Innovation in Brazil: challenges, opportunies and barriers

Transcription

1 Innovation in Brazil: challenges, opportunies and barriers Alex da Silva Alves College of Agriculture Luiz de Queiroz - Esalq University of São Paulo alexds.alves@usp.br

2 Presentation structure The context for innovation in Brazil Economic growth perspectives R&D spending Profile of entrepreneurs Innovation and entrepreneurship financing Barriers to innovation and entrepreneurship Islands of Excellence in Brazil Some final words

3 The context for innovation in Brazil

4 Economic growth perspectives International Monetary Fund. World Economic Outlook. Washington, DC, April 2013.

5 Economic growth perspectives Real GDP growth in the LAC region declined to 3 percent in 2012, from 4½ percent in 2011, reflecting a slowdown in external demand and, in some cases, the impact of domestic factors. The deceleration was particularly pronounced in Brazil, the region s largest economy, where large policy stimulus failed to spur private investment. The slowdown in Brazil spilled over to its regional trading partners, especially Argentina, Paraguay, and Uruguay. International Monetary Fund. World Economic Outlook. Washington, DC, April 2013.

6 Economic growth perspectives International Monetary Fund. World Economic Outlook. Washington, DC, April 2013.

7 R&D spending The most R&D-intensive Brazilian firms World Ranking Company Industry R&D m R&D 1-year growth R&D CAGR-3y Sales m Sales 1-year growth 92 Vale Mining 1190,0 96,6% 4,2% 45590,8 46,0 96 Petroleo Brasiliero Oil & gas producers 1149,6 67,9% 8,0% ,2 22,6 748 CPFL Energia Gas, water & multiutilities 88,6 10,2% 35,7% 5307,1-1,7 763 EMBRAER Aerospace & defence 85,9 72,8% -23,4% 4098,8 10,8 998 Totvs Software & computer services 60,5-3,0% 27,9% 531,9 13, Weg Industrial engineering 56,0 33,7% 14,9% 2157,7 18, Braskem Chemicals 41,2 25,8% 13794,1 30,1 Battelle Global R&D Funding Forecast. Bruxelles, 2012.

8 The most R&D-intensive Brazilian firms: impact on share prices Company Beta coefficient Ibovespa 1,00 Vale 0,92 Petrobras 1,05 Totvs 0,84 CPFL 0,05 Braskem 0,66 Embraer 0,51

9 The most R&D-intensive Brazilian firms: impact on share prices Totvs not included

10 The most R&D-intensive Brazilian firms: impact on share prices Totvs and CPFL not included

11 The context: R&D investments Battelle Global R&D Funding Forecast. Bruxelles, 2012.

12 Profile of Brazilian entrepreneurs Since its first edition a decade ago, the Global Entrepreneurship Monitor (GEM, 2012) continues to claim entrepreneurship in Brazil as mostly driven by need than by the exploitation of a market opportunity. According to GEM, there are 27 million people in Brazil directly involved with some kind of entrepreneurial activity. This is ¼ of the population aged

13 Profile of Brazilian entrepreneurs Responsible for over 60 per cent of jobs in the country, SMEs generate 20 per cent of GDP and account for 99 per cent of the 6 million companies working in Brazil (GEM, 2012). The relative importance of these segments has grown consistently and the growth of its turnover exceeds the average of the Brazilian economy.

14 Innovation and entrepreneurship financing Credit market in Brazil is more targeted to the consumer than to the producer, to short than to long term, and reaches more high than low income borrowers. A market for private R&D investment is mainly available through public finding sources: Brazil s innovation agency - FINEP Brazil s Development Bank - BNDES The Brazilian Research Council

