INTRODUCTION

Fostering innovation is one of the key challenges Brazil faces as the country strives to emerge as a force in
the global economy. In the twentieth century, Brazilian scientists and research institutions developed and
established the countrys capacity to produce state-of-the-art knowledge in various fields. Innovation, or the
ability to apply knowledge in the development and production of goods and services, however, remains
largely absent in many sectors of the economy. To address this issue the country needs to advance public
policies on science and technology that help translate the countrys strong research base into products and
services that benefit consumers and society at large. Better public policies create incentives and foster the
necessary environment that will support companies in their effort to turn ideas into competitive products
and services.

CHANGING DINAMICS

Globalization has increased the competitiveness of countries and corporations integrated into the
world economy, which, in turn, has sharpened the need for innovationmaking it a central pillar
for any public policy aimed at economic development and industrialization.

Technological and scientific advances, which are critical components of sustainable economic
growth, are now primarily driven by market demand. Yet, while firms are the principal engines of
innovation and policy-making is still grounded in economic considerations, the best players in the
international arena are those that have developed a national system of innovation where the
increased number of actorscompanies, governmental institutions and research centersfluidly
interact within a cohesive network.

STRATEGY

Within this network, Pacheco elaborated, government institutionsand particularly a countrys

macro-regulatory frameworkplay a pivotal role. Nonetheless, observed Pacheco, to truly succeed
as an international competitor the complexity of the entire innovation paradigm requires
governments to adopt a more holistic approach to public policy. That means increasing capital and
labor mobility, public and private sector cooperation, as well as provisions of public goods like
technological infrastructure. It also means providing direct incentives for businesses (especially
medium and small businesses) to enhance innovation and encourage risk-takers (angel investors,
venture capitalists, etc.) to commit seed-capital to start-up companies; establishing tech-parks and
business incubator programs; stimulating cooperation between businesses and universities; and
promoting the commercialization of intellectual property. A coordinated national strategy that
integrates these different policies into one cohesive framework should therefore be a top-priority
for the Brazilian government, argued Pacheco.

on the one hand the countrys system is underdeveloped and fragile, on the other hand, the
country has managed to make significant progress in this field. Despite Brazils fragile industrial
base for innovation, a 2005 study by the Instituto Brasileiro de Geografia e Estatstica (IBGE,
Brazilian Institute for Geography and Statistics) showed that nearly 33 percent of Brazilian firms are
considered innovative, meaning that within a given calendar year they have developed a new
product or service.

Prior to 2001, he remarked, government agencies responsible for advancing scientific knowledge
only considered the issues of science and technology; now, the focus for these agencies is on
science, technology and innovation.

THE ROLE OF KNOWLEDGE

Brito Cruz criticized the tendency in Brazil for discussions on innovation policies to only focus on the
part played by universities. While universities play a pivotal role in the innovation process by
serving as centers of research and analysis, he explained, they serve a much greater function in the
system as producers of human capital. Individuals with higher degrees of education provide the
country with a dynamic workforce that is better able to use, adapt and co-opt knowledge
generated by new ideas and scientific advancement, as well as a more informed consumer pool
interested and able to purchase new products.

GLOBAL PERSPECTIVES ON INNOVATION

there is a growing gap between Brazils domestic policy agenda and its conduct in the international
arena. On the domestic front, Brazil appears to be making great efforts to encourage innovation
through rigorous IP protection and an integrated network of institutions, laws and norms. Yet, in the
international arena, the country seems to disregard many of these same principles, preferring
protectionism and reactive diplomacy.

An emerging economy, Brazil has the worlds seventh largest economy. It weathered the
global economic downturn well, but growth has slowed over the last two years. To boost
economic performance, the Greater Brazil Plan 2011-14, adopted in 2011, gives innovation
a central role and includes proposals for significant changes in legislative frameworks.

