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In an article last week, the Financial Times wrote that the concept of the BRICS group of emerging economies was dead, arguing that Russia and Brazil’s dependence on commodities exports had led to them being usurped by tech-heavy economies Taiwan and South Korea, leading to the creation of the TICKS (Taiwan, India, China, [South] Korea and South Africa).
Skolkovo experts are currently scouring the country for promising tech companies at the Startup Tour. Photo: Sk.ru
“The realignment tells us much about the changing nature of emerging markets — and the world in general — with services, particularly technology, to the fore and trade in physical goods, especially commodities, in retreat,” the Financial Times wrote, explaining the switch in emerging market fund managers’ interest.
With the price of crude oil, of which Russia is the world’s top producer, sinking to 12-year lows of about $27 a barrel last month, prompting the ruble to fall to a record low, the need to diversify the economy has never been so starkly pressing.
Experts say Russia can develop its tech industry – and indeed is in the process of doing so – but caution that the progression will take time.
“BRICS, TICKS, stocks – investors’ money will go where they feel there is the best risk-weighted return on investment, regardless of such classifications and other catchy slogans created by investment firms,” says Professor Edward Crawley, first president of the Skolkovo Institute of Science and Technology (Skoltech), which aims to foster technology and innovation in Russia.
“What Russia has as an asset that none of these other countries has is a tremendous heritage and experience in science and technology,” said Crawley. “What it must focus on is the transfer of this technology to products that compete internationally, and the creation of companies to build these products.”
This is the practical goal of the Skolkovo Foundation’s Startup Tour that is currently under way, sweeping across Russian cities and neighbouring countries on the lookout for promising tech startups.
Finnish entrepreneur Pekka Viljakainen, an advisor to Skolkovo’s president and the brains behind the Startup Tour, has not lost hope in Russia’s potential to diversify.
“For sure Russia can catch up,” he told Sk.ru in a recent interview. “If I didn’t believe it could, I wouldn’t be here.”
The aim of the Startup Tour is to foster the country’s culture of entrepreneurship and give the most promising ones a helping hand getting up and running, with the short-term aim of creating new jobs and the ultimate aim of making tech a driving force of the economy, replacing the energy exports on which Russia currently depends.
“We’re not just here to find the best innovative projects, or even to boost the development of scientific inventions,” Viljakainen told Sk.ru in Irkutsk, where the Startup Tour kicked off this week. “The three main words I want to get through to people are sell, sell, sell. If scientists and innovators don’t learn how to sell their inventions, no one will ever know about them.”
Edward Crawley, first president of Skoltech, says Russia must transform its tech knowledge into competitive companies. Photo: Sk.ru
Konstantin Styrin, macroeconomics professor at Moscow’s New Economic School, agreed with the Financial Times report that Russia’s technology sector was lacking but said there is great potential for growth and that Russia could catch up if crucial changes were made.
“If we want to grow, we have to find different sources and methods of growth,” he said, adding that the strengthening of political institutions such as the rule of law and independence of the judiciary was key to returning accelerated growth to the Russian economy.
He said that while Russia should continue to specialize in its traditional areas of expertise, such as satellites and rocket science, the most efficient way to modernize was also to borrow existing technology and not try to create everything itself, independently of everyone else.
“Internal work on the creation of new technology is no replacement for the opportunity to catch up by taking existing technologies and applying them in our country – that’s what everyone does, it’s completely normal,” he said.
In this respect, he said, the government should seek an end to Western sanctions imposed on Russia over its actions in Ukraine.
“Sanctions are impeding the use of some of the best technology that exists, that is used in Western countries. It’s stopping us from extracting hard-to-recover resources – and most of our oil is hard to recover, compared to Saudi Arabia for example,” he said.
Natalia Orlova, chief economist at Alfa Bank, agreed that sanctions rather than any macroeconomic factor had affected Russia’s economy.
“Sanctions are temporary – we don’t know when they will be repealed, but we presume they will be at some point,” she said, adding that they had acted as a counterweight to Russia’s accession to the WTO in 2012.
She said that the concept of BRICS was fading anyway, since the Chinese economy is also slowing down.
Orlova said in terms of technology, the government needs to make clearer its strategy, and then investors will come.
At the moment there is uncertainty,” she said. “Everything depends on the government, once they signify their priorities, investors will come.”
Crawley, whose institute was founded four years ago, is the first to acknowledge that creating internationally competitive tech companies is not a mission that can be completed overnight.
“This is not the task of three or five years, but of a decade or two,” said the U.S. professor.
“But the impact on Russia will be substantial, moving from a natural resource to knowledge-based economy.”