Challenges for the Promotion of Innovation and R&D in Latin America: A Territorial Perspective

Abstract

This chapter aims to analyze the current state of innovation promotion, mainly from a territorial and regional perspective in Latin America. It briefly describes the historical process that led to the relevance of the regional innovation policy. Thus, it also analyzes the orientation, degree of development, maturity, and role of the organizations in charge of promoting regional innovation initiatives. It shows that each region has its own process of adapting to the new challenges of promoting innovation from the territory. The existence of factors contributing to or limiting this process is also observed, some of which may be political, technological, or even cultural. Likewise, the chapter discusses some challenges, dilemmas, and opportunities that some regions of Latin America face. It is intended, with this analysis, to present knowledge that can be useful to public or private organizations in developing countries, which seek to design strategies to promote innovation with an emphasis on the regional level.

1. Introduction

Although Latin America can be considered the second world emerging region after Asia, its growth and gap reduction with respect to the first world is still uncertain. By 2022, GDP per capita reached an average rate of US$ 7950.00 [1], much lower than more industrialized countries. In the last ten years, it has yet to show significant growth. Still, even in cases of regional representative countries such as Brazil and Argentina, there is a certain tendency to a reduction that is worrying in general terms. This condition differs from other countries with industrialized economies or even emerging Asian economies, which are showing signs of sustained growth (Figure 1).

Figure 1.

Historical comparison of GDP per capita. Source: Adapted from [1].

Latin America is marked by what different authors have historically called technological dependency [2], that is, a vocation for technology transfer [3] or the importation of technological services [4]. This dependency reinforces in the region its original vocation as a supplier of raw materials. In fact, its export economy has an industrial and productive composition based on the extraction of natural resources, mainly in the mining and oil, manufacturing, and agricultural sectors.

Although governments have been focused on developing policies for industrial promotion, innovation, and productive diversification in recent years, the growth results are still not clearly visible. The latter can be visualized with the economic complexity index (ECI). This index measures an economy or product’s relative knowledge intensity [5].

As shown in Figure 2, some Latin American economies show difficulties in diversifying their productive and export capacity, even with negative trends. On the other hand, notable differences can be seen between some countries, such as Peru, which still shows a significant gap even concerning other Latin American countries, for having a low level of sophistication of its exportable products [7].

Figure 2.

Historical comparison of economic complexity index (ECI). Source: Adapted from [6].

On the other hand, like all countries, Latin America experiences the impact of global events and faces significant modern challenges. The COVID-19 pandemic raised poverty levels. On the other hand, there are challenges related to climate change, deforestation, social inequality, the migratory crisis, and growing violence [8]. All this adds to a historical stigma of corruption and political instability [9], reducing confidence and the possibility of long-term policies (Box 1).

Boubarkri, in his article “Does national culture affect corporate innovation”? based on an analysis of a comprehensive innovation database around the world, concludes that the probability that a company innovates is greater in individualistic, indulgent, and long-term-oriented societies [10]. Sagasti, in his book “Science, Technology and Innovation: Policies for Latin America” [11], quoted the prominent Latin American thinker Jorge Sábato with this quote: “It takes fifteen years to create a world-class research institution, but only two years to destroy it”. Sagasti, compared efforts in Latin America to promote innovation to the tragic fate of Sisyphus, the mythical and cunning king of Corinth who tricked the gods more than once and was punished by rolling a boulder up a mountain, only to have it to the top it would roll down and have to start again, eternally over and over. According to this author, Latin America is an example of Sisyphus since after having designed and implemented policies with considerable effort (such as investment in science and technology, institution-building, and training scientists and engineers,) “has only seen them disappear almost without a trace”.

Box 1.

Political instability in Latin America and its impact on the promotion of innovation.

Despite this, Latin American countries have actively sought new and better ways to promote industrial and technological development [11]. In recent years, interest has been focused on promoting science, technology, and innovation as a development strategy. Different types of initiatives are implemented with their own nuances and particularities in each country and region.

