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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
                                 63                64                64
        countries

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

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Revisión de la Innovación en el Perú

  • 1. 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
  • 2. 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
  • 3. 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
  • 4. 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
  • 5. 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
  • 6. 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
  • 7. GDP growth Peru and selected Latin American countries, 1990-2010 Source: IMF.
  • 8. 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)
  • 9. 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 63 64 64 countries Source: OECD, PISA 2009.
  • 10. GERD as a share of GDP Peru and selected countries, 1990-2008 Source: RICYT, IDB, OECD
  • 11. 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.
  • 12. 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
  • 13. 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
  • 14. 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
  • 15. 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).
  • 16. 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
  • 17. 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
  • 18. 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
  • 19. 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).
  • 20. 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
  • 21. 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
  • 22. Thank you for your attention Contacts Dominique.Guellec@oecd.org Gernot.Hutschenreiter@oecd.org Web Resource www.oecd.org/sti/innovation/reviews