Anatoly Chubais speaking at Stanford Faculty Club

Russian innovative economy: is it real?
Anatoly Chubais, Chief Executive Officer
March 29,2012 / Stanford Faculty Club
Rusnano_Investment_Attractiveness_Short_ENG_F_AN.pptx 1

Current macroeconomic situation in Russia


After a sharp drop in 2009, Russian GDP has recovered and is now
expected to continue growing
GDP development and structure
GDP DEVELOPMENT [USD bn] GDP STRUCTURE, RUSSIA, 2010 [%]
1,102 8% Other
1,059
8 9 1,016 6% Construction
977
944 942 Natural resources
6 897 905 11%
870 Production
826 5
764 4 4 4 4 4 Retail
4 16%
Services

19%

40%

-8

2005 2007 2009 2011 2013 2015
Real GDP growth Real GDP in 2005 prices [USD bn]

Source: Federal State Statistics Service, OECD, EIU, IMF, Roland Berger Strategy Consultants Rusnano_Investment_Attractiveness_Short_ENG_F_AN.pptx 3

Russian GDP (PPP): 6th in the world

GDP (PPP), USD trillion

16 15,07

12 11,32

8

4,47 4,40
4 3,09
2,38 2,31 2,25 2,22 1,83

0
USA China India Japan Germany Russia Brazil UK France Italy

Source: IMF Rusnano_Investment_Attractiveness_Short_ENG_F_AN.pptx 4

Economic indicators: facts and forecasts

INFLATION [%] FINANCE AND DEBT

25
International reserves (as of 16.03.2012): $505.4 bn
20,1
20

National Wealth Fund and Reserve Fund,
15 aggregate amount (as of 01.03.2012): $152.2 bn
19%

10

Gross government debt ,
5
6 % of GDP (2012, forecast): 14.1%
40%

Source: Federal State Statistics Service, Ministry of Finance of the Russian Federation, Bank of Russia Rusnano_Investment_Attractiveness_Short_ENG_F_AN.pptx 5

Foreign direct investment was growing strongly prior to the crisis –
Expected to regain former level by 2013

Foreign direct investment in Russia
FOREIGN DIRECT INVESTMENT IN RUSSIA [USD bn] STRUCTURE OF FDI, 2010 [%]
1% 100%
Construction
20% Financial sector
80 Power, gas, oil
+19%
3% Others
70 p.a 6% Telecommunications
60 8% Real estate
8% Natural resources
50
Science
8%
40 Retail
9% Manufacturing
30
13%
20

10
24%
0
’05 ’06 ’07 ’08 ’09 ’10 ’11F ’12F ’13F
Foreign direct investment

Source: Roland Berger Strategy Consultants Rusnano_Investment_Attractiveness_Short_ENG_F_AN.pptx 6

Overall effect from accession of Russia to WTO is mostly positive
for innovative industries

WTO membership will aid Russia in its ambitious plan to innovate and modernize the economy, since:

 imported inputs, particularly equipment, will become cheaper as a result of tariff reductions after
accession
 the WTO «seal of approval» will render Russia more attractive for foreign direct investments

 An additional effect for innovative industries: production growth rate by 6-7.5% per year

Source: CASE Research Rusnano_Investment_Attractiveness_Short_ENG_F_AN.pptx 7

Russia’s modernisation: main policy challenge

Vladimir Putin, Feb 8, 2008: Dmitry Medvedev, Nov 12, 2009:

”In our work to make our economy radically more
effective we also need to put in place incentives “In the twenty-first century, our country once
and conditions for progress in a whole number of again needs to undergo comprehensive
different directions [...] This calls for large-scale modernisation. […] I see this as a question of our
modernisation of production facilities in all country’s survival in the modern world”
economic sectors”


RUSNANO: goals and outlook


Russian nanotech industry 2010-2015: late start, but huge potential

Ivory Tower USA Dominant

Japan

Germany
Nanotech Activity

U.K. S.Korea

Russia Israel

Italy

Singapore

Minor League Technology Development Strenght Niche

Goal for Russia: move into the “major league” by 2015
Source: Lux Research, RUSNANO Rusnano_Investment_Attractiveness_Short_ENG_F_AN.pptx 10

RUSNANO: brief overview

Established in 2007 as a state corporation

Transformed into a joint-stock company in 2011

Resources:
Russian Federation’s asset contributions in RUSNANO: $ 4.1 bn
State guaranteed debt financing (bonds issuance): $ 5.7 bn


RUSNANO: brief overview

Tasks:
- commercialization of nanotech industry projects
- sales of Russian nano-enabled products by 2015 –
~ $ 30 bn per year

