OECD Review of Innovation Policy: Peru

Main results and recommendations

Dominique Guellec and Gernot Hutschenreiter

Country Studies and Outlook Division

Directorate for Science, Technology and Industry, OECD

OUTLINE

• Context, nature and process of the Review

• Sustainable development: The innovation imperative

• Peru’s innovation system

Overall performance: some international benchmarks

Strengths and weaknesses

• Policy recommendations

Guiding principles

Recommendations

OECD Reviews of Innovation Policy

• In 2005, the OECD/CSTP decided to launch a demand-driven programme of Country Reviews. Since then:

Completed: Luxembourg, Switzerland, New Zealand, South Africa, Chile, Norway, China, Hungary, Korea, Greece, Mexico, Russian Federation, Peru

Ongoing and under launch: Slovenia, Sweden, Vietnam

Others requested or under discussion, including with Brazil, Vietnam (in co-operation with the World Bank) and others, first discussions with Indonesia

Regional Reviews: South-East Asia (ongoing), Latin America Innovation Initiative (launching event in March 2011 in Mexico), MENA (under discussion)

• Scope: Comprehensive analysis of the respective national innovation system, with a focus on the role of government policy See: www.oecd.org/sti/innovation/reviews

Context and nature of the Review of Peru’s Innovation Policy

• At the request of Peru’s Ministry of Economy and Finance (MEF), and with support if the Inter-American Development Bank (IDB), the Review was undertaken under the aegis of the OECD Committee of Scientific and Technological Policy (CSTP)

• An interim Assessment and Recommendations (A&R) report was presented in March 2011 to the Minister of Economy and Finance and at a stakeholder workshop in Lima

• The draft final report was completed in July 2011 and sent for comments to MEF

• The final report was presented to MEF and a stakeholder meeting o n 30 November 2011 in Lima

• The Review will be presented to the OECD’s CSTP at its Spring 2012 session

The innovation imperative for Peru’s sustainable development (1)

• Peru recorded impressive economic growth over the last decade, based on sound macro-economic management, structural reform and increased openness to international trade and investment

• Yet there are challenges for the sustainability of high performance in the future:

Sources of growth: Low level and lack of dynamism in Total Factor Productivity (no contribution to growth during 1995-2007)

Narrow export specialisation: natural resources exposed to high price volatility

Slow progress in diversification, despite some success in transforming agricultural production

Shortfalls in skilled human resources

• Fostering innovation throughout the economy is key for boosting productivity and international competitiveness, advancing diversification and addressing social needs

The innovation imperative for Peru’s sustainable development (2)

• High macro-economic performance provides a unique window of opportunity for strengthening innovation in the Peruvian economy

• The Peruvian government has expressed its commitment to foster innovation and some initiatives have been taken already

• Yet investment in innovation needs to be stepped up significantly

• ... but these increases should go hand in hand with improvements of the governance of the innovation system in order to ensure that this investment will pay off and eventually increases social welfare

GDP growth Peru and selected Latin American countries, 1990-2010

Source: IMF.

Peru’s innovation system shows major weaknesses

• Lagging innovation performance – by international standards, and vis-à-vis other emerging economies

Low public and private investment in R&D and innovation and correspondingly

Low levels scientific and innovation output

• Weak overall innovation record of the business sector

• Weak performance of public research institutions (with some exceptions)

Low on output

Weak links, notably to business firms

High share of institutional funding

Inefficient governance and dysfunctional constraints

• Weak Higher Education sector (apart from a few universities)

Governance / incentive system does not reward excellence

Insufficient links to business sector

Lack of accreditation mechanisms

• Shortfalls in human capital and educational performance (PISA)

PISA scores in educational performance Peru and selected countries, 2009

Reading scale Mathematics scale Science scale

OECD average 493 496 501

Korea 539 546 538

Finland 536 541 554

Spain 481 483 488

Chile 449 421 447

Mexico 425 419 416

Colombia 413 381 402

Brazil 412 386 405

Argentina 402 388 401

Peru 370 360 369

Last country 314 331 330

Peru ranking in 65 countries

63 64 64

Source: OECD, PISA 2009.

GERD as a share of GDP Peru and selected countries, 1990-2008

Source: RICYT, IDB, OECD

USPTO patents Peru and selected Latin American countries, 1996-2009

1996-1999 2000-2004 2005-2009 1996-2009

Peru 12 17 9 38

Brazil 290 540 492 1322

Chile 37 65 82 184

Colombia 26 46 34 106

Mexico 217 422 316 955

Source: USPTO.

Innovation performance is also held back by weaknesses in governance and some institutional arrangements

• STI policy and institutions remain largely fragmented and poorly endowed with resources

• Weak governance Lack of overarching inter-ministerial co-ordination mechanisms for priority

setting, policy orientation and budgetary allocations

Lack of clear institutional assignment of competencies in policy design and implementation which can create conflict of interest

Lack of monitoring and evaluation

• Weak institutions Discrepancy between legal and actual responsibilities (e.g., Concytec)

Overly broad missions of some funds/institutions; frequent overlap of scope of action among institutions / funds

A fair degree of institutional inertia

Innovation performance is also held back by some regulatory arrangements

• Restrictions to the transfer of public funds to private-sector institutions reduce the leverage of public support on private innovation investment

• SNIP regulations on public expenditures for investment purposes are ill-adapted to the requirements of (intangible) investment in R&D and

innovation ... leading to delays and complex administrative procedures

• The tax regime does not appear to be favourable to investment for R&D and innovation

