The Current Status of Digital Economy Development in Russia

In 2017, Russia officially approved the implementation of the "Digital Economy" national project, which includes federal sub projects such as "Digital Economy," "National Governance," "Technological Development," "Information Technology Infrastructure," "Artificial Intelligence," and "Cybersecurity." The Ministry of Digital Development, Communications, and Mass Media (hereinafter referred to as the "Ministry of Digital") is responsible for the specific implementation process of the project.

From 2020 to 2022, the Russian Ministry of Digital Affairs, the National Bureau of Statistics, and the Higher School of Economics jointly released the "Digital Economy: A Brief Statistical Manual", which summarizes the development of Russia's digital economy and society from 2018 to 2020, covering eight aspects: investment in digital economy development, digital economy social coverage, public satisfaction with digital technology, business digitization, digital governance, digital economy practitioners, digital infrastructure, and information and communication technology (ICT).

In 2020, Russia's total investment in the development of the digital economy reached 4.063 trillion rubles, a decrease of 0.76% from 2019, accounting for 3.8% of GDP and an increase of 0.1 percentage points from 2019. In 2019, Russia's total investment in the development of the digital economy reached 4.094 trillion rubles, accounting for 3.7% of GDP. Among them, the expenditure of Russian households on the use of digital technology products and services was 1.801 trillion rubles (1.7% of GDP), an increase of 9.75% over the previous year; Corporate expenditures reached 2.262 trillion rubles (2.2% of GDP), a decrease of 7.79% from the previous year. The expenditure of enterprises on using digital technology products and services is mainly used for purchasing mechanical equipment that applies digital technology (46.0%), purchasing electronic communication services (20.9%), and purchasing related software and installation (18.1%). The expenditure direction is roughly the same as last year.

In terms of digital economic and social coverage, the Internet coverage rate of Russian households will reach 80% in 2020, an increase of 3.1 percentage points over the previous year, and is expected to reach 84% in 2021. The broadband coverage rate reached 77%, an increase of 2.4 percentage points year-on-year. From 2019 to 2020, Russia's Internet coverage has increased significantly, reflecting Russia's determination to expand network coverage. In 2019, the family Internet coverage rate of Russia was still lower than that of the United States (76.9% in that year), while in 2022 it was the same as that of the United States, but still lower than that of Italy, the Czech Republic and other countries.

In terms of enterprise networks, the proportion of enterprises using broadband networks increased from 86.6% in 2019 to 93.0% in 2020, once again confirming Russia's determination to expand network coverage. In addition, the proportion of enterprises with broadband network speeds of not less than 2Mbps has increased from 65.0% to 78.5%, indicating further improvement in enterprise digital infrastructure. However, the proportion of companies with websites has decreased from 51.9% in 2020 to 44.3% in 2021, indicating that despite improvements in digital infrastructure, their level of digital openness still needs to be further enhanced.

Information and Communication Technology (ICT) is a major focus of Russia's digital economy development. Despite the huge impact of the COVID-19 epidemic on Russia's economy and society, the ICT field still maintains a steady growth trend. In 2020, the total added value of the ICT sector was 2.98 trillion rubles, with its proportion of GDP increasing from 2.9% in 2019 to 3.1% in 2020. Although it achieved impressive results, there is still significant room for growth. Fixed assets investment in ICT increased from 741 billion rubles in 2019 to 835 billion rubles in 2020, most of which went to enterprises and businesses in the communication field (accounting for 72% of the total investment).

In terms of employment and talent reserves, in 2020, the number of ICT professionals in Russia increased from 8.6267 million in 2019 to 9.1489 million, accounting for 2.5% of the total employed population, lower than digital giants such as Finland (7.6%), Sweden (7.5%), Estonia (6.5%), and the United Kingdom (5.6%). However, the youthfulness of experts remains one of Russia's major advantages. The ICT workforce aged 15-39 accounts for 67.4% of the total ICT workforce, while the ICT workforce under 30 years old accounts for 50.0% of the total ICT workforce, surpassing digital countries such as Estonia, France, the United Kingdom, and Switzerland, proving that Russia's digital talent has significant potential.

The "Digital Economy 2022: Brief Statistical Manual" jointly released by the Russian Higher School of Economics, the National Bureau of Statistics, and the Ministry of Digital Technology summarizes and analyzes the development of Russia's digital economy in 2021. The report points out that the country's expenditure on the digital economy is constantly increasing. In 2021, the total domestic expenditure was 4.8 trillion rubles, an increase of 19.3% compared to 2020, of which 33.5% was used to purchase digital related machines and equipment, and 30.6% was used for telecommunications services.

