Innovation in Russia: Business reactions and government response to the COVID-19 crisis


Leonid Gokhberg,
First Vice-Rector,
HSE University,

HSE Institute for Statistical Studies and Economics of Knowledge, HSE University,

Valeriya Vlasova,
Research Fellow,
Laboratory for Economics of Innovation, Institute for Statistical Studies and Economics of Knowledge, HSE University,

The capability to innovate is a crucial determinant of the nations’ global competitiveness, but the COVID-19 pandemic marked a turning point. Everywhere many businesses had to switch from development to survival, and innovation was at risk. The success of overcoming the COVID-19 crisis largely depends on the actions of the state – systemic implementation of forward-looking innovation policies to meet strategic development objectives.

The 2020 data show that Russian business had quite successfully passed through the first year of the pandemic. In the recently published Global Innovation Index – 2021, Russia ranks 45th among the 132 featured economies, rising for 2 steps over the 2020 level. On the five-year horizon, it demonstrates stable middle-ranking positions: it performs better in innovation inputs (43rd position) than outputs (52nd) thus reflecting a potential for improving the efficiency of innovation performance. Strengths of the national innovation system refer to new knowledge generation (scientific publications, patents) and its acquisition (high-tech imports, IPR, employment in knowledge-intensive occupations), as well as to the scale of the R&D sector.

Despite an overall limited propensity of domestic business towards innovation, the COVID-19 pandemic has boosted companies to innovate. In 2020, innovation activity of enterprises approached 10.8%, i.e. 1.7 percentage points above that in 2019. The largest growth rate was recorded in services, particularly in telecom, health, and software. Innovation expenditure-to-sales ratio also increased (2.3% vs. 2.1 in 2019), placing Russia to a comparable level vis-a-vis top-10 EU countries for this indicator.

Russia ranks among the 10-top global leaders for the scale of R&D expenditure which amounted to PPP$ 45.4 billion in 2020 (9th position in the world). Though the R&D effort is primarily government-funded (the share of government funding amounted to 67.8%), and remains relatively stable compared to GDP over the 10-year horizon: in 2020, GERD-to-GDP ratio accounted for 1.1% vs 1.04% in 2019 and 1.02% in 2011.

Our recent survey data suggest, that besides direct negative effects (lost profits, debt burden, etc.), the COVID-19 crisis has led to changes in business models and innovation strategies with a long-term promise. Overall businesses’ expectations are somewhat positive: over a half of the firms surveyed expect intensifying innovation activities, though much fewer (only 47%) envisage the increase of cooperation with R&D performers. This raises an issue of the lasting innovation system transformations, which have to be targeted along with generic economic countermeasures.

The pandemic stimulated an unprecedented increase of policy attention towards innovation, particularly taking measures to strengthen academy-industry linkages, university R&D, IPR framework, and favorable environment for innovative entrepreneurship and start-ups. As a rapid response to the pandemic, the government came up with an earmarked anti-crisis plan for 2020-2021 aimed at keeping viable companies operating and preserving jobs. The support package comprised predominantly financial instruments, including tax incentives through a refund of previously paid taxes, payment deferrals (e.g., for up to 6 months to SME in hard-hit industries), and loan rate reductions (e.g., soft loans under 2% if companies maintain their personnel).

Positive results have been achieved also through effective system-wide measures. A significant impact on innovation activities was provided by the establishment of a special legal framework (“regulatory sandboxes”) that enabled simplifying testing and certification of new technologies and products and their market launch, as well as reducing the administrative burden, including the suspension of administrative business inspections and moratorium on initiating bankruptcy procedures for companies and individual entrepreneurs in hard-hit industries.

The key feature of the ongoing innovation policy is the transition to targeting projects – as the instruments to achieve strategic objectives in science, technology, social and economic development. The new frontal Strategy for Social and Economic Development of the Russian Federation for 2035 implies a shift to a project-based approach to innovation policy support measures. It envisages the implementation of more than 80 national projects in 5 key areas: ‘New high-tech economy’, ‘Rapid infrastructure development’, ‘New social contract’, ‘Client-centred state’, and ‘National innovation system’. The total cost of these initiatives exceeds 4.5 trillion rubles in the form of public-private partnerships. Most of this amount will come from the budget, the rest will be contributed by companies and development institutions.

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