2. Innovation in Latin America

Innovation and entrepreneurship have gained strength in Latin America during the last decade. Technological startups have tripled since 2017 and have multiplied their estimated value from USD 7 billion to USD 221 billion, reaching in 2021 the number of twenty-seven unicorns (private startups valued at more than one billion dollars) [12].

Despite this, the region is still characterized by low levels of public and private investment in research and development (R&D). As can be seen in Figure 3, by 2020, most countries are still far from reaching 0.5% investment in R&D with respect to GDP, a fact that contrasts with the average of 2.3% in OECD countries during the last decade and the notable advances of some Asian countries such as Thailand. On the other hand, in several countries, registered investment comes primarily from public funds, with minimal private funds.

Figure 3.

R&D expenditures as a percentage of GDP. Source: Adapted from [1].

The latter implies that the development of innovation and technological industries continues to be a difficult challenge. Added to this is the fact that in the Latin American context, the markets are not well developed, and there is a deficient business climate, with limited inventiveness [13], lack of resources and scientific and technological infrastructure [14], deficient institutional development [11], and a weak policy [15].

3. The process of promoting innovation in Latin America

Policies and initiatives to promote innovation in Latin America have changed and evolved. Table 1 shows a summary of the most relevant aspects that marked the promotion of innovation in Latin America. Although general issues were experienced in a similar way, the process must consider the particularities of each country or region.

Phase	Period	Main characteristics
Science push	1950–1970	EMERGENCE OF THE PROMOTION OF SCIENCE, TECHNOLOGY, AND INNOVATION; Linear conception of the relationships between science, technology, and innovation.; Support for the scientific community and establishment of research councils.; Creation of scientific research centers and institutes, especially universities.
Industrial development policy and regulation of technology transfer	1965–1985	INDUSTRIAL POLICY AND TECHNOLOGY TRANSFER: Aggressive support policies for the national industry and import substitution.; Focus on technology transfer: emphasis on selecting appropriate technologies for the conditions of the region and concern for reducing some negative impacts.; Creation of public entities to regulate foreign direct investment, license agreements, and intellectual property rights.
Policy instruments and system approaches	1970–1995	SCIENTIFIC TECHNOLOGICAL DEVELOPMENT AS A POSSIBILITY: Emphasis on the implementation of science and technology policies (policy instruments).; Analysis of interactions and overcoming inconsistencies between explicit and implicit science and technology policies.; A comprehensive perspective on the actors that participate in the generation, import, demand, use, and absorption of science and technology.
Adjustment and transformation of science and technology policy	1980–2000	FOCUS ON MARKET LIBERALIZATION, NEUTRALITY, AND ECONOMIC STABILITY. SLOWDOWN IN INNOVATION AND STI; Reduction of investments in science and technology.; Displacement of technological research and development in companies.; Improvements in the organization of production to increase productivity.
Innovation and competitiveness systems	2000–2020	TRANSITION AND STRENGTHENING OF NATIONAL INNOVATION SYSTEMS. MARKET FAILURE APPROACH; Emphasis on business technological behavior, the public policy environment and the absorption of knowledge and technology from abroad.; Support for companies to improve their competitiveness and face their entry into markets.; The emergence of the market failure correction approach.; Financial mechanisms to support innovation, especially the focus on innovation developed by companies (seed funds, competitive fund schemes.)
Vertical approach, territorial approach, and specialization	2010-present	INCLUSION OF VERTICAL POLICIES FOR INNOVATION, TERRITORY, AND SPECIALIZATION; Inclusion of the concepts of decentralization and territoriality for the promotion of innovation. Implementation of regional innovation and specialization plans.; Implementation of vertical policies for the promotion of certain sectors and areas of specialization as centers of excellence.; Implementation of regional innovation agencies. Implementation of regional funds for the promotion of innovation.
Focus on the development of the venture capital market and acceleration of startups	2015-present	FOCUS ON ECOSYSTEMS INNOVATION AND ENTREPRENEURSHIP. FOCUS ON THE VENTURE CAPITAL MARKET; Investments in the promotion of intermediate institutions that foster technological entrepreneurship. Boost for the development of the venture capital market.

