Country Report Portugal 2009

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INNO-Policy TrendChart


Innovation Policy Progress Report

Portugal

2009

European CommissionEnterprise Directorate-General


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PREFACE

Innovation is a priority of all Member States and of the European Commission. Throughout Europe,

hundreds of policy measures and support schemes aimed at innovation have been implemented orare under preparation. The diversity of these measures and schemes reflects the diversity of theframework conditions, cultural preferences and political priorities in the Member States.

PRO INNO Europeis an initiative of the Directorate-General for Enterprise and Industry (DG ENTR)which aims to become the focal point for innovation policy analysis, learning and development inEurope, with the view to learning from the best and contributing to the development of new and betterinnovation policies in Europe. Run by the Innovation Policy Directorate of DG ENTR, it pursues thecollection, regular updating and analysis of information on innovation policies at national andEuropean level.

INNO-Policy TrendChart serves the 'open method of coordination' approach laid down by the LisbonCouncil in March 2000. It supports policymakers and innovation support measure managers in Europe

by providing summarised and concise information and statistics on innovation policies, performancesand trends. It is also a European forum for benchmarking and the exchange of good practices in thearea of innovation policy.

INNO-Policy TrendChart products

INNO-Policy TrendChart, previously the TrendChart on Innovation, has been running since January2000. It currently tracks innovation policy developments in all 27 EU Member States, plus Brazil,Canada, China, Croatia, Japan, Iceland, India, Israel, Norway, Switzerland, Turkey and the US. TheINNO-Policy TrendChart website (

1) provides access to the following services and publications, asthey become available:

a database of innovation policy measures in the 39 countries;

a news service and related innovation policy information database;

annual policy monitoring reports for all countries covered;

the European Innovation Progress Report, an annual synthesis report bringing togetherkey points in the INNO-Policy TrendChart.

This document has been prepared within the framework of an initiative of the European Commission'sEnterprise and Industry Directorate-General, Innovation Policy Development Unit. Official responsible:Cesar Santos ([email protected]).

The present report was prepared by Vitor Corado Simes, ISEG-Instituto Superior de Economia eGesto, Universidade Tcnica de Lisboa ([email protected]). The contents and views expressed in thisreport do not necessarily reflect the opinions or policies of the Member States or the EuropeanCommission.

The report covers the period from July 2008 to June 2009.

Copyright of the document belongs to the European Commission.Neither the European Commission,nor any person acting on its behalf, may be held responsible for the use to which informationcontained in this document may be put, or for any errors which, despite careful preparation andchecking, may appear.

1See http://www.proinno-europe.eu/index.cfm?fuseaction=page.display&topicID=52&parentID=52 online.

2
mailto:[email protected]:[email protected]://www.proinno-europe.eu/index.cfm?fuseaction=page.display&topicID=52&parentID=52http://www.proinno-europe.eu/index.cfm?fuseaction=page.display&topicID=52&parentID=52mailto:[email protected]:[email protected]


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CONTENTS

EXECUTIVE SUMMARY: PUBLIC SUPPORT FOR INNOVATION A SNAPSHOT......................... ....I

1. MAIN TRENDS AND CHALLENGES IN THE NATIONAL INNOVATION SYSTEM..................... 1

1.1 RECENT ECONOMIC TRENDS AND MARKET DEVELOPMENTS ........................................................ ............. 1

1.1.1 The credit crisis and its effect on innovation activity................................................................... ... 2

1.2 RECENT TRENDS IN THE NATIONAL INNOVATION PERFORMANCE .......................................................... ... 6

1.3 IDENTIFIED CHALLENGES ..................................................... ................................................................ . 10

2. PUBLIC SUPPORT TO INNOVATION............. ............................................................... ...................... 14

2.1 MAIN OBJECTIVES FOR INNOVATION POLICY......................................................... ................................. 14

2.2 INNOVATION GOVERNANCE SYSTEM ........................................................... ........................................... 17

2.2.1 Governmental bodies.......................................................................... ........................................... 17

2.2.2 Main bodies managing implementation of policies...... ................................................................ . 18

2.3 PUBLIC FUNDING TO INNOVATION ............................................................... ........................................... 20

2.3.1 Review of the current range of support measures for innovation.................................................. 20

2.3.2 New or modified support measures.............................................................. ................................. 22

2.3.3 Strengths and weaknesses in the innovation policy support system.............................................. 24

3. INNOVATION POLICY AND COMPETITIVENESS: AN APPRAISAL............................. .............. 25

3.1 THE ABILITY OF POLICY TO ADDRESS CHALLENGES ......................................................... ...................... 25

3.1.1 How well does policy respondto innovation challenges?....................................... ...................... 25

3.2 EFFECTIVENESS OF POLICY DESIGN ............................................................. ........................................... 26

3.2.1 Process of delivery ........................................................................................ ................................ 28

3.3 IMPACT OF PUBLIC SUPPORT FOR INNOVATION ...................................................... ................................. 29

3.3.1 Conclusions: possible future actions and opportunities for innovation policy ............................. 32

ANNEXES ........................................................... ............................................................... ................................. 33

3


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Exhibits

Exhibit 1: Comparable indicators of economic performance................................................................... 2Exhibit 2: European Innovation Scoreboard: Portugal ............................................................................ 7Exhibit 3: Main innovation policy challenges......................................................................................... 10Exhibit 4: Main innovation policy documents......................................................................................... 14Exhibit 5: Technological Plan quantified targets ................................................................................... 15Exhibit 6: New Innovation Policy Support Measures............................................................................. 23Exhibit 7: Potential Effects of Innovation Policy Support Measures on EIS.......................................... 30


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Abbreviations

AdI Agncia de Inovao (Innovation agency)AICEP Agncia para o Investimento e Comrcio Externo de Portugal (Agency for Investment and Foreign

Trade)CCCT Conselho Coordenador de Cincia e Tecnologia (Advisory Board on Science and Technology)CFOP Competitiveness Factors Operational ProgrammeCIS Community Innovation SurveyCITEC Programme supporting the creation of research and technology centres in companiesCOTEC Business association to promote technology and innovationCSF Community Support FrameworkCTP Competitiveness and Technology PolesEIS European Innovation ScoreboardEPO European Patent OfficeEU European UnionFACC Fundo de Apoio Comunidade Cientfica (Scientific Community Support Fund)FCT Fundao para a Cincia e Tecnologia (Science and Technology Foundation)FDI Foreign direct investmentFEDER European Regional Development FundFINOVA Innovation Financing Support FundFTE Full time equivalentGCNELPT Gabinete do Coordenador Nacional da Estratgia de Lisboa e do Plano Tecnolgico (Office of theNational Coordinator for the Lisbon Strategy and the Technological Plan)GDCF Gross Domestic Capital FormationGDP Gross Domestic ProductIAPMEI Instituto de Apoioo s Pequenas e Mdias Empresas e Inovao (Institute for Support of Small- andMedium-sized Enterprises and Innovation)ICT Information and Communication TechnologiesIIS Innovation Support SystemIMF International Monetary FundINL Iberian International Nanotechnology LaboratoryINOFIN Financial Innovation SystemMCTES Ministrio da Cincia Tecnologia e Ensino Superior (Ministry for Science Technology and Higher

Education)MEcI Ministrio de Economia e Inovao (Ministry for the Economy and Innovation)MFAP Ministrio das Finanas e Administrao Pblica (Ministry for Finance and Public Administration)NIS National innovation SystemNITEC Programme supporting the creation of research and technology teams in companiesNRP National Reform ProgrammeNSRF National Strategic Reference FrameworkOECD Organisation for Economic Co-operation and DevelopmentOP Operational ProgrammePNACE Programa Nacional para o Crescimento e o Emprego (National Programme for Growth andEmployment)PRACE Programa de Reforma da Administrao Central do Estado (Public Central AdministrationRestructuring Programme)PPS Purchasing Power Standards

RTD Research and Technological DevelopmentRTDSS Research and Technological Development Support SystemR&D Research and DevelopmentSIESCTN Sistema de Incentivos s Entidades do Sistema Cientfico e Tecnolgico Nacional (Support Systemfor the Scientic and Technological System Bodies)SIFIDE Tax system to support research and development activitiesSIQPME Sistema de Incentivos Qualificao das PME (SME Skills Support System)SME Small- and Medium-sized enterprisesSSH Social Sciences and HumanitiesS&E Science and EngineeringS&T Science and TechnologyTBP Technological Balance of PaymentsUMIC Agncia para a Sociedade do Conhecimento (Knowledge Society Agency)USA United States of AmericaUSPTO United States Patent and Trademark Office

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2. Main developments in public support for innovation

The present innovation support policy headlines were laid down by the Technological Plan, launchedin 2005, and by the NSRF 2007-13. The Technological Plan has three main axes, which to a large

extent correspond to its main action lines: knowledge, technology and innovation. A furtherexamination of the set of measures included in the Plan led to the identification of seven fields ofaction: (1) Networked society, (2) Upgrading of human resources, (3) Science & Technologyinfrastructure, (4) Entrepreneurship, (5) Financing system, (6) Framework conditions for economicactivity, and (7) Company capabilities.

