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Russia bids to become a tech tiger

June 28, 2007 13:20 IST

It has been fifty years since the Soviet Union launched Sputnik, proving to an astonished world that the Russians could beat the West at its own scientific game. Now a vastly different Russia is once again back in the technology race.

Spearheaded by President Vladimir Putin, with backing from leading businessmen and investors, the country has embarked on a sweeping program to promote a high-tech economy. The prize this time: a position in the emerging technologies that will shape the future global economy.

Putin set the tone in April when, in his annual address to the Russian senate, he announced a massive $7 billion program, financed from the state budget, to promote the development of nanotechnology - a new science that involves manipulating matter at the microscopic level, with applications from industry to medicine.

Russia's fledgling venture capital industry also is getting a shot in the arm, thanks to a $1.2 billion state-backed technology fund. And construction began last year on seven new technology parks at locations around Russia, aimed at encouraging technology businesses to set up shop near scientific research centers.

To head the technology drive, Putin has tapped one of his most trusted lieutenants, Deputy Prime Minister Sergei Ivanov, who is widely seen as the favorite to become President when Putin steps down next March.

Strong educational foundations

On the face of it, Russia has strong tech foundations. Despite the economic tribulations that followed the Soviet Union's collapse, its scientific legacy lives on in the form of 3,500 scientific research institutes employing 600,000 scientists and engineers. Russian universities churn out some 200,000 science and engineering graduates each year.

"We identify Russia as one of the emerging countries with an excellent education system, and a culture of developing high technology," says Ashish Patel, managing director for Intel Capital in Europe, which has so far invested in a smattering of Russian technology ventures.

Optimists can point to the growth of Russia's information technology sector, which has taken off in recent years despite minimal government support. Russian software exports have risen from just $120 million in 2000 to $1.5 billion last year - surging by 54 per cent last year alone.

The sector's growth also has been boosted by the arrival of in-house programming centers for major multinational corporations including IBM, Motorola, and Boeing. Indigenous Russian IT companies are now mulling $1 billion initial public offerings.

The downside? Russia's IT industry still represents just 1.5 per cent of gross domestic product. That compares with 5 per cent in the US - or 12 per cent in Ireland, a model for high-tech success. Russia's annual software exports are one hundred times smaller than its exports from oil and only around one-tenth those of India.

And in other sectors besides software, Russia still lags technologically. At 1.2 per cent of gross domestic product, the country's research and development spending is still just half the Organization for Economic Co-operation & Development average.

Nanotech cronyism?

That explains why the Kremlin now wants to pump more of Russia's huge oil and gas profits into high-tech research. So far, nanotechnology has especially captured the imagination of politicians. This year $5 billion is being plowed into a new state corporation, Rosnanotech, that will be responsible for overseeing and coordinating research in the area. Russia will certainly need to invest billions to catch up with other countries.

Jason Bush, BusinessWeek