TECHNOLOGICAL INFRASTRUCTURE TECHNOLOGICAL PARKS RESEARCH CENTERS AND INSTITUTES...13

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2 TABLE OF CONTENTS 1 MARKET HUMAN RESOURCES TECHNOLOGICAL INFRASTRUCTURE Universities TECHNOLOGICAL PARKS RESEARCH CENTERS AND INSTITUTES INCTs Renato Archer Information Technology Center (CTI) GOVERNMENT SUPPORT Strategic components National Center for Advanced Electronic Technology (CEITEC) TI Maior Program FISCAL INCENTIVES Basic Productive Process (PPB) Goodwill Law FINANCING FINEP BNDES...29

3 INFORMATION AND COMUNICATION TECHNOLOGIES 1 MARKET Brazil is a prime country for information technology (IT)-related companies to monetize on emerging opportunities such as cloud computing, mobile computing, big data, and additive manufacturing (3D printing), as well as on traditional outsourcing demands. Due to the increasing local demand for IT solutions, especially for convergence with other vertical segments such as health and oil & gas, the country has become a strong participant in the development of new IT solutions and an important place for investments related to R&D. In 2012 total IT investment in Brazil reached US$123 billion, including hardware, software, services, Business Process Outsourcing (BPO), exports and in-house IT 1. Brasscom 2 The Brazilian Association of Information Technology and Communication Businesses - predicts that IT will experience an aggressive annual expansion of 10% every year, reaching US$210 billion by In 2014, Brazil was ranked by the AT Kearney Global Services Location Index (GSLI ) as the 8 th best destination for technology outsourcing. The country is the only one in Latin America among the global top ten on IT investments, and when compared to other emerging markets such as Russia, India, and China, Brazil comes in 2nd, outranked only by China. Brazil ranks 7th in global IT investment and significant local business opportunities still exist due to the increasing demand for IT solutions. Domestic market expansion is substantial and some geographic regions such as the North are still increasing its IT knowledge and maturity. More mature regions in terms of IT usage, such as the South and Southeastern Brazil, are following the global trend of adopting new solutions (e.g., cloud computing) that require investments in infrastructure and modernization. An increase in local demand also influences the need for support from local R&D centers. 1 Apresentação Institucional A Indústria Brasileira de TI Brasscom, 2013; Link: pdf; p. 6; Last accessed on 02/09/ Economic Slowdown Won t Stop IT Expansion in Brazil Brasscom 2012; Link: =89; Last accessed on 01/08/ AT Kearney Global Services Location Index, p. 3; Last accessed on 17/10/ ad1e-db4a3d6d5f0d 3

4 Total IT Investment, Global, 2012 Rank Country IT Investment (US$ Billion) Market Share World (%) (Source: IDC 4 ) 1 US % 2 China % 3 Japan % 4 United Kingdom % 5 Germany % 6 France % 7 Brazil % 8 Canada % 9 Australia % 10 India % Other % Total 2,000 The total Brazilian IT investment in the software and services market reached over US$25.00 billion in Since the global crisis in 2009, this market has expanded at a compound annual growth rate (CAGR) of 20 percent. Key trends are influencing this rapid growth in the Brazilian software and services market. According to TI Maior Program 5, management tools such as Enterprise Resource Planning (ERP), Customer Relationship Management (CRM), and Business Intelligence (BI) are still in high demand in the Brazilian market and are considered major trends in IT investments in the country, mainly because of the mergers and acquisitions (M&A) processes and the growth in IT demand for certain segments such as education and healthcare. Outsourcing, cloud computing, mobility and big data will also attract investments to Brazil and boost the country s internal market growth (Frost & Sullivan). In 2012, the data center services market in Brazil reached US$1.60 billion in revenue. Though mature, this market still holds many opportunities for investment, and Frost & Sullivan forecasts a CAGR of 9.7 percent from 2014 to One of the most important opportunities in the Brazilian data center services market is cloud computing. In 2013, the Brazilian cloud computing market reached US$328.0 million in investments. By 2017, these investments are expected to reach US$1.10 billion, driven mainly by infrastructure as a service (IaaS) and software as a service (SaaS) used in the private cloud model. Research and Development (R&D) also provides an interesting perspective of the market. In a study published in 2011, Brazil had about 200 companies with R&D investments related to the manufacturing of electronic components, information technology and communication equipment. In addition, close to 1,000 companies invested in software development services, as illustrated on Table. 4 Mercado Brasileiro de Software e Serviços 2013 ABES, 2013; Link: p.5; Last accessed on 02/21/ Programa TI Maior Principais Tendências MCTI, 2013; Link: Last Accessed on 02/09/2014 4

5 Brazilian Companies with R&D Investments Related to IT Activities (Source: IBGE 6 ) Activity Companies with R&D investment Employees working with R&D Manufacturer of communication equipment Non-customizable software development On-demand software development Customizable software development Manufacturer of computer equipment and peripherals Other information technology services Data treatment, Internet hosting, and other related activities Manufacturer of electronic components Brazil is also recognized for its expertise in specific vertical markets such as banking and finance and oil and gas. Some of the best IT solutions for these vertical markets were developed domestically by private companies that invested in R&D to support the local market. These solutions became benchmarks for other countries. Moreover, global IT companies such as IBM have installed local R&D centers, segmented by vertical markets dedicated to the development of specific solutions. Brazil is strategic not only because of its many local opportunities, but also because it gathers conditions regarding infrastructure technology, connectivity, and human resources able to support other countries and operations in Latin America. 2 HUMAN RESOURCES In 2011, the Brazilian IT market employed about 1.2 million workers: 400,000 in IT companies and the remaining 800,000 in companies from other sectors. Annually, Brazil graduates around IT bachelors, mainly in courses such as Information Systems, Computer Sciences and Systems Analysis and Development (Brasscom, ). In regards to post-graduate students the number has increased considerably in recent years, representing a rise in the high-skilled work force available in the IT sector. 6 IBGE, Diretoria de Pesquisas, Coordenação de Indústria, Pesquisa de Inovação 2011, Link: Last accessed on 02/20/

