Russia Prepares for 5G Digital and OBOR – EU Connectivity

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5g-russiaRussia has approved a rolling, three year plan worth US$1.6 billion per annum to upgrade its digital network and to bring it in line with Chinese developments in e-commerce and trade. The ongoing investment – equivalent to about a third of China’s total spend per head of population over the next decade – also accounts for the fact that many of Russia’s citizens live in relatively easier to access cities than China’s. Further, Russia already possesses superior satellite technologies with craft already operational and in orbit. Moscow expects to be one of the first global cities to be 5G by 2020, a task that will rank it ahead of cities such as London, and made somewhat easier due to the upgrade in communications currently taking place to prepare the nation for next year’s FIFA World Cup finals that is expected to feature a pilot 5G zone. By 2020, Russia plans to roll out 5G networks in eight cities.

The digital economy, also known as the internet economy, is based on digital computing technologies, comprising new business models such as e-commerce, cloud computing, and payment services. Technology is functioning as a new engine for the development of new revenue streams and enabler of new business models. With China possessing one billion consumers who are able to access the digital economy, and the State Government putting into plans to deliver to 95 percent of China within 24 hours by 2020, the opportunities for getting produce both into and out of China and the OBOR regions as a whole are immense. The digital revolution is impacting on the essential deliverables of the OBOR routes – getting products delivered, on time, safely, and securely. This includes not just e-commerce, but also e-customs and e-government. Supporting services will all be managed by e-platforms.

5G networks are expected to bring about a veritable revolution in business processes owing to the brand new technological opportunities that come along with them. The industrial Internet of Things, smart cities, self-driving cars, telemedicine, and other promising development areas will get a fresh start – following the 5G standardization, just three years from now.

Both China and Russia are making giant steps to transform their economies and gear up for their entire markets being dominated by the digital evolution. Both nations also recognize the urgent need to synchronize systems, develop compatible standards, and allow use of such technologies to speed up transshipment, logistics, warehousing, and final delivery services to consumers.

The Skolokovo School of Management recently released a report into Russia’s digital connectivity, entitled the “Russian Regional Digital Life Index” with the aim of studying the existing levels of digital penetration on everyday life, including transport, finance, retail, education, healthcare, media, and public administration, together with the supply and demand for digital services. What was found is that Russia has already reached the second phase of connectivity – the apparatus is in place, now it is starting to yield results. This is a measure of intensity rather than breadth of usage, and accordingly puts Russia ahead of China in this regard. Also of interest were the city results – Yekerterinburg ranked higher than Moscow, St.Petersburg, and Novosibirsk in overall digitization, a mark of the city’s modern and innovative culture. The results are below:

digital-russia
It should also be remembered that despite sanctions, the Russian economy itself is now growing and there is huge pent up demand. Russia’s middle class consumer base is about 75 million, roughly 50 percent of its total population, and among the highest percentage total among the BRIC nations. It should be remembered that prior to the sanctions, bilateral trade with the EU was worth some €276 billion and had just reached a record high. Russia, at the time, was the EU’s second largest trade partner, with about 85 percent of EU exports to Russia being in manufactured goods. The vast majority of that trade has now passed to Asia. The EU sanctions upon Russia are a direct cause of a huge increase in Russia’s trade with China, which has consequently been growing at rates of 30 percent per annum. This means that huge opportunities for Russian businesses exist in servicing the Chinese consumer market, which currently has 750 million online users and is expected to reach one billion by 2020. To service this huge Chinese market, Russia needs digital connectivity.

Russia still has a lot of work to do in digital connectivity, east of the Urals and across to Vladivostok, but European Russia is well prepared. It can be expected that lines such as the Trans-Siberian and other routes will be upgraded to 5G standard, even if the surrounding, often remote areas around these routes may not be. With a mandated budget in place, Russia is set to continue its digital connectivity program and take its place at the 21st century e-commerce and trade table with China.

As concerns Russian trade with the EU, and with the digital economy largely able to bypass sanctions, both Russian and EU businesses will be able to find new methods of doing business with each other, and more so – should the pressure to permit cryptocurrencies in trade start to take effect. The current sanctions have effectively highlighted the problems in relations between the EU and Russia, but at the same time, have demonstrated a real degree of interdependence between their economies. The imposition of sanctions has instead provided an opportunity to create new cross-border value chains. With Russia a de facto vast border region between China and the EU, having Russia up to speed will prove vital to both Chinese and the EU’s prospects of maintaining and developing trade. If visionary mindsets can position Russia as a vast, services-oriented digital economy lying between China and the EU, then the opportunities for investment in digital commerce in Russia are obvious.

 

Chris Devonshire-Ellis is the Founding Partner and Chairman of Dezan Shira & Associates. He is based in Europe. The firm provides European businesses and governments with strategic, legal, tax and operational advisory services to SMEs and MNCs investing throughout Asia and has 28 offices across China, India and the ASEAN nations as well as St. Petersburg and Moscow. Please contact the firm at russia@dezshira.com or visit the practice at www.dezshira.com

 

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