Entrepreneurship and industry upgrades drive innovation in Colombia

 

Despite the difficulties in securing long-term financing for research, Colombia’s innovation environment is starting to benefit from structural measures. Efforts to raise IT usage in companies and households is supporting innovation efforts and galvanising domestic entrepreneurs. Modernisation schemes targeting industrial clusters are helping to develop a culture of innovation within established firms. However, plans to boost expenditure on research and development (R&D) activities are falling behind stated objectives. As the support for entrepreneurship activities becomes more robust, linking it to national research activities remains a challenge.

International Comparison

Leveraging research and innovation activities for economic development has become a governmental priority. The 2016 Global Innovation Index ranked Colombia 63rd out of 128 countries, an improvement on its 2015 position of 67th. Colombia was ranked fifth out of 19 Latin American countries, below regional neighbours such as Mexico, Uruguay, Chile and Costa Rica. However, Colombia’s position was higher than more sizeable economies such as Brazil and Argentina. The report, a joint publication by Cornell University, Insead Business School and the World Intellectual Property Organisation (WIPO), looks at the various aspects of the innovation environment in each country measured. For Colombia specifically, the weakest points of the innovation system are low expenditure on R&D as a percentage of GDP, the low level of capital venture involvement, insufficient permeation of research skills into business environments, and the low level of ICT exports as a percentage of total national exports.

The study does, however, point out other areas where Colombia’s innovation environment has been moving forward. These include the level of e-participation, accessibility of online government services, availability of credit facilities, formal training offered by Colombian companies and the focus on environmental sustainability. Implementing improvements within the sector will require a significant rise in annual expenditure, with a series of programmes mixing private and public support for innovation planned across the board. One government goal is to make Colombia one of the three most innovative countries in Latin America by 2025.

Investment

Allocating the necessary funds for the sector to expand remains a key challenge for Colombia. Raising expenditure is a clear goal inscribed in the country’s National Development Plan (Plan Nacional de Desarollo, PND), but the past few years have been challenging for the government’s spending capacity. The collapse in oil revenues due to lower international prices pushed GDP growth down to 2% in 2016 from 3.1% in 2015.

The broad way to evaluate sector expenditure, which measures spending in science, technology and innovation (STI), includes investment in an array of research activities, such as those carried out in the educational system, as well as allocations specifically directed to R&D undertakings. A more specific measure to quantify the sector looks at expenditure exclusively in R&D activities. On both counts, investment has grown slowly. According to the Colombian Observatory for Science and Technology ( Observatorio Colombiano de Ciencia y Tecnología, OCyT), national expenditure on STI rose from 0.44% of GDP in 2005 to 0.62% in 2015. Expenditure levels in R&D have been also been progressing from a low base, growing from 0.15% to 0.23% over the same period.

Despite the slow advancement of indicators, the bulk of sector expenditure has progressively been moving away from the public sector into private initiatives. In 2009, for example, the state accounted for 61.8% of national investment in STI activities, with the private sector making up 34.9% and international entities 3.4%. By 2015 government STI expenditure had been reduced to 56.95%, with the private sector contributing 43.95% and international cooperation 1.53%. “Colombia’s public sector has historically been the largest investor in R&D,” Alejandro Olaya, vice-president of the country’s R&D agency, the Administrative Department of Science, Technology and Innovation (Colciencias), told OBG. “Perhaps in the next few years we will see the private sector being the main financier. The government is encouraging private companies to allocate more resources to the sector, because one of the keys to business development lies in doing scientific research.”

Total annual expenditure on STI activities in Colombia increased from $651.7m in 2005 to more than $1.5bn in 2015, according to the OCyT. Over the same decade the country’s investment in R&D rose from $224.2m to $638.6m per year. R&D activities account for approximately a third of STI expenditure. Authorities have set the goal of spending 1% of annual GDP on STI activities by 2018.

