The annual RIO Country Report offers an analysis of the R&I system in Portugal, including relevant policies and funding, with particular focus on topics critical for EU policies. The report identifies the main challenges of the Portuguese research and innovation system and assesses the policy response.
Faced with the financial constraints, companies have followed a two-pronged attitude. One has been an increased focus on international markets to escape from domestic market decline. The other has been a more cautious financial stance, saving money to compensate for difficulties in access to credit. The first had mixed implications for investment in research and innovation. While the moves towards developed and Asian markets required an increase in the commitment to innovation, those addressed to Portuguese-speaking markets, did not rely so much on innovation. In this case, the rationale has been very much the replication of approaches already followed in the domestic market, while with some adaptations. The second attitude, while making firms more aware of the opportunities for process innovation, had a negative effect on business firms' propensity to carry out R&D expenditures.
Strengthening the support for developing technological, organisational, marketing and managerial capabilities in business firms to increase firms technology and knowledge intensity and foster the emergence of new companies (both domestic and foreign-owned) in knowledge intensive sectors is therefore a key challenge for the Portuguese R&I system.
The government established, in 2007, in the context of the COMPETE 2007-2013 programme, under the 2007-2013 National Strategic Reference Framework, three key initiatives to stimulate business R&D and support business innovation. SI I&DT aims at intensifying BERD, increasing competitiveness and fostering cooperation. SI Inovação targets the development of new goods, services and processes in export-oriented firms in strategic sectors. SI Qualificação PME aims at increasing SMEs competitiveness through financing to enhance their productivity, flexibility and responsiveness to the global market. In 2013 the first two initiatives supported 847 projects with a budget of EUR 755 million.
Tax incentives are an important instrument for promoting business R&D activities. In Portugal they include the system of Tax Incentives for Research and Development (SIFIDE II) and the regime of scientific patronage. SIFIDE II provides generous incentives for companies and its application has been revised and extended in 2014 with the Tax Investment Code (Decree-Law 162/2014) until 2020. SIFIDE II comprises two types of incentives for companies performing R&D: a basic tax incentive, corresponding to 32.5% of eligible R&D expenditure undertaken in the relevant fiscal year, and an incremental incentive, corresponding to 50% of the increase in R&D expenditure compared to an average of the two previous years. The amount of tax credits approved under SIFIDE has been close to 100 MEUR/year.
In the new framework provided by the Portugal 2020 framework, the ‘Operational Programme for Competitiveness and Innovation’, whose short name is COMPETE 2020, comprises 6 axis, with its axis 1 dedicated to the strengthening of research, technological development and innovation. Axis 1 includes a variety of policy tools to support R&I by business firms.
Measures aimed at promoting knowledge sharing and the development of SMEs capabilities are taken at the national and especially regional levels, including in Regional OPs. These include the SMEs’ Capabilities and Internationalisation Incentive System and the SMEs Productive Innovation scheme, which aims at encouraging investment projects carried out by SMEs with the purpose of launching new goods and services as well as of adopting new manufacturing, logistics, and distribution processes and new organization methods.
The country has not been so far capable to overcome its focus on activities of lower knowledge intensity and to build innovation-friendly framework conditions for business investment in R&I. Though still limited, the number of firms conducting R&D activities on a permanent basis has been steadily increasing, collaborative R&D projects became a common feature in several economic sectors and some of the innovation output indicators show signs of an improved, although still modest, R&I performance. There is potential for gains from economies of scale and knowledge spillovers, enhanced by the concentration of clusters in the regions Norte and Centro and the national scientific specialisation.
The analysis of tax credits granted over the period 1999-2008 revealed they were ineffective as they concentrated on a limited number of industries. The majority of them were directed to manufacturing and more than half to three industries (pulp and paper, chemical and pharmaceutical and electronic products). Although low and medium-low tech industries predominated, the weight of high and medium-high tech industries in the tax credits are particularly striking when compared with the relative importance of this type of activities in the Portuguese economy. The asymmetric distribution of public funds across industries was even clearer in the case of tax incentives for R&D. Close to half of the tax incentives for R&D granted between 2006 and 2008 were focused on six industries (IT services, pharmaceuticals, automotive industry, telecommunications, and electronic products).
The evaluations of the measures included in the former COMPETE 2007-2013 programme were positive. Among the main findings of the evaluation exercise focussed on innovation and internationalisation (IESE/Quaternaire Portugal, 2013), it was pointed out that the incentive system had reached a high level of maturity, drawing upon a systemic concept of competitiveness, and had been focussed on promoting companies’ capabilities, as well as on collective initiatives; and that there had been a co-evolution of companies’ capabilities in innovation and internationalisation.