The Brazil Case: Innovation and Subsidies to Companies

Several laws in Brazil provide for the granting of economic subsidies to small and medium-sized enterprises for high-impact projects, especially in the area of technology. This aid seeks to encourage research, development and innovation activities in the business sector, according to the study “Business Development in Brazil.”

There are two types of economic subsidies to companies: one based on the Innovation Act and one based on the Law on Goods. The Innovation Act subsidy provides for cost financing, such as personnel, raw materials, third-party services, patents and property renovations for innovative activities.

The subsidy provided for in the Law on Goods aims at remuneration of researchers to be hired by the company.

The funding modality calls for 40% of the monies of the National Fund for Scientific and Technological Development (FNDCT) for the subsidy to be allocated to SMEs that have a significant impact on the productive structure and promote innovation-based entrepreneurship. One major criticism of this type of instrument is the inherent risk in “picking winners" policies. Subsidies are also snubbed for involving high management costs and technical training of agencies as a requisite to provide this support.

The total amount offered by the economic subsidy program of the Financier of Studies and Projects (FINEP) ranges from R$500,000 to R$10,000,000. The Innovation Act establishes that the granting of a subsidy requires the beneficiary company to submit a trade-off proposal.