5 Supporting Research in Commercial Enterprises Brazil GENERAL INFORMATION Implementing Institution: Financiadora de Estudos e Projetos (FINEP) (Brazilian Innovation Agency) Head: Odilon Antonio Marcuzzo do Canto, 1 President (since January 2007, Luis Manuel Rebelo Fernandes) Details of Institution: Address: FINEP, Praia do Flamengo 200 13th floor, 22210-030 Rio de Janeiro, Brazil Tel.: (+55) 21 2555 0700 Fax: (+55) 21 2557 2422 E-mail: presidencia@finep.gov.br Website: www.finep.gov.br Implementation Period: The programme was initiated in October 2003. Subsequently, during the its first round, 20 States (units of the Brazilian federation) applied as partners of the programme and launched calls for proposals to support 24-month technologicaldevelopment projects that were extendable for 12 additional months. The launch of each call for proposals varied in each State, from May 2004 until the first half of 2007. 1 Since the preparation of this case study, Odilon Antonio Marcuzzo do Canto has left FINEP and is now deputy secretary of the Brazilian-Argentine Agency for Accounting and Control of Nuclear Materials (ABACC). Luis Manuel Rebelo Fernandes has been the President of FINEP since June 2007. 63
64 VOLUME 17: EXPERIENCES IN DEVELOPING CAPACITY FOR SUSTAINABLE DEVELOPMENT Costs: During the first round of the programme, FINEP provided $38 million; in addition, State governments provided approximately $26 million. In some cases, individual businesses also invested in their research enterprises. S U M M A R Y Science-and-technology policy came to the formal agenda of the Government of Brazil during the 1970s with the elaboration and implementation of several National Development Plans. Since that time, the institutions and government bodies dealing with the creation, coordination, financing and execution of scientific, technological and innovative activities have been developed and strengthened. This scientific and technological framework has allowed the country to achieve outstanding advances on several fronts when compared with many other developing countries. In terms of the availability of highly qualified personnel (with respect to training and scientific production), the performance of Brazil is much more robust and competitive than it was 20 years ago. However, gaps still persist, mainly in relation to the poor uptake of highly qualified human resources by the industrial sector, thus limiting innovation and socio-economic development. To overcome such constraints, Research and Projects Financing (FINEP), also known as the Brazilian Innovation Agency, a publicly owned company linked to the Ministry of Science and Technology, launched the Programme for Supporting Research in Enterprises (PAPPE) in 2003. This Programme aims to stimulate the assimilation of highly qualified human resources into companies, especially micro-, small- and mediumsized enterprises (MSMEs), and to encourage the creation of MSMEs by researchers. Results include: implementation of the Programme in 20 out of 27 States of the Brazilian federation to date; investment of $64 million shared (38:26) between federal and State sources; undertaking of 606 research projects by researchers in 549 MSMEs in the fields of agrobusiness, biotechnology, energy, health and informatics; promotion of cohesion and the convergence of policy objectives among several agents of the national science, technology and innovation system; strengthening of links between different agents (such as federal and State agencies offering financial support and researchers at universities and enterprises); promotion of long-term strategies; and integration of science and technology with the industrial sector.
