IT Needs More than Spare Change

The Moscow Times, 26.05.05

By Bill Robinson

Russia has a once-in-a-lifetime opportunity in information technology, if it does not shoot itself in the foot.

Just look at what India has accomplished. It has become the world's software, IT and
business process outsourcing leader. Virtually overnight, it has taken the majority of what analyst Datamonitor recently predicted will be a $163 billion marketplace globally -- and that's just IT outsourcing. In software exports alone, India sold $12.8 billion in 2003-2004, and this sector employed more than 770,000 people. And India does not even have the world's best programming minds.

Russia does.

IT and Telecommunications Minister Leonid Reiman has been trumpeting this fact for several years now. On April 4, just before his speech at the Russian Economic Forum in London, Reiman said, "Our vision is for Russia to become a global center of innovation and entrepreneurship, a place where radically new, breakthrough technologies are developed. We want Russia to be a place where the next big thing is born."

Reiman has been exhorting President Vladimir Putin to borrow a page from the other countries that invest heavily and successfully in their own economic development in certain sectors, and particularly to borrow a page from India, where government officials made high-profile visit earlier this year. And Reiman has not been without success.

Yet to accomplish what Reiman is proposing, Russia needs to get over its arrogant and distracting fascination with natural resources and move boldly into the IT future, using its
oil windfall revenues as funding levers. These resources are finite. Though it may take 100
years, they will run out. Even the Norwegians, who were giddy at first with the oil money bestowed upon them, are using their very finite oil reserves to finance all manner of internal economic development investments.

Putin seems to have gotten Reiman's message and has been moving in the right direction recently. "We all know that diversification of the economy is one of the priority tasks," Putin stated at a January government meeting dedicated to promoting IT and manufacturing in Akademgorodok, a scientific center near the Siberian city of Novosibirsk. "The need to do away with too much dependence of our economy on raw materials is obvious. Unfortunately, not much has been done to implement this task," he said, Itar-Tass reported.

This is blisteringly obvious. For instance, if the city of Singapore's economic development board has more than 700 people around the world promoting their city-state of 3 million people, it seems a bit bizarre that 140 million-strong Russia has precisely zero people doing the same thing.

Yet Putin is also on top of this problem. A new initiative, propelled forward by Reiman, would set up technology parks in as many as 10 special economic zones, slated to become "fully fledged market projects" by 2010, with tax breaks and reduced customs duties on imported equipment for high-tech companies.

This is a good start -- but not enough.

Reiman earmarked 18 billion rubles ($644 million) in government money over the next five years for strengthening the Russian IT sector and helping it advance on the world stage. Again, good but not good enough.

Roughly equivalent to the annual Russian government funding of the entire Russian Academy of Sciences, it would be delusional to think that this would be enough financial support to turn Russia into "one of the world's top 10 countries in IT by 2010," as Reiman suggested. This amount is also roughly equivalent to the annual budget for the University of California at Davis, one of the smaller campuses in the large University of California system. So, Russia's entire financial commitment to the IT sector equates to the money available for one small university campus in the United States? Better $644 million than nothing, however.

Thus, Reiman and Putin are on the right track, but they need to do even more, to spend even more and direct even more of Russia's big thinkers to the campaign for Russian technological advancement and eventual domination. They should bring in successful Russian IT businessmen -- like inventor and entrepreneur Alexander Galitsky, computer and software magnate Anatoly Karachinsky, talented entrepreneur Valentin Makarov and business genius Roustam Tariko -- to consult. They should listen to them closely and implement their ideas widely.

But while Reiman and his ideas may be right, what about the complicated corruption charges and complex conflict of interest claims regarding the minister and MegaFon? For more than 70 years, Soviet governance was untrustworthy and dishonest, and it seems counterproductive at this point to hold a government in its infancy to difficult, near impossible standards. The suggestion of impropriety, conflicts of interest or even outright corruption should be overlooked, as long as the right things are being done to exercise Russian technological muscle. This tradeoff would reflect and continue the typical Russian attitude toward their politicians' malfeasance. Eventually, corruption and shady dealings should end, and Russia like other nations should come to expect at minimum that the "appearance" of propriety be shown.

For now, while the country's economy needs pruning, direction and vision to develop its strengths, a little of this old, omnipresent duplicity should be tolerated, particularly given the casual way it has been disregarded in the past. Yet regardless of what is going on behind the scenes, the government must stop sending negative messages to Western investors in the form of crusades against oligarchs, entrepreneurs and the general business community. It must stop seizing assets and inflicting questionable tax burdens. The idea that foreign investment will be met with legal difficulties in enforcing contracts,
mismanagement by Russian staff, or even worse, outright theft or loss of that investment money, will make Russia a pariah in the worldwide business community -- if it isn't already.

The business and investment world is watching anxiously as the Putin government alternates between saying there will be no more Yukos affairs and then turning around and behaving in a totally anti-business, anti-capitalist way by socking companies like BP with questionable tax bills, even after the company injected more than $6.9 billion into the Russian economy.

Reiman and Putin should be held accountable for what they do and what they don't do to encourage investment. Right now, from a purely technology and economic development perspective, they are moving in the right general direction. The time is right to pick up the pace and start marching double-time.

The Russian government could still shoot itself in the foot if it allows corruption to increase and infect the technology and telecoms sector, or if it presents an increasingly worrisome anti-capitalist face to the outside world.

Or if it refuses to set aside enough cold, hard cash to feed the IT system, of course.