Table 1.

Evolution of innovation promotion policies in Latin America.

Source: adapted from [11].

These particularities are due to external factors such as changes and innovations in public policies implemented in more industrialized countries, which are seen as reference models. On the other hand, internal factors can be: economic, such as the productive vocation focused on raw materials; technological, marked by human capital and technological infrastructure; political and even cultural, for example, the recognition of a weak, unstable, and short-term policy and the historical aversion to the application of sectorial policies of industrial support.

This aversion emerged after the 1970s and 1980s when several Latin American countries devoted efforts to implement an industrialization process through aggressive import substitution and industrial development policies. Although this type of policy gave rise to the development of high-level activities that contributed to initial industrial development, the absence of sanction mechanisms gave way to the proliferation of a wide range of sectors and activities that were inefficient, which in the face of the liberalization of markets, international competition and lack of incentives typical of the 90s, ended up leaving the market, and producing a severe economic and political crisis [16, 17]. These events explain a recurrence in the innovation policy of Latin America in the use of approaches based purely on demand and in addressing market failures from a transversal perspective [18].

In analyzing this historical process, reference cases are identified that show important positive advances. Among these, Chile stands out, which has historical experience in implementing different sets of innovation promotion policies, first with a horizontal emphasis focused on correcting market errors (1980 to 2000), to move on to a more vertical, focused on certain industrial clusters. Among the horizontal policies, guarantees were applied for loans for small businesses, subsidies for new exports, and financing programs for innovation (Innova Chile) operated by CORFO. On the other hand, vertical policies (sectoral and target oriented) were implemented such as the development of FDI (foreign direct investment) attraction programs in high technology and the operation of Fundación Chile, through its technology transfer and business generation model [19].

Some Latin American institutions have maintained an important role in the construction and articulation of technological innovation systems, for example, the aeronautical technical center in Brazil, for the gestation of the aeronautical industry [20] or SENASA (National Service of Health and Food Quality) and INTA (National Institute of Agricultural Technology) for the promotion of agri-food chains in Argentina [14]; however, the case of Fundación Chile deserves a special distinction. This institution for more than four decades has had an active agenda in promoting innovation in collaboration with the government; it has been a pioneer in promoting and enabling different productive sectors such as the aquaculture industry [7, 14], the agro-industrial sector, the movement toward renewable energies, such as solar, one of the first venture capital funds in Latin America, among others [21]. The role of Fundación Chile has been related to a “system builder” [22], that is, an engine for the development of technological innovation systems in their early phase, as described by (Box 2) [24].

Fundación Chile is a public-private organization with financing from the Chilean government and the mining sector, whose purpose is to promote the transformation of Chile toward sustainable development. For more than 45 years, it has collaboratively created high-impact innovative solutions for Chile, especially in promoting new industrial sectors that have even been success stories reviewed by international literature, such as the salmon industry [14].; Over the years, this institution has undergone four phases of evolution that mark, in different ways, the type of impact in promoting innovation and economic development in Chile. The first, called the autarchic model (1982-1998), focused on using its own funds to develop industrial demonstration projects based on technology transfer, covering activities from opportunity identification, R&D, company creation, administration, and transfer to the private sector. The second called the alliance model (1999-2009), continued to carry out complete business incubation and technology transfer activities, now using additional public funds (CORFO) and alliances with investors. The third, the Limited VaR model (2010-2014), focused on promoting high-impact companies, especially in the mining and energy sectors. The fourth and last phase, called “venture capital” (2012-present), focuses on boosting the innovation ecosystem in Chile, based on support for the players in the venture capital industry and investment in startups that develop high-impact innovations in sectors of high potential and interest for the country [21].; On the other hand, it can be noted that Fundación Chile serves as an operational instrument for the implementation of particular innovation policies, called by Mazzucato as “mission-oriented” [23], which seek to solve national challenges such as dealing with the energy crisis, water scarcity, and sustainable use of resources.; This model could be considered as an effective mechanism to counteract the negative impacts of political, economic, or technological factors that affect the innovation promotion environment.