The recently signed peace agreement presents a clear opportunity in this regard, as it will likely re-route a considerable amount of financial and technological resources. “A lot of the budget will go towards the reconstruction and improvement of areas in the country that were most affected by the war, and so STI activities need to effectively align themselves with the goals of post-conflict development,” Clara Inés Pardo Martínez, executive director of the OCyT, told OBG. Technologies that were previously used by the Colombian army during the conflict will probably be migrated to civilian use. “Things like mapping technology used to detect mines can be used to determine where the best agricultural lands are, for example,” said Pardo.

Sector Structure

With the bulk of science and research activities centred, to a large extent, on government institutions, the private sector’s contribution in research activities remains somewhat limited in comparison with other economies. The main governmental body for STI activities is Colciencias, which manages a range of financing instruments stemming from different ministries and government bodies, that allocate money to research, innovation and entrepreneurial support activities.

Another key component is the management of Colombia’s Fund for Science, Technology and Innovation, (Fondo de Ciencia Tecnología e Innovación, FCTI) set up in 2012 as a financing pool for the sector. The fund receives 10% of annual royalties from the country’s non-renewable energy resources. Financing from the FCTI is channelled back into the regions where resource exploration takes place in the form of grants and support programmes for scientific research and innovation activities. However, since 2014 the fall in oil prices has reduced royalties and has thus limited the amount of financing coming into the sector from this source.

Regional Focus

Even before the decline of income from natural resource royalties, the FCTI fund had struggled to invest effectively in the sector. Since financing is allocated to the regions through science and technology programmes, proper execution of investment is limited by regional technical capacity to design and implement programmes. In other cases, the nature of research activities can make them hard to adapt to regional needs. “A certain research programme might be good, but if it does not solve a specific social problem, it is hard to sell it to regional authorities,” Pardo told OBG.

Due to the regional approach underpinning science and technology expenditure of royalty resources, the OCyT and Colombia’s National Planning Department partnered in 2015 to establish the first Regional Index of Innovation for Colombia, aiming to measure advancements in the different regions across the country. The study found a direct relationship between regional GDP and performance in the innovation index. This strengthened the argument that the allocation of the FCTI’s financial support be linked with an improvement in the capacity of regional authorities in order to develop and structure science and technology research programmes.

For specific programmes, international cooperation is also being used to help overcome budget constraints. In late 2016 Colciencias signed a £20m deal with the UK’s Ministry of Industry and Climate Change. Under the programme, the UK will finance biotechnology research to reduce deforestation in Colombia and develop new products such as medicines and green fertilisers. International support is generally directed at specific research areas and limited to certain periods of project development.

Human Resources

From a long-term perspective, improving the availability of human resources involved in innovation will be crucial for making investment more efficient. The PND 2014-18 aims to support a total of 10,000 masters and doctorate scholarships in Colombia and overseas. Colciencias has been increasing funding for Colombian students to advance their studies, and as much as 70% of its annual budget now goes into supporting doctorate programmes. In 2015 and 2016 a total of 4602 scholarship credits were allocated by Colciencias, the agency recently reported.

The number of active researchers in Colombia in 2014 was 11,566, according to figures by OCyT, down from a peak of 17,124 in 2010. Finding suitable positions within the country for them remains difficult. One clear challenge has been the low level of integration of researchers into Colombian businesses. “Universities are reaching a point of saturation in terms of doctorate graduates. They are not absorbed by the private sector, so you start to have unemployed PhDs,” Pardo told OBG. “A tradition of innovation where PhDs play an important role to improve productivity and competitiveness in productive sectors is not present in Colombian firms.”

In order to encourage the return of Colombian researchers working abroad, Colciencias implemented the Time to Come Back (Es Tiempo de Volver) programme in early 2014, setting up incentives and support measures to help Colombian researchers wanting to come back to the country. The programme initially selected 140 researchers and included salaries and financing for research activities. However, the initiative was marred by administrative obstacles, such as the difficulty of integrating researchers into Colombian firms and research centres.

Business Innovation

Despite the difficulties in developing research activities, efforts to encourage innovation in existing businesses are bearing results. Promoting innovation within existing companies is essential, as they provide technological competitive advantages in business. Colombia’s National Administrative Department for Statistics reported that around 73.6% of firms in the country are not innovators. This is partly cultural as in the 1980s and 1990s Colombian industries expanded while remaining disconnected from international markets.

