Ten months of resumption of industrial and innovation policies in Brazil

Main advancements and challenges

Marcos Toscano e Daniel Colombo

The new federal government in Brazil resumed its industrial and innovation policies, which were abandoned during the last few years. Different measures were announced along with the restoration of governance structures, based on a new framework aimed at overcoming different challenges of society, with sustainability as a transversal theme. This movement follows an international trend towards regaining the centrality of the State in promoting social and economic development. However, the national setting poses new challenges for the success of this agenda: high political fragmentation, difficulties in achieving consensus, and difficulties dealing with critics due to issues in the past. In this respect, this article aims to present the main advancements promoted within the first ten months of the new government regarding innovation and industrial development (and its management) and discuss the challenges for the next steps in reconstructing those policies.

The idea of state intervention to produce quick responses, which measure up to major global challenges, has regained impetus during the last few years, especially in Science, Technology, and Innovation (STI). The climate emergency, sanitary crisis set off by the new coronavirus (SARS-CoV-2), and the Russia-Ukraine War – among other conflicts – significantly affected the economy and global commodity chains, impacting the provision of raw materials and products. At the same time, those events emphasized the need for clean energy and the urgency to develop new drugs and vaccines to face the pandemic. In most countries, the State was responsible for taking over the leadership when facing those issues, whether by defining strategies, regulating markets, or increasing public expenditure (a review of the approaches adopted by the public sector in different nations can be found here).

In this context, STI systems were particularly in demand due to the need to develop new health technologies and reduce the emissions of greenhouse gases. According to the report recently published by the Organization for Economic Co-operation and Development (OECD), 2020 is the first case of global economic recession in which there was not a decrease in gross research and development (R&D) investments among the countries of the group. Conversely, a growth of approximately 2.1% of the amount invested was reported. Not only the volume but also the intensity of those investments increased, reaching 2.7% of the Gross Domestic Product (GDP) of the countries of the group in 2021; an increase of 0.4 percentage points compared to 2010.

The complexity of the innovation ecosystems also required a rearrangement of roles and relations between the agents of this process. Therefore, central governments became responsible for catalyzing innovation by defining the objectives and designing specific interventions. Some milestones of this new moment are the Green Deal Industrial Plan for the Net-Zero Age, approved by the European Union in February this year, and the Inflation Reduction Act by the United States, which aims to reduce the emission of greenhouse gases by 40% by 2030 with investments for the production of clean energy and to fight climate change estimated in US$ 370 billion.

The conceptual and analytical framework for the industrial and innovation policies was substantially improved during the last few years to handle this new scene and challenges, easing protectionist recommendations and reaching for measures to promote exports, competitivity, and sustainability, with particular emphasis on instruments such as public credit, export finance and guarantees for loans and operations (a recent literature review on those instruments can be found here).

The idea of mission-oriented policies gained strength as a strategy for mobilizing and coordinating resources and agents to face clear and measurable societal challenges. Nevertheless, the potential of this arrangement to meet ambitious targets is still challenged and needs more evidence.

Until last year, Brazil showed few signs that it would follow the international trend. In the opposite direction of the OECD countries, its domestic spending in R&D reduced by 6.3% (in PPP dollars) between 2019 and 2020, as well as the intensity of those investments (from 1.21% of the GDP in 2029 to 1.14% in 2020). The National Fund for Scientific and Technological Development (FNDCT), the main federal source of funds for scientific activities, showed a drop in budget execution of approximately 43% between 2029 and 2021 (in reais in December 2021 adjusted according to the General Market Price Index – IGP-M), with a negative impact on investments of approximately 32%.

The new management of the Federal Executive Branch indicated changes in this line of action still during the transition by the end of 2022, with the return of a proactive economic development policy. The final report of the 2022 government transition recommended recreating the Ministry of Development, Industry, Trade and Services (MDIC) and the full release of funds of FNDCT, emphasizing the major role of innovation, reindustrialization, and sustainable development in the transition process towards a green and carbon-free economy within the “sovereign reintegration of Brazil into the world.”

The first months of the government were marked by an intense schedule with the launching – and, especially, the relaunching – of social, environmental, educational, health, and infrastructure programs. Following this sequence of themes, and as an example, can be mentioned the Bolsa Família (Family Allowance) Program, Food Acquisition Program, Action Plan for Prevention and Control of Deforestation in the Amazon (PPCDAm), Full-Time School Program (former Mais Educação), National Commitment to Child Literacy (former National Pact for Literacy at the Right Age), Mais Médicos (“More Doctors”) Program, Farmácia Popular (“Popular Pharmacy”) Program, Brasil Sorridente (“Smiling Brazil”) Program, Luz Para Todos (“Light for All”) Program, Minha Casa Minha Vida (Public Housing) Program, and the New Growth Acceleration Program (PAC). All those programs passed through incremental changes and yet inherited from their predecessors their general objectives, governance format, implementation methods, and, in most cases, both the names and brands.