Supporting Research in Commercial Enterprises Brazil 65 B A C K G R O U N D A N D J U S T I F I C AT I O N The institutional base responsible for the promotion and support of scientific and technological development in Brazil was set up during the 1950s and 1960s. Previously, the national system for science and technology had comprised a group of higher education and research institutions that lacked systematic and systemic interactions. Science and technology policy came to the formal agenda of the Government during the 1970s through the elaboration and implementation of several National Development Plans and Basic Plans for Scientific and Technological Development. Over time, the institutional and governmental framework dealing with the articulation, coordination, financing and execution of scientific, technological and innovative activities has been developed and strengthened. The improved performance of the scientific and technological infrastructure and related human resources consolidated by Brazil over the past 20 years can be measured by a number of globally recognized indicators relating to training and scientific output. For instance, the number of Brazilian students obtaining doctoral degrees increased from less than 600 per year in 1980 to more than 9,600 per year in 2005. During the same period, the number of Brazilian scientific papers quoted by the Institute for Scientific Information (ISI) increased from about 1,500 per year to more than 14,000 per year. These improvements were not accompanied by an increase in technological and innovative development by companies, however. Although the Brazilian industrial structure became quite diversified, the development of indigenous technological capability was limited. Historically, the lack of a policy to drive endogenous technological development, allied to the macroeconomic instability and perceived risks associated with innovative activities, has inhibited a more consistent approach from the industrial sector in relation to technology improvement. This has hindered the establishment of an innovative and entrepreneurial culture within society as a whole and has particularly affected micro-, small- and medium-sized enterprises (MSMEs); for industrial and service sectors, respectively, these are companies with up to 19 or up to 9 employees (micro); 20 to 99 or 10 to 49 employees (small); and 100 to 499 or 50 to 99 employees (medium). The importance of MSMEs in Brazil is confirmed by official statistics: according to the Brazilian Institute of Geography and Statistics, in 2003 there were about 5.37 million businesses in Brazil, of which micro and small businesses (enterprises having up to 99 employees) represented 99.4 per cent of the total and contributed 49.0 per cent of total employment and 22.5 per cent of total wages in the Brazilian economy. From a macro perspective, the Brazilian economy (like the economies of
66 VOLUME 17: EXPERIENCES IN DEVELOPING CAPACITY FOR SUSTAINABLE DEVELOPMENT many other developing countries) has been, until recently, affected by the following: fragmentation of public policies; regional inequality and lack of local development strategies; a hostile environment for MSMEs, resulting in a low proportion of innovative firms; and heavy bureaucracy (red tape). On a micro level, poor interaction between industrial and service sectors and academic and technological infrastructure has hampered the assimilation of highly qualified human resources, restricting innovative activities. The science, technology and innovation system in Brazil has been heavily influenced by these restrictions because the activities developed under the auspices of the system involve an element of risk and require time and huge financial resources to produce results. Entrepreneurs, in particular, have faced an unfavourable environment for developing their innovative activities, given that they lack appropriate financial and managerial support. Since the late 1990s, the policies of the Government have gradually begun to prioritize support for innovative activities, particularly those undertaken by MSMEs. More recently, huge efforts have been made by government bodies to promote consistent changes and reinforce the national system, aiming at strengthening interaction, articulation and coordination among initiatives and institutions responsible for the formulation and implementation of policies for innovation and competitiveness, as well as its decentralization. Among the achievements of the Brazilian science, technology and innovation system from 1999 to the present are the following: innovation has become a priority in government policies; 16 Sectoral Funds have been implemented, with the aim of complementing, expanding and securing financial resources for science, technology and innovation; industrial, technological and foreigntrade policies were added to the governmental policy agenda in 2004, provoking a pioneering convergence of industrial and technological policies; a new regulatory and legal environment, represented by laws on innovation, informatics and biosecurity, was established in 2005; the National Fund for Scientific and Technological Development (FNDCT) provides grants to support highly qualified personnel in companies; the promotion of MSMEs has been emphasized; federal governmental policies on science, technology and innovation have been decentralized and integrated at the State and local levels; and regional development and social inclusion have been emphasized.
