Russia:  IT Financing

During the Soviet Era, the government spent a huge portion of their income to finance the research and development for technological advances in military might and space exploration.  Thanks to greater access to Soviet era records since 1991, budgets for the Soviet military industrial complex were estimated to be as high as 25% of GDP.  Financing for technological advancement, even when used to copy foreign technology, was never the problem.  Today, this is not the case.  With rampant tax evasion and cases of government default on loans, R & D spending has obviously been put aside for the greater necessity of holding together the country during this difficult transition.  IT investment is a luxury of the rich.  Without government sector funding or FDI in Russia, IT development has been absolutely devestated.  It is no wonder many feel Russia will be a lost cause in developing the necessary IT infrastructure to be part of the new world economy.

A typical example of the lack of financing can be shown in this example as part of the advancing wireless communications sector.  The Strategis Group, a Washington DC based wireless market research firm and consultancy, notes that there are currently about 160 licensed wireless communications entities in Russia.  However, currently only 60% are in operation.  The problem lies in the lack of domestic and foreign investment to help get these emerging marketplace companies off the ground.

As noted on the main page, IDT reports the countries of the former Soviet states have already reached EU levels of IT investment relative to size of their economy, spending 2.2-2.6 percent of GDP on IT.  Although growth rates of 4% are projected for the upcoming years, translating into greater IT investment should the spending levels remain constant, it will still fall far short of the necessary for real benefits. The majority of IT investment in the developed world has come overwhelmingly from the private sector.  The huge R&D budgets most high tech firms engage in is the true cash source for IT as the need to stay on the cutting edge is paramount in today's high-tech industries.  Russian companies received just $1-2 billion from venture capitalists, far less than most Third World countries.  (Beauprez, Aug. 2000).   Contemporaneously, FDI in Russia has fallen to trickle levels after the 1997 financial crisis and default on loans by the Russian government.  Without this private sector financing, the majority of Russian IT investment will again have to be drawn from state coffers, at least in the short run.  Ultimately, it may be a long time until the flow of FDI and VC money will create enough stimulus for the Russian IT revolution to get underway.
 
 

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