Boosting innovation together

Latin American countries have been able to reduce poverty significantly in the past decades, but they are still a long way off eradicating it completely. Since the global financial crisis of 2008-2009, growth rates have been sinking and productivity is stagnant in most countries. Poverty indicators have not improved in seven years, and some setbacks have even been recorded. According to CEPAL, the Economic Commission for Latin America and the Caribbean, 28 % of the population lived below the poverty line in 2014 (167 million people) and 12 % even lived in extreme poverty (more than 70 million people). Furthermore, Latin America continues to be one of the regions of the world with the most unequal distribution of wealth – only Southern Africa’s figures are worse.

Poverty and great inequality impede development. Accordingly, the UN 2030 Agenda tackles both issues (Sustainable Development Goals 1 and 10). To improve matters, it is vitally important for Latin American countries to remain economically competitive.
The Latin American economies are facing several far-reaching changes, however. They are driven by two global macro-trends:

• Latin American nations have set themselves goals for decarbonisation at the COP21 climate conference in Paris. In order to reach these goals, enterprises must readjust and regions will need to establish sustainable industries.
• The second global trend is digitalisation and the use of smart devices (internet of things – IoT) in industrial production and in the services sector. In important sectors, this means disruptive change. No doubt, rapid development means great opportunities for Latin American countries, but also great challenges: To keep up in international competition, they must close technology gaps, build human capital (better skills training and more continuing training of the work force), modernise IT infrastructure up to date and close regulatory gaps.

Innovation policy in Latin America

Historical comparisons clearly show: all countries that transformed from medium-income economies to highly developed did so by setting up highly developed production capacities. The only exceptions are countries that relied exclusively on resource wealth. All others either built new value creating chains in traditional industries (this applies in particular to countries with substantial commodity exports like Australia, New Zealand, Canada and the North European countries) or by the development of new sectors for which they selectively established competitive advantages (examples include South Korea, Singapore, and Ireland). They diversified the economies of their countries and invested in science, research, technology and education.

Innovation is indispensable for building such new structures. Accordingly, ever more governments in Latin America have tried to improve their countries’ innovation capacity in recent years. They started cluster-programmes to promote various relevant actors and created hubs for particular sectors in specific regions, for instance, and they set up new institutions to promote public-private projects.

Because of Latin America’s great social challenges, such measures are not being given a high political priority and an adequate budget. In the face of people’s needs, political leaders find it difficult to justify expenditures on science, technology and innovation. They must, therefore, clearly spell out the goals these measures are geared to, in order to convince taxpayers of their relevance. Moreover, well-defined mechanisms to measure the results and make them visible to the general public are needed. The governments of highly innovative countries deliver on all these points.

Innovation policy in Latin America must manage to build up national and regional innovation systems that result in progress that the people feel. At the same time, it must stimulate innovation in the private sector to increase production efficiency. European development cooperation could support these processes.

What Europe can do

Europe has found several good approaches to supporting innovation support. It could transfer them to America in development cooperation. The EU regional programme for Latin America is called the Development Cooperation Instrument (DCI) and has a budget of € 925 million for regional initiatives from 2014 to 2020. The EU should use it to strengthen innovation capacity in Latin America by boosting skills and competences and by drafting clever specialisation strategies.

Latin America is one of the regions of the world where the gap between supply and demand on the labor market is widest. In a 2010 World Bank survey of Brazilian and Argentinian enterprises, around two-thirds of respondents said the poor training of workers was the biggest hurdle for their business and limited their ability to innovate. The lack of skilled and specialised workers is particularly evident in advanced manufacturing and high-tech industries, including the machine and automotive industries in Brazil or Mexico.

Furthermore, the skills demand is changing rapidly. According to an Inter-American Development Bank study of 2016, one half of the enterprises in Argentina, Brazil and Chile need employees with a broader range of skills and different skills than they did five years ago. In Chile, it is estimated that, due to lack of skills, more than 5,000 positions cannot be adequately filled in the information and communications technologies (ICT) sector alone. In view of fast digitalisation, the problem will grow and increasingly affect the region’s competitiveness.

Expert personnel must today be trained so that they are up to new challenges. Moreover, they should be able to handle digital technologies – regardless of whether they are working in the mining industry, the agricultural industry, aerospace, logistics, the building industry or in the health sector. Europe has developed good models in these areas: dual training, that links shop-floor work with school lessons (see Bruno Wenn on vocational training in Brazil), is an example, and lifelong learning, which keeps upgrading skills of employees, is another. Both would be useful in Latin America.

Smart specialisation is needed too. Governments cannot know in advance which political interventions will drive innovation. They must, therefore, establish procedures to predict this. The institutions that are put in charge of the issue must build strong partnerships with private-sector companies, universities, funding agencies, workers and civil society. The European Commission’s “Smart Specialization Strategy” is a good example: it is designed to identify innovations to boost production in individual regions. It convenes all relevant stakeholders and puts in place the technological prerequisites that are needed to boost comparative advantages. Such an approach should become part of European development cooperation with Latin America in the area of innovation policy.

Claudio Maggi C. is an industrial engineer and the director of the competition department of the Productivity, Innovation and Growth Agency of Chile (Agencia Gubernamental para el Desarrollo Productivo de Chile, CORFO).
claudio.e.maggi@gmail.com

References

Bassi, M., Rucci, G. y Urzúa, S., 2014: Más allá del aula: formación para la producción. En Crespi, G., Fernandez-Arias, E., y Stein, E. (Eds.) ¿Cómo repensar el desarrollo productivo? políticas e instituciones sólidas para la transformación económica. Washington DC, Banco Interamericano de Desarrollo

CEPAL, 2016: Ciencia, tecnología e innovación en la economía digital. La situación de América Latina y el Caribe. Segunda Reunión de la Conferencia de Ciencia, Innovación y TIC, San José de Costa Rica.