• Rigidities in the use of Canon Law funds for regional universities lead to inefficient allocation of resources

• Lack of autonomy combined with rigidities in labour laws restrict human resource management in PRIs ... leading to a need to recruit better

qualified personnel as temporary workers

• Labour laws applicable to civil servants restrict inter-institutional mobility and revenues from services rendered to

another institution ... negatively affecting public university researchers’ engagement in collaborative projects

Recent innovation policy initiatives

• Development of technological innovation centres (CITEs) starting in 2000

• Establishment of two well-endowed funds co-financed by the Peruvian government and multilateral financing organisations INCAGRO launched in 2001, promoting technology transfer and P/P collaboration

in the agricultural sector

FINCYT launched in 2007, promoting a wide range of programmes, including strengthening the research and innovation capacities in firms, universities and PRCs and collaboration between them

• FIDECOM, a domestic fund established by MEF in 2006, promoting productive innovation, also emphasising collaboration

• Canon Law amended in 2004 to allocate part of the resources provided to regional governments to finance investment projects aimed at developing research capacities in regional public universities (with some dysfunctional regulatory constraints, however)

• Post graduate scholarships

Recent policy initiatives – positive but limited impact in a fragmented institutional setting

• Overall these are positive developments contributing to expanding business investment in R&D and innovation (albeit moderately)

to some degree the knowledge-base of research institutions, incl. Universities receiving additional funding, and to a lesser extent their technology transfer activities

activity of technology transfer institutions aimed at fostering productivity growth

• But critical mass may still be lacking. In particular the initiatives have not been able to catalise a process of systematic technological upgrading

reach only a small number of firms

… and their impact has been weakened by a fragmented institutional setting , regulatory obstacles and major weaknesses in innovation policy governance (resulting in latent conflicts in implementation, duplications, and thus further dispersion of resources).

Recommendations: Governance architecture

• A stronger commitment to S&T and innovation and increased resources need to be accompanied by improved efficiency of governance mechanisms

• The Review discusses three design options for overarching governance The creation of a new Ministry of Science, Technology and Innovation

A horizontal policy design with one principal implementation agency attached to a transversal ministerial body (with responsibilities similar to those of CONACYT in Mexico in inter-ministerial co-ordination and co-funding )

A co-ordinated policy design with several implementation agencies (an adaptation of the Chilean variant): Inter-ministerial Committee, in with strong involvement of MEF complemented by an advisory council)

• A key role in steering the new governance system should be played by the Presidency of the Ministerial Council (PMC)

MEF, with additional advantages as regards its competencies in budgetary allocation

Specific recommendations: Higher Education and Human Resources

• Initiate a reform of university governance that promotes excellence in research and facilitates retaining and promoting the most qualified personnel; to achieve this goal use institutional financing and move towards performance-based and competitive funding

• Provide incentives to the private sector to hire S&T postgraduates

• Alleviate regulations that impede the participation of public university researchers to private enterprises’ S&T projects and inter-institutional mobility

• Promote the development of IPR management in the higher education sector

Specific recommendations: Public Research Institutes

• Reform the governance of PRIs to ensure that they fulfil their core missions efficiently; include major stakeholders in their boards; enforce accountability and performance agreements with feedback to the volume of institutional funding; set objectives for the share of competitive grants, contracts and revenues from technological services

• Define qualifying criteria for PRI status (e.g. share of S&T personnel); mitigate the negative effects of rigid labour rules and short-term contracts for qualified researchers

• Consider streamlining the PRI system

• Provide incentives for the mobility of PRI S&T staff to the private sector and vice versa

• Develop IPR management capacities of PRIs

• Encourage the participation of PRIs in international research networks

Specific recommendations: Promotion of innovation in the business sector

• Review regulations governing transfer of public resources to the private sector in light of the legitimacy of such transfers to foster private S&T and innovation activities

• Give the business sector a more prominent role in the governance of the innovation system and the definition of strategic orientations and priorities

• Give more attention to impediments to innovation related to physical infrastructure bottlenecks (transport, ICT, logistics) as well as to S&T infrastructure (metrology, standards, IPR)

• Lift obstacles to the creation and growth of new technology-based firms; consider specific support schemes in existing funds

• Continue to give a premium to public-private collaboration projects.

• Consider mission-oriented or sectoral support programmes predicated upon collaborative arrangements; select programmes on the basis of criteria related to national interest and natural resource endowments (e.g. biodiversity).

Specific recommendations: Intermediaries

• Consider an expansion of CITEs in terms of: sectoral coverage

strengthened capacity in applied research to better address firms with an innovation potential

raising the demand for technology / R&D by a larger set of firms or organisations and

provision of training services to those firms

• Strengthen institutions that provide intangible S&T infrastructure (technological information, IPR-related services, metrology, certification, standards) and facilitate access to their services

Specific recommendations: Legal and regulatory reform

• Review and revise the SNIP procedures that apply to public investment in R&D and innovation activities (or public support to such activities); as regards the application of SNIP procedures to innovation fund projects, the rules that apply to FINCYT should be generalised

• Consider revising the tax code to set clear rules allowing investment in R&D to be written off against profits

Thank you for your attention

Contacts

Dominique.Guellec@oecd.org

Gernot.Hutschenreiter@oecd.org

Web Resource

www.oecd.org/sti/innovation/reviews