10 threatsfor innovations in Russia

Ilya PonomarevState Duma – Russia Parliament

St. Petersburg, October 1st, 2009 г.

10. Inconvenient legislation Incompatible with usual approach legal acts:

VC regulations No LLP form VC funds in Russia are regulated as mutual

funds Corporate legislation Technology transfer act

Acts where bad wording leaves room for unfavorable misinterpretation Software VAT exemption act Privacy protection act

Legislation that requires amendments in new economy environment Civil Code

Internet crime liability definition IP rights protection

State procurement act Bankruptcy regulations e-Payment systems Miscellaneous industry-specific acts (telecom,

advertisement, mass-media, …)

9. Corruption

Inequality between large corporations and start-ups when dealing with state agencies Getting approvals Response time Police abuse Access to contracts

Widening gap between society and the government makes civil agreements invalid

8. International competition

Low productivity in Russian economy drives up costs even for effective businesses Higher wages decrease

competitiveness Brain drain Russian authorities do not

help national producers to compete internationally No offset deals No technology brokers (or

export support agencies)

7. Bad Russia’s image

Russia is not associated with quality products, even less with technology intensive products

Russia is perceived as an unreliable and unpredictable partner

Civil society and democratic institutions crisis, decreased trust in national leadership scares investors

6. Infrastructure

Lack and expensiveness of modern business infrastructure Office premises Telecom Financial instruments

Debt financing is expensive and hard to negotiate

Excessive concentration of business activity in Moscow, colonial policies towards other regions

Low quality of life Housing and utilities deterioration Soviet education system collapse Urban planning traditions of the past

outlived themselves

5. Inadequate institutions

No unified management of economy modernization at the executive level

Poor investments environment No traditional exits

No technology IPOs No strategic investors

VC funding is undeveloped State institutions (Rusnano, RVC)

cannot replace working market Gap between universities, R&D

and businesses State funding has not reached the

point of influencing or just supporting innovation businesses

4. Resistance of the elites

Russian elites do not have long-term plans in Russia They tend to diversify outside

Russia They want to live in Western

consumer society, but get their easy dollars in Russian regions

Personal wealth is fully dependent on natural resources

Any type of social innovation threatens stability of existing “sovereign” political and governing system

3. Business climate

Outrageous court and police system

Unsecure situation with private property protection Investing in Russian assets

looks risky Customs Tax collectors either do not

know specifics of hi-tech businesses, or consciously abuse innovators

Extremely long time to get required decisions and approvals from any state agency

2. Structure of Russian economy At the current economy conditions

hi-tech businesses present higher risks with at least uncertain return, compared to natural resources and other “traditional” enterprises

Chosen way to privatize created large “cash cow” corporations with low debt and virtually unlimited resources, creating unfair competition with any new companies and demotivating managers to improve productivity

Tax code favors industries with higher revenues and lower added value

Limited demand for Russian-made technologies

1. Deficit of human resources

No entrepreneurs, even less – serial experienced entrepreneurs

No success stories to follow No adequate business

schools No professors with first-hand

experience Lack of international business

experience and proper connections Language barrier

Demographic crisis

…But we are still the smartest,

so we’d definitely make it!

…But we are still the smartest,

so we’d definitely make it!