Legal measures and investment in human resources are pushing innovation towards the centre of growth efforts

The economic growth Colombia has seen over the past decade is multiplying opportunities to strengthen research and innovation. New investment from a growing number of firms already operating in the country is helping to raise the profile of research and development (R&D). New public financing schemes, meanwhile, are becoming instrumental to ensuring that investments in science are better distributed across Colombia’s regions. An impetus to improve the laws for intellectual property (IP), coupled with funding programmes for innovation at small and mediumsized enterprises (SMEs), continues to push private companies to modernise, and innovative start-ups are receiving strong support from private capital.

By all measures, Colombia’s R&D activities remain small. World Bank figures show that investment in R&D has been strikingly low over the past decade, averaging 0.17% of GDP a year from 2004 to 2008, and 0.18% from 2009 to 2013. Expenditure is set to reach 0.2% of GDP in 2014, according the Colombian Observatory for Science and Technology, but this is still well below Brazil’s 1.2% and the OECD average of 2.4%. This difference, however, partly reflects conditions specific to Colombia, which for decades has had to combat armed conflict in several of its regions and deal with the resulting security concerns and social challenges.

Private Vs Public

The scientific research sector also suffers from an imbalance between private and public investment. According to OECD figures, only about 30% of R&D in Colombia is conducted by private businesses, compared to 65-75% in OECD countries. This leaves the funding of research highly exposed to bureaucratic inefficiencies and timelines.

The potential is strong nonetheless, and is being magnified by stable economic growth and rising flows of foreign direct investment. As the OECD states in a 2014 preliminary report on Colombia’s innovation policy, “New opportunities arise from Colombia’s integration in global value-chains, knowledge and innovation networks.” A series of free-trade deals, which are increasing Colombia’s interconnection to foreign markets, is serving as a further catalyst.

Fields To Highlight

Some success stories already point to specific fields where Colombia can be innovative and compete on the world stage. One of them is IT and digital applications, which is being galvanised by a host of small start-ups and innovative products, and accounts for 52% of all innovation by entrepreneurs, according to Innpulsa, the government agency in charge of supporting entrepreneurship. Another proven area is biotechnology, due to the country’s vast biodiversity that has allowed the development of new products in cosmetics, agriculture and health sciences. Clean energies are also gaining traction. A new programme called GREENPYME, run by the Inter-American Investment Corporation, will select 40 SMEs from sectors with high energy consumption to help them boost energy efficiency through innovation.

Foreign Presence

Several international companies have been drawn to Colombia as a base for R&D and innovation. In October 2013, smartphone manufacturer Blackberry opened an R&D facility in Colombia that focuses on designing new applications, its fourth in Latin America after similar centres were opened in Mexico, Brazil and Argentina. Kimberly-Clark, a fast-moving consumer goods firm, had already established one of its Global Innovation Centres in the city of Medellín in 2011, followed by hardware manufacturer HP in 2012, which chose Colombia’s second-largest city to establish a global service centre. Spanish banking group BBVA, which already had a presence in Colombia offering banking services, opened an innovation centre in July 2013 to invest in new products and entrepreneurship.

