Sunday, March 3, 2013

Áreas de Tecnologia: Technology Innovation & Development in Brazil

This post is part of a larger blog theme-series examining technology innovation and development in Latin America. Part One, Campos del Cambio, can be found here. To better understand technology development in Brazil, I draw, in part, from Technological Innovations in Brazil: Performance, Policies, and Potential; a detailed overview of technological development in Brazil. Edited by Ricardo Ubiraci Sennes and Antionio Britto Filho, the text has four main sections: 

1) Scientific Potential of Brazil; 
2) Innovation as Business Strategy; 
3) Innovation in Brazil: Comparisons and Case Success; 
4) Innovation in the Human Health Sector in Brazil. 

After the initial overview here, Technological Innovations in Brazil (Chapters 1,2, & 3) will be used to help structure future blog explorations of technological development in Brazil. The information throughout is supplemented with data, analysis, and commentary from private sector and government sources. 

One of the cool aspects of blogs is the ability to interact with audiences and to integrate their voices into the blog narrative. Recently, K. Miller astutely commented (on the Campos del Cambio post) on the importance of the four dimensions that interact to deliver ‘sustained urban economic growth’: economic performance, social conditions, sustainable use of resources, and finance and governance. I provide some data on those four dimensions and include additional information on Brazilian scientific research.

Why Brazil?
Technological innovation and development in Brazil is an insanely dense topic. The nation is massive in geographic scope and diversity: human social movement, population densities, rural and urban resource usage and allocation, economic capital movement, and sociocultural idiosyncracies. Brazil is an emerging economy which is recovering from the global economic downturn. Foreign investment has lead to an increase in the hire of foreign workers, which according to Forbes, rose by 30% in 2010. 

Economic Growth
Brazil is the largest country in Latin America and the Caribbean (LAC) in both area and population. World Bank figures show that Brazil is the seventh wealthiest economy in the world (2011 GDP, US$2.2 trillion).

indexMundi reports that, "After strong growth in 2007 and 2008, the onset of the global financial crisis hit Brazil in 2008. Brazil experienced two quarters of recession, as global demand for Brazil's commodity-based exports dwindled and external credit dried up. However, Brazil was one of the first emerging markets to begin a recovery. In 2010, consumer and investor confidence revived and GDP growth reached 7.5%, the highest growth rate in the past 25 years."

"Rising inflation led the authorities to take measures to cool the economy; these actions and the deteriorating international economic situation slowed growth to 2.7% for 2011 as a whole, though forecasts for 2012 growth are somewhat higher. Despite slower growth in 2011, Brazil overtook the United Kingdom as the world's seventh largest economy in terms of GDP. Urban unemployment is at the historic low of 4.7% (December 2011), and Brazil's traditionally high level of income equality has declined for each of the last 12 years."

Brazil managed the storms of the global financial downturn with a degree of resilience. The nation was one of the last to fall into recession in 2008 and among the first to resume growth in 2009. Brazil's GDP grew 7.5% in 2010 and slowed to 2.7% in 2011, due in large part to the lasting effects of global slowdown. Comprehensive information on socioeconomic, geographic, and cultural indicators can be found at The Brazilian Institute of Geography and Statistics (IBGE)

Exports Map: Brazil

Product Space of Exports: Brazil

Reference; AJG Simoes, CA Hidalgo. The Economic Complexity Observatory: An Analytical Tool for Understanding the Dynamics of Economic Development. Workshops at the Twenty-Fifth AAAI Conference on Artificial Intelligence. (2011); R Hausmann, CA Hidalgo, S Bustos, M Coscia, S Chung, J Jimenez, A Simoes, M Yildirim. The Atlas of Economic Complexity. Puritan Press. Cambridge MA. (2011).

Social Conditions

The population variable in Brazil is considerable. There are large rural areas with high rates of poverty, yet increasing movement of rural people into packed urban centers (already strained for resources) is impacting the high rates of poverty in these dense urban centers. 