15 Innovation and entrepreneurship financing Main funding sources for entrepreneurship and innovation R&D and proof of concept financing Brazil s Innovation Agency (FINEP) provides funding on a sunk-cost or reimbursable basis up to R$ 1 million. Brazil s Ministry of Science and Technology (MCT), the National Research Council (CNPq) and States Research Support Agencies provide financial resources for business plan development, proof of concept and R&D on a sunk cost basis. Entreprise financing Public funding from the Brazilian Development Bank (BNDES) and other sources through the CRIATEC seed fund - up to R$ 3 million. Private funding from seed funds (scarse but growing with the entry of FINEP and BNDES as general or limited partners). Private funding from business angels (still scarse and limited to larger and richer regions, but growing in importance) up to R$ 1 million. Private VC funding available but more scarse for firms after the 2008 turmoil. On May 2013 FINEP and BNDES annouced a R$ 1 billion joint financing scheme with a mix of credit and sunk cost funding to projects that boost the Brazilian agro-industry value chain (Inova- Agro) up to R$ 30 million per project.

16 Innovation and entrepreneurship financing Modes of Private Equity Investments in Brazil Brazilian R$ (billions) Venture Capital Mezzanine Private Investments In Public Equity - PIPE Others ABVCAP Brazilian Venture Capital Association. Available at

17 Innovation and entrepreneurship financing Percentage (%) of Private Equity Investments in Brazil by Sector ABVCAP Brazilian Venture Capital Association. Available at

18 Innovation and entrepreneurship financing Percentage (%) of Private Equity Investments in Brazil by Exit Strategy IPO/Mezzanine Sell to strategic investor Others/Not Informed MBO Other VC/PE Funds ABVCAP Brazilian Venture Capital Association. Available at

19 Innovation and entrepreneurship financing Performance of Private Equity-backed Companies in Brazil Private Equity Fund Periodo of time Cumulative return since IPO

20 Barriers to innovation and entrepreneurship Taxes and regulation Brazil G20 Time frame Number or procedures to start a new business (number) 12,0 7,6 2010/2012 Time to start a new business (days) 119,0 22,0 2010/2012 Costs to start a new business (% of per capita income) 5,8 9,4 2010/2012 Minimim capital required to start a business (% of per capita income) - 17,9 2010/2012 Cost of firing employees (weeks and salaries paid) 46,0 50,0 2007/2009 Tax and labour contributions (% of profits) 40,8 24, Total tax rates (%) 69,3 49, Total sales taxes (%) 19,0 14, Time spent with tax issues - hours (2010/2012) Brazil 347 G20 Entrepreneurship Barometer 2013 & Valor Econômico (Oct, 7 th 2013).

21 Barriers to innovation and entrepreneurship OECD. Brazil STI Outlook. Bruxelles, Available at:

22 Barriers to innovation and entrepreneurship Before joining the WTO in 1995, the Brazilian patent office, INPI, could cap royalty payments and demand that local partners gain rights to imported know-how. The discovery of oil in ultra-deep waters offshore has helped to change attitudes. Firms drilling in the new fields must spend 1% of gross revenues locally on research and development. The economist. Brazil: Getting serious about patents. November, Available at:

23 Barriers to innovation and entrepreneurship During the 1970s state investment made Brazil a world leader in sugar-cane ethanol. But that wave of innovation petered out. Mr Ávila of INPI hopes that more effective, and swifter, patent protection and a 2004 law granting universities greater rights to exploit spin-offs from publicly funded research will mean that innovation will now bear more fruit. The economist. Brazil: Getting serious about patents. November, Available at:

24 World Intellectual Property Organization (WIPO) World Intellectual Property Indicators. available at Barriers to innovation and entrepreneurship

25 All countries - except Japan Only Japan Barriers to innovation and entrepreneurship Number of Patents Granted as Distributed by Year of Patent Grant GERMANY TAIWAN UNITED KINGDOM FRANCE KOREA, SOUTH ITALY ISRAEL CHINA, PEOPLE'S REPUBLIC OF FINLAND 6000 INDIA SPAIN RUSSIAN FEDERATION 4000 BRAZIL TURKEY JAPAN Based on WIPO data.

26 All countries - except Japan Barriers to innovation and entrepreneurship Number of Patents Granted as Distributed by Year of Patent Grant Developing countries TAIWAN CHINA, PEOPLE'S REPUBLIC OF INDIA RUSSIAN FEDERATION BRAZIL TURKEY Based on WIPO data.

