The Brazilian Innovation System and the BRICS project

1
The Brazilian Innovation Systemand the BRICS
project

• José Eduardo Cassiolato
• Economics Institute of Federal University of Rio
  de Janeiro

2
The Evolution of the Brazilian National
Innovation System

• The Brazilian Innovation System from the 1950s to
  the mid 1980s
• Institutional innovations
• Partial successes in some sectoral innovation
  systems
• The Brazilian NIS from the late 1980s and 1990s
• Changes in the policy regime
• Downgrading of some innovation systems
• Challenges
• Brazil and the BRICS project

3
From the 50s to the 70s

• 50s -CNPq, Petrobrás and Airspace (CTA)
• 60s Funtec FNDCT and FINEP (funding the
  infrastructure)
• 70s Embrapa, Energy, Telecom and (later) IT

4
From a STI point of view the model was based on
a

• Rapidly upgrading of the scientific
  infrastructure
• Massive (and disorganized) import of technology
  (and capital)
• Attracting foreign capital was perceived as a
  quick and easier way to channel modern technology
  into the economy
• Important successes
• EMBRAPA agro-industrial technology
• strategic sectors infrastructure, air space,
  oil, energy and telecom
• Frustrated attempts
• auto industry (Fábrica Nacional de Motores was
  created in the late 1950s).

5
Structural Changes and Industrialization -
selected countries, 1965-1980
6
The Brazilian NIS in 1990s

• 1 the crisis - development process subjected to
  an exchange-based economic system
• 3 structural changes
• 3 - downgrading of some innovation systems
  disorganized privatisation of infrastructure
  (particularly telecom)
• 4 some remarking exceptions
• agro-industrial systems (the role of EMBRAPA)
• aircraft system (EMBRAER)
• oil extraction and refining (Petrobrás)
• other exceptions (services, for ex.)
• 5 the evolution of infrastructure
• 6 the macro policy environment

7
Selected developing countries share in world
exports and GDP growth, 1980-2000
8
Fragility of the Brazilian NIS

• weak competitive performance with significant
  trade fragilities in all sectors of high added
  value and high technological content
• widespread loss of national ownership in many
  sectors, weakness and reduced size of the
  remaining Brazilian business groups
• persistent financial vulnerability of
  Brazilian-owned businesses resulting from very
  high costs of capital and inexistence of
  long-term financing mechanisms.

9
ST infrastructure in Brazil evolved positively
in the last decades

• Human Resources
• Research activities, (expanded significantly)
• in 2002 there were 15,158 research groups with
  approximately 59 thousand researchers working in
  268 research institutions (the vast majority
  public universities and research institutes).
• Brazilian scientific production has significantly
  augmented
• in 1991, occupied the 28º position in terms of
  production of indexed scientific and technical
  articles, got the 17ª place 2000
• The average of articles originated in Brazil
  published in 1988-92 (3,166 or 0.6 of world
  production) increased four-fold in 1996-2000
  (7,836 or 1.12 of world production).
• Technological research institutes

10
Brazil scientific articles published in indexed
international scientific periodicals in the ISI,
1981-2002
11
However, instability in public support for the
area

• Throughout the 1980s and during the 1990s, the
  fiscal crisis of the state and a lack of
  definition of what development strategy to
  pursue give contours to this pattern of
  instability
• Total expenditure of FUNTEC (the most important
  ST fund) fell from US 1.2 billion (1970-1979)
  to US 754.32 million (1980-1989)
• After the stabilization program of 1994 public
  budgetary resources to ST slightly increased in
  local currency (from R 3.1 billion to RS 3.3
  billion in 1996), fell significantly till 2000
  (when they amounted to R 2.8 billion), slightly
  recovering from 2001 with the implementation of
  the new sectoral funds

12
Brazil - investment in RD and ST as of GDP
1996 - 2004
Source Science and Technology Ministry and
Central Bank
13
PINTEC (the Brazilian innovation survey 2000 and
2003)

• Important information for manufacturing sector
• 3rd survey will include some services
• Some results

14
1 Brazilian manufacturing firms are relatively
less innovators than most countries

•  
• The innovation rate (percentage of firms that
  introduced in the market new or improved products
  and/or processes in the 3 years prior to the
  survey) of Brazilian firms were 31 in 2000
• This compares to innovation rates above 60 in
  countries such as Sweden, Austria, Canada,
  Denmark, Switzerland, Ireland, Holand an Germany

15
Innovation in the Brazilian industry 2000 - 2003
Source Brazilian Technological Innovation
Research (PINTEC/IBGE)

• Increase in the innovation rate, although
  accompanied by a reduction in the investment in
  innovative activities and in the internal RD
  activities as percentage of sales
• Low innovation rate comparative to other countries

16
Brazil - Innovation rate, of sales in
innovative activities and in internal RD, by
firm size 2000 and 2003
Source Brazilian Technological Innovation
Research (PINTEC/IBGE)

• Only small firms increase innovation rate
• Low innovation rate of small firms comparative to
  other countries (Netherlands, Germany and Denmark
  between 44 and 51 in the period 1998-2000)
• Decrease in expenditures (innovation and RD) in
  all class sizes

17
Manufacturing sector - Share of RD expenditure
over sales, Brazil (2000) OECD (1996)
18
2 Innovation expenditures of Brazilian
manufacturing firms are relatively high but
decreased

• PINTECs data suggest that Brazilian
  manufacturing firms spent in 2000 3.7 of sales
  in innovation.
• This is equivalent to the average of the European
  Union and higher than 11 OECD countries,
  including the U.K (3.2 ), Italy (2.6 ) and
  Australia (1.9).
• In 2003 down to 2.4 (the effect of crisis)

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Innovation Expenditures/Sales ()
Italy
Spain
20
3 Innovation expenditure of Brazilian
manufacturing firms are concentrated on
acquisition of capital goods while in most OECD
countries expenditures are concentrated on RD

•  
• More than 50 of innovation expenditures of
  Brazilian manufacturing firms refer to the
  acquisition of tangibles (basically machinery).
• In most OECD countries this share is between 10
  and 20 .
• In those countries internal RD is responsible
  for the majority of innovation expenditures (30
  to 60 of total innovation expenditures), while
  in Brazil this share is below 20.  