The NSRF includes, besides the regional operational programmes, three nationwide programmes, onHuman Potential, Territorial Enhancement, and Competitiveness Factors (CFOP Compete). This is thekey operational programme dealing with innovation policy at the national level. However, a newfeature of the NSRF is the increased relevance of Regional Operational Programmes in managinginnovation support schemes, namely those specifically addressed to small firms. The strengthening ofinnovative capabilities and behaviour is among the main objectives of the NSRF 2007-13. The CFOPCompete includes the following support systems relevant for innovation: (1) Innovation, (2) SME skills,and (3) Research and technological development. It encompasses other relevant initiatives,

addressed namely to support S&T organisations, to promote innovation financing and risk-sharing, toencourage collective actions, and to promote 'collective efficiency strategies'. These are focussed onclustering policy.

Most of the measures under the CFOP Compete support systems were launched up to mid 2008. Forthis reason, in the period under review there were no major developments in public support forinnovation. The main initiatives taken were the creation of the Innovation Financing Support Fund(FINOVA, PT 98), a fund of funds aimed at strengthening the financing instruments for SMEsparticularly for more innovative projects, the revision of the Industrial Property Code, and the launch ofthe SME Academy, which is still making its first steps. As a result of the crisis, several changes wereintroduced on the national framework for company investment support systems. The intendedobjective was to increase flexibility to use them 'as instruments to stimulate investment and jobcreation, especially in the fields of innovation, internationalisation and R&D'. However, the main thrustof the changes is to increase flexibility, enlarging the scope of what is considered to be 'productiveinnovation'. This also now includes the setting up of business units or production lines with significantimpact on product, exports or employment as well as on technological improvements.

3. Appraisal of national innovation policy

Portugal now has a wide set of innovation policy measures, addressing different innovation fields.Beyond new support measures, what is needed is to improve coordination, delivery and evaluation.

Coordination needs to be improved on policy design, inter-measure relationships, and national-regional responsibilities. Regarding policy design, progress has been made but there is still a need forimproving inter-ministerial coordination. At the level of inter-measure relationships, the existence of a

flexible budgetary approach is positive, as it encourages an encompassing view of the measures.Further integration should, however, be developed between support systems. In particular, the linksbetween Innovation and Research and Technological Development support systems needs to beimproved, since the separation between them to some extent replicates Ministerial domains. Takinginto account the perspective of the customers, namely the companies which are the target of incentivesystems, is essential. Conerning national-regional responsibilities, the NSRF 2007-13 went a stepfurther in assigning responsibilities to regional authorities. This is a very positive move. Being a novelinitiative, it requires adjustments and learning from both national and regional bodies. It would bedesirable for regional authorities to have further competencies to better carry out their tasks.

With regard to delivery, five main aspects are worth mentioning. The first is the capacity to meetdeadlines and to speed the incentives contracting process. For the first time, decision timetables weredefined when the calls were launched. This is a very positive feature, and may be interpreted as

indicating a new attitude from Public Administration. Together with the online management ofapplications, it has significantly contributed to increased transparency. Unfortunately, not all deadlineshave been met, and companies have complained about the length of the process of contracting and


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transferring the funds to the promoters. The second is selectivity. This has been one of the keyorientations for the NSRF 2007-13. Fighting the crisis led to extend eligibility criteria; there is a riskthat this might entail a less strict stance on selectivity. This may be understood in the present times,but higher selectivity needs to be reinstated once the crisis is over. Selectivity is essential for the

measures to have the expected effects on enhancing innovation and promoting change. Third, gooddelivery requires information diffusion and even a 'missionary' approach. Fourth, there is a need toimprove inter-agency coordination. Fifth, good implementation means that the proxy cannot be takenfor reality. More relevant than short-term international comparisons is the capability to fostersustainable change. The delivery challenges are especially critical in the case of 'Collective EfficiencyStrategies'. Finally, it is very important to ensure medium- to long-term consistency in policy designand implementation, making this independent from electoral cycles.

Evaluation is essential to follow up on measures, identify areas for improvement and assess theresults achieved. The pressure of the European Commission to carry out ex ante and ex postevaluations of the successive Community Support Frameworks (CSFs) has contributed to laying downthe roots of an evaluation culture. Much needs to be done, however, to develop it. A committedapproach to use evaluation as a relevant tool for improving the quality of policy design and

implementation is needed.


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1. Main trends and challenges in the National InnovationSystem

1.1 Recent economic trends and market developments

The declining economic performance trend that has characterised the Portuguese economy since thebeginning of the present century has not been reversed in 2008, as shown on Exhibit 1. Although theGross Domestic Product (GDP) per capita in Purchasing Power Standards (PPS) improved withregard to 2004, this is more the result of an exceptionally low figure for that indicator in 2004 than to asustained recovery in the last year. In fact, the indicator has further declined in 2008 against previousyears (76.2 for 2007). The figures for real GDP growth rate tell a similar story: GDP has stagnated in

2008, while the EU-27 average has shown a slight increase. After a GDP growth of 1.9 in the previousyear, 2008 has been characterised by a zero growth rate. This is to a large extent a consequence ofthe effect of the financial and economic crises. The main pattern, however, is that, since 2002,Portugal have consistently exhibited annual GDP growth rates below EU-27 average. Forecasts for2009 indicate that Portugal is likely to record a negative real GDP evolution of 3.7, slightly below theEU-27 decline of 4.0%. Such a negative record is due to the combined effect of the financial andeconomic crises. However, recovery is not likely to happen before 2011, and long-term growthprospects are extremely modest: potential GDP growth for 2011-17 is below 1%, according to datarecently released by OECD (OECD, 2009).

Three other aspects mentioned in Exhibit 1 deserve a reference. First, the slight growth in labourproductivity as against 2004: an increase of almost 4% points, between 67-70% of the EU-27 average.However, 2008 has not exhibited an improvement by comparison to 2007. If productivity growth is a

key EU long-term competitiveness challenge (European Commission, 2009), such a challenge is evenmore pressing for Portugal.

Second, the achievements with regard to keeping public deficit down: for 2008, public balanceremained stable at 2.6% of GDP. As pointed out in the 2008 Report, this corresponds to the lowestlevel of public deficit for three decades (Simes, 2008). The effort undertaken to curb the public deficit,which for 2004 and 2005 reached 3.4 and 6.1% of GDP respectively, has been remarkable and haspaid off. Again, however, the crises are casting clouds over the sustainability of the deficit. Thebudgetary stimulation measures taken to foster the re-launch of the economy together with theincreases in public investment and in public administration wages will lead to an increase in publicexpenditures so that the deficit for 2009 will exceed the 3% of GDP benchmark; in May 2009 theGovernment forecast was 5.9% (

3), but this is likely to be exceeded. The Governor of the Banco de

Portugal (Bank of Portugal) has warned that the expansionist budgetary policy, though required to

fight the crises, should be associated to a credible strategy that might ensure the return to a budgetconsolidation approach (Banco de Portugal, 2009a).

The third aspect is the fact that business investment, though stable with regard to the previous yearsand below the historic heights in earlier decades, is still above the EU-27 average. Again, someremarks should be made to put the figures in context. As the last report by the Bank of Portugalindicates, Gross Domestic Capital Formation (GDCF) has been losing speed throughout 2008 andearly 2009, leading the Bank of Portugal to forecast a 14% decline in GDCF for 2009 (Banco dePortugal, 2009b). Such decline is a consequence of weak demand, both at home and abroad. In fact,exports have shrunk, to a large extent due to the strong decline in exports to Spain. Trade deficit hasincreased between 2007 and 2008, from 7.5% to 9.6% of GDP (Contas Nacionais Trimestrais, 2

nd

quarter 2009). Meanwhile, according to the International Monetary Fund (IMF), Portugal's exports ofgoods have lost world market share, although this has been partially compensated by an increase in

services market share.

