Atlantic Council

For the countries of the greater Black Sea region and Central Asia, the question of how to diversify their economies away from resource dependency or government-dominated industry is central to long-term growth and future political stability. Economic diversification is an explicit policy of energy-rich states such as Azerbaijan and Kazakhstan, and fostering innovation is a key part of that effort.  This week, for example, Baku is set to announce its plans for Azerspace, a program to launch Azerbaijani satellites into orbit.  But even as the Georgian government encourages software development and Azerbaijan seeks to become Eurasia’s telecommunications hub, experts question whether the dominant approach to fostering innovation in Eurasia is the right one.

In a discussion on October 1, 2010, at the second annual Black Sea Energy and Economic Forum in Istanbul, Andrew Prozes, the Global CEO of LexisNexis, a pioneer in providing information online, and Internet visionary Paul Twomey, former President and CEO of ICANN, the Internet Corporation for Assigned Names and Numbers, emphasized the building-blocks that must be in place for genuine innovation to flourish in any economy. These include intellectual property rights, traditional property rights (to be able to grow a business, hold on to it and potentially sell it), sound technical and business education, research and development incentives, available credit and capital markets and respect for the rule of law.  All these are sticking points in the Eurasian context.  Twomey, especially, emphasized not just technological innovation, but process innovation—that is, openness on the part of government and the private sector to operate and cooperate in new ways.

Obstacles and risks are not limited to the Eurasia space.  The desire to maintain the status quo, entrenched relationships between government ministries, state-owned or controlled companies and de-facto monopolies—all these challenges were and sometimes are still present in telecommunications and information technology in North America and Western Europe.  Genuinely fostering innovation is therefore at least a twenty-year process; it requires commitment from the private sector and hard work in bringing entrenched interests onside, or getting around them.

The former Soviet region does have its own particular challenges.  Ian Hague, co-founder and and lead manager of Firebird Capital, an investment firm working in the former Soviet space, pointed out that Eurasian governments are not in principle averse to the concept of innovation.  As with the cases of Georgia and Azerbaijan, business and government have understood the importance of economic diversification through innovation.  But as Hague termed it, Eurasian states tend to see the fostering of innovation as a top-down exercise that the state leads and sometimes controls.  Its transformative effects are therefore stifled.

Lt. Gen. Brent Scowcroft, National Security Advisor to US Presidents Gerald Ford and George H. W. Bush and Chairman of the Atlantic Council International Advisory Board, also touched on this subject at the Black Sea Energy and Economic Forum. According to him, some Eurasian governments fear innovation, particularly in information technology, and see it as a potential political threat.  The extent to which a government tries to control information is a key indicator of a country’s capacity for innovation.

Scowcroft’s comments get to the heart of the matter. Eurasia is one of the parts of the world most in need of entrepreneurial spirit in order to break through ossified modes of operation left over from the Soviet period.  Yet as long as the political environment is not ready for the pluralism that comes with business innovation, genuine economic diversification will remain a ways off.  Nonetheless, both the wealthy resource-based economies of the region such as Azerbaijan and Kazakhstan, and the struggling economies such as Moldova or Kyrgyzstan need a flowering of innovation to avoid long-term stagnation.  The solution lies in more open politics.

Alexandros Petersen is a nonresident senior fellow with the Atlantic Council's Dinu Patriciu Eurasia Center.