The report points out that enterprises have made significant contributions to the development of the digital economy. The proportion of enterprises using cloud technology and big data collection, processing, and analysis technology is showing an upward trend, accounting for more than 25% of the total number of enterprises. In addition, attention to Radio Frequency Identification (RFID) technology is also increasing. The proportion of companies applying this technology was only 8.2% in 2019, 9.8% in 2020, and increased to 10.8% in 2021.

According to statistics from the Ministry of Finance, in 2021, the execution of the federal budget for Russia's "digital economy" national project accounted for 95.8% of the budget value. From 2022 to 2024, the government is expected to allocate 600 billion rubles for the implementation of the "digital economy" and its subordinate projects. This will ensure that Russia achieves its established strategic goals by 2030 and meets the 'digital maturity' target.

The Institute of Statistics and Knowledge Economy at the Russian Higher School of Economics analyzed the usage of Russia's telecommunications and ICT infrastructure in 2021, and examined the development of these two sectors in the context of the pandemic and the new economic environment.

In terms of telecommunications infrastructure, in 2021, the total fixed Internet traffic will reach 78.1 exabytes, an increase of 26% over the previous year, but slightly lower than the growth rate of 35% in 2020 (see Table 1). It can be seen that fixed network traffic has not experienced long-term intensive growth. The growth rate of mobile network traffic is slightly higher than that of fixed network traffic, at 31%, but still at the lowest level in recent years. On the one hand, this is a dynamic consequence of the significant decrease in the number of users during the 2020 pandemic, and on the other hand, it also indicates a high level of user participation in mobile telecommunications infrastructure. In addition, when the number of users actually decreases, the increase of mobile Internet traffic is the result of the increase of specific traffic of each user.

表1 2014～2021年俄固定网络和移动网络流量动态

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Table 1: Dynamics of Fixed and Mobile Network Traffic in Russia from 2014 to 2021

Although the growth rate of traffic slowed down, the popularity of broadband Internet increased. In 2021, the number of fixed broadband users will increase by 2.2%, which is equivalent to 24 per 100 residents accessing the Internet, and the number of mobile network access will increase by 8.4%. In 2021, the proportion of users whose Internet access speed exceeds 100Mbps will increase by 7.2 percentage points over the previous year, reaching nearly 50%; The proportion of users with speeds ranging from 10 to 100Mbps has also slightly increased, with a growth rate of 1.7 percentage points. In 2021, the penetration rate of modern fixed broadband technology will increase, and the share of optical network users will increase by 3.4 percentage points, enabling nearly 86% of the population to access the most reliable Internet.

In addition, although Russian telecommunications companies have reserved equipment until early 2023, delays in the delivery of new equipment and the lengthy preparation time for 4G networks may delay the development of leading telecommunications technologies, and are more likely to lead to disruptions in infrastructure connectivity.

In terms of information and communication technology, in 2021, the Russian information and communication technology sector continued the trend of rapid growth in total added value in previous years, with an actual growth rate of 10.8%, reaching 3.7 trillion rubles, accounting for 3.2% of GDP. The growth rate was 6.9% in 2020 and 5.7% in 2019. The development speed of ICT is higher than that of most economic sectors. In 2021, organizations producing digital products (+39.3%), IT companies (+11.6%), and telecommunications companies (+2.5%) all showed a positive development trend. However, ICT wholesale trade decreased by 25.2% compared to 2020, mainly due to the high benchmark value brought by the demand for digital related goods during the pandemic. From 2018 to 2021, the total added value of the IT industry will increase by more than 33%, the sales of IT enterprises will increase by 1.7 times, and the actual amount of fixed assets investment will increase by nearly 20%. In terms of talent, affected by sanctions, the number of employees working in foreign-funded or joint venture IT companies is about 88000, accounting for 14% of employees in the IT industry and other IT service industries. On the contrary, in the production of information and communication technology equipment, the proportion of people employed by foreign-funded institutions is very small, only 3%. Small businesses hold a significant share in the information and communication technology sector, employing approximately 30% of the workforce. The characteristic of the information and communication technology sector is a high proportion of young experts, with approximately two-thirds of employees under the age of 40 (46.7% of the total labor force in Russia). The younger group is concentrated in IT service companies, while the older group is concentrated in the ICT equipment industry. This reflects that the IT profession is relatively popular among young people and is also a result of the increasing amount of IT vocational training in universities in recent years. However, in the professional fields related to hardware and electronic product development and production, the influx of new experts is significantly lower.

