Development that Works
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    This blog highlights effective ideas in the fight against poverty and exclusion, and analyzes the impact of development projects in Latin America and the Caribbean.
  • Public Seed Investment: A Formula for Innovation in Peru



    By Juan Carlos Navarro

    Imagine a trip to your local supermarket where you don’t have to pay extra for a package of antibiotic-free chicken breast. It may be coming sooner than you think thanks to a technological innovation program in Peru.

    San Fernando, Peru’s leading poultry and pork processing firm, has developed the world’s first plant-based food additive that supports faster growth of disease-free chickens. For consumers, this could eventually mean lower prices for healthier chicken breasts. For San Fernando, it could pave the way to tap into the European market, where imports of chickens treated with antibiotics are prohibited.

    San Fernando teamed up with a Peruvian and French university to develop the additive, which is in the process of being patented. The 60-year old company is one of more than 300 firms since 2007 that have received financing from FINCYT, an investment fund created with resources from the IDB and the Peruvian government. The $36 million fund is currently one of the country’s main sources of competitive science funding available to universities, institutes, and companies.

    The program was designed to help Peru solve some of the key market failures that undermine its ability to innovate and diversify its commodity-based economy: a chronic scarcity of funds combined with a low level of scientific and technological research and weak linkages between universities and firms. The result is that in 2009, Peru was among the countries in Latin America that invested least in research and development, with an investment level of only 0.14 percent of GDP. That is less than a third of the regional average and well below the 2 percent average for OECD countries.

    FINCYT offers different financial instruments, ranging from technological innovation projects for small and medium-sized enterprises to the development of new products and processes, basic and applied research, and fellowships and scholarships for doctoral and master degrees in science, technology, and innovation. Since 2007, FINCYT has financed $12 million worth of projects, including 101 corporate innovation projects and 71 research projects at universities and research centers.

    One of the main objectives of the program is to stimulate private investment in technological innovation. FINCYT has provided technical assistance to prepare technological innovation projects and created a competitive selection process with clear eligibility criteria and no reimbursable cofinancing, which can cover up to 70 percent of the project cost. This type of financial instrument creates an incentive for innovative companies to join the program and invest their own resources as well.

    To improve coordination with different stakeholders, FINCYT created a governing body with representatives from firms, several government ministries, and universities and research centers. The group has regular contacts and consultations with the business community.

    Finally, the program has financed the updating of technological equipment at universities and research institutes, the dissemination of new technologies, and short-term training and advisory services for firms looking to upgrade their technological capacity.

    By investing in technological innovation and addressing the market failures that prevent companies from investing in research and development, Peru is not only helping firms like San Fernando succeed; it is also building the foundation for a more productive and diversified economy.

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