The AI race is one of the hottest topics of the moment for business media, politicians, and the general public. Is AI another bubble that will inevitably burst? Can a startup really be worth a trillion dollars? Will the AI revolution boost standards of living across the board, or just for a select few? Notably, Russia and its tech sector are largely absent from all these conversations—despite a historical track record of technological breakthroughs and a highly qualified workforce.

Unsurprisingly, U.S.-based companies have been at the forefront of this technological revolution. But Russia’s tech sector hasn’t stood still over the last fifteen years either. Companies like the online marketplaces Avito, Wildberries, and Ozon have shown that technology can transform the economic landscape and be profitable for innovators within Russia.

However, the war in Ukraine, Western sanctions, and the emigration of huge numbers of specialists have widened the technological gap with other countries and damaged the business model of Russia’s new national champions. A good example is VK, operator of the eponymous Russian social network. Despite state support and a lack of competition, VK shares have lost more than 80 percent of their value over the last five years.

The most successful high-tech Russian businesses currently operate outside Russia, such as Nebius Group, which was set up by Yandex founder Arkady Volozh and is based in the Netherlands. Last year, Nebius signed a multi-billion-dollar agreement with Microsoft to supply AI computing power.

It would be impossible for a Russia-based company to land such a deal—not only because of Western sanctions, but because of the repressive regulatory environment inside Russia. No global corporation wants to give Russian state agencies access to client data, let alone its proprietary data.  

Another example is digital bank Plata, which is expanding rapidly across Latin America. In just a few years, Plata’s founders (all of whom previously worked at the Russian digital bank Tinkoff) have built a company that uses cutting-edge technology to assess credit risks and enhance fraud prevention. Despite the challenges of an unfamiliar market and new regulatory environment, Plata, Nebius, and others clearly prefer a non-Russian investment climate, where governments and elites are constrained by functioning institutions.  

But that’s not to say that the Russian elites are uninterested in the AI race: far from it. Back in 2016, German Gref, head of the state-owned banking giant Sber, said that the digital economy “could be an alternative to Russia’s dependence on oil and gas.” At the annual St. Petersburg International Economic Forum that same year, Sber put on a panel session called “Technology Is a Ticket to Tomorrow. Adapt or Die”—which now looks like a bad joke (this author was among the organizers). Speakers included executives from U.S. aircraft manufacturer Boeing, consulting company McKinsey, and Russian internet giant Yandex, as well as then deputy prime minister Arkady Dvorkovich (a lineup that is unthinkable today).

The most astute response back then came from Loren Graham, a professor at the Massachusetts Institute of Technology (MIT), who pointed out that, while Russia had a long history of successfully developing new technologies, it always failed when it came to commercialization. He concluded: “You want the milk without the cow.”

According to Graham, the reason Russia was lagging behind its global competitors was its socio-economic environment: weak property rights, an absence of political competition, and lack of an independent legal system. Little has changed over the past decade.

Without addressing these fundamental problems, private business is unable to transform society and improve quality of life. The scale of the missed opportunity since Graham’s comments is particularly stark today, when Russians are suffering from gasoline shortages and energy companies are spending their own money on air defense systems.

There is plenty of evidence that the Russian economy has stagnated over the last ten to fifteen years. Despite the success of some individual companies, research and development spending as a share of Russian GDP has barely changed since 2010. Russia also continues to score badly in the Global Talent Competitiveness Index. 

While ChatGPT and DeepSeek are transforming the global economic landscape, Russian AI projects like GigaChat are niche products developed for the domestic market—particularly the state sector. This lack of high-quality, inclusive economic development is reflected in Russia’s stock market, where the capitalization-to-GDP ratio in 2020 was 45 percent—compared with 80 percent in China and 195 percent in the United States.

Russia is not the only country with such problems. The Iranian economy witnessed a tech sector boom in the 2010s when Western sanctions provided a boost for local companies and investors prepared to take the risk of pursuing innovation in a conservative political environment. The Iranian economy was soon filled with local analogues of Amazon and Uber. 

However, this commercial success was killed off when members of the elite simply expropriated these businesses. Without the option of defending their rights in court or demanding accountability from state agencies, many Iranian entrepreneurs simply gave up. Strong institutions in Iran could have nurtured new captains of industry. Instead, these Iranian innovators simply became another source of enrichment for those in power.

Academic research confirms that institutions guaranteeing property rights and the rule of law are the foundation of sustainable economic and technological growth. Regimes in which all the power is held by a small circle of people are destined for technological stagnation.

Just as huge oil reserves do not guarantee cheap gasoline, so technological progress does not automatically mean rising living standards. After all, innovators the world over strive to transform the economic landscape and disempower the old elites. As long as the latter remains impossible in Russia, the emergence of a Russian OpenAI is nothing but a pipe dream.