RUSSIA'S SILICON VALLEY:RUSSIA HAS a history of big projects and its leaders have rarely flinched at the difficulties involved or the obstacles in their way. Peter the Great wanted a window on Europe, so he turned a piece of marshy ground on the Gulf of Finland into a capital city and named it after himself.
St Petersburg still stands on that site; it has withstood the vicissitudes of nature and a devastating siege in the second World War in which more lives were lost than the combined casualties of the US and UK for the entire war.
Dmitry Medvedev, Russia’s outgoing president, is no Peter the Great. His opponents have sniped that he achieved only two concrete objectives in his four-year term: the maintaining of summer daylight saving throughout the year and the changing of the first two letters of the name of the national police force from Militsia to Politsia.
But Medvedev did have one big idea: the transformation of land on the outskirts of Moscow into a world-class centre of innovation. As he moves from the Kremlin to make way for Vladimir Putin, his idea is coming under increasing scrutiny.
The farmland of Skolkovo, formerly noted for its cucumbers, is to become a town of 31,000 – nothing so grandiose as St Petersburg but a project intended to give Russia a window on the world of technology and move it from the current situation in which its relative economic prosperity is largely dependent on its vast, but by no means limitless, natural resources.
Medvedev’s presidency, which was overshadowed by Putin’s prime ministership, will come to an end in May with the inauguration of Putin. Medvedev will take over as prime minister. Kremlin insiders are whispering that he will not last long in what is officially the second most important post in the Russian Federation, but even if he goes the full distance there is no doubt that Putin will be the boss.
And what will happen then? Well, a city for 31,000 people has to be built. That’s a difficult enough project but in the view of Viktor Vekselberg, president of the Skolkovo foundation, that will be the easy part. In an interview with Atlantic magazine, he said: “Early, or a little late, more beautiful, or a little less beautiful, we will build a city. The hard part is what comes after that.”
Vekselberg, one of the billionaires spawned by Russia’s move from command to market economies, has surmounted many difficulties on the road to gaining his vast wealth – not least of which were tortuous, though eventually successful, legal proceedings against claims by the Swiss government that he had violated that country’s securities regulations and was subject to a fine of $38 million.
His wealth has been estimated at over $12 billion by Forbes, ranking him 64th on its rich list, and he has become noted for his collection of Fabergé eggs and the purchase of the Lowell House Bells from Harvard University, which he returned to their original location in Moscow’s Donskoy Monastery.
Vekselberg’s team includes Craig Barrett, the former president of the Intel Corporation, as co-chairman of the Skolkovo Foundation Council and former Irish minister of state Conor Lenihan, who now holds the post of vice-president for international partnership development.
The Skolkovo Foundation plans, in its own words, to “attract international and domestic intellectual capital, and encourage technical innovation. It will consist of a postgraduate, research-led university with MIT (the Massachusetts Institute of Technology) and 15 major research centres, about 50 corporate RD centres of major multinational companies, a Technopark with more than 1,000 start-ups, venture capital firms and a favourable tax system, as well as other benefits.”
The tax benefits are substantial: many resident companies will pay no VAT for 10 years.
There will be no income tax if the revenue of companies is less than $30 million per year. There will be exemption from customs duty for imports and a fast-track visa and work permit procedure for qualified foreign professionals.
In short, many of the worst elements of doing business in Russia will not apply in Skolkovo. The aim is for the numbing bureaucracy, the ubiquitous corruption and the stonewalling by state agencies which have blighted foreign businesses in the rest of Russia to be absent from what will effectively be a special region with its own rules and regulations.
The focus of Skolkovo will be on information technology, biomedics, energy, space exploration and nuclear industries. Among the major companies that have already decided to set up research and development centres there are IBM, Intel, Nokia, General Electric, Ericsson and the finnish-german joint venture Nokia Siemens Networks.
Will Skolkovo work? Lenihan is convinced it will, and sees major opportunities for Irish companies that wish to scale up from domestic to international operations.
He is impressed by the dedication of Vekselberg, who spends 70 per cent of his time on Skolkovo, and by the quality of personnel on the board, which includes American executive Craig Barrett, former Finnish prime minister Esko Aho, Eric Schmidt of Google, Peter Loescher of Siemens and John Chambers of Cisco.
Suggestions that the new presidency of Vladimir Putin may not be as enthusiastic about the venture are also rebutted by Lenihan, who points out that Mr Putin has already said this is a shared government initiative and that the chief leading Kremlin figures Vladislav Surkov and Arkady Dvorkovich, as well as nine government ministers, are members of the board of trustees.
There are, however, those who are less optimistic. Inevitable comparisons arise between Skolkovo and Silicon Valley in California, with the latter having grown from private enterprise rather than being imposed from above by the state as in Skolkovo’s case.
Russia’s blogosphere is full of claims, some more soundly based than others, that Skolkovo is simply a white elephant, and that the corruption pervading almost every aspect of Russian life will eventually invade this enclave of proposed stability and academic and business excellence.
In an article for the website Open Democracy, Andrei Kolesnikov, a columnist with the opposition Novaya Gazeta newspaper, is critical of what he describes as a “ghetto” which will rely strongly on foreign investment instead of on domestic innovation. He compares the project to efforts by a series of Russian leaders, to buy ideas from the West rather than creating an indigenous innovative culture.
Vekselberg sees the western component in Skolkovo as a strength, rather than a weakness. Russia, he says, is on the verge of great economic and political change, not because of the massive demonstrations that have been taking place in Moscow since the disputed parliamentary elections last December, but because the political leadership has chosen to take a course towards modernisation and innovative development.
Skolkovo, he told a British audience last month, offers foreign business a unique investment environment: “The absence of political risk and tax, customs and other benefits, as well as support from the Russian state, which should remove the traditional fears of investors of the ‘unpredictable Russian reality’.”
Skolkovo may have the backing of the state, but in today’s Russia – as in the rest of today’s world – its success or failure will depend on how it is perceived internationally.
