Latin America: Leaders Support National Policies on Innovation as Key to Sustained Prosperity

November 15, 2010

ATLANTA, November 15, 2010 - Government and multilateral leaders from the Americas called today for the region to make innovation a matter of national policy in order to protect this key but fledging development tool from political cycles.

Sustained investments in innovation could double Latin America's current projected GDP growth of 5.7 percent as the region resumes its strong pre-crisis growth pattern –the strongest in decades- said World Bank vice president Pamela Cox at the Fourth Americas Competitiveness forum in Atlanta, Georgia.

Latin America's economic recovery is all the more remarkable because the region has emerged from the crisis without systemic damage or dent on its fiscal architecture, thanks to its solid macroeconomic and fiscal frameworks, said Cox.

"This represents a crucial change; in the past, a similar crisis would have thrown the region into a tailspin," noted Cox.

As good as this sounds, Cox warned that Latin America's growth rates are not keeping up with the rest of the world. World Bank research shows that in the 1960's the region's GDP per capita was ¼ of the United States' while last year it dropped to 1/6, mostly as a result of a downward trend in innovation and efficiency –the backbone of competitiveness- in the last four decades. Meanwhile several East Asia countries have surpassed Latin America's income per capita and are quickly approaching that of rich nations.

Cox noted that all Latin American countries, except for Brazil, invest much less than the recommended 1 percent of GDP in research and development. "High-tech countries and star performers such as Finland, Ireland, Korea, Israel, and Sweden have been spending between 2 and 5 percent of GDP in innovation, since the early nineties," she said.

Echoing Cox's remarks, regional leaders called for renewed efforts in making innovation a part of policy debate in Latin America and the Caribbean.

CAF's President Enrique Garcia noted that competitiveness is the only path to sustained and inclusive growth. "It's the region's most important challenge and it should remain focused on this," Garcia said. Costa Rica's former president Jose Maria Figueres favored "clean" innovation that promotes growth and development while preserving the environment as part of a low-carbon development approach. OAS' Secretary General Jose Miguel Isulza praised innovative efforts to fight poverty and inequality in the region trough conditional cash transfer programs.

Insulza's birthplace, Chile, has been leading the region's innovation efforts, the Atlanta forum was told.

In the past five years, the country's investments in innovation have grown 24 percent annually. Notably, this includes strong investments in education, such as a US$6 billion scholarship fund that will allow 3,300 professionals to study abroad this year --a 672 percent increase over 2006. In other parts of Latin America innovation is also being pursued vigorously. Mexico, for instance, has recently beefed up its research agency CONACYT while other countries have created or expanded their science and technology ministries, including Brazil's flagship Agricultural Research Corporation Embrapa, which has been credited with boosting farming in the country's barren savannas.

This seems to be proof that most governments in the region are beginning to understand the challenge and to develop innovation strategies, argued Cox. But she cautioned against a "one size fits all" strategy, explaining that countries differ in terms of initial conditions of technological capabilities, institutions and human capital.

"It does not make much sense for the government to offer significant fiscal benefits to stimulate innovation investments, if a country has a very distorted tax system and poorly trained labor force," said Cox by way of example.

Still, a number of successful experiences are helpful to identify some common and necessary ingredients:

  • “Política de estado.” It has to become a priority of the State, not susceptible to change by every government.
  • Increase public funding.
  • Involve all players, big and small, public and private, in efforts to build public-private partnerships to boost innovation initiatives.
  • Efforts not only market-based. There is a broad role for the government to play, leading the process by shaping the agenda and the incentives.
  • Creation of an institution (agency or ministry) charged with developing long-term innovation strategies and programs in order to hold someone accountable and avoid fragmentation.
  • Modernizing the National Quality and Standard system.
  • Deep reforms in higher education.
  • Effective knowledge and value transfer to SMEs to level the playing field.
  • Operating within a reliable legal framework.
  • Go hand in hand with efforts to insert into global economy.

Atlanta's Americas Competitiveness Forum has, for the past 3 years, played a facilitating role in keeping competitiveness at the top of the region's economic agenda while working on strategies to enhance it. During the two-day Forum, business leaders and policy makers discuss the key factors enabling national economies to achieve sustained economic growth and long-term prosperity.