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City of the future: the trials and tribulations of Russia’s Silicon Valley

City of the future: the trials and tribulations of Russia's Silicon Valley

Skolkovo Tech City is meant to help wean the Russian economy off its dependence on oil and gas. But three years into the project and it has already fallen victim to allegations of corruption

8 July 2013
Text Elena Pakhomova

When Skolkovo Innovation Centre was launched in 2010, it was pitched as Russia’s answer to Silicon Valley. With close to $3bn of state investment and a roster of global partners that included the likes of MIT, Siemens, IBM, Intel, Microsoft and Cisco, Skolkovo — it was hoped — would propel Russia into the technology age and help diversify an economy dependent on oil and gas. Three years later and the high-tech hub on the outskirts of Moscow is still a major construction site. Worse still, it has become mired in a corruption scandal that threatens to derail the venture.

Conor Lenihan, Skolkovo’s president for external economic relations, is quick to defend the centre, especially the sluggish rate of construction. “Innovation isn’t built out of bricks and mortar,” he says. The former Irish minister of state for science, technology and innovation swapped his native homeland for Moscow in 2011, and is now responsible for building partnerships between Skolkovo and foreign investors. As a measure of its success, Lenihan points out that 25% of all patents registered in Russia last year — 44,211 in total — originated in Skolkovo. “These very significant statistics show that this core project is already a success before the actual buildings have been put in place,” he says.

Skolkovo, a pet project of Prime Minister Dmitry Medvedev before he stepped down as president in 2012, comprises five “clusters”, each specialising in a different area: IT, energy, nuclear technologies, biomedicine and space technologies. Roughly 50 companies currently reside in the complex with hundreds of start-ups expected to move in by the end of the year. Since launching, numerous laws have been amended to encourage investment, most notably, tax breaks for tentants. According to management, in 2012, resident companies earned 400 million roubles (£8m) in total; the forecast for this year is set to be two-and-a-half times that.

One resident, RosAeroSystems, a manufacturer of airships and aerostats, is certainly happy. Its hybrid cargo-and-passenger airship design, Atlant, was developed in the village and according to director Georgy Yuzbashiyants, it is thanks to Skolkovo that the company has succeeded in attracting interest from US investors. “We were selected by independent experts, so the process of selection was 100% transparent,” he says. “We are absolutely content with it. We have tax relief for ten years and we get all the connections we need. Besides, if the government stands behind any new project in Russia, that’s a positive sign.”

“The whole project is burdened by red tape ... It just kills any initiative”

Skolkovo Foundation, which runs the technopark and is headed by Russian oligarch Viktor Vekselberg, has already signed deals with a long list of prestigious organisations. One such agreement is with Massachusetts Institute of Technology for the development of the Skolkovo Institute of Science and Technology or Skoltech. Due to open in 2014, the alliance has already prompted companies such as Cisco to invest in the knowledge that the institute will soon be pumping out top research talent. This is a major draw for foreign investors, says Lenihan: “They know the strength of Russian talent and that’s the primary reason they’re coming.”

Despite the impressive statistics and high-profile names, a visit to Skolkovo tells a rather different story. The complex is little more than a construction site that seems light years away from transforming Russia’s tech industry into a global player. Writing in the London Review of Books in May, journalist Peter Pomerantsev noted after a trip to Skolkovo that “virtually nothing has been built.” He added that the Hypercube, the much-vaunted building designed by celebrated Moscow architect Boris Bernaskoni “turned out to be a very modest modernist little thing looking lost in an empty field”. The technohub is indisputably a far cry from the vision dreamed up by the architects of Skolkovo: a 400-hectare city with a permanent population of 21,000 and thousands more daily commuters. Serving as a prototype for the future, it would not only contain office buildings, laboratories, fitness centres and stores but also be sustainably developed and energy-efficient.

Architectural firm AREP’s impressions of Skolkovo city

Experts are divided on the slow space of development. Imogen Wade from UCL’s School of Slavonic and East European Studies remains optimistic. “We should remember that it will take time — many years — for Skolkovo to develop and to become a catalyst for innovation development across the rest of Russia,” she says. Professor Tatiana Abankina of the Higher School of Economics in Moscow is more sceptical: “It’s been a relatively long period of time but still we see no results.”

