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Analysis & Opinion
12.10.10 With Love From California
By Tai Adelaja

President Dmitry Medvedev could benefit from the best sales pitch so far for his flagship innovation project after California Governor Arnold Schwarzenegger yesterday urged American investors to grab the unique business opportunities that modern Russia presents. In the rare celebrity endorsement of his modernization efforts to date, the former Hollywood star likened Medvedev’s Russia to a gold or diamond mine that is beckoning foreign investors to simply “go in there and get it.”

"President Medvedev has a vision of Russia's development and diversification of its economy,” Schwarzenegger said during a visit to Skolkovo, Medvedev’s vision of a Russian Silicon Valley, on Monday. “I am confident that the leadership of our companies will conclude agreements with their [Russian] partners.”

Schwarzenegger also noted Russia’s high growth potential, saying that now is the perfect time to build on the country’s economic fundamentals “when things are still at a raw level.” Earlier at a meeting with businessmen organized by the American Chamber of Commerce, the 63-year-old bodybuilder offered particularly effusive praise for Russia's first tech-savvy president, describing him as “a great visionary.” "President Medvedev is a great visionary. He had this vision to create a Silicon Valley in Skolkovo," Schwarzenegger said.

The California governor was in Moscow on a three-day visit as the head of an American business mission to Russia. He was accompanied by executives from leading U.S. IT companies including executives from Google, Microsoft and Oracle. Medvedev invited the former Hollywood star during his visit to California’s high-tech Silicon Valley in June. The Skolkovo innovation city is president Medvedev’s pet project, which he hopes will transform Russia into a high-tech nirvana and diversify Russia's monoculture economy.

Schwarzenegger, who appears to share Medvedev’s love of high-technology, met with his tweet-mate in Skolkovo on Monday. “It was wonderful to see the president’s great enthusiasm about technology, high technology, green technology,” Schwarzenegger said, adding: “I really enjoyed meeting someone that is a visionary, someone that has a very clear vision of the direction Russia ought to go.” The wildly-popular Terminator star joked that he was in Moscow to fulfill a promise made to the Russian president. “I told you ‘I’ll be back’ – so I’m back,” Schwarzenegger told Medvedev. The Russian president took Schwarzenegger for a spin in an antique Soviet Chaika car after their meeting.

President Medvedev used Monday’s meeting to spell out his vision for Skolkovo. He told a scrum of journalists and entrepreneurs that Skolkovo will be a launch pad for innovative economy in Russia and will become "an example of how one can and must work to create conditions and subsequently to replicate this experience throughout the country, using the enormous scientific potential that our country has." The president said his first impressions of the Silicon Valley were of a place with a "special, creative and at the same time a calm, homely" atmosphere. Russian businesses, he said, have much to learn from the United States both in the creation of congenial business atmosphere and in the commercialization of scientific ideas, but he noted there are homegrown psychological barriers to this vision. Russian business people, he said, are still more inclined to spend capital on consumer items, rather than risk venture capital investments.

However, Medvedev noted that those willing to partake in the Skolkovo Innovations Center project have been given wide-ranging tax preferences and hoped that Monday’s meeting would give further impetus for the development of full cooperation between Russia and America. “We’re extremely interested in your great experience and aren’t ashamed to learn,” Medvedev told Schwarzenegger. “We have to admit that in many areas we’ve unfortunately fallen behind. We’re really counting on our cooperation bearing fruit.”

Is America listening?

While some big names in American high-tech business are visibly “cooperating,” most are still reluctant to pump money into Skolkovo despite preferences and special economic regimes, industry executives said. So far only a few companies such as Cisco, which pledged $1 billion investment and more recently Siguler & Guff, which committed a $250 million investment to a data center are exceptions to the general trend. Franklin Pitcher Johnson, the founder of Asset Management Company, who participated in the Skolkovo meeting, said that Russia’s murky investment climate remains one of the major concerns of American venture capitalists eyeing new prospects in Russia. Skolkovo in itself, he said, would not transform Russia’s investment climate overnight. To attract investors, Russia needs to do more especially in the areas of economic and political freedom as well as combat corruption, he said. He disagreed with the notion of government intervention in business, stressing that government’s only business in business is to leave business alone.

Andrew Somers, president of the American Chamber of Commerce in Russia, downplayed these concerns, stressing that the Kremlin could achieve more by sponsoring targeted projects like Skolkovo. “What the government is doing now is the best way to start – preferences for a specific project backed by the highest authority in the country and focusing on R&D,” Somers told Russia Profile. “You can’t do the whole country at once otherwise you’ll spread all over the place and accomplish nothing. Ironically, this is the way America might do it because you want to have a flagship project backed by the president and focusing on Russia’s future R&D and its potential.” Somers said two things underpinned the importance of the current visit to Russia by an American trade mission. “One is that the Americans are here and the other is that they have been sufficiently interested in Russia to come over,” Somers said. “There is a growing recognition among many sectors [in America] that Russia has a tremendous potential for investment,” Somers said.

Lending credence to such optimism, Rusnano Head Anatoly Chubais announced Monday that his nanotech company would hold negotiations on eight or nine deals with representatives of U.S. venture capital businesses currently visiting Moscow. "The deals relate to production projects worth $1 billion and one serious venture capital fund with the potential volume of $400 million," Chubais said, RIA Novosti reported. Earlier, the Rusnano chief said the corporation was working on seven projects worth from $250 million to $500 million after the first visit by U.S. venture capital businessmen to Russia. Rusnano also plans to acquire a share in one of U.S. microelectronics companies in the Silicon Valley by the end of 2010, Chubais said. "We are talking about directly acquiring a share package in the parent company based in the Silicon Valley and, correspondingly, accommodating real business as part of the project's expansion in Russia," he said.

Russia appears to enjoy pride of place compared to its BRIC rivals as far as post-crisis investments are concerned, Somers said. “Since the crisis, nobody is investing anywhere. There is about a trillion and half dollars sitting idle in American companies. So they are looking at Russia and of course they are also looking at Brazil, China and India. In that context, it is very positive that so many investors have come to Russia.” The negative, Somers said, is that Russia’s image is still not great. “Generally, Russia still has an image in the United States of a country with a very risky investment climate,” he said.
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