Reversing this trend and encouraging established companies to improve their processes has become a government priority. To this end, the Productive Transformation Programme (Programa de Transformación Productiva, PTP) was enshrined in the PND 2010-14 and runs under the Ministry of Commerce, Industry and Tourism. The initiative’s main objective is to raise competitiveness levels in 20 sectors of the economy through financial support, regulatory changes and productivity improvements.

In late 2016, for example, the programme co-financed support instruments directed at firms operating in IT, software development and health tourism sectors, offering consultancy support to up to 40 companies to help them to improve service provisions, cut costs and develop human resources. Under the programme, each firm receives a grant of COP11.7m ($3510) and is expected to invest an additional COP3.2m ($960).

Another PTP initiative financed exporting companies aiming to secure necessary certifications to access international markets, granting 70% of required investments up to a maximum total cost of COP200m ($60,000) per company. “Innovation programmes have been critical for small and medium-sized companies, and this has given innovation a sense of practicality, as opposed to that idea of innovation as just being an investment in research and development,” Guillermo Solano, director at Centro de Innovación, a Bogotá-based consultancy, told OBG.

Start-Up Drive

Efforts for new business creation have also increased. The Ministry of Labour runs a series of seed capital programmes to support job creation under the National Learning Service (Servicio Nacional de Aprendizaje, SENA). SENA is charged with overseeing technical training and is financed by contributions from Colombian employees and companies. The programmes allocate financing through SENA’s seed capital fund Fondo Emprender, and include technical support for entrepreneurs to develop business ideas or to support expansion of recently created businesses.

Overall, the main goal is to drive job creation. For the 2016 programme, SENA offered assistance for up to 200 business plans with a total of $15bn in support tickets ranging from COP55m ($16,500) to COP124m ($37,200) each. Other programmes have a regional scope. In late 2016 SENA allocated $6bn to fund business creation in the regions of Putumayo, Guaviare, Vichada, Amazonas, Guainía and Vaupés. Another programme, which ran until the first quarter of 2017, targeted channelling $1.9bn to support entrepreneurship in the Cali region. An additional contribution comes from the Ministry of Information Technologies and Communications (Ministerio de Tecnologías de la Información y las Comunicaciones, MINTIC) which, in conjunction with Colciencias, runs the Apps.co programme tasked with developing entrepreneurial ideas with IT. In 2016 it supported the development of web applications through a 240-hour training programme for entrepreneurs. The programme focused on skills-development for participants of other Apps. co support initiatives and was 100% financed by MINTIC. In early 2017 Apps.co launched a support initiative to help capacity-building in Colombia’s existing IT businesses. The scheme will help enterprises reach financial stability or make them sufficiently attractive for private equity investment.

Innovation Agency

A key player in Colombia’s current innovation drive is Innpulsa, a government agency promoting innovation and entrepreneurship established in 2012 and managed by Colombia’s state-owned international commerce and business bank Bancóldex to support the expansion of high-growth business ventures. The agency runs a number of programmes to foster innovation in existing companies, while supporting entrepreneurs and start-ups, and also deploying a host of instruments to impact the overall financing environment.

Part of the support is deployed through co-financing grants to firms. Since its inception, Innpulsa has channelled COP450bn ($135m) in support programmes for entrepreneurship and innovation, COP150bn ($45m) of which came from private firms under co-financing schemes, according to early 2017 figures by the agency. This has allowed the support of over 56,000 firms. For 2017 Innpulsa plans to channel COP120bn ($36m) towards innovation, by investing COP70bn ($21m) and securing another COP50bn ($15m) from private sector co-financing.

Engaging Entrepreneurs

Innpulsa has refocused its backing for entrepreneurship in its Aldea programme, which equips Colombian entrepreneurs with financial support, capacity-building and access to venture capital networks. Under the programme, businesses must fulfil a set of conditions: having a differentiated product that has been commercially tested, having the potential to scale the business and maintaining a working team. Selected companies will get support grants for specific areas such as product development, intellectual property protection or improving access to international markets.

