Page 41 - bne IntelliNews monthly magazine October 2024

bne October 2024 Cover story I 41
boss and said: “Jim, this is nothing like before. These guys are ahead of us.”
The US has tried to protect its technological lead with the Inflation Reduction Act and the CHIPS laws
that effectively outlaws the export of advanced technology to China. The measure badly backfired. US export controls on technology exports to China have instead hurt US technology companies, and effectively catalysed a consolidation amongst Chinese tech companies that boosted innovation and competitiveness in China’s technology sector, according to a report from the Federal Reserve Bank of New York. And China has gone from a net importer
of US technology, to a net exporter of technology, according to the report.
Russia's progress in technology is
much more mixed, but it basically remains stuck in second gear. There
are flashes of brilliance like the rapid development and roll-out of the Sputnik V vaccine in 2020, the first and one of the most effective vaccines against the coronavirus that came as a complete surprise to observers.
In a follow-up, Russia says it has developed a promising vaccine against mpox at the end of August, which could potentially provide lifelong immunity against the disease. It also produces state-of-the-art military hardware and has rapidly innovated and produced new high-tech drones and electronic warfare (EW) capabilities over the
last two years, overtaking Ukraine’s early lead. And Russia’s nuclear power technology is world class.
But in other sectors is badly behind.
As bne IntelliNews reported, it is at least two generations behind the West in the production of precision tools, with little chance of being to catch up any time soon. While the US leads the world on microchips with a well-established 7 nanometre microchip and is chasing
a 4nm chip, followed by China that recently commercially produced a 7mn chip, Russia is stuck at the level of a 90nm chip – a brick by comparison. However, the Kremlin is throwing itself at innovation and pouring investment
into other directions where it has some prowess, such as software and cyber technology, as part of its National Projects 2.1 programme.
The Kremlin is well aware the current strong growth is temporary so it has finally launched a campaign to modernise the economy both at the public and private levels as well as build up the military industrial complex. Putin told the heads of Russia’s six military districts in May that the country needs to focus on both guns and butter when formulating its long-term economic development plans, enshrined in the updated National Projects 2.1 programme.
Russian companies have also been investing heavily in retooling their production lines to deal with the realities of sanctions. Investments in fixed capital in Russia moved up by 14.5% y/y in the first quarter of 2024, RosStat reported, to RUB5.93 trillion ($66.2bn) over the reported period. Fixed capital investments as of 2023 year-end gained 9.8% y/y and amounted to more than RUB34.04 trillion ($379.6bn). Like the US tech sanctions on China, the Western sanctions on Russia have spurred a period of investment
and consolidation that has improved
the productive health of the economy. Ironically, the flood of spending and investment has also undone some of the country’s legendary income inequality as Russia's poorest regions have been the biggest winners from the changes.
Draghi’s solution
The outlook for Europe to retain its competitiveness looks bleak but the Draghi report holds out some hope if drastic action is undertaken. The report identifies three main areas for action to reignite sustainable growth.
•Close the Innovation Gap with
the US and China: Europe lacks dynamic new companies and invests significantly less in research and innovation than the US, particularly in advanced technologies. The focus needs to shift from mature industries like automotive to emerging sectors, and regulations must be improved to facilitate the commercialisation of innovations.
•Coordinate Decarbonisation with Competitiveness: High energy
costs in Europe threaten industrial competitiveness. The EU leads in clean tech, but without a cohesive strategy to manage energy prices and align decarbonisation with growth, Europe risks falling behind, particularly with increasing competition from China.
•Enhance Security and Reduce Strategic Dependencies: Europe’s reliance on external suppliers, especially for critical raw materials from China, poses risks to its security. A stronger EU foreign economic policy, including trade agreements, stockpiling and industrial partnerships, is needed, along with better coordination within the fragmented European defence industry.
And all this comes with a hefty bill: Draghi proposes a €800bn a year industrial makeover – more money than was spent on rebuilding Europe after WWII. He also warns there are several impediments to overcome before the plan will work.
“First, Europe is lacking focus. We articulate common objectives, but
we do not back them by setting clear priorities or following up with joined-up policy actions,” Draghi says, adding that overregulation and fragmentation are a major headache.
“Second, Europe is wasting its common resources. We have large collective spending power, but we dilute it across multiple different national and EU instruments,” Dhragi went on. “Third, Europe does not coordinate where it matters. Industrial strategies today –
as seen in the US and China – combine multiple policies, ranging from
fiscal policies to encourage domestic production, to trade policies to penalise anti-competitive behaviour, to foreign economic policies to secure supply chains. In the EU context, linking policies in this way requires a high degree of coordination between national and EU efforts. But owing to its slow and disaggregated policymaking process, the EU is less able to produce such
a response,” adding it typically takes Europe 19 months to agree a new law.
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