System Structure

The majority of research and innovation activities still stem from government institutions, leaving much room for growth in the private sector. Within the public structure, different government institutions and organisational hierarchies have important roles. One of the main agencies for research and innovation efforts is Colciencias, which is in charge of designing and implementing policies for the National System of Science, Technology and Innovation ( Sistema Nacional de Ciencia, Tecnología e Innovación, SNCTI), as well as managing a set of financing instruments to support research. The National Commission on Competitiveness and Innovation focuses on innovation from the standpoint of economic competitiveness, while a parallel body, the Advisory Council on Science Technology and Innovation, is in charge of Several ministries related to innovation, besides working with the commission, have their own specific action plans. An important role in the sector is played by the Ministry of Trade, Industry and Tourism (Ministerio de Comercio Industria y Turismo, MCIT), which runs the Productive Transformation Programme with the aim of driving innovation in 16 strategic sectors. The MCIT also finances the Innpulsa programme, which plays a pivotal role in establishing an entreprePublic and private universities, as well research centres, also constitute an integral part of the research and innovation system. Good examples of public innovation efforts leading to product enhancement have been achieved by several agricultural research centres dedicated to specific crops, including Cenicafé, a research centre run by the National Federation of Coffee Growers, and Cenipalma, a centre for scienFINANCING RESEARCH: Public research is benefitting from new financing options. Through a 2012 law, the government established a new royalty distribution system that aims to better channel revenues from the hydrocarbons and mining industries into development in all the regions. This has led to the creation of a research and innovation fund, run by Colciencias, which has been allocated 10% of Colombia’s nonrenewable resource exploration royalties. Disbursements from the fund are to be distributed into four areas: R&D, scientific and technological services, innovation and capacity building. For 2012, the budget allocated to science and research through the royalty system reached $460m, according to the OECD. The full amount, however, was not used: financing for approved projects amounted to only $299m.

This gap between allocation and disbursement is one sign of the challenges arising from the new financing system. First, to compensate for the additional funds being directed towards Colciencias, the institution’s normal operating budget was reduced. Second, while Colciencias is in charge of distributing the funds, the proposals for research programmes come from the regional authorities. This makes it more bureaucratically complicated to pick which initiatives will be given funds. The process has proved especially challenging for research programmes or investment proposals coming from the regions, which have their own set of local power structures.

All of this slows down the capacity to absorb funds. “The financing for science and technology coming from the royalty system ranges from $450m to $500m a year,” Nelson Fabián Villarreal, research coordinator on innovation and competitiveness at the Colombian Observatory for Science and Technology, told OBG. “But some institutions at the regional level have proved to be very inefficient in designing and implementing these projects, so the public expenditure for science and technology has been weakened.” The gap between allocation and disbursement has belied the insufficient coordination among the regions and between the regions and the central government. This has affected how programme financing is implemented.

Hindrances

Universities, for their part, get funding from the state based on scientific production, and receive grants for specific projects from Colciencias. Very little financing comes from contracted industrial research for private entities. The lack of a clear bridge between scientific research and the private sector in ways that can turn research into new businesses is also a reflection of the laws governing the research community. Despite the dynamic environment for scientific experimentation and research that is ingrained in Colombia’s public research institutions, the lack of incentive for researchers to turn ideas into businesses keeps innovation from developing consistently. That state-employed researchers are only allowed to be paid through their salaries is a big hindrance. Although the system promotes and recognises publication of scientific research in journals and magazines – allowing researchers to earn a bonus payment from the university each time they successfully publish their research – any additional economic benefits that might arise from that research are by law attributable to the institution and not the researcher. This means that the most capable innovators are being encouraged to share knowledge, but not to turn that knowledge into usable end-results.

Another barrier comes from regulation. As nonprofit organisations, universities – even private ones – are banned from engaging in activities that result in financial gain. This prevents the use of IP to protect new inventions, as universities would be unable to recoup the cost through commercialisation of new inventions. “This is one of the reasons there is such a big disconnect between Colombia’s capacity to create innovation – measured by the number of researchers – and the real innovation that is actually being created,” Sergio Zúñiga Bohórquez, manager for early stage financing at Innpulsa, told OBG.

Much innovation in Colombia starts with mid-level professionals who have experience working in large companies but are unable to implement innovation or develop new products within a corporate environment. “A lot of them end up moving on and trying their luck as entrepreneurs,” Bohórquez told OBG. The typical Colombian entrepreneur, he adds, is aged 32-45.