Terms of Financing:
- financing projects at early stage and stage of expansion
- ownership participation — no more than 50% - 1 share

RUSNANO Fund for Infrastructure and Educational Programs
Joint-stock company Non-commercial organization
co-investment in nanotechnology industrial projects investment in non-financial innovative infrastructure
and investment funds and educational programs


RUSNANO’s key results:
Funding

Overall amount of project funding (progressive total), 2008 – 2011, $ billion
3,42 3,4

2,2

1,4
1,1
0,6

0,007 0,0003

2008 2009 2010 2011

RUSNANO Coinvestors


RUSNANO’s key results:
Production

2011: 13 new factories in 10 Russian regions

St.Petersburg

Karachev Moscow + Moscow region
Nizhni Novgorod
Novomoskovsk
Izhevsk
Aramil (Sverdlovsk region)
Kazan
Novosibirsk


RUSNANO’s key plans:
Production

2012: 16 new factories in 9 Russian regions

St.Petersburg
Kaluga Moscow + Moscow region
Karachev
Vladimir
Nizhni Novgorod
Novomoskovsk
Izhevsk
Valuyki (Belgorod region) Aramil (Sverdlovsk region)
Novocheboksarsk Kazan
(Chuvashia region)
Novosibirsk
Nevinnomyssk (Stavropol region) Usolie-Sibirskoe (Irkutsk region)


The most attractive market segments:
Examples

Pharmaceuticals and biotechnology

Energy efficiency

Electronics, photonics and optics

Construction materials


Pharmaceuticals and biotechnology


Estimated minimum size of the pharma and biotech sector in 2015
is USD 4,5 bn – 78% growth in vaccines is possible

Overview of pharma and biotech sub-sectors
(BIO)PHARMACEUTICALS
VACCINES MEDICAL SERVICES
(excl. vaccines)
ATTRACTIVE- > Upside potential > Upside potential > Moderate potential
NESS > Strong CAGR > Strong CAGR > Demand from
> Government support > Government support commercial segment

MARKET +47% 14,001) max +78% 2,001) max
2011-2015 +14%

[USD bn] 0,60
1,00
3,00 3,00 min 0,20 0,50 min
2011 2015 2011 2015 2011 2015

KEY TRENDS > Strong medical need, especially in > Growth of vaccines market > Demand for IVD services is mainly
cardiovascular and oncology depends mainly on government driven by the commercial sector
treatments plans for including new vaccines in > Significant R&D base, experienced
> Government aims to localize National Immunization Calendar scientific teams
manufacturing due to currently high > Unclear how many and what type > Clinical trials in Russia are high
share of imported drugs (77%) of vaccines will be included quality and less expensive and
quicker than in the EU/US
1) window of opportunity (potential)

Source: Roland Berger Strategy Consultants Market attractiveness Rusnano_Investment_Attractiveness_Short_ENG_F_AN.pptx 18

-

RUSNANO has numerous ongoing projects in booming sectors –
Successful localization projects are also underway
FINANCING:
>RUSNANO share of committed capital as per January 2012 – USD 1,1 bn
>Private investors (in cooperation with RUSNANO) as per January 2012 – USD 1,6 bn
Investment projects in the sector – examples
COMPANY PRODUCT TECHNOLOGY
BioBetter class of Biodegradable nanocomposite
PHARMACEUTICALS SinBio
pharmaceuticals materials

Technology based on pseudo-
VACCINES NT Pharma Flu nanovaccines adenoviral nanofractions and
special nanostructures

PET-Technology National chain of PET Nuclear medicine, new
DIAGNOSTICS diagnostic centers in diagnostic methods
Russia

TECHNOLOGY Domain Therapeutic products for the GMP-standard manufacturing
Associates treatment of viral infections,
TRANSFER cardiovascular diseases, cancer

TECHNOLOGY Celtic Pharma Innovative medications in GMP-standard manufacturing
hematology, endocrinology,
TRANSFER cardiology, oncology

Energy efficiency


Power generation and energy accumulation will drive the sector up
to USD 8 bn in 2015

Overview of energy efficiency sub-sectors
ENERGY
ENERGY POWER ENERGY
HARVESTING
ACCUMULATION GENERATION DISTRIBUTION
AND CONVERSION
ATTRACTIVE- > High potential > Upside potential > Moderate potential > Stable potential
NESS > Strong CAGR > Huge future market > Strong CAGR > Moderate CAGR
> Government support share > Government support

