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Russia turns to science to fuel growth

Vladimir Radyuhin

Fifty years after it stunned the world by launching the first earth satellite Sputnik, Russia is poised to enter a new technological race. The government has drawn up an ambitious plan to transform Russia from a resources-dependent to a science-based economy by 2020. This will be a second revolutionary transformation the Russian economy will undergo in its short post-Soviet history. In the chaotic 1990s, Russia went through a painful and crime-ridden transition from the ce ntralised Soviet economy to a market economy, losing in the process half of its industrial potential. It is only in the past few years that Russia has bounced back thanks to high oil prices and the firm leadership of President Vladimir Putin.

Today Russia is a booming economy, registering stable growth rates of 6 to 7 per cent. The country’s gross domestic product has expanded from $200 billion to $1.2 trillion, and living standards have improved just as dramatically. Russians bought 1.77 million new cars last year for a population of 143 million. (Indians purchased 1.2 million new cars.) There are more cell phones in Russia than people, infants included.

The problem is, however, that the Russian economy is heavily over-reliant on extracting energy and other natural resources. Last year, oil and gas alone made up 40 per cent of Russia’s gross domestic product and 70 per cent of exports. The manufacturing industries are still struggling to overcome the deep crisis of the 1990s, and engineering exports account for a meagre three per cent of Russian trade.

The situation will change dramatically if the government has its way. Fifteen years from now, Russia will have a high-tech economy driven by the country’s traditional advantages — strong scientific and technical expertise and a highly skilled workforce.

“Our goal is to turn Russia into a global economic leader, an equal among the developed post-industrial nations,” the government said in a draft plan for the country’s economic development till 2020 published last week.

The development strategy has been a subject of heated debate in Russian academic and political communities.

“Certain quarters would like Russia to stay forever a resource-dependent economy,” said the First Deputy Prime Minister Sergei Ivanov, a strong champion of turning Russia into a technological powerhouse, recently.

Some experts argue that given Russia’s severe climate conditions (two-thirds of Russia lie in the permafrost zone), it can never be competitive in an open economy and should therefore close its market and rely on its resources for growth. It is true that production costs in Russia are two-and-a-half times higher than in Europe and it costs $14 to produce one tonne of oil in Siberia, compared to $4 in Kuwait.

However, opponents of a resource-oriented strategy say that precisely because of its harsh climate Russia should opt for a “knowledge economy” in which construction and living costs will be negligible compared with the cost of high-tech equipment and the added value it generates.

President Putin has thrown his weight behind those who advocate the high-tech path for Russia. Delivering this year’s state of the nation address, he called for building “a competitive science-based economy” relying on new technologies rather than natural resources, which have underpinned Russia’s growth so far.

Sceptics point to steep hurdles on the way to a science-driven economy, citing decaying infrastructure, bureaucratic inefficiency, rampant corruption, and skills shortages, caused by a massive brain drain and negative population growth rates.

However, Deputy Premier Ivanov, who has been put in charge of Russia’s technological revolution and who is tipped to succeed Mr. Putin when he steps down next year, is confident that the new strategy will help Russia become one of the top five world economies by 2020.

Flush with energy export revenues Russia plans to spend nearly $60 billion in the next three years to promote the innovation-based economy. To avoid spreading support too thinly across the board, the government has decided to concentrate on several areas where Russia has traditionally been strong: nuclear energy, aviation, space industry, shipbuilding, software, bio- and nanotechnology.

The government has launched an ambitious programme to set up a network of science and technology hubs across Russia. Technoparks largely modelled on India’s silicon valley Bangalore, that President Putin and other Russian leaders visited in recent years, will provide a link between science and industry, which was often weak or missing in the Soviet Union.

Russia still accounts for one in ten scientists globally and leads the world in 10 or 15 out of some 50 critical fields of science and technology. However, it contributes less than one per cent of the world’s high-tech production.

Enjoying the status of special economic zones, the technoparks by 2011 should turn out high-tech output worth more than 100 billion roubles or $4 billion. By 2020 high-tech sectors will contribute 17 to 20 per cent to the country’s GDP, twice as much as today, whereas the share of oil and gas will go down to less than 12 per cent.

Russia’s defence sector, a treasure-trove of high-end technologies, is called upon to act as another driving force of the innovation-based economy. In the Soviet Union scientific achievements served primarily the country’s defence potential, and more often than not failed to spill over to the civil sector industries. “The defence sector must become a locomotive for the Russian economy,” said Mr. Ivanov, who oversees the defence sector.

The defence industry accounts for 70 per cent of the country’s high-end technological products. By 2015 the share of civilian production in defence factories is to rise above 70 per cent, compared with 30 to 35 per cent today.

In a significant reversal of President Boris Yeltsin’s sweeping privatisation and fragmentation of industrial assets, Russia has embarked on the establishment of vertically integrated state-controlled holding companies to spearhead growth in high-tech industries. Mega companies were recently formed for aircraft building, ship building, and nuclear energy. Government plans call for the creation of 30 to 40 more national champions.

To encourage private business involvement in the new technological revolution, the government has lifted customs duties on the imports of high-tech equipment, set up venture funds, and moved to slash taxes on innovation-based activities.

Nanotechnology has been identified as a thrust area of research designed to transform Russia into a technological and industrial powerhouse. President Putin said the government would funnel more than $1 billion of oil revenues a year through 2010 to develop nanotechnology, the science of constructing new matter and devices using atoms as bricks, which cuts across various fields of study and is expected to bring about a technological revolution in the next decade or two.

“This is a direction where the state won’t begrudge any funds,” the Russian leader said at a meeting recently with scientists at the Kurchatov Nuclear Institute in Moscow, which spearheaded the development of the Soviet nuclear bomb and has now been designated the main research hub for nanotechnology. A new state corporation, Rosnanotech, will be set up to oversee and coordinate research in nanotechnology. The government will also finance the establishment of several research centres equipped with the latest in scientific instruments.

“By 1015 nano-industries should be producing gross output worth one trillion roubles (over $38 billion),” Russian Minister for Science and Education Andrei Fursenko said.

Russia’s ambitious plans for a high-tech push should be of immediate interest to India, whose scientific ties with Russia are extensive. Under the bilateral Integrated Long-Term Programme in science and technology, which marks its 20th anniversary this month, researchers from the two countries have jointly brought to fruition about 500 scientific projects and are currently working on another 140 projects.

The new emphasis in Russia on tapping the country’s rich scientific potential for business applications offers both an opportunity and a challenge for India. It is an opportunity because the ILTP has been moving in the same direction in the past six-seven years. It is also a big challenge because a far greater effort is needed today to win a share of the promising Russian high-tech market. The notorious lack of business skills on the part of Russian scientists, which ILTP has helped to overcome, may soon become a thing of the past. The Russian government has set up a $1.2 billion technology fund to support venture companies, and foreign venture funds are also zeroing in on Russia. Meanwhile, commercialisation of Indo-Russian research projects is yet to take off in a big way.

An India-Russia Technology Centre for facilitating business applications of jointly developed technologies, which was to be set up in Moscow more than a year ago, is still in the planning stages. Unless India moves quickly to adjust its scientific cooperation programmes with Russia to its new high-tech drive, it may miss the train.

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