Legislation and higher spending drive research and development in Argentina

Investments in R&D and innovation have been on the rise in Argentina, driven largely by greater government commitment to sector development. It was to this end that the Ministry of Science, Technology and Productive Innovation (Ministerio de Ciencia, Tecnología e Innovación Productiva, MINCyT) was created in 2007. Public investment growth has been repaid in terms of institutional strengthening and increased private sector interest, resulting in improved innovation and global competitiveness rankings.

However, according to UNESCO’s Institute for Statistics “How Much Does Your Country Invest in R&D?” report released in April 2018, Argentina invests five to six times less in R&D than the most innovative countries, and requires a stronger investment framework for the private sector, intellectual property protection, and improved access to finance. The Ibero-American and Inter-American Network of Science and Technology Indicators also provide information on the performance of science, technology and innovation in Ibero-American, Latin American and Caribbean countries, with recent numbers showing that between 2006 and 2015, public R&D expenditure increased in absolute and relative terms. Measured in current dollars, it rose by 278.8% from $1.1m in 2006 to $4m in 2015, and from 0.45% of GDP to 0.63% over the period. While this figure is relatively low in comparison to the 2.36% average of other OECD countries, in 2015 Argentina ranked second regionally after Brazil (1.28%) and Mexico (0.53%).

Meanwhile, according to the recent UNESCO report, in 2017 spending totalled $5m, or 0.6% of GDP in public-private partnerships (PPPs). Almost half of this sum (48%) was contributed by the government, followed by universities (30%) and businesses (20%), with only 2% coming from private non-profit organisations.

Project Funding

The Argentine government now offers a number of financing opportunities for R&D projects. The National Council of Scientific and Technical Research is charged with initiating calls for research papers and offering scholarships in the disciplines of agriculture, engineering and material sciences, biological and health sciences, social sciences and humanities, and the exact and natural sciences. Similarly, the MINCyT administers the Fund for Scientific and Technological Research as part of its aim to stimulate R&D projects, awarding up to AR2m ($103,600) per project. These awards favour scientific and technological research aimed at applications that promote the improved performance of the social and productive sectors through technology generation and innovation.

Competitiveness

According to the World Economic Forum’s “Global Competitiveness Report 2017-18”, Argentina rose by 12 positions to rank 92nd. This improvement was the result of a stronger performance in basic requirements and that institutions that were able to improve “significantly and consistently.” In addition, an improvement in technological adoption, business sophistication and innovation signalled a reconversion process and a renewed trust in public and private institutions. The report concluded that as the Argentine “government implements reforms that target distortions affecting market efficiency, some indicators of goods markets, labour markets, and financial development are starting to improve.”

The National Agency of Scientific and Technological Promotion of the MINCyT now offers non-refundable contributions to finance projects developed by small and medium-sized enterprises (SMEs) that are aimed at enhancing competitiveness, productivity and innovative capacities in a wide range of industries, including agriculture, pharmaceuticals and ICT.

Intellectual Property Rights

While the government is working to streamline the patent process, obtaining them continues to be a challenge for innovators. The US Chamber of Commerce’s International Intellectual Property Index for 2018 sheds light on investment on the innovation and creativity life cycle of the Argentine economy through 40 discrete indicators covering policy, law, regulation and enforcement. Argentina scored 11.55 out of 40 on these indicators, which put it in 46th place out of 50 countries measured, with the report highlighting that a substantial backlog of up to several years of patent applications existed at the patent office, the National Institute of Industrial Property (Instituto Nacional de la Propiedad Industrial, INPI). Recent studies show around 21,000 pending applications, with the average granting time said to be about eight to nine years.

International Collaboration

There are several improvements to be made to better safeguard intellectual property while encouraging innovation. In early 2018 INPI launched expedited procedures for patent applications already submitted elsewhere, increased staff capacity of patent examiners, and began collaborations with the World Intellectual Property Organisation to digitise patenting services. In 2015 Resolution 56/2016 formed the foundation for a Patent Prosecution Highway pilot programme between Argentina and the United States Patent and Trademark Office.

In addition, since 2017, Argentina has been collaborating with the Japan Patent Office and the European Patent Office to focus on enhancing patent examiners’ expertise in patent procedures, search and examination. These moves have improved patentability requirements to some extent, but Argentine innovators continue to struggle with securing patents in some sectors, including pharmaceuticals.

“The pharmaceutical industry in Argentina went through a period of significant growth in the past, with ample margins,” Federico Rivera, general manager at Amega Biotech, told OBG. “The current situation is different, as local companies have to work around high inflation and labour costs in order to be competitive, not only locally, but internationally as well.”

