MOSCOW, SEPTEMBER 2011 RUSSIAN INNOVATION STRATEGY

RISKS: loss of scientific and technological potential loss of geopolitical standing perpetuation of resource- dependent economy slow economic growth RISKS: loss of scientific and technological potential loss of geopolitical standing perpetuation of resource- dependent economy slow economic growth Increasing prosperity of Russian citizens Securing Russia’s role as one of the global leaders STRUCTURAL WEAKNESSES of Russia’s innovation system exacerbated by the global crisis GLOBAL CHALLENGES INNOVATION: RUSSIA AT THE CROSSROADS 2 INNOVATION-DRIVEN SOCIETY-ORIENTED DEVELOPMENT RUSSIA’S STRATEGIC GOALS

INNOVATION POLICY IN THE 2000s 3 federal funding for fundamental and applied research increased a national system of development institutions is being built programs to boosts research at the leading universities National Research Centers are being formed создается инфраструктура поддержки инновационной деятельности “innovation oasis” at Skolkovo is being built innovation strategies for large SOEs federal funding for fundamental and applied research increased a national system of development institutions is being built programs to boosts research at the leading universities National Research Centers are being formed создается инфраструктура поддержки инновационной деятельности “innovation oasis” at Skolkovo is being built innovation strategies for large SOEs ACHIEVEMENTSSTILL TO BE DONE Russia is having trouble realizing even the conservative scenario of the Science and Innovation Strategy increasing the innovation activity of business boosting the competition in order to stimulate innovation making the R&D spending more efficient increasing the innovation activity of business boosting the competition in order to stimulate innovation making the R&D spending more efficient innovation policy – a strategic priority innovation policy – a strategic priority KEY TASKS: radically boosting the effectiveness and efficiency of innovation policy focusing on priority goals

quality of education and educational institutions is falling insufficient funding quality of education and educational institutions is falling insufficient funding one of Russia’s key competitive advantages RUSSIA’S INNOVATION SECTOR 4 Russia is lagging behind in relative terms Russia in general loosing her standing in global science Russia is lagging behind in relative terms Russia in general loosing her standing in global science low innovation activity and readiness to absorb innovation low R&D expenditures tends to rely on importing ready-made technologies low innovation activity and readiness to absorb innovation low R&D expenditures tends to rely on importing ready-made technologies low efficiency, low effectiveness the government itself is not an active innovator unable to foster a climate for innovation the government itself is not an active innovator unable to foster a climate for innovation hundreds of units significant expenditures per researcher in absolute terms, high number of researchers outstanding achievements of individual researchers significant expenditures per researcher in absolute terms, high number of researchers outstanding achievements of individual researchers Human capital Innovation and R&D infrastructure Government Russian business Science

PRINCIPLES The state focuses on compensating for the “market failures” Technological priorities are designated jointly with business and science communities Allocation of federal funding and evaluation of the results are as transparent as possible Results are measured against global benchmarks Competition in the research sector is encouraged PRINCIPLES The state focuses on compensating for the “market failures” Technological priorities are designated jointly with business and science communities Allocation of federal funding and evaluation of the results are as transparent as possible Results are measured against global benchmarks Competition in the research sector is encouraged THE GOALS : INNOVATION – KEY DRIVER OF ECONOMIC GROWTH IN RUSSIA BUILDING UP HUMAN CAPITAL RADICALLY INCREASING THE INNOVATION ACTIVITY OF BUSINESSES MAKING THE STATE MORE INNOVATIVE, CREATING A CLIMATE FOR INNOVATION BUILDING AN EFFICIENT, DINAMIC R&D SECTOR, COMMERCIALIZATION OF R&D RESULTS MAKING RUSSIA’S ECONOMY AND INNOVATION SYSTEM MORE OPEN, INTEGRATING RUSSIA INTO THE GLOBAL INNOVATION SYSTEM