6 Total Number of Post-Graduate Students in Science Fields Related to IT, Brazil, 2012 (Source: CAPES) Area Title Growth ( ) Exact and Earth Sciences Masters 6,327 10,793 70% PhD 4,796 8,633 80% Engineering Masters 11,525 17,370 51% PhD 5,561 9,946 79% When determining the availability of PhDs in Brazil, research areas such as computer science have a relevant number of doctors to support companies in these areas. In 2013 there were 2,852 PhDs specialized in computer science and microelectronics. The range of annual salaries in the R&D engineering area as well as in IT-related jobs is also estimated below. In 2011, 18,602 professionals were involved in R&D activities related to the Brazilian information technology sector. Number of PhDs in Research and Teaching Activities per Science Field per Region, Brazil, 2013 (Source: CNPq) Region Number* of PhDs per science field Total number of PhDs per science field Region's representativeness Computer Science Microelectronics Southeast % South % Northeast % Center-West % North % Total % * The numbers reflect the amount of professionals registered in Painel Lattes platform. 6

7 Range of Annual Salaries in the R&D Engineering Area Complementary Carriers, Brazil, 2013 (Source: Hays Group) Job Position Annual Salary Range (US$) Minimum Maximum R&D Engineer Director 121, ,256 R&D Engineer Manager 73, ,984 R&D Engineer Coordinator 53,418 73,135 R&D Engineer 36,572 62,063 Range of Annual Salaries in IT-related Jobs, Brazil, 2013 (Source: Hays Group) Job Position Annual Salary Range (US$) Minimum Maximum Chief Information Office/IT Director 119, ,665 System Manager 59, ,962 Information Security Manager 66, ,018 Information Security Coordinator 37,903 87,775 System Coordinator 46,803 85,115 Information Security Analyst 29,923 79,795 System Analyst 23,018 55,857 Over the last decade, the enrollments on technical education in Brazil doubled creating, in a relatively short timeframe, a significant workforce capable of driving R,D&I activities, continuously trained and further developed in a variety of centers across Brazil s territory. In regards to the undergraduate level, engineering-related carriers are particularly important to the development of R,D &I activities here the trend is also with the number of students enrolled in engineering courses increasing 12,8% during second only to Business Administration in nominal values. Brazil s government has created programs and measures to help train new employees specialized in the IT industry. The Ministry of Science, Technology and Innovation (MCTI) has established directives to increase the specialized work force and support the demand for research, development 7

8 and innovation. Examples of these initiatives include the increase of scholarships in different areas of expertise, the Promotion of Engineering Program, the National Program of Access to Technical Schools and Employment, (Pronatec) - which brings together the demands of the private sector with courses being taught throughout Brazil at Federal and other institutes - as well as other initiatives such as decentralization. The Science Without Borders Program, for instance, as of January 2014 had granted 2,686 scholarships to the computing and information technology programs. Science without Borders Scholarships in Selected Areas, Brazil, 2013 (Source: Science without Borders) 8 Area Engineering and other technological areas Computing and information technology Number Scholarships of % Scholarships for Undergraduates % 7% 2,686 84% 16% % Scholarships for Graduates Science Without Borders also brings foreign researchers to Brazil to work with companies in the country, offering a monthly scholarship of about US$7,000 and monthly housing allowance of about US$3,500. A database of résumés of all participants is also available online to companies interested in hiring them. Another key program supporting IT work force specialization is TI Maior Program, which aims to meet the industry s needs and has a goal to graduate 900,000 new professionals by 2022, with yearly investments of US$102.6 million 9 expected for scholarships and R&D activities through CNPq and CAPES. There are also specific programs such as the Human Resources in Strategic Areas Training Program (RHAE), in operation since It has the objective of increasing the number of researchers working in private companies in R,D&I activities and training and developing human resources to develop applied research projects or technological development 10. It offers scholarships to researchers with masters and doctors degrees, adding highly qualified staff in the R,D&I department of companies, and ensuring connectedness between the academic research and its applicability in the market. Through the National Council of Scientific and Technological Development (CNPq), government pays up to U$ in scholarships for a period of up to 3 years. Government is taking additional measures to reduce nationwide costs for IT manpower to help increase Brazil s industry competitiveness. According to Law /11 the ICT industry will benefit from payroll tax reductions; it allows ICT companies working in the activities mentioned in Table bellow as well as companies that export call center services to forgo paying the employer pension contribution (20 percent of the employee salary), and instead to pay a 1 to 2 percent 8 Painel de Controle do Programa Ciências sem Fronteiras - Ciências sem Fronteiras, 2013; Link: Last accessed on 02/17/ TI Maior Programa Estratégico de Software e Serviços de Tecnologia da Informação, , MCTI, 2012; Link: ; p.13; Last accessed on 01/08/ Source: O que é o RHAE CNPq, 2013; link: Last Accssed: December/2013 8

9 contribution toward gross revenue, depending on their sub-segments. 11 This tax reduction can benefit IT companies performing R&D activities by reducing their labor expenditures. Companies Eligible for Payroll Exemption, Decree 7.828/2012 (Source: Casa Civil) 12 System analysis and system development Programming Data and commutation processing Program development, including development of electronic games Licensing or concession to use a computer program Consulting and advising on information technology Technical support Planning, development, and maintenance of Web pages Through the combined force of all of these initiatives, the government expects to supply the market with the 2.1 million IT employees required by TECHNOLOGICAL INFRASTRUCTURE 3.1 Universities According to Brasscom 13, Brazil had 584 universities offering IT-related courses for both undergraduate and post-graduate students. Considering only those with post-graduate courses related to IT, 23 universities scored a grade higher than 4 (on a 1 to 7 scale) according to CAPES for both master- and doctorate-level IT-related courses. 11 Desoneração da folha de pagamentos Ministério da Fazenda, 2012; Link: ; p. 1; Last accessed on 01/08/ "Decreto N 7.828, de 16 de outubro de 2012" - Presidência da República, Casa Civil, 2012; Link: Last accessed on 03/19/ O Mercado de TI no Brasil Brasscom, 2012; Link: ; p. 15. Last accessed on 01/08/2014 9

