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industrial policy

Once again, in the front line

Support for innovation redeems the role of Finep and of the BNDES

Their bets on innovation are putting in the front line of industrial, technological, and foreign trade policy the Financier of Studies and Projects (Finep) and the National Bank for Economic and Social Development (BNDES). Along with Banco do Brasil, Finep and BNDES will be the main development agents of the new industrial policy. Together, they should inject R$ 14.5 billion into the modernization of productive facilities and into innovation and support for research and development at universities and companies, through lines of credit, venture finance, and partnerships, amongst others.

“Finep was essential for the development of science and technology in the country in the 1970’s and 1980’s, when it had institutional support”, says Sérgio Machado Resende, Finep’s president. “In the 1990’s, the situation got complicated, and the budget shrank.” In this period, he comments, Finep ceased to provide support for the infrastructure of the universities and research institutes, and stimulus for innovation in companies was reduced as well, not only because of the lack of funds, but also because of the plunge in demand on the part of the interested parties. “Now, we have resumed our strategic position: innovation is with Finep, something that has not been happening for a decade”, he explains. The proposal is not only to foster research and the link to the productive sector, but also to work on the training of human resources, via scholarships, amongst others.

Between 1964 and 1974, the BNDES also played a historical role in the first efforts in the steering of innovation in the country, with the Scientific and Technological Fund, which gave origin to the current National Fund for Scientific and Technological Development (FNDCT), which houses the resources of the sectorial funds, managed by Finep. “Between 1971 and 1979, Finep was managed by people who had come from the BNDES. We are now reorienting the bank towards development, since support for innovation cannot stay outside its investments”, says Fábio Erber, the director of industrial policy at the BNDES.

Venture investments
The proposal for industrial policy, announced by the government on March 31, is made up of a roster of 57 measures with which it is intended to start a recovery from a historical delay that has jeopardized the development of new products and processes, the generation of patents, and the competitiveness of the country. This set of actions has as its focus four sectors defined as strategic, for their potential for driving the other areas of the economy: capital goods – translated as machines and equipment – semiconductors, software, and drugs.

The program also provides a boost to biotechnology, nanotechnology, and biomass, areas in which Brazilian research is competitive and enjoys international prominence.The programs for innovation in the areas of semiconductors, software, and drugs were drawn up in the 16 sectorial chambers set up by Finep at the beginning of this year, before being approved by the industrial policy committee linked to the Ministry of Development, Industry and Foreign Trade (MDIC).

“In the area of semiconductors, we have now identified a set of public and private research centers that should work in a network to support industrial development”, Resende reveals. He cites the example of the Genius Institute, in Manaus – which has Siemens and Gradiente as its customers, amongst others; the Recife Advanced Studies and Systems Center (Cesar); the CPQd Foundation, in Campinas; and the Center of Excellence in Advanced Electronic Technology (Ceitec), in Porto Alegre, this latter aimed at the production of chips for specific applications.

These centers, which are going to be part of the National Microelectronics Program, will be directly funded by Finep. The agency has now, for example, made available a R$ 10 million line of credit, with an 18-month term of finance, to encourage the production of chips at Ceitec. Support for the companies may also be given by means of the company’s venture funds or investments, Resende details. In the case of a direct participating interest, Finep should acquire debentures of the company and negotiate their sale with the BNDES. “Last year, we acquired R$ 10 million of debentures”.

This year, they will be R$ 30 million”, Resende wagers.The expectation of Finep’s president is for achieving, in 2004, a better performance than last year, when the agency used up almost all of its budget: it invested R$ 630 million from the sectorial funds – “we doubled the investments, despite the budgetary constraints”, stresses Resende – and also lent R$ 150 million. “It is still not much, but things are now pointing to a recovery”, he says.

Export targets
For the Program for the Development of the National Industry of Software and Kindred Services (Prosoft), forecast in the industrial policy, R$ 100 million will be set aside by the BNDES this year. The goal is to expand the participation of companies in the domestic market and to foster the growth of exports. Brazil has 5,000 software companies, almost all of them small. “The medium sized ones are no more than ten”, reckons Minister Eduardo Campos. This fragmentation makes competitiveness and complying with export targets unfeasible. “We need to provide support for a policy of grouping companies together”, the minister reckons. The merger of companies will be encouraged by the Bank.

The actions for supporting technology based companies will also cover companies at the gestation stage. In partnership with Ministry of Science and Technology (MCT) and Finep, the BNDES will launch, probably this month, according to Erber, the Criatec program, to finance companies ranging from companies still being incubated to medium sized ones. “This support may also be offered by means of loans, but the most effective instrument will certainly be venture capital”, says Erber. To facilitate the access of the companies to the funds and to make the procedures required by the Bank more agile, the creation of institutional instances at a regional level is provided for.

Another program sponsored by the BNDES is the Support for the Development of the Pharmaceutical Productive Chain (Profarma), which will be able to count on a line of funding for the production of medicines and consumables, forstimulating research, and for merging companies.

“Profarma is divided into three subprograms”, Erber details Erber. The first will fork out resources for the purchase of equipment, infrastructure works, software, and the expenses necessary for complying with the requirements of the National Health Surveillance Agency (Anvisa); the second has for its target promoting the competitiveness of Brazilian companies, and the third – to be launched shortly – will sponsor the purchase of electronic equipment for medical use.

