No Time to Lose

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Global economic slowdown, shrinking GDP, and climate change have combined to push governments throughout the world to revisit their development plans, lean more about alternative energy sources, and build new technological platforms. With the third industrial revolution well under way, the planet is changing. The question is, what place will Russia take in the new world, and how exactly will the Russian economy diversify? Below Rostec Corporation’s position, as voiced by Director of Communications and Strategic Research Vasily Brovko.

We need a revolution

The economy is in stagnation, productivity is falling, and unemployment is on the rise. The two industrial revolutions of the 19th and 20th centuries have caused global warming. Forceful and aggressive, man’s activities have left Earth’s ecosystems lagging far behind, unable to adapt, with the planet likely to lose up to 50% of its total lifeforms in the next 80 years. This is the grim reality, and the problem calls for radical steps: changing the economic paradigm and, consequently, the underlying technological platform. The sooner the better, says Jeremy Rifkin, the globally known social and economic scientist and author of the very concept of the ‘Third Industrial Revolution’. The world has already changed at least seven times, he explains. Every time, the change was prompted by the convergence of three basic technologies: new communications systems, new energy sources, and new means of transport. Together, they merged into a completely new technology platform. Specifically, in the 19th century, the introduction of the telegraph coincided with the arrival of steam engines and the use of coal as a cheap energy source. Similarly, cheap Texas oil, telephone (later supplemented by radio and television), and the combustion engine converged in the 20th century.

It is now obvious that the existing industrial infrastructure is, unfortunately, obsolete; in particular, the aggregate economic efficiency in the US (the ratio of the actual to potential yield) amounts to 13%. Despite it being one of the world’s most developed economies, the ratio has been hovering at the peak it reached back in 1990. Since then, the figure has not changed.

More cost-efficiency, more robustness

The third industrial revolution will be accomplished using distributed and renewable energy sources coupled with the Internet and global digitalization. Apart from the Internet, as a means of communication, Internet of Things and intelligent transport systems involving road, rail, water, and air service will emerge, shaping a single environment influencing economic activities.

The availability of renewable energy sources – solar, geothermal and wind, biomass and tidal energy will eventually enable everyone to produce enough solar and wind energy for themselves at zero marginal cost, Rifkin says. The energy will be generated over millions of locations and shared through intelligent networks contributing to a highly efficient and eco-friendly economy. As a matter of fact, the latter process is already underway: As of 8 May 2016, renewable energy sources accounted for 87% of total energy used in Germany. In turn, Costa Rica was able to subsist 285 days on fully renewable energy sources in 2015.

According to the economist, the Internet of Things will soon come to every device. Sensors and data-sharing units are already part of warehouses and plants, smart houses, and agricultural fields where they help keep an eye on the crops. By 2030, everything will be tapped on, with an external brain – the central nervous system of mankind – coming into existence.

The Internet will give people an opportunity to interact directly, without any intermediaries. Some marginal costs – for instance, additional costs involved in production of additional products – could be set to zero.

The forecasts are already coming true. Specifically, European countries are building such a future with the DIGITALEUROPE project in full swing. Each venue (be it a household, an office, or a plant) will gain access to electricity, rendered energy efficient and turned into a data center. Buildings may be equipped with mini power plants, providing electricity within land lots. Furthermore, they will become battery charge centers and automatic fueling stations for transport. The subs will be united into a single network to form a new, interconnected digital Europe. China is nursing a similar plan, Internet Plus. Without such economic plans, environmental ones will fail as well.

How does all this bode for Russia as an ‘energy superpower’? According to Rifkin, the country should stick to the pattern of the second industrial revolution while putting efforts into developing new technology, which means diversifying the economy.

Yet, we have to roll up our sleeves now and move on to building an absolutely new energy system in Russia by implementing new technology, digitizing electricity networks, and creating an intelligent environment and smart transport. This will require significant efforts but will eventually pay off in terms of productivity and energy efficiency increases.

Become a global competitor

In the last decade, Russia has been basking in the status of an ‘energy superpower’, the Rostec source mentioned. “High hydrocarbon prices generated high budget earnings and even permitted to create a reserve fund,” according to Vasily Brovko, Director of Communications and Strategic Research at Rostec. “Still, holding on to this concept in future will leave Russia lagging behind.”