Outreach

Another obstacle is the lack of public consultation with stakeholders during intellectual property policy formation. In response, the Office of the President is promoting the use of more public hearings, with individual agencies conducting various forms of public consultations, including making drafts available to the public or stakeholders and establishing platforms for receiving feedback. In 2017 – for the first time in Argentine history – a law on access to public information entered into force. The legislation is meant to increase transparency among government institutions and to improve the dialogue between science and politics. Open public consultations and the exchange of ideas concerning intellectual property issues and R&D projects are expected to enrich the decision-making process in awarding patents. In 2016 Argentina, backed by the Inter-American Development Bank and with Brazil, Chile, Colombia, Costa Rica, Ecuador, Paraguay, Peru, Suriname and Uruguay, created a Regional Cooperation System on Industrial Property, PROSUR, that allows for exchanges between the countries’ patent offices and is projected to decrease patent office backlogs, facilitate an easier registration process, stimulate investments and provide access to new technologies and products.

Entrepreneurial Ecosystems

With the goal of increasing the creation of new enterprises from 60,000 to 100,000 per year, the Argentine government is dedicated to enhancing the entrepreneurial and innovative ecosystem. To this end, in April 2017, the government promulgated the Entrepreneurs’ Law. At the public level, this legislation introduced a number of incentives for entrepreneurs and SMEs. According to the Ministry of Industry and the Secretary of Entrepreneurs and SMEs, the first was a tax credit system for investments approved in July 2016, to reduce fiscal pressure on SMEs. Second, in November 2017, the government provided three co-investment funds in collaboration with private entities worth $30m, destined to stimulate the development of high-impact social and sustainable projects. Third, crowdfunding platforms were regularised to allow for collective financing. Lastly, the government plans to provide a total of 13 accelerator funds, with 10 dedicated to technological and social endeavours and the remaining three reserved for scientific ventures. “Lately we have seen the entrepreneurial ecosystem become more attractive due to more investment possibilities. In recent years there were only a few dominant players, but now the ecosystem has evolved to become more dynamic,” Micaela Bacher, entrepreneur selection and growth director at Endeavor Argentina, told OBG.

In light of the new law, in September 2017 the government introduced a new mechanism to create simplified stock companies to ease registrations, commit to the formalisation and digitisation of the economy and incentivise the creation of companies and jobs. The facilitating mechanism enables the creation of an enterprise in 24 hours. “Previously it took from 55 days to one and a half years and five proceedings to register a company. As of today, it is possible to do so with one proceeding and within 24 hours,” Andrés Ibarra, minister of modernisation, told local media.

In Latin America, Argentina is the fourth country to introduce a mechanism that allows for swift intellectual property registration, behind Chile, Colombia and Mexico. By introducing this measure, the government is working to simplify and de-bureaucratise activities for SMEs to stimulate innovation and competitive employment opportunities. In addition, sources of financing have increased. “We are seeing more options in Argentina to raise capital, but investors feel the lack of predictability, which is limiting our current foreign direct investment levels,” Esteban Lombardía, president at Terragene, a biotechnology manufacturer, told OBG.

One new source of credit available since the second quarter of 2018 is a seed fund available through the Ministry of Production, from which entrepreneurs with a non-tested product, a productive project, or a high-impact programme, can receive technical assistance and access zero-interest loans of up to $250,000.

Business incubators are also contributing to the enhancement of the entrepreneurial ecosystem. Among the first in Argentina was Incutex, which selects three start-ups each year that receive mentoring and an initial investment of $25,000 each. “Incubators look for high-impact business models and identify disruptive ideas,” Bacher told OBG. As of May 2018 the national network of incubators consisted of 488 entities, each offering technical assistance towards the development of business models, enhancement of professional networks and financial counselling.

Accelerators also work with start-ups that are already operational with a business model in place. Another opportunity for scaling up is through investment funds and venture capital. “Investments are small compared to the US or Europe: in Argentina venture capital typically ranges between $1m and 5m, while in Europe $1-3m would be considered seed capital,” Bacher told OBG. A resulting challenge has been the lack of financing opportunities for consolidated companies requiring larger investment funds to launch.

However, the current administration has started to incentivise this kind of entrepreneurship, with the impact likely to become visible in two to three years, once the new mechanisms and regulations, such as the Entrepreneurs Law, are in place. Moreover, corporate venture capital is starting to gain momentum.“Large companies are founding their own investment funds, investing in businesses that work in a similar value chain and in entrepreneurs who have businesses that synergise with them, generating a positive impact for both,” Endeavor Argentina’s Bacher told OBG.

Outlook

In recent years, the quality of R&D and innovation in Argentina has increased, but there remains some room for improvement. Although R&D spending reached a record high of over $5bn in PPPs funding in 2017, it continues to lag behind other OECD member countries when analysing this relative to GDP. Changes in the government’s attitude to creating a more competitive and innovate economy are positive moves towards this sector’s expansion. Looking ahead in the short and mid-term, entrepreneurial and innovative frameworks are expected to produce benefits including new incentives and funding options.

As Argentina’s economy continues to open up, greater international exposure will require commensurately increasing levels of R&D and innovation in order to achieve a greater degree of competitiveness.