3Jornal de Notcias, 15 May, 2009, http://jn.sapo.pt/PaginaInicial/Interior.aspx?content_id=1233641 online.
http://jn.sapo.pt/PaginaInicial/Interior.aspx?content_id=1233641http://jn.sapo.pt/PaginaInicial/Interior.aspx?content_id=1233641


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Exhibit 1: Comparable indicators of economic performance

National performance EU-27 averageIndicator 2004 2008 2004 2008

GDP per capita in PPS (EU-27=100) 74.6 75.3 100* 100*Real GDP growth rate (% change previous year) 1.5 -0.0 2.5 0.9Labour productivity per person employed(EU-27=100)

67.0 70.6 100* 100*

Total employment growth -0.1 0.4 (e) 0.7 0.9Inflation rate (average annual) 2.5 2.7 2.0 3.7Unit labour costs (growth rate) -1.4 1.7 (f) -1.4 0.5

Public balance (net borrowing/lending) as a % of GDP -3.4 -2.6 -2.9 -2.3General government debt as a % of GDP 58.3 66.4 61.5 62.2Unemployment rate (as % of active population) 6.7 7.7 9.0 7.0Business investment as a percentage of GDP 19.5 19.6 17.2 18.5Source: Eurostat - Structural Indicators and Long-term Indicators http://epp.eurostat.ec.europa.eu online.

Key: (*) EU25 average, (^) or latest available year (for example: 2005), (:) not available

The analysis of Exhibit 1 suggests the existence of a further problem in Portugal's economicperformance: unemployment growth. In 2008, for the first time in the present century, Portugal'sunemployment rate is above the EU-27 average. Forecasts for 2010 converge in indicating a furtherincrease in unemployment rate, estimated between 9.8% and 11%, according to the EuropeanCommission and the IMF, respectively. This is in part a result of the economic crisis, with thecorresponding decline in demand. But it also reflects Portugal's structural-competitivenessweaknesses and the country's insufficient capability to attract and retain international directinvestments. Of course, the increase in unit labour costs, above the increase in productivity, has notcontributed to enhance competitiveness, although there is clearly a need to focus more closely on theactivity structure if sound, and policy supporting, conclusions are to be taken.

The last Bank of Portugal report provides a grim perspective of Portugal's capabilities to enhancecompetitiveness. It argues that 'the persistence of a set of structural weaknesses, particularly on whatregards human capital, the working of labour and product markets and the effectiveness of the systemof justice may undermine the Portuguese economy's adjustment and her capability to ensure a re-launching of the convergence, in real terms, with EU average' (Banco de Portugal, 2009b:39). This iscertainly a biased perspective, leaving the key role of innovation in competitiveness policy aside. Itshows nevertheless that there are weak links, which curtail the possibilities to translate innovationefforts into improved competitiveness. The focus on the digital sphere, knowledge and innovation,which has been behind the policy followed by the XVII Constitutional Government as well as theTechnological Plan, is worth pursuing. Relevant improvements were achieved, as the EuropeanInnovation Scoreboard (EIS) 2008 indicates (PRO INNO, 2009a). But their translation into improvedcompetitiveness will not materialise if a simultaneous effort to address and overcome key bottlenecks,

some of them of structural nature, is not carried out. If a forward-looking and committed effort ispursued, Portugal may be better positioned to explore the world business opportunities, which willemerge when the recovery takes full speed. In any case, the way ahead requires commitment,consistency and a long-term approach.

1.1.1 The credit crisis and its effect on innovation activity

The present crisis is much wider and deeper than just a credit crisis. Of course, it still emerged as afinancial crisis due to the excessively high leveraging of a number of economic activities. As theconsequence of a domino effect, the financial crisis led to a credit crisis, then to a demand crisis, andfinally to a fully-blown economic crisis. Therefore, what is being faced is not just another crisis but amore complex one with financial and economic dimensions. This crisis also has in the background a

change in the World economy with the strengthening of emerging namely Asian players.Therefore, a different World is likely to take shape in the wake of the crisis.
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If the European Union as a whole has been seriously hit by the developments mentioned above, it isnot surprising to find that the strongest problems have been faced by those smaller countries moreexposed to the very business logic that gave rise to the crises (such as Ireland and more dramaticallyIceland) or by those more vulnerable to external shocks (such as some new Member Countries like

Hungary, Latvia or Romania). In this context, it comes as no surprise that the crises have seriouslybeen a blow to the Portuguese economy, a small and very internationally integrated economy, whoseinternational competitiveness had already shown signs of deterioration. While domestic demand hasdropped, the main challenges have come from a heavy decline in international demand. Particularlystriking has been the case of the shrinking of the Spanish market, which has had a heavy negativeimpact, since Spain is Portugal's main trade partner. Additionally, the credit crunch has hit theautomotive industry, which is now one of the key specialisation fields of the Portuguese economy. Inspite of launching a support programme specifically addressed to the automotive sector, the effectshave been significant, with lay-offs and even the closure of some car-components companies.

Portuguese authorities have announced in December 2008 an anti-crisis programme labelled Iniciativapara o Crescimento e o Emprego(Growth and Employment Initiative) which, according to the FinanceMinister involves an overall amount of EUR 2 040 Million, or around 1.2% of GDP. The legal basis for

this programme is the Law 10/2009, of March 10, which introduced significant changes to the 2009Budget. The 'Initiative' is related to the European Economic Recovery Plan, and is partly financed withEU support. The Finance Minister has stressed this fact at his Parliamentary speech: 'an optioncoordinated with European partners, based on the awareness that a common action will be able todeliver much better results than an isolated initiative'.

Before this 'Initiative', the Government had already taken several measures to fight the crisis: (1)providing guarantees to the banks to borrow funds in international markets; (2) launching measures tosupport SMEs namely a reduction in income tax and the setting up of the PME Investecredit facility(which is in its fourth round), aimed at improving SME access to credit for developing their currentactivities and making healthier tangible and intangible investments; (3) supporting ailing companies;and (4) developing a programme to support the automotive industry (

4). In spite of these measures,

the analysis of the original 2009 Budget suggests that, at first, the Government did not fully anticipate

the magnitude of the crisis impact.

The 'Initiative' has, according to the Law No 10/2009, the following objectives: to promote economicgrowth and employment, by strengthening the country's modernisation, competitiveness, skills ofPortuguese citizens, energy autonomy and efficiency, environmental sustainability and socialcohesion. The programme includes five measures:

1. modernisation of schools, by accelerating the refurbishing and modernisation of publicschools, in connection with the Technological Plan for Education (expected investment: EUR500 million),

2. promotion of renewable energy sources, of energy efficiency and energy transport networks,also aimed at encouraging the development of 'a cluster of photovoltaic panels industry'(MFAP, 2009: 12) as well as an increased use of mini wind turbines (estimated investment:

EUR 250 million),3. support to new generation broadband networks, the bulk of the corresponding investment,

expected to amount to EUR 1,000 million being undertaken by telecom operators (estimatedpublic investment: EUR 50 million),

4. specific programme of support to economic activity namely to SMEs and promotion of exports,whose main measures are presented below (estimated public investment: EUR 800 million),

5. strengthening support to maintenance and creation of employment, with a budget of EUR 580million by reducing employers' contributions to social security, creating a skills-employmentprogramme, financing additional training of workers as an alternative to lay-offs (

5), promoting

youth employment (youth recruitment and a programme of 12 000 professional internships foryouth), encouraging return to employment, supporting small firm creation and a programme ofskills-employment internships for the unemployed, integrating 30 000 unemployed in not-for-profit organisations, and improving social security.

4Another support programme, addressed to fashion industries (PADIM) was announced in March 2009.

5This type of measures had already been included in the programme of support to the automotive industry).


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The measure addressed to support economic activity, exports and SMEs includes a wide array of sub-measures, several of them already used in 2008 to respond the crisis. There are four main focusareas:

1. responding to the credit crunch by extending the previous PME Investe credit guaranteescheme,2. encouraging company restructuring through a mechanism of co-financing mergers and

acquisitions,3. promoting exports by supporting credit insurance instruments as well as promoting entry into

foreign markets,4. reducing the tax burden for companies, namely through a mechanism of automatic tax credit

for investment. In this context, a reference is due to the increase of support provided underSIFIDE, the regime of tax incentives for company investments in R&D. The deduction rate hasbeen increased to 32.5% of the R&D investments incurred, while the maximum amount for theincremental rate has been increased from EUR 750 000 to EUR 1.5 million.

The last three measures are also instruments to enhance the country's attractiveness for foreign

investors. Broadband technology investments have strengthened the 'capacity to attract foreigninvestment and to earn profit from the national R&D potential generated inter aliaby the TechnologicalPlan (MFAP, 2009:13). There are, however, no additional measures specifically addressed to attractinward investment. Interestingly, a large part of the companies which have benefited from theprogramme of support to the automotive industry are foreign-owned. An important objective of theprogramme was to provide mechanisms that might play a temporary countervailing effect against thevicissitudes of the international-demand slump for cars.