In the area of industrial development and innovation, the year started off with budget decisions and on important fundings, such as the Reference Rate (TR) for the remuneration of credit backed by the FNDCT, the reconfiguration of the FNDCT budget with a total of R$9.6 billion for 2023, the possibility of remuneration for the Worker’s Assistance Fund (FAT) funding transferred to the Brazilian Development Bank (BNDES) via TR, and the expansion of the Climate Fund, which shall receive more the R$10 billion and diversify its project portfolio focusing in green industry, innovation, and mobility.

On the other hand, the agenda for thematic politics and programs to be launched this year was shyer than the one for the social, infrastructure, and environmental areas. No previous large program nor brand was relaunched, such as Brasil Maior (Promotion of Competitiveness) Plan, Inova Empresa (Innovation Plan), Science Without Borders, and the National Program for Access to Technical Education (Pronatec). In this period, the agenda was marked by specific incentive measures, such as the tax incentive of R$1.8 billion granted in June to the automotive industry to induce the renewal of the fleet of passenger cars, trucks, and buses – however, this benefit was not structured as a government’s permanent program. Another important decision was the reversion of CEITEC S.A. settlement process, a state-owned semiconductors enterprise – nevertheless, the decree regarding the reversion of the settlement process was published without a previous ceremony or a public announcement; no details were provided on which the national strategy for the semiconductors industry will be.

Sectoral launches can also be highlighted, such as the ten strategic programs announced by the Ministry of Science, Technology and Innovation (MCTI) for the non-reimbursable resources of the FNDCT as of 2023 (with a forecast of R$ 1,25 billion later this year). In addition, MCTI, MDIC, Financing Agency for Studies and Projects (Finep), and Brazilian Development Bank (BNDES) jointly announced (without the participation of a central government body) the Mais Inovação Brasil (“More Innovation”) Program, which intends to allocate about R$ 60 billion for innovation activities across the country. The program, however, does not have a reference document that indicates its objectives, goals, and priorities yet, so, for now, it has only the sum of the four-year funding capacities of FNDCT, and the innovation support funds operated by BNDES. The amount seems to constitute a subset of the resources announced by the government to support “neo-industrialization,” which also encompasses all the sources and reaches R$ 106 billion in four years.

Despite the clear intention of the new government to follow the global movement of resumption of industrial and innovation policy, there are still few concrete measures in this direction. For now, the main evidence of this new trend is the reconstitution and strengthening of governance and planning structures. Clear examples in this sense are the reconstitution and resumption of work of the National Council for Industrial Development (CNDI) and the National Council for Science and Technology (CCT), collegial bodies that had great relevance for STI policies in the past, but which were deactivated or paralyzed a few years ago. The CCT is the main forum for the debate on science policies and has not met since August 2018, having been reformulated and reinstated in July this year. The CNDI, on the other hand, was paralyzed for seven years and was re-established with a larger structure, including the participation of 20 Ministers and 21 representatives of civil society.

The new government also created new PAC governance bodies, including investments for the recovery and expansion of scientific infrastructure, and the rebuilt the executive group of the Health Economic-Industrial Complex Executive Group (GECEIS) and convening of the V National Conference on Science, Technology and Innovation (V CNCTI), which will be responsible for proposing recommendations for the preparation of the National Strategy for Science, Technology and Innovation 2024-2030. There is also the resumption of long-term industrial and innovation policy planning under the 2024-2027 Multiannual Plan, despite the theme being addressed separately in MCTI and MDIC programs.

It is not yet known how these governance and planning structures will interact, what new instances may still arise, and what will happen to public policies and institutional spaces inherited from previous governments. In the latter category, the National Innovation Policy (with its Innovation Chamber) and the Brazilian Digital Transformation Strategy (with its Inter-Ministerial Committee for Digital Transformation - CITDigital) deserve to be highlighted. In addition, the Ecological Transformation Plan, which the Ministry of Finance has coordinated, has not yet presented its governance structure or priority actions and investments in the sectors included in the industrial and innovation policies.

The diversity of initiatives and the resumption of governance structures in these first ten months of government clearly suggest the emergence of a new moment for industrial and innovation policies in Brazil, based on a paradigm of more comprehensive and expressive state intervention aligned with the scenario observed in OECD countries and with the magnitude and severity of the problems to be faced in the coming years. The next steps in developing these policies pose important challenges within the government itself, including the coherence and harmonization of the proposals in a broad framework of State action and the high-level coordination of existing structures to stimulate synergy and complementarity between them and minimize potential overlaps.

* The authors thank Giovanna Imbernon for translating this article.