Russian Federation

Overview

Since the 1990s, the Russian economy has become more globally integrated. From 2000 to 2010, GDP per capita increased from $1,775 to $10,440, representing a 19.4 percent annual growth rate. However, Russia still lags the OECD countries in several key respects, largely due to its distinct historical and political heritage. It is dominated by a small group of large businesses that have demonstrated comparatively little interest in innovation. The education system remains strong, with a much larger percent of the total population obtaining tertiary degrees than the OECD average. Though R&D spending is above average, a very large portion is funded by government. In 2008, industry financed only 29 percent of GERD while the government accounted for 65 percent. . Russia has recently begun to implement policies to foster entrepreneurship and support small and medium-sized enterprises (SMEs). The Long-Term Socio-Economic Development of the Russian Federation CLTD 2020 aims to encourage scientific and technological breakthroughs while decreasing the country’s dependence on natural resources.

University-Industry Collaboration in R&D

Below Average

Russia's collaborative model is unique among more developed nations: Industry does not shoulder the burden of research and development, and universities are not encouraged to commercialize their products, traditionally relying on direct grants from the government for support. This has engendered a disjointed innovation system. In recognition of this, the government has attempted several initiatives aimed at fostering SMEs and start-ups. Federal Law No. 217 – FZ focuses on standardizing the creation of start-up and spin-off companies founded by federally funded scientific and education institutions, outlining the relationship between universities, research institutions, and microfinance organizations.

Venture Capital Deals

Lagging

Russia lacks a healthy venture capital market. Drags on the system include a lack of competition, low levels of trust, and high levels of corruption; attempts to change or improve this system are often frustrated by resistance from entrenched interests. In 2006, the government started the Russian Venture Company with the aim of stimulating a VC industry. The government has also encouraged the development of regional venture funds, producing 23 funds in 21 regions. However, the impact of these endeavors appears limited, funding fewer than 50 companies by 39 2009. In the GE Innovation Survey, respondents were mixed: 45 percent agreed that private investors are supportive of companies that need funding, while 40 percent disagreed.

Gross Expenditures on R&D

Above Average

While Russia's R&D spending places the country in the middle of the second quartile in our global rankings, it has shown a negative trend since the 1990s, dropping from a high of 2 percent in 1990 to a low of 1 percent in 2008. In 2008, the government financed a full 65 percent of GERD, while industry supplied only 29 percent. In the same year, business expenditures on research and development dropped to 0.7 percent of GDP, less than half the OECD average of 1.6 percent. Furthermore, from 1998 to 2008, government’s share of R&D funding in the business sector increased from 43 percent to 56 percent. Interestingly, despite government’s comparatively strong role in R&D funding, 49 percent of respondents GE Innovation Survey respondents did not feel that the government has been successful in supporting research and innovation.

High-Technology Exports

Below Average

Russia falls between the second and third quartiles in the global rankings for high-technology exports. From 2000 to 2010, high-tech goods as a percent of total exports actually decreased from 17.23 percent to 9.33 percent. However, Russia is quite strong in fields such as nuclear engineering, new materials, information and communication technologies, and defense and aerospace.

Utility Patents

Above Average

Russia lies at the bottom of the second quartile in our global ranking for the generation of utility patents. Overall, at 0.5 triadic patents per 1 million residents, Russia’s patent production is fairly low. Similarly, its 176 scientific articles per 1 million residents is comparatively low. In 2008, the government launched a new intellectual property rights system, which was mostly in line with developed countries, but enforcement of this policy is less certain. Russians were quite negative in the GE Innovation Survey: 54 percent did not feel that the current intellectual property system allows innovation and another 54 percent found the protection of copyrights and patents ineffective.

STEM Education

Above Average

In global measures of STEM education, Russia again places between the second and third quartiles. In 2008, 53 percent of the population aged 25 to 64 had university type-A degrees, well above the OECD average of 38 percent, and 25 percent of all new degrees issued were in science and engineering. While the country had the highest number of R&D workers and 451,000 researchers in 2008, this number has been decreasing at a rate of 1 percent annually since 1998. By 2008, the country had 6.4 researchers per 1,000 workers. Fifty-two percent of respondents in the GE Innovation did not feel that the government has been successful in improving education, and 56 percent did not feel that local universities and schools provide a strong education.

Business Environment

Lagging

Russia's business environment does not stack up well in global terms. Domination by large corporations has lead to a lack of competition. When combined with low levels of trust and high levels of corruption, this creates a particularly poor environment for small businesses. Furthermore, because sub-national authorities have limited fiscal autonomy, they frequently pursue their own objectives informally with large enterprises working in their territory. This also increases the barriers to entry for small firms. In order to avoid this pattern, the government has attempted to create various technoparks and special economic zones, including developments in St. Petersburg, Zelenograd, Dubna, and Tomsk. However, they have yet to enjoy real success. On the plus side, there is also buzz about the creation of Skolkovo, a project intended to partially recreate Silicon Valley. Cisco and Nokia have signaled their intention to invest, but the project is ongoing.

Conclusion

Russia has a well-educated population and a decent university system. The country maintains its historic strengths in nuclear engineering, new materials, information and communication technologies, and defense and aerospace. But its business environment needs reform. It is not conducive to entrepreneurship and ingenuity, and it has produced a poor venture capital market. In the GE Innovation Survey, 49 percent of respondents believed that the government has not successfully supported research and innovation, 52 percent stated that the government has not improved education, and 56 percent did not feel that local universities and schools provide a strong education.