PROJECT INFORMATION DOCUMENT (PID)
CONCEPT STAGE
Report No.: AB3394
Project Name
Region
Sector
Project ID
Borrower(s)
Implementing Agency
Environment Category
Date PID Prepared
Estimated Date of
Appraisal Authorization
Estimated Date of Board
Approval
Innovation for Competitiveness
LATIN AMERICA AND CARIBBEAN
General industry and trade sector (65%);Tertiary education
(20%);Central government administration (15%)
P106752
MINISTERIO DE ECONOMIA
Agency for the Promotion of Science and Technology (Agency for
the Promotion of Science and Technology),
[ ] A [X ] B [] C [ ] FI [ ] TBD (to be determined)
October 19, 2007
June 2008
September 2008
1. Key development issues and rationale for Bank involvement
Argentina has demonstrated enviably high growth rates of 8-9 percent in the last four years. This
growth has been achieved in a favorable global economic environment characterized by high
commodity prices. Drastic changes in relative prices following the currency devaluation have
improved the competitiveness of Argentine exports overall. In consequence, higher exports have
been one important source of growth. However, there remain concerns about the sustainability of
this high growth-rate. The current export structure of Argentina presents vulnerabilities for the
medium and long term. Argentina’s exports are fairly concentrated in low-value products. The
top ten Argentine exports account for 51 percent of total exports. In order to foster sustainable
economic growth, new high-value export products need to be developed and the value added of
existing products must be increased.
International experience demonstrates that countries can improve their growth prospects by
developing new products that shift them closer to the efficiency frontier. Since new goods
generally appear in sectors in which the country is already producing, developing comparative
advantage in high-productivity goods will ensure the development of more high productivity
goods. Strengthening the capacity of the Argentine economy to innovate holds considerable
promise for sophisticating Argentina’s export structure.
Despite inadequate value added to the overall export portfolio, there are pockets of high
technological dynamism. A number of national firms have evolved into so-called multinationals
of the developing world. Dynamic, export-oriented small and medium-enterprises (SMEs) are
emerging, such as the highly successful wine cluster in Mendoza. Argentina was also the first
country in Latin America to implement a nuclear reactor for power production. A medium-sized
Argentine firm, together with other actors, is constructing and exporting reactors to Peru, Algeria
and Australia since the 1980s. 1
Table 1: Indicators of Productive Innovation in Argentina and International Comparisons
R&D/GDP
(%)
R&D per
capita
(US$)
FTE
Researchers
per million
inhabitants
Resident Patent
application per
million
inhabitants
Private
R&D as
percent of
total
High-technology
exports as
percent of
manufactured
exports
Royalty and
license fees,
payments
(BoP, current
US$) in million
Royalty and
license fees,
receipts (BoP,
current US$)
in million
Argentina
0.44
58
768
20.3
33.1
6.6
634.7
54.2
Chile
0.70
39
832.7
18.4
45.8
28
321.8
54.0
Mexico
0.41
40
320.9
5.2
35.6
19.6
111.0
70.4
Brazil
0.91
76
462.1
20.9
43.0
12.8
1404.5
101.7
Canada
1.95
675
3921.7
241.1
46.7
14.4
6649.3
3471.2
Australia
1.77
573
4098.8
420.8
51.6
12.7
1644.6
508.1
Country
Source: RICYT (2007), OECD (2006), USPTO (2007), UNESCO (2007) and World Bank (2007)
Note: Data from 2005 or latest available
In knowledge–based sectors, the emerging cluster of export-driven software producers
demonstrates another pocket of dynamism. The software and IT sector had sales of USD 1.3
billion in 2005, having increased its exports by 30% with respect to 2004. Furthermore, the
scientific foundations in biology and biomedicine have supported the development of
approximately one hundred biotechnology enterprises which are active on international markets.
This signals a potential for Argentina to become a knowledge economy. Yet those pockets of
dynamism remain exceptions and are largely unconnected to each other. Therefore, the main
challenge for Argentina is to accelerate the growth of emerging areas of dynamism. Developing
linkages between SMEs themselves, firms and R&D organizations, and between firms and new
and demanding markets will be vital to expanding these pockets. An important challenge will be
to strengthen institutions on a so-called mezzo–level, i.e. on the intermediate level between the
micro and macro–level of innovation. Linkages are starting to emerge, but so far have remained
weak.
In sum, there are niches of technological excellence that show promise and need to be expanded,
but Argentina’s overall performance on innovation is mixed. Several factors explain this mixed
performance.
