Table Positive Aspects and Problems Areas in the Implementation of Innovation Programs by Higher Educational Establishments Positive aspects Problems Insufficient clarity in determining terminology and Freedom in choice of innovation programs, encouragement of government’s requirements to programs of higher initiatives “from below” educational establishments Opportunities for merging personnel resources for implementation Rigid regulation of timelines, directions and princi of a big project, formation of new teams and emergence of new ples of spending budget resources leaders Learning skills necessary for implementation of program based Insufficient time for project planning approach Growing activity of community of higher educational establish Excessive bureaucratization of reporting by higher ments, greater attention of higher educational establishments to educational establishments forming strategies of their development Low level of planning at higher educational estab Improvement of management skills, including those of organizing lishments, lack of specialists competent in marketing purchases and other organizational measures and purchases Emerging impetus for creating new educational programs, with due regard for competence development, promotion of internal Problems in attracting off budget funding and external mobility of students and professors Some of the innovation oriented higher educational establishments may grow into research universities. A research university, as it is commonly understood, has a prominent orientation toward postgraduate education and doctorates, an ex panded spectrum of disciplines being taught, promotes integration of science and education, possesses state of the art equipment, enjoys well established connec tions with industry, participates in the processes of technologies commercializa tion, has a well developed infrastructure (a campus) on its territory, as well as an infrastructure for interaction with its alumni and donors.
The problems that arose during the implementation of innovation projects may be subdivided into two groups: those associated with the conditions and re strictions imposed by the State, and those derived from the activity of higher edu cational establishments proper. To the first group belong the rigid requirements imposed on spending, belated organization of the competition, which resulted in shorter time having been allocated to the implementation of project initiatives, ex cessively bureaucratic reporting procedures (at the first stage, higher educational establishments had to submit the reports on their activity on a weekly basis).
In its turn, at the level of higher educational establishments there was found the shortage of managers with modern qualifications and of specialists in pur chases and marketing. Some problems were also associated with the need to at RUSSIAN ECONOMY IN trends and outlooks tract off budget funding, as had been declared in the application forms: in particu lar, only two higher educational establishments managed to receive funding from RF subjects.
By way of summing up the first steps made in implementing the programs of innovation oriented higher educational establishments, it can be concluded that this initiative should produce long term positive effect on the sector of higher edu cational establishments. Serious obstacles, however, can arise from the contro versy between the planned innovative approaches and programs for the develop ment of higher educational establishments, on the one hand, and the rigid standards imposed by the RF Ministry of Public Education and Science, on the other, as well as by the restrictions imposed by a number of federal laws. In particu lar, during the implementation of innovation program the greatest problems emerged due to the application of the Federal Law “On the placement of orders for the supplies of commodities, performance of works, provision of services for state and municipal needs” (of 21 July 2005, No. 94 FZ).
Last year, the concept of creating “federal” universities in this country has also been developed. The Chairman of the RF Government signed an ordinance concerning the establishment of two federal universities – Siberian and Southern64, which, besides providing high quality education, must also become centers of in novation activity65.
4.5.6. Promotion of Innovation Activity As far as the support and promotion of innovation activity is concerned, the year 2006 became a certain “transition period”: the conceptual decisions as to the creation of new structures and mechanisms (technoparks, venture funds, technol ogy implementation zones (TIZ)) were made in 2005, while they were to start func tioning from the year 2007 onward. Therefore, last year was the time for preparing the normative legal environment necessary for the creation and functioning of the new organizations and mechanisms. The main focus of work was placed on the de velopment of the projects for venture financing, technoparks and technology im plementation zones. Much attention was also paid to improving legislation in the sphere of intellectual property and the development of measures for indirect pro motion of research and innovation activity.
The Formation of Financial and Technological Infrastructure The State has initiated the simultaneous support of several forms of venture financing for the development of small sized innovation oriented businesses. The year 2006 saw the formation of two types of venture funds – “The Fund of Funds” and the Specialized Venture Fund in the Sphere of Information and Communica Ordinance of the RF Government of 4 November 2006 No. 1518 r concerning the creation of the federal state institution for higher professional education “The Siberian Federal University” (SibFU) and Ordinance of the RF Government of 23 November 2006 No. 1616 r concerning the creation of the Southern Federal University.
For more details on the creation of federal universities, see Section 4.4.1 of this overview.
Section Social Sphere tions Technologies. Both schemes were borrowed from foreign experience, where they had been applied most successfully.
For the implementation of the first model, the open end joint stock society “Russian Venture Company” (“RVK”) was created, where the State was the holder of 100% of the joint stock capital. RVK will carry out competition based selection of venture asset managers and purchase stakes in venture funds established in the form of a closed end share fund by the selected asset managers. In RVK, an exter nal board of directors was formed as a preventive measure against corruption, or at least as a measure for lowering the degree of corruption. The budget of “The Fund of Funds” is equal to 15 bn roubles, which is to be allocated from the Investment Fund. It is planned so that the budget component in each of the hi tech companies created at the expense of the venture funds should comprise between 25% and 49%. In order to promote the inflow of private investments to those companies, the State is going to claim only 1/5 of the rate of refinancing established by the Bank of Russia for the rate of return on invested budget funds, that is, only 3% of interest per annum. The rest will go to private investors.