By 2022, the ICT sector in Russia has become a rapidly growing part of the economy, with the core being the rapidly growing IT industry. In recent years, the ICT manufacturing industry has also shown a positive development trend, and there is a certain opportunity to form resilience against sanctions. Meanwhile, given its high dependence on imports of information and communication technology and the reduction of foreign companies, it is expected that the information and communication technology sector will undergo significant restructuring in 2022.

Russia's Position in International Digital Economy Rankings

According to the comprehensive ranking of this report, Russia ranked 32nd out of 50 countries in 2022, a decrease of 9 places from its ranking of 23rd in 2021. From the perspective of segmented indicators, Russia's main advantage lies in its competitiveness in digital infrastructure, with relatively developed areas such as broadband deployment and 5G network development. However, in this sub indicator ranking, Russia ranks 19th, down 9 places from the previous year (10th), indicating that its development speed is still slower than other developed countries in the horizontal comparison at the international level. In terms of digital governance, compared to the previous year (14th place), Russia's ranking has significantly declined, only ranking 34th, indicating that there are significant security risks in Russia's digital environment. On the one hand, this has something to do with the sharp rise of cyber attacks in the context of the Russia-Ukraine conflict; On the other hand, this also reflects that the relevant laws and regulations currently introduced by the Russian legislative body cannot keep up with the speed of domestic technological development, and there may be legal loopholes.

In 2021, Russia showed a decline in industrial competition and innovation competition, while in 2022, Russia made certain progress in two indicators. In terms of industrial competition, Russia has risen one place from the previous year (39th) to rank 38th, indicating the development trend of Russia's technology industry. In terms of innovation competition, Russia has risen 2 places from the previous year (31st place) to rank 29th, which is the most significant indicator of Russia's growth. Combined with other data in the report, it can be concluded that Russia has increased its investment in talent development, which has contributed to the growth of this indicator.

The Network Readiness Index (NRI) of the World Economic Forum scores countries based on four sub indicators: technology, human resources, governance, and impact, measuring their maturity in effectively utilizing information and communication technologies. In 2021, Russia ranked 43rd out of 130 economies, after Saudi Arabia, Croatia, and Qatar, rising 5 places from the previous year (a total of 134 economies were selected for this ranking in 2020). The Netherlands, Sweden, and Denmark rank in the top three respectively, while China ranks 29th (up from 40th last year). Russia ranks first among the CIS countries, followed by Armenia at 60th place (down 5 places from the previous year) and Kazakhstan at 61st place (down 5 places from the previous year), with indicators far exceeding the average level of CIS countries. The report points out that in terms of the four major sub indicators, manpower is Russia's main advantage, and it has significant room for improvement in governance. From its sub indicators, active broadband users, network security, and adult literacy rate are the strongest indicators in Russia; There is significant room for improvement in the three sub indicators of future technology, quality of life, and regulation; The ICT regulatory environment, e-commerce legislation, and Sustainable Development Goal 7: Affordable clean energy are weak links in Russia. In 2020, governance and its regulatory system were already weak links in Russia, and the situation remains the same in 2021, reflecting the urgent need for improvement in the legislative field.

In the "2022 United Nations E-Government Survey Report" released by the United Nations in 2022, Russia ranked 42nd out of 193 countries, a decrease of 6 places from 2020 (ranking 36th in 2020). However, its level of e-government development still belongs to the "very high" category. The report points out that this is due to Russia's outstanding performance in telecommunications infrastructure (TII) and human resources (HCI) indicators. However, Russia still needs to focus on improving the quality and supply capacity of online services. China ranks 43rd in the survey, two places ahead of 2020. Compared to 2020, Finland has surpassed Estonia and jumped to second place, following Denmark.

From a city perspective, according to the Local Online Service Index (LOSI) ranking, Moscow, the capital of Russia, ranks 5th out of 146 cities, in the "very high LOSI index" group, up 1 place from 2020. The top three in this ranking are Berlin, Madrid, and Tallinn, with Berlin jumping from 9th place two years ago to 1st place. Shanghai, China is also in this group, ranking 10th, with a drop of 1 place in ranking; The ranking of Tokyo, the capital of Japan, has risen by 10 places in 2022, from 24th to 14th.