New markets predicted to emerge in Russia by 2035 (according to the research and technology initiative):

  • EnergyNet – distributed energy, from personal power to smart grid, smart city
  • FoodNet – customer-orientated food and water production and delivery system
  • SafeNet – new customized security systems.
  • HealthNet – customized health care
  • AeroNet – distributed unmanned aircraft systems
  • MariNet – distributed unmanned sea craft systems
  • AutoNet – a distributed network of self-driving motor vehicles
  • FinNet – decentralized financial systems and currencies
  • NeuroNet – distributed components of artificial consciousness and psyche

A research and technology initiative is now becoming the priority. The program, if implemented, will bring the country to a leading position in terms of technology by 2035.

The research and technology initiative implies the creation of new markets that currently either do not exist at all or are poorly developed. Rather than catching up with other countries, Russia should focus on building a space for itself in the new technological system: First, it is easier to work from scratch, and, second, it is also strategically more expedient, since success immediately puts the country into a leading position.

The research and technology initiative roadmap includes nine markets, from that of distributed energy to that of personal security and health insurance systems. Why these? They were selected on the basis of certain criteria. Specifically, by 2035, each market will exceed $100 billion, which will make them important on a global scale. The market must focus on the needs of end users, which means laying more emphasis on B2C than B2B. Furthermore, Russia’s current market should not have any established technological standards. It is also crucial for Russia to possess a leadership potential in the sphere; it needs technology startuppers with leadership ambitions in high-tech industries.

These tasks require new messages and players represented by high-tech corporations, development institutes, and startups. A new production culture and infrastructure must be molded and new markets tapped. This is the task outline for Rostec Corporation, a state-run corporation bringing together 15 holding companies and over 700 organizations. It is occasionally accused of monopolism, but industrial consolidation and integration are a global trend. Suffice it to mention such global industry leaders as GE and Siemens. Compared to big Asian and Western players, Rostec does not actually seem hyperinflated.

Furthermore, there are apparent synergies between the state corporation’s strategy and the research and technology initiative, since these are the two documents outlining the steps required to realize the country’s technology potential in the most comprehensible manner. Their common goal is to learn to “think and live with the future in mind” and create the necessary conditions for raising Russia’s economy to a completely new level. According to Brovko, Russia’s industrial potential has been generally under-realized in both equipment production and engineering.

Rostec’s challenges

Rostec plans to evolve into a significant player on the high-tech market by 2025. To that end, the corporation will expand on to civilian markets for smart technologies and encourage the creation of new capital intensive markets.

The fact is that ‘smart technology’ markets are currently the most interesting from a financial viewpoint: While traditional markets are expanding by five percent on average, the intelligent technology markets grow at almost double that rate. Added value makes up most of the product value. We are talking about medical equipment, biotechnologies, energy efficient and resource-saving equipment. The market is important since power losses in Russia’s electricity grids amount to 15% on average (which translates into over 100 billion kWh/year). Rostec also views telecommunications, IT, electronic equipment, new materials, robotics, cybersecurity, organic LEDs, etc. as additional priority areas.

According to Brovko, Rostec is in a position to compete successfully because of its adequate research, educational, and production background, and, even more importantly, its access to inventors capable of looking at the world from a new perspective. Meanwhile, some of its projects can be announced at the current stage.

Civilian market: Success and future

In 2015, the share of Rostec’s civilian-orientated products amounted to 30%. Currently, all divisions within the corporation have been charged with increasing the proportion to 50%, which will result in a 17% growth in annual revenues and help in coping with the declining demand for military equipment, as reflected by the government defense contracts.


At this point, the civilian-orientated products of Rostec are mostly represented by components rather than end products. Nevertheless, the corporation’s portfolio does boast a few interesting projects in this sphere.

Specifically, Shvabe has produced an unparalleled innovative microscope MIM-340, its resolution being ranked among the best in the world with image processing taking a mere 0.3 seconds. The microscope can display blood cells for the purpose of detecting red blood cell pathologies and determining the morphological characteristics of neoplastic cells, and determine new drug screening procedures. MIM-340 also permits the cellular lifecycle to be observed not just at a given moment but also over time, and the impact of a certain drug on a human body estimated. The microscope has broader uses than in just medicine, branching out to precision engineering, optical industry, aerospace, and materials science.