RUSSIA-2020: KEY INDICATORS Share of enterprises pursuing technological innovations9.4% (2009)40-50% R&D spending as a share of GDP1.3% 2.5-3% Over half of it – comes from the private sector Russia’s share in the global exports of hi-tech products0.35% (2008)2% Value added of the innovative sector in Russia’s economy12.7 %17-20% Share of innovate products in the overall volume of manufacturing output in Russia 4,9 %25-35% Russia’s share in the global market for hi-tech products and services At least 5-10 % in 5 – 7 sectors Russia’s share in the global scientific output2.48% (2008)3%3% Number of triad patents received by Russian citizens and companies 66 (2008) over 2500 – 3000 a year

STRATEGICAL OPTIONS FOR RUSSIA 7 Option 1. Steady-state scenario Option 2. Catch-up development, build-up of domestic technological potential in a limited number of niches Option 3. Leadership in the key technology and research fields Russia increasingly lags behind not only the West, but also the newly industrialized countries Most attractive option Most investment- intensive option Highest risks High competition between numerous countries pursuing this strategy Slow growth of domestic technological potential Large-scale modernization of fundamental science and R&D sectors Focus on potential break-through fields Radical growth of demand of research and engineering personnel Building a comprehensive innovation system Reclaiming leadership in global science Large-scale modernization of fundamental science and R&D sectors Focus on potential break-through fields Radical growth of demand of research and engineering personnel Building a comprehensive innovation system Reclaiming leadership in global science Technologies are mostly imported No large-scale effort to promote innovation Focus on macroeconomic stability Low investment in science, innovation, and human capital Technologies are mostly imported No large-scale effort to promote innovation Focus on macroeconomic stability Low investment in science, innovation, and human capital

“MIXED” STRATEGY 8 Leadership in segments where Russia has competitive advantages Catch-up development in the majority of industries and sectors Rebuilding Russia’s capabilities in engineering and technology Leadership in segments where Russia has competitive advantages Catch-up development in the majority of industries and sectors Rebuilding Russia’s capabilities in engineering and technology Designating priorities Providing incentives for a large-scale modernization Investing in human capital Optimal choice – MIXED STRATEGY Optimal choice – MIXED STRATEGY The state’s tasks:

INNOVATIVE CITIZEN 9 Next-generation school curricula and standards New generation of educators and education administrators, new infrastructure for teacher/professor training and retraining Effective models of teacher/professor compensation and quality assessment New model of financing education at all levels Next-generation school curricula and standards New generation of educators and education administrators, new infrastructure for teacher/professor training and retraining Effective models of teacher/professor compensation and quality assessment New model of financing education at all levels M ODERNIZING EDUCATION T EACHING SKILLS NECESSARY FOR INNOVATION - ORIENTED ENTREPRENEURSHIP S UPPORTING PROGRAMS TO INVOLVE SCHOOLCHILDREN AND TEENAGERS IN INNOVATION AND RESEARCH Media, non-fiction literature, web-based resources, next-generation science & technology museums F OSTERING THE CULTURE OF INNOVATION, INCREASING THE PRESTIGE OF INNOVATION ACTIVITY AND INNOVATORS IN SOCIETY Fostering and expanding the INNOVATIVE CAPACITY OF RUSSIA’S CITIZENS - arguably, as important as the sum total of all the other goals of the Strategy

INNOVATIVE BUSINESS 10 Innovation strategies for large state-owned corporations Grants and subsidies for companies in the priority areas Fiscal stimulus for corporate R&D and new equipment acquisition Support for new high-tech enterprises, especially at the early stages Innovation strategies for large state-owned corporations Grants and subsidies for companies in the priority areas Fiscal stimulus for corporate R&D and new equipment acquisition Support for new high-tech enterprises, especially at the early stages Fostering competition as a way of motivating companies to innovate Improving regulation of individual markets and industries Improving technical regulation Stimulating commercialization of intellectual property that resulted from federal funding Improving the tax regime for innovation Improving the investment climate Attracting highly skilled workers Fostering competition as a way of motivating companies to innovate Improving regulation of individual markets and industries Improving technical regulation Stimulating commercialization of intellectual property that resulted from federal funding Improving the tax regime for innovation Improving the investment climate Attracting highly skilled workers P ROVIDING STIMULUS FOR INNOVATION Boosting the INNOVATION ACTIVITY OF RUSSIAN BUSINESS C REATING FAVORABLE BUSINESS ENVIRONMENT FOR INNOVATION