At a later stage of the programme, Innpulsa will also assist and advise entrepreneurs about the financing needs of their businesses and the best way to access capital from financial institutions, angel investors or private capital funds. Over the years, Innpulsa’s entrepreneurship and innovation programmes have also intensified their presence in Colombia’s regions as a way to help draw out emerging clusters. “A variety of new companies are appearing in the regions,”Mary Luz Escobar Rivera, director for innovation and entrepreneurship at Innpulsa, told OBG. “In the Eje Cafetero there is a good number of firms working on biotechnology, for example. Meanwhile, in Bucaramanga, there is a large volume of health science students, which has encourage new companies working in health tourism and other health-related ventures. Many entrepreneurial ideas today don’t necessarily come from the biggest cities in the country.”

In an effort to improve research capabilities, Innpulsa is also implementing a programme to attract research laboratories of major international companies to set up in Colombia. The first phase will aim to draw in two research departments by offering $1m in support for each facility, among other benefits. Although the detailed conditions were still being finalised at the time of publishing, the measure expects to bring new research capabilities into the country and support employment creation and knowledge transfer for Colombian researchers.

Entrepreneurship

Programmes targeting both entrepreneurs and the innovation system that can support them have been paving the way for innovation to translate into new sustainable businesses. More importantly, the environment supporting new business creation has matured. Over the past decade, the private capital fund industry has expanded, and as of 2016 there were close to 80 private capital funds operating in the country. At the moment, only approximately 10 of these funds target new companies and entrepreneurs.

According to a recent report by the OECD, the regulatory environment and the volume of bureaucratic procedures remain the biggest obstacles for Colombian entrepreneurs trying to set up their own businesses. In mid-2016 the national Congress passed the Pro-Youth Law (Ley de la Juventud), a set of measures to ease the access to employment for young Colombians. The law included a regulation relieving entrepreneurs that are under 35 years of age from having to pay any fees for registering new ventures in Chambers of Commerce.

Intellectual Property

The positive results of Colombia’s innovation policy have slowly been translating into a larger number of nationals vying to protect inventions or new products. The Superintendence for Industry and Commerce (Superintendencia de Industria y Comercio, SIC), which handles patent requests, reported that the percentage of patent requests by Colombian citizens rose from 7% in 2010 to 24% in 2016. Out of the 2200 patent requests that the SIC received in 2016, 545 came from Colombians. As a regional comparison, 18% of patent requests in Brazil come from nationals, while the figure was 11% in Chile and 8% in Mexico.

Participation of Colombians in patent requests has been enhanced by efforts to disseminate information about intellectual property across the regions. In 2015 the SIC began to develop a network of Technology and Innovation Support Centres across Colombia to help educate firms and business owners on the importance of patents for business development and the necessary steps to move towards intellectual property protection, as well as providing them with worldwide patent information. A total of 24 such offices were active as of February 2017, according to WIPO. Support has also improved the ratio of allocated patents out of total requests, which rose from 12-13% in 2011 to 51% in 2016, according to the SIC.

Outlook

As innovation becomes more incorporated within the Colombian economy and businesses, the sector is set to remain at the top of the government’s agenda over the coming years. One clear challenge, however, will be to secure a steady and predictable flow of financing for research activities. Although the entrepreneurial and business innovation side has seen a spike in the number of programmes and support instruments from both the private and public sectors, investment in science and technology through universities and research centres continues to grapple with budget cuts.

The sector is also set to benefit from the end of the civil conflict. If implementation of the peace accord moves as expected (see Economy chapter), both funds and technology are set to become available for other uses. Adapting these technologies for sectors such as agriculture, biotechnology, urban development and environmental protection will benefit economic development.

Continuing to make the process of patent applications easier, especially outside of Colombia’s main urban areas, will be critical in order to reduce the barriers that innovators and entrepreneurs face in protecting their creations and developing sustainable businesses out of them. However, innovation programmes catering to already established companies will also be essential for improving the competitiveness of Colombian businesses internationally.

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The Report: Colombia 2017

Research & Innovation chapter from The Report: Colombia 2017

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