Page 54 - bne_Magazine_July_2017

54 Opinion
bne July 2017
also featured a panel on blockchain implementation, moder- ated by Sergei Gorkov, head of Vnesheconombank (VEB), that included the participation of ministers and foreign business representatives alike.
But how realistic are the hopes of a robust digital economy in Russia? Could IT prove a much-needed economic shot in the arm?
The Russian government’s plan to date is embodied in a draft programme entitled “Tsifrovaya Ekonomika” – the digital economy. For now it remains vague, encompassing a plethora of sectors and concepts including state management, IT infra- structure, R&D, personnel, education, information security, public policy, “smart cities,” and digital insurance.
Putin himself unfortunately did not offer much clarity in his discussion of the topic at SPIEF: “The digital economy is not
a separate sector per se, but a framework that will allow the formation of quantitative models for business, trade, logistics, production, will change the format of education, healthcare, public policy, communication between people, and in turn, will create a new paradigm for the development of the state, economy, and society as a whole.”
Vagaries like the above aside, top officials are genuinely interested in the plan, evidenced by the presence of Arkadiy Dvorkovich and Andrei Belousov – influential officials with the political gravity to deliver on plans – at a meeting on the topic on May 30th.
Local experts have little illusion about the plan’s lack of focus: in late May they heavily criticized the plan, calling for it to be “systematically reworked”. Why? For one, they noted that the plan appears at present more a collection of highlights from a number of state strategic initiatives. A presentation from the Russian government’s policy think tank lists digital economy plans in no fewer than three projections, seven road maps, four strategies, and two concepts. A local joke that strategic planning, much like baseball to America, is Russia’s national pastime, seems apt.
The experts also complained that the plan lacks both a
means of measuring progress on the development of a digital economy (much like Putin’s infamous May Decrees), as well as a baseline measure of where it stands today. While many of Russia’s strategic plans have failed to take root in reality, this one seems deficient on paper, too.
Russia’s technical know-how is undoubtedly a strength as
it seeks to build a digital economy. The IMD World Digital Competitiveness Ranking for 2017 places Russia 42nd in over- all performance – but an impressive 24th in the knowledge category. The country retains competitive technical education capacity – one of several beneficial Soviet holdovers – and Rus- sians have grown both famous and perhaps infamous as well lately for their technological and computer abilities.
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This is visible in the case of Buterin, but even better in the case of Pavel Durov, developer of social network vkontakte and the popular messenger app Telegram. Keeping this talent at home is another matter (Buterin resides in Singapore and Durov fled Russia several years ago), but Russia still has the brainpower to deliver growth in the tech sector and economy overall.
Worth noting as well is that there is significant marginal gain to be had from the implementation of technologies such as blockchain and crypto currencies in Russia. Why? Russia has issues with corruption, particularly in state procurement, limited trust in the rule of law, an oversized state burden on business. Blockchain, which in short involves the decentral- ised recording of transactions, would be hugely beneficial
“Russian authorities have held
a sceptical view towards new technologies, tending to view them through a security lens”
to market regulators looking to eliminate corruption and embezzlement by cutting out the seemingly ubiquitous middle men – posredniki – involved in state procurement. The imple- mentation of such technology seems quite feasible as authori- ties forge ahead on an electronic procurement system.
For a sense of the potential savings, last year Deloitte found that Russia’s state railroad monopoly could save some $2.2bn. In the private sector, firms and individuals that trust neither each other nor courts may be more eager to do business know- ing essentially ‘un-fudgeable,’ common records exist – trust,
in essence, is rendered obsolete. And for business owners, the implementation of better state IT systems means relief from a large administrative burden: some 172 separate forms of docu- mentation for individual entrepreneurs by one count.
However grand in its scope, the Kremlin’s plans to turn the
IT sector into an engine of growth face what is in essence a chicken-and-egg problem. A report on the local venture capi- tal market by the Russian Venture Capital Association (RVCA) found that while interest in IT among venture capital investors remains high, investments in terms of overall volume fell by 85% versus 2015, reaching only $128mn. An earlier report by AT Kearney and VimpelCom found investment in local start- ups beginning to flag in 2014.
Authorities, in short, are waiting for the digital economy to boost overall growth rates, while at the same time, the digital economy is waiting for overall growth rates to boost invest- ment. One of those has to happen first, and it may fall on the state to provide that impetus with private investors still skit- tish on Russia’s real economy.