The National Coordinator of the Technological Plan argued that anti-crisis measures were alsooriented to preparing Portugal to further its innovative capabilities to better respond to post-crisesopportunities. In his Parliamentary speech on the presentation of the above-mentioned 'Initiative', theMinistry for Finance and Public Administration stressed that a key tenet of the 2009 Budget was thestrengthening of the country's 'bet on Science, Technology and Innovation'. The analysis of the anti-

crisis measures shows,however, that innovation has not been a major concern in the design of theanti-crisis programme (

6). But innovation concerns are even more absent in the opposition's speech.

The so-called Plan to address the country's competitiveness problem, proposed by the SocialDemocratic Party (the main opposition party) has no reference whatsoever to innovation-orientatedmeasures (

7). It may be enough to focus on tax measures and to 'remove obstacles and bottlenecks'

to free SMEs' creativity.

In spite of the overall comment made above about the anti-crisis 'Initiative', it is important toacknowledge that several measures may have a positive effect on the creation of innovationcapabilities as well as on innovation performance. The following aspects deserve a mention: First isthe effort on the development of technological infrastructures, namely investments in new generationICT broadband. This will contribute to preparing the country for the future and improving itsattractiveness. However, taking into account that most investments will be carried out by telecom

operators, it is important to ensure that such investments would not be used as an excuse to keepInternet access prices among the highest in the EU. These investments will certainly open newopportunities for innovation in connection with the upgrading undertaken; however, the participation byPortuguese players in the development of the new infrastructure is relatively limited, hindering thecomparison with the effort launched in the USA under President Obama's recovery plan.

The second positive aspect of the 'Initiative' is intended to support and enhance existing capabilitiesand skills. The training support vs. lay-off approach is particularly relevant in the automotive industry. Itis an instrument to sustain existing innovative capabilities and inter-company linkages while investingin human skills upgrading. This is especially relevant to keep in Portugal existing 'anchors' in t heautomotive industry, namely Volkswagen, as well as to support Portuguese component suppliers (

8).

6See, however, the revision of company investment incentive systems (Decree No 65/2009), presented below.

7 See http://www.politicadeverdade.com online.8

An important casualty, especially from the high-tech exports and high-skilled employment perspectives was theclosure of the Portuguese subsidiary of the German group Quimonda, due to the bankruptcy of the mother
http://www.politicadeverdade.com/http://www.politicadeverdade.com/


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Also with respect to the automotive industry, a reference is due to the programme of Electric Mobility,involving a host of Portuguese and foreign companies, aimed at creating conditions for the distributionof electrically-powered vehicles.

The commitment to low carbon emissions, renewable sources of energy and energy efficiency hasalso positive implications for innovation. The effort undertaken is in line with the overall EU strategy tofurther energy sustainability and to get a lead in this field. In the case of Portugal, some commentshave been made about a price distortion due to the subsidisation of renewable energy investmentsand output. However, this is inevitable if public policy is envisaged as an instrument to promoteinnovation and sustainability. The inclusion of energy investments in the anti-crisis package is clearlypositive from the perspective of encouraging innovation and sustainability, and to further consolidatethe achievements in the energy field.

Responding to the crisis by encouraging company restructuring, namely mergers and acquisitions, isalso positive from the innovation standpoint. Provided that anti-competitive effects are appropriatelydealt with, such moves are likely to enhance innovation. This is mainly due to two factors: First, theachievement of economies of scale, which are likely to enable improvements in international

competitiveness as well as to promote the launch of innovative projects. Second, the leadership of theprocesses leading to mergers and acquisitions is often taken by the company which is better managedand more efficient: the operation may be envisaged as a way to improve efficiency and to createvalue, inter alia by a stronger commitment to innovation. The strengthening of the benefits grantedunder the tax system to support research and development activities (SIFIDE) is also likely to promoteinnovation, due to increased commitment to R&D. Although many companies may not have profits inthe current year, the losses may nonetheless enable the system to encourage the commitment to R&Dand innovation. This fact may be especially relevant in the present context, since it is in downturnperiods that companies are forced to reassess their product and service offers, and therefore toinnovative further. This fact has been empirically confirmed in the Portuguese case during the early1990s crisis (Simes, 1997). A similar reasoning is behind the argument put forward in the article 'Whyan Economic Crisis Could Be the Right Time for Companies to Engage in Disruptive Innovation' (

9), as

well as in the special issue of the INNO-Grips newsletter on innovation and the crisis (INNO-Grips,

2009).

There are, however, some issues that were not considered in the 'Initiative', and that might have beenused as an innovation lever. First, the measures to support entrepreneurship by unemployed workersdo not discriminate according to the knowledge intensity level of the firm created. In fact, the measurein this regard seems to be mainly concerned with low-skill intensive workers who may have found itdifficult to reintegrate into the labour market. But, as the Quimonda case shows, the economic crisishas also affected more skilled workers; though this raises economic problems, it may also promoteskilled entrepreneurship, since those workers might consider the launching of their own businesses onthe basis of a professional experience gained in a multinational context. These cases should havebeen taken into account by the schemes supporting entrepreneurship. Second, the government'sintention to launch an ambitious programme of transport infrastructures (namely the high speed trainconnections with Spain and the new Lisbon airport) generated hot political debate, and the

government has temporarily suspended the launch of such investments, leaving the decision to thenew government. Unfortunately, such a discussion has been based much more on public finance andemployment arguments than on the likely contribution of the projects for innovation, change andcompetitiveness. From the innovation standpoint, the programme of public investments might havebeen an important opportunity to boost innovation. Finally, the Skills-Employment approaches shouldhave been extended to the managerial ranks. In fact, the crisis might have been used as anopportunity to launch a committed programme of training for managers, thereby fighting against animportant barrier to change and promote innovation in Portuguese firms.

The crisis has also led to a revision of the company investment incentive systems under CFOPCompete. The Decree-Law No 65/2009 introduced several changes in the conditions and regulationsof the access to those systems, aiming to increase flexibility. The intended objective was to adjust

company. Efforts have been undertaken to attract a new investor to keep at least part of the company alive, butthey have been unsuccessful so far.9

See http://knowledge.wharton.upenn.edu/article.cfm?articleid=2086 online.
http://knowledge.wharton.upenn.edu/article.cfm?articleid=2086http://knowledge.wharton.upenn.edu/article.cfm?articleid=2086


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access conditions to the restrictions raised by the crisis and to widen the concept of 'productiveinnovation'. This was extended to include projects aimed at creating new units or production lines witha significant impact on the product, exports or employment as well as technology upgrading projects.Particular focus was put on the creation of conditions to attract 'strategic interest projects',

irrespectively of whether they are being undertaken by national or international investors.

1.2 Recent trends in the national innovation performance

The European Innovation Scoreboard (EIS) 2008 underwent significant changes in both itscomposition and structure with regard to previous issues. The new EIS corresponds to a significantimprovement with regard to the earlier version for three main reasons:

1. It has a more consistent structure. A systems approach was followed, clearly distinguishingbetween Enablers (Human resources, Finance and support), Firm Activities (Firminvestments, Linkages & entrepreneurship, Throughputs) and Outputs (Innovators, Economiceffects).

2. It provides more room to take into account non-technological innovation and innovation

dissemination, thereby translating better the patterns of innovation activities in non-leadercountries, such as Portugal.

3. It assigns much less importance to the Summary Innovation Index (SII), which had beensubject to strong criticism (Simes, 2008b; Schibany & Streicher, 2008; Tarantola, 2008a and2008b).

The new EIS is, of course, still not at the optimum level concerning the translation of cooperativeactivities, the full understanding of technological balance of payments, and the capture of companyinnovation activities (10). But it is a much better instrument to express the various facets of innovationperformance than its predecessor.

Portugal's ranking in EIS 2008 has significantly improved with regard to EIS 2007. In fact, Portugal isnow included in the 'Moderate Innovators' group, while in 2007 it was considered as a 'Catching-up

country'. In terms of overall ranking, Portugal jumped from the 21st to the 16th rank. This is a result ofthe combination of two key factors: (1) the country's performance improvement with regard to manyEIS indicators, a topic which will be further examined below, and (2) the methodological changesintroduced, leading the EIS 2008 to better translate the specific innovation patterns of non-leadercountries, as mentioned above.

A summary of the relative position and evolution of Portugal with regard to the EU for each dimensionas well as for each of the 31 indicators included in the EIS 2008 is provided in Exhibit 2.