Three Existing Problems in the Development of Russia's Digital Economy

In 2022, Russia will face multiple political and economic threats such as the epidemic situation and economic sanctions triggered by the Russia-Ukraine conflict. The Russian economy will suffer huge losses, and the digital economy is no exception. In the face of the complicated international situation, the Russian Electronic Communications Association pointed out that by the end of 2022, some sectors of the Russian Internet economy may experience negative growth. As foreign mainstream Internet enterprises and online platforms leave Russia, or impose payment barriers on Russian users, Russian Internet digital content will be reduced by at least 60%, and online advertising will be reduced by 50%, which will cause a major blow to the Russian Internet economy. In addition, the growth rate of infrastructure and e-commerce will also slow down, but overall maintain a positive trend. According to the association's forecast, by the end of 2022, the growth rates of infrastructure and e-commerce will be 17% and 15% respectively, and the contribution of digital markets to the Russian economy will decrease to 11%.

（1） The exit of advanced foreign technology enterprises from the Russian market has led to a talent gap

From the perspective of segmentation, the Russia-Ukraine conflict inevitably brings challenges to the development of Russian digital technology. The most serious consequence is that foreign advanced technology companies have announced their withdrawal from the Russian market due to conflicts, causing significant losses. With the continuation of the Russia-Ukraine conflict, Western countries have increasingly imposed sanctions on Russia, leading IT companies have announced to withdraw from the Russian market, or reduce their share in Russia, cutting off the ruble payment method. This will lead to a significant reduction in the availability of foreign digital technologies within Russia, including software, cloud services, ICT equipment, microelectronic devices, etc., which will further narrow the development space for enterprises. In addition, the withdrawal of foreign companies from the Russian market will also reduce investment opportunities for digital enterprises, causing serious impacts on digital technology applications, business process digitization, technology implementation costs, and digital usage.

The withdrawal of foreign companies from the Russian market will also lead to the problem of professional personnel outflow. As mentioned in last year's report and earlier, the proportion of employees in the Russian digital economy is still at a relatively low level, and the outflow of personnel caused by the delisting of enterprises is bound to accelerate the expansion of the shortage of professional personnel. In addition, although the Russian government is attempting to support its artificial intelligence and high-tech industries through subsidies, funding, and legislative support, the massive loss of talent will have a fatal impact on the still developing Russian artificial intelligence ecosystem. Although Russian universities offer new generation information technology majors, most of them are limited to major categories such as computer and electronics, lacking new interdisciplinary majors such as big data, microelectronics, and integrated circuits. Moreover, the existing teaching methods and content of courses in Russia are relatively lagging behind. Many teachers' courses not only fail to meet the basic requirements of information education, but also are disconnected from technological development and industrial needs. After graduation, students have poor job adaptability and cannot meet the demand for Russian talents, which in turn affects the overall digital transformation ability of Russian society.

In the context of the long-term continuation of the Russia-Ukraine conflict, online information warfare has also become increasingly fierce. Since the outbreak of the Russia-Ukraine conflict, the number of cyber attacks on key and socially important information infrastructures such as Russia's main state organs and mainstream media has been rising. This also exposes the hidden dangers in Russia's cybersecurity and potential risks in the field of data protection.

In addition, the most immediate consequence of sanctions is the cutting off of international cooperation among Russian universities and research institutions in the field of artificial intelligence. Research cooperation is one of the important driving forces for promoting the development of artificial intelligence. The negative image of Russia in the conflict has weakened the willingness of other countries to cooperate with Russia, leading to the stagnation of cooperation in this field, and there is a risk of development stagnation in Russia's artificial intelligence field.

（2） Russian domestic enterprises lack innovation spirit and digital willingness

In addition to external factors, the lack of innovative spirit in large enterprises is also a major reason for the difficulties in the development of Russia's digital economy. At present, Russia is not like the United States, which owns high-tech companies such as Google and Apple. Apart from Yandex, there are almost no typical digital technology companies. Nevertheless, Yandex, which has a market share of over 46% in Russia, has a market value far lower than Google, Apple in the United States, and Alibaba and Tencent in China. As of February 2022, Yandex's market value was $16.4 billion, while Tencent and Alibaba in China had market values of over $600 billion and $300 billion respectively, indicating a huge capital valuation gap for the company. In addition, Yandex's contribution to Russia's GDP is minimal and cannot make substantial contributions, let alone play a leading role in the digital economy. In terms of investing in research and development, large state-owned companies in Russia do not seem to prioritize technological innovation. For example, Gazprom's R&D investment accounts for only 0.095% of its revenue, while Rosneft's R&D investment accounts for only 0.02% of its revenue. As a comparison, the R&D investment of energy companies Shell and ExxonMobil accounts for 0.43% and 0.47%, respectively.