Supporting Research in Commercial Enterprises Brazil 67 The Brazilian Innovation Agency (FINEP) plays a crucial role in the science, technology and innovation system. Its mission is to encourage and finance innovation and scientific and technological research in business, universities, research and technological institutes, and other public or private institutions. FINEP mobilizes funds and combines instruments employed in the economic and social development of the country. The main financial input to FINEP comes from the Sectoral Funds, which are derived from levies paid by companies operating in specific areas (e.g., aeronautics, agrobusiness and biotechnology, health, information science and computerized goods and services, petrol and gas) and are reserved for supporting research, technology and innovative activities in those sectors. The first Sectoral Funds were created in 1999 to complement the traditional resources devoted to science, technology and innovation activities, guaranteeing the broadening and the stability of financial resources and simultaneously generating a managerial model. Each Sectoral Fund has its own management committee, which includes representatives of government, enterprises and academia. The rationale behind the establishment of these funds was to involve a broad range of stakeholders in the activities funded, to establish long-term development and innovation strategies and to define priorities that are focused on results. In fact, the resources provided by the Sectoral Funds now exceed those that were already in existence. As financial instruments for domestic research, development and innovation, they have been augmented by funds from selected productive sectors via contributions from the turnover and profits of companies and/or from earnings derived from the exploitation of natural resources belonging to the federal government. Currently, there are 16 Sectoral Funds, of which 14 are related to various economic fields, one targets university-industry cooperation, and one is aimed at institutions providing higher education and the infrastructure of research institutions. D E S C R I P T I O N FINEP offers grants (non-reimbursable funds) and loans (reimbursable funds) to operate its portfolio of programmes to support every stage of the scientific and technological cycle from basic and applied research to innovative activities in companies of all sizes. Grants from FINEP are derived from FNDCT, which is currently supported largely by Sectoral Funds. These grants are intended for non-profit organizations and programmes and fields specified by the Sectoral Funds Management Committees. Loans from FINEP are derived from FINEP or from on-lending (borrowing from outside the economy and the lending of these funds to a second institutional unit within the economy) from other sources. Businesses or organizations
68 VOLUME 17: EXPERIENCES IN DEVELOPING CAPACITY FOR SUSTAINABLE DEVELOPMENT interested in receiving credit may submit their applications to FINEP at any time. The first step in this process is to submit an advance consultation that, after being qualified, is followed by a loan application to FINEP. The current FINEP portfolio of programmes covers four lines of support, each of which makes use of reimbursable and non-reimbursable resources and supports several specific programmes: innovative activities by companies: companies of any size are offered support for research and development and for projects that enhance innovation and technological capability; venture capital has been provided to technologically intensive MSMEs; support is also given for the establishment of specific mechanisms for strengthening interactions among several societal agents involved with innovation activities, such as technology parks (places where government, research institutions and businesses can collaborate) and incubators (organizations that support the entrepreneurial process); scientific and technological institutions: support for strengthening scientific and technological infrastructure and modernizing technological institutes; cooperation between companies and scientific and technological institutions; scientific and technological support for social development: devoted to issues relating to housing and sanitation as well as clustering traditional small businesses that usually operate in an informal pattern into popular cooperatives, thus optimizing their activities for the benefit of all. P R O G R A M M E F O R S U P P O R T I N G R E S E A R C H I N E N T E R P R I S E S The Programme for Supporting Research in Enterprises (PAPPE), created as a programme of FINEP in October 2003, has been implemented since January 2004. Its aim is to encourage companies (mainly MSMEs) to employ highly qualified personnel and to encourage researchers to create MSMEs based on the application of high technology. These objectives would directly impact the innovative capacity of such enterprises. Two factors influenced the evolving implementation of PAPPE. First, until the end of 2005, FINEP was not allowed to give non-reimbursable funds directly to companies, a fact that had restricted the accomplishments of FINEP for many years. This impediment was overcome with the ratification of the Innovation Law (Law 10.973) in October 2005. Inspired by the French Innovation Law, the Brazilian Innovation Law is oriented towards public resources human, financial and material and aims to facilitate innovation within enterprises. Second, at the federal level, there was little previous experience in supporting enterprises in relation to the absorption of highly qualified human resources. The unique ongoing experience was a programme implemented by the State of São Paulo Research
