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 S&T&I 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. S&T 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 S&T 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 S&T 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 R&D and S&T 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 R&D activities as percentage of sales • Low innovation rate comparative to other countries

16. Brazil - Innovation rate, % of sales in innovative activities and in internal R&D, 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 R&D) in all class sizes

17. Manufacturing sector - Share of R&D expenditure over sales, Brazil (2000) OECD (1996)

18. 2 –Innovation expenditures of Brazilian manufacturing firms are relatively high but decreased • PINTEC’s 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)

19. 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 R&D • 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 R&D 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 R&D expenditures by states Source: Science and Technology Ministry • High concentration of the R&D expenditures in São Paulo

28. Old Questions • Firms do not perform R&D • Very few (formal) linkages between firms and R&D 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 R&D 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 R&D activities in the total innovative activities

32. Brazil X Europe Portugal Spain France UNited Kingdom Belgium Germany Poland Czech Republic Austria Switzerland Italy Population=185 million

33. 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 R&D 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

39. 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 S&T expenditures (In current US$ millions) Source: Science and Technology Ministry and Central Bank