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Cornell’s Emerging Markets Institute

Growth and Innovation in Brazil Richard J. Coyle Executive Director, Emerging Markets Institute Suter /Staley Director of Global Business Samuel Curtis Johnson Graduate School of Management Cornell University December 3, 2013. Cornell’s Emerging Markets Institute.

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Cornell’s Emerging Markets Institute

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  1. Growth and Innovation in BrazilRichard J. CoyleExecutive Director, Emerging Markets InstituteSuter/Staley Director of Global BusinessSamuel Curtis Johnson Graduate School of ManagementCornell UniversityDecember 3, 2013

  2. Cornell’s Emerging Markets Institute Provides thought leadership on the role of emerging markets—and emerging market multinationals—in the global economy. The Institute brings together preeminent practitioners and academics from around the world to develop the next generation of global business leaders and create the premier research center on the role of emerging markets in the global economy.

  3. Current Situation: Brazil is Falling Behind in Innovation Global Innovation Index shows Brazil falling from number 40 in 2007 to 64 in 2013 in a ranking of countries. Index is based on 84 individual indicators, and published jointly by Cornell, INSEAD and World Intellectual Property Organization (agency of the United Nations).

  4. Current Situation – Brazil is Falling Behind in Innovation Although Brazil scores well in environmental performance, state of cluster development, and high tech imports and exports, the Index shows Brazil as lagging in ease of starting a business, assessment in reading, mathematics, and science, graduates in science and engineering, computer software spending, and foreign direct investment net outflows.

  5. The Challenge for Brazil - Productivity How could Brazil surpass the UK as the sixth largest economy in the world with such weak innovation scores? According to Boston Consulting Group, 74 per cent of the GDP growth over the past decade was due to the increase in the number of people working. “As the workforce expansion weakens, it will be critical to increase productivity significantly”. –Financial Times, Oct 23, 2013

  6. Other Areaof Concern - Education “Despite having some top-notch universities, Brazil regularly has scores near the bottom of the OECD’s Programme for International Student Assessment ranking of educational attainment, with about 30 per cent of 15-year-old students generally considered below proficiency.” – J. Rathbone, Financial Times, Oct 23, 2013

  7. Other Area of Concern – R&D Investment Brazil only invests 1 percent of GDP in research and development, against an OECD average of 2.3 percent. US filed for nearly 50,000 new patents in 2012, China 17,000, South Korea 11,000. Brazil – 600. - M. Troyjo, Financial Times, Oct 23, 2013 Brazilian patent office understaffed – 8 year backlog in processing patents.

  8. Other Area of Concern – R&D Investment • According to Brazilian Ministry of Science and Technology, “Science, Technology & Innovation have not been decisive engines for the development of Brazil. Some reasons: • Lack of R&D and innovation culture in industry • Lack of continuity in S&T policies and funding • No cross talk between industrial and ST&I policies • Deficient formation of innovation professionals” Ronaldo Mota, Secretary for Technological Development and Innovation, June 17, 2011

  9. Other Area of Concern – Savings Rate Brazil currently saves 16 percent of GDP, in comparison with 51% for China. In order to sustain a 5% GDP growth rate, Brazil will need to save 25% GDP. Because Brazil’s consumption leaves little to invest in growth, the country is dependent on injections of foreign capital.

  10. Other Areas of Concern – Protectionism and Infrastructure Brazil has historically been a protectionist country in terms of trade. Protection can preclude new technologies from entering the country, while supporting inefficient local industries and unnecessary high costs of doing business. Taxes on capital transfers additionally hamper foreign direct investment. Brazil’s infrastructure has suffered from a lack of investment, with significant needs in highways, railroads, airports and seaports.

  11. Other Area of Concern - Corruption Brazil is ranked 69 out of 176 countries in the 2012 Corruption Index by Transparency International. In 2001, Brazil was ranked 46 out of 91 countries. Corruption can prevent well intended government monies from reaching critical programs.

  12. Government Actions Brazilian government has been taking steps to address these deficiencies. Launched “Science Without Borders” in 2011 with a U.S.$1.3 billion budget. Aims to send 101,000 Brazilians abroad by 2015 to study at the world’s best universities. At Cornell University, 37 participants are on campus now, with 17 more expected in January. Two thirds of last year’s cohort received either job offers or encouragement to apply for PhD studies.

  13. Government Actions Launched SIBRATEC, to expand, integrate, modernize and consolidate the National Science,Technologyand Innovation System. Other goals include: Boost promotion actions to create a favorable environment for innovation in enterprises and strengthen Brazil’s Industrial, Technological and Trade Policy. Promote and strengthen science in schools. SIBRATEC has invested US$ 204 million since 2007 in collaborative research projects (OECD Science, Technology and Industry Outlook 2012)

  14. Government Actions SIBRATEC has established 14 Innovation Centers, composed of development units or groups that belong to technological research institutes, research centers or universities, with experience in interacting with companies. SIBRATEC has additionally established 20 Technological Services Networks, to support the infrastructure for calibration, tests, analyses and conformity assessment services, as well as standardization and technical regulation activities, to meet enterprises needs, associated to complying to technical requirements for market access.

  15. Government Actions Innovation Law (2004) permits direct funding of business through competitive grants (US$348 million per annum) and offers incubation services in public institutes. Goodwill Law (2005) introduced a wide range of fiscal incentives. Tax exemption modifications (2007) link incentives to the use of intellectual property rights. PRIME program has provided US$98 million of grants to 1381 entrepreneurial enterprises. INOVAR supports venture capital investments, and Juro Zero Programme offers reduced interest loan programmes. (OECD Science, Technology and Industry Outlook 2012)

  16. Government Actions PAPPE, the Programme for Support of Research in Enterprise (US $146 million from 2007-2010), and SEBRAE, the Brazilian Support Service for Small Enterprises were created to encourage knowledge flows between universities and businesses. FINEP, the Brazilian Innovation Agency, has reduced its time span for grants and loans from 400 days to 30 days.

  17. The Results Success stories such as Embraer (aircraft), Bug AgentasBiologicos (pesticides), Petrobras (oil & gas), Butantan Institute (vaccines) New innovation centers announced by IBM, Halliburton, and Cisco (2013) Brazil is seen as a global leader in green technologies/renewable energies

  18. The Results Number of venture capital investments is rising. Tech start-ups increased from 45 in 2011 to 79 last year. – J. Leahy, Financial Times, Oct 23, 2013 Spending on research and technology is rising at 7% a year, a figure second only to China’s 11 %. – Leahy, Op. cit. Brazil has become a “hotbed” for some of the world’s most innovative social media businesses. The population of 200 million boasts almost 270 million active mobile phones. – S. Pearson, Financial Times, Oct 23, 2013

  19. Conclusions Positive signs do exist. However, more investment is needed to turn around this decline. Government needs to continue to focus on education, R&D and infrastructure development. The innovation programs already in place need to be continuously supported. Tax incentives are needed to spur additional investment and attract more start-ups. Reduction in trade barriers would result in lower prices and the introduction of new technologies to the Brazilian economy. Increases in trade secret protection are needed, as well as an emphasis on granting new patents.

  20. Richard J. CoyleExecutive Director, Emerging Markets InstituteSuter/Staley Director of Global BusinessS. C. Johnson Graduate School of ManagementCornell UniversityTel: 607 255 9428rjc89@cornell.eduwww.johnson.cornell.edu/emerging-markets-institute Thank you!

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