Opinion: Innovation in Brazil – by Glauco Arbix , President of FINEP

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  • Posted on October 31, 2013


    What is the overall balance that you have had of Inova since its release?

    Inova is a Federal Government program, which was launched by President Dilma Rousseff last March. US$16 billion will be invested in 2013 and 2014, with a focus on innovation and technology. It is a program that brought together 12 ministries, agencies, FINEP, BNDES.

    First of all, while the ministries, agencies and government work together, we created a single port of entry for businesses. They are priority areas defined by the federal government, areas that Brazil needs most, due to a huge deficit in the trade balance, whether on account of Brazil´s needs to connect with the future; areas of interest relevant to the whole economy, in which we give special attention and focus our resources.

    The second advantage is that we offer the possibility to combine the various tools that we have. Credit is one of them. We offer a highly subsidized credit option, under special conditions, but we also have a mode that the law calls economic subsidy. There is a third method that we call non-refundable for cooperative projects, when a company has the need to work with a university or a research center. It is possible to combine these three instruments, which may even be combined with a fourth instrument, which is by using of equity.

    We do this because this is how the whole world helps companies enter areas that normally they would not take part in because they are high-risk areas. As public financing is used, the state expects a return, either to the company, to the sector or for the whole economy. The state expects a return higher than what was invested.

    We focus on innovation, thematic priorities, special programs installed according to each area, the possibility of combining these tools and using the purchasing power of the State. Although we have had very rich experiences in the past, we have forgotten how to use the purchasing power of the State. The last concrete experience I remember was with Embraer, which eventually resulted in a company that is the most dynamic of the Brazilian economy. We’re doing something similar, in a different dimension, different economy, much less protected and a differential area which is the pharmaceutical sector.

    The last point of the program is that we have initiated a revolution at FINEP internally. We reduced our time span from more than 400 days on average to 30 days. We separated our processes, creating international indicators, we created 86 innovation indicators and a ranking was created to classify the companies – the processes of innovation and design. This gives us consistency, accuracy for FINEP to analyze these programs in a much shorter period. The time span is a consequence of the improvement of our processes. And we did this with technology. We introduced intelligence in the process. And we think this answers the concern of the people, the companies and the Brazilian citizen who want a more efficient public sector.

    We decentralize the credit as well as the economic subsidy. We created Inovacred and Inova Tech. This simply means that smaller projects will be supported by people who have knowledge of the area. Here in Rio, for example, we work with AgeRio.

     

    2- What are the main challenges for innovation in Brazil?

    For a long time our economy was closed and not competitive. The world today is very different, the competition is very strong. Although Brazilian companies have improved dramatically and have started to innovate more systematically, the result is not satisfactory yet. The Brazilian economy is not very innovative. Companies do not innovate as much as they could. These changes are sensitive. There are business movements taking place to innovate throughout Brazil, there is a great effort of the government to disseminate and encourage innovation, but there is a problem in the enterprises. Many companies already agreed to take part, but most have not. They need to realize that they need to innovate permanently, or they will die or be restricted to a niche firm, small, circumscribed, limited to their neighborhood, their region or even to their subject area. This process in Brazil is not as dynamic as it needs to be. Note that Brazil depends on the commodities segments. And these segments historically have shown that their rate of return of falls over time. What can maintain a high rate of return is exactly that process, product, company or segment that works with the most knowledge therefore being able to raise the value of what they do. This is what they seek, which is our challenge. So when you ask what is the main challenge, I would say: the overall general view of the country, our economy, this is the main issue, because it is the only way of raising the low productivity of our economy. Low productivity means that our economy is not competitive at the same level as our competitors. The productivity of the Brazilian economy is almost stagnant since the 80s. We grew marginally. This is medium and long term agenda of the economy that is most relevant. Of course we can discuss inflation, interest and exchange rates. This is important, is key, and is basic for society and is fundamental. The economic agenda in medium and long term is what makes our economy more flexible, more dynamic, faster, more able to compete, involving global networks, involving networks of other kinds.

     

    3 – Are there prospects for change in this scenario?

    We need to change. When companies realize that they need to change, this is the secret for their problems. We’re a bit on edge. There are a growing number of companies that are adhering to this perspective. For example: we launched the program Inova Company US$16 billion and collected so far, US$25 billion. It is a lot of demand for a country that still innovates so little. It is a lot of demand for a country that got used to putting aside technology at the slightest sign of weakness in the economy, whether national or international. So when we see that the economy needs to be unlocked and yet there is a demand for US$ 25 billion to develop technology, is a lot. This was a positive surprise for us. The next sign was: we opened FINEP 30 days since the 3rd September. We have now almost 700 companies that are registering at FINEP. So you get the picture, our portfolio of clients that have a signed contract does not reach 400. We simplify the process and suddenly we open up other opportunities.

     

    4 – How can we bring the axis of innovation to small and medium enterprises? Do they need a different program for them?

    They need a differentiated program for them; the dynamics of small businesses is very different of that of large companies… Brazil has great difficulty working like this. We offer exceptional credit conditions. However, even in exceptional circumstances, the credit is a difficult instrument to be used by small businesses, mainly because of the guarantees. Small businesses encourage entrepreneurship. They have the desire, willingness, momentum, energy. This does not count. They are intangible assets. Agencies need some kind of guarantee. But all of this is expensive. It is a much greater problem, which is bigger than FINEP. We cannot solve this problem. However, the decentralization helps with the credit. With decentralization, we allow small businesses to make use of guarantee funds that are local or regional funds. What would not happen if the work among small firms was centralized by FINEP. Even so, it is not enough. Many of these funds are costly and bureaucratic. We want to facilitate that. This is a problem that can only be solved when solved at a national level. A second dimension is to work with large and medium enterprises, to invite them to join the network, it’s a network of suppliers from small and micro enterprises. This is being done everywhere. We talked to large companies to find out how this could take place. We work with the idea of creating a system to stimulate small businesses, for each micro company, for each small business that is incorporated in these chains. We want to format a program to move in this direction. Large companies move much in the realm of efficiency, the speed, the reliability of their suppliers. It is not an easy activity because it depends on many agents. You need to convince them and the parties need to cooperate with each other which is much more intense than what we have. This is one of the weaknesses of the Brazilian tradition of innovation: no tradition of cooperation between companies, even companies that compete in the market. There is a huge world of assets, equipment that could be shared and which is not because we have this tradition of cooperation.

     

    5 – How can we make sure that these small suppliers do not become hostages of big businesses?

    The more fragile the business is, the more they have to submit to these kinds of relationships. You can escape while becoming stronger, increasing your scale and growing – so for us to create a small business and continue to be small is not an alternative, it has to gain scale. But what is most important is diversification: a small or medium enterprise that is not connected to a single buyer. Innovation is this: create a new product and market; create a new process and market, is opening a new business. By doing so, you become different from the others. And by becoming different, you create another path, another destination for their products. What means that you become less dependent. This is why innovation is key for large enterprises, medium and small. It’s the way you have autonomy in the market, grow, pay better wages, working with people more qualified because innovation is people, is transformation. And transformation is engineering, people thinking how to produce something different, something new, and differentiating your company in the market.

    6- What is the focus of FINEP for 2014?

    Leveraging Inova; launching the second versions of all programs and opening up a new round of funding and invitation for projects. Let’s improve the line of work with small businesses and sustain the entire strategy of the companies, not only local projects. Brazil needs companies that innovate permanently. So that we sustain and support companies that incorporate innovation in its strategy. We will also launch FINEP 30 days for the area of partnerships with universities and Research centers and for funding.