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Portugal - RIO Country Report

RIO Country Report Portugal 2015

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.

R&I Challenges
Strengthening in-house R&D, as well as technological, organisational, marketing and managerial capabilities in business firms
Challenge description: 

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.

Policy Response: 

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.

Policy assessment: 

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.

Stimulating structural change by fostering the emergence of new companies, both domestic and foreign-owned, particularly in knowledge-intensive activities
Challenge description: 

As outlined above, the relative weight of the manufacturing sectors has been declining in favour of the services sector. However, much of the new activities that have been set up meanwhile operate in non-tradable product areas.

The evolution of the country’s international specialisation has not been favourable. While the share of the exports of the medium-low tech sectors was 13.7% in 2001, it reached 26.5% in 2014. In contrast, in the same period the high-tech exports declined from 11.4% to 6.9%, with medium high-tech exports staying relatively unchanged.

The situation is intensified by the fact that the size distribution of firms is marked by a significant absence of large internationally-oriented companies in medium-high and high-tech sectors. These are usually companies which carry out the majority of business R&D expenditure, and this situation hinders the possibility of Portugal to move up in the business R&D rankings.

Policy Response: 

A new financing line for Business Angels was open in 2014 to promote entrepreneurship and stimulate the creation of new companies and the launch of innovative projects by providing seed and early stages capital. The line is addressed to companies majority-owned and managed by at least three Business Angels, whose investment policy is focussed on seed capital and early stages with at least five years. The overall amount assigned to this financing line is €10 million. The programme +Inovação +Indústria launched in 2012 by Portugal Ventures, the public venture capital organisation, in line with the reindustrialisation initiative, is set to invest in the creation of new companies in traditional industries.

Portugal defined a RIS3 as a result of a process launched by IAPMEI and FCT, with a significant involvement from stakeholders. The process started with a SWOT exercise to identify the main strengths and weaknesses of Portugal’s R&I system as well as to devise the main opportunities and threats faced. The RIS3, approved in December, 2014, defines a set of thematic R&I priorities, combining both the national and regional levels.1 Those priorities cover a wide range of sectors, focusing on improving some traditional areas while investing in the development of new emerging activities.

Policy assessment: 

The design of the RIS3, led by IAPMEI and FCT, provides a good example of participatory involvement from different stakeholders, as well as of collaboration between national and regional bodies. The ex-ante evaluations of COMPETE 2020 were on these issues also positive.

The policies aimed at attracting foreign direct investment were based mainly on financial and tax incentives. The commitment to attract R&D-intensive investments, which are rather driven by the quality of the workforce, the country's research system as well as local suppliers, has not been strong enough.

Despite the evaluation of the measures included in the former COMPETE 2007-2013 programme being positive, as outlined above, that evaluation highlighted some areas for improvement, namely: the financing of start-ups; public policy intermediation through the involvement of industry associations; the dissemination of results throughout the economic fabric, and clustering initiatives.

There has been, however, a contradiction between these policies and the overall aim of reducing labour costs which has characterised the economic policy followed by the XIX Constitutional Government. This has discouraged change while fuelling a return to cost-based strategies instead of innovation and differentiation ones.

Improving cluster policies and developing systemic approaches to strengthening synergies between science and industry
Challenge description: 

There is a widespread agreement that the strengthening of the interactions between science and industry is mandatory. However, the dominant policy perspective to respond to the problem, expressed on both Portugal 2020 and the successive NRPs, is based on a ‘technology transfer’ view, which suffers from a linear, supply-side, bias, assuming that knowledge goes from science to industry only.

Accoring to the Innovation Union Scoreboard 2015, the academia-industry cooperation as measured by the indicator Public-private co-publications per million of population in Portugal, (in spite of a 7.4% increase in performance in 2015) is still very low, at the 30% of EU average.

Portugal lags behind the EU average as to the involvement of businesses in science and innovation. It has stepped up investment in R&I over the past years with an annual real growth rate of 7% between 2000 and 2007, yet its performance is still below the EU average. Portugal's overall R&D intensity fell from 1.58% in 2009 to 1.33% in 2013. Public R&D intensity diminished by an average annual growth of 0.4% from 2008 to 2013, reaching 0.68% in 2013. Business R&D intensity has also fallen since 2009 and by 2013 it was only about half of the EU average. In 2012 public expenditure on R&D financed by business enterprises was very low (0.007% of GDP), pointing to a very low level of cooperation between business and science, with Portugal among the bottom five EU countries.

The low share of privately funded R&D activities performed by the public sector has its roots in the structural composition of the Portuguese economy with economic activities of low or medium-low technological intensity. Portugal has more than 80% of doctoral affectations in higher education institutions and is the EU country with the lowest rate of PhD holders employed in the business sector: 2.6% only.

Policy Response: 

Following the launching of the cluster initiative in 2009 and its evaluation in 2013, the government revised the cluster policy and, in March 2015, published a regulation on the recognition of Competitiveness Clusters, making a distinction between consolidated and emergent clusters. The recognition of a cluster entails the establishment of a contract with IAPMEI regarding the definition of duties, objectives and goal for the cluster. In the frame of Compete 2020, clustering initiatives are provided financial support under the Collective actions support system.