INNOVATIVE STATE 11 New public procurement and contracting processes and practices Pilot innovation procurement plans New public procurement and contracting processes and practices Pilot innovation procurement plans Innovation strategies for education, health services, culture, social services, residential construction industry and utilities, agriculture Removing regulatory barriers to innovation Innovation strategies for education, health services, culture, social services, residential construction industry and utilities, agriculture Removing regulatory barriers to innovation Technological innovations in public administration, including the “electronic government” Developing a new cadre of highly-skilled civil servants Increasing the state’s openness to the outside world: English-language web-cites for governmental bureaus; English translations of all the key documents and laws; making sure that civil servants are able to communicate in English Technological innovations in public administration, including the “electronic government” Developing a new cadre of highly-skilled civil servants Increasing the state’s openness to the outside world: English-language web-cites for governmental bureaus; English translations of all the key documents and laws; making sure that civil servants are able to communicate in English P UBLIC PROCUREMENT AS A DRIVER FOR INNOVATION I NNOVATION IN INFRASTRUCTURE, UTILITIES, AND SOCIAL SERVICES I NNOVATION IN PUBLIC ADMINISTRATION AND PUBLIC SERVICES

RESEARCH FOR INNOVATION (1) 12 Globally competitive research sector – foundation for innovation-driven economy Russia rejoins the ranks of leading global research powers S TRATEGIC GOAL S TRUCTURAL MODERNIZATION OF RESEARCH SECTOR Stage I: Comprehensive audit of research capabilities, restructuring Growth of new organization on the basis of most productive research units Stage II: Increasing autonomy of research units and groups Establishing and supporting the competence centers (National Research Centers, National Research Universities) Fostering research at the universities Providing state-of-the-art equipment and research tools

RESEARCH FOR INNOVATION (2) 13 T RAINING, ATTRACTING, AND RETAINING NEW GENERATION OF RESEARCHERS AND R&D MANAGERS F OSTERING THE GROWTH OF PRIVATE RESEARCH SECTOR Designation of priority fields – key instrument of science policy Improving the competitive funding mechanisms in fundamental and applied research Expanding the share of funding allocated through competitive mechanisms, introducing new grant formats and better methods of project evaluation Reducing administrative burden in research, streamlining funding procedures Improving the competitive funding mechanisms in fundamental and applied research Expanding the share of funding allocated through competitive mechanisms, introducing new grant formats and better methods of project evaluation Reducing administrative burden in research, streamlining funding procedures M AKING FEDERAL RESEARCH FUNDING MORE EFFICIENT D ESIGNATING PRIORITY FIELDS IN SCIENCE AND TECHNOLOGY

INNOVATION INFRASTRUCTURE 14 Making innovation infrastructure market-oriented (including privatization) Supporting the Special Economic Zones with focus on R&D and commercialization of research Making the innovation infrastructure more efficient Building the Skolkovo innovation center Creating a register of state-funded innovation infrastructure Making innovation infrastructure market-oriented (including privatization) Supporting the Special Economic Zones with focus on R&D and commercialization of research Making the innovation infrastructure more efficient Building the Skolkovo innovation center Creating a register of state-funded innovation infrastructure Securing sufficient and growing supply of innovation projects Expanding subsidized credit for innovation projects through the Russian Development Bank and Vneshekonombank Setting up funds for direct investment in innovation projects (with Vneshekonombank) Improving coordination between the national development institutions and federal agencies Adjusting legal framework for the development of venture funds and businesses financed through venture funds Securing sufficient and growing supply of innovation projects Expanding subsidized credit for innovation projects through the Russian Development Bank and Vneshekonombank Setting up funds for direct investment in innovation projects (with Vneshekonombank) Improving coordination between the national development institutions and federal agencies Adjusting legal framework for the development of venture funds and businesses financed through venture funds D EVELOPING THE INNOVATION INFRASTRUCTURE I NTRODUCING NEW MECHANISMS FOR FINANCING INNOVATION PROJECTS