The stock of advanced human capital to support innovation is less than adequate. Argentina had
been a leader on advanced human capital indicators in the region, but it has lost some of its
competitive edge. The stock of researchers is not sufficient. Although the number of researchers
per capita surpasses the levels attained in most other countries in the region, it has now fallen
behind Chile, which has increased its investments in human capital (Table 1). On human capital
1
Participation in the construction of reactors had a major impact on the development of technological capacity of
metal working companies, which now have competitive skills at an international level. One outstanding example is
the design and construction capacity of turbines and electric motors, which have achieved a high degree of
competitiveness in global markets.
indicators, it also lags substantially other medium-sized economies that have successfully added
value to their resource-based exports such as Australia or Canada. Furthermore, only a low
number of researchers hold an advanced university degree and the average age of researchers is
rising which indicates future shortages. A startling 67 percent of Argentine researchers hold a
bachelor’s degree as their highest qualification, and only 25 percent of researchers have a
doctoral degree.
Total Investment in R&D, especially by the private sector, is low and has traditionally been very
volatile. In recent years, Argentina’s investment has shown an increasing trend, recovering from
the drop experienced during the crisis and surpassing levels prevalent in the 1990s.
Notwithstanding this rising trend, the overall spending on R&D as percent of GDP is very
modest compared to other countries (Table 1). Expenditures in R&D fall short even in
comparison with other Latin American countries such as Brazil or Chile, and rapidly growing
low income countries such as China and India. Both the public and private sector will have to
contribute to further R&D investments. Private company spending on R&D amounts only to 0.14
percent of GDP, trailing countries such as Chile (0.3%) and Brazil (0.36%) and falling
significantly short of the OECD average (1.38%). Historically, macroeconomic volatility was not
conducive to R&D investments by the private sector, which has potentially high returns but is
also subject to high risks and financing constraints. In addition to fostering higher private sector
R&D, the productivity of a large segment of SMEs could be enhanced by promoting and
facilitating technology transfer.
There is a lack of financing for start-ups and bridge institutions that assist potential entrepreneurs
in transforming their research ideas into viable commercial projects. This impedes the
development of technology start ups. Fostering a more widespread entrepreneurial culture will
be vital to the emergence of more technology firms.
Research collaboration between the public and private sector is modest. Although there are a
few notable exceptions, the collaboration between the centers of knowledge--universities and
public research centers--and the private sector is generally modest. The lack of bridges limits
opportunities to transform knowledge into productive innovation. There is a great need and scope
for expanding and building new bridges between the productive sector and research institutions.
Also, the performance of the large number of public research institutes is mixed. There are
institutional pockets of excellence such as the Institute of Agricultural Technology (INTA),
which has performed demand-driven research and has contributed to the increased yield of crop
harvests and the appearance of new crops. In contrast, many public research institutions tend to
rely heavily on direct budgetary transfers, rather than on competitive funding or sales of
technology services to the productive sector, which has adversely affected the quality and
relevance of their research.
Other weaknesses in the public institutional framework such as the slow processing in patent
applications are impeding innovation. Patenting is often the first step for turning research into a
commercial project. According to an independent certification agency, the period from
application to issue date for a patent can take up to four years and the average processing time is
three years.
Government Strategy
The government is determined to rebuild the technological base of the economy by emphasizing
productive innovation. A new National Strategic Plan for Science, Technology and Innovation
(2006-2010) was prepared and endorsed by the Science and Technology Cabinet last November.
The new strategy outlines a vision and medium and long-term goals for innovation policy in
Argentina. The new strategy seeks to strengthen cross-sectoral policy-integration. The strategy
embraces a move towards a knowledge economy and sets four strategic objectives: (i) fostering
innovation and technological linkages in productive activities; (ii) creating and adapting
knowledge for the responsible exploitation of natural resources; (iii) targeting R&D towards a
greater understanding of the country’s problems and social development; and (iv) increasing the
country’s scientific base and technological capacity. The strategy sets also quantitative targets
for the year 2010 such as a quantitative increase in R&D spending, number of researchers and
scholarship-holders, and greater distribution of resources towards the regions. It also favors a
more selective, success-based approach and outlines eleven strategic sectors. However, a
stronger linkage of the STI national plan to a competitiveness agenda would be desirable.
The Government has been increasing financing for innovation—evidence of its commitment to
this policy agenda (Figures 2 and 3 in Annex I). Funding for the Secretariat of Science and
Technology (SECyT), under the Ministry of Education, Science and Technology, doubled from
2003 to 2006. Furthermore, funding of strategic programs and R&D-industry linkages have
expanded significantly.
2. Proposed objective(s)
The high-level objective of the project would be to support the competitiveness of the Argentine
economy by promoting innovation and the diversification of the production base. More
specifically, the project seeks to support the creation of new knowledge-based companies,
develop the capacity for innovation in priority sectors, expand human capital for productive
innovation, and strengthen the policy framework for innovation.
Progress towards meeting these objectives could tentatively be measured by two types of
indicators: (i) output indicators (firms assisted, service satisfaction rates as revealed by clients
survey, number of trained technology brokers and entrepreneurs) and (ii) outcome-indicators
such as increase in sales and exports of knowledge–based spin-offs and firms assisted with
project funds and number of knowledge-based start-ups attributed to the project.