10 Number of Universities with Grade Higher Than 4 in Master- and Doctoratelevel IT-related Courses by State, Brazil, 2010 (Source: CAPES) 14 State Universities with Grade Equal to or Higher than 4 in Master and Doctorate IT Courses CAPES Name of the Institution São Paulo (SP) 3 Universidade Estadual De Campinas, Universidade De São Paulo, Universidade Federal De São Carlos Rio de Janeiro (RJ) 3 Universidade Federal Do Rio De Janeiro, Pontifícia Universidade Católica Do Rio De Janeiro, Universidade Federal Fluminense Rio Grande do Sul (RS) 3 Universidade Federal Do Rio Grande Do Sul, Pontifícia Universidade Católica Do Rio Grande Do Sul, Universidade Do Vale Do Rio Dos Sinos Paraná (PR) 2 Ceará (CE) 2 Minas Gerais (MG) 2 Pontifícia Universidade Católica Do Paraná, Universidade Federal Do Paraná Universidade De Fortaleza, Universidade Federal Do Ceará Universidade Federal De Minas Gerais, Universidade Federal De Uberlândia Amazonas (AM) 1 Universidade Federal Do Amazonas Bahia (BA) 1 Universidade Federal Da Bahia Distrito Federal (DF) 1 Universidade De Brasília Espírito Santo (ES) 1 Universidade Federal Do Espírito Santo Mato Grosso do Sul (MS) 1 Fundação Universidade Federal De Mato Grosso Do Sul Pernambuco (PE) 1 Universidade Federal De Pernambuco Rio Grande do Norte (RN) 1 Universidade Federal Do Rio Grande Do Norte Santa Catarina (SC) 1 Universidade Federal De Santa Catarina 3.2 TECHNOLOGICAL PARKS According to the Brazilian Association of Science Parks and Business Incubators (ANPROTEC) Brazil has 24 technology parks focused on IT. 14 Resultado Aval Trienal CAPES, link: Last accessed on 03/19/2014 / Only the higher education institutions that achieved a score equal to or higher than 4 on a scale of 1 to 7 (1 being the lowest score and 7 being the highest) were selected. 10

11 Technology Parks in Operation in Brazil with Focus on IT (Source: Anprotec 15 ) Region State City Name of the Park Nordeste Ceará Fortaleza Parque Tecnológico do Nutec, Nutec Technology Park, (PARTEC) Paraíba Pernambuco Pernambuco Sergipe Campina Grande Recife Recife Aracajú Fundação Parque Tecnológico da Paraíba, Technology Park of Paraiba Foundation, (PAQTCPB) Núcleo de Gestão do Porto Digital, Managing Center of Porto Digital Parque Tecnológico de Eletro-Eletrônica de Pernambuco, Technology Park of Electro-Electronic of Pernambuco (ParqTel) Sergipe Parque Tecnológico, Technology Park of Sergipe, (SergipeTec) Sudeste Minas Gerais Viçosa Parque Tecnológico de Viçosa, Technology Park of Viçosa, (tecnoparq) Minas Gerais Minas Gerais Rio de Janeiro Rio de Janeiro São Paulo São Paulo São Paulo São Paulo Belo Horizonte Uberaba Petrópolis Rio de Janeiro Campinas Campinas São Carlos São José dos Campos Parque Tecnológico de Belo Horizonte, Technology Park of Belo Horizonte, (BH-Tec) Parque Tecnológico de Uberaba, Technology Park of Uberaba, (PTU) Movimento Petrópolis Tecnópolis, Petropolis Tecnopolis Movement, (PET- TEC) Parque Tecnológico do Rio, Technology Park of Rio Parque Tecnológico da Ciatec, Ciatec Technology Park Techno Park Campinas, Campinas Technopark Parque Tecnológico de São Carlos, Technology Park of São Carlos Parque Tecnológico da Universidade do Vale do Paraíba, Vale do Paraíba University (UNIVAP), UNIVAP 15 ANPROTEC - MCTI, 2013; Printed Document. 11

12 Region State City Name of the Park Technology Park Sul Paraná Curitiba PUC-PR Tecnoparque, PUC- PR Tecnopark Paraná Paraná Rio Grande do Sul Rio Grande do Sul Rio Grande do Sul Curitiba Pato Branco Campo Bom Porto Alegre São Leopoldo Centro Internacional de Tecnologia de Software, International Center of Software Technology, (CITS) Parque Tecnológico de Pato Branco, Pato Branco Technology Park Parque Tecnológico do Vale do Sinos, Technology Park of Vale dos Sinos, (VALETEC) Parque Científico e Tecnológico da PUC-RS, Technology Park of PUC-RS, (TECNOPUC) Parque Tecnológico São Leopoldo, Technology Park of São Leopoldo, (TECNOSINOS) Santa Catarina Blumenau Parque Tecnológico de Blumenau, Technology Park of Blumenau, (ParqueBLU) Santa Catarina Florianópolis Parque Tecnológico Alfa, Alfa Technology Park Santa Catarina Florianópolis Sapiens Parque, Sapiens Park These parks promote the culture of innovation, competitiveness, and entrepreneurship. Tecnopuc, for instance, is located in Porto Alegre and managed by PUC University, housing 81 companies, 8 business associations, and 12 research structures that, together, total over 5,600 jobs 16 as well as companies such as Dell, Accenture, Microsoft, HP, Stefanini and TOTVS. The park is home to work in information technology, communications, electronics, energy, environment, biotechnology, and the creative industry 17. The Porto Digital in Recife, by its turn, was founded in 2000 and in 2012 already had more than 200 companies employing 6,500 professionals. In 2010, these 200 companies had combined annual revenue of US$500 million. 18 It hosts companies like IBM, Microsoft, Accenture, and Oi. 16 Apresentação Tecnopuc, 2013; link: last accessed on 03/26/ Parque Científico e Tecnológico da PUCRS PUCRS, 2012; Link: p.24; Last accessed on 02/24/ No Porto Digital, os setores da Tecnologia da Informação e Comunicação e Economia Criativa são ferramentas de desenvolvimento econômico e social Porto Digital, 2012; Link: Last accessed on 02/24/

