World Bank Group

11/12/2021 | Press release | Distributed by Public on 11/12/2021 11:16

Unleashing Productive Innovation in Argentina

Challenge

In 2008, Argentina was experiencing strong growth: the economy grew by 8.7 % in 2007, the fifth straight year of 8 % to 9 % growth since the financial crisis of 2001-2002. Argentine long-term growth performance remained vulnerable to macro-fiscal crises, however, and depended on a limited number of sectors strongly affected by external factors, such as droughts, global trade shocks, and commodity price fluctuations. Argentina thus had to invest in diversification and promote innovation-led growth in its private sector to achieve sustained and inclusive growth. While most exports remained low-value, pockets of innovative SMEs and promising frontier sectors such as ICT and biotech had emerged, which suggested potential for further growth and increased value-added. The human capital underpinning these opportunities displayed favorable trends, with plenty of talent and compelling business opportunities fueling such sectors; however, Argentine start-ups constantly faced a short supply of financing opportunities. A huge untapped potential in new business growth indicated that future entrepreneurs were limited by various factors including a challenging macro context, limited entrepreneurial access to finance infrastructure, and lack of management capabilities. Other primary factors holding back innovation were (i) inadequate human capital; (ii) difficulty accessing financing for innovation, especially for start-ups; (iii) insufficient linkages among relevant actors; and (iv) weak incentives for public research and technology centers.

Approach

The Argentine government requested World Bank support for its science, technology, and innovation (STI) policy agenda, particularly the promotion of a new knowledge economy to diversify and strengthen sources of growth for the Argentine economy. The requested support would help develop new technology ventures and innovation funds, increase commercialization of existing research capacity, and expand human capital, among other benefits. The resulting Unleashing Productive Innovation Project invested in various channels to support innovation, including technology transfer, public-private partnerships, relevant skills, and entrepreneurship. The approach included support for (1) new technology-based companies, (2) results-oriented public-private research consortia, (3) knowledge-based small and medium innovation-based enterprise projects, (4) skills and business capability development for tech absorbtion and transfer, (5) upgraded public research infrastructure, and (6) an improved enabling business environment. The underlying objective of these investments was to enhance Argentina's ability to better leverage its existing assets (e.g., high quality research institutions and education) and investments in innovation to help drive productivity and growth led by the private sector. As such, the project supported diversification and bolstered resilience against Argentina's volatile and commodity dependent growth cycles.

The project design was novel and forward-looking, although complex and broad in scope. To leverage maximum impact, it identified specific, important entry points to support innovation across a diverse public and private landscape. The unprecedented project design also included support to a new ministry and aligned incentives for public, private, and academic actors. In particular, the project aligned with the National Strategic Plan for STI 2006-2010 (Plan Estratégico Nacional de Ciencia, Tecnologia e Innovación).

Results

The project was implemented between 2008 and 2019 and contributed to the following key outcomes:

  • New knowledge-based companies were created through EMPRETECNO, a program promoting entrepreneurship: of 126 subprojects, 76 became new registered businesses with positive revenues, and most have broken even within the first two years of operations. Among these newly created technology-based firms (TBFs), more than half developed a new product or service, obtained private capital contributions, and hired staff; 75 % reported sales revenues and were profitable within two years of operation, and 44 % exported a portion of their production. These statistics are high relative to global standards for new and small firms across both developed and developing countries, and especially in the Argentine context, where many sectors experienced a net decrease in real annual sales of 5 % to 10 %.
  • Two quasi-experimental independent impact evaluations have also showed positive results from project support in EMPRETECNO and FSAT (Sectoral Funds). Specifically, impact evaluations showed that beneficiaries of EMPRETECNO had a significantly higher rate of TBF creation and ability to obtain private capital. Estimated results also confirmed that beneficiary firms' participation in FSAT positively affected their innovation efforts. Innovation intensity per employee grew more intensely than would have been the case in the absence of a program. Results showed that participation in any beneficiary consortium led to greater growth, in both employment and sales. In other words, firms not participating in the program would have shown less accentuated growth.
  • Students supported by the project improved in academic and professional performance. A 2017 impact evaluation found that students involved in the project improved their academic performance and increased their likelihood of being hired by an ICT firm by 24 %.
  • Under the project, 1,004 CONICET (National Scientific and Technical Research Council) researchers were trained, improving CONICET's institutional capacity for technology transfer and commercialization.
  • Over US$60 million in additional private investment was generated to support innovation and commercialization of firm projects. This figure represents financing raised immediately after the project interventions and thus drastically underreports private investment made during subsequent rounds of funding. By addressing bottlenecks in product development, financing start-up costs, and providing technical and managerial support, the project helped mobilize almost an additional 50 % in private investments for these research consortia and individual firms. For some beneficiaries, this impact was especially pronounced. For example, one beneficiary was able to generate US$8 million in subsequent private financing following an initial project injection of US$0.6 million.
  • Over half (88) of the firms, labs, and research consortia supported by the project introduced new or improved products or services to new or existing markets, exceeding the original 40 % target, and a majority were able to raise private financing after validating their performance following project interventions. Such a high level of new innovative products brought to market clearly illustrates the project's impact.
  • The project supported 232 knowledge-based SMEs in biotechnology, nanotechnology, and ICT, increasing research and development investment. A 2017 impact evaluation found that this subprogram's beneficiaries increased in both specialized employment and total sales, by 10.3 % and 19.1 %, respectively.
  • Upgrades were made to 49 research laboratories and technology centers, in excess of the project target of 30, improving important equipment and scientific facilities.
  • The project strengthened and further aligned with government institutions through the science, technology, and innovation policy agenda.For example, the MINCyT (Ministry of Science, Technology, and Productive Innovation) has become an important institution in the government's focus on the economic and social impact of science, innovation, and firm support initiatives. The ANPCyT (Agency for the Promotion of Science and Technology), an established player in Argentina's knowledge-based economy, was recently given more independence and budget autonomy within the government. CONICET, the largest and most important public research institution in Argentina, has moved toward more commercialization, including productivity-enhancing firm support-a major shift (designed and supported by the project) away from pure siloed research.