For Abankina, Russia is not ready for a large-scale project that involves so many high-profile international partnerships. Russian laws, she argues, are not sufficient. “The whole project is burdened by red tape,” she says. “But look at the experience of any country and you will see that there is no worse environment for creative and innovative economy than bureaucracy. It just kills any initiative.” Even though Skolkovo offers residents special economic incentives, “one cannot build communism in one isolated village,” she says, adding, “They cannot create an offshore zone in the capital. So I see no reason to go and work in Skolkovo right now.” Russia’s global reputation for business backs this up. According to the World Bank’s annual ease of doing business report, as of 2013, Russia ranks 112 out of 185 economies.

“We don’t have a Steve Jobs, we want to change that”

A police raid of Skolkovo Foundation’s headquarters in April gave credence to the view that doing business in Russia is riddled with risks. The raid, part of an investigation into the alleged embezzlement of $750,000 of state funds, led to a criminal case against Alexei Beltyukov, the then-vice president of the foundation. The money had allegedly been used to pay Ilya Ponomarev, a State Duma MP and member of opposition party A Just Russia, to deliver ten lectures and one research paper. The revelation prompted Vekselberg, the foundation’s head, to launch a lawsuit against Ponomarev to recoup the cash.

Amid the scandal, Vladislav Surkov, one of Russia’s most prominent politicians and one-time Kremlin insider, left his post as deputy prime minister — whether he jumped or was pushed is still a matter of debate. Surkov, who held a seat on the board of the Skolkovo Foundation before departing from his cabinet post, had long championed innovation as a strong alternative to the “paradigm of being a militarised, raw materials-based country”. Speaking at the London School of Economics just weeks before his departure from government, he criticised the investigation into Skolkovo. “We don’t have a Steve Jobs, we want to change that,” he said. “We need successful people who make their fortune creating an innovative product. First results from the Skolkovo project should be expected in ten to 15 years. I am convinced it will deliver results.”

Design for the Skoltech campus by Herzog & Meuron

Andrei Fursenko, the former minister of education and current presidential aide, replaced Surkov shortly after his departure from the Skolkovo board. Was this a clear sign of the Kremlin’s intentions regarding Skolkovo? Experts, both Russian and western, are reluctant to publicly discuss the situation. One prominent Russian economist declined to comment, saying only that Skolkovo had become “merely a political story that has nothing to do with the economy”. Others are not convinced by this line of thought. “We feel that the project itself is not in jeopardy,” says Professor Slavo Radošević from UCL’s School of Slavonic and East European Studies. “It is true that the most recent corruption scandals show how Skolkovo has been used in Russian internal power battles, however, hopefully it will stay at the margins of such power struggles.”

According to Lenihan, the events of the past few months have not swayed investor interest in the project. While political stability for investors is key, he argues that Russia, especially Skolkovo, is a safe bet. He points to state involvement in the project as a guarantee to investors. “Dealing with potential investors, we have to answer typical questions about Russia,” he says. “What has damaged Russia’s image in the last 20 years is the perception that your business can suddenly be removed by an adverse decision by the state, or indeed a raid, or a tax, and done in a way that is hostile to your business. But it is more a perception now than a reality. Skolkovo is a flagship government project, and this gives a feeling of security and stability.”

“The queue to join Skolkovo is a myth”

Although it has been branded a Russian Silicon Valley, Skolkovo, a state-controlled initiative from the outset, is in many ways at odds with the San Francisco prototype — an ecosystem of start-ups that was created from the bottom up. Still, the technopark is keen to follow in the footsteps of its successful counterpart by organising events such as the Skolkovo Startup Village, a conference for entrepreneurs and innovators. Yet when I attend in May, the mood is subdued. Bright images of the still nonexistent high-tech city adorn the lawn; participants complain about the lack of information available and are sceptical about the gathering, which seems geared at reporting Skolkovo’s three-year results and whipping up a general feeling of optimism.

One participant, Sergei, who gives only his first name, is there to find out how business is conducted at Skolkovo. He says he is doubtful about the number of companies looking to get on board. “What stability is there? Any effort of any company in this country can be ruined by the will of the president or any lobbying group close to the Kremlin,” says Sergei, who has worked at a number of major international companies, including Philips. “Russia still depends on the prices. Besides, local government can’t provide really appealing conditions for foreign manufacturers in Skolkovo, as it is often cheaper for them to set up research and development centres in India than in Russia. The queue to join Skolkovo is a myth.”

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