Kremlin seeks to monetise the field of science

Print 17 October 2013
Isabel Gorst, Financial Times

Change is coming to the 289-year-old Russian Academy of Sciences. Once famous for work that won it 18 Nobel Prizes and helped put the first man in space, the Academy has failed to keep up with the times.

A law rushed through last month transferred control of the independent RAS and its real estate portfolio to a government agency. Many academicians protest that the law is no more than a state land grab, but even they admit that reforms are overdue.

Since the Soviet Union’s demise in 1991, many of its best scientists have taken better paid jobs abroad. Those who remain have struggled to adapt to the new economic order, where brilliant ideas are valued only if they translate into profitable ventures.

“Russian scientists need to learn how to commercialise their inventions,” says Leonid Melamed, a former scientist and chairman of Team Drive, a management company focused on pharmaceuticals. “It’s the missing link in Russia’s drive to innovate.”

The country faces a huge challenge to modernise its $1.9tn economy and reduce dependence on oil and gas resources that, although substantial, will not sustain long-term growth.

The Kremlin has launched a series of high-profile initiatives including Rusnano, the state nanotechnology company, and Skolkovo, a technology park on the outskirts of Moscow.

Founded in 2007, Rusnano aims to develop nanotechnology and high technology in Russia. Led by Anatoly Chubais, architect of Russia’s mass privatisation programme in the 1990s, the company has committed Rbs161.3bn ($5bn) to microelectronics, healthcare, energy and machine building among others. Priority is given to projects that transfer technology to Russia and boost research and development, says Sergey Filippov, its spokesman.

One of its biggest endeavours is a $760m joint investment with Domain Associates, a US venture capital company that specialises in medical technologies. Launched in 2012, the partnership buys equity stakes in US life science companies that pledge to conduct trials

in Russia and transfer intellectual property rights for medicines they develop. Mr Melamed, whose Team Drive is involved in the partnership, says the rate of return on innovative pharmaceuticals is high, thanks to strong demand in Russia.

Government tax incentives and other privileges have persuaded foreign auto, agricultural vehicle and shipping groups to establish manufacturing bases.

Responding to a health ministry pledge to buy locally made medicines, pharmaceutical companies including Novartis and Sanofi-Aventis are building plants and R&D facilities.

Skolkovo shares the same goal as Rusnano of spurring Russian innovation, but instead of equity investments it provides grants to start-ups involved in information technology, biomedicine, nuclear technologies, energy saving and space.

The idea is to build bridges between science and innovative enterprises by bringing together inventions, research and development, venture capital, and business education.

Thanks to state incentives, Cisco and Siemens are among those that have committed to establish R&D operations at the techno-park.

Ideally, Skolkovo officials say, the Russian Academy of Sciences should collaborate in R&D programs, but contacts have so far been minimal.

In an effort to attract private investment and comply with World Trade Organisation rules, Russia has adopted internationally compliant intellectual property legislation and founded an IP court to rule in patent disputes.

The next step should be the removal of restrictions preventing universities from licensing IP that are slowing commercialisation, says Vitaliy Kastalskiy, the general director of the IP centre at the Skolkovo Foundation.

Although there have been some successful innovation projects, overall progress in diversifying the economy has not been impressive. The proportion of Russian exports made up by oil and gas, 70 per cent at present, has increased since the mid-1990s, according to the European Bank for Reconstruction and Development’s 2012 “Diversify Russia” report.

The state’s overwhelming presence means sectors linked to the military and oil and gas get priority, while smaller private enterprises that would be leaders in a more developed economy, struggle.

Thus Roscosmos, the federal space agency, has received state funding to develop the Glonass navigation satellite constellation and remote earth-sensing space craft as well as provide shuttle services to the International Space Station.

Plans include missions to Mars as well as lunar orbit research satellites.

However, setbacks in recent years including failed rocket launches have raised questions about the management of the space programme.

Ultimately, the speed of Russian innovation will depend on how fast private money flows into high-tech industries, says Mr Melamed.

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