Government bodies promote innovation in Peru

Investment in research and development (R&D) and innovation has been increasing in recent years in Peru, partly as a result of greater government commitment to science, technology and innovation issues. This investment seems to be paying off in terms of institutional strengthening, sector incentives and increased funding, as well as an overall improved standing in global rankings in innovation and innovation-related issues.

However, there is still much to accomplish as Peru continues to lag behind regional standards in many respects, with improvements still required in key areas such as availability and access to funding, limited public policies and instruments, inadequate infrastructure, insufficient human capital, and intellectual property protection.

Measuring R&D

Created in 1995, the Ibero-American and Inter-American Network of Science and Technology Indicators (Red de Indicadores de Ciencia y Tecnología Iberoamericana e Interamericana, RICYT), provides tools for measuring science, technology and innovation in Ibero-American and Latin American and Caribbean countries.

While data for Peru is limited, the latest available information on investment in R&D for 2011-14, indicates that the circumstances appear to have improved in both absolute and relative terms. As measured by RICYT in current prices, spending on science and technology R&D increased 93.6% between 2011 and 2014, from $142.23m to $275.37m. Relative to GDP, it rose from 0.08% to 0.14% in the period.

Though this certainly reflects an improvement in performance over the last few years, Peru continues to lag behind average levels in Ibero-America and Latin America and the Caribbean. In 2014 R&D investment in Ibero-America accounted for 0.86% of GDP, while in Latin America it represented 0.75% of GDP. However, in Latin America and the Caribbean, significant disparities persisted in 2014, as reflected by the fact that Argentina, Brazil and Mexico together accounted for over 90% of investment in R&D, as measured by RICYT in US dollars adjusted for purchasing parity (US$ PPP). Moreover, as compared to the rest of the world, Latin America and the Caribbean represented 3.5% of total global investment in R&D, in US$ PPP.

Considered in absolute terms, spending in R&D in Ibero-America decreased by 4.77% between 2011 and 2014, falling to $62.15bn at the latter date, down from $65.27bn in 2011. In Latin America and the Caribbean it increased 3.25% to a total of $43.39bn in 2014, up from $42.02bn in 2011. The weaker performance of Ibero-America can be attributed to the slowdown in economic growth following the 2009 crisis, whereas the stronger record in Latin America and the Caribbean can be read against the background of higher economic growth in this period.

Policy Planning

True to its legalist tradition, Peru holds a vast legal framework for science, technology and innovation issues. This robust set of legislation reportedly can prove cumbersome due to such factors as overregulation and duplication of functions among state institutions.

Article 14 of the Constitution endows the state with various functions and responsibilities in the development of science and technology, while the National Agreement, signed in 2002, sets the foundation for the development of a consensus-based public policy for science, technology and innovation.

Based on this, the Framework Law for Science, Technology and Technological Innovation, published in 2004, establishes the role of the state in these endeavours, defining the National System of Science, Technology and Technological Innovation (Sistema Nacional de Ciencia, Tecnología e Innovación Tecnológica, SINACYT) and its components. It further determines the roles and attributions of the National Council for Science, Technology and Technological Innovation (Consejo Nacional de Ciencia, Tecnología e Innovación Tecnológica, CONCYTEC), which is the directing body of SINACYT.

New Regulations

This legislation also creates the National Fund for Scientific, Technological, and Technological Innovation Development (Fondo Nacional de Desarrollo Científico Tecnológico y de Innovación Tecnológica, FONDECYT); establishes the National Consultative Council of Research and Development for Science, Technology and Technological Innovation; specifies the roles of regional authorities and universities; grants responsibilities to CONCYTEC in the development of a National Network of Scientific Information and Telematic Interconnexion, as well as in the elaboration of a National Policy for the Development of Science, Technology and Technologic Innovation; and lays down national norms for financing and incentives.

Launched in July 2016, Peru’s National Policy sets out, as a general objective, the improvement and strengthening of the performance of science, technology and technological innovation in Peru with six strategic objectives. In short, Peru aims to: promote the generation and transfer of scientific and technological knowledge, aligning research results with the country’s needs as defined by the sectors involved; promote and develop new incentives that stimulate and increase SINACYT activities; promote the generation of qualified human capital; improve the quality of research and technological development centres; generate quality information on SINACYT member performance; and strengthen science, technology and technological innovation institutions.

