Medvedev to tour Silicon Valley, seek investors

June 22, 2010 Two years into his presidency, the 44-year-old tech-savvy Kremlin chief still lives in the shadow of his predecessor Prime Minister Vladimir Putin, but that hasn't stopped him from strenuously pursuing pet projects, the most grandiose of which is the creation of Russia's own Silicon Valley outside Moscow.

But to succeed, Medvedev knows he needs to attract some of the best minds and investors in the United States.

"The future of our country, and its competitiveness on international markets, to a large degree depends upon the results of cooperating with foreign companies and universities," the Russian president told an international business forum in St. Petersburg last week.

While in California, Medvedev will meet Gov. Arnold Schwarzenegger and Google CEO Eric Schmidt, and will give a speech at Stanford University. He will then fly to Washington to meet President Barack Obama, and from there the two will go to Toronto for the G-8 and G-20 summits.

But it is the front leg of the trip that has deep personal significance for Medvedev, who wants to refashion Russia from a raw materials supplier into a high-tech, intellectual oasis where innovation thrives.

Since the Soviet Union dissolved nearly two decades ago, thousands of Russia's brightest minds emigrated to work in scientific centers in the U.S., Britain and Israel. Now Russia's leadership wants to entice them back and to keep young brains at home. To accomplish that, in February the government floated the idea of an "innograd" - or innovation city - that would house high-tech start-ups.

In four months the Kremlin has lavished the project with budget allocations of hundreds of millions of dollars, attracted entrepreneurs and scientists, and last week in St. Petersburg secured a promise from Silicon Valley's own Cisco Systems Inc. to participate in the ambitious venture.

While touring Silicon Valley, Medvedev hopes to persuade U.S. corporations and venture capitalists to take part in Skolkovo, the suburban Moscow town where the "innograd" will be based.

However, despite numerous tax breaks - companies are expected to enjoy an unprecedented 10-year grace period - potential investors are likely to share the same concerns as many Russian businessmen: that Skolkovo will be nothing more than a huge real estate project.

"I'm sure they will build everything that's needed, but I doubt there will be any innovations or ideas there because the government glosses over the details," said Yaroslav Petrichkovsky, director of Elvees, a microchip producer and safety systems designer. "Like in other cases, they decided everything by themselves."

Skolkovo is the brainchild of Vladislav Surkov, often described as the Kremlin's chief ideologist. Viktor Vekselberg, chief executive of the Russian-British oil venture TNK-BP, is heading the project's supervisory council, while the scientific council will be chaired by Nobel Prize-winning physicist Zhores Alferov and Roger Kornberg, a U.S. biochemist and 2006 Nobel winner.

The promise of immense state investments - $500 million alone has been budgeted next year - and unprecedented tax benefits have prompted many to dub Skolkovo an enormous waste, considering that special tax zones in Russia have often been a magnet for murky capital while producing little value.

"There is 90 percent certainty that it will become such a black hole," said Igor Nikolayev, strategic analysis director at FBK, a Moscow-based audit, consulting and research firm.

High-tech businesses have long asked for financing for research and tax breaks, but they have tended to encounter risk-adverse bureaucrats wary of venture capital, and failure.

"They don't want to be associated with particular projects because they can fail," Petrichkovich said. "This is the way bureaucratic governance works - they are all goalkeepers whose chief aim is to make sure they don't get a ball in their net. But we need strikers who will take risks."

Analysts warn that without genuine reform of Russia's tremendous state machine, a mega-project like Skolkovo will be doomed before it ever gets off the ground.

"The innograd in Skolkov is like plastic surgery performed on a person as a cure against some chronic illness," Nikolayev said. "Russia badly needs genuine administrative reform before it embarks on any big business project."