Supporting Research in Commercial Enterprises Brazil 69 Foundation (FAPESP). However, this initiative was applied in only one unit of the federation and under the State rules and financial resources. While these constraints could be seen to undermine the implementation of PAPPE, they could also be seen as a challenge and an opportunity for working on several fronts. In this sense, FINEP, by obtaining political support, has been able to deal with intangible but fundamental issues such as distinct legal support, distinct levels of development among regions and distinct levels of the absorptive technological capabilities of the companies. The main objectives of PAPPE are to: stimulate political rationality within the science, technology and innovation system through the convergence of federal and State resources and policies on science, technology and innovation; encourage the decentralization of initiatives through the sharing of responsibilities between federal and State governments; carry out political negotiations to secure the necessary financial resources for the programme; strengthen links and synergies between different agents (e.g., federal and State financing agencies, researchers at universities and enterprises, and other organizations as supportive industrial bodies); implement long-term strategies relating to public policy on science, technology and innovation; and overcome gaps in innovation through the integration of science and innovation within the industrial sector, particularly among MSMEs. Besides these objectives, PAPPE is filling a gap in the FINEP portfolio of programmes, particularly those relating to the innovative activities developed by companies, allowing direct support to be provided to projects for the development of products and processes by new technology-based companies. G A I N I N G P O L I T I C A L S U P P O R T After identifying the aims of its PAPPE programme, FINEP established task forces to seek the political support and financial resources necessary to transform an idea into an effective programme. This process required negotiation within the Ministry of Science and Technology relating to the Sectoral Fund Management Committees and negotiation with the State science and technology secretariats and the research foundations that they support. FINEP successfully acquired political support from five federal and State bodies and financial resources from five Sectoral Funds: agrobusiness, biotechnology, energy, health and university-industry interaction. As a result of this negotiation process, 20 State governments, through their science and technology secretariats and foundations, committed themselves to sharing in the operational and financial support of the programme an exceptional result considering the novelty of the programme (fig. 1). Initially, the other 11 Sectoral Funds did not participate in the initiative
70 VOLUME 17: EXPERIENCES IN DEVELOPING CAPACITY FOR SUSTAINABLE DEVELOPMENT Figure 1 Federal units of Brazil in which PAPPE has been implemented. PAPPE not implemented PAPPE implemented because of lack of financial resources to commit to a new non-scheduled programme and the apprehension of each Sectoral Fund Management Committee that it would lose control over the decision-making process governing the use of its financial resources. Since Brazil is a heterogeneous country in terms of regional and local development, it was agreed that the financial participation of each State would be based on its capacity: in other words, the financial participation of the more developed States would be higher than that of the less developed States. The State secretariats of the National Council of Science and Technology thus established that the contribution of each State would be a percentage of the gross domestic product of each State. D E S I G N I N G T H E P R O G R A M M E The design of PAPPE required the preparation and negotiation of a series of memorandums of understanding (MoUs) among partners (State government bodies and Sectoral Fund Management Committees). Each MoU outlined the objectives of the programme, its phases of implementation, its operational and financing arrangements, the scope of the call for proposals, criteria for evaluating proposals, the requirement of technical reports and monitoring, and intellectual property issues, making clear the responsibilities of each partner. An outline of the main characteristics of PAPPE is found in the following table.
Supporting Research in Commercial Enterprises Brazil 71 Characteristics of PAPPE in Brazil. Characteristic Specific objectives Phases of implementation Resources Workplan of the Foundations Financial topics Criteria for project evaluation Intellectual property issues Description and Scope of Activities To allow researchers to undertake research projects in MSMEs. To encourage the creation of technologically intensive MSMEs by researchers. To stimulate MSMEs (existing or new ones) to undertake research, development and innovation activities with commercial or social impact. To contribute to strengthening the research, development and innovation culture within enterprises. To fuel the development of technological innovation and the application of research results in the industrial and service sectors. Pre-operational phase: recruiting potential candidates (researchers) and projects. Phase I: technical, economic and commercial studies, business plans and innovation strategy (researchers and enterprises). Phase II: development of innovation in a process, product or service. FINEP (five Sectoral Funds) and counterparts of State governments, according to the State secretariats of the National Council of Science, Technology and Innovation (a) Launch of public calls for proposals; (b) Selection of applications based on their feasibility studies; (c) Provision of financial resources directly to researchers; (d) Monitoring project development; (e) Requesting technical and financial reports of each phase of each project; and (f ) Submitting portfolio of technical and financial reports to FINEP. Federal resources are available for expenses relating to the overheads of the researchers (partial), consumables and consultancy services. The acquisition of equipment must be made through counterpart financial support (e.g., from State governments, via their research foundations, or enterprises). Degree of project innovativeness, expected social and economic impact, market potential, consistency of technology transfer, methodology and budget, financial resources offered as a counterpart, management capacity, definition of intellectual property issues. The partners (researcher and enterprise) must define their rights in relation to issues regarding intellectual property before the development of the project.
