Russia’s bet on knowledge ECONOMY

1. IlyaPonomarevChairman, Subcommittee on Hi-tech DevelopmentState Duma – Russia Parliament Doing Business in Russia – Innovation, Software Development Services and Sales Opportunities Workshop Boston, April 17th, 2008 Russia’s bet on knowledge ECONOMY

2. Deficit of serial entrepreneurs • No tradition • No education • Complex tax system (some 51 taxes) • IP rights: • Bureaucratic burdens for new patents • Gap between R&D institutions and business • Uneven business infrastructure • Russian business environment still separated from the rest of the world: • Lack of international investors • Incompatible legal system • Limited international expertise, language barrier • Russia’s image is associated with high risks Key problems of running hi-tech business in Russia

3. How we can distinguish hi-tech business? • What are marketing priorities: overseas markets, local companies, state institutions? • Where new businesses will be born: R&D institutions, large businesses, small business, international corporations? • Is there anything government could do: in legislation or at agencies level? Unanswered Questions

4. Benefits of doing business in russia • Wide choice of unmarketed technologies • Highly educated specialists, especially in math & CS, physics, chemistry, biology • Huge state financial resources (600+ bln. USD): • Public institutions need IT services • New infrastructure is being build (telecom, hi-tech parks, …) • Investment bodies are being created: Rosnanotech ($10 bln.), Rosinfocominvest ($100 mln.), Russian Venture Corp. ($1 bln.), … • Building new economy was declared #1 priority by acting President and President-elect

5. state initiatives on innovation support Support of major R&D centers Seed investments and R&D projects financing Hi-Tech Parks, equity investments Special Economic Zones, support of VC funds 3 1 2 4 Ministry of Science and EducationMinistry of IT & TelecomMinistry of Economy RESEARCH & DEVELOPMENTCOMMERCIALIZATIONPRODUCTION • Creation of business environment for new enterprises (start-ups, spin-offs) • Closing gap between education, science and business • Equity investments in start-ups and growing companies (Rosinfocominvest) • Tax and customs vacations in Special Economic Zones • Support of regional VC funds through Russian Venture Corp. • Support of particular projects in prioritized technological areas (like Rosnanotech for nanotechnologies) • Seed investments and R&D funding (Bortnik Fund) • Support for traditional R&D centers (Science Cities Task Force) • Multilateral R&D funding without specific objectives (Russian Fund for Fundamental Research) • Development of new technologies for possible future use (Russian Academy of Sciences)

6. Hi-tech parks task force • Initiated by President Putin in 2005 • Federal Task Force established in 2006 • Construction began in 2007 • To be completed in 2010 • $1,1 bln. of public funds • est. $7 bln. of private funds • Each hi-tech park is approx.: • 40 to 100 hectares of land • 100000-200000 sq.m of office space • 250000-350000 sq.m of resident space • plus • Production facilities • Social infrastructure • and a major education or R&D center • Project is now open for estate developers and resident companies

7. INNOVATION AXIS FROM SIBERIA TO WEST

8. HI-TECH PARKS SERVICES • Office premises • Class A-, B+ • Differential rent price • Conventional office services (call-center, reception, conference rooms, …) • Telecommunication and data services • Laboratories and production facilities • Shared equipment • Warehouses and logistics with dedicated customs office • Legal services • Patent attorney • Financial services (banks and funds) • Mortgage program for resident companies • Integration with educational institutions • Social programs • Medical insurance • Sports • Leisure centers • Security

9. DRAFTED Road map • Publicly develop and submit into the Parliament a set of laws – theInnovation Code • Self-governing bodies to acknowledge hi-tech companies • Special tax regime for hi-tech companies

10. Special tax regime for hi-tech companies • Eligible companies do not pay any taxes (incl. income, VAT, social, property), except one – revenue tax (6%) • With a social benefits vacation amendment – 3% • To become eligible, according to initial draft of the law, company should file an application for Ministry of IT and Telecom • Should be changed in favor of accredited self-governed NGOs • First reading passed during Fall 2007 • Second reading expected in Spring 2008 • Unresolved issue of VAT returns

