28 January 2009

Devaluation of innovation

Natalia Bykova, STRF.ruWill the high-tech sector of the Russian economy withstand the test of the crisis?

We decided to analyze the first consequences of the impact of external and internal financial turbulence on it. Both obvious and not so obvious.

Both in America, heated by the elections, and in snow-covered Russia, the authorities make approximately the same promises: to bring their countries out of the crisis renewed and stronger. However, if the Americans have not yet said what kind of new "basis for growth" they are going to lay, then no one in Russia hides: they dreamed and continue to dream about an innovative economy.

Reputable politicians are already saying that the global financial crisis and the troubles associated with it (including the weakening of the ruble against the dual currency basket) will only push the development of domestic production of products with high added value. "This is a chance to reformat our economy, to give the main role to those areas that we call innovative, to recognize our main asset is not mineral resources, but intelligence," the speaker of the Federation Council Sergey Mironov outlined this prospect a week ago, speaking at the Russian Federal Nuclear Center.

We should immediately note that in this article we will focus only on the production of products with the highest proportion of the intellectual component, which are fully or partially born in research centers and laboratories – medicines, equipment for scientific research and technologically complex work, etc.

Importers in the redIt is expected that the devaluation of the national currency will give an additional impetus to the development of high-tech industries.

Thanks to it, prices for imported goods will increase, and this, in turn, should provoke the effect of import substitution.

Some manufacturers are already trying to turn the market situation in their favor. Their ranks are headed by those whose production is more or less elastic to individual imports (mainly components and materials), as well as those who have an intellectual share in the cost of production is not that very high…

"Devaluation is a convenient moment to start crowding Western goods in all directions, and we are doing everything to strengthen our positions in the domestic market," says Alexander Vydrin, Deputy Director General for Scientific Work at the Russian Research Institute of the Pipe Industry. – Now 80 percent of the Russian pipe market is occupied by Ukrainian products, which are actually produced on a “natural economy”, that is, on their own raw materials, so it costs an order of magnitude cheaper than ours. We, at the previous dollar prices, bought the bulk of the blanks abroad – from the same Ukrainians. Now we will try to reduce dependence on foreign raw materials as much as possible and, accordingly, reduce the cost of production. According to our calculations, in the next two years, the share of Ukrainian imports in the pipe industry can be reduced by about four times."

However, the replacement of rapidly rising imports with cheap Russian analogues is possible only in those industries where production facilities are already operating, ready to load their capacities at any moment and fill the gaps that have formed in the market. Where there is no capacity, exorbitant prices and shortages will arise. And the consumer will suffer from this first of all. In particular, fundamental science organizations dependent on imported equipment and materials will find themselves in a difficult situation.

"The domestic manufacturer is unlikely to help," says Vasily Lazarev, head of the Laboratory of Genetic Engineering at the Research Institute of Physico–Chemical Medicine of Roszdrav. – Modern devices for biology are very complex. Of course, recently something has moved from the dead point, for example, a domestic single-channel sequencer has been released. But the whole world has been working on 96-channel sequencers for several years! We can also note the appearance of a Russian analyzer for a fast polymerase chain reaction, but we don't have anything else. Reagents are a limited number, there is no need to even talk about consumables such as plastic. Of course, I would like to buy everything made in Russia (obvious advantages: convenience of purchase, attractive price, affordable service), but such a scenario is not likely in the coming years. So many scientific institutions should expect a sharp increase in costs from the devaluation; perhaps even many will remember for the first time in recent years what a shortage of materials, equipment and components is."

An increase in the prices of imported goods on the domestic market can also cause such a side effect as a decrease in the quality of domestic high-tech products. Research by the Interdepartmental Analytical Center (IAC) has shown that the innovative activity of enterprises directly depends on the level of competition with foreign companies. "With reduced competition, companies have fewer incentives to increase the innovative component in products," explains Yuri Simachev, Deputy Director of the IAC. "The problem is not so much that the company is not experiencing significant competitive pressure, but that it is losing its development guidelines."

Thus, import substitution, so desired by many, may result in a decrease in the quality of products, consumption and, ultimately, the quality of life in Russia.

Exporters in the blackThe weakening of the national currency gives obvious advantages to exporting enterprises.

"The devaluation of the ruble has made it possible to reduce the dollar cost of production," said Andrey Ivashchenko, head of the ChemRar Central Research Center, where preclinical forms of new medicines are being developed. – According to our calculations, we can reduce prices on export markets by 10-20 percent, which will give us the opportunity to win the competition with other research organizations operating in the eurozone for contracts with foreign drug manufacturers. We expect the effect in about six months."

