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Pilot Rapid Assessment of Skills, Knowledge and Innovation (SKI) in Ceará –

Proceedings of a Workshop Held in Fortaleza June 18, 2009

This note consists of seven components:

• An Assessment of Lesson Learned from the overall Pilot Activity • Overall Summary of Workshop • Summary of Presentations • Summary of Breakout Reports • Summary of Final Wrap Up Session • An Annex containing a Summary of the Breakout Group on Clusters

Lessons from the Overall SKI Rapid Assessment Methodology Pilot Experience The workshop described below was the culmination of a collaboration between the WB Task Team and the a team composed of staff from the Secretariats of Science, Technology, Innovation and Higher Education (SECITECE) and Planning (SEPLAG) of the Government of the State of Ceará. The two teams collaborate over a three month period to: (i) produce a background report (led by SECITECE) based on an evolving methodology for analyzing state capacity in science, technology, and innovation capacity; (ii) isolate the key issues for an agenda for improvement of these capacities; (iii) conduct a one-day workshop to discuss and review this agenda in light of experiences of other countries and regions. The remainder of this document summarizes the workshop, which was the culmination of the activity. Presented immediately below are the Task Team’s conclusions on the lessons learned from the pilot overall: 1. It is possible, in a short period of time, to raise the consciousness of counterparts and stimulate significant reflection on the content and direction of innovation policies using the methods employed in the pilot. This is particularly important because it is common for state governments to have unfocused approaches to innovation, and, in the absence of clear policy directions, to copy policies from advanced OECD economies. Such policies are generally not well suited to developing country needs. 2. The interactive nature of the methodology, in which a local team produces a background report, and the WB team provides frequent contact in the pre-workshop period, is an essential ingredient for a successful exercise. Some of the most important reflections from the exercise stem from the 2-3 month period during which the local counterparts struggles to produce a coherent background report, with some external guidance.

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3. To anchor the exercise, three main areas of emphasis were chosen: (i) STI policy coordination and coherence; (ii) human capital development; and (iii) the role of cluster promotion in innovation policies. These three areas provided focus to what might otherwise be a very diffuse set of issues. While these issues are not necessarily appropriate or transferable to other settings, it is desirable to choose a small number of themes around which to build discussion. 4. It is possible and desirable to move the discourse away from science-driven, high tech innovation policy toward concerns that are closer to the near term needs and possibilities of the local economy. The result can be a tailored strategy based on an empirically analysis of starting conditions. After the local and WB technical worked with the empirical data for several weeks prior to the workshop, it was natural to focus discussion on concrete issues related to the state economy, and not on a wish list of possible high tech opportunities. 5. The exercise creates expectations for a full analysis on the scale of a 18 month AAA product, even when it is stated beforehand that such an analysis cannot be produced in the 4 month period of the exercise. It is important to manage expectations and clarify outputs and their purposes. 6. The inclusion of relevant international experience is highly appreciated by the counterpart, and creates linkages between local challenges and existing successes. In the case of Ceará, the international experiences were drawn from the state of Nuevo León in Mexico, Catalunya and the Basque country in Spain, the Rhine-Muese region of Germany-Belgium-Holland, the US, and the states of Bahia and Pernambuco in Brazil. Such cases should be central to the exercise. 7. The methodologies for the background report can be developed into a "off-the-shelf" product that may allow state agencies to advance in the connection of policy to empirical data. 8. The presence of a high quality local consultant to liaise with the counterpart greatly facilitates the process and allows for much greater cost effectiveness. Achieving similar results without the presence of a competent local consultant working for the Bank team would be more difficult and more expensive. 9. Start up costs for finding data sources are substantial, as, in order to manage the process, the WB team needs to have a robust knowledge of existing data and its quality. Simply pointing the counterpart team to the types of data desired without "working through" data collection problems together would likely truncate some of the important learning outcomes. 10. The exercise was a unique way to leverage active, working cooperation between different parts of the state government with responsibilities for innovation. These partnerships were critical in the success of the workshop, but more importantly are

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critical to the success of the multi-sectoral policy processes that will need to underpin future policy development for innovation. Overall Summary of Workshop Summary The main counterpart of the workshop was the State Secretariat of Science, Technology and Higher Education for the State of Ceara (SECITECE), led by Secretary René Barreira and represented by Adjunct Secretary Teresa Lenice Mota,. The objectives of the workshop were: “to promote understanding of the challenges of innovation and skills development policies in Ceará and to discuss strategies to increase the impact of the State Innovation Policy”.1 The audience was:” public and private actors involved in the area of Innovation and Competitiveness”2

