Weekly 22 November 2020

AI to keep officials in check

Hello! This week our top story is about the latest tech fad at the heart of government: tracking officials using AI. We also look at reports that Russia is considering implementing a ‘golden passport’ scheme, and the U.K. electric vehicle start-up founded by a ex-Russian official that is heading for a valuation of $5.4 billion.

Russia’s bureaucrats to be monitored by AI

Prime Minister Mikhail Mishustin has a new plan to tackle Russia’s stagnating economy: the government wants to revive its flagship ‘National Projects’ scheme by monitoring officials with AI. But many of those in line for a spot of cyber-monitoring suspect this is little more than a PR stunt — and a way for Mishustin to position himself as a tech whizz-kid.

  • The National Projects are one of the most costly and problematic issues on President Vladimir Putin’s domestic agenda. They mandate the spending of 27.5 trillion rubles ($361 billion) to push forward development in sectors from education and healthcare to infrastructure, and they were at the heart of Putin’s 2018 election manifesto.
  • The main aim is to kickstart economic growth via public investment. Since 2014, when the West applied sanctions against Russia, the country has not recorded annual GDP growth of more than 0.7 percent. In May 2018, Putin in vain demanded that economic growth should at least meet the global average of 3 percent a year.
  • From day one, the National Projects have been plagued with problems. Not only have they failed to deliver much in the way of results, but Russia’s vast bureaucracy proved incapable of even spending the allocated funds. In 2019 alone, officials were unable to disburse a trillion rubles ($13 billion). Such failures were one of the reasons given for Dmitry Medvedev’s resignation as prime minister earlier this year (although not, likely, the real reason).
  • Several high-ranking government sources told The Bell this week that there is now a new plan. To track implementation of the National Projects, Mishustin has commissioned an electronic monitor that uses artificial intelligence. This will oversee the implementation of “Chinese-style mega-KPIs” that the government will dictate to industry officials and regional leaders. It sounds like science fiction. “The AI sees… how the numbers rise or fall following the implementation of the National Projects in the digital economy,” explained one source. Setting up the system will cost over a billion rubles ($13 million).
  • The Russian authorities often attempt to use fashionable technologies, with each new idea marketed as a simple solution to ingrained problems. At the height of the 2017 cryptocurrency craze, then-Deputy Prime Minister Igor Shuvalov said Putin was “a fan of blockchain”. Immediately, the digital economy was added to the list of areas covered by the National Projects, and Medvedev set up a working group to look at using blockchain in public administration. However, little was achieved.
  • Medvedev’s love of technology is well-known: as president he famously went to California to meet Steve Jobs. But Mishustin, who was an IT businessman in his youth, intends to outdo his predecessor, already proposing an unrealistic plan to turn Russia into an international IT hub. At the same time, Mishustin is no less renowned for his obsession with his public image. That might be why one official who spoke to The Bell dismissed the new AI monitoring system as nothing more than a PR stunt.

Why the world should care

Despite the loud words about a “Chinese-style mega-KPI”, Russia is not China. It’s highly unlikely that automating Russian bureaucracy will make it more effective.

Russia mulls ‘golden passport’ scheme

Russia’s Economic Development Ministry is considering a scheme to enable foreigners to get residency in exchange for investment, according to a Friday report in Izvestiya newspaper. If adopted, this would go against the global grain: many traditional offshore havens like Cyprus are limiting ‘golden passport’ naturalization programs because of money laundering fears.