MARKET +31% +25% +7%
2011-2015
[USD bn] 3,16
2,90 1,11 1,07
0,97 0,46 0,83

2011 2015 2015 2011 2015 2011 2015

KEY TRENDS > Opening up of the > USC technology power > Growth driven by overall > Growth driven by import
electric vehicles market stations will be built in growth of advertising and substitution for power
> Growth in demand for Russia from 2015 construction markets transformers and high
accumulators for power > Technology will account > Growth rate of non- level of overall
distribution companies for more than 30% of residential property investment in energy
total power capacity market 2011-2015 is > Industry leaders plan to
installed 18.6% localize transformer
production in Russia

RUSNANO is already co-investor in a number of successful projects
in the sector, Liotech and Nesscap already started production
FINANCING:
>RUSNANO share of committed capital as per January 2012– USD 0,9 bn
Accumulators for electric
ACCUMULATORS Liotech High capacity lithium-ion batteries
vehicles and energy
sector

Carbon microwave steam
Nesscap Energy High-capacity energy
SUPERCAPACITORS Inc accumulators
activation of nanopore
electrode structures

Profotech Fiber optic metering Nanostructured fiber-based optic current and
TRANSDUCERS systems for power grids voltage measurement and monitoring sensors

PHOTOVOLTAICS Hevel Solar modules Thin film technology


Electronics, photonics and optics


The electronics and photonics sector is highly attractive for investors
– Estimated market potential of USD 5,7 bn in 2015

Overview of electronics and photonics markets
INTEGRATED CIRCUITS
OPTOELECTRONICS TELECOMMUNICATIONS
AND CHIPS
ATTRACTIVE- > High potential > Moderate potential > Stable potential
NESS > Strong CAGR > Moderate CAGR > Moderate CAGR
> Government support

MARKET +61% +98%
2011-2015 +18%
[USD bn] 3,07 1,85
0,46 0,38 0,75 0,12
2011 2015 2011 2015 2011 2015
KEY TRENDS > Many areas of application, > Market is driven by LED, which > Massive market growth mainly
including transportation, will mainly be used for lighting due to transition of mobile
pharmaceuticals, logistics, etc. systems operators to 4G networks by
> Massive government support via > Government support via the applying LTE base stations
ERA GLONASS project and restriction of incandescent light > Growth in fiber channel market is
implementation of RFID in all bulbs and changes in construction moderate and driven by the
pharma products, transportation rules involving the use of LED in increasing number of broadband
and postal systems new buildings service users

RUSNANO has a track record of successful investments in the
sector, IRE-Polus and Optogan are currently market leaders
FINANCING:
Fiber lasers and
NTO IRE-Polus telecommunications
PHOTONICS Fiber lasers
equipment in Russia

High-brightness light-emitting
OPTOELECTRONICS Optogan Light emission diodes diodes for a large variety of
applications

Crocus Tech- Magnetoresistive Innovative memory production
ELECTRONICS nology SA technology
memory


Construction materials


Total market volume of the sub-sectors with the biggest commercial
potential is ~USD 14,6 bn, more than half of it - polymers and additives

Overview of construction materials sub-sectors
LOW EMISSIVITY THERMAL POLYMERS AND WATER TREATMENT
GLASS INSULATION ADDITIVES MEMBRANES
ATTRACTIVE- > Strong CAGR > Large market volume
> Large market volume > Mostly government
NESS > Stable market growth financing
> Massive market > Stable market growth > Increased application > Moderate growth
potential of new materials potential

MARKET +15% +11%
+86% +16%
2011-2015
[USD bn] 1,20 4,30 8,87 0,14 0,21
2,40 5,11
0,10
2011 2015 2011 2015 2011 2015
2011 2015
KEY TRENDS > Tighter regulations on > Overall construction > Growth driven by overall > Demand for water
thermal resistance of growth and changes in construction growth treatment membranes
windows for new energy effic'y regulations > Good prospects for mostly determined by
buildings from 2016 for new buildings are increased application of governmental spending
> Share of low emissivity driving market growth new materials > Strong need for
glass expected to grow > Great need for insulation (composites, nano- refurbishing existing
for refurbishing existing additives, etc.) infrastructure
residential stock

There are potentially interesting projects on the market – RUSNANO
has invested in some of them, which are now successfully operating
FINANCING:
Glass magnetron spattering
LOW EMISSIVITY STiS Low emissivity glass in metal-oxide nanofilm
GLASS vacuum

Composite Reinforcement of polymer with
COMPOSITES Galen reinforcement and basalt fibers
fittings

Additives for bituminous Devulcanized rubber nanoparticles for bituminous
ADDITIVES Unicom concrete and asphalt concrete and asphalt additives production


Russian innovative economy: it is real!
КОНЦОВКА!!!

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Anatoly Chubais speaking at Stanford Faculty Club

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