Bank Group Contribution

The World Bank, through the International Bank for Reconstruction and Development (IBRD), provided US$195 million (an initial loan of US$150 million and additional loan for US$45 million) to support the project. The Bank also contributed expertise in fostering innovation, which originated from previously financed innovation projects in Chile, Korea, Mexico, Russia, Turkey, and Uruguay, and elsewhere.

Partners

Argentina's national government, via ANPCyT, provided US$80 million to cover the remaining project costs. In addition to ANPCyT's financing, the project also greatly benefited from the nonfinancial participation of a variety of public and private organizations that aided in coordinating and implementing project efforts. These partners included MINCyT, CONICET, research institutes, universities, and the private sector. The project design was coordinated with the Inter-American Development Bank (IDB) to ensure complementary support with IDB-financed projects such as the Program for Technological Modernization (PMT III).

Beneficiaries

EMPRETECNO launched three calls for proposals in 2009, 2016, and 2017 to support entrepreneurs in building viable and knowledge-based business. Of the 304 projects submitted, 126 were selected to receive financial and related technical support. The program provided a non-reimbursable matching grant of up to 75 % of the total project cost (or a maximum amount of $2.5 million per project), with at least the remaining 25 % of project cost financed by the beneficiaries. The program's success rate in all stages was high, with 75 % early survival rates, relative to the 60 % of venture-backed start-ups that fail in the United States.

Beneficiaries also showed strong growth rates, with more than half becoming exporters within a few years. On average, businesses reached US$80 to $100 thousand annually in revenues in their first one to three years. This suggests a potential to generate over US$6 million annually within the median band of beneficiaries, assuming a consistent growth rate in sales. Also worth noting are the outliers ("money makers" in VC terms), which are expected to generate sales ranging from US$10 to $30 million annually, with strong export potential. Based on these sales estimates, the program's economic rate of return is calculated at 45 %. These figures are especially impressive compared with the rest of the Argentine economy, which experienced a net decrease in annual sales across all sectors based on the 2017 Enterprise Survey.

A wide range of applications of and derivations from the original research ideas resulted in new products and services not previously possible or contemplated. Some examples include (1) new drought-tolerant alfalfa variants with significant implications for agricultural productivity; (2) a vaccine for aphthous fever; (3) a unified, computerized, remote access database for knowledge sharing; (4) new light manufacturing products, such as antiparasitics for pets, anti-cellulite socks, flame-retardant textiles, etc.; and (5) new products to improve heavy manufacturing competitiveness, such as GPRS antenna, for E-trac and E-BUS systems, electric inverter type welding machines, a wireless network design for industrial monitoring based on energy harvesting techniques, and an assistance system for preventive maintenance in industrial plants.

The project also created a total of 29 associative consortia (public-private and private-private, with the participation of over 80 private companies and 50 public organizations) across different fields, resulting in new products and contributing to value-addition in their respective industries. The program invested an average of US$ 1.2 million in each partnership, with two-thirds of the financing allocated to public institutions and the remaining third to the private sector. Capital goods acquisition and infrastructure spending accounted for 64 % and 13 % of the budgets, respectively.

One project involving the Italian Hospital of Buenos Aires (HIBA) and the Multidisciplinary Institute of Cell Biology launched the Map of Actionable Genome in Tumors from Argentina (MAGenTA). The consortium develops a map of actionable tumor genomics on adult subjects diagnosed with solid tumors in Argentina. With the financing from FONARSEC, a cost-effective device was purchased, in line with the volume of HIBA patients. MAGenTA provides information about 52 clinically relevant genes, the mutations or cancers from many of which can be treated by a specific drug. Evidence shows that precision medicine significantly improves the survival rate in cancer patients.

Another project beneficiary, MABXIENCE ARG, develops cancer drugs and has two new products available at 30 % below the cost of equivalent products on the market. In addition to capturing 70 % of the national market share of the existing treatment, MABXIENCE ARG expanded the number of total cases treated by 15,000 a year. The company's success with this successful, lower-cost cancer drug has saved the government US$91 million per year. The company obtained the drug's patent in its primary markets, including the United States, and currently has promising sales and export figures. This company later produced one of the major COVID-19 vaccines for the Latin American continent in partnership with Oxford University and AstraZeneca.

Moving Forward

The project supported upgrades to research laboratories and technology centers that will continue past the life of the project. Furthermore, innovation has become more front-of-mind as a driver of the Argentine economy due to project support; stakeholders are now clear on the need for this effort to continue. Both the MINCyT and Agencia have become more established and important players in supporting the STI policy agenda within the government, especially since the STI Center in Buenos Aires was established. The Argentine government has prioritized the innovation agenda, as demonstrated by the recent change in status supporting Agencia's increased independence.

Building on lessons learned from this project, a new operation to support inputs required to diversify and unleash sources of growth in Argentina via productivity and innovation-led growth and focused on SMEs, efficiency, and financial sustainability is under discussion. The Bank has been working diligently to design a structure to scale up the EMPRETECNO and FSAT programs originally supported under this project. The new project would widen support to expand the available entrepreneurship and innovation finance infrastructure and promote a stronger entrepreneurship ecosystem to ensure that entrepreneurs are better equipped to access and leverage private financing.