North-West Institute of Management at the Russian Presidential Academy of National Economy and Public Administration (RANEPA), Saint Petersburg, Russia:

I. B. Sergeev, Head of Management Department, Professor, Doctor of Economics Sciences, e-mail: sergeev-ib@ranepa.ru

This paper deals with a relevant problem of how to account for external positive effects and ensure maximum integrity and accuracy when doing evaluation of rare earth elements (REE) projects. The author demonstratesthe cr ucial role of the innovation effect, which implies science and technology advancement and generation of new knowledge. The research methods applied include cost-benefit analysis, as well as feasibility study and strategic assessment. The paper features an overview of the global and Russian REE markets, with a focus on the technological and financial difficulties faced by the producers. It is shown that the low investment value of REE projects, attributed to the fact that the project evaluation techniques employed are too simple, is actually curbing the development of the industry. The standard cash flow discounting method overlooks certain effects and disregards the social benefits. As a consequence, no government involvement is usually foreseen. The paper summarizes some useful foreign practices in terms of evaluation of knowledge-intensive and high-tech projects by highlighting external effects that are of strategic importance for scientific and technological advancement. A relationship is demonstrated between the innovation effect evaluation approach employed for project implementation and the Global Innovation Index (GII) calculation approach. The paper describes a three-stage evaluation model applicable to REE innovation projects, which, in addition to the cost-benefit analysis indicators, uses some qualitative indicators resulting from strategic assessment. In the concluding part, the author gives reasons supporting the application of the proposed method.

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