13 3.3 RESEARCH CENTERS AND INSTITUTES Brazil currently has 68 research institutes accredited by the MCTI 19. Some centers, institutes and networks are listed here just as examples of the reach of competences throughout Brazil. The Brazilian System of Technology (SIBRATEC) was established to support enterprises in increasing current levels of innovation, adding value through higher productivity and increasing competitiveness. SIBRATEC has the following strategic priorities 20 : Expand and consolidate the National Science, Technology and Innovation System Promote technological innovation Promote R&D in strategic areas Promote science, technology and innovation for social development SIBRATEC also provides incentives for the establishment and consolidation of technology-intensive companies, prioritizing enterprises engaged with local technology development through the following mechanisms: Provision of metrology, extension, assistance, and technology transfer services Financial support to R&D and placement of researchers in the private sector Cooperation between enterprises and science and technology institutions Training and development of companies staff engaged within the innovation sector SIBRATEC Network related to IT: Technological Services, Brazil, 2011 (Source: MCTI 21 ) SIBRATEC's Technological Services Network Coordination Number of laboratories Situation E lectronic products and devices ICT applicable to new medias: Digital TV, wireless communication and Internet Renato Archer Information Technology Center - CTI Fundação Centro de Análise, Pesquisa e Inovação Tecnológica, Foundation Center of Analysis, Research and Technological Innovation (FUCAPI) 21 Implemented 9 Implemented 19 Relação de Instituições Credenciadas MCTI, 2014; Link: scricao=centro+ou+instituto+de+pesquisa&ufconsulta=todas; Last accessed on 02/20/ SIBRATEC Brazilian System of Technology Science and Technology for Brazilian Enterprises, MCTI, 2010, link p.2 Last Accessed on 02/21/ Redes Temáticas de Serviços Tecnológicos MCTI, 2011; link: p.2 ; Last accessed 02/18/

14 3.4 INCTs The National Institutes of Science and Technology (INCTs) are multicentric research centers coordinated by the MCTI. Launched in July, 2008, INCTs have become an important platform to promote ST&I in Brazil, reaching 126 units in 2012 and a funding of over US$ 310 million. Its main objective is to drive and coordinate into networks the best research groups in the field of Science of science, and in areas of strategic importance for the sustained development of Brazil, it also aims to foster pure basic research 22 at a world class level, and to promote scientific and technological research, in close cooperation with the Brazilian System of Technology (SIBRATEC). INCTs programs are not only for academic research, but also to ensure that technology is actually transferred and applied to companies. There are 9 INCTs focused on Engineering and ICT. INCTs focused on Engineering and ICT (Source: CNPq) 23 Eldorado Institute is a national non-profit civil association that aims to develop R&D services focused on research, development, and innovation in the areas of software, hardware, systems, processes, trials and testing of electronic products, and professional training in these areas. The institute has a highly qualified management staff and processes are certified by important international standards. Altogether, it has 500+ employees distributed into the following 3 units: Campinas (main operations), Brasília, and Porto Alegre. Center for Advanced Research Wernher Von Braun (VON BRAUN) 24 Founded in 1997, the center works to develop technological solutions in the areas of software (IT systems through embedded applications) and hardware (semiconductor equipment and components) in innovation solutions for intelligent transportation systems (ITS), automation and retail intelligence, automotive systems, Big Data, tools for structuring services, and applications for media consumption. It has three units, two in Campinas and one in São Paulo. Other partners include companies such as Microsoft, Epson, Samsung, Lenovo, Honeywell, and Uol. 22 Note: Pure basic research is defined as Pure basic research is research carried out for the advancement of knowledge, without working for long-term economic or social benefits and with no positive efforts being made to apply the results to practical problems or to transfer the results to sectors responsible for its application Source: Glossary of Statistical Terms, OECD link Last Accessed: December/ Centro de Pesquisas Avançadas Wernher Von Braun Von Braun, 2013; link: last accessed on 04/04/

15 3.5 Renato Archer Information Technology Center (CTI) CTI conducts research and development in many strategic areas, such as micro and nano electronics, systems, software and IT applications, e.g. robotics, decision support systems and 3D technologies for industry and medicine. With strong interaction with universities, research centers and industry, CTI is located in Campinas, State of São Paulo, and hosts 300 researchers in 10 laboratories. Among the many centers in Brazil, the Recife Center for Advanced Studies and Systems (C.E.S.A.R), for example, was established in 1996 as a private institution. Since then, it has been developing products and services covering the entire innovation process from ideation to project execution for the telecommunications, electronics, commercial automation, finance, media, energy, health, and agribusiness industries, having over 550 employees. Motorola, Samsung, Vivo, Oi, Positivo, Dell, Visanet, Bematech, Bradesco, Unibanco, Banco Central do Brasil, Siemens and Philips are some of the enterprises that have been working with C.E.S.A.R. Examples of actual results from C.E.S.A.R. include 25 : Assisted Motorola in the creation of the company s Brazil Test Center for verification and validation of cell phone software sold worldwide Participated in the Instinct Project with the European community, for the development of digital television technologies Partnered with IBM in the development of solutions at OSGi Alliance, an international consortium for the development of a process that ensures interoperability of applications and services based on its integration platform Partnered with Intel, Popcatcher, AW-G, and Sensaura for the development of technology to capture songs in real time with the use of artificial intelligence 3.6 GOVERNMENT SUPPORT The Brazilian government recognizes both the importance of developing a strong IT industry capable of supporting innovation among various national sectors and the need to strengthen it to compete internationally. Consequently, several programs and sources of funding are providing support to stimulate the Brazilian IT industry. This report lists only some of the several initiatives being developed by the Federal Government. Many additional programs, incentives and financing initiatives are also developed by the States and Municipalities throughout Brazil. 3.7 Strategic components Government is significantly investing in initiatives to stimulate the microelectronics sector. The National Microelectronics Program (PNM) has the objective of attracting integrated circuit (IC) design houses and national integrated circuit production companies. The program also provides training to increase the qualification of the workforce. In 2005, the IC-Brazil Program was created to increase the country s competitiveness in the IC market, by attracting companies specialized in IC 25 Organização C.E.S.A.R., 2013; Link: Last accessed on 02/24/

