a single territory,” said Zakrevsky, whose firm, Frank Knight, is the main consultant for the project.

Zakrevsky said that the cost of the proposed techno park should be jointly shouldered by the government and private investors, as in the Nagatino i-Land Techno-park, but other experts disagree, saying that the ideal way would be for the government to assume all expenses and risks related to the project. “Government rather than private investors should pay for the cost of construction in order to prove the viability of the idea,” Denis Sokolov, a partner at the Cushman & Wakefield real estate firm, said. “Private capital could come in later.”

Industry leaders are also weighing in on the choice of an ideal location for the project, with Moscow region a clear favorite. Dvorkovich fueled speculation last week by giving a wild-card list that included places as varied as Tomsk, Novosibirsk, St. Petersburg, Obninsk, Dubna and an area near the business school Skolkovo along Novorizhskoye highway and Leningradskoye highway.

Sokolov said that the Moscow metropolis is the ideal place, stressing that “in the capital, the R&D center will have access to the maximum amount of labor resources, and enable the government to save on money it could otherwise waste to develop the greenfield project. “The extent of innovation activity in Russia is not large enough to justify the development of greenfield techno-projects,” Sokolov said. “Today's mentality is such that people perceive relocation away from the capital as a setback. I think that some time is needed to improve the infrastructure and change people’s mentality.”

Others have argued that building a research and development center in Moscow could put tremendous strain on the city's already stretched infrastructure. “High-tech parks are never located within the city in other countries,” Zakrevsky said. “Starting up a greenfield project is the only way planners could build to modern standards that would support new infrastructure and technology.”

Zakrevsky said that it is highly unlikely that the president would give a nod to idea of having a techno park in Moscow. “Locating in a place like Skolkovo will surely invite transportation problems and put pressure on the city’s infrastructure. In addition, land is cheaper outside Moscow and the project would create jobs at all points of the construction cycle,” he said.

But while building a homegrown ultra-modern Silicon Valley remains a lofty idea, it may not be enough to persuade the country’s hi-tech communities to innovate at home, RusSoft’s Makarov said. “Russian programmers will continue to be attracted by the more lucrative global market. The nature of this industry is that we must remain part of the global technological community in order to be viable. In the hi-tech industry, you cannot develop your potential domestically by merely expanding your technological possibilities. It is imperative to compete on the international stage.”
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