Box 2.

The Fundación Chile model for the development of innovation markets.

4. New approaches for innovation promotion

Already in 2007, [25] referred that the economies in the process of industrialization marked an evolution in the design of STI policies. This evolution begins with a focus on the promotion of R&D, entrepreneurship, and business development with a general approach and then points toward a targeted approach, that is, aimed at promoting specific sectors, specialization, and the promotion of venture capital markets.

Similarly, some Latin American thinkers devoted their attention to innovation promotion policies in the country’s specific sectors or strategic areas. These types of policies were called vertical [17]. This type of approach became more relevant in the 2010s (although in other countries, it was earlier), with the adoption of new European criteria for the administration of regional funds for innovation, focused on smart specialization (RIS3: Research and Innovation Strategies for Smart Specialization) and the territorial approach to promoting innovation. This approach focuses on supporting the existing strengths in the regions and searching for new possibilities for their development. Therefore, R&D&I resources are concentrated on limited priorities, which in a short time can lead to a technical transformation of existing sectors, and in the long term, to the emergence of new technologically advanced industries [26]; this marks a shift in thinking that goes beyond market failure arguments toward arguments based more on the logic of strengthening regional innovation systems [27].

From 2013 onwards, specialization initiatives have been developed in Latin America to promote innovation at the regional level. In each country, these processes have been taking place at different times and different levels, beginning with the development of pilot projects to be later replicated in other regions. Countries, such as Colombia and Chile, have been pioneers; other countries, such as Peru, started later and are still in the implementation process [28].

However, innovation strategies based on smart specialization are not unique examples of regional initiatives with a vertical orientation. For instance, in Argentina, between 2000 and 2008, technological poles were created in the provinces of Rosario, Córdova, and Buenos Aires, focusing on developing high-potential technological areas; this gave rise to different initiatives of technological clusters in other regions [29]. On the other hand, in Chile, from the year 2000, there was the progressive creation of fourteen regional research centers, each in specialized topics according to regional vocations, led by regional governments [30].

In 2022, Alatrista A [31] carried out an analysis of the policies implemented in 12 Latin American regions, San Juan, Santa Fe, and Formosa from Argentina, O’Higgins, Coquimbo, Aysén, and Biobio from Chile, Antioquía, Cundinamarca, and Arauca from Colombia, Arequipa, Ayacucho, Cajarmarca and Huancavelica of Peru. In the study, 22 innovation promotion policies were grouped into four types: type A: “Strengthen and maintain human capital create critical mass and increase connectivity between actors,” Type B: “Stimulate knowledge absorption and entrepreneurial dynamics,” type C: “Modernize productive activities toward value-added niches: Form innovative ecosystem,” type D: “Strengthen excellence in knowledge creation and development of high-tech industries.”

The table shows the number of regional policies implemented by local organizations, organized by each type, and differentiating whether they are horizontal (h) or vertical (v). For example, the Argentine regions implemented three of the nine horizontal policies identified for type A, having also implemented the only vertical policy identified for type A.

As shown in Table 2, the analyzed regions of Argentina, Chile, and Colombia showed more significant activity in implementing innovation policies concerning the Peruvian regions. This increased activity is also reflected in the implementation of vertically oriented policies, which shows interest in developing certain sectors or specific technologies. Regional or local bodies’ regional policy implementation activity shows that regions have different capacities to promote innovation.

	Type A		Type B		Type C		Type D		Total %
	h	v	h	v	h	v	h	v	h	v
Argentina	3/9	1/1	3/7	1/3	2/5	0/1	0/1	1/2	32%	43%
Chile	4/9	1/1	1/7	1/3	1/5	0/1	1/1	1/2	32%	29%
Colombia	4/9	1/1	2/7	1/3	2/5	0/1	0/1	0/2	36%	43%
Peru	1/9	0/1	0/7	1/3	0/5	0/1	0/1	0/2	9%	14%

Table 2.