The second model of venture financing represents the establishment, for the period of three years, of the open end joint stock society “Russian Investment Fund for Information and Communication Technologies”, with the purpose of de veloping enterprises and the infrastructure for the sector of information and com munications technologies. Late in the year, the government approved a transfer of 1.45 billion roubles to that fund, and another 1.5 bn roubles must be provided by investors. The principle of budget financing of small sized companies from that fund is the same as in the first model: budget funding is to be supplemented if no less than 51% is provided by investors.
The positive aspect of the modern phase in the development of the mecha nisms for venture financing is that several models of funds are being tested simul taneously. While “The Fund of Funds” is important for an overall activization of ven ture financing, as well as for providing the necessary experience of dealing with venture resources, specialized venture funds, as demonstrated by international ex perience, are most successful in terms of market, because only they are capable of providing a high level of experts’ estimation of projects and thus lowering the risks involved.
Until now, the small size of the budgets of venture funds proved to be a seri ous impediment to the development of venture financing. When the funds’ size is below $ 10 million, no long term development or any efficient operational activity can be possible, as shown by actual practice. As estimated by representatives of the business community, an efficiently functioning venture fund must possess a budget of no less than $ 20 mln for investing in innovation projects66. Òhus, in the new funds this problem has been solved.
National Report “Informatsionnoe razvitie – osnova uskorennogo rosta ekonomiki Rossiiskoi Fed eratsii” (“Information development is the basis for an accelerated growth of the Russian Federa tion’s economy”). M.: Assotsiatsiia menedzherov (Association of Managers), 2006, p. 64.
RUSSIAN ECONOMY IN trends and outlooks When the projects of venture funds are being implemented, continual moni toring is very important, because international experiences in the development of such programs vary greatly. Moreover, the practice of organizing state venture funds has produced, as a rule, negative results67.
There also exists one circumstance that may complicate the functioning of a venture company and the venture funds created with its participation. This is the absence of a flow of projects eligible for venture financing. As has been acknowl edged by officials from the Ministry for Economic Development and Trade, the main goal consists in finding the necessary amount of projects to be covered by the substantial funds being accumulated in RVK68. Logically speaking, before any ven ture funds are created, it is necessary to implement appropriate measures aimed at generating a critical mass of such projects. The experience of countries where ven ture financing is well developed (USA, Israel, Canada, Australia) has shown that the success of projects based on venture financing is usually provided for by a system of programs encompassing all the stages of the innovation cycle – from small sized grants to big venture projects69. In Russia the preliminary stages, and particularly the stage of seed investment, are sustained only by “The Fund for Support…” (the START program), which is far from being sufficient for this country, with its great scope. As for “business angels” (private informal investors who invest in unknown young entrepreneurial companies), who also provide financing for the initial stages of innovation projects, this institute is as yet undergoing the initial stage of its own formation.
The legislative and normative base, which will make it possible to establish venture funds, must be formed by the end of Q I 2007. Meanwhile, local authorities in 13 RF regions have already begun to form venture funds. Within the framework of prevailing legislation, local authorities establish venture funds in the form of com mercial organizations; however, this organizational – legal form is contrary to the basic meaning of venture financing.
In addition to venture fund, in the sphere of information technologies (IT) specialized technoparks are presently undergoing the stage of their formation (IT technoparks). And simultaneously, amendments to the RF Civil Code were adopted, aimed at creating favorable conditions for the taxation of organizations working in the field of information and communications technologies 70. In accor dance with the law, the rules for computing the rate of the single social tax (SST) by such organizations were changed (with the exception of those organizations which are residents of technology implementation zones (TIZ). In order to pay SST at a Russian Economic Report, December 2006, No. 13. The World Bank Economics Unit, p.23.
Sredstv na innovatsii v Rossii bol’she chem. dostatochno (There are more than enough resources for innovation in Russia) // Poisk, No. 52, 29 December 2006, p. 7.
Public Financial Support for Commercial Innovation. Europe and Central Asia Knowledge Economy Study, Part I, The World Bank, January 2006, p.28–29.
RF Federal Law of 27 July 2006 No. 144 FZ “On making amendments to Part II of the RF Civil Code in the part of creating favorable taxation conditions for those taxpayers whose activity is in the sphere of information technologies, as well as the introduction of other changes aimed at improving the efficiency of the tax system”.
Section Social Sphere privileged rate, organizations must be accredited; no less than 70% of their financ ing must come from foreign sources, while their average staff number should be no less than 50 persons. Thus, this privilege is not aimed at encouraging any company in the IT sphere, but only those, which perform in the regime of outsourcing, and thereby export of IT products can be promoted. In fact, it is the first attempt to con nect three instruments necessary for promoting innovation activity, and so far it has been made in the IT sphere only: technoparks where small sized innovation com panies are to be located; a venture fund capable of providing them with financing;
and privileges to those companies that export their IT services.
In March, the Ordinance of the RF Government was issued, whereby the gov ernment program “Creation in the Russian Federation of technoparks in the hi tech sphere” was approved71. The program is planned for the period of 2006–2010, dur ing which IT technoparks should be created in 7 regions – Moscow Oblast, Novosi birsk Oblast, Nighnii Novgorod Oblast, Kaluga Oblast, Tumen Oblast, Tatarstan and St. Petersburg. In the newly established technoparks, the formation of engi neering and transport infrastructure will be funded from the budget. All other ex penditures are to be covered mainly from private sources. In 2007, the tech noparks’ administrative bodies are to be formed, the pre project and project works for the beginning of construction should be carried out, and the program for pro moting the entry of Russian technologies onto the global market developed.