72 VOLUME 17: EXPERIENCES IN DEVELOPING CAPACITY FOR SUSTAINABLE DEVELOPMENT P AT E N T I N G A N D C O M M E R C I A L I Z AT I O N As the evaluation of the first phase of PAPPE has not yet been completed, no data are available on patenting or growth and sustainability of the assisted MSMEs. P A R T N E R S H I P S PAPPE involves the following partners: federal government via FINEP, which is linked to the Ministry of Science and Technology; 20 State governments via the State research foundations, which are linked to the State secretariats for science and technology; researchers from universities and research and technological institutions as well as independent researchers; 549 MSMEs that have been supported, distributed across the 20 participating States. R E P L I C A B I L I T Y In Brazil, PAPPE has been recognized as being of key importance for strengthening local systems of innovation. In fact, it has been considered as a model for the establishment of synergies among several organizations involved with science, technology and innovation issues throughout the country. For example, the Amazonas State Research Foundation implemented a programme similar to PAPPE but targeted towards policy issues important to the region and its indigenous population, such as primary education, sanitation, housing, the cultivation of local fruits and fisheries. PAPPE represents a method of formulating public policy relating to science, technology and innovation in a developing country. Countries sharing similar political ambitions sustainable economic development based on the benefit of science and technology should be able to adjust this programme to their own science, technology and innovation climate while still respecting their indigenous industrial diversity and heterogeneity. P O L I C Y I M P L I C AT I O N S When this case study was prepared, the implementation of the projects receiving financial support in the first round of PAPPE had not been completed. However, the experience acquired with PAPPE shows that it represents a successful policy instrument to be used for broadening and strengthening objectives such as the decentralization of federal government actions and financial resources devoted to science, technology and innovation issues while considering their convergence and cohesion. Additionally, PAPPE has encompassed States located in less developed regions of Brazil (north, northeast and central) and has thus had an impact on reducing historical regional inequalities.
Supporting Research in Commercial Enterprises Brazil 73 I M P A C T Q U A N T I TAT I V E I M PA C T As already stated, PAPPE agreements established between FINEP and State research foundations and secretariats have been made in 20 out of 27 units of the federation (fig. 1). To date, these units have established 606 research projects developed by researchers in the following areas directly related to specific Sectoral Funds: biotechnology, 11 per cent; health, 12 per cent; energy, 13 per cent; agrobusiness, 18 per cent; and 46 per cent in other areas supported by the Sectoral Fund responsible for universityindustry interaction. These projects involve 549 MSMEs, of which 62 per cent are microenterprises, 21 per cent are small enterprises, 14 per cent are mediumsized enterprises and the remaining 3 per cent are large companies. In addition, 224 of these enterprises are incubatees (i.e., companies supported by or located within an incubator company). Figures 2a and 2b show the regional distribution of projects and enterprises associated with PAPPE, while figure 3 shows the federal financial resources allocated to the various regions through PAPPE. Figure 2a Distribution of enterprises supported by PAPPE in Brazil, by region. Figure 2b Distribution of projects supported by PAPPE in Brazil, by region. Figure 3 Total financial resources of PAPPE in Brazil, by region.