Another milestone Rostec product is a prototype of a non-invasive brain-computer interface. The device can operate electronic and mechatronic tools ‘by force of thought’, by recording, processing, and interpreting brain waves. Dry electrodes permit electric brain activity to be recorded without direct contact with the brain. The technology opens up new opportunities in prosthetics and rehabilitation of patients with various motor defects, as well as in development of Russian robotics engineering as a whole.

“Nevertheless, mass market products are not critical for the normal lifestyle, security and access to state-of-the-art technology and knowledge,” Brovko says. Medical and e-learning solutions are significantly more important. Today, the government has made it an objective to provide medical equipment for the whole country domestically. Specifically, in early 2017, Rostec is planning to launch production of robotic prosthetics that can, in time, become parts of a fully functional external skeleton. The prosthetics will tap into new horizons in prosthetics and rehabilitation, so the holding will be well on its way to creating a functional external skeleton. The design won the Golden Chip prize awarded at the New Electronics 2016 exhibition held in Moscow.

Military projects

Incidentally, Rostec will retain its priority right to fulfill government defense and defense industry contracts, especially given that many of the designs and products developed initially for military purposes can be used for civilian needs. According to Brovko, Rostec developed a multi-purpose device called Pikor, which helps detect people under rubble several meters deep. The device can ‘see’ an immovable object 2.5 meters away behind a brick wall up to 0.4 meters thick and 0.9–1.5 meters deep in sand. It can also record respiratory activity under a snow cover of up to 2 meters. For moving objects, the range increases to 6–8 meters. Furthermore, the device is easily transportable, measuring 41 by 27 cm and weighing 1.8 kg.

Kazan Helicopters (part of Russian Helicopters) has independently designed and launched the production of a light Ansat helicopter used for student training purposes. The helicopter can reproduce the behavior of various types of aircraft, flight conditions, and even failures. In the long term, the helicopter may enjoy demand on the civilian market, given that there are two versions of it, one hydraulic/mechanic, the other electric signal control, the latter being a novelty product for the civilian market.
The aviation sector affords a good example of technology transfer to the military industry. It currently relies increasingly on composite materials, aluminum alloys being replaced by lighter yet sturdier carbon materials. In this area, RT-Chemcomposite leads the way, with its products poised to contribute to the performance of the MS-21 airliner. This aircraft is slated to take third place on a market dominated by Boeing and Airbus. Jeremy Rifkin believes transition to composite materials to be an important milestone in cost efficiency.

In electronics, this is true of the microchip engineering and electronic component base. Specifically, in May 2015, the first Elbrus 401 computers and Elbrus 4.4 servers based on the Russian Elbrus-4c processing unit hit the market. They are produced by MCST in collaboration with the Bruk Institute for Electronic Control Machines, which is part of the defense industry complex. Equipment using Elbrus processors can be of use not only to military customers but also to companies with information security requirements. Elbrus, incidentally, has aroused the interest of foreign clients, with Iran, which appears to be an increasingly promising market as sanctions are being lifted, planning to order a batch.

Cross-technologies

One of Rostec’s tasks is to develop technology and devices at the interface between various industries. For instance, radio electronic technologies could be used in medicine, while medical projects could be used in telecommunications or defense. This could bring contracts to a lot of Russian companies.

To illustrate, some Rostec holdings are already involved in aerospace projects. For instance, RT-Chemcomposite produces large shells for heat shields, modules, wire ducts, and instrument module components for the Russian launch vehicles Proton-M, Rokot, and Angara. Shvabe produces world-standard optoelectronics for manned spacecraft and satellites. One of Technodinamika’s subsidiaries, NPP Zvezda, designs and produces open space suits that are currently in continuous use at the International Space Station.

“In the space of 20–30 years, the state corporation expects to become a driver for the Russian economy, in both related and new industries,” Brovko sums up. “If the plans materialize, they will bring the country into a completely different world.”

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