16 development. This would stimulate the development of design houses, and promote scholarships for professionals interested in specializing in IC. In 2007, PADIS was created. This program has provided many incentives and tax exemptions to increase the national production of semiconductors. Companies such as CEITEC, HT Micron, Smart Modular Technologies, and some design houses have already benefited from this law. Ultimately, the main targets of PADIS are to increase the country s competences in designing and developing semiconductors and displays, and to benefit other segments that rely on these technologies, such as medical devices and aerospace. 3.8 National Center for Advanced Electronic Technology (CEITEC) CEITEC is a company established in 2008 by the federal government with the purpose of developing and producing semiconductors in Brazil. Its existence is strategic to establish a nationwide microelectronics industry. The center has approximately 70 designers and operates in the design, prototyping, and manufacturing of integrated circuits. Among the areas of technological development, the CEITEC focuses on the ones related to radio-frequency identification (RFID), wireless communication, and digital media technologies. Prominent projects include 26 microchips for livestock, WiMAX chips, chips for civil identity cards and passports and chips for modulators of digital TV. 3.9 Software and IT Services TI Maior Program TI Maior Program is a strategic program launched in 2012 to develop the software and IT services industry in Brazil. The program aims to strengthen the local software and IT services industry, as well as to support the development of technology companies. TI Maior Program also intends to develop a qualified workforce and to stimulate R&D activities by increasing the interaction among research groups and companies. 26 CEITEC S.A CI-Brasil, 2013; link: Last accessed on 03/09/

17 TI Maior Program Goals (Source MCTI) 27 To reach these goals and increase the Brazilian IT industry s competitiveness, the program will invest approximately US$250 million. 28 From 2012 to 2015, a total of US$220.6 million 29 will be invested in software for strategic sectors and technologies. Figure 13 shows the strategic sectors that will receive investments through TI Maior Program. Software for aerospace/aeronautics, high-performance computing, and games, internet, and mobility will receive the most investment. 27 TI Maior Programa Estratégico de Software e Serviços de Tecnologia da Informação MCTI, 2012; Link : ; p 13; Last accessed on 01/08/ TI Maior Programa Estratégico de Software e Serviços de Tecnologia da Informação MCTI, 2012; Link : ; The value reflects the sum of the investments employed in each area of the program, according to the mentioned file and adjusted in US dollars. Final estimate was done by Frost & Sullivan; Last accessed on 02/08/ TI Maior Programa Estratégico de Software e Serviços de Tecnologia da Informação MCTI, 2012; Link : ; The number reflects the sum of the investments made in the different areas considered in the digital ecosystem. Final estimate was done by Frost & Sullivan; Last accessed on 02/08/

18 The National Strategy for Science, Technology and Innovation (ENCTI) The National Strategy for Science, Technology and Innovation (ENCTI) also established the directives that are guiding the country s efforts to stimulate innovation from 2012 to The estimated sum to be invested within ENCTI from 2012 to 2015 is US$38.2 billion 30, which will be funded by federal resources, state-owned companies, and state-owned foundations that foster research. The specific program for aerospace in Brazil is the National Program of Spatial Activities , PNAE focus on domestic investment in technologies covering remote sensing, meteorology, and telecommunications to meet the country s demand for security, digital inclusion, civil defense, climate change, exploration of natural resources, and environmental control. High-performance computing was also considered a strategic area. It can be used in several fields of knowledge, such as defense and security, monitoring of ocean temperatures, seismic modeling, genetic mapping, and aerodynamics. Mobility, Internet, and gaming were also considered key areas because of the fast growth of mobile devices and Internet penetration in Brazil. Among the actions in this area are efforts to achieve the following: increase the development of technologies applicable to the Internet of Things, foster the creation of a developer community specializing in HTML5, stimulate research on IPV6. 30 Estratégia Nacional de Ciência, Tecnologia e Inovação MCTI, 2012, link: p. 90; Last accessed on 02/24/

19 TI Maior Program aims to attract four IT companies to establish global R&D centers in Brazil. In order to achieve this goal the program will invest US$7.7 million. TI Maior Program will also support the Brazilian researchers with scholarships to work in these R&D centers. Regarding this initiative, 5 companies or institutes (IBM, Intel, ITVale, CPqD, and Freescale) will benefit from US$ 3.2 million in scholarships. In return, these companies or institutes will then invest US$ 11.2 million in R&D in the country. 31 START-UP Brasil: Start-up Brazil intends to foster 150 start-ups in three years, focused on software and IT services (25 percent of them can be international startups that wish to develop in Brazil) by investing US$20.5 million. In addition to the funding support, the program will create a network composed of mentors, investors, infrastructure, consulting services, and partnerships with universities and research labs. Participants will also be assisted in positioning their services or products in the market. Accelerators Selected for Start-up Brazil (Source: MCTI) Wayra Papaya Aceleratech Acelera MGTI Outsource Brazil Ventiur.net Start You Up Pipa Acelera Cimatec Baita Wow C.E.S.A.R Labs Acelera Partners TechMall The project targets national and international companies that are no older than 3 years and that aim to develop innovative products or services. These companies must use software or IT services as part of their solution. The selected companies will receive up to US$102,000 each 33 and support from an acceleration program that provides physical infrastructure, mentoring, and other sources of funding. The accelerators will invest from US$10,200 to US$51,000 on each selected start-up in exchange for a shareholding percentage. 31 TI Maior apoiará cinco centros de pesquisa e desenvolvimento - MCTI, 2013, link: Last accessed on 02/24/ Link: Last accessed on 03/20/ Empreendedores Start-up Brasil/MCTI 2013; Link: ; Last accessed on 02/08/

20 4 FISCAL INCENTIVES 4.1 Basic Productive Process (PPB) An important public policy instrument in the sector is the Basic Productive Process (PPB). This instrument regulates the value-added process in manufacturing, in order to fulfill the requirements of other policies, such as the Information Technology Law. 34 The federal government uses PPB as a requirement for granting tax incentives. The IT or automation companies that comply with the PPB and fill the required investment in R&D can benefit from the Information Technology Law, which reduces the tax on industrialized products. 4.2 Goodwill Law Law /05, also known as Lei do Bem (Good Law), provides tax incentives for companies of all sectors that are involved in R&D. Main Benefits of Good Law (Source: MCTI) 35 There will be a deduction of R&D expenses from the income tax, including the ones with universities and research institutions. Up to 80% of the R&D expenses is reduced in Imposto de Renda de Pessoa Jurídica, Corporate Income Tax, (IRPJ) and in the Contribuição Social Sobre Lucro Líquido, Social Contribution on Net Income, (CSLL). There is a 50% reduction in the IPI in the purchase of equipment for R&D. There is immediate depreciation of equipment purchased with an R&D purpose. Accelerated amortization of expenditures will occur with the acquisition of intangible assets for R&D. Income tax withholding on foreign remittances intended for registering and maintaining trademarks and patents will be reduced to zero. 34 PPB Desenvolvimento.gov 2013; Link: ; Last accessed on 01/08/ FAQ Lei do Bem MCTI 2013; link: ; Last accessed on 01/08/