Key Policy Instruments

As described by CONCYTEC, a number of policy instruments offer direct financing for R&D innovation, based on a mix of funding sources from government and international cooperation instruments. The government provides grants through transfers to public research institutes and universities. FONDECYT, the primary public instrument to fund innovation, is in charge of capturing, managing and channelling national and foreign resources into SINACYT activities in Peru.

Backed by a loan from the Inter-American Development Bank (IDB), the Programme of Innovation for Competitiveness (Programa de Innovación para la Competitividad, FINCyT) supports projects contributing to raising competitiveness through innovation. The Fund for Research and Development for Competitiveness, managed by the Ministry of Production, backs initiatives targeting the promotion of R&D in productive innovation, the development and strengthening of the generation and implementation of technological knowledge for innovation, and the development of productive capacities and business management in micro-sized firms.

In addition to the innovation grants, the government also supports educational initiatives to further entrepreneurship. CONCYTEC professorships, supported through FONDECYT funding, are aimed at the establishment of excellency centres in Peruvian regions. The professorships aim to attract human capital from abroad, develop applied research and train high-level human resources.

FONDECYT and FINCyT offer postgraduate scholarships for Master’s and PhD-level studies in Peruvian and foreign universities. Mining royalties are channelled in part towards the financing of research capabilities in regional universities.

Lastly, the National Programme for Scholarships and Student Loans is responsible for designing, implementing and managing national and international scholarships, including the allocation of scholarships and student loans, adding a social focus to the country’s human capital development.

In addition to direct financing instruments, there are also indirect regulatory catalytic financial actions, and combined or mixed measures: the first of these are run by the National Institute for the Defence of Competition and the Protection of Intellectual Property (Instituto Nacional de Defensa de la Competencia y de la Protección de la Propiedad Intelectual, INDECOPI); the second, by the Financial Corporation for Development; and third, the Regional Science, Technology and Technological Innovation Councils and Technological Innovation Centres.

Tax Incentive

Recognising the existing difficulties many entrepreneurs encounter in accessing financing for R&D and innovation in Peru, Congress approved a tax incentive in this area in 2015. Law No. 30309 for the Promotion of Scientific Research, Technological Development and Innovation, offers any taxpayer investing in scientific research, technological development and innovation a tax deduction of up to 175% of spending, though takes into account an annual spending limit established by the Ministry of Finance and Economy. Previous legislation, namely Law No. 30056, allowed for a 100% deduction declared as current expenses. The extra incentive of up to 75% that is now in place is valid until 2019.

Agricultural Innovation

Adding to the central supportive network, a large variety of other state actors also contribute to the design, funding and implementation of public policy and actions in innovation in their specific sectors.

In agriculture, the National Institute of Agrarian Innovation (Instituto Nacional de Innovación Agraria, INIA) is responsible for directing the National System of Agrarian Innovation. Its goal is to promote and execute activities that facilitate both the development and strengthening of national agrarian technological innovation, which is expected to improve food security and increase competitiveness in national agrarian production, oriented in particular towards the inclusion of small and medium-sized producers. To this end, INIA integrates four directorates which respectively focus on the management of agrarian innovation, genetic resources and biotechnology, technological development, and the supervision and monitoring of experimental agrarian stations.

Peru’s Agrarian Innovation Policy, with a five-year execution range and national coverage, has a budget of PEN494.38m ($146.5m); financed largely by an IDB loan of $40m (24.2%) and a World Bank loan of $85.4m (51.6%), both of which were signed in 2014.

Industrial Innovation

The 2015 National Poll on Innovation in the Manufacturing Industry, published in February 2017, provides a clearer picture of innovation in this key sector of the economy.

According to the National Institute for Statistics and Computing (Instituto Nacional de Estadística e Informática, INEI), the institution responsible for this poll, 61.2% of Peruvian manufacturing firms executed at least one type of innovation activity in the period studied, 2012 to 2014. Transport equipment, food products, beverages, and pharmaceuticals and medicinal products featured among the most innovative subsectors in 2014. Computing, electronics and optics products, and wood products, meanwhile, came in at the bottom of the list.

The majority of companies (72.3%) carried out innovation activities by acquiring capital goods. This was followed by capacity building (carried out by 38.8% of companies); marketing expenditure (36.4%); organisation (34%); hardware acquisition (32.8%); and internal R&D activities (31.8%). Meanwhile, external R&D activities surfaced as the least employed innovation type, with a rate of only 8.8%.

