The Brazilian Innovation System and the BRICS project José Eduardo Cassiolato Economics Institute of Federal University of Rio de Janeiro

The Brazilian Innovation Systemand the BRICS project

José Eduardo CassiolatoEconomics Institute of Federal University

of Rio de Janeiro

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

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

From a S&T&I point of view the model was based on a:

1. Rapidly upgrading of the scientific infrastructure

2. Massive (and disorganized) import of technology (and capital)

3. 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 telecomFrustrated attempts: auto industry (Fábrica Nacional de Motores was

created in the late 1950s).

Structural Changes and Industrialization -

selected countries, 1965-1980

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 infrastructure6 – the macro policy environment

Selected developing countries: share in world exports and GDP growth, 1980-2000

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.

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

Brazil: scientific articles published in indexed international scientific periodicals in the ISI, 1981-2002

Brazil/ world (%)

0

0,5

1

1,5

2

Year

% Brazil/ world (%)

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

Brazil - investment in R&D and S&T as % of GDP – 1996 - 2004

0

0,2

0,4

0,6

0,8

1

1,2

1,4

1,6

1996 1997 1998 1999 2000 2001 2002 2003 2004

% Federal R&D

Federal S&T

Total S&T

Source: Science and Technology Ministry and Central Bank

PINTEC (the Brazilian innovation survey 2000 and 2003)

Important information for manufacturing sector

3rd survey will include some services

Some results

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

Innovation in the Brazilian industry – 2000 - 2003

Innov. Expend. Over sales

Internal R&D Innovation rate

Innovative activities activities

Extracting and Manufacturing

activities

1998-2000 2001-2003 2000 2003 2000 2003 Total 31,5 33,3 3,8 2,5 0,64 0,53

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 salesLow innovation rate comparative to other countries

Brazil - Innovation rate, % of sales in innovative activities and in internal R&D, by firm size – 2000 and 2003

2000 2003 Innovation rate % of sales % of sales

Innovation rate % of sales % of sales

in innovative in internal in innovative in internal

activities R&D activities R&D

Firm size

Total 31,5 3,84 0,64 33,3 2,46 0,53

From 10 to 49 26,6 4,1 0,39 31,1 2,81 0,37 From 50 to 99 43 3,97 0,43 34,9 2,53 0,27 From 100 to 249 49,3 4,27 0,43 43,8 1,91 0,22 From 250 to 499 56,8 3,27 0,44 48 1,79 0,26

With 500 and more 75,7 3,83 0,77 72,5 2,62 0,68


Only small firms increase innovation rateLow 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

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

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)

Innovation Expenditures/Sales (%)

3,8

2,51,9

1,5

4,1

2,3

0

1

2

3

4

5

Brasil Espanha Itália2000

2003Spain Italy

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%.

Distribution of expenditures in innovative activities by selected

countries - 2000

15 11 126

2111

34

16,7 21,82

4 66

4

32,8

2,9

28

50 41

14

31

69

8

52,249,7

4

610

14

8

7

7

26,4 23,6

51

29 31

60

37

11

51

1,9 2

0

10

20

30

40

50

60

70

80

90

100

Germany Italy Spain Netherlands Belgium Portugal Denmark Brazil -2000

Brazil -2003

%

Training, etc

Other knowledge

Machinery and equipment

External R&D

Internal R&D

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

Structure of expenditures in innovative activities in the Brazilian

industry


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

0

10

20

30

40

50

60

Machine andEquipmentacquisition

Internal R&Dactivities

Industrialproject and

other technicalpreparations

Introduction oftechnological

innovation in themarket

Other externalknow ledgeacquisition

External R&Dacquisition

Training

% 2000

2003

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.

Brazil – Manufacturing Sector - Share of firms with cooperative relations on total innovative firms

Share of firms with cooperative relations over total firms that innovatedNumber of employees

5 - Innovative firms prefer other forms of protection than patents

% of innovative firms that used IP

0,00

5,00

10,00

15,00

20,00

25,00

Patents Trademarks Design Industrial Secrecy Lead Time

%

a

s

e

m

p

r

e

s

a

s I

n

o

v

a

d

o

r

a

6 - Regional Imbalance of Private and Public Expenditures

4% 1%

2%

1%

2%

7%1%

8%

52%

7%

4%7% 1% 3%

Amazonas Pará CearáPernambuco Bahia Minas GeraisEspírito Santo Rio de Janeiro São PauloParaná Santa Catarina Rio Grande do SulGoiás Outros

Regional Distribution of Innovation Expenditures

Other

7%

Bahia

11%

Rio de Janeiro

9%

São Paulo

57%

Minas Gerais

2%

Pernambuco

2%

Maranhão

2%

Paraná

10%

Distribution of state R&D expenditures by states

Source: Science and Technology Ministry

High concentration of the R&D expenditures in São Paulo

Old Questions

Firms do not perform R&D Very few (formal) linkages

between firms and R&D infrastructure

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

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

0

1

2

3

4

5

6

7

8

9

Internal R&Dactivities

External R&Dacquisition

Otherknowledgeacquisition

Machine andequipmentacquisition

Training

Domestic

Transnational

BRICS - R&D as % of Sales by Subsidiaries of US MNCs - 1990 - 2003

0

0,2

0,4

0,6

0,8

1

1,2

1,4

1,6

1,8

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Year

R&

D/S

ale

s RussiaBrazilSouth AfricaChinaIndia

Brazil X Europe

PortugalSpainFranceUNited Kingdom BelgiumGermany PolandCzech RepublicAustriaSwitzerlandItaly

Population=185 million

The Challenges

Macro-financial autonomy to Develop Macro-financial autonomy to Develop Innovation and CompetitivenessInnovation and Competitiveness

Cope with diversity – the regional and local Cope with diversity – the regional and local dimensiondimension– Reducing regional differencesReducing regional differences– Support local innovation systemsSupport local innovation systems

Policy for innovation systemsPolicy for innovation systems– Important positive changes recently but needs:Important positive changes recently but needs:

• Changes from an emphasis on firms and organizations Changes from an emphasis on firms and organizations to a systemic approachto a systemic approach

• Support internationalization of big local firmsSupport internationalization of big local firms• Need to increase R&D by local firms (financing)Need to increase R&D by local firms (financing)

Management capability on government and Management capability on government and organizations (firms, universities, etc)organizations (firms, universities, etc)

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)

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?

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

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

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

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.)

Brazilian S&T expenditures

2000 2001 2002 2003 2004GDP 614128,43 607293,18 557107,74 441369,9 600707,61

Investments in S&T 8788,03 8874,01 8016,8 6086,16 8240,4as % of the GDP 1,43 1,46 1,44 1,38 1,37




Conversion BC of Brazil

Private Sector

Total

Federal Government

State government

Source: Science and Technology Ministry and Central Bank

(In current US$ millions)

Documents

The Brazilian Innovation System and the BRICS project José Eduardo Cassiolato Economics Institute of Federal University of Rio de Janeiro