JOINING THE GLOBAL INNOVATION SYSTEM 15 Skolkovo, science cities, innovative regions and clusters Individualized support for large investors, marketing Russia Improving investment climate Skolkovo, science cities, innovative regions and clusters Individualized support for large investors, marketing Russia Improving investment climate Supporting cooperation between individual researchers and companies, expanding intergovernmental agreements Reducing administrative barriers for international cooperation in science and technology Supporting cooperation between individual researchers and companies, expanding intergovernmental agreements Reducing administrative barriers for international cooperation in science and technology Providing political and diplomatic support Export support, reducing the regulatory barriers for export Providing political and diplomatic support Export support, reducing the regulatory barriers for export B OOSTING INTERNATIONAL SCIENCE AND TECHNOLOGY COOPERATION A TTRACTING HI - TECH COMPANIES AND R&D CENTERS TO R USSIA S UPPORTING R USSIAN HI - TECH COMPANIES IN THE INTERNATIONAL MARKETS

INNOVATIVE REGIONS 16 Creating specialized cluster development centers Assisting the enterprises in acquiring the necessary skills in commercialization of R&D results, cooperation with researchers, improving the quality of management and marketing Improving the quality of local education and applied research Competitively allocated subsidies for developing the innovation clusters Creating specialized cluster development centers Assisting the enterprises in acquiring the necessary skills in commercialization of R&D results, cooperation with researchers, improving the quality of management and marketing Improving the quality of local education and applied research Competitively allocated subsidies for developing the innovation clusters Regional programs for enhancing competition, supporting SMEs Supporting innovative businesses at the regional level Building the innovation infrastructure In the most advanced regions – setting up innovation centers (R&D and innovation infrastructure) Regional programs for enhancing competition, supporting SMEs Supporting innovative businesses at the regional level Building the innovation infrastructure In the most advanced regions – setting up innovation centers (R&D and innovation infrastructure) B OOSTING INNOVATION POLICY AT THE REGIONAL LEVEL S UPPORTING INNOVATION CLUSTERS innovation activity – key criteria of success for regional authorities

IMPLEMENTING THE STRATEGY “THIRD LEVEL” : regional innovation development strategies 3. “THIRD LEVEL” : regional innovation development strategies 2. “SECOND LEVEL”: state programs Development of education, R&D sector, information society, support of innovation activity sub-programs Development of hi-tech sectors of the economy 2. “SECOND LEVEL”: state programs Development of education, R&D sector, information society, support of innovation activity sub-programs Development of hi-tech sectors of the economy 1.“FIRST LEVEL” : Concept of Long-Term Development of the Russian Federation for the Period up to the year 2020 Innovative Development Strategy for the Period up to 2020 (this document) 1.“FIRST LEVEL” : Concept of Long-Term Development of the Russian Federation for the Period up to the year 2020 Innovative Development Strategy for the Period up to 2020 (this document) Regularly adjusted strategic management of innovation-driven development

FINANCING INNOVATION-DRIVEN DEVELOPMENT 18 G RADUALLY BRINGING THE VOLUME OF FEDERAL FUNDING FOR R&D, EDUCATION, AND INNOVATION SUPPORT UP TO THE AVERAGE LEVEL FOR OECD COUNTRIES ( AS A SHARE OF GDP) R ADICALLY IMPROVING THE EFFICIENCY OF FEDERAL FUNDING FOR RESEARCH AND HIGHER EDUCATION P ROVIDING A DDITIONAL SUPPORT FOR R USSIA ’ S INNOVATIVE REGIONS Supporting the SMEs Training civil servants Fund for supporting the development of small enterprises in R&D and engineering Funding for the Russian Technological Development Fund; innovative projects on the priority fields initiated by private enterprises; Skolkovo center; R&D Special Economic Zones and technoparks Supporting the SMEs Training civil servants Fund for supporting the development of small enterprises in R&D and engineering Funding for the Russian Technological Development Fund; innovative projects on the priority fields initiated by private enterprises; Skolkovo center; R&D Special Economic Zones and technoparks S IGNIFICANTLY INCREASING SUPPORT FOR INNOVATIVE ACTIVITIES AT INDIVIDUAL ENTERPRISES AND RELATED GOALS

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