In addition, as mentioned earlier, although the network infrastructure has been further developed under the leadership of the Russian government and most enterprises have access to high-quality broadband, most enterprises still have not established official websites or information portals. Even if a website is opened, on the one hand, its information is very outdated, most websites have simple structures, and news updates mostly stay at the beginning of website establishment, which makes it difficult for potential customer groups, scientific research experts and other relevant personnel to find the information they need on the website. On the other hand, the website did not consider the multilingual needs of the user group, and most websites only produce Russian versions, which further adds obstacles to communication between both parties.

In terms of government R&D investment, although the Russian government provides significant financial support for digital transformation, it is currently constrained by two factors. On the one hand, most of the funds are focused on promoting the digital transformation of the public sector, and enterprises are still stagnant due to a lack of research and development budget funds and tax incentives for digital research and development from the government. This is particularly evident in the digital transformation of private enterprises. On the other hand, Russian enterprises have low enthusiasm for technological innovation in the digital industry, and their R&D and innovation capabilities have continued to decline over the past 20 years. The number of R&D institutions established by innovative enterprises has decreased by nearly 42.8%.

The analysis center under the Russian Federation government believes that the digital transformation of enterprises mainly faces four problems. Firstly, the current industry regulations are inconsistent with the demands of new technological models, lacking unified standards, which leads to administrative obstacles for enterprises in practice. Secondly, if the information related to digital technology is not timely or publicly disclosed, enterprises cannot obtain the latest development trends. Thirdly, financial difficulties caused by the economic and international political situation. Fourthly, there is a shortage of personnel. With the continuous advancement of digitization, the issue of personnel scarcity has become increasingly challenging, and there is a growing shortage of management personnel capable of implementing modern digital business strategies. The central experts believe that the pace of digitization and the growth rate of demand for digital capabilities and professional knowledge have exceeded the market supply of high skilled talents in the digital economy. Therefore, the future pace of digitization will largely depend on the development of training programs, government and enterprise participation in new economy training, strengthened experience sharing, and cross industry capability transfer. However, resistance to change within the enterprise also constitutes another obstacle to digitization.

（3） The tight financial situation in Russia has led to a significant reduction in future funding for the digital economy

The comprehensive impact of the new epidemic has dealt a heavy blow to the development of the Russian economy, and the sluggish economic situation does not allow the government authorities to provide more financial support to enterprises according to the original digital transformation plan. According to the budget draft submitted by the government in 2022, the national plan for financing the "digital economy" in 2023 is 129.3 billion rubles, a decrease of 58.7 billion rubles or 31.2% compared to 2022. The estimated funding for the national plan in 2024 is 126.9 billion rubles, a decrease of 61.1 billion rubles from 2022. Among them, the budget plan for the federal project "Information Infrastructure" in 2023 is 11.98 billion rubles, which is about half of the funding for 2022 (24.5 billion rubles). In 2024, this number is planned to be 12.7 billion rubles. In particular, the budget allocation for 5G radio frequency conversion planned for 2023 will be reduced by 1.7 billion rubles, and by 1.1 billion rubles in 2024. The budget for the federal project "Digital Technology" may reach 17.8 billion rubles in 2023, a decrease of 260% from 2022. By 2024, this number may reach 16.1 billion rubles. This is because the government will allocate the funds to Russian state-owned defense industry giant Rostech to develop telecommunications equipment networks for 5G/IMT-2020 networks and ensure their mass production. In 2023, the funding for projects organized by Russia to develop digital platforms and software for creating and/or developing high-tech industrial production will be reduced by 1.2 billion rubles. Support for small business projects developing, applying, and commercializing Russian digital solutions will also decrease by approximately 1.1 billion rubles. In 2023, the funding for the federal project "Digital Public Management" may decrease by 19.6%, reaching 71.7 billion rubles. In 2024, this number is planned to be 74.3 billion rubles. In particular, it is planned to reduce the budget allocation for supporting regional and municipal digital technology implementation and use projects by 852 million rubles in 2023 and 3.6 billion rubles in 2024. The "Artificial Intelligence" federal project is expected to receive 6.4 billion rubles in funding in 2023, a decrease of 11.2% from 2022, and plans to receive 5.8 billion rubles in funding in 2024.

