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The Kremlin Gets Tech Savvy

Posted By Natalya Hmelik On August 12, 2010 @ 12:01 am In FrontPage | 1 Comment

Late in June, Russian President Dmitry Medvedev came to the United States to present his pet project — an innovation center in Skolkovo already nicknamed “Russian Silicon Valley.” The project is expected to resemble a model Moscow suburb, almost utopian in nature, where local people will live in harmony and mutual trust with the police and state officials.

In California, Medvedev met with executives of Cisco Systems, Apple, and Twitter in an effort to woo foreign investment and brain power. He even received a present from Steve Jobs — an iPhone 4, officially the first in Russia.

The would-be investors seem enthusiastic about new business opportunities opening in Russia. Several international high-tech giants including Google, Cisco, Siemens, and Nokia have already agreed to invest in Russian modernization and even build their own research centers in Skolkovo. Cisco’s investment is reportedly $1 billion.

At first glance, indeed, the opportunities look quite lucrative — Russia is a big market with a relatively cheap and skillful labor force and, according to the Kremlin, the recent global recession did not hit it very hard. Looking at the thousands of Russians who work all over Silicon Valley, businesses have every reason to be optimistic about Russian talent in computers. The main Russian investor, pro-Kremlin oligarch Viktor Vekselberg, vows that Skolkovo will produce “one Google a year.” Indeed, it has been announced that Skolkovo will develop a Russian national operating system to replace Windows and a Russian national search engine to replace Google. And of course, this new patriotic Russian Google will operate under government control.

Yet, the Kremlin is no dream-builder. It knows as well as we do that the market for such products is shared between Western giants unwilling to let rivals in. Why, then, the push to attract Western high-tech companies?

In the language of Moscow officials, “advanced technology” means only one thing: military hardware to be sold abroad. It is no coincidence that Medvedev sent a Russian battle cruiser ahead of him to California. After docking at San Francisco, the captain said it was a sign of friendship. The message seems to be clear: Western businesses with their knowledge and expertise are to help Moscow to develop military hardware. Westerners should also keep in mind that their main partner in Skolkovo will be Russian Technologies, the parent company of over 150 manufacturers of various defense products and of the official state-run arms exporter, Rosoboronexport. Russian Technologies, which has now signed a memoranda of understanding with Cisco and Siemens, was established a few years ago for the sole purpose of promoting Russian weapons in foreign markets.

Although Russia is among the largest arms exporters in the world, its companies cannot compete with Western manufacturers of defense electronics, communication systems, smart bombs, high-precision weapons, or aircraft engines. At present, Russia is on a shopping spree. They have bought French-made Mistral helicopter carriers, German-made armored fighting vehicles, and Israeli-made unmanned air vehicles.

However, some problems have emerged. Israel Aerospace Industries (IAI) had previously agreed to sell 12 UAVs to Russia for $50m, including tactical short-range I-View Mk 150s and multi-task Searcher IIs. Delivery of this sensitive technology was due to start in September, as well as talks on the establishment of a UAV joint venture with Russian Technologies. The joint-venture project is estimated to be $300 million and included the production of IAI’s medium-altitude Heron MALE and high-altitude Heron TP vehicles. These long-range UAVs are capable of carrying “air-to-surface” missiles. Obviously, the Israelis are concerned that UAV technology may find its way into Iran or Syria’s hands, who are regular customers of the Russian military industry.

France turned out to be more flexible. During Medvedev’s visit to Paris this March, President Sarkozy agreed to sell Russia a Mistral-class helicopter carrier. By now, the negotiations between French firms and Russian state arms exporter Rosoboronexport have gained momentum. The parties have already agreed on the price of the contract — about $1 billion — and additional provisions of the deal. Russian generals have already told the local media that they desperately need the ship everywhere: from the Kuril Islands in the Pacific, to the Black Sea, and the Baltic Sea, in the vicinity of NATO members Lithuania, Latvia and Estonia.

Obviously, the ship cannot be stationed in three seas at once. And obviously, Russia is under no threat from the mighty navies of Georgia and Estonia. Like in their deal with Israel, it is not the warship, but the technology the Kremlin is after. Indeed, the French have already agreed to pass the technology along with the ship, and to give Russia the right to produce three more ships locally. It seems quite likely that French technology will be copied and resold further.

After saturating Indian and Chinese markets with Soviet-made technologies, Russia can only watch Americans squeeze its exporters out of India and anticipate the same developments after the European Union lifts its embargo on selling arms to China. It is eagerly looking for new markets and will be ready to sell Western technology cheaper than their original developers.

The customer base for Russian arms is well-known. One of the prominent buyers is Hugo Chavez of Venezuela. Chavez has spent billions of dollars buying all kinds of Russian military hardware, from AK-47 assault rifles to Su-30 fighter jets.

Another important customer of Russian arms is Iran. The planned supply of Tehran with S-300 multi-target anti-aircraft systems has raised concerns in the United States and Israel. After the recent round of UN sanctions against Iran, Moscow has sent contradictory messages. Top officials said the Tehran deal was cancelled even though it wasn’t covered by the sanctions. Whether it will go through is still anybody’s guess.

Russia has shown no intention of restricting its arms exports to other rogue states. If the Skolkovo project goes ahead as planned, it may soon become an easy route for Western military technologies to reach the worst enemies of the West.


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