Rural Poverty Portal reported that, “Although the country is an important agricultural and industrial power, with the strongest economy in Latin America, poverty is widespread in Brazil. Despite recent improvements in income distribution, the issues of income inequality and social exclusion remain at the root of rural poverty. Brazil is a middle-income country and is rich in natural resources, but poverty levels and human development indicators in poor rural areas are comparable to those in the poorest countries of Latin America. In the country as a whole, about 35 per cent of the population lives in poverty, on less than two dollars a day. But in Brazil’s rural areas poverty affects about 51 per cent of the population.”

"Since approximately 19 per cent of the total population, or about 36 million people, live in rural areas, this means that Brazil has about 18 million poor rural people, the largest number in the Western Hemisphere. And Brazil’s North-East region has the single largest concentration of rural poverty in Latin America. The North-East is the country’s poorest and least developed region and the focus of IFAD’s operations. In this region, 58 per cent of the total population and 67 per cent of the rural population is poor.”

The Directory of Minority & Indigenous Peoples reports that, “Minority groups include Afro-descendants (at least 40%), Japanese (1%), indigenous groups including Yanomami, Tukano, Urueu-Wau-Wau, Awá, Arará, Guaraní, Nambiquara, Tikuna, Makuxi, Wapixana and Kayapó, Tapeba, Tremenbe, Kaiowa, Nandevi Guarani (totalling 0.2-0.4%) and Jews (data: Instituto Brasileiro de Geografia e Estatística 2000, UNDP).”

“Brazil currently has 197 forest-dwelling indigenous groups, living either on reservations or in one of four national parks. According to the 2000 Brazilian Demographic Census, about 730,000 people or 0.4 per cent of the total population identified as indigenous. Nevertheless many non-governmental organization (NGO) leaders and scholars dispute these numbers and opt to use the 0.2 per cent figure from the 1991 Census. Although over half of the indigenous population is concentrated in the northern Amazon states and the north-east of the country, there is also a considerable indigenous population in the states of Mato Grosso do Sul and São Paulo, where 8.6 and 7.3 per cent of the total indigenous population reside, respectively (data: Instituto Socioambiental).”


Internet usage in Brazil has grown significantly in the past decade, but still lags behind post-industrial economies. Greater access to the Internet and the tools therein has/will help to spur nascent technological innovation in the country, notably in education, start-up companies, and grass-roots technology innovation. 

indexmundi reports that, "Brazil's high interest rates make it an attractive destination for foreign investors. Large capital inflows over the past several years have contributed to the appreciation of the currency, hurting the competitiveness of Brazilian manufacturing and leading the government to intervene in foreign exchanges markets and raise taxes on some foreign capital inflows."

Start-up Brazil
Brazil is an exciting (if, at times, uncertain) space for start-up development. Over the past few years, Brazilian government funding/incentive programs have quietly seeded Brazilian technology start-up companies, which are now beginning to develop the capital needed to contribute in more significant ways to the global technology marketplace.

The Science and Technology Sector Funds source finance for research, development, and innovation projects in Brazil. The resources come from taxes on businesses using natural resources, from the Excise Tax, and from the Contribution for Intervention in the Economic Domain (CIDE). Sector Funds have been the main federal tool with which to leverage Brazil's Science, Technology, and Innovation system. Find more information here

The Brazilian Ministry of Science, Technology, and Innovation (MCTI) recently announced that nine companies were selected in the first stage of the Start-Up Brazil program. The nine companies authorized included: 21,212 , Aceleratech , Microsoft, Papaya ,Pipa, Wayra , FUMSOFT , Outsource, and Start You Up.

A concerted effort by Brazilian Development Bank (BNDES) has been the backbone of recent start-up development. DealBook (New York Times) reported in December 2012 that, “In 2003, the bank disbursed $11.7 billion, but by 2010, that figure had skyrocketed to $96.3 billion. It has provided subsidized loans to most large Brazilian companies, including the oil giant Petrobras and the mining concern Vale. The bank has also supported foreign companies, including $3 billion to American Airlines to buy planes from Embraer, a Brazilian manufacturer. 