The dimension in which Portugal fares better is 'Innovators', where the country ranks 24th among EUcountries with an index around 0.65, much above the 0.45 recorded by EU. Additionally, one finds thatPortugal is above the EU average for all the indicators included in this dimension: product/processinnovations, marketing/organisational innovations, and resource efficiency innovators. This result is a

bit puzzling, since Portugal is outperformed by three countries only, one being Germany, and theothers Cyprus and Greece. A closer and retrospective analysis indicates that Portugal had alreadyshown above-average performance in similar indicators used in earlier versions of the EIS. Thecomment raised in the Country Report Portugal 2008 remains appropriate: 'even though one mayargue that the Portuguese National System of Innovation [NSI] is more orientated towards the DUI-mode than the STI-mode [Lorenz, 2005], the high levels of in-house innovation remain difficult toexplain' (Simes, 2008a:3). The only sound explanation seems to be the one presented in the CountryReport Portugal 2006: 'as the CIS [Community Innovation Survey] [...] is based on self-assessment,one should not exclude the possibility of an over-assessment of performance' (Simes, 2006).Therefore, there is evidence that innovation performance of Portuguese firms (11) is over-evaluated.There is clearly a need to improve statistical data collection in this regard. Otherwise, it risks seriouslyundermining the reliability and consistency of the EIS as a whole. This is undesirable, especially now

10The last problem is to a large extent due to the weaknesses inherent to the Community Innovation Survey.

11As those of Cyprus and Greece.


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when the EIS has been substantially improved. The solution may be a thorough revision of the CISmethodology to enable the collection of sound data without self-evaluation biases.

Portugal exhibited a relatively good performance in Finance and support: it scores around 0.45, not

very far away from EU average. A look at the indicators in this dimension shows that Portugal faredbetter than EU-27 average on Private credit relative to GDP (1.69, above the EU average of 1.31), aresult that is to a large extent a consequence of the credit-based nature of the Portuguese financialsystem. Another item where Portugal showed a positive performance was Broadband access by firms:76.0, only one percentage point below EU-27 average. This performance is clearly a result of thepolicy towards the development of information and communication technologies (ICT), electronicnetworking and promotion of Internet access followed by the Government in the context of theTechnological Plan. The annual growth rate in this regard is noteworthy: slightly above 25%, whichcorresponds to almost the double of the performance recorded by EU average. In this field, Portugalhas been able to significantly bridge the gap vis--vis EU average. The weakest 'link' in this group isVenture capital. This result is not at all surprising, since it is the consequence of two main factors: thecredit-based nature of the Portuguese financial market; and the 'shallowness' of the domestic market,raising barriers to the development of a sound venture capital industry, in spite of the measures taken

by the successive governments to encourage the development of venture capital activities. Still in thisdimension, a reference is due to Public R&D expenditures, which corresponded to 0.46% of GDP,confirming the medium-term trend to approach EU average. The annual growth rate of 3.6, whileinsufficient to achieve the target defined by the Technological Plan for 2010, reflects the investmentsundertaken by the present Government to promote scientific research.

The main weaknesses concern the dimensions Economic effects and Human resources, wherePortugal is at the bottom (i.e. ranks below the 20th) of the EU-27 league. Human resources hastraditionally been one of the country's key weaknesses. It is important to remark, however, that aneffort has been undertaken to improve the capabilities in that regard. In fact, Portugal leads the growthperformance ranking for that dimension, ahead of Latvia and Italy. A look at the five indicators in thisdimension shows that Portugal is even above the EU average on what concerns S&E and SSHdoctorate graduates, exhibiting a score of 2.75 per thousand population in the 25-34 years cohort,

which is over two-fold the corresponding score for the EU. This is a clear result of the investments indoctoral education. However, the other indicators are behind EU average, the wider gap being inTertiary education and Life-long learning. This case is particularly striking since though exhibiting ascore, which is below one half of the EU, the statistics do not show a clear growth trend inperformance. This is a bit surprising keeping in mind the policy followed by the Government since2005 to strengthen human resources capabilities, epitomised in the Novas Oportunidades (NewOpportunities) initiative.

Exhibit 2: European Innovation Scoreboard: Portugal


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It seems that the EIS indicator on Life-long learning does not capture the results of the investmentunder New Opportunities. An overall analysis of the indicators under this dimension suggests that itmight be time to redefine the priorities in the education field, putting now more emphasis on youtheducation attainment, tertiary education and further growth in S&E graduates than on support todoctoral education. In this field, the time has come to consolidate the achievements so far, as well asto enhance the employability of PhDs by the economic fabric.

Economic effects are the other lagging dimension: Portugal's performance is around two thirds of theEU average. The six indicators included in this dimension reveal that Portugal is systematically belowEU average, although significant performance differences become evident. There are two variables for

which Portugal is very close to EU: New-to-market sales and New-to-firm sales. Both correspond toinformation from the CIS, i.e. based on self-assessment.


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In contrast, Portugal exhibits scores slightly above one half of the EU average for Employment inmedium-high and high-tech manufacturing (3.45% against 6.69% of the workforce) and forKnowledge-intensive services exports. These are clearly weaknesses of Portugal's NIS. On a more

positive note both record growth rates are well above EU average. However, the closure of theQuimonda semi-conductors plant will entail a decline in Portugal's performance on high-tech andmedium-high tech employment and exports. This is an area where a committed effort has to belaunched, namely by improving the capability to attract high-tech foreign investment. However, thedeclining capability of the EU as a whole to foster employment in high-tech and medium-high techsectors further compounds the problems faced by Portugal. The situation is different regardingKnowledge-intensive services exports. The remarkable growth achieved in the last years (around5.4% per annum) is likely to be sustainable. In fact, a new cohort of newly created firms aimed ataddressing the global market has been developing (

12).

The three dimensions on Firm Activities (Firm investments, Linkages & entrepreneurship, Throughput)record scores below EU average, while exhibiting growth rates well above the EU. Somewhatsurprisingly, Linkages & entrepreneurship is the dimension with the lowest gap. Having in mind the

wide agreement on the weak cooperative drive of Portuguese companies and on the risk aversion ofthe Portuguese population, one would expect a much lower score, and a wider gap to the EU average,on this dimension. There are two explanations for the relatively positive behaviour recorded: (1) again,the fact that two out of the four indicators considered are drawn from the CIS, thereby based on self-assessment (which also explains why Portuguese firms declare higher levels of in-house innovationthan EU average), and (2) the weaknesses of the entrepreneurship indicator used in the EIS, which ismore an expression of firms demography or 'renewal' than a translation the strength in knowledge-based entrepreneurship. The indicator with the lowest performance (Public-private co-publications) issimultaneously the one with the highest growth, which may suggest that a change is taking place inthe relationships between universities and public research organisations on one hand, and companieson the other.

With regard to Firm investments, two main features emerge. The first is the level of Non-R&D

innovation expenditures relatively close though below EU average. The second, and most important,is the significant increase in Business R&D expenditures, which amounted to 0.61% of GDP for 2007,exceeding, for the first time ever public R&D expenditures. The growth of these expenditures isremarkable, outperforming progress in all other EU Member States. Such growth has been the resultof various factors, namely the following: (1) an increase in survey coverage, partly due to the entry ofnewcomers, both new firms and new R&D performers (measures such as the NITEC the programmefor supporting the creation of research and technology teams in companies likely played a role inthis regard), (2) increased awareness of large firms about the advantages of improving theiraccounting systems to collect and declare R&D expenditures, and (3) the effect of the SIFIDE as avehicle for using R&D expenditures as a tool to escape the income tax.

The behaviour in the Throughputs dimension is variable, with a maximum for Community trademarksand a minimum for EPO patents. This appears to reflect the traits of the Portuguese economic fabric

regarding the relevance of brand protection for many firms exporting to European markets, particularlyin consumer products, and the weaknesses of the technological system, together with the absence ofa crust of large high-tech firms with significant investments in patent protection. Note that Portugalexhibits growth rates in the use of intellectual property rights above the EU average. However,especially in the case of patents, growth rates are still too small to ensure a fast approach to averageEU levels. A recent positive development concerns the Technological Balance of Payments (TBP).According to statistical data provided by the Bank of Portugal, the country has recorded a positivebalance in TBP for 2007 and 2008. This was not captured by the EIS, considering the most recentdata relate to 2006, and since the indicator, as mentioned above, does not provide a balance inintangible technology trade but rather a sum of the flows as a percentage of GDP.

12Most of these firms are included in COTECs Innovating SMEs Network.