21
Distribution of expenditures in innovative
activities by selected countries - 2000
Source Applied Economics Research Institute,
2005 (IPEA) and Brazilian Technological
Innovation Research (PINTEC/IBGE)

• The innovative pattern of the Brazilian industry
  differs from most of the developed countries
  there is a high concentration in machinary and
  equipment acquisition

22
Structure of expenditures in innovative
activities in the Brazilian industry
Source Brazilian Technological Innovation
Research (PINTEC/IBGE)

• Very high participation of machinery and
  equipment acquisition on the total expenditures
  in innovation activities

23
4 Innovative firms cooperate very little

•  
• Only 11 in 2000 down to 3.8 in 2003
• Cooperation university/industry very low in
  manufacturing .
• Higher in agro-business and services.  

24
Brazil Manufacturing Sector - Share of firms
with cooperative relations on total innovative
firms
Share of firms with cooperative relations over
total firms that innovated
Number of employees
25
5 - Innovative firms prefer other forms of
protection than patents
26
6 - Regional Imbalance of Private and Public
Expenditures
Regional Distribution of Innovation Expenditures
27
Distribution of state RD expenditures by states
Source Science and Technology Ministry

• High concentration of the RD expenditures in
  São Paulo

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Old Questions

• Firms do not perform RD
• Very few (formal) linkages between firms and RD
  infrastructure

29
An old question the role of TNC subsidiaries

• Although inflows of foreign capital in the 1990s
  are approximately 13 times of what was observed
  during the 1970s, economic growth has been 50
  lower than the what was obtained in that period. 
• FDI in the 1990s
• directed to merger and acquisition of existing
  firms rather than green field investment.
• market seeking forms
• Although changes of the 1990s explicitly
  attempted to foster increase in innovation and
  RD expenditures by subsidiaries of MNCs, the net
  result has been the opposite

30
Most innovative firms (that differentiate
products)Structure of innovation expenditures (
of sales) - 2000
Source Applied Economics Research Institute,
2005 (IPEA)

• MNC subsidiaries concentrate expenditures on
  machinery and equipment acquisition
• Domestic firms have a larger participation of
  internal RD activities in the total innovative
  activities

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Brazil X Europe
Portugal Spain France UNited Kingdom
Belgium Germany Poland Czech Republic Austria Sw
itzerland Italy
Population185 million
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The Challenges

• Macro-financial autonomy to Develop Innovation
  and Competitiveness
• Cope with diversity the regional and local
  dimension
• Reducing regional differences
• Support local innovation systems
• Policy for innovation systems
• Important positive changes recently but needs
• Changes from an emphasis on firms and
  organizations to a systemic approach
• Support internationalization of big local firms
• Need to increase RD by local firms (financing)
• Management capability on government and
  organizations (firms, universities, etc)

34
The Brazilian BRICS research project

• RedeSist - network of research organizations
• Partnership with FINEP- Ministry of Science and
  Technology
• Support from other government agencies
• Already engaged Ministry of Interior, IBGE,
  FioCruz and Inmetro
• To be engaged Ministry of Planning, other
  agencies of the Ministry of Science and
  Technology, Ministry of Foreign Affairs, Ministry
  of Industrial Development and others
• Private organizations IEDI
• A BRICS Seminar in Rio (late 2006/early 2007)

35
The Brazilian proposal for the BRICS project

• What are the main features, weaknesses, strengths
  and opportunities of the BSIs?
• How adequate, embedded and sustainable
  (environmentally, economically, socially and
  politically) is the BSI?
• What areas of the BSIs present interesting field
  for comparative analysis with the IS of other
  BRICSs?
• What sort of conceptual and empirical knowledge
  have we accumulated and could be useful in a
  BRICS project?

36
General Themes - NIS

• Innovation, finance and funding
• The macroeconomic regime and the NIS
• Industrial dynamics and innovation systems
• Transnational corporations and NIS
• Technological strategies of BRICS multinational
  firms
• Official Statistics and Innovation Indicators

37
General Themes - NIS

• Regional imbalances of the NIS
• IS and Environmental industry and services
• The role of metrology and standards in the NIS
• Intelectual property rights and the NIS
• The role of education in the NIS
• Level of informality and the NIS
• Policies for SMEs in (local) innovation systems
• Local (indigenous) knowledge and the NIS

38
Sectoral/Local IS

• Fossil fuels IS and Policy
• Telecommunications innovation systems
• Public Health IS
• Agro-industrial IS - Sugar Cane-Alcohol
• Film industry
• Software industry
• Creative industries
• Tourism

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Other topics on local systems already studied by
RedeSist

• A methodology to study local innovation systems
• Date base of more than 3000 SMEs
• Indicators of innovation, cooperation and
  learning
• Activities
• Clothing
• Shoes
• Mining
• Airspace
• Auto
• Agro-industry (basic food, Amazon fruits, wine,
  etc.)

40
Brazilian ST expenditures
(In current US millions)
Source Science and Technology Ministry and
Central Bank