Ebook: Chapter on Latin America

Since the structural adjustments of the 1990s, a new generation of STI policy instruments has emerged that has
profoundly transformed the institutional ecosystem, legal framework and incentives for research and innovation. In some countries, this has been beneficial. Why then has the gap between Latin America and the developed world not narrowed? This is because the region has failed to overcome the following challenges.
Firstly, Latin American economies do not focus on the type of manufacturing that lends itself to science-based innovation. Manufactured goods represent less than 30% of exports from most Latin American economies and, with the notable exception of Costa Rica and to a lesser extent Mexico, high-tech goods represent less than 10% of manufactured exports. With the exception of Brazil, GERD remains well below 1% and business contributes one-third, at best. These ratios have hardly changed for decades, even as many other developing countries have
moved on. On average, R&D intensity in the private enterprise sector (expressed as a percentage of sales) is less than 0.4%, well below the averages for Europe (1.61%) or the OECD (1.89%) [IDB,2014]. A recent Argentinian study showed that R&D expenditure as a percentage of sales over 2010–2012 amounted to just 0.16% for small firms, 0.15% for medium-sized firms and 0.28% for large firms (MINCYT, 2015). The stock of innovation capital is far lower in Latin America (13% of GDP) than in OECD countries (30% of GDP). Furthermore, in Latin America, this stock is mainly comprised of tertiary education, compared to R&D expenditure in the OECD countries (ECLAC, 2015c).
Secondly, the paltry investment in R&D partly reflects the insufficient number of researchers. Although the situation has improved in Argentina, Brazil, Chile, Costa Rica and Mexico, numbers remain low in relative terms. The shortage of trained personnel restricts innovation, especially that done in SMEs. Some 36% of companies operating in the formal economy struggle to find a properly trained workforce, compared to a global average of 21% per country and an OECD average of 15%. Latin American companies are three times more likely than South Asian firms and 13 times more likely than Asian–Pacific firms to face serious operational problems owing to a shortage of human capital (ECLAC, 2015b).
Thirdly, the education system is not geared to addressing the shortage of S&T personnel. Although the number of tertiary institutions and graduates has been rising, their numbers remain low in relative terms and insufficiently focused on science and engineering. The shares of bachelor’s and PhD graduates against
the major six fields of knowledge (Figure 7.4) show an important structural weakness. More than 60% of bachelor’s graduates and 45% of PhDs obtained their corresponding degrees in social sciences and humanities. Moreover, only a small proportion of scientific researchers work in the business sector in Latin America (24%), compared to the OECD average (59%). In Argentina,Brazil, Chile, Colombia and Mexico, there is a lack of engineering
graduates in the private sector.
Last but not least, patenting behaviour confirms that Latin American economies are not seeking technology-based
competitiveness. The number of patents granted per million inhabitants between 2009 and 2013 was highest in Panama, Chile, Cuba and Argentina but generally very low across the region. Patent applications by Latin Americans over the same period in the top technological fields18 accounted for just 1% of those filed in high-income economies in these same fields.
In the past decade, Argentina, Chile, Mexico and Uruguay have followed Brazil’s example by initiating a shift from horizontal to vertical funding mechanisms like sectorial funds. In so doing, they have given a strategic boost to those economic sectors that require innovation to increase productivity, such as agriculture, energy and ICTs. In tandem, they are implementing specific policies and putting incentive mechanisms in place to foster strategic technologies such as biotechnologies, nanotechnologies, space technologies and biofuels. This strategy is beginning to pay off.