27 Barriers to innovation and entrepreneurship Compounded Average Growth Rate for Selected Countries Patents Granted Country CAGR Total Patents granted ( ) Based on WIPO data. CHINA, PEOPLE'S REPUBLIC OF 36% INDIA 23% TURKEY 22% 426 SINGAPORE 14% KOREA, SOUTH 11% ISRAEL 10% SPAIN 8% BRAZIL 8% TAIWAN 8% AUSTRALIA 6% AUSTRIA 5% RUSSIAN FEDERATION 5% CHINA, HONG KONG S.A.R. 5% CANADA 4% DENMARK 4% FINLAND 4% JAPAN 4% NETHERLANDS 4% GERMANY 3% UNITED KINGDOM 3% ITALY 3% SWEDEN 3% SWITZERLAND 3% FRANCE 3%

28 Barriers to innovation and entrepreneurship The Economist Intelligence Unit.

29 Islands of excellence in Brazil

30 Context Despite the aspects discussed so far, there are islands of excellence in Brazil. These are sectors and areas that gained scale by exploiting positive economic externalities derived by past state investments in agriculture, oil & gas, and infrastructure provision to universities.

31 Context The comprehension of innovation as a lever of competitiveness has increased in Brazil and contributed to the creation of a more receptive environment to entrepreneurship. Unprecedented levels of R&D investments (public + private): 2000: R$ 12 billion ( 6,5 billion money of the day) 2011: R$ 50 billion ( 20,5 billion money of the day)

32 Support institutions The National Research Council (CNPq) is a federal support agency created in CNPq provides research grants to universities, researchers and firms cooperating with universities in science, technology and innovation projects. Funds provided are on a sunk cost basis. More at

33 Support institutions The São Paulo Research Foundation FAPESP is an independent state foundation with the mission to foster research and the scientific and technological development of the State of São Paulo. FAPESP is the most important state research foundation in the country. It provides funds to researchers, firms and universities on a sunk cost basis. More at

34 Support institutions. The Brazilian Development Bank (BNDES) is the main financing agent for development in Brazil. Since its foundation, in 1952, the BNDES has played a fundamental role in stimulating the expansion of industry and infrastructure in the country. More at

35 Support institutions The Brazilian Innovation Agency FINEP provides universities and firms with financial resources on a sunk cost and reimbursable basis. The aim of the Agency is to advance the country s technological and entrepreneurial development through the financing of collaborative or individual projects. More at

36 Research facilities The Centro de Pesquisas Leopoldo Américo Miguez de Mello - Cenpes - is the Petrobras research unit responsible for R&D and engineering in simulation and production for energy-related areas. Created in 1963 in a area of m2, Cenpes is one the world s most important applied research facilities. More at

37 Research facilities

38 Research facilities

39 Research facilities The Sugarcane Technology Center - CTC - is the largest research center for sugarcane in the world. CTC operates in the entire production chain of the sugarcane industry: from cultivation to final production of sugar, ethanol and energy. In one of its core areas, CTC performs the mapping of areas with low productivity and develops sugarcane varieties for these regions within eight years at most. In the past this period of time ranged from 12 to 14 years.

40 Agriculture Develops Plene Cana that, according to the company, eliminates the need for nursery areas and reduces the use of heavy machinery harvesting, thereby preserving the soil. The company also claims that its product resists to some typical sugarcane pests.

41 Agriculture

42 Agriculture

43 Agriculture

44 Some final words

45 Some final words The short availability of private money is still a concern for innovation take-up in Brazil. Macroeconomic aspects also contribute. (Private) investors complain about the scarcity of good projects. Although significant gains emerge, here and there, the participation of universities in the creation of internationally competitive startups is still very modest.

46 Some final words Government participation is fundamental. But the size and scale of some agencies end up inhibiting the willingness of the private sector to taken on more risks. The geographical mobility a prerequisite for the attractiveness of bright professionals from inland and abroad is reduced due to several factors (disadvantageous law, social aspects, urban disorder, poor infrastructure, education ).

47 Thanks!