Two economists with the Institute for Applied Economic Research (IPEA) analyzed the reasons behind why the economic subsidy program promoted by the Brazilian Funding Authority for Studies and Projects (FINEP) has only marginally affected the pace of innovation in Brazil. Launched in 2006, this support program proposes to invest nonrefundable government funds—that is, funds that do not need to be repaid—in research and development (R&D) projects developed by innovative companies. Its objective is to promote high-risk technology initiatives in the private sector.
The study, performed by Graziela Zucoloto and Priscila Koeller, of IPEA’s Center for Research in Science, Technology and Society, shows that the program suffered from inconsistent funding. Virtually no investments were made between 2014 and 2019 (see chart). FINEP resumed granting subsidies during the pandemic, but was unable to impact enterprising, large-scale ventures. This ineffectiveness was the result of less time allotted to project implementation, fewer resources for each venture, and lower counterpart percentages provided by the companies.
For the study, the researchers split their analysis into two periods (2012–2015 and 2016–2020), corresponding to the latest National Strategies for Science, Technology, and Innovation (ENCTI). During the first period, between 2012 and 2015, the program offered an average annual total of R$266.8 million, which had a considerable positive impact, breaking the industry-academia barrier and boosting patent filings. However, this scenario has deteriorated in recent years. The average annual total provided between 2016 and 2020 dropped 65%, compared to the previous period, totaling only R$93.3 million. This plunge was mainly caused by successive freezes placed on funding for the National Fund for Scientific and Technological Development—FNDCT (see Pesquisa FAPESP nº 304). The FNDCT is sustained by revenue from various economic sectors—such as oil, energy, healthcare, and biotechnology—which is consolidated in the Sectoral Funds for Science and Technology. It is the federal government’s primary tool for funding research and innovation and is responsible for funding FINEP’s programs. “With the recurrent freezes placed on its funding and the option to allocate existing funds to other areas, the subsidy lost its investment potential,” explains Zucoloto.
During the second period analyzed in the study, there was an increase in the number of projects supported, mainly driven by the release of funding for technology related to COVID-19. In 2020, FINEP nearly relaunched the program, granting R$271.2 million to 191 projects of this nature—this was the largest subsidy managed by the agency since 2016. One project resulted in low-cost COVID-19 tests. Developed by Bioensaios, a company established in Paraíba, Brazil, the device is made from silica and achieved results equivalent to those of the RT-PCR, which is the gold standard for COVID-19 diagnosis. Another project, carried out by the company Plasmar Indústria Metalúrgica, located in Rio Grande do Sul, Brazil, produced antimicrobial masks capable of filtering up to 95% of airborne particles, decreasing viral load and the risk of contagion.
According to the economist and political scientist Luis Fernandes, of the Institute of International Relations at the Pontifical Catholic University of Rio de Janeiro (IRI-PUC-RJ), while the funds allocated to address COVID-19 were welcome, they were limited to incremental innovations—and not structural innovations as expected from the projects supported by this program. “I understand FINEP’s managers,” says Fernandes, who led the agency from 2007 to 2011. “Faced with limited funds, they used the pandemic to bolster the subsidy, but given the short-term nature of this action, the projects will not meet the country’s need for innovation.”
According to Zucoloto, the trend emerging in recent years seems to have perpetuated old issues. One of which concerns the average time allotted for project implementation, which dipped from fifty-three to twenty-four months in the last ten years. This phenomenon has concerned researchers for some time. “Considering that the subsidy aims to support high-risk technology projects that would not be viable without federal funding, one must wonder whether two years is enough to develop high-impact innovations, capable of meeting the country’s interests,” remarks Koeller. Roberto Bernardes, a professor for the Graduate Program in Business Administration at the Inaciana Padre Sabóia de Medeiros Educational Foundation (ESAN/FEI) and a specialist in the strategic management of digital innovation and transformation, claims that the average timeframe for a radical innovation project is approximately five years, depending on the level of scientific innovation and technological complexity, and the degree of uncertainty involved. “Two years is insufficient to advance high-risk innovations.” Gianna Sagazio, the Innovation Director at the Brazilian National Confederation of Industry (CNI), highlights that an innovation’s impact cannot be estimated based on the project’s implementation time. “Data provided by IPEA, however, indicates that Brazil has no prospect of perennial, long-term government support for high-risk corporate R&D activities, which is alarming.”
According to Domitila Santos Bahia, an economist at the São Paulo School of Politics, Economics and Business at the Federal University of São Paulo (EPPEN-UNIFESP), “the results suggest that the subsidy will be used to replace private investments in incremental innovations, which is often useful for the company but does not necessarily address the country’s challenges.” According to Fernandes, however, it is important that the data be analyzed considering the current economic context. “Large companies are investing less in R&D, given the political and economic uncertainty in recent years in Brazil, while small and medium-sized companies suffer from low domestic demand and investment capacity. With FINEP investing less, we expect that the companies will also provide less counterpart funding,” states the economist, in reference to the claim that the companies themselves invest in projects funded by the agency.