The proposed operation would complement the PMT III and use the World Bank’s innovation
knowledge to fill specific gaps in the system. It would support the creation of new knowledgebased companies and the development of bridge institutions, and introduce a more sectoral focus
to innovation according to priorities defined in the national plan.
3. Preliminary description
The project would foster important, missing linkages across agents within the national
innovation system. The project would have four components: (i) developing entrepreneurial
capacity for productive innovation; (ii) supporting knowledge-based start ups, (iii) fostering
sector specific capacity for innovation; and (iv) strengthening the policy and institutional
framework for innovation.
Component 1: Developing entrepreneurial capacity for productive innovation
The component would help to fill critical gaps in human capital for productive innovation. It
would achieve the above through two subcomponents. The first would support the development
and training of experts that would help enterprises understand their technology needs and/or act
as bridges between research institutions and the productive sector. These types of experts are
commonly referred to in the innovation community as “technology brokers” and require a unique
combination of knowledge in a technical field (e.g., ICT or biotechnology) with business skills.
The component would upgrade the skills of professionals currently operating as “technology
brokers”, including practical training with industry overseas; develop new graduate business
programs that will train professionals as “technology brokers” and link these programs to similar
international programs; and help insert these new professionals in the market. Subcomponent
two will seek to promote a greater entrepreneurial orientation of engineering programs and other
S&T careers by incorporating new entrepreneurial modules, including practical training with
industry.
Component 2: Support for knowledge-based companies
The objective of this component would be to promote the development of new knowledge-based
companies. This project component would consist of three complementary subcomponents. The
first part would provide pre-seed capital (small grants) to assist researchers and potential
entrepreneurs with proof of concept of new technologies. This would fill an important gap that
the market will not provide due to very high risks and uncertain returns in the future. The second
part would support “incubation structures” accelerating the formation of new companies and
serving as a demonstrative effect. The task of these “incubation structures” would be to actively
seek promising ideas and entrepreneurs and provide them with specialized managerial, marketing
and technical expertise transforming technical ideas into commercial projects. The structures
would be based on public-private partnerships. Some of those projects would then be suitable for
venture capital financing. The pilot venture capital fund would be privately-managed and
comprise a very limited public contribution, for example 80 percent private and 20 percent
public. Through very limited public participation (e.g., about US$5 million), the pilot would help
catalyze potential private investors. The pilot fund would be subject to a feasibility study to be
performed during project preparation and a suitable governance framework. It would draw from
other international experiences adapted to the realities of the Argentine context.
Component 3: Fostering sector specific capacity for productive innovation
The objective of this component is to develop critical knowledge and technological capacities in
priority economic sectors as well as in sectors that contain a high public good component (for
instance, energy, environment or health). International experiences indicate that market failures
warranting state intervention need sufficient scale of investments to secure impact. This creates a
need to allocate part of STI funding strategically and with a clear focus towards selected priority
sectors. Only sectors that have demonstrated a potential for excellence would be supported. The
component would finance a few sectoral funds. The Funds would consist of several lines of
support, such as (i) generating new knowledge with high sectoral impact and/or (ii) identifying,
adapting and transferring knowledge to the sector, particularly to small and medium enterprises.
Special emphasis would be placed on supporting centers of technological innovation with a
strong sectoral focus or consortia among firms and knowledge institutions inside a specific
sector.
The selection of the sectors would be based on factors such as the strategic relevance for the
country, potential for excellence, commitment of the sectoral ministries, demand from the private
sector, the potential sector impact and the commitment and participation of provincial
governments.
Component 4: Strengthening the policy and institutional framework for innovation
This component would comprise three subcomponents. The first subcomponent would help to
consolidate the capacity of SECyT to develop innovation policies in coordination with other
ministries. This would be conducted in coordination with the IDB. The second subcomponent
would enhance the institutional capacity of the INPI to foster patenting by entrepreneurs. This
would involve a reengineering of business processes, the establishment of an efficient
information-management system, and enhancing the capacity of its human resources. The third
subcomponent would support an Innovation Initiatives Pilot Fund. This fund would finance
new initiatives and programs in the innovation area. Tentatively, the Agency for the Promotion
of Science and Technology would manage the fund, and the fund guidelines would be predefined
in cooperation with SECyT.
Implementation arrangements: The Agency for the Promotion of Science and Technology
under the auspices of the Secretariat of Science and Technology (SECyT) would coordinate the
overall project and implement the first three project components. Tentatively, the three
subcomponents of component IV would be implemented by SECyT, INPI, and the Agency each.
4. Safeguard policies that might apply
No safeguard policy issues have been identified. The project is expected to have a neutral or
positive impact on the environment. Only research projects and programs that are
environmentally sound will receive funding. The unit for socio-environmental management
(Unidad de gestión socioambiental) within the agency will monitor that research projects and
other entities in the agency comply with environmental and ethical guidelines.
5. Contact point
Contact: Esperanza Lasagabaster
Title: Sr Financial Economist
Tel: (202) 473-2880
Fax:
Email: Elasagabaster@worldbank.org