BUDAPEST, Hungary — There may finally be hope for investors seeking opportunities in the Russian electronics market, according to a Russian official.

Alexander Kurlyandskiy, general director of Electronintorg Ltd., said government plans and diversification by oil and gas oligarchs is spurring investments in Russian high technology development.

"The government has proposed a partnership between the state and the business community, and has approved a three-year economy development plan that forecasts economic growth above the world average," Kurlyandskiy said here at the 15th annual International Electronics Forum. The Forum is the first to be held in the former Eastern bloc country where Soviet tanks crushed the first democratic seeds 50 years ago.

"The government has decided on joint development of high tech to be applied to healthcare, social infrastructure, education and agriculture," he said.

To that end, six special economic zones have been approved targeting high-tech development (Zelenograd and Dubna, St. Petersburg and Tomsk) and production (Elabuga and Lipetsk). Another is planned in the Russian enclave in the Kaliningrad Region.

Under Kremlin guidance, Russian oligarchs are investing in major electronics centers like Zelenograd, the former Soviet Union's Silicon Valley. "Everybody is coming to realize that investment in just the country's vast natural resources is not the way to proceed. Diversification of the economy must be encouraged," said Kurlyandskiy.

Kurlyandskiy added that all four major application areas—IT, telecom, automotive and consumer—have shown steady growth. The Russian IT market is estimated to have reached $10 billion in 2005. Sales are up 25 percent over two years, and several Russian OEMs are among Europe's top tech companies. They include R&K, Formosa, Aquarius and Kwazar.

The telecom market grew 25 percent last year to $21 billion while growing Russian auto sales have fueled the domestic auto electronics market. Most Western TVs are now assembled in Russia while Korean TVs are assembled in Russia and exported to European countries. Sitronics, the largest TV manufacturer in Russia, is aiming for $1 billion in annual sales this year.

Russia's semiconductor industry continues to develop at a slower pace than other emerging countries like China and India. Most production is at 0.5- to 0.35-micron line widths, with a few chip projects aiming for 0.25- and 0.18-microns. Mothballed fabs have been reopened at Mikron-VoronezhJV and Alexandrov.

The reopening of the Angstrem plant, one of the jewels of the Soviet era, is also being discussed. One plan is to give a majority share ownership to a private investor with a pricetag of $180 million. Angstrem has moved calculator chip production to China to clear space for a 0.5-micron chip production capability with expected capacity of 20,000 200-mm wafers per month.

Mikron, another unit within Zelenograd, has invested tens of millions of dollars in new fab equipment that is expected to go online later this year.

Moscow will also offer tax breaks, offering to return the value-added tax on imported equipment and eliminate import taxes on equipment not made in Russia. The tax breaks would last for nine months in 2006. The government will also launch a National Investment Fund and is implementing a national plan under the aegis of National Technology Base and Russian Components.

Meanwhile telecom giant Sistema is offering support for a $1.5 billion plan to modernize the St. Peterburg telephone system. Other oligarchs are planning to invest in Mikron and Angstrem. Motorola, Intel, Dell, Cadence and Mentor Graphics have all made inroads, and Intel has acquired Elbrus, the former Russian supercomputer design center.

Siemens, STMicroelectronics as well as Samsung and LG have also increased their Russian investments. The three major Western EDA firms—Synopsys, Cadence and Mentor Graphics—are working with university partners on development labs. Each has donated equipment and software.

The government also provides support for 16 state-owned and private Russian IC design houses in Moscow, Zelenograd, St Petersburg and Voronezh.

"The stars are in alignment between the government programs and the new investment interest on the part of oligarchs to finally get the Russian high-tech economy moving at a greater pace," Kurlyandskiy predicted.