（4） The public's enthusiasm and acceptance of new technologies are relatively low

From the perspective of social acceptance of digital skills, residents have a lower level of mastery and enthusiasm for basic digital skills. According to the "Digital Economy: A Brief Statistical Handbook," Russian residents have a relatively low level of mastery of digital skills. Among residents aged 15 and above, only 42.2% of them use email attachments, which is less than half. In terms of basic computer skills such as transferring files, creating tables, processing documents, and installing software, the proportion of residents who can use these skills does not exceed 30%. At the international level, the proportion of Russian residents proficient in basic computer skills is much lower than that of digital powers such as the UK, Germany, Czech Republic, Finland, and South Korea.

This means that although Russia has set ambitious goals for the digital economy, the foundation for digital skills training is still very weak, which means that the coverage of Russia's digital economy measures is easily limited and cannot fully cover the resident population, especially the elderly. In addition, a lower level of mastery of digital skills can also affect the cultivation and reserve of professional talents in the Russian digital field.

In addition, the public's enthusiasm for digital services also needs to be improved. According to the "Digital Economy: A Brief Statistical Manual", the proportion of residents who use digital means to receive updates on national and regional service information is only 58.7% of the total population. Among residents who refuse to use digital means, more than half (55.7%) of the respondents prefer offline acceptance and face-to-face communication. How to enhance the human touch of digital services is also a question that Russia needs to consider when developing digital technology.

Prospects for the Development of Russia's Digital Economy

Against the multiple backgrounds of the COVID-19, the Russia-Ukraine conflict and the impact of subsequent sanctions, and the continued downturn of the domestic economy, the prospects for the development of Russia's digital economy are fraught with difficulties. However, Russian experts still believe that the development of the digital economy and sectors such as "Environment Society Governance" (ESG), green energy, 5G, and artificial intelligence have certain prospects.

（1） Collaborative development of digital economy and ESG

Experts from Skolkovo School of Management believe that the current low level of ESG transformation in Russia is due to a lack of sufficient understanding of the field and transformation process among Russian companies, and that Russia has not yet introduced corresponding method definitions and implemented regulatory frameworks. However, the development of digital practices in Russia can promote synergies between the two, improve operational efficiency, and drive more significant achievements in the field of sustainable development.

Nowadays, there is a great demand for developing digital solutions within the framework of environmental direction. Climate issues (16%), waste management (15%), and biodiversity conservation (13%) are the areas where digital tools are most lacking. Pollution prevention and resource conservation are also one of the five directions of ESG, but they also face the challenge of lacking applicable digital tools.

In addition, experts from large corporations point out that there is a lack of solutions across the entire scope of ESG agendas for small and medium-sized enterprises. The fact is, considering the lack of necessary professional knowledge in the labor market, the main task of innovation in the ESG field falls on large enterprises, as their opportunities for hiring and training employees are more extensive. To promote the coordinated development between the two, experts believe that measures should be taken in the following areas.

Firstly, develop digital solutions for ESG activity environments. Despite the rapid development of ESG digital solutions, the market is still not fully saturated. We should stimulate demand for ESG digital tools by actively emphasizing their importance. According to relevant survey results, respondents believe that the application of advanced analytical technologies in fields such as artificial intelligence, the Internet of Things, blockchain, and robotics has great potential.

Secondly, establish a governance system and conduct professional knowledge training. The further development of ESG digitalization requires active exploration and communication of the best methods and means between integrators and enterprises. However, there is currently a lack of necessary capabilities or a lack of unified integrators to provide ESG solutions. Therefore, establishing the necessary capability foundation and cultivating relevant talents is the top priority.

Thirdly, develop ESG practices within the company. Currently, most Russian companies lack ESG capabilities internally and can only solve point-to-point tasks by hiring third-party entities such as IT and consulting firms to implement digital solutions in ESG activities. To simplify this process, ESG related practices should be implemented within the company to save time and costs.

