Russian President Dmitry Medvedev's visit to Silicon Valley this week to meet with technology leaders is part of a larger strategy for the US and Russia to improve business ties as the two countries try to “reset” relations with the incoming Obama administration.
“This is the first highly visible, concrete evidence that there are major changes taking place in attitudes toward one another on the commercial side,” says David Kemme, an author and international economist at the University of Memphis.
President Medvedev is scheduled to meet with California Gov. Arnold Schwarzenegger in San Francisco, tour Silicon Valley – including a meeting with Google CEO Eric Schmidt – and give a speech at Stanford University on Wednesday.
Dr. Kemme says the US and Russia have made progress on the political front with the US’s indefinite postponement of antiballistic missiles in Eastern Europe and agreements to increase cooperation in Afghanistan. Trade between the two countries consists mostly of raw materials – oil, aluminum, titanium, and fertilizers – amounting to $18.4 billion. That makes the US Russia’s eighth-largest trading partner.
Part of Medvedev’s interest in touring Silicon Valley lies in talking with entrepreneurs there about launching a Russian version of the high-tech hub – to be called Skolkovo – outside Moscow.
"Russia recognizes that it cannot rely on a resource-based economy forever, and has a strong scientific and intellectual history upon which to build an innovation-driven economy,” says David Wack, a Russia-based lawyer with Squire, Sanders & Dempsey L.L.P. He says that Russia escaped the financial collapse and ensuing rebound of commodity prices, with steady finances, low external public debt, and high currency reserves.
“Russia is looking to deploy these in a manner that will drive future growth, and the current president is quite serious about this,” says Mr. Wack.
He notes that there have been previous attempts to lure US venture capital funds into the Russian market, including the government-sponsored Russia Venture Company, which was modeled after Israeli incubator funds, and which attracted interest from a few US fund managers. Now, the Russian government appears to be much more serious and is offering incentives such as eliminating capital gains tax and relaxing visa rules to make this work.
"That said, Russia will have to create regulatory bodies and make much deeper reforms to the judiciary in order to create a suitably attractive environment for many venture capital investors," says Wack.
American businesses have been eager to expand into Russia’s giant market, and will be watching Medvedev’s visit for signals that ideas have moved beyond the realm of natural resources, says Kemme.
Russian Economy Minister Elvira Nabiullina told a June 17 St. Petersburg forum that the country is “interested in accelerating investment cooperation," and in "attracting US direct investment for modernizing and diversifying our economy,” but some analysts say there are many hurdles to that.
“Silicon Valley grew quite organically from the Stanford/Berkeley, tech company, and startup ecosystem, and it’s hard to imagine it succeeding as a planned center,” says Hilary Stockton, CEO of a travel-planning startup company TravelSort.