Letter IEDI n. 1010–Crisis and Innovation in Brazil
If there is a deficiency that Brazil urgently needs to correct, it is our low willingness to innovate. Despite the positive initiatives of recent years, companies lack engagement and public programs to support science, technology and innovation are insufficient, there is little interaction and coordination between research institutions, businesses and the public sector, and there is little international integration and a lack of qualified workers, among other gaps.
In spite of this, institutions in our innovation system were able to react quickly to the challenges imposed by the COVID-19 pandemic, as in the case of specific call notices issued by Fapesp and Finep, in addition to other initiatives. Companies associated with Senai Institutes and Embrapii Units have also promoted the conversion of production lines and innovative solutions. All of this could, however, have been on a much larger scale if the deficiencies mentioned above were not so present.
Today's Letter IEDI analyzes the data from the Technological Innovation Survey (PINTEC), for the 2015–2017 three-year period, recently released by the IBGE. The evidence is not encouraging, even if it largely reflects the severe economic crisis of 2015–2016 and the poor recovery we have since experienced. While the rest of the world accelerates its efforts to innovate, initiating a new technological paradigm, Brazil is failing to establish an innovation-conducive environment.
The low GDP dynamism in 2018 and 2019 and the shock that the COVID-19 pandemic is causing in 2020 do not bring good prospects for changing the situation presented by this latest edition of PINTEC.
Below, we summarize the main highlights of the developments between the last two IBGE surveys, but the reader can find more details in the study.
From 2012–2014 to 2015–2017, the innovation rate of the PINTEC's set of activities—a measure of the share of companies that introduced new products and processes in the period—dropped from 36% to 33.6%. The total volume of resources invested in innovation decreased by 17.4%.
Even more serious was the drop in the innovation effort indicator, which went from 2.54% to just 1.95% of companies' net sales revenues in the same period. In other words, it shrank by about ¼, following the general downturn in corporate investment in those years.
The manufacturing industry contributed to this decline, although its innovation effort fell slightly less than the grand total: around 22%, from 2.16% of its 2012–2014 sales revenue to 1.69% % in 2015–2017.
Despite these deteriorations, at least we tried to preserve expenditure on R&D, which is the most technological component of the innovation process. For the group of PINTEC companies, there was a +3.7% increase. Although there was a 2.9% fall for manufacturing, the sector continues to be the main responsible for these investments, with 66.6% of the total.
Thus, the R&D effort decreased less than the innovation effort, going from 0.77% of revenues to 0.74% for the total of companies and from 0.68% to 0.62% in the case of manufacturing. Some industrial branches, however, preserved or intensified their R&D efforts, such as chemicals, vehicles, computers and electronics, among others.
The reduction of the industry's innovation and R&D efforts is in itself very unfavorable; even more worrying, however, is the weakening of the technological development related to the foundations of the generation and diffusion of technological innovations for the industrial sector and for other activities too, including agriculture, livestock, mining, construction and much of the service sector.
This is what the sharp drop in R&D investments in the core of the equipment producing sectors means, be they mechanical, electrical or electronic. Electronic equipment R&D spending, which increasingly represent the core of productivity gains in the industry and other sectors, fell 30% between 2012–2014 and 2015–2017. In electrical appliances and in machinery and equipment (mainly mechanical) the falls were of 50% and 20%, respectively.
In addition to the quest to preserve R&D investments, another “lesser evil” that occurred in 2015–2017 was the moderate drop in the number of innovations considered “new for the world”: -3.4% compared to 2012–2014.
A more favorable movement was seen in some industrial sectors, with an increase in the number and relative importance of these “for the world” innovations, a result that deserves to be highlighted and positively evaluated. These were the cases of paper and cellulose, pharma-chemicals and pharmaceuticals, metallurgy, computer equipment, automobiles and oil, biofuels and chemistry.