As a priority, Profarma will operate with venture investments, Erber explains, since Brazilian drug companies are small and have difficulties in making substantial investments in research, development, or marketing. “If these companies wish to merge, the Bank will support them”, he says. The funding of activities in public and private laboratories and the use of the purchasing power of the State as a form of development is also provided for. “There are no restrictions”, says Erber. Amongst the companies that will be able to count on resources from the BNDES is Hemobrás, a factory of blood byproducts that produces albumin and immunoglobulin, amongst others (please see the article The New Law on innovation)Erber guarantees that the budget of the BNDES for actions of industrial policy is “flexible”. “We have a budget for disbursing R$ 47.3 billion this year. The forecast investments, taking this total into account, are small”, he says. The problem, he stresses, may be the lack of demand.

Resources under constraint
If there is availability of funds on the side of the BNDES, the same cannot be said of Finep. The agency now has R$ 300 million in cash to support industrial policy projects, but it expects to have R$ 640 million from the sectorial funds this year. Another R$ 800 million of the funds is frozen in the budget of the Union to guarantee a primary surplus – the difference between the revenues and the expenses of the Union, states, and municipalities, not counting interest – of the public accounts. Their release depends of on growth picking up again, Resende recognizes.

As an optimist, he is betting on success in mobilizing the scientific and technological community to recover these resources. On April 2, 46 entities forwarded a manifesto to President Luiz Inácio Lula da Silva, supporting Brazil’s plea to the International Monetary Fund (IMF) and bilateral organisms – for investments in infrastructure not to be accounted for in the primary surplus – and proposing that spending on science, technology, and innovation should equally be excluded from this account and therefore spared from constraint. The manifesto was headed up by the National Forum of the State Secretariats for Science and Technology and the National Forum of the Research Support Foundations (FAPs).

The new law on innovation
Some of the measures provided for in the industrial, technological, and foreign trade policy will find legal support in the Law on Innovation, which for two years went through the National Congress, and which now, with a new format, is once again being sent to the Legislative. The new law provides for a series of actions that have as their objective drawing universities and research institutes closer to business, a condition without which the development of research and of new products will not be stepped up in the country.

To do so, the new law authorizes the direct participation of the Union in private companies, for the development of scientific or technological projects, and makes room for the transfer of technology from the public universities to companies, softened the Law on Tenders No.8666/93, by allowing public research institutions to hire researchers without a tender process. The government will also benefit from this: it will be able to hire companies or consortia of companies and research entities, if they are non-profit and of recognized technological capacity in the sector, to carry out research and development activities “that involve technological risk, to solve a specific technical problem, or to get a product by an innovative process”.

“The law is the first step. It is important for creating a context for stimulating a more intense and productive relationship between universities and companies, as far as innovation is concerned”, says José Fernando Perez, FAPESP’s scientific director. “The institutional framework that still exists is inhibitive, making it very difficult to establish partnerships, whether for the development of innovative projects or for the implementation of intellectual property.”

In its chapter VI, the project authorizes the setting up of funds for investing in innovative companies, “characterized by the commonality of funds raised by means of a system of distributing securities”, whose regulations, workings, and management will be the responsibility of the Brazilian Securities Commission. Within 90 days after the law is published, in its Final Provisions, it also provides for the Executive to send to Congress a bill establishing criteria for fostering innovation in Brazilian companies, “by means of a tax regime favorable to achieving objectives established in government programs and actions”.

The bill formalizes a partnership between public research institutes and Brazilian companies, allowing, for example, the use of public laboratories for incubating new enterprises, by means of offsetting, counterparts, or participation in results – provided that this does not interfere directly with their end activity. The researcher involved in this service provision activity may receive pecuniary retribution, directly from the public institution or from the partner company, always in the form of a variable added amount, and provided that the costs are met exclusively with resources raised underthis activity.

Professors and researchers linked to universities and research institutes who work in partnership with private companies may be paid by their work. They are even authorized to take leave from the institution – for a period of three years, renewable for another three – to create companies with activities related to technological innovation projects.Also, according to the project, the scientific and technological institution may waive its rights over the creation, on an unremunerated basis, “for the creator to exercise them in his own name”. The creator is assured, “as an incentive and limited to one third of the total”, participation in the economic gains achieved by the institution, resulting from the technology transfer contracts or from exploiting the protected creation of which he was the inventor.

In the assessment of Perez, some of the measures have a practical effect and remove obstacles to transferring knowledge. But there are aspects that he qualifies as “cultural”, which are a set of recommendations for the agenda of science and technology in the country, and which will make possible the removal of legal barriers and juridical restraints for the development of new products and processes.

“The law meets the challenge for doing innovation in Brazil”, endorses the Minister of Science and Technology, Eduardo Campos. But the project for expanding the purchasing power of the State – an intervention regarded as fundamental for consolidating innovative enterprises and guaranteeing the market for new products – is conditioned to the revision of the Law on Tenders No. 8666/93, which, according to Campos, is now under way at the Ministry of Planning.