Recently, the trend toward support of large enterprise has shifted to a focus on start-up development. "In 2007, Brazil’s national development bank, BNDES, started Criatec I, a 10-year venture capital fund of 100 million reais, or about $48 million, aimed at start-ups. Foreign venture capital firms have been welcome to make follow-on investments. To date, not one has. Instead, Brazil has doubled down on its goal of promoting technology growth. This week, the bank awarded a new fund of 186 million reais, or $89 million, to Icone Investments. BNDES is providing most of the capital, with contributions from regional public banks.”

BDNES officials have argued that there is still a lack of significant foreign venture capital investment in Brazilian tech start-ups, but that is also changing. Recently, a number of venture capital firms have begun to seed the Brazilian start-up landscape, including Redpoint Ventures, Accel Partners and Sequoia, Peter Thiel, Dave McClure, and European and Israeli investors. Critics have argued that over investment by BDNES has complicated the growth of technology due the centralizing of funding channels and the vested interests that comes with management of those loans.

According to a World Bank report published in 2012, high-technology exports in 2010 in Brazil was reported at 8,121,872,800 (U.S. dollars). High-technology exports are products with high R&D intensity, such as in aerospace, computers, pharmaceuticals, scientific instruments, and electrical machinery. 

For background, the history of Brazilian funding for research, development, and innovation comes from six main sources (Brazilian Research, 2013):

1. "Government (federal, state and municipal) sources. There are a number of state organizations which were created mostly in the 1950s specifically for directly promoting and funding R&D&I, such as the National Research Council (CNPq), which is now named Conselho Nacional de Desenvolvimento Científico e Tecnológico and the National Agency for Financing Studies and Researches (FINEP), both a part of the Ministry of Science and Technology (MCT). MCT is a relatively novel ministry, having been created in 1990. Before this, CNPq was the only research granting institution at federal level, working directly under the Presidency of Republic. At state level, almost all states have founded their own public foundations for support of R&D&I, following the pioneering (and highly successful) example of São Paulo state, which created the Fundação de Amparo à Pesquisa do Estado de São Paulo (FAPESP) in 1962. Usually these foundations are guaranteed by changes in the state constitutions, along the 1980s and 1990s."

2. "Indirect funding through the budgets of public and private universities, institutes and centers. Some universities, such as UNICAMP, have their own internal agencies, foundations and funds set apart and managed with the purpose of supporting R&D&I by their faculties and students."

3. "Public companies, such as Embrapa (Brazilian Enterprise for Agricultural Research). Their source of revenue is the government itself (via budgetary allocations by ministries and state secretaries) and investment of a part of products and services sold."

4. "Industrial, commercial and services private companies, usually for their own R&D&I centers, or via some fiscal benefit (tax exemption laws), such as the Informatics Law."

5. "National private and non-for-profit associations and foundations, via statutory mechanisms or donations by private individuals or companies. An example is the Banco do Brasil Foundation."

6. "Funding by other nations, international organizations and multilateral institutions, such as Rockefeller Foundation, Ford Foundation, Inter-American Development Bank, World Bank,UNESCO, UNDP, World Health Organization, World Wildlife Foundation, Kellogg Foundation, Bill & Melinda Gates Foundation, US National Science Foundation, Volkswagen Foundation."

Academic Research
In Scientific Potential of Brazil, Benito Cruz argued that while scientific research is on the rise in Brazil (see graph below), the number of patents granted is still low and does not match the growth of scientific publications. 

Patent Applications: Resident: Brazil

Cruz argued that in regard to technology, the centralized national policies of Brazil have resulted in technology development mainly in academic and government institutions and not enough by private sector companies. This is a void that the Start-Up Brazil movement (TechCruch articles on Brazilian technology) might fill with proper funding, infrastructural support mechanisms, and partnerships with university research centers. Cruz's critique extends that Brazilian universities are not training enough applied scientific research students who can go into the field and develop new technology products and services. Cruz suggests a refocus is needed at the university and academe level in terms of the approach to training future technology workers: engineers, designers, and scientists. 

I will explore Cruz's chapter on the relationships between Brazilian universities and scientific potential in Brazil in the next blog post followed by explorations of business strategy for innovation, and finally case studies on successful cities and companies on the forefront of the Start-Up Brazil movement. 

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