Brazils industry is globally competitive in sectors which either derive from its abundant natural
resources (oil and gas, agriculture), or were developed to preserve and protect them (aircraft and
remote sensing). Innovation in other sectors is hindered by the governments protectionist policies, and
this may pose a risk to Brazils economic security in light of Chinas growing trade relationship with the
country as well as the region. Although Brazil has the strongest science and technology (S&T) workforce
in South America, industry is not highly innovative according to many objective measures. The countrys
economic growth appears to rely on Brazil being integrated into the global supply chains of other
countries, primarily China, and less on the maturation of a national innovation strategy. If that is true,
Brazils reliance on other countries, especially China, could lead to security concerns not only for Brazil
and other South American countries but also for the United States
Brazils National Innovation System Brazils national innovation system is relatively young compared to
similarly sized economies. Brazils gross domestic product (GDP) is the seventh largest in the world,
behind the United States, China, Japan; leading European Union countries; and ahead of Russia and
India. Brazil has legislated on S&T development since the 1930s when several industrial sectors
important from a national security perspective, such as oil and gas extraction, mining, and automotive
and aircraft manufacturing were established as statist monopolies under a military regime. It was not
until Brazil had moved towards democracy in the 1980s and gradually opened its markets to trade that
the government turned its attention to economic competitiveness. The first major funding program
targeting innovation went into effect in 1999; since then, several policies and strategic plans have been
implemented that target both specific technology sectors as well as the framework conditions that
support innovation. Going by commonly accepted indicators, innovation in Brazil, particularly in the
private nonstate-supported sectors, is low compared to that of peer countries. Brazil ranks 64th in the
World Economic Forums Global Innovation Index, behind Mexico and Russia, due to a complex but
interrelated set of conditions. Despite this low ranking, Brazil leads other South American countries in
the S&T arena with a strong manufacturing sector and iv an economy that accounted for close to 60% of
the regions GDP in 2011. Brazils policymakers face the challenge of making the transition from regional
dominance towards global competitiveness, and deepening the Brazilian industrys integration with
global supply chains, particularly in light of Chinas growing trade relationships in South America.
Governments Role in Innovation Brazil has leveraged its rich and plentiful natural resources to build
strong S&Tdriven sectors with state support. Recent examples are the development of its biofuels
industry and research into pre-salt oil reserves. Some industry leaders in these sectors are Petrobras (oil
and gas), Embrapa (agriculture), and Embraer (aircraft manufacture), and private multinational
companies include Vale (mining), Volkswagen do Brasil (automotive and biofuels), Halliburton and
Schlumberger (oil and gas) and General Electric (equipment/machinery). Public funding for research has
steadily increased over the past decade from 1% to 1.17% of the GDP, slightly lower than in Russia and
China but the highest among Latin American countries. Increased research funding has translated to a
steady increase in the number of publications; however, patenting rates in Brazil remain significantly
lower than in peer countries. The governments efforts at fostering innovation in the Brazilian economy
are fairly recent and have had mixed success to date; on the one hand, total undergraduate degrees
granted have more than doubled in the past decade, with similarly significant trends seen in post-
graduate degrees attained, an outcome of an education push by the Lula and Rousseff administrations.
On the other hand, a cultural bias towards pure research and a historical mistrust of the military have
traditionally diverted the majority of qualified S&T researchers to academia, where they have little
interaction with industry, a trend that policies have not been able to impact thus far. As a result,
industry-university linkages are poor, and publicly funded research is by and large not accessed or
exploited by industry. This, in turn, also negatively impacts industrys capacity to engage in R&D-based
innovation. The high cost of doing business in Brazil known as custo Brasil is a barrier to starting and
growing new businesses and arises from high tax and interest rates, excessive bureaucracy, rigid labor
laws, and inefficient infrastructure. Critics of the Brazilian government say the profusion of
uncoordinated policies announced in recent years have been ineffective and added to the existing
structural defects in the economy for creating an environment that discourages business investment.