Innovation policies implemented by 12 Latin American regions.

Source: Adapted from [31].

The study mentioned above, based on the perception of different experts in each country [31], showed a comparative analysis of the capacity of regional organizations to implement initiatives to promote regional innovation using four criteria: Degree of decentralization of decision-making and resources regarding STI policy, degree of formalization/maturity of the regional policy, development of the executing body of innovation policies, and resources deployed for the regional promotion of innovation. The results show that regions in Argentina, Chile, and Colombia have a medium capacity, while the Peruvian regions show low or even nonexistent capacity.

These results show the vital importance of the empowerment and leadership of regional and local governments to promote their innovation policies. Here, the national context and the decentralization efforts of science, technology, and innovation policy play a relevant role.

In the last years, strengthening regional capacities to promote innovation has become a priority in several Latin American countries. Colombia’s national innovation policy aims to improve multilevel governance of the national system of science, technology, and innovation (SNCTI) based on the strengthening of regional capacities in STI [32]. On the other hand, the national innovation policy of Chile identifies within its essential priorities the development of regional R + D + i capacities, together with the national plan of centers of excellence [33]. In Argentina, the national science, technology, and innovation plan (PNCTI) establish territorial agendas and regional agendas as one of four main agendas, which focus on identifying priority issues for regional development and their definition within the framework of the regional science and technology councils (CRECYT) [34]. Other countries, such as Peru, have presented recent proposals to promote regional capacities such as the initiative of regional development agencies. However, the national innovation policy still needs to prioritize strengthening regional capacity. In fact, unlike the other analyzed countries, Peru’s Ministry of Science, Technology, and Innovation has not yet been implemented (Box 3).

In recent decades, Peru has implemented different mechanisms to promote innovation in the context of low scientific-technological infrastructure capacity.; Since 2010, the Ministry of Production has implemented the main financing mechanisms focused on business innovation. Likewise, strategic documents have been prepared, such as the Framework Law on Science, Technology and Technological Innovation, promulgated in 2004; the National CTI Plan, published in 2006; and the National Innovation Policy, published in 2016.; In that same year, the territorial concept of identifying areas of specialization in the regions was introduced. In 2016, two pilot projects began (Piura and Arequipa); and by 2020, six additional regions were financed for the same purpose. Additionally, since 2022, regional development agencies have been promoted. (In Chile, this decentralization process began at least 20 years earlier with the implementation of regional centers of excellence strategy and later the implementation of regional innovation strategies.); However, the eight principles and the four objectives planned in the national innovation policy are separate from specialization or territoriality. No objective proposes a decentralized strategy from the regions. This fact shows the challenge of being able to adapt national strategies to modern approaches. This fact suggests that the delay in adopting certain practices could force premature policy changes, leading to a short time of maturation that could affect their performance. Adaptation becomes an important challenge for the promotion of innovation in Peru.

Box 3.

Peru and the challenge of adapting innovation policy.

Although the capacities of regional or local governments are crucial to promoting innovation, other factors could also limit regions’ ability to boost areas or technologies with high potential. One factor may be the strong economic dependence on the exploitation of raw materials since a kind of “core rigidity” could be generated [35]. The latter finds an analogy in the new approaches to productive diversification, which show the vital importance of a specific region’s trajectory and natural capacities to jump into new sectors or areas of specialization [36]. In the words of [37], “the probability that a country will become a significant exporter of a product in a four-year period increases with the fraction of related products already exported by that country.”