Entrepreneurship

Perhaps the most encouraging development for innovation is the positive environment for start-ups. Much of this momentum has been built up after the establishment of Innpulsa in 2012. Through grants, encouragement of private investment and capacity-building within the entrepreneurial community, the obstacles to start-ups’ success are slowly being dismantled, prompting a surge in the number of innovative business ideas that find their way to public and private financing (see analysis).

In academia, too, the environment for entrepreneurship has been improving. Since 2006, the University Network for Entrepreneurship project has been linking up universities and other higher education institutions across the country to strengthen the way entrepreneurship courses are taught. Out of 286 higher education institutions across the country, 84 have created their own specific entrepreneurship centres, according to local media reports. “There are still very few spin-offs coming out of universities,” Bohórquez, told OBG. “Colombian universities are now implementing entrepreneurship centres and technology transfer offices to generate this type of culture.”

Innovation For SMEs

Other attention has been directed at SMEs. Although these businesses account for 95% of companies in operation and 40% of the country’s value-added production, they make up only 15% of R&D spending, according to the Colombian Observatory for Science and Technology. Colombian SMEs, due to their own specific conditions, are innovating not so much as a result of internal knowledge as by absorbing outside information. This is done mostly by gathering market intelligence from competitors or partner firms in their own production chains, fuelling mostly incremental innovation. A big upsurge in the way SMEs improve their business activities will come from stronger links with R&D outfits at univer-Available capital is also a challenge. For Colombian SMEs, financing is commonly difficult to get, and this directly affects their capacity not only to hire more workers but also to develop in-house R&D projects. “For SMEs, public financing is critical to succeeding in innovation programmes,” Villarreal told OBG.

A handful of state-sponsored programmes are helping to bridge the gap in resources. The Innpulsa Mipyme co-financing programme, for one, has helped transform Colombian firms by offering grants of up to COP400m ($200,000) that can be used to develop a specific innovative product or help SMEs to improve their production or distribution chains. The funds allocated by the programme, which focuses on companies with at least two years’ research activity, will reach COP50bn ($25m) for 2014. As of April 2014, it had granted COP90bn ($45m) since its inception in 2012 with a mission to modernise businesses, and attracted another COP35bn ($17.5m) of private cap-Colciencias, for its part, has allocated COP5bn ($2.5m) from its 2014 budget for a programme to help Colombian companies manage innovation and apply research to enhance products and services. Two back-to-back supporting programmes, Apps.coI and Apps.coII, are aimed specifically at financing innovation at small IT firms and start-ups. The first will support up to 140 development projects in their initial stage, from concept to prototype and product validation. The second, more advanced programme, Apps.coII, aims to help finance up to 40 IT innovation projects involving already developed products with demonstrated sales. Both support programmes are jointly financed by Colciencias and the Ministry of Information Technology and Communications.

Human Resources

Research capabilities and innovation potential, however, will depend most on how the country develops its workforce. For many young Colombians, the proliferation of business and humanities courses have reduced the appeal of pure science. Even for those who enrol in science courses, the chance of working in the private sector doing research once their courses are completed is very small. According to the Colombian Observatory for Science and Technology, 90% of active scientists remain within universities or other public research institutions. As a result, the connection between science, innovation and business spin-offs remains weak.

Increased investment is aimed at changing this. Innovation and research will get a boost through several plans to improve the quality of human resources. The Inter-American Development Bank (IDB), for one, has been providing a series of loans to improve technical training. In October 2013, the bank approved a $400m loan to build training programmes and establish a national qualifications system to better connect those programmes with market’s human resource needs. The loan follows on previous financing worth $100m, which was secured from the IDB in 2012.

Government Programmes

State authorities, too, are funding research and human resource development through many avenues. Colciencias has announced a total of 3900 positions for research programmes and grants to be allocated throughout 2014, at a total investment of COP448bn ($224m). The funds will be used to support universities, researchers and companies, and a large portion will go to strengthen human capital within research institutions. A total of COP15.3bn ($7.7m) will also be directed to support 1000 positions for young researchers to work in companies, universities and research centres that are part of the SNCTI. To further enhance capabilities and improve innovation within one of the country’s key sectors, hydrocarbons, authorities are supporting 40 research positions for students working on research projects in that field, at an investment of COP4bn ($2m). Finally, there is an increasing emphasis on overseas links. Colciencias is investing a total of COP164bn ($82m) to grant credit lines to 1700 Colombians pursuing master’s and doctorate degrees abroad.

