Innovation for productivity growth Fernanda De Negri Director Division of Production and Innovations Studies – DISET Institute for Applied Economic Research – IPEA

PRODUCTIVITY IN BRAZIL

Productivity estimates in Brazil: annual growth rates, several periods. AuthorPeriod of time Labor productivity TFP TFP using human capital Bonelli (2014)2003 e 20132,4%1,3% Ellery (2014) ,6%0,72%- 0,24% Cavalcante e De Negri (2014) ,17% Cavalcante e De Negri (2014) ,09% Bonelli e Bacha (2013) ,36%0,24% Bonelli e Bacha (2013) ,67% Bonelli e Bacha (2013) ,03% Bonelli e Veloso (2012) ,8% Bonelli e Veloso (2012) ,2%1,7% Ellery Jr. (2013) ,91% Ellery Jr. (2013) ,40% Ferreira e Veloso (2013) ,2% Ferreira e Veloso (2013) ,5% Squeff (2012) ,9% Barbosa Filho, Pessôa e Veloso (2010) ,4% Barbosa Filho, Pessôa e Veloso ( ,11% Source: De Negri and Cavalcante (chapter1) in De Negri, F. e Cavalcante. L.R.M.T. (2014) Produtividade no Brasil: desempenho e determinantes

Labor productivity: annual growth rates (2000 to 2009)

Economic Sector Brazil / Less productive country The most productive country / Brazil Agriculture5,05,44,84,516,421,024,821,7 Mining9,24,73,02,36,25,93,63,9 Manufacturing5,44,22,92,14,74,97,49,0 Construction6,95,93,22,35,76,26,86,5 Services7,95,74,02,95,65,96,56,4 Total8,66,44,23,06,66,67,37,1 Miguez e Moraes (chapter 7) in De Negri, F. e Cavalcante. L.R.M.T. (2014) Produtividade no Brasil: desempenho e determinantes. Based on the World Input-Output Database (WIOD) Labor productivity: the distance between Brazil and other countries

Technology and Innovation, but also to: Infrastructure Education (also affect innovation) Competition (also affect innovation) Business environment (also affect innovation) The main causes of low productivity are related to:

INNOVATION POLICIES IN BRAZIL The percentage of firms that have declared getting governmental support to innovate increased from 19% in 2003 to 34% in 2011 Most of public support (75%) is related to machinery financing programs The percentage of firms benefited from specific innovation instruments increased from 4,6% to 8,6% of innovative firms between 2003 and 2011 The percentage of firms that have declared getting governmental support to innovate increased from 19% in 2003 to 34% in 2011 Most of public support (75%) is related to machinery financing programs The percentage of firms benefited from specific innovation instruments increased from 4,6% to 8,6% of innovative firms between 2003 and 2011

Main innovation policies in Brazil Innovation and S&T policies and instruments (main sources of funding to S&T in Brazil) Value in 2012 (current Reais – mi) Tax Breaks Tax exemption created for companies who invest in R&D, created by Law Nº 11,196/2005 (“Lei do Bem”)1,476.8 Tax exemption for companies in the ICT sector, created by Law Nº 8.248/1991 and Nº /2001 (“Lei de Informática”)4,482.2 Other tax breaks464.0 TOTAL (tax breaks)6,423.0 Subsidized credit for innovation (disbursements) Total volume operated by FINEP1,800.0 Total volume operated by BNDES2,200.0 TOTAL (credit)4,000.0 S&T Public Investment Subnational (State) investments7,033.7 Central government (Federal) investments18,387.9 TOTAL (excluding post grad expenditures)25,421.6 TOTAL public S&T investment40,045.0 Counterpart in R&D by companies in regulated sectors (private compulsory investment) Electricity Regulatory Agency (ANEEL) R&D program (approximate values) ~ The National Petroleum Agency (ANP) R&D program1,226.7 TOTAL1,526.7

Tax breaks to innovation: 2000 to 2013 (R$ bi)

Credit for innovation: (R$ bi)

FNDCT’s budget: Demand driven: Only 30% of the resources are used in projects with companies No focus

POLICY RECOMENDATIONS Some ideas for debate

Public S&T spending in Brazil is not mission-oriented 1. Increase mission oriented S&T spending MINISTRIES % Ministry of Science, Technology and Innovation (MCTI)36% Ministry of Education (MEC)19% Ministry of Agriculture (MAPA)13% Ministry of Health (MS)11% Ministry of Development, Industry and Foreign Trade (INMETRO and INPI)6% Ministry of Planning (IBGE)6% DEPARTAMENTS% Department of Defense (DoD) 49% Department of Health (DHHS) 23% Departmente of Energy (DOE) 8% NASA 9% National Science Foundation (NSF) 4% Departament of Agriculture (USDA) 2% Others 5% Only 30% of S&T investments are attached to institutions with problem-solving missions More than 90% of S&T investments are mission-oriented

The Brazilian Procurement Law (Lei 8.666) doesn’t mention R&D acquisition. The law establishes, since 2010, a margin of preference for products produced in Brazil (up to 20%) and for products with Brazilian technology (up to 25%) There is no a special part devoted to R&D acquisition as there is in the American Federal Acquisition Regulation. The Innovation Law (20th Article) prescribes that Brazilian government can hire a company to do R&D to develop new products and process. However, this possibility has never been used up to now (difficulties of implementation?) The Knowledge Platform Program (launched last year but not implemented) is a good example of using public procurement to foster innovation. 2. Reformulate the Procurement Law including the possibility of R&D acquisition There is no clear regulation about the acquisition of R&D by public sector in Brazil.

The Brazilian S&T institutions are mainly public. It’s necessary to allow and facilitate the operation of private research institutions. Reinforce different models of institutions, such the so called Social Organizations (OS), that are Government-owned and privately-operated institutions. Create different ways in which the public sector can foster innovation, besides the existing ones (grants, credit and direct investment in public research institutions): i) R&D acquisition; ii) Venture capital and seed money funds; iii) Cooperation agreements and so on. Create different models of public agencies to foster innovation: the recent creation of Embrapii (inspired in the Fraunhofer model) is a good example of institutional diversification. Others examples are necessary. 3. Diversify Brazilian S&T system

Besides improving general business environment, allowing more competition and entrepreneurship, specific actions are needed: Reduce bureaucracy associated with research and development. Examples: biological research; patent application mechanisms… ◦ One important improvement was the Biodiversity Law (recently approved). Reformulate and update the Innovation Law. Created in 2004, some articles have never been used. Facilitate the ways for researchers and professors in public institutions to work for companies. ◦ The S&T Code (now in National Congress) adress some of the legal problems. 4. Improve Business environment to innovation

Brazil is a very closed economy. It’s necessary (not sufficient but necessary) to open the economy and to import more technology and knowledge. Increase the internationalization of Brazilian Science (the “Science without borders” program is a good iniciative) Facilitate imports of research equipments and inputs Increase the presence of foreign reserachers in Brazilian Institutions. 5. Build a more open and competitive economy

Brazil needs scale up it’s research infrastructure Create new, big and mission oriented research institutions The size of Brazilian research laboratories is not enough to make a competitive science. 6. Invest in big science and research infraestructure 7. Improve monitoring and evaluation indicators

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