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Identified Challenges

Based on the analysis undertaken in the above sections as well as an appraisal of the strengths andweaknesses of the NIS in Portugal and its main developments in a context of crisis and on the verge

of elections, it was possible to identify four main innovation policy challenges for Portugal. Since thechallenges identified stem to a large extent from the country's structural weaknesses, it comes as nosurprise that they are not very much different from those pointed out in earlier reports (Simes, 2007and 2008a). A brief description of the challenges identified is provided on Exhibit 3 below. A referenceto the relevant indicators and trend is also made. Then, some comments on the rationale for theselection of each challenge and on its policy implications will follow.

Exhibit 3: Main innovation policy challenges

Description of challenge Relevant indicators and trends1. Strengthening human resources capabilities,particularly at undergraduate and graduatelevels

Portugal has been able to catch up with regard to the EU.Such performance was particularly noteworthy for doctorategraduates. EIS figures on tertiary education, on youtheducation and on lifelong learning suggest the need tostrengthen efforts in these fields. Improving the educationsystem is essential for achieving structural change in theeconomic fabric.

2. Fostering the emergence and establishmentof new companies, both domestic and foreign-owned, to promote employment, particularly inknowledge intensive activities

Employment in medium-high and high-tech manufacturing isaround one half of the EU average. Medium-high and high-tech manufacturing exports have been languishing, and evendeclining. There is a need to transform the efforts inpromoting entrepreneurship in a higher record of newcompany creation. The attraction of knowledge-intensiveforeign investments, with high levels of employment andexports, is a policy must.

3. Strengthening of SMEs in-house capabilities Although EIS indicators on SMEs innovating in-house,

Product/process innovators, Marketing/organisationalinnovators and Resource efficiency innovators show goodperformance, there are no doubts that Portuguese SMEssuffer from weak in-house capabilities, namely in terms ofskilled human resources, including management, andstrategic competences.

4. Transforming the cluster policy initiative intoan effective opportunity for change and forincreasing the systemic density of the NIS

The percentage of SMEs collaborating with others is limited,while public private co-publications are less than one seventhof EU average. These are indicators of the lack of systemicdensity in the NIS in Portugal. For the investment and theachievements in scientific research to materialise intoimproved company knowledge intensity and internationalcompetitiveness, appropriate linkages have to be established.The Competitiveness and Technology Poles (CTP) and other

clusters measures may play a key role in promoting anincreased density of linkages. But the way how these will beselected, implemented and managed is essential for thepromises to translate into reality.

5. Improving policy coordination, delivery andmedium-term consistency

This does not refer to any specific EIS indicator. However, ithas implications for the long-term evolution of most of them.Portugal now has a wide set of innovation policy instruments.The issue now is to appropriately put them into practice.Delivery is essential. Another important issue is to helpplayers, namely companies, to better make use of theinstruments available. These need to be seen from thedemand standpoint. Finally, policies should be time-consistent, and largely independent from electoral cycles.


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1. Strengthening human resources capabilities, particularly at undergraduate and graduatelevels. EIS data indicates that very good performance has been achieved on what regardsdoctoral education: Portugal is already above EU average. This has an important implication:

how can a similar result at all education levels be achieved?

Human resources skills are a very important structural weakness that needs to be respondedto, if the country is to improve its competitiveness. Of course, this demands a medium- tolong-term approach. The NRP 2008-10 defined the objective to 'Invest in education andtraining and to improve Portuguese population's skills' (

13). In spite of good intentions, the

education policy followed by the Government was very far from achieving the intended results.The envisaged change and the increase in the level of education were not brought about.Higher Education policy has been able to induce change, but the budgetary restrictionsundermined University responses to the challenges. On the other hand, the NewOpportunities initiative has been a very positive step in fighting the low education levels ofadult population. Another positive move was the promotion of digital literacy among primaryeducation students, in the context of e-escola. But much more needs to be done. Improving

education levels and skills of the overall population, by focusing on secondary and tertiaryeducation as well as on lifelong learning (extending the 'New Opportunities', for instance) isneeded. There is also a need to make the education system more flexible and decentralised.

2. Fostering the emergence and establishment of new companies, both domestic and foreign-owned. The economic crisis has made unemployment an increasing concern for Portugal'seconomic policy. Some forecasts suggest, as pointed out in 1.1.1 above, that Portugal'sunemployment rate may exceed the 10% mark. This raises a double problem for economicpolicy: there is a need to promote investment that might generate new employmentopportunities, but there is simultaneously a need to promote investments which maycontribute to modernising the industrial fabric and increasing knowledge intensity, if astructural change is to be brought about. Therefore, the economic crisis created the need toattract investment and promote entrepreneurship even more strongly, but reduced the room

for policy action. There is a need to promote establishment of new companies, not justknowledge intensive ones, but also those with an important employment effect.

In spite of a wide array of initiatives to promote entrepreneurship, the results so far have beenlimited. It seems that after initiatives already taken in this regard and mentioned in theprevious report (Simes, 2008), the moment has come to be stricter in the selection ofinitiatives to support. There is also a need to improve the dissemination of information to makepotential entrepreneurs more aware of the support mechanisms available, namely in the fieldof financing. Information problems were identified even for entrepreneurial initiativesgenerated in some of the Universities apparently more successful in stimulating theemergence of high-tech firms (Matias, 2009). The focus should be on ensuring consistency inaction as well as on coordinating and increasing the scale of initiatives.

The track record in attracting foreign direct investment (FDI) is limited. The economic crisishas made the attraction of new investments more difficult, and turned the need to supportexisting investments more pressing. The programme of support to the automotive sector hasbeen important for domestic suppliers, but mainly to contribute to business livelihood andavoid lay-offs of foreign investors already established in the country. Foreign investment hasplayed a key role in promoting structural change in Portugal. Foreign investment policy istherefore one of the main levers of innovation policy. Except for an intended programme toincrease the linkages between foreign-owned companies and domestic firms, the NRP 2008-10 makes no reference to FDI. Nevertheless, FDI is a central target of the programme ofsupport to projects with national potential importance (PIN). Recently some FDI projects havebeen announced in the fields of electrical cars, namely an investment by Renault/Nissan, andof the aeronautics industry by the Brazilian Embraer group. The employment effects of theseprojects, at least in the short-term, are not very significant.

13Office of the National Coordinator for the Lisbon Strategy and the Technological Plan (GCNELPT) 2008:93.


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3. Strengthening of SMEs in-house capabilities. The EIS provides a rosy picture of PortugueseSMEs innovating capabilities: all indicators in the Innovators group (Product/processinnovators, Marketing/organisational innovators, and resource efficiency innovators) areabove EU average. Nevertheless, Portuguese SMEs suffer from a shortage of skills and

strategic capability. The educational level of employees is significantly below EU average,which has negative consequences for productivity and international competitiveness.

The response to these weaknesses is a medium- to long-term one, since it is very dependenton the improvement of the overall education system. Some efforts have been made tostrengthen SMEs' innovation capabilities, from the creation of NITEC (PT 36 and PT 75) andCITEC (PT 96) to the launch of RTD and Innovation Vouchers (PT 94 and PT 80) and thedesign of the Innovation Scoring (PT 84). The establishment of the SME Academy is alsointended to improve SME capabilities and strategic thinking.

A field that has been almost systematically omitted in SME and innovation policies is thetraining of SMEs' managers. As a rule, the new generation of SME managers has highereducation levels, very often with university degrees. Nevertheless, the average management

level in SMEs needs to be improved if they are to face the twin challenges of innovation andglobal competition. An interesting initiative in this regard, although limited to a crust of largerand/or more innovative firms, was launched by COTEC in connection with the process ofdisseminating the standards for managing innovation projects. However, similar movesaddressed to 'ordinary' SMES are lacking. The NRP 2008-10 indicates two measures thatmay contribute to progress in the right way: the programme of development of company skillsfor entering foreign markets, and the creation by the Institute for SMEs and Innovation(IAPMEI) of the 'SME Academy', aiming to help the SMEs' top managers focus 'on innovativeand international growth' (GCNELPT, 2008: 51). It is important to design appropriateprogrammes, to join forces and to mobilise the target market for a sustained change tohappen in this regard.

4. Transforming the cluster policy initiative into an effective opportunity for change and for

increasing the systemic density of the NIS. The long-awaited decision on collective efficiencystrategies (CTPs and other clusters) was finally made public. There were 18 projects thathave been approved, including 11 CTPs. Investments are expected to approach EUR 17million. A key instrument of the clustering policy announced by the government has finallybeen put into operation. Cluster policies figured high in the Technological Plan, in the NationalStrategic Reference Framework (NSRF) and in the Lisbon Strategy. They were correctlyenvisaged as key instruments to strengthen the NIS as well to forge links and cooperationamong the various players.

