Is Moscow’s Tech Hub a $5.4 Billion Sinkhole or the World’s Next Great Innovation Center?

Where will it be?
Dec. 9 2013 10:50 AM

Not Just Oil and Oligarchs

Skolkovo is Russia’s bid to jump-start its tech industry. Can it overcome the corruption charges and political conflict swirling around it?

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But now it appears many of the accusations against Skolkovo were overblown. In August, the embezzlement case against the two managers was closed (one was charged with the less serious offense of abuse of authority). A court ruled that Ponomaryov received only $300,000 from Skolkovo. And in November, the prosecutor general announced that Skolkovo Foundation had addressed the violations it found and withdrew its accusations.

“Skolkovo is one of the unfortunately few government projects that are in fact very clean in terms of corruption,” Ponomaryov said.

Notably, opposition politician Boris Nemtsov estimated in a report this year that more than half of the Sochi Winter Olympics' $51 billion price tag is being lost to embezzlement and kickbacks, such as those detailed by whistle-blowing contractor Valery Morozov, who said he had to give a presidential official 12 percent of a reconstruction contract. (A former Skolkovo employee who asked not to be named said that, although corruption on the part of individuals within the foundation was possible, for the most part the staff was highly professional.)

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Although the next seven years of Skolkovo’s existence have now been underwritten, it's debatable whether the project will be able to stimulate Russia's tech startup industry and justify a new infusion of $3.8 billion in government money. Recent legislation has only increased the tax burden on small businesses, which Russian entrepreneurs often cite, along with kickbacks, as the main obstacle they face.

Eduard Kanalosh, chief investment officer of the Skolkovo Foundation, said Skolkovo is “speeding up” the formation of the tech sphere and venture market. But according to entrepreneur and blogger Anton Nossik, the government's approach of handing out tax-exempt money to selected startups is “very wrong.” “Rather than a serious institutional approach, such as passing laws that would give businesses the incentive to innovate, you're just gambling that some participants in your project will succeed,” he said.

Boris Kagarlitsky, director of the Institute of Globalization Studies and a leading left-wing activist, said the government is “throwing money away” on companies that would be pursuing innovative projects even without the benefits. He noted that the government's funding of Skolkovo comes at the same time that the Russian Academy of Sciences has been losing assets and funding.

“Its first purpose is as a PR project, and the second purpose is that it's specially thought up to bleed Russian science, take money out of it, and siphon it off to Skolkovo clients,” Kagarlitsky said.

For now, Skolkovo continues to grow, with more than 1,000 resident companies. One of them is Aerob, which produces surveillance drones and has been contracted to work on projects for customers including the Defense Ministry. General director Andrei Mamontov said legal investigations won't derail resident companies' work and will only strengthen spending oversight at Skolkovo.

But while Mamontov remains nonchalant, his mother still worries whenever a Skolkovo scandal hits the news. “My mom sometimes calls me and asks, ‘Andrei, what happened there? They didn't take you to the police station, did they?’ And I say, ‘Mama, everything's normal. We're working just the same as always.’ ”

Alec Luhn is a Moscow-based journalist who has written for the Guardian, the Independent, Slate, GlobalPost, and other publications.