74 VOLUME 17: EXPERIENCES IN DEVELOPING CAPACITY FOR SUSTAINABLE DEVELOPMENT Q U A L I TAT I V E I M PA C T The importance of PAPPE as an induction tool for science, technology and innovation may be attributed to its capacity for promoting change and the consolidation of legal and institutional frameworks within the Brazilian system. At the federal level, this pioneering experience converges with the rationale and principles of the Innovation Law, for example by establishing synergies between different organizations, strengthening local and regional systems of innovation and the decentralization of operations, as well as the application of financial resources throughout the country. At a subnational level, PAPPE has had a remarkable influence on State governments. For example, State governments have made increasing efforts to adjust their institutions, tools and legal environment in order to participate in the initiative. PAPPE has also promoted synergistic interactions between several State governments (secretariats and State research foundations) for determining and sharing solutions to overcome common barriers to the implementation of PAPPE and other programmes. State governments have been proactive in seeking to overcome barriers, notably by implementing State innovation laws in accordance with federal laws. They have also sought to create a more appropriate regulatory environment in line with new financial instruments for supporting innovation and consolidating local systems of innovation. In States in which the institutional framework is still incipient, movements do exist for creating science, technology and innovation secretariats and research foundations able to engage in initiatives such as PAPPE. PAPPE is the first attempt by the Ministry of Science and Technology to promote the convergence of strategies and financial resources from more than one Sectoral Fund to support an integrated and interdisciplinary programme. Since the implementation of PAPPE, so-called transversal actions (cross-discipline initiatives) have been created within the management of the Sectoral Funds and these new actions are currently the object of legal regulation by FNDCT. L E S S O N S L E A R N E D Brazil is a large and diverse developing country. Each region and State presents its own peculiarities and needs as well as different degrees of institutional, political and socio-economic development. For the implementation of PAPPE, it was necessary to undertake negotiations on several fronts; the legal, political and economic environments of each State being very different, PAPPE staff required a huge capacity for overcoming obstacles. It was concluded that each local system of innovation must be considered and respected while maintaining the aims of PAPPE and stimulating change. Another important issue to be considered relates to the different degrees of maturity in the systems of science, technology and innovation in
Supporting Research in Commercial Enterprises Brazil 75 each State. For example, in terms of financial resources dedicated to the programme, several State governments that are committed to PAPPE have not fulfilled their financial obligations to the Programme. Reasons for this include failure to implement political planning objectives and budget constraints. Seven Brazilian States six from the northern region and one from the northeast have not yet implemented PAPPE, owing mainly to the absence of institutional and political frameworks (secretariats and research foundations) necessary for participation. With regard to MSMEs, efforts need to be targeted towards the search for solutions to the persistent difficulties experienced by this sector. While this sector is often seen as irrelevant to the innovative environment, these enterprises have the potential required to capitalize on technological and innovative opportunities for growth. Appropriate technical, financial and legal regulatory tools, in addition to political commitment, are crucial for the evolution of this sector in developing economies. In summary, the maintenance and development of PAPPE depend on overcoming a complex array of institutional, political and cultural challenges. F U T U R E P L A N S The Ministry of Science and Technology, FINEP and their partners must design an appropriate set of indicators to monitor and evaluate the performance of PAPPE. The results of such evaluation will be of great importance since they will inform decision-making about the continuity of the Programme and any adjustments necessary. Following the ratification of the Innovation Law in 2005, the Ministry of Science and Technology and FINEP launched the Economic Subvention Programme. This Programme represents the first time that the Government of Brazil has used grants as a means to support innovative activities by companies. The Economic Subvention Programme is divided into two main areas: Subvention for Innovation (for companies of all sizes) and PAPPE Subvention (for MSMEs). The model, concept and principles of the latter are derived from PAPPE. In 2006, FINEP called for proposals to select partners to carry out this initiative in a decentralized manner, and the first round of proposals is being funded through the provision of $70 million. PAPPE Subvention for MSMEs will be implemented in 19 States and this will lead to the strengthening of their local systems of innovation. Case Study Prepared by: Conceição Vedovello FINEP (Since the preparation of this case study, Dr. Vedovello has moved to the State of São Paulo Research Foundation, or FAPESP.) Tel.: (+55) 11 3838 4031 E-mail: connie2001@uol.com.br or connie@fapesp.br
76 VOLUME 17: EXPERIENCES IN DEVELOPING CAPACITY FOR SUSTAINABLE DEVELOPMENT Project Participant: Cristina Lemos FINEP (Since the preparation of this case study, Dr. Lemos has moved to the Brazilian Development Bank.) Tel.: (+55) 21 21727728 E-mail: crlemos@bndes.gov.br