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The Next Silicon Valley?

Tuesday, 29 Jun 2010 | 1:05 PM ET

Before attending this past weekend’s G-20 meeting in Toronto, Russian President Dmitry Medvedev started his visit to North America early with a tour of Silicon Valley last Wednesday. While there, he met with Apple’s Steve Jobs, Cisco’s John Chambers and Twitter’s Evan Williams and Biz Stone, and also stopped by Stanford University.

The reason for Medvedev’s visit is that he is trying to build Russia’s version of Silicon Valley right outside of Moscow. I spent last week not far from there in St. Petersburg, and perhaps the most important observation I can make about the trip relates to the country’s efforts to spur technological innovation and encourage direct foreign investment in Russia.

Russia
Frans Lemmens | The Image Bank | Getty Images
Russia

The underlying problem is that Russia, the world’s largest oil and natural gas exporter, is too tied economically to oil and gas prices.

Medvedev is trying to wean the country off this dependence and diversify its economic base. He’s looking to technology as a way to do that as well as modernize the country.

In conjunction with a focus on technology, there appears to be a real change afoot in improving the climate for foreign investment. For a long time, investors and companies around the world have been skeptical of Russia because you couldn’t count on the rule of law. There was always the question: If you put your money in, are you going to be able to get it out?

From what I saw and heard, Medvedev and his leaders in the Finance Ministry get it. They are taking specific steps to encourage foreign investment. For example, while I was there, they cut capital gains taxes for foreign direction investments to zero.

Eyeing the WTO

I think investors and businesses should keep a healthy skepticism about Russia because there is still a cumbersome bureaucracy and instances of corruption that you hear about. I think the leaders are serious about their efforts to change, but there are middle managers still stuck in red tape, a very difficult tax structure, and other challenges. One investor told me while I was there that he had $100 million ready to invest in Russia, but he couldn’t make it happen because of the bureaucracy.

This apparent shift toward a more business friendly environment in Russia was perhaps the biggest difference I noticed since my last trip there a year ago. It’s clear that Russia would like to join the World Trade Organization, and I’m sure these recent steps are part of the country’s plan to strengthen its case for inclusion.

I think it will be fascinating to watch these efforts play out and see what investment opportunities may arise. I put together a special segment on Closing Belllast week about it, which you can watch here. I will also continue to talk to my sources and keep you up to date on the latest developments and opportunities in Investor Brief and on CNBC.

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