On the other hand, the concept of technological innovation systems (TIS) and their interactions with different contexts or structures, such as technological, sectoral, geographical, and political [38], have become important. The TIS approach can help transcend the limitations and low regional capacities for promoting innovation [31]. Under this approach, regions can use internal networks or connections with other regions that have developed related technologies. These collaboration networks can even become cases of extra-regional exchange, as in the case of some regions of China [36]. Recent initiatives to promote the renewable energy sector in the Arequipa-Peru region have been joined by different actors from Puno. This region has not yet implemented a specialization strategy. Here, it is important to note that some Latin American regions have identified common areas of specialization. For example, mining is an area of specialization for various regions, including San Juan (Argentina), Arequipa (Peru), Antioquia (Colombia), and Antofagasta (Chile); on the other hand, biotechnology was identified in San Juan (Argentina), Lima (Peru), Antioquía (Colombia), and Valparaíso (Chile) among other regions.

Beyond vertical policies promoting strategic clusters, areas, or sectors, some Latin American countries have recently focused on policies to support and foster entrepreneurship ecosystems and the generation of impact companies, especially startups [17]. Among them, the boost to the venture capital markets becomes relevant.

Between 2005 and 2011, the birth of the venture capital market in Latin America took place, with slow growth, limited investment, limited development of high-tech ventures, and certain failures [39, 40]. In recent years these figures have evolved strongly, according to reports from the Latin American Venture Capital Association (LAVCA), Venture Capital investments in Latin America doubled in 2020, reaching USD$5.4 billion.

As can be seen in Figure 4, there is a clear trend to boost the venture capital market. Although these figures are increasing in all countries, the proportion of investments is shown more clearly in Argentina, Chile, and Colombia, which, in a certain way, narrows the investment gap with giant China.

Figure 4.

Investment in venture capital as a percentage of GDP.

The development of the venture capital market has different drivers in Latin American countries. For example, in some cases, private sector institutions lead the process such as the case of EPM, Sura, Bancolombia, and Grupo Bios in Colombia. In cases like Chile, the governmental public sector stands out such as the case of CORFO and Fundación Chile and their initiatives: “Startup Chile” and “Chile Global Ventures”. In Peru, the presence of UTEC stands out, a private capital technological university, which has promoted the venture capital market in Peru.

As shown by [12], some Latin American universities are becoming business centers that support innovation in their ecosystems. Many have implemented accelerators, incubators, and centers for developing entrepreneurship and innovation. They frequently are open to external stakeholders such as entrepreneurs and SMEs. Additionally, many universities use their multicampus strategy to amplify their impact and engagement. The leadership of the academic sector can be of special relevance to strengthening regional innovation systems with limited capacities.

5. Conclusions

Innovation is a central element that Latin American countries have adopted to promote economic and sustainable development. Promotion initiatives for innovation have had a historical process marked by political, cultural, and social factors. On the other hand, different events and forms of thought that emerged in different periods impacted the ways of promoting initiatives for many years or decades such as the aversion to developing non-horizontal policies for developing specific sectors or clusters.

Modern concepts of promoting innovation, based on territoriality and regional innovation systems, imply new challenges for Latin American countries and regions. Regarding the promotion of initiatives to encourage innovation, the regions have shown different levels of development. Some regions have more activity and experience, even testing different initiatives. In other regions, the capacity to implement policies is almost nonexistent. The maturity times to implement initiatives can be very short in the latter. In some cases, by adopting specific policy approaches late, they find themselves in the dilemma of making changes and adopting new approaches that are being adopted in other, more advanced regions.

Political empowerment and the capacity of regional or local governments are crucial in national innovation policies. Developing these capabilities has become a modern challenge. However, other challenges are linked to political or social factors such as instability, economic, or technological factors, such as the still limited technological infrastructure, and the dependence or rigidity of the productive sectors based on the exploitation and export of raw materials.

All this means that the regions must look for new strategies to reduce gaps. The focus on technological innovation systems can be an alternative since these focus on specific technologies, thus crossing geographical limits. In this way, the actors of a given system can seek extra-regional alliances to promote their regional innovation systems.

On the other hand, universities and actors related to knowledge development play a role that is becoming more important in different regions. This role is especially linked to initiatives to promote startups, the generation of technology companies, and the development of the venture capital market; this may be especially important in regions, where actors related to government sectors have limited leadership to implement initiatives to promote innovation.