Moscow restarts the machine

Evgeny Velikhov, one of the Soviet Union’s greatest physicists, sits at his desk in a villa on the outskirts of Moscow, surrounded by the evidence of a 50-year career in science – books on non-linear diffraction and ionised plasmas.

But Velikhov has his mind on something else: an Apple iPad, which he has just been given as a present. He thinks it is a good example of what needs to happen in Russia. “Look at this. It is not a product of brilliant science. There is no super-secret technology in here – it is a clever gimmick. But we have nothing like it.”

The lack of a high-technology sector is particularly galling to the country that launched Sputnik and the first manned space flight.

But Russia’s leaders are recognising that having world-class scientists alone will not push it into the ranks of global knowledge economies. With President Dmitry Medvedev talking about making the leap from an industrial resources exporting economy to a post-industrial economy based on “innovation”, the Kremlin has resolved to address this.

The country does not lack brainpower – it pumps out 70,000 computer programming graduates every year, many of whom migrate to Silicon Valley and other technology hubs.

But what it lacks is the fusion of this brainpower with an environment geared to commercial success. “A lot of innovation, not enough products,” says Roman Lokhov, head of investment banking at Otkritie bank in Moscow.

Otkritie has been seeking to boost this developing sector by financing tech start-ups on a stock exchange opened last year, the Moscow-based Micex Market for Innovation and Investment. So far, there are only five listed companies on the exchange, but one day it aims to be Russia’s Nasdaq. “It is not even a baby Nasdaq yet, but the goal is to get there,” says Lokhov.

The government hopes that the creation of a huge high-technology centre in Skolkovo, a Moscow suburb, will attract foreign investment and specialists. Cisco Systems, the US consumer electronics group, has already pledged $1bn of investment; Siemens, the German engineering company, has said it will take part too.

But many have criticised Skolkovo, saying it is not what the sector needs – Alexander Auzan, an economist at Moscow State University, says it bears all the hallmarks of an expensive prestige project: “It is just like one of those science expositions we had in the Soviet Union era – designed to sit there and look pretty.”

Velikhov is head of the Public Chamber of Russia and a supporter of the Skolkovo project; he says it has been conceived not as a panacea, but simply as a first step.

Elena Titova, president of Morgan Stanley Russia, says: “It’s great to create an island of excellence, but the point will be to make the excellence spread beyond it. The most important things have to happen around Skolkovo, and not inside it.”

For the moment, many of Russia’s most skilled software engineers either go abroad or work for foreign companies at home because of the difficulty of doing business in their native country.

Valery Kudryavtsev, head of the mechanics and mathematics department at Moscow State University, is one of the world’s pioneers of artificial intelligence and has dozens of US patents for his inventions – all owned by a US company that funds his research and employs his students.

“I would love to set up just such a company here in Russia, but it would be practically impossible,” he says, adding that it would cost hundreds of millions of dollars.

Many of the problems that afflict the technology sector are common to all small and medium-size enterprises: bureaucracy, corruption, inefficient regulations and lack of finance.

Serguei Beloussov is chief executive of Parallels, a company that designs cloud-computing software; he is very familiar with the challenges of building a tech business in Moscow.

Although his company is based in Switzerland, its research and development centres in Moscow and Novosibirsk employ 500 of its 700 staff. “The company is run 100 per cent on Russian technology,” is how he describes it. “Instead of being focused on developing the fastest search engine or something, you have to focus on making sure that you have air-conditioning in the office, or on paying your taxes,” he says.

“In the UK you can get a new CPU [central processing unit] from the US, and you start using it. Here, you have to go through customs, and that takes a while. Things are not straightforward.”

However, he says that even by starting to discuss the sector, the government has begun to change the situation. “Five years ago, most young people wanted to be government employees or entrepreneurs in very traditional fields – they might be a talented engineer or software designer, but they would leave to open a chain of pharmacies,” he says. “Now, there is a motivation to get involved in innovation creation, which is very positive – it’s already happening.”

A version of this article was first published in the FT on September 30 2010