In 2012, the University Technology Enterprise Network (UTEN) supported the commercialisation of public research with a budget of EUR 1.6 million. The Fundação para a Ciência e a Tecnologia (FCT), through the Portuguese Technology Transfer Initiative of 2012 promotes knowledge diffusion from large European agencies (e.g. CERN, ESO, ESA) to Portuguese firms, with a focus on space industry.

The newly established Agência Nacional de Inovação (ANI), which supports cooperation projects between research and industry, has been given a stronger role and its governance streamlined, which is expected to improve productivity and competitiveness. A new scheme for industry PhD studentships has been established by the FCT to increase productivity and competitiveness.

Portugal has a well-established practice in providing public support to science and technology parks and to technology-based and innovation-based incubators. There is an overabundance of business incubators facilities, yet many of them are too small or lack the know-how to provide relevant services for start-ups. There are, however, a few examples of very successful incubation facilities, comprising the Coimbra-based Instituto Pedro Nunes, which has won several international awards.

The design of the Compete programme enabled to solve the latent conflict and overlap between the Ministries in charge of economic and scientific affairs. This positive development was strengthened with COMPETE 2020 and the establishment of more appropriate governance approaches. Both the Research and technological development and the Scientific and technological research incentive systems support cooperative projects, namely in fields.

Policy assessment: 

An increase in the number of collaborations between companies, universities and research institutes and an intensification of knowledge flows at national and international level, has been registered over the past years. Evaluations of the 2007-2013 Compete programme and the 2007-2013 National Strategic Framework indicate that the results have been overall positive, with evidence of an increased level of cooperation between research organisations and business firms. With regards to clusters, the evaluation findings are mixed with results short of expectations. The evaluation suggests a thorough revision of existing clusters through a procedure of re-evaluation of clusters’ capabilities and performance; this has been taken into account in the above mentioned revision of cluster policy. The establishment of appropriate links between clustering, R&I and territorial policies in connection with Smart Specialisation strategies was also highlighted.

There are still several challenging issues, which need to be addressed, both on demand and supply side. On the demand side, the manufacturing sector is characterised by medium-low and low tech companies with a lower propensity for R&D activities (challenges 1 and 2) and, on the supply side, budgetary constraints may limit the flows of knowledge from academia. The problem is amplified by the linear approach pervading many of the policies focused on the promotion of cooperation between science and industry, namely the initiative ‘Programme of Knowledge and Technology Transfer towards Companies' mentioned in Portugal's NRP. This reinforces the one way knowledge transfer process, and undermines the possibilities to develop a clear view about the systemic nature of the innovation process, including its non-technological dimensions.

Improving the R&I governance, increasing stakeholders' role in shaping the R&I policy and ensuring the sustainability of the research system
Challenge description: 

Portugal’s research system has experienced a significant development, following Portugal’s entry into the European Economic Community in 1986, supported by the allocation of Structural Funds. This trend was strengthened since mid-1990s, through a substantial effort to finance research activities in all scientific fields. This enabled Portugal to create a very active and growing research community.

However, in recent years the funding of research has been restricted to the austerity policies as reflected by the negative evolution of the GBAORD. The recessive environment led to an important emigration flow as well as to increased financial difficulties on the side of the research units. With such a background, an increased awareness emerged about the need to rationalise the research system, namely through mergers between research units and other measures.

The international evaluation of research units started by FCT in 2013 was carried out with the aim to reinforce the role of research units but also to enhance the financial sustainability of the research system. This evaluation was concluded in 2015 and generated a multi-tiered system of research units. Some elements of the process stirred controversy. This was followed by changes in the FCT management and a panel evaluation of the process.

There is a need to improve policy governance and consistency. The government’s techno-structure integrated the R&D and innovation issues only to a limited extent. The process of establishing the R&I strategy through Smart Specialisation recognised also the existence of the traditional divide between research and innovation as a major hindrance to the quality and consistency of the Portuguese R&I system. Portugal has a structured consultation system with several bodies. However, the consultation process is not done systematically and relies on the ministerial commitment. The involvement of stakeholders in the process of designing R&I policies, especially on the entrepreneurial side, is still limited.

Policy Response: 

In the recent past, several initiatives were implemented to bridge the research and innovation policies divide, involving a new approach to inter-ministerial collaboration, namely between the ministries for Education and Science and for the Economy, and the model of governance of Portugal 2020. The main policy responses followed two main axes (governance and inter-ministerial cooperation, and the design of Smart Specialisation Strategy (RIS3)), besides the cluster approach (Challenge 3). The first included two aspects: a new approach to inter-ministerial relationships, namely between the Ministries for Education and Science and for Economy, promoting cooperation and adjustment instead of confrontation and the model of governance of Portugal 2020, which goes further than the 2007-2013 National Strategic Reference Framework. Important developments were the creation of the Development and Cohesion Agency, the setting up of the Inter-ministerial Commission for Coordination of the Partnership Agreement (CIC), and the formal establishment of several functional cooperation networks, including regional dynamics, incentive systems, and support to R&D&I and smart specialisation. The development of the RIS3 sets up a good example of participatory involvement of stakeholders and an effective collaboration between national and regional bodies.

