Dmitry Medvedev to tour Silicon Valley, seek investors

Dmitry Medvedev visits Silicon Valley for the first time on Wednesday, eager to reinvent his country's outmoded, oil-dependent economy.

Dmitry Medvedev visits Silicon Valley for the first time on Wednesday, eager to reinvent his country's outmoded, oil-dependent economy — and lure talent and money from the high-tech capital.

Two years into his presidency, the 44-year-old, tech-savvy Kremlin chief still lives in the shadow of his predecessor Prime Minister Vladimir Putin, but that hasn't stopped him from strenuously pursuing pet projects, the most grandiose of which is the creation of Russia's own Silicon Valley outside Moscow.

But to succeed, Medvedev knows he needs to attract some of the best minds and investors in the United States to a project that many Russian businessmen are already skeptical about.

"The future of our country, and its competitiveness on international markets, to a large degree depends upon the results of cooperating with foreign companies and universities," the Russian president told an international business forum in St. Petersburg last week.

On Tuesday, Medvedev touched down in San Francisco where he was greeted by California first lady Maria Shriver and former U.S. Secretary of State George Shultz. They were scheduled to attend a reception along with Gov. Arnold Schwarzenegger Tuesday night at San Francisco's Fairmont Hotel.

Besides exchanging pleasantries, both Schwarzenegger and Medvedev expressed a mutual desire to improve their respective economies through trade missions and delegations.

"I think this will be very, very beneficial for the State of California and also for Russia," Schwarzenegger said.

Medvedev, through a translator, added, "The idea that you mentioned about the creation of a special team that would be able to establish and maintain constant contact is also very important."

While in California, Medvedev will also meet with Twitter's founders, and give a speech at Stanford University. He will then fly to Washington to meet President Barack Obama, and from there the two will go to Toronto for the G-8 and G-20 summits.

But it is the front leg of the trip that has deep personal significance for Medvedev, who wants to refashion Russia from a raw materials supplier into a high-tech, intellectual oasis where innovation thrives.

Since the Soviet Union dissolved nearly two decades ago, thousands of Russia's brightest minds emigrated to work in scientific centers in the U.S., Britain and Israel. Now Russia's leadership wants to entice them back and keep ambitious minds at home.

In four months the Kremlin has lavished an "innograd" — or innovation city — project with budget allocations of hundreds of millions of dollars, attracted entrepreneurs and scientists, and last week in St. Petersburg secured a promise from Silicon Valley's own Cisco Systems Inc. to participate in the ambitious venture.

However, despite numerous tax breaks — companies are expected to enjoy an unprecedented 10-year grace period — potential investors are likely to share the same concerns as many Russian businessmen: that the project will be nothing more than a huge real estate project.

"I'm sure they will build everything that's needed, but I doubt there will be any innovations or ideas there because the government glosses over the details," said Yaroslav Petrichkovsky, director of Elvees, a microchip producer and safety systems designer. "Like in other cases, they decided everything by themselves."

The promise of immense state investments — $500 million alone has been budgeted next year — and unprecedented tax benefits have prompted many to dub Skolkovo an enormous black hole, considering that special tax zones in Russia often have been a magnet for murky capital while producing little value.

High-tech businesses have long asked for financing for research and tax breaks, but they have tended to encounter risk-adverse bureaucrats wary of venture capital and failure. Analysts warn that without genuine reform of Russia's tremendous state machine, a mega-project like Skolkovo will be doomed before it ever gets off the ground.

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Associated Press writer Gary Peach and video journalist Haven Daley contributed to this report.

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