The workshop was successful in meeting these stated objectives. The workshop was held at the headquarters of the Federation of Industries of the State of Ceara, which co-sponsored the workshop along with SECITECE, the Secretariat of Planning and Management (SEPLAG), the State University of Ceará (UECE), the National Training Service (SENAI in its Portuguese acronym) and the Economic Research and Strategy Institute of Ceará (IPECE in its Portuguese Acronym) . The one day workshop (8:30 – 6:00 pm) started with roughly 80 participants which represented virtually all the state agencies involved in science and technology (including the Adjunct State Secretary of Science, Technology and Higher Education (SECITECE) and the Adjunct State Secretary or Planning and Administration (SEPLAG), Evelyn ___________;. the main state universities, research centers. of and various entrepreneurs (a record of participants and their affiliations is available from the organizers. The local counterparts produced a 100 page preliminary document titled “Background Document for the Workshop on Innovation, Knowledge and Competitiveness” of Ceara. The document was produced by a team involving various of the agencies involved in science technology and higher education in the state with the active participation of the Economic Research and Strategy Institute. The objective of the preliminary background paper was to provide a summary of the current situation of the state system of innovation in Ceara for the conference. It sought to provide the facts from which the participants could begin to develop suggestions and directives for the improvement of public policies to stimulate the generation and utilization of knowledge to improve the competitiveness of the state and the welfare of its citizens. The document also stated that there was an expectation that the workshop would help to establish a methodology for a preliminary set of criteria to define priorities and actions to be considered for a cooperation project between the Government of the State of Ceara and the World Bank to support the strengthening of the state’s system of innovation. This background document gave some analysis of the situation of the state, and a good overview of the many agencies and programs of the state. This information 1 Translation from publicly circulated invitation to the workshop. 2 Ibid

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was all descriptive: it was beyond the scope of the background report to include evaluation of coherence, analysis of the overlap of the multiple programs, or evaluation of results or overall impact. The workshop started by a presentation of the background document by the Adjunct State Secretary followed by a Bank presentation on innovation and macro analysis of the performance of Brazil in the world and of the State of Ceara in the context of Brazil. These were in turn followed by more detailed WB team presentations on three topics: science, technology, and innovation policies; human capital; and clusters. The workshop then continued with parallel break out groups, one on each of the above topics. These were characterized by very active discussions among the participants. Rapporteurs summarized the main findings from the discussion of the respective break out groups in reports back to the plenary. Reacting to the break out group presentations, the Adjunct State Secretary of SECITECE summarized the key points she took away from the workshop and made several requests. The key points were:

1. She was impressed by value of the discussion and joint action. This was real cooperation. She also saw the value of interdisciplinary approach to the issues.

2. She was struck by the richness and importance of the meeting. She was pleased with the number and diversity of participants. She hoped that participants would volunteer to take part in the finalization of the background document that had been prepared.

3. The group on human capital had started with basic education but had gone much

beyond education to look at the demand for education from the changing investments of the state. She welcomed the active participation of the representatives from basic education.

4. The cluster group had gone on to regional development and had emphasized the need for coordination among the different parts of government. She also welcomed the participation of representatives of the Secretary of Cities.

5. The policy group had raised important issues, including the need to improve the

effectiveness of the State Council on Science and technology and the need to create an implementation agency. She also noted the recommendation for the state to be more proactive in getting resources from FINEP.

6. She wanted to keep the process that has been started with the workshop to continue. She acknowledged that the World Bank had played an important role and hoped that it would be possible to continue collaborating. As next steps she thought it would be desirable to have a summary of the proceedings of the

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workshop, and, time and resources permitting also a report with recommendations on

• How to improve the effectiveness of the State Science and Technology Council.

• How to improve the states actions to promote innovation in the state • The creation of an specialized agency for implementation as suggested in

he policy work-out group discussion • How to set up a system to monitor the effectiveness of the different

programs • The broad outlines of a possible Bank project to support innovation and

competitiveness in Ceara •

7. She asked for comments from the final wrap up panel, which consisted of the Bank team, and the FIEC representative. These comments essentially supported her summary, but did not commit the Bank to the expanded follow-up she requested. The comments from the wrap up panel are summarized at the end of this note.