11. DRAFTED Road map • Publicly develop and submit into the Parliament a set of laws – theInnovation Code • Self-governing bodies to acknowledge hi-tech companies • Special tax regime for hi-tech companies • IP rights reform: • Establishment of National Data Bank of Ideas and Technologies • Alternative way to secure IP rights, based on open license • Development of open-source software for state institutions, incl. national OS

12. Ip rights legislation • Attempt to create a contemporary legislation, suitable for information era: • No legacy – we can experiment • Already passed legislation is very advanced – we provide an alternative for innovators • Current IP rights legislation protects products – we focus on services • Utilize potential of an open license (GNU-like) • Set of laws: • Amendments to current IP rights law (Chapter IV of Civil Code) • Establishment of National Data Bank of Ideas and Technologies – will create secondary market of technologies and open state R&D institutions for market opportunities • Development of open-source software for state institutions, incl. national OS – will create a competitive market for software developers and put public funds to help the industry to grow

13. DRAFTED Road map • Publicly develop and submit into the Parliament a set of laws – Innovation Code • Self-governing bodies to acknowledge hi-tech companies • Special tax regime for hi-tech companies • IP rights reform: • Establishment of National Data Bank of Ideas and Technologies • Alternative way to secure IP rights, based on open license • Development of open-source software for state institutions, incl. national OS • Venture capital law

14. Venture capital legislation • Current legislation is very untraditional - VCs are recognized as mutual funds and regulated by FSFR (Russian counterpart of SEC): • Excessive reporting unsuitable for VC • Licensing required • Capital commitments are not recognized • Stock options are virtually impossible • Proposed changes: • Legalizing Limited Partnership as a separate legal form • Regulate rights of LPs and GPs • Amend the JSC law to have all set of tools – stock options, different shares, …

15. DRAFTED Road map • Publicly develop and submit into the Parliament a set of laws – theInnovation Code • Self-governing bodies to acknowledge hi-tech companies • Special tax regime for hi-tech companies • IP rights reform: • Establishment of National Data Bank of Ideas and Technologies • Alternative way to secure IP rights, based on open license • Development of open-source software for state institutions, incl. national OS • Venture capital law • Hi-Tech Parks law • Legislation of electronic documents and transactions: • e-Document • e-Commerce • e-Government

16. Electronic document and paperless workflow • Russia recognizes electronic signatures, but does not recognize electronic documents • Recently Duma has to pass a special regulation to allow e-tickets • e-Document law is a foundation • for paperless workflow in the government • for e-commerce • for Internet voting • for other services conducted through the Internet and e-government

17. DRAFTED Road map • Publicly develop and submit into the Parliament a set of laws – theInnovation Code • Self-governing bodies to acknowledge hi-tech companies • Special tax regime for hi-tech companies • IP rights reform: • Establishment of National Data Bank of Ideas and Technologies • Alternative way to secure IP rights, based on open license • Development of open-source software for state institutions, incl. national OS • Venture capital law • Hi-Tech Parks law • Legislation of electronic documents and transactions: • e-Document • e-Commerce • e-Government • Etc. • Single strategy at executive level – national Go.In.Ru initiative

18. GO.IN.RU task force • Rethinking of GOELRO program of 1920-s – foundation of the national industrialization program • Set of state initiative targeted to support hi-tech industry through funding national-scale projects: • Computers in every school – done • Internet in every village – in progress • Digital TV – in progress • Supercomputing grid spread from EC to China and Japan • Space programs • Fusion development • National OS • e-Government applications • Radio frequencies conversion

19. DRAFTED Road map • Publicly develop and submit into the Parliament a set of laws – theInnovation Code • Self-governing bodies to acknowledge hi-tech companies • Special tax regime for hi-tech companies • IP rights reform: • Establishment of National Data Bank of Ideas and Technologies • Alternative way to secure IP rights, based on open license • Development of open-source software for state institutions, incl. national OS • Venture capital law • Hi-Tech Parks law • Legislation of electronic documents and transactions: • e-Document • e-Commerce • e-Government • Etc. • Single strategy at executive level – national Go.In.Ru initiative QUESTIONS?