  • Under the proposal, the cost of a Russian residence permit would be at least $130,000 invested in a business employing Russian staff. Spending $390,000 on real estate in Russia or Russian government bonds would also secure you the paperwork, as would an investment of $665,000 or more in a foreign company that has worked in Russia for at least three years.
  • In an international context, this wouldn’t be particularly cheap, or come with many obvious benefits. The Greek ‘golden visa’ program, for example, gives you five years’ residency for you and your family if you purchase real estate worth upwards of $295,000.
  • The latest, coronavirus weighted Henley Passport Index rates Russian passports as the 51st most attractive passports in the world. That’s significantly lower than Greece (8th place), the Carribean island of St. Kitts (26th), and even Ukraine (41st). Moreover, you should remember that foreigners with Russian residency are obliged to declare all their accounts and deposits in foreign banks.
  • In recent years, Russia has granted citizenship to a series of celebrities and sportspeople who have asked for it: from French actor Gerard Depardieu, unhappy with the taxation in his homeland, to U.S. snowboarder Vic Wild, South Korean speed skater Ahn Hyun-soo, and U.S. actor Steven Seagal (a far bigger box office star in Russia than in the U.S.). Whistleblower Edward Snowden is widely expected to be the next well-known figure to become a Russian citizen.
  • There are big questions about who would be interested in stumping up the money for a Russian ‘golden passport’. At the moment, the majority of applications for Russian residency come from citizens of former Soviet republics, few of whom would be able to afford the necessary investment. There may be interest from wealthy individuals in Africa, the Middle East and China, particularly those fleeing political turmoil, war or persecution. But it’s also possible Russia anticipates demand among those who are put off by new restrictions in formerly popular ‘golden passport’ havens – like Cyprus or Malta – introduced as a response to repeated money laundering scandals.

Whу the world should care

Attracting foreign investment is an uphill struggle for Russia, but it’s hard to imagine this initiative will solve the problem. Instead, golden passports may be used by fugitives from the West: for example, Jan Marsalek, a senior manager at the scandal-ridden payment system Wirecard, is believed to be currently hiding out in Russia.

Ex-official’s electric vehicle start-up valued at $5.4bln

A U.K. start-up founded by Russian businessman and ex-Deputy Minister of Communications Denis Sverdlov has needed less than a year to establish itself as one of the hottest companies in the booming electric vehicle sector. Arrival has already attracted investment from car companies Hyundai and Kia, package delivery firm UPS and asset manager BlackRock. This week the company announced it would float on Nasdaq with an estimated value of $5.4 billion.

  • Instead of a traditional IPO, Arrival will take advantage of an accelerated scheme via a special purpose acquisition company (SPAC) and start trading on the Nasdaq exchange at the start of next year. CIIG Merger Corp — headed by Peter Cuneo, former chief of Black&Decker, Remington and Marvel — will serve as the SPAC.
  • Arrival hopes to raise an estimated $660 million, valuing the company at $5.4 billion. At that price, Arrival is closing on the best-known electric vehicle start-ups on the market, such as electric truck manufacturer Nikola (which has a market value of around $10 billion despite widely-reported fraud allegations).
  • Arrival founder Sverdlov is the Russian businessman who created Yota, one of the first Russian mobile internet providers to appear in the 2000s. Later, he became Deputy Minister of Communications (we wrote about his career here). The former official set-up Arrival in Britain, not least because it will be a long time before Russia has a market — or infrastructure — for electric vehicles. That said, there is still Russian investment in the company – Vladimir Potanin, Russia’s richest man with a net worth of $19.7 billion according to Forbes, is one of Arrival’s investors.  
  • Sverdlov controls 75 percent of Arrival – an unusually large share for any company founder after several rounds of investment with blue-chip companies like Kia, Hyundai and BlackRock. If Arrival’s float succeeds, Sverdlov’s personal fortune will be over $4 billion, making him one of Russia’s 30 richest people.
  • Arrival’s popularity is down to its success in exploiting a niche in one of the most profitable markets of the near future: light electric trucks for moving goods around cities. Arrival’s vehicles should be no more expensive to buy than their conventional counterparts and 50 percent cheaper to run. Production is due to begin next year.

Why the world should care

Arrival’s success is a reminder to Western investors that, despite Russia’s dire international reputation, you should not be put off from promising start-ups founded by Russians.