Moreover, even if the former shares in foreign markets remain, exporters will receive additional ruble profit from the sale of products for expensive currency. Individual manufacturers have already felt the benefits. "Under international agreements, we received more money in rubles," said Andrey Tarasov, Director General of the State Research Center of the Russian Federation "Institute of GINTSVETMET". – We almost do not bear the costs, as we were ready for devaluation. In July last year, when it was still forbidden to pronounce the word “crisis”, we “felt” the situation and converted money to be able to provide people with salaries. We also increased the shares of projects that are least dependent on purchases of imported equipment and do not require large amounts of work, in particular consulting, and it turned out that we are now working in a fairly favorable mode."

However, it is necessary to make a reservation here: not every export enterprise, due to its specifics, has the opportunity to switch to a low-cost, least import-dependent form of work, and, accordingly, the benefits of the current market situation are different for all enterprises. "Yes, the significant appreciation of the euro and the dollar has increased our revenues from the export of products," comments Viktor Bykov, CEO of the NT–MDT group of companies, which is leading in the domestic market of nanotechnology equipment. – But at the same time, the costs of purchasing components abroad, as well as the maintenance of foreign offices and advertising abroad have also increased. So, as the head of a company that has found itself in the epicenter of the problem of sharp fluctuations in exchange rates, I see some slyness in the statement that the devaluation of the ruble will greatly inspire domestic technology manufacturers."

The idea of manufacturing nanoequipment based on a purely Russian, domestic, high-tech economy is completely rejected in NT-MDT. "No one has ever succeeded in all areas of technical thought at once," says Denis Andreyuk, deputy head of the company's marketing department. – Take, for example, our new development – the Solver NEXT automated probe microscope, which today is one of the most successful models of scanning probe microscopes in the world: for it to appear, it took the efforts of people, parts and components from more than 15 countries! We produce some components for the microscope in Russia, others on our production lines in Ireland. Each of the foreign companies from which we purchase components is a world leader in its field. If we had done only with home-made work, the quality of finished products would have decreased markedly, and the price for it would have increased."

Innovation without investmentThe main disadvantage of the current economic situation in the country, which covers all the advantages that experts talk about, is the curtailment of projects to create new intellectual products and open new high–tech industries.

The course of building an innovative economy proclaimed in the Concept of Long-term Development (CDR), which investors seemed to have already begun to support (commercial banks considered it a matter of honor to open their venture funds), does not stand the test of the crisis.

"In the global and Russian banking system, and in general among investors, a reassessment of financial risks is beginning," explains Alexey Vedev, Director of the Center for Strategic Studies of the Bank of Moscow. – Lending to “unstable” entities, which include so-called high-tech enterprises focused on unstable, new or emerging markets, has been suspended. Concessions can only be made for small and medium-sized businesses, and these are likely to be pleasant exceptions. In the current situation, it is better to rely on the state. For example, it can create small business support funds in the regions, which, in turn, under the guarantees of the regional authorities, will take loans from banks for the development of specific enterprises."

At the same time, neither practitioners nor theorists in the field of science and innovation can say what measures during the financial crisis will help breathe life into the barely nascent sprouts of domestic innovations. News about the ruble's ups and downs, like news from the battlefields, keeps all current and potential participants in innovation processes in suspense. "In such opaque and unpredictable conditions, it is quite difficult to take active or passive anti–crisis measures, since the situation is not visible in the future," Yuri Simachev believes. "Investors, as well as enterprises that have recently planned to launch new products, are taking a wait–and-see attitude, freezing all innovative projects."

Meanwhile, when the author of the article was completing a largely pessimistic analysis of the prospects for an innovative economy, the Central Bank made an optimistic statement about the beginning of a gradual adjustment of the boundaries of the technical corridor that determines the value of the dual currency basket. Since January 23, the upper limit has been set at 41 rubles, which, with the current dollar-euro ratio, corresponds to the cost of "green" at about 36 rubles. The latest forecast of the Ministry of Economy shows the same figure. Theoretically, the appearance of at least some financial benchmarks should encourage innovative companies to adjust their business plans for the crisis period. In practice, given the high degree of dependence on commodity exports, this may lead to nothing. If oil and gas prices remain at the current level during 2009 (although many predict their further decline), the Bank of Russia will be forced to devalue the ruble even deeper, saving the balance of payments. And in the future, even switch to an unsecured issue of the national currency, that is, turn on the printing press to save the budget. And there will certainly be no time for innovation…

Portal "Eternal youth" www.vechnayamolodost.ru28.01.2009

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