Faced with budgetary constraints which have curtailed the financial envelope available to support research, the government made an effort to diversify the sources of financing, namely through the encouragement of an increased recourse to EU programmes, namely in the context of the R&TD programmes (FP7 and Horizon 2020). This was envisaged as essential element for the sustainability of larger research organisations. Several initiatives were taken on this regard, following the creation of the office for promoting S&T cooperation. This drive emerges also in COMPETE 2020. In fact, both the Research and technological development and the Scientific and technological research incentive systems provide for R&D internationalisation projects.

With regard to promoting scientific employment, a few measures were taken in recent past. These include the FCT-Investigator, the Doctoral programmes in Companies and SIFIDE II. The revision of SIFIDE II has provided improved conditions for the recruitment of high-skilled labour by firms, since expenditures with the wages of PhD holders are considered as 120% of the wages effectively paid.

The process of evaluation of research units launched by FCT in 2013 was also aimed at enhancing the financial sustainability of the research system. There was the idea that increased budgetary constraints demanded the reduction of the number of research units supported and an increased selectivity in assigning funding.

Policy assessment: 

The assessment of recent policy developments regarding the governance of the R&I system is mixed. Some may contribute to a new collaborative approach among the different public organisations involved in R&D policy. The CIC is likely to provide a forum to enhance policy coordination and to make implementation more effective. The design of the RIS3, led by IAPMEI and FCT, provides a good example of participatory involvement from different stakeholders, as well as of collaboration between national and regional bodies.

Increasing stakeholders' role in shaping the R&I policy remains an important challenge. Research and innovation activities are collaborative processes which demand appropriate links and collaborative networks among the players. To address this, a new policy approach, based on cooperation, stakeholder participation and open discussion could enable the development of rigorous and reasonable R&I strategies.

Chapters
1. Overview of the R&I system

The Portuguese economic and political context has been characterised by austerity and slow growth. Even if the Economic Adjustment Programme negotiated with the EC, ECB and IMF ended in May 2014, the economic adjustment is still being pursued. This economic climate has had an impact on the R&D expenditure. The trend in terms of R&D investment was positive until the beginning of the recession, with the GERD/GDP ratio peaking at 1.58% in 2009, for a Gross Expenditure in Research and Development (GERD) of €2,772m. However, after 2009 R&D followed the overall macroeconomic trend. The latest data show that the GERD/GDP ratio has declined between 2009 and 2014 from 1.58% to 1.29% and the BERD/GDP ratio has dropped from 0.75% to 0.59%.

2. Recent developments in research and innovation policy and systems

Key developments in the R&I system in 2015 included:

  • The Agência Nacional de Inovação was created, replacing the former Agência de Inovação.
  • The Operational Programmes under the Portugal 2020 Partnership Agreement started to be implemented and several measures have reached cruise speed.
  • The 2013 evaluation of the research units carried out by FCT was finished in May 2015.
  • The October 2015 election led to the establishment of a new government in December, with changes expected in relation to research policy; a new FCT President was already nominated.
3. Public and private funding of R&I and expenditure

The fiscal consolidation process started in 2010 had a negative overall impact on GBAORD from 2012 and government GERD already from 2011. The government funded GERD has declined during the post-crisis fiscal consolidation period by an amount corresponding to ca. 0.1% of the GDP. Funding from the European Commission through structural funds and framework programmes play a significant role in the overall direct public support to R&D but it has not been sufficient to compensate for the losses in the government GERD. Indirect funding through tax incentives provided to R&D is rather important in Portugal.

4. Quality of science base and priorities of the European Research Area

While internationalisation has been a priority of national research policies, such orientation was essentially focused on supporting the involvement of Portuguese researchers in international networks and partnerships, or the involvement in international research fora and infrastructures. A more active attitude towards increasing the external coherence and international coordination of national research policies started to arise only more recently, through the supporting of joint activities and the alignment of the National Infrastructure Strategy with the ESFRI roadmap.

5. Framework conditions for R&I and science-business cooperation

An increase in the number of collaborations between companies, universities and research institutes and an intensification of knowledge flows at national and international level, has been registered over the past years. Yet, there are still several challenging issues, which need to be addressed, both on demand and supply side. On the demand side, the manufacturing sector is characterised by medium-low and low tech companies with a lower propensity for R&D activities and, on the supply side, budgetary constraints may limit the flows of knowledge from academia.

6. Conclusions

This chapter provides an assessment of the performance of the national research and innovation system and identifies the main structural challenges faced by the national innovation system. The main challenges faced by the national R&I system are also listed in the Executive summary of this report. Another emerging challenge and a summary table with structural challenges are presented in this chapter.

Geo coverage
Report year
2015
Country Report file
Official publication date
Thursday, 19 May, 2016
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