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Editorial: Brazil Must Innovate or Else

06/16/2015 - 09h06

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FROM SÃO PAULO

A perfect tempest is brewing in the most dynamic sectors of Brazil's economy, and it derives from the inability to innovate. The country's traditional dependency on foreign technology, combined with a fall in production, has suspended or delayed badly needed investment.

Just as truth was said to be the first victim of war, the first victim of economic recession is always research and development (R&D). Yet Brazil will only compete on the global market, creating better products and jobs, if it can modernize its industry. Today, this means much more than just importing new machinery.

The fact that the problem is not a new one makes it all the more exasperating: Brazilian companies invest little in innovation. There are historical reasons for this, such as long periods of protectionist policies which removed the incentive to develop products which could stand up to international competition.

The statistics reflect this problem: Brazil invests just 1.21% of GDP in R&D, compared to 1.98% in China and 4.30% in South Korea. Worse still, just 44% of this investment comes from the private sector, with the rest coming from state institutions. In contrast, amongst Brazil's Asian competitors, 75% comes from private investors.

The Federal Government has been trying for years to remedy the situation, creating programs and sources of financing - but to little avail. Now, with the economy in recession, neither the state nor private initiative can rely on new resources to support innovation.

In addition, high interest rates discourage investment in high-risk, long-term projects, as tends to be the rule with R&D. To make matters worse, the devaluation of the real makes importing machinery even more expensive.

In short, the country has no option but to innovate. However difficult it might be, it is important to make correct and swift use of the resources available. The first and most obvious step that should be taken is to remove unnecessary barriers, such as bureaucracy.

For example, in Brazil it takes 10.8 years to obtain a patent, compared to just 2.6 in the United States.

Likewise, the Brazilian Company of Research and Industrial Innovation (Embrapii, in its Portuguese acronym), was created to facilitate the financing of cooperation agreements between companies and research institutions, but it needs to become larger and swifter at mobilizing the R$400 million (USD$128 million) it has at its disposal annually.

The National Development Bank (BNDES) also needs to be strengthened. After all, its support for research at the Canavieira Technology Center to improve productivity in the alcohol sector will bring greater benefits to the country than the dubious policy of subsidized loans to create "national champions."

Translated by TOM GATEHOUSE

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