The issue now is to ensure that the CTPs and the clusters selected are implemented in a wayto induce change. The leitmotiv behind the session of signing the contracts was 'to sum (inorder) to multiply'. In fact, such cooperative endeavours cannot just correspond to a sum ofplayers and initiatives; they should instead be mechanisms to create synergies and to forge

mutually beneficial linkages among the actors. The fact that a legally autonomousorganisation, whose equity is shared among the partners has to be created to manage theCTP or cluster, provides a better basis to promote cooperative approaches. The acid test,however, will be the implementation of the cooperative projects themselves. Current activitieswill require the partners to make commitments and investments; this will lead to learningprocesses that may, or may not, confirm the expected advantages of working together. Tosome extent, the decision to assign the CTP or cluster 'label' to the projects is the beginning ofan experience of working together. It does not mean that the promises of the cluster policy willoccur. Fit and trust among the partners have to be continuously nurtured and developed. Newchallenges for public policy will emerge. The capacity to appropriately support the synergeticdevelopment of the initiatives will be essential to contribute so the clusters become aneffective opportunity for change. The big challenges for cluster policy lie ahead.


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5. Improving policy coordination, delivery and medium-term consistency. In previous reports ithas been mentioned that there was a need to bridge the gap between science and enterprisepolicies. The launch of the Technological Plan, creation of the National Coordinator of the

Lisbon Strategy and the Technological Plan office, as well as the design of the NSRF 2007-13and NSRF 2007-13 governance system have contributed to bridging such a gap (Simes,2008). There have been, in fact, improvements in innovation-policy design and coordination.However, a cursory analysis of the NRP 2008-10 shows that, in spite of the progress made,there are still different perspectives, and that a consistent, full-blown innovation policy is yet tomaterialise. To achieve a coordinated, systemic innovation policy is still a challenge for theyears to come.

Delivery is another key challenge for exploiting the opportunities stemming from theimplementation of the NSRF 2007-13. The set of innovation policy related measures is, withthe exception of support services to SMEs (

14), appropriate, addressing a whole range of

issues. However, having nice instruments on paper, does not mean that they will besuccessful in practice. It is important to look at the policy instruments from the target company

standpoint, to link the various measures, and to stimulate companies to take them up. Thesuccess of policy measures depends not just on correct design, but also on the capacity toimplement them, assess them, and make the appropriate adjustments. The implementationchallenge is relevant for all types of measures, as the relatively low take-up of the RTD andinnovation Vouchers indicates, but especially for more complex and demanding initiatives asthe CTPs and clusters.

No less important is the challenge of the medium-term consistency of innovation policy. To beeffective, policies need to be sustained for some time. Companies are more comfortable witha relatively stable policy set. Having said this, it should be recognised that policy learning andadjustments are essential. But these should be done on the basis of sound evidence. Portugalstill lacks an independent evaluation culture that might provide the basis for policy change.The NSRF 2007-13 provides a sound policy basis, and a wide range set of measures. Efforts

should be more directed to increase the consistency and the effectiveness of such policyframework than to design brand new policies following the electoral cycle. Ensuring medium-term policy consistency and improving evidence-based policy design are important challengesto make innovation policy an effective instrument to enhance competitiveness.

14 It is important to note that even in this field, there was interesting progress, namely with the launch of the RTDand Innovation Vouchers and the creation of the SME Academy, although it is too soon to assess its practicalrelevance.


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2.Public Support to Innovation

2.1 Main objectives for innovation policy

A brief summary of the main innovation policy documents disclosed by the XVII ConstitutionalGovernment (

15) is presented in Exhibit 4, which takes into account how the programmes are

responding to the financial and economic crises.

An overview of the innovation policy documents suggests a consistent policy approach, whose basicheadlines were drawn in the Technological Plan. This Plan has three main axes, which to a largeextent correspond to the main action lines: knowledge, technology and innovation. A furtherexamination of the full set of measures included in the technological Plan has led to the identification

of seven fields of action: (1) Networked society, (2) Upgrading of human resources, (3) Science &Technology infrastructure, (4) Entrepreneurship, (5) Financing system, (6) Framework conditions foreconomic activity, and (7) Company capabilities (Caraa & Simes, 2008).

Exhibit 4: Main innovation policy documents

2009: Lei n 10/2009, Dirio da Repblica, 1 Srie, n 48, 10 March (Revision of the Budget for 2009)

2009: Ministrio das Finanas e da Administrao Pblica, Relatrio Iniciativa para o Investimento e oEmprego/Regime Fiscal de Apoio ao Investimento 2009/Alterao Lei n 64-A/2008, de 31 deDezembro, MFAP, January (Report on the Investment and Employment Initiative and on the Budgetchanges stemming from the anti-crisis plan).

2008: Lei n 64-A/2008, Dirio da Repblica, 1 Srie, 31 December (Budget for 2009).

2008: Estratgia de Lisboa- Plano Nacional de Reformas Portugal. Novo Ciclo 2008-2010 Consolidaras Reformas (Lisbon Strategy- National Reform Plan, Portugal, New Cycle 2008-2010 ConsolidatingReforms), National Coordinator of the Lisbon Strategy and the Technological Plan Office.

2007: National Strategic Reference Framework 2007-2013

2006: PRACE Public Central Administration Restructuring Programme

2006: Compromisso com a Cincia (Commitment to Science: policy document with the headlines ofscience policy for the legislature)

2005: PNACE Programa Nacional para o Crescimento e o Emprego 2005/2008 Estratgia deLisboa Portugal de Novo (National Programme for Growth and Employment 2005/2008 LisbonStrategy Portugal Anew)

2005: Plano Tecnolgico (Technological Plan)

The Technological Plan established a set of quantified targets to be achieved by 2010. These areindicated in Exhibit 5. Most of these targets have also been mentioned in the Commitment to Sciencedocument and in the NRP 2005-2008 (National Programme for Growth and Employment 2005/2008).

15It was considered that a four-year perspective was appropriate to provide a view of the main policy documents

and innovation policy objectives. By the same token, the analysis is concentrated on the documents delivered by

the XVII Constitutional Government. Policy documents issued by earlier governments, even in 2005, were notincluded in Exhibit 4. The reader interested in a longer-term perspective may see the Country Report 2007(Simes, 2007), where a table with the main policy documents for 2000-07 is presented.


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Exhibit 5: Technological Plan quantified targets

Objective Target Ref. Year1. Population with tertiary education degree (as a % of the 25-64 agegroups)

15% 2010

2. Population having completed secondary education (as a % of the 20-24age group)

65% 2010

3. Population with a degree in S&T fields per thousand inhabitants (in the20-29 age group)

12 2010

4. Researchers as a share of employed population (per thousand) 5.3 20105. Percentage of families with broadband Internet connection 50% 20106. Lifelong training 12.5% 20107. New S&T PhDs per thousand population (in the 25-34 age cohort) 0.45 20108. Scientific output per million population 609 2010

9. Full time equivalent people engaged in R&D activities (per thousandactive population) 7.5 2010

10. Full time equivalent researchers (per thousand active population) 6.0 201011. Public R&D expenditures as a % of GDP 1.0% 201012. Business enterprise R&D expenditures as a % of GDP 0.8% 201013. Employment in medium hi-tech manufacturing (as a % of totalemployment)

4.7% 2010

14. Employment in hi-tech services (as a % of total employment) 1.8% 201015. Medium-high and High-tech manufacturing value added 6.2% 201016. High-tech services value added 6% 201017. High-tech product exports (as a % of total exports) 11.4% 201018. Firms created in medium-high and high-tech industries (as a % of totalnumber of firms created in the year)

12.5% 2010

19. EPO patents per million population 12 201020. Community trademarks per million population 50 201021. Venture capital investment as a % of GDP 0.15% 2010

Source: Technological Plan

The NRP 2008-10 introduced slight changes in the formulation of the quantitative goals, but they arebasically consistent with those defined in the Technological Plan for the 2010 horizon. The goals are:(1) achieving 5.5 researchers (FTE) per thousand of the active population by 2010 (

16) (the figure

stood at 3.8 in 2005 in Portugal and 5.5 in EU 25); (2) doubling the amount of public R&Dexpenditures recorded in 2003 (17); and (3) tripling private investment in R&D with regard to 2003.Other targets mentioned concern the increase in the number of new PhDs granted peryear, from1500 in 2007 to 1800 in 2010. The targets set up for the growth of internationally referenced scientificproduction and the international registration of patents in the European Patent Office (EPO) and theUnited States Patent and Trademark Office (USPTO) are those already indicated in the TechnologicalPlan and in the Commitment to Sciencedocument.

