Hi-tech Tatarstan

By bne IntelliNews August 25, 2011

Artem Zagorodnov in Kazan -

"23% of all traffic fines in Tatarstan are paid electronically," the grinning 29-year-old regional Minister of IT and Communications Nikolai Nikiforov explains in his office atop the glitzy glass skyscraper that forms the "IT Park" in downtown Kazan.

Nikiforov is exuberant about his eGov programme, which allows access to 25 types of government services - including paying taxes, scheduling weddings and obtaining a passport - via the internet. "We lose hundreds of millions of man-hours a year on bureaucracy," he tells bne. "Our portal saved RUB90m in salary costs for our citizens in June alone."

Down the hallway, a bustling call centre filled with young women wearing headsets is dealing with complaints and questions from users of the system. In June, Tatarstan's eGov provided a million services online, a four-fold increase from January. For the 48% of households without access to internet, touch-screen terminals across the city offer easy access to the system. "The beauty of the system is that it offers complete transparency. While the line of parents trying to get their children into overcrowded state daycare centers used to be held in some officials' safe, it's now available for everyone to see online [but initials and dates of birth only]. My own child is on that list, and there's nothing I can do to move him higher up without everyone else finding out," he explains.

Home grown

There's further good news for Tatarstan - and Russia as a whole. "We could have offered the contract for developing eGov to pricey foreign software engineers, but chose locals instead," Nikiforov says. "80% of the system was developed right here, and now the companies are marketing their products in other parts of Russia."

IT curently accounts for 3.5% of Tatarstan's economy, but Nikiforov says the republic is aiming to get to 7-10%, like its peers in the developed world, by 2016. "The tools we have for this - technoparks, venture funds and universities - are nothing individually, they are part of a single ecosystem we must develop systematically," says Nikiforov.

Sergei Yushko, general director of the neighbouring Innovative Technopark "Idea", agrees. "We've existed for seven years and a day hasn't gone by that I haven't felt the complete backing of local authorities," he says.

The technopark Idea was founded on the territory of an abandoned defence plant in 2004 with the aim of creating jobs in hi-tech sectors of the economy. By providing two key services to local start-ups - cheap rent and sound business advice - the technopark had "graduated" enough firms within three years to become self-sustainable; by 2007, its companies were paying enough taxes into the local budget to repay the start-up capital. "For the last four years, we've been independent of the regional budget, and this is important. We receive some federal grants, but face a high level of competition for those monies. Our experience proves technoparks are a viable model for economic development in Russia," says Yushko.

The halls of Idea's Innovative Technology Centre (see box) resound with the voices of cartoon artists, software engineers and web designers. Igor Zilberg, 24, founded a firm called SmartHead after graduating from Kazan Technological University. "We offer outsourcing services to major advertising agencies who, in turn, represent global giants like Danone and L'Oreal," he explains. "We work mostly with the technical aspect of digital marketing platforms: programming, domains, technical support, moderation, layout, animation and work with servers."

"After three months, I moved the company to Idea for the cheap rent and good contacts. The atmosphere is very supportive and the only thing they ask of us is quarterly reports. Smarthead began paying dividends last year and we currently employ 17 people," says Zilberg.

Yushko explains most of the companies located there provide engineering services, software design or web design. A company called GKS develops products to measure liquid and gas depletion for Gazprom. "When I'm shown examples of hi-tech production in Russia, they're often simply local duplicates of technology developed elsewhere. I'm proud that all of our residents develop genuinely unique and marketable products," he says.

After three years, "graduates" of Idea have the option of leaving the territory of the technopark altogether (usually securing bank loans independently to acquire office space) or moving into its business park (where rent is no longer subsidised). There, neighbours will include the local R&D branches of international behemoths like GE, Honeywell and Siemens. "The foreign companies come first and foremost for the qualified personnel," explains Yushko. "If they just want office space in a prime location, I send them to another business park."

Brain Power

"I'm a believer in the unpopular notion that we don't need factories in Russia," explains Yushko. "Production will eventually be moved to where you have cheap labour, like China. Look at Israel's example: they develop lots of hi-tech products and then sell the technology for production elsewhere. A lot of Russian scientists and developers work there. Our competitive advantage is people and their ideas, and that's where we should focus."

Yet that's also one of the greatest challenges to hi-tech companies in Tatarstan. "We want to build an "IT Village" outside Kazan based on the Skolkovo model in Moscow," says Nikifirov, referring to Russia's equivalent of Silicon Valley located in a village near the capital. "By our best estimates, we'll need to house 20 ,000 IT specialists there to get this sector of the economy as large as we want it. We'll have to attract 15,000 from other regions of Russia."

Tatarstan is home to two national research universities (higher education institutions that successfully competed for additional federal funding to conduct independent research), one federal university and over 200,000 Russian and international students. The IT & Communications Ministry has partnered with Kazan State University (incidentally, Vladimir Lenin's alma mater) to set up a special Higher School of IT and Technologies. But it won't be enough. "We'll have to attract IT specialists from other regions of Russia," says Nikiforov.

Thinking locally

In another part of Kazan, an industrial park called Khimgrad became the first such project in Russia to be internationally certified by representatives of Ernst & Young and Knight Frank.

Khimgrad (see box) focuses on polymer and chemical production and, unlike the technoparks, it seeks to take advantage of underdeveloped raw materials in Tatarstan. "We produce a plethora of polymers in Tatarstan, but these are typically exported and then re-imported with much added value," explains the park's manager, Airat Gizzatullin. "At Khimgrad, we don't work with technologies of global or even national significance; we're just focused on modernising the local economy and establishing efficient supply chains here in Tatarstan."

Khimgrad offers fully-equipped facilities, business solutions and tax breaks to investors - both Russian and foreign - willing to set up production. A relative newcomer is Danaflex, a major Russian flexible packaging firm supported by state nanotechnology giant Rosnano. Danaflex has its sights set on increasing its share of the Russian polymer film market by 10-20% and to begin exports to the EU in the next few years. "Only a complete ecosystem can structurally change Russia's economy on the scale that our country's leadership talks about," posits Nikiforov. "That's what we're trying to do in Tatarstan, and we began this process earlier than other regions of Russia."

But a lot of work remains to be done. "When we asked investors five years ago what we needed to do for them to come, they said 'build a new airport!' It was a funny response, but carried a lot of truth."

So much so, that Tatarstan's government has moved in its typically quick fashion - a sign currently hangs over the shoddy building that services both domestic and international flights to Kazan: "New terminal to be completed in 4th quarter of 2011."

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