21 Five activities are eligible to receive Good Law incentives: Eligible Activities for Good Law Incentives (Source: MCTI) 36 Directed basic research: projects aimed at understanding new phenomena to develop products, processes, or innovative systems Applied research: research performed to acquire new knowledge, aimed at developing or improving products, processes, and systems Experimental development: 36 FAQ Lei do Bem MCTI 2013; Link: ; Last accessed on 01/08/

22 research aimed at ensuring the technical and functional feasibility of new products, processes, systems, or services Basic industry activity: includes the measurement and calibration of machines and equipment, design and manufacture of measuring instruments, standardization and technical documentation, and patenting of products or processes Technical support services: services essential to the implementation and maintenance of facilities and equipment exclusively for execution of R&D projects, including the training of human resources devoted to them. In 2011, Brazilian government issued Law /2011, which included tablets produced in Brazil in the product categories eligible for Good Law incentives. Qualified Companies to Produce National Tablets Benefiting from Law /2011 (Source: MCTI) 37 Qualified Companies Aiox do Brasil Equipamentos de Informática Envision Indústria de Produtos Eletrônicos LG Electronics de São Paulo Motorola Industrial MXT Industrial Positivo Informática Samsung Eletrônica da Amazônia Semp Toshiba Informática Itautec Philco Sanmina-SCI do Brasil Integration Foxconn CMMSG Indústria de Eletrônicos State Santa Catarina São Paulo São Paulo São Paulo Minas Gerais Paraná São Paulo Bahia São Paulo São Paulo São Paulo In September 2012, the tax incentives were also extended to smartphones produced locally. Information Technology Law (8.248/1991) Provides tax reduction for companies working in the IT and automation sectors. To benefit from the Information Technology Law, a company must produce IT or automation goods. 38 Moreover, it has to comply with the PPB and must invest at least 4 percent of its revenue in R&D. In 2013, investments hit US$2.2 billion in R&D activities from the benefits of the Information Technology Law. Through this law, 2,100 new products were developed and 335 patents were created Desoneração de tablets já se estende a 11 fabricantes MCTI 2012; Link: ; Last accessed on 01/08/ In order to have access to the benefits, the company must be producing goods included in the Regulamento 5906/06, Regulation 5906/06. This regulation was recently updated by the Decree 7.010/ Lei de Informática repassa R$ 579 milhões para pesquisas Brasil.gov Portal I, 2010; Link: Last accessed on 01/08/

23 Tax Reduction for Automation and IT Goods and Services (Source: Lei /01) 40 Reduction on the IPI Time Frame South and Southeast Center-West, ADA* and ADENE** influenced Regions % 95% % 90% % 85% * Agência de Desenvolvimento da Amazônia, Amazonia Development Agency (ADA) ** Agência de Desenvolvimento do Nordeste, Northeast Development Agency (ADENE) *Estimated value by the Secretariat of the Federal Revenue of Brazil Manaus Free Trade Zone (8.387/91) The Manaus Free Trade Zone (ZFM) was created in 1957 by the Brazilian government with the main goal of stimulating the development of an economic base in the Western Amazon. The industrial hub of Manaus has approximately 600 high-tech industries and generates over half a million direct and indirect jobs, 41 mainly in the electronics, motorcycles, and chemicals industries. ZFM offers differentiated tax conditions for companies with local production following the PPB standards, such as: 40 Lei no , de 11de Janeiro de 2001 Presidência da República: Casa Civil 2001; Link: Last accessed on 02/18/ Modelo Zona Franca Suframa; Link: Last accessed on 02/18/

24 Exemption of IPI (Excise Tax) Exemption of PIS/PASEP (Contribution to the Social Integration Program and Civil Service Asset Formation Program) and COFINS (Contribution to Social Security) 75% reduction in the IRPJ (Corporate Income Tax) Partial or complete refund (ranging from 55% to 100% depending on the project) on the Tax on Circulation of Goods and Interstate and Intercity Transportation and Communication Services (ICMS). 42 Companies can benefit from import tax reductions on inputs used for industrialization; the tax reduction is calculated according to the value added *Estimated value by the Secretariat of the Federal Revenue of Brazil Innovation Law (10.973/04) The Innovation Law was enacted in 2004 to enhance the dynamics of innovation and to strengthen the interaction between academic institutions and private companies in the R&D sector. The major benefits of the law for private companies are the following: The possibility of sharing the infrastructure of public research centers to perform R&Drelated activities, reducing the investments in private facilities The possibility of receiving financial resources from public institutions such as funding, grants, and non-refundable funds, in order to perform R&D activities related to the National Industrial Policy The possibility of providing, under contract, remunerated services related to R&D activities to public agencies and public entities 42 Incentivos Suframa; Link: Last accessed on 02/18/

25 The possibility of sharing public human resources in order to perform R&D activities that aim to develop innovative products or process considered of public interest 4.3 FINANCING Credit, subsidy, variable income and non-refundable. Released in 2013, the Plan Inova Empresa aims to increase the productivity and competitiveness of the Brazilian economy by supporting the technological high-risk projects and the strengthening of relations between companies, Science and Technology Institutes and the Government. Through Inova Empresa, public calls are placed to select projects to be included in the support programs available at BNDES, FINEP and by the public agencies participants. This action enables the time reduction and a coordinated analysis for the provision of analysis to grant of equity instruments such as: For the period of 2013 to 2014 R$39.2 billion (approx. U$ 16.8 billion) were made available, of which R$ 400 million for projects in the TI Maior Program - cloud computing, high performance computing, internet, digital eco-systems, software and IT services and other R$1.7 billion for semiconductors and displays, software development and IT services, technological development for broadband and digital contents FINEP FINEP is an institution that promotes research, development, and innovation for companies and research organizations. For IT companies, FINEP can provide financing and support through grants. FINEP can also fund IT companies with investments through venture capital or sectorial funds. 25