Colciencias has also set aside COP76bn ($38m) to support master’s and doctorate scholarships for 300 researchers from Atlántico, Meta, Huila, César, Magdalena and Sucre, so that they may study abroad or in Colombian universities. Besides improving scientific training in those areas, this focus on the regions will help minimise the extreme centralisation of research capabilities in the capital city and other urban centres. “There are companies that need researchers all over the country,” Villarreal told OBG. “There might be a large pool of researchers in Bogotá, for example, but those two worlds are not communicating. There is a lack of communication among academia, entrepreneurs and government, which introduces a gap between demand and supply in research.”

Perhaps one of Colciencias’s most ambitious plans is an attempt to draw expatriate Colombian research talent back home. To achieve this, in the first quarter of 2014 Colciencias launched an initiative called Es Tiempo de Volver (“It’s Time to Come Back”). This plan focuses on attracting researchers with doctoral to post-doctoral positions in institutions that are part of the SNCTI, financing positions at Colombian universities, research centres and in the private sector for scientists to develop two-year research programmes. Initial investment for the programme will reach COP17.2bn ($8.6m) for the first phase. Researchers will get a monthly salary of COP6m ($3000) for two years, plus benefits such as social security payments, insurance and a subsidy for moving expenses. A research grant will also be included. The goal is to attract 100 Colombian scientists.

The programme may prove a good way for Colombian talent abroad to get acquainted with the new opportunities arising in their mother country. To retain the talent, though, Colombia’s science and innovation sector will need to establish long-term opportunities for those scientists who are willing to come back. Developing research positions within the private sector could do much to help accomplish this. More specifically, fostering the creation of private research positions in Colombia’s key emerging sectors, such as biotechnology, may well be the best way to develop a research environment that can compete with the conditions offered to researchers abroad. “The repatriation programme is a good way to attract Colombian scientists from overseas,” Villarreal told OBG. “But this policy alone will not change anything if the institutional challenges are not fixed.”

Intellectual Property

Further encouragement of innovation will come from having more accessible processes to protect it. The private sector in Colombia depends little on IP protection as a means to safeguard new inventions or products. One reason for this is the prevalence of SMEs, which generally cannot afford the registration process. The reach of IP protection is even smaller when it comes to filing for international patents, which only large companies and major universities are in a financial position to do, leaving many SMEs and entrepreneurs to rely on informal means of safeguarding IP. This is changing, however, as international integration encourages the country to strengthen its IP system and make it more affordable for SMEs (see analysis).

Outlook

The research and innovation sector is at a crossroads. In one sense, this is a time of opportunity. A decade of consistent economic growth has increased living standards, improved the conditions for the performance of research and education, and attracted a host of international companies and lots of know-how to several of the most important sectors. The country has also taken signal steps to build a legal and economic environment that is conducive to the emergence of innovative firms.

In another sense, though, the country’s research and innovation policy remains undermined by a complex governance structure that dissipates investment efforts and puts a brake on the absorption of funds. Though the new royalty scheme creates prime opportunities for research and innovation funds to be channelled towards the public and private sectors, in the medium to long term, it may prove ineffective to link budget allocations for research almost exclusively to the returns from hydrocarbons exploration.

New public financing coming from stable budget allocations may create more stability for the financing of science in the future. The efforts by Colciencias to improve the quality of research programmes and enhance the number of researchers working in the country are also likely to improve Colombia’s ability to innovate. However, equal efforts must be made to develop strong links between research centres – including universities – and the private sector.