The sweeping Western sanction imposed on Russia in response to its invasion of Ukraine have hit Russia's access to technology intensive products again raising the call for Russia to achieve technological sovereignty. Vladimir Putin and Denis Manturov the Deputy Prime Minister and head of the Ministry of Industry and Trade have promised an intensive program to achieve that purpose relying on capital-rich companies to make the necessary investments. Russia can call upon a legacy of scientific prowess to generate innovation.
An article by Mikhail Sergeyev questions the optimism surrounding Russia's rapid achievement of technological sovereignty. First, Russia starts from way behind in terms of investment in high tech. Secondly, the investment culture has been set back by the preponderance of government corporations in the economy and the reliance on "rent" from raw materials exports. Third Russia has not yet developed a successful model for investments, as the Americans and Chinese have already done.
Sergeyev's analysis follows below:[1]
Russia's Minister of Industry and Trade Denis Manturov (Source: Vedemosti.ru)
"Russia occupies a unique position in global technological development. Our country doesn’t have a single successful technology start-up, although similar companies, dubbed 'unicorns,' appear in many third-world countries and are found in every BRICS member-state except Russia. Russian businesses are generally unreceptive to technological innovation. Before the sanctions' crisis, Russia lagged behind Australia by a magnitude of nearly forty-fold and behind the UK by a factor of nearly seventy-fold in terms of investment in high-tech companies. President Vladimir Putin recommended for state corporations to support domestic high-tech and high-growth companies. Denis Manturov, the Deputy Prime Minister and head of the Ministry of Industry and Trade pledged by autumn to draft a program on support for companies, which will ensure Russia's technological sovereignty. Over the last three decades a national innovation system has yet to appear, despite periodic calls for this by high ranking officials.
"In Russia, there are no 'unicorn' companies at all (as growing start-ups with a capitalization of more than a billion USD are commonly called). Although all BRICS member-states enjoy technology 'unicorns' (2 in South Africa, 18 in Brazil and 74 in India, as a new study by the Higher School of Economics (HSE) demonstrated).
"In terms of investment volume in high-tech companies, Russia is 10 times behind such countries as Spain or Sweden, and almost 15 times behind Brazil or Canada. Russia ranks 38th in the global ranking with investments in high-tech companies with a total amount of 0,8bn USD. This estimate takes into account only high-tech companies registered in Russia. The gap between our country and the leaders of the list (the US and China) is measured in hundreds of times.
"Russia’s weakness is the lack of large corporate systems that know how to identify, discover and monetize technical and creative talent, as well as providing them with competitive conditions for self-realization. The fact that only three Russian companies are present in the global '2500 Industrial R&D Scoreboard' list of leading researchers and developers is a demonstration of this organizational weakness.
"Meanwhile, massive investment in high-tech companies is a key tool of innovative development for the majority of states, the authors of a study by the Institute for Statistical Research and Knowledge-Based Economy at the Higher School of Economics remind us.
"The search for new sources of funding for technology companies occurred during the meeting of the Presidential Council for Strategic Development and National Projects, on 18 July 2022.
"According to the Russian President Vladimir Putin, large Russian state-owned corporations, which have accumulated billions of USD, should invest in domestic high-tech and high-growth companies. So far, he said, the country’s financial system doesn’t provide such organizations with access to sources of financing. 'It is necessary to cooperate with our companies, which don’t know where to invest the accumulated billions of USDs. We need to meet with them, work with them, explain to them, create corresponding alliances,' said the head of state, referring to the opportunities for investing in technology companies.
"The president drew attention to the suggestion for investors to enter the capital of fast-developing companies. 'Naturally, this is practical. But we have to work with these potential investors,' noted the president.
"Denis Manturov, head of the Ministry of Industry and Trade and the Deputy Prime Minister, pledged that before autumn, the Ministry of Industry and Trade will develop a program on aid to the companies that are geared towards creating products, ensuring technological sovereignty.
"Meanwhile, independent experts point out significant obstacles on the road towards closing this technological gap. 'From global experience, we know that targeted attempts by states to create an innovative economy, haven’t always been successful, the chances are, in fact, 50/50. In Russia, the state sets the tone in the innovation process, but the innovation systems that assume the state’s leading role, are the forerunners of the so-called 'national innovation system,' which took shape in the 1950s-1960s in Asia. And later it emerged, that actually, in what goes by the term 'national innovation system,' the main role is played by big business. But so far, the state corporations have not performed very well,' noted Valery Mironov, Deputy Director of the Center for Development of the Higher School of Economics. According to him, the inflow of raw material rent disincentivizes the development of the national financial system as the market economy's main regulator."
Valery Mironov (Source: Daily.hse.ru)
"The evolution of 'unicorn' companies suggests that a process exists whereby parallel to the appearance of new start-up the 'unicorns' transition to a new business level via a range of financial instruments that mitigate risk and eliminate what is superfluous and inefficient.
"'An answer to the question, who in the 'state-business-universities' triangle in Russia, can assume the role of the driving link in the national innovation system of a new type, involving the construction of new hybrid structures for generating innovations, remains unclear,' said Mironov.
"It’s noteworthy that Russian experts believe that the country is quite capable of narrowing the technological gap with the leading countries. 'Considering the scientific legacy of the USSR, we could repeat the Chinese path, and perhaps even pass it a little faster. But this requires a sober assessment of economic realities and working on current challenges by studying the experience of those, who have already solved them. And until that happens, even the few 'unicorn' companies that might 'graze' in Russia, will, naturally, choose the 'greener pastures' of the US, the UK, China and other countries. Nikolai Storonsky’s startup 'Revolut' [financial management app] is a prime example of this,' said Alexei Fedorov, an analyst at TeleTrade.
"In the US, the most common transition of investments to the high-tech companies is done via investment companies and investment banks. In China, it’s common for the largest technology companies (i.e., Tencent, Xiaomi, Alibaba) to participate in [R&D] deals. In some countries the key investors are state funds, i.e., Temasek in Singapore, or the Qatar Investment Authority' in Qatar.
"'Russia has yet to find its combination of leading investors for the fast-growing high-tech companies. And here we need to think about bilateral support for both those, who create breakthrough market projects, and those, who are willing to take the risk of investing in them. These parties should develop in a balanced way, as the lag of one of them largely nullifies the success achieved by the other,' said Evgeny Kutsenko a researcher at the HSE."
[1] Ng.ru, August 4, 2022.