26 The figure below shows how FINEP can support IT investors. FINEP's Actions Related to IT / (Source: FINEP, prepared by Frost & Sullivan) 43, 44, 45, 46 Inova Brazil is part of FINEP s portfolio of running programs. It does not depend on public calls nor does it have a defined validation period. A company can submit a funding proposal for FINEP s analysis at any time. The program grants credit under a reduced interest rate; the more innovative the project, the lower is the interest rate. The program can fund a variety of projects: creation of a national supply of equipment only produced abroad, equipment upgrades, construction of research laboratories and industrial plants for innovative products, joint ventures, purchase of technologybased companies, and employee training. Eligibility Criteria - Inova Brazil, Brazil, 2013 (Source: FINEP) 47 Medium companies Medium to large companies Annual Gross Operating Revenue Between US$8.1 million and US$46.0 million Between US$46 million and US$153.5 million 43 Modalidades de Financiamento FINEP 2013; Link: ; Last accessed on 01/08/ Apresentação FINEP 2013; Link: Last accessed on 02/18/ O que apoiamos FINEP 2013; Link: Last accessed on 02/18/ Definitions: Non-refundable: Fund made with the capital of the sectorial funds and designated to support non-profit organizations, programs, and areas of interest of each fund. The proposals should be sent through public calls or special orders Grants: Application of non-refundable public resources directly in companies Investment and Equity: Indirect investment in companies through investment funds Financing: Financing with reduced taxes for projects related to research, development, and innovation 47 Inova Brasil FINEP, 2013; Link: ; Last accessed on 01/07/

27 Large companies More than US$153.5 million Financing Conditions per Innovation Grade and Nature of Activity in Inova Brazil, Brazil, 2015 (Source: FINEP) 48 Activity A- New product, process, or service development B- Product, process, or service upgrading C- Pioneering production and commercialization Pioneering Innovation Grace period: up to 36 months Total: up to 120 months 7% annualy FINEP participation: until 80% 7% annualy FINEP participation: up to 70% 7% annualy FINEP participation: up to 60% Innovation and Competitiveness Grace period: up to 36 months Total: up to 120 months 8,5% annualy FINEP participation: until 70% 8,5% annualy FINEP participation: up to 60% 8,5% annualy FINEP participation: up to 50% Grace period: up to 48 months Total: up to 144 months 6% annualy FINEP participation: until 90% 6% annualy FINEP participation: up to 90% 6% annualy FINEP participation: up to 90% Continued Innovation Grace period: up to 24 months Total: up to 84 months 7,5% annualy FINEP participation: until 70% 7,5% annualy FINEP participation: up to 70% Innovation in Critical Technologies Preinvestment Grace period: up to 24 months Total: up to 84 months 10.5% annualy FINEP participation: until 60% 10.5% annualy FINEP participation: - - The table below shows some of FINEP s recent initiatives in funding IT innovation. These initiatives are highly connected to programs Inova Brazil and TI Maior Program. 48 Política Operacional - Condições De Financiamento / Taxa / Participação Finep 2015; Link: neiro.pdf 27

28 FINEP Funding for IT (Source: FINEP; ABINEE) 4950,51,52,53 Support Program Conditions Refundable Financing Inova Brazil Eligible: Companies investing in the development, improvement, or production of innovative projects in the interest areas. Taxes and time frame: The taxes vary from 6% to 10.5% per annum according to the type of innovation. The time frame also can range from 84 to 144 months. Grants TI Maior Program Eligible: The grants are provided through public calls. In March 2013 there was a public call for the IT sector offering US$30.8 million for IT companies. The public call scope was comprised of cloud computing, oil & gas, mining, cyber security, components, semiconductors and electronics, and aerospace. Taxes and time frame: There are no taxes. The time for execution is 36 months. FINEP also supports financing activities through sector-specific funds. The sector specific fund designated for IT is named CI-Info and is intended to stimulate R&D activities in IT and automation companies. FINEP also supports investments through a program named Programa Inovar, or Inovar Program, which targets the consolidation of venture capital initiatives in Brazil. The portfolio of investees by Inovar Program is composed of 100 companies. Of the investees, IT companies accounted for almost 30% of the total. 49 Associação Brasileira da Indústria Elétrica e Eletrônica, Brazilian Electrical and Electronics Industry Association, (ABINEE). 50 Ações Do Governo Federal na Área de Semicondutores ABINEE, 2011; Link: ; p.48; Last accessed on 01/08/ Política Operacional - Condições De Financiamento / Taxa / Participação FINEP,2013; Link: ; p.1; Last accessed on 01/08/ FINEP lança quatro editais de subvenção no valor de R$ 144 milhões FINEP, 2013; Link: milhoes ; Last accessed on 01/08/ Seleção pública MCTI/FINEP/FNDC Subvenção Econômica à Inovação TI Maior 04/2013 FINEP, 2013; Link: ; p.1-2; Last accessed on 01/08/

29 4.3.2 BNDES BNDES supports IT companies in all stages of innovation, from R&D of the product or service to its landing on the market. BNDES tools to support innovation can be divided into financing, equity, and non-refundable. PROSOFT is intended to increase the participation of domestic firms focused on IT services and software in the Brazilian IT market, and to help consolidate the industry and strengthen its innovation processes. The BNDES Inovação program aims to stimulate the innovation process in companies from all sectors, including IT companies. Innovation covers the following: product or process innovation, marketing strategy, and knowledge advancements. The BNDES PSI program aims to foster the production, acquisition and export capital assets, and technology innovation. The program is divided in 4 categories: Capital assets Innovation machines and equipment Innovation projects Exports 29