The Technological Plan, notwithstanding the changes introduced, namely the addition of furthermeasures and the launching of the Technological Plans for Education, Health and Justice, continuesto be the basic policy document on innovation policy. A brief reference must be also made to the otherdocuments included in Exhibit 4. The PNACE corresponds to the NRP 2005-08. Among thechallenges identified, there are references to the need to promote university-industry cooperation, toincrease R&D expenditures and to develop partnerships for innovation and employment. In themicroeconomic field there is a domain specifically addressed to Research, Development andInnovation. Most of the measures included there pertain to science policy, and not so much toenterprise policy. However, in the Competitiveness and Entrepreneurship domain there is also a set ofmeasures with a bearing on innovation, namely on promoting company investments, improving

16The figure mentioned in the Technological Plan was slightly lower (5.3).

17In the NRP 2005-2008, there was also the target of achieving a R&D/GDP ratio of 1% by 2010.


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conditions for entrepreneurship and SME competitiveness, establishing partnerships, activatingclusters and enhancing competitiveness. The Compromisso com a Cinciapresented the headlines ofscience policy: It defined five key orientations in this regard: (1) knowledge and S&T capacity, (2)human resources and S&T culture, (3)public and private R&D organisations, (4) internationalisation

and quality evaluation, and (5) economic valorisation of research.

The PRACE and the NSRF 2007-13 have a different focus. They are not policy documents as such,providing frameworks for action instead. The PRACE established a reorganisation of PublicAdministration, redefining the responsibilities of the various Ministries, and reallocating publicagencies. In the innovation field, the main change introduced by PRACE was assigning the NationalInstitute for Industrial Property under the Ministry for Justice instead of the Ministry for Industry andInnovation. Related to PRACE is SIMPLEX, a very important initiative of administrative and legislativesimplification to improve the efficiency of public services and facilitate relationships of citizens andcompanies with the public administration. The NSRF 2007-13 is a key document for innovation policy.It includes three Operational Programmes, the Competitiveness Factors Operational Programme(CFOP Compete) being the most relevant for innovation policy. The main Innovation policymeasures under the CFOP may be classified in two main groups: company incentives and 'Collective

Efficiency Strategies'. The first set of measures is already under way. There are three companyincentive systems: research and technological development, upgrading of SMEs capabilities, andinnovation. The Innovation Incentive System (IIS) is aimed at promoting innovation in companiesthrough both the adoption and development of new goods, services and processes as well as throughthe stimulus to skill-intensive entrepreneurship and to new, innovative investment projects. There arealso important innovation measures which fall under the other two systems, such as the creation ofR&D teams in companies, R&D consortia or support to industrial property. The Collective EfficiencyStrategies are mainly addressed to promote clustering. The key instruments in this regard are the CTPand other clusters.

While the NRP 2005-2008 identified as many as 15 challenges faced by Portugal (including one onstrengthening cooperation between companies and universities and increasing R&D expenditures),the NRP 2008-10 takes on the challenges identified by the European Commission in assessing

Portugal's implementation of the previous NRP 2005-08. The purpose is to show how Portugal hasalready responded to those challenges and the results achieved so far. Seven challenges arementioned, relating to different issues from the sustainability of public accounts and ensuring effectivecompetition to fighting against factors that threaten social cohesion. The NRP 2008-10 includes sixpolicy areas, one of them specifically addressed to ensure 'more R&D and a better innovation system'(policy area No 3). Unfortunately, there is no clear definition of objectives for the policy area as awhole. Some policy headlines are, however, identified:

strengthening the S&T system,

developing the information society,

supporting collective efficiency approaches CTPs (PT 82) and other clusters (PT 83),

promoting the use of the Innovation Voucher (PT 80) and RTD Voucher (PT 94),

recognising the relationships between cultural industries, creativity and innovation.

Furthermore, policy area No 2 'A favourable environment for business, especially for SMEs' alsoprovides measures aimed at fostering innovation, namely promoting investments with a significantimpact upon the Portuguese economy, encouraging internationalisation of Portuguese companies,improving access to finance, promoting entrepreneurship, and disseminating good practices amongstSMEs. The distinction between these two areas is not conducive to an encompassing, systemicapproach to innovation policy.

The last three documents in Exhibit 4 regard the response to the financial and economic crises. TheInvestment and Employment Initiative is especially important, since it provides the basic frame forpolicy action. Since a review of this issue has been carried out under 1.1.1. above, there is no need tocome back to it again.


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Innovation governance system

The NIS in Portugal includes a wide variety of actors. The density and depth of the linkages amongthe main players is relatively low, and the capabilities of many of these players are still limited. Thereis increasing awareness about the importance of innovation to enhance competitiveness in aglobalised World, although its role may not be fully understood. The challenges faced by thePortuguese economy require a committed policy aimed at bringing about a structural change in theactivities performed, as well as in firms' capabilities, strategies and business models. Propergovernance of the innovation system is essential to ensure consistent policy design andimplementation aimed at fostering a sustained change in the right direction.

Although innovation policy has inherently a horizontal nature, in Portugal it has traditionally concernedtwo main Ministries: the Ministry for Economy and Innovation (MEcI), and the Ministry for Science,Technology and Higher Education (MCTES). The first deals mainly with enterprise policy, while thesecond is mostly concerned with research and higher education policies. The 'divide' between the twoMinistries, mentioned in several analyses of science and innovation policies in Portugal (Godinho &Simes, 2006), though far from being overcome, has been 'bridged' to a significant extent in recentyears. Below is a brief characterisation of the main players in the Portuguese innovation governancesystem.

2.2.1 Governmental bodies

As pointed out above, the key Ministries dealing with innovation policy are the MEcI and the MCTES.Other Ministries with responsibilities for policy domains with a bearing on innovation policy include theMinistry for Labour and Social Solidarity ( 18) (concerning mainly vocational training), the Ministry forAgriculture, Rural Development and Fisheries, the Ministry for Public Works, Transportation andCommunications (responsible for the National Laboratory for Civil Engineering and has a key role inpublic procurement), the Ministry for Education, the Ministry for Health, and the Ministry for Justice(responsible for intellectual property affairs). Also relevant, though not enjoying the ministerial status is

the National Coordinator of the Lisbon Strategy and the Technological Plan Office: the Coordinatorhas the rank of Secretary of State and reports directly to the Prime Minister.

In the period under review there were no major changes in the scope and responsibilities of the mainMinistries dealing with innovation policy (

19). Therefore, a broad perspective of the responsibilities of

MEcI and MCTES on innovation policy will be provided, as well as information on governancemechanisms and the role played by the Coordinator of the Technological Plan (

20).

The MCTES is responsible for defining research orientation, assigning funds for research, promotingthe internationalisation of research activities, and evaluating research organisations' performance. Itcoordinated, for instance, the process of reorganising Public Laboratories, and is managing theinternational cooperation agreements established with American Universities (MIT, Harvard, Stanford,Texas, and Carnegie-Mellon) and with the Fraunhofer Gesellschaft. It is also responsible for Higher

Education, as well as for the promotion of highly skilled employment. The main agency under MCTESis the Science and Technology Foundation (FCT), which basically plays the role of a research council.A consultative body is envisaged in the organisational structure of MCTES: the Coordinating Councilfor Science and Technology (CCCT), but this has not materialised so far.

The MEcI is in charge of the various dimensions of enterprise policy. It is particularly focused onencouraging company innovation, company modernisation, internationalisation, and the attraction ofFDI. Another task assigned to MEcI is the development of financial innovation and financialinstruments for supporting company innovation, including venture capital. The Ministry for Economyand Innovation is responsible for the Competitiveness Factors Operational Programme (CFOP

18Not surprisingly, this Ministry has played a pivotal role, together with the Minister for Finance and Public

Administration, in designing and managing the Investment and Employment Initiative.19 Due to the resignation of the former Minister for the Economy and innovation, the Minister for Finance andPublic Administration now handles both Ministries. These remain, however, independent.20

Since there are no major changes, the text is not much different from the last Country Report (Simes, 2008a).


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Compete), the main programme for supporting innovation under the NSRF 2007-13. Two importantagencies are under the purview of MEcI: the Institute for Support to Small and Medium-Sized Firmsand Investment (IAMPEI) and the Agency for Investment and Foreign Trade (AICEP).

Traditionally, innovation policy in Portugal was characterised by a 'divide' between the scienceapproach, on the one hand, and the enterprise perspective, on the other. The existence of a joint-venture among the two Ministries (the Innovation Agency and AdI), since the late 1980s, has not beenenough to overcome the 'divide'. The successive Community Support Framework (CSFs) havecontributed to reinforcing it, as they provided for distinct operational programmes (OPs) for scienceand for enterprise/industry policy. More recently, however, a clear trend emerged to narrow the 'divide'and to enable a more coordinated a

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Country Report Portugal 2009

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