Sources Of Financing

Investment in innovation in Peruvian manufacturing, as measured by the INEI poll, increased 11.5% between 2012 and 2014, reaching a total of PEN3.7bn ($1.1bn) in 2014. Spending on the acquisition of capital goods accounted for the larger part of spending on innovation at 73.8%, contrary to external R&D activities which took up the smallest share with 0.7%.

In terms of funding sources, 83.4% of firms financed their innovations mainly through their own resources; however, 64.8% received at least some funding from private commercial banking. As for the rest, 4% relied on government support and 1.3% found funds through less formal means.

Despite the diversity of financing sources displayed, lack of available capital and high financing costs are reported to be the chief obstacles to innovation in the manufacturing sector, among innovative and non-innovative companies alike.

Indeed, 37.3% of polled innovative companies say that innovation is too costly, while 33.7% admit that the lack of funding from their company or group of companies is an obstacle to innovation. Non-innovative companies experience these challenges as well: 43.4% find innovation too costly, while 32.3% reported that the lack of company or company group funds is an obstacle to innovation.

Other Challenges

The INEI poll identifies four main types of obstacles to innovation: those which are knowledge-related, market-related, financing and cost-related, and other factors.

When looking at knowledge-related obstacles, lack of qualified personnel surfaces as the main challenge, setting back 30.7% of innovative and 24.3% of non-innovative companies. Concerning market-related aspects, 30.1% of innovative and 32% of non-innovative companies see a market dominated by established actors as a challenge. Lastly, if considering other factors, 19.5% of innovative and 21.9% non-innovative companies reported being restricted by the limitations of public policies on science and technology. Inadequate physical infrastructure came a close second, cited by 19.4% of innovative companies, whereas 19.9% of non-innovative companies are also concerned about the insufficient flexibility of regulation and market norms.

Human Capital

The quality and availability of human capital is seen as one of the chief obstacles to innovation. More specifically, these include difficulties in the attraction and retention of talent, the quality of education and training programmes, and education infrastructure. CONCYTEC estimates suggest that there is a significant gap to be filled in human resources if Peru is to fulfil its ambitions of economic growth by its bicentennial anniversary in 2021. Indeed, according to CONCYTEC, to achieve its GDP per capita goal by then, Peru should have an average 1600 researchers for each 1m inhabitants.

Achieving this target, CONCYTEC maintains, would entail covering a gap of about 15,700 PhD-level research graduates in basic sciences and engineering, and having an additional 22,000 PhD graduates by 2021. Given the country’s estimated workforce needs in this period, Peru would require 7000 PhD graduates in engineering and technology, 4000 graduates in the natural sciences, 3300 graduates in health and medical sciences, and approximately 2500 graduates in the agricultural sciences.

According to the latest available data from CONCYTEC, Peru has approximately 1848 PhD-level researchers, of which 527 are in engineering and technology, 550 are in the natural sciences, 262 are in health and medical sciences, and 177 are working in agricultural sciences. More generally, based on UNESCO statistics, Peru had a total of 185.22 researchers for each 1m inhabitants in 2014.

Publications

Evaluating the evolution of publications provides a different lens for the quality of human capital in Peru. Information on Peruvian participation in a variety of publication databases, as well as figures available in RICYT, serve as a gateway to understanding some of the current trends in R&D and innovation taking place in the country.

Peruvian publications in Science Citation Index (SCI), for example, have displayed a steady increase in recent years, rising from 331 in 2004 to 1008 in 2014, with a single drop registered during this period, that is, 388 SCI publications in 2012, down from 788 in 2011. This translates to an increase of 204.5% between 2004 and 2014, as compared to a rise of 178.3% and 167.55% for Latin America and the Caribbean and Ibero-America, respectively.

In another case, the growth streak for Scopus publications is longer, harking back to 1998. Peru had 182 publications in Scopus in 1998; by 2014, there were 1609 publications, representing growth of 784%. By comparison, Scopus publications in Latin America and the Caribbean and Ibero-America, respectively, increased 331.9% and 276.6% in this period.

Though Peru has shown steady improvement in this area, outpacing regional averages in terms of absolute growth numbers, in relative terms it continues to lag behind both Latin America and the Caribbean and Ibero-America by such indicators as publications relative to GDP. In 2014 Peru’s rate by this measure for Scopus publications was 7.9, against 27 in Ibero-America and 20.4 in Latin America and the Caribbean; while the rate for SCI publications in 2013 was 4.5, as compared to 19.4 in Ibero-America and 14.1 in Latin America and the Caribbean.