30 BNDES PSI Key Sub-Programs for IT Companies (Source: BNDES) 54,55,56 Program Financeable items Cost BNDES maximum Participation Timeframe BNDES PSI Capital assets BNDES PSI Innovation machinery and efficient equipment For IT, the sub-program comprises information technology and automation goods included in law 8.248/1991, produced under the basic productive process, and in line with the Ordinance 950 of MCTI. Among the main financeable items are: - Investments in manufacture with the aim of introducing innovation - Investment in buildings with R&D purposes - R&D current expenses - Technology parks The interest rate applied is 6,5% per year for SMEs and 7% for other businesses. The interest rate applied is 6,5% per year for SMEs and 7% for other businesses. BNDES participation can reach 70% for IT and automation goods. BNDES participation can reach 70% Maximum of 8 years and a 3 to 24 month grace period - Up to 10 years and a 4 year grace period for innovation investment plans - Up to 10 years, including a 3 to 48 month grace period for efficient equipment BNDES PSI Transformative Projects Investment projects for the establishment of technological and productive capacity in sectors that intensively use engineering knowledge related to goods not produced in the country and that generate production and quality gains The interest rate applied is 6,5% per year for SMEs and 7% for other businesses BNDES participation can reach 70% - Up to 10 years and a 4 year grace period Finame is a specific financing line from BNDES to finance the acquisition of machines and equipment produced in Brazil. BNDES can participate with up to 70 percent of the financeable items. To be eligible, the manufacturer shall carry out industrial activity in the country and be qualified within the nationalization index, calculated according to criteria established by BNDES. 57 Equipment and machinery with nationalization index equal to or higher than 60 percent can apply. 54 BNDES PSI - Projetos Transformadores BNDES,2014; Link: s/psi/psi_projetos_transformadores.html; Last accessed on 02/24/ BNDES PSI - Bens de Capital BNDES,2014; Link: s/psi/psi_bk.html; Last accessed on 02/24/ BNDES PSI - Inovação e Máquinas e Equipamentos Eficientes BNDES,2014; Link: s/psi/psi_inovacao.html; Last accessed on 02/24/ Credenciamento de máquinas, equipamentos, sistemas e componentes BNDES, 2014; Link: mentos/index.html#credenciamento, last accessed on 02/14/

31 BNDES also supports non-refundable capital with funds named Fundo para o Desenvolvimento Tecnológico das Telecomunicações, Fund for the Technological Development of Telecommunications, (FUNTTEL) and Fundo Tecnológico do BNDES, Technology Fund from BNDES, (FUNTEC). FUNTEC is a technology fund created with resources from BNDES that financially supports technology development and innovation aligned with the strategic policies of the federal government. It can finance up to 90 percent of the project with non-refundable funding 58. FUNTEC makes available US$102 million annually. From 2007 to 2011, more than US$ 41 million was applied toward ICT companies though FUNTEC to support the development of new solutions, the graduation and retention of IC designers, and the articulation among institutes and private companies. Some of the projects supported were the development of chips for low-cost hearing aids (US$3.3 million) and lightning devices with low-energy consumption based on OLED technology (US$ 7.8 million). 59 CRIATEC is an investment fund of seed capital supported by BNDES to fund innovative start-up companies. The following sectors are prioritized: IT, biotechnology, new materials, nanotechnology, and agribusiness 60. CRIATEC I invested US$51.2 million in 36 companies from different sectors. CRIATEC II was launched in August 2012 and aims to invest up to US$87 million in 36 companies. An analysis of key funding programs is fundamental to understanding the most suitable sources of capital for each investor, considering its company size and activity requiring funding. Table bellow provides a summary of the key programs IT investors can benefit from when investing in Brazil. 58 Linha Fundo Tecnológico FUNTEC. Desenvolvimento. Link: ; p.1; Last accessed on 06/30/ Relatório Annual 2011 BNDES, 2011; Link: ho_operacional/industria_comercio_e_servicos/tics_tecnologia_da_informacao_e_conhecimento.html, last accessed on 02/17/ Apoio à Inovação BNDES, 2013;link: /palestra_bndes_inovacao.pdf; p.14-15; Last accessed on 03/27/

32 Comparison of Funding Programs, Brazil, 2013 (REDETEC, ANPEI, FINEP, BNDES, adapted by Frost &Sullivan) 61 Program BNDES Automatic Institution BNDES Requires Payback FINAME BNDES X Prosoft BNDES X X Does Not Require Payback Program Value Up to US$10.2 million (except large companies = US$5.1 million) According to the supported modality Over US$511,000 per project (Prosoft Companies) FUNTEC BNDES X Not specified CT-Info FINEP X EMBRAPII 62 MCTI X TI Maior Program MCTI BNDES PSI BNDES X BNDES Innovation BNDES X X Related to public call 1/3 of the project value must be selffinanced Related to the public call and to the subprogram Depends on the subprogram and financed item From US$500,000 to $102.3 million Focus Investment on fixed assets and projects of research, development, and innovation Finance the acquisition of machines and equipment Support the operation of software and IT services companies Projects of innovation in information and computing systems Projects of innovation in information and computing systems Projects of research, development, and innovation Increase the competitiveness of Brazilian software and IT services Capital goods, innovation machinery and equipment, transformative projects and exports The entire cycle of innovation development Company Size All All All All All All All All Medium/large BNDES Credit BNDES X Up to Rotating credit Medium/large 61 Paula Gonzaga, Mapeamento dos Recursos e Subsídios disponíveis para Inovação - REDETEC and ANPEI,2013, Printed Document, p Rede de Tecnologia e Inovação, Technology and Innovation Network (REDETEC): Associação Nacional de Pesquisa e Desenvolvimento das Empresas Inovadoras, National Association of Research and Development of Innovative Companies (ANPEI) 62 Empresa Brasileira de Pesquisa e Inovação Industrial, Brazilian Company for Research and Industrial Innovation (EMPRAPII) 32

33 Limit US$500,000 to investments on research, development, and innovation Inova Brazil FINEP X Centralized grants FINEP BNDES Card BNDES X INOVACRED FINEP X TECNOVA FINEP X Scholarship RHAE Technology innovation Scholarship for technology innovation CNPq FAP 63 FAP SIBRATEC MCTI / SEBRAE 64 X SEBRAETEC SEBRAE X X X X X Minimum US$500,000 Related to public call Up to US$500,000 per card From US$767,000 to US$1.0 million From US$200,000 to US$610,000 US$ (average) US$ (average) Specific to each Brazilian state From US$ thousand to 95% of subsidized items 20% of the project value must be selffinanced The entire cycle of innovation development Projects of research, development, and innovation Supplies, machinery, and services Projects of research and development Projects of research, development, and innovation Insertion of advanceddegree workers in companies Projects of research, development, and innovation Technology innovation Projects of research, development, innovation, and technologic services Technological services Medium/large Medium/large Micro and small Micro and Small Micro and small All Micro and small Micro and small Micro and small Micro and small 63 Fundação de Amparo à Pesquisa, Research Foundation (FAP) 64 Serviço Brasileiro de Apoio às Micro e Pequenas Empresas, Brazilian Service of Support for Micro and Small Enterprises, (SEBRAE) 33