Fourthly, large market participants should expand the scale of ESG digital solutions. Given the high cost of the latest and most advanced ESG digital solutions, as well as the lack of ESG experts in the market, opportunities for small and medium-sized enterprises to undergo comprehensive digital ESG transformation are limited. Expanding the scale of digital tools is the solution to this problem. Large enterprises that have already participated in digital and ESG transformation should be encouraged to summarize their digital solutions and release them to the market. This will reduce the direct cost of developing and implementing solutions while maintaining their effectiveness. In the face of severe economic sanctions, this trend in the Russian market will be strengthened.

Fifth, develop methods for evaluating the effectiveness of implementing ESG digital solutions. Due to the lack of universally accepted methods and models to evaluate the economic effectiveness of digital ESG projects, it is difficult to attract foreign investment for such projects. Currently, the share of such investments does not exceed 25% in most cases.

（2） The digital transformation of fuel energy complexes has great prospects

The domestic fuel and energy complex in Russia began investing heavily in domestic digital solutions as early as 2013-2014, drawing on advanced international experience and combining domestic conditions to create quite advanced digital tools. Currently, local energy companies in Russia are paying close attention to import substitution in information security. As of now, 90% of Russia's protective equipment has achieved complete import substitution.

Russia will actively promote the development and implementation of domestically produced software in the fuel and energy sector, and plans to create IT development and training centers on the basis of small-scale enterprises in the sector. Russian oil company pointed out that based on its practical experience, digital development based on large-scale enterprise solutions is an effective method. Russian Hydrogen Energy Company has signed an agreement with Far Eastern Federal University to create a joint training program and supply relevant talents to its affiliated research and development institutions.

（3） Russia plans to start deploying 5G networks in 2024

The Russian Ministry of Digital Development, Communications and Mass Media announced in October 2022 that Russia plans to officially deploy 5G networks in 2024, with frequencies ranging from 4.4 to 4.9 GHz.

However, the current Russian government roadmap and implementation roadmap still focus on 4G networks, and the frequency range of 4.4-4.9GHz is very unpopular. Even without sanctions, finding a suitable base station will be very difficult. Although frequencies in the range of 3.4-3.8GHz are more commonly used, they have already been occupied by the military and the Russian Federal Space Agency. Developing new frequencies would mean a significant increase in budget.

However, a large number of mobile phone models currently support frequencies between 4.4-4.9GHz. Based on the practical experience of LTE development, device support for frequency bands will generally stabilize in the next five years.

Russia has not yet officially announced a commercial 5G network, and is only conducting pilot tests in major cities such as Moscow and St. Petersburg, focusing on scenarios such as remote control of robots and drones, video surveillance functions, wireless offices, and innovative healthcare. Currently, the four major communication operators in Russia have established 5G testing areas.

（4） Artificial intelligence remains the most promising direction for digital technology in Russia

In 2021, the Russian Ministry of Industry and Trade ordered market research on hardware and software integrated facilities related to the development of artificial intelligence in Russia and globally, analyzing advanced foreign manufacturers in this field (including Nvidia, Qualcomm, Google, Amazon, Alibaba, etc.), identifying Russian developers with high competitive potential for artificial intelligence hardware solutions, and making recommendations for the development of the domestic hardware and software integrated industry for artificial intelligence.

The research results indicate that Russia should conduct research in the following promising areas.

Firstly, the software and hardware integration in the field of computer vision. Considering the development of sensors, augmented and virtual reality, the popularity of smartphones with built-in cameras, and the demand for biometric analysis, computer vision has significant gaps and prospects.

Secondly, in the field of speech recognition and synthesis. Due to the development of automation services and the Internet of Things, as well as the popularity of voice assistants, chatbots, and the use of "voice unlock" to provide access protection services, speech recognition and synthesis have strong appeal.

Thirdly, consulting and intelligent decision support systems. This niche market is very broad, with a huge stock of available data and a low entry threshold for experts. The research results of the Russian Ministry of Industry and Trade show that more than half of the 261 startups in the field of artificial intelligence are engaged in the development of recommendation and intelligent decision support systems. The total financing amount of such startups reached 149.87 billion US dollars.

In addition, the report also points out that natural language processing and automatic training of neural networks have development prospects. Russian companies have considerable competitiveness in some technological fields, and due to their native language environment, they have a first mover advantage in the domestic Russian market. Russian companies are actively implementing solutions that include artificial intelligence elements, and their efficiency is faster than foreign companies, in order to optimize costs and business development. At present, the Russian artificial intelligence market is almost entirely covered by domestic technology products, including voice assistant Alisa, human resource robot Vera, VisionLabs, and NTechLab's urban facial recognition technology.