Intellectual Property Protection

Intellectual property protection is a key factor in the promotion of innovation, yet there remain many improvements to be made until intellectual property can be properly protected in Peru. As CONCYTEC itself points out, Peru faces two difficulties in this area: on the one hand, there is a lack of incentives for the registration of new knowledge and technologies; on the other hand, despite INDECOPI’s efforts, the institutional capacity for managing intellectual property protection is limited. More to the point, INDECOPI has focused the majority of its efforts on promoting awareness about intellectual property tools and database access, while at the same time neglecting the fight against piracy.

In this context, only 39.4% of innovating manufacturing industry companies polled in Peru between 2012 and 2014 admitted to either having their intellectual property rights recognised, or to employing formal methods of protection domestically or on an international basis. The chief methods of protection being used locally included brands (92.7%), patents (23.1%) and employee confidentiality clauses (21.2%).

Despite these difficulties, Peru’s performance in global rankings seems to suggest improvements in recent years, especially regarding patents. The World Economic Forum (WEF) Global Competitiveness Index employs Patent Cooperation Treaty (PCT) patent applications per million inhabitants as one of seven criteria for the evaluation of a country’s progress in terms of innovation. Peru’s ranking and score improved, moving from 84th out of 140 countries, with 0.3 out of seven possible points in the 2015-16 edition, to 79th of 138 countries with 0.5 out of seven points in the 2016-17 edition.

Global Rankings

Peru’s gradual progress and lingering shortcomings in this sector are generally reflected in global innovation rankings. In the 2016-2017 Global Competitiveness Index, innovation stands out as Peru’s worst category out of the total 12 criteria evaluated for each country. Therein, Peru ranks 119th of 138 countries assessed, with a 2.8 score out of seven possible points, as compared to 116th in 140 countries assessed and a steady score of 2.8 points in the 2015-2016 edition.

The Global Innovation Index (GII) 2016 – co-published by Cornell University, INSEAD and the UN’s World Intellectual Property Organisation – ranks Peru 71st in 128 economies, scoring an overall mark of 32.5 out of 100 possible points. In 2015 GII ranked Peru 71st out of a total of 141 economies, evaluated with an overall mark of 34.9 points.

When looking into subcategories, Peru’s three top categories in innovation, as measured by WEF rankings in 2016-2017, were: PCT patent applications per million people (79th), university-industry collaboration in R&D (110th) and capacity for innovation (111th). However, if ordering the criteria by their scores – which were marked out of a possible seven points – then Peru scored highest in capacity for innovation with 3.7, second in availability of scientists and engineers with 3.4, and third in quality of scientific research institutions with 3.1.

Similarly, according to GII 2016 data, Peru performed best in market sophistication, with a rank of 35th, business sophistication at 54th and infrastructure at 57th. If the scores are considered, then institutions come out on top with 60.4 out of a possible 100 points, followed by market sophistication with 50 points and infrastructure with 45 points.

According to the WEF, Peru has improved in terms of its capacity for innovation, the quality of its scientific research institutions and the availability of its scientists, engineers and PCT patents. However, the WEF reported that Peru had fallen in terms of university-industry collaborations in R&D, as well as in government procurement of advanced technology products. Meanwhile, company spending on R&D and innovation remained unchanged.

In the GII Peru improved in terms of human capital and research, infrastructure and business sophistication – yet its score fell in market sophistication, knowledge and technology outputs, and creative outputs – and remained unchanged in institutions.

Outlook

While there has been a rise in the quality of R&D and innovation in recent years, there is still a significant margin for improvement in Peru. Notwithstanding this, a stronger government commitment to R&D and innovation is a welcome move. The challenge is sustaining it and increasing overall support for the advancement of R&D and innovation in the country. Recent IDB and World Bank loans, backed up by government funding, seem to signal a continued interest in supporting this sector.

Going forward, Peru’s strong entrepreneurial base and network of international trade and cooperation agreements can serve as positive push factors. As companies endure a greater amount of international exposure and face a higher level of competitiveness, innovation may surface not only as a means of remaining competitive in global markets, but also as a path toward diversifying export destinations and achieve a greater degree of business sustainability.