Overall Assessment. The Bank team’s assessment is that the preparation for the workshop, the workshop, and the discussion during the mission showed:

• There is clearly a lot of interest in the issue of innovation and competitiveness in Ceara, including from the private sector.

• There are a wide array of government institutions and programs involved in the many areas of science and technology, human capital, and cluster development in the state.

• There is no clear coherent vision of what the state is trying to accomplish, or of strategy priorities.

• There is clear potential. The state has a strong entrepreneurial class and a State Government that is interested in supporting the state’s growth and development.

• There is good will from the government, the universities and think tanks, and the private sector in working together.

• There is still a lot of work to do to develop a more coherent strategy and to agree on priority actions.

• The WB can help develop that, but it will require resources for further economic and sector work and for project preparation, if the latter is agreed to be a desirable objective

• Bank management needs to provide some guidance on the way forward. Summary of Presentation 1: An Approach to Knowledge and Innovation in the State of Ceara

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Innovation in the context of developing countries should not be interpreted as development of something new at the level of the world frontier, but rather something that is new to the country, the sector, or the firm or organization. It is not just a new product or process, but also new ways to organize the production or the delivery of goods and services. In addition, it should not be thought of something for the private sector. It also applies to how governments, non government organizations and even individual do things. From this perspective, the sources of innovation may be from abroad, from other firms or actors in the national or even local context, or from domestic research institutes and universities. In the period 2000-2007 Brazil’s annual GDP growth has averaged 3.3% per year. While a big improvement over the growth of 2.7 % in the decade 1990-2000, Brazil’s annual growth 2000-2007 is lower than the average growth for middle income countries of 3.3 %. And significantly below that of China (10.3%) and India (7.8 %). Ceara’s average growth over the last five years is not much different from the average for Brazil although it grew slower in the earlier years, but faster in the later years Ceara’s average GDP per capita is around 43% of that of the average for Brazil. Not surprisingly, as much poorer than Brazil, on most social indicators Ceara does much more worse than the rest of Brazil, although it has made significant improvements over the last decade. For example, the percentage of the population below the poverty line in Ceara fell from 60% in 1997 to 44% in 2007, but even in 2007 that was twice as high as the 23% average for Brazil, and slightly below the average for the Northeast. The percentage of the population 15-24 years old who was illiterate fell from 16% in 2007 to 4% in 2007, but that was still almost twice the 2.2% average for Brazil. Under five infant mortality per 1000 live births fell from 97% in 1990 to 65 in 2000, but that was still much worse than the average of 40 for Brazil. Similarly the percentage of household with access to sanitation increased from 6% to 21%, but that was still less than half the average of 46% for Brazil. Therefore it is clear that there is still much that Ceara can do to improve basic welfare compared to the rest of Brazil. Most of this is not a matter of developing new knowledge, but of diffusing existing knowledge and making more investments in rural areas. . A useful benchmarking of international competitiveness is that developed by the World Economic Forum (WEF).3

They benchmark --variables grouped into twelve areas, further aggregated into three pillars:

Basic Requirements: institutions, infrastructure, macro economic stability, health and basic education Efficiency Enhancers: higher education and training, goods markets efficiency, labor market efficiency, financial market sophistication, technological readiness, market size

3 See World Economic Forum (2009). Global Competitiveness Report 2008/9). Geneva Switzerland.

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Innovation and Business Sophistication: business sophistication, innovation.

Brazils ranking in the latest WEF report (2008/2009) is 64th among 134 countries. It is ranked weaker on basic requirements (96th—because of very low ratings on macro economic stability at 122nd), slightly better than its overall score (51rst) in efficiency enhancers, and relatively better (42nd

) in innovation and business sophistication.

There is no direct comparable ranking for states in Brazil. The closest is a ranking developed by the foundation in Brazil done in 3006 based on a modified Michael Porter competitiveness diamond using – variables labor force skills, knowledge and innovation, and infrastructure In this domestic competitiveness ranking Ceara places 16th among 27 states. Ceara holds its relative ranking in labor force skill, does better in knowledge and training (11th and worse in infrastructure (22nd

).

The State of Ceara tends to have roughly half the R&D intensity than the average for Brazil as a whole, whether measured on the input side in terms of R&D expenditures as a share of GDP or researcher per thousand population or on the output side in terms of publications or patents per million population. However, Ceara has been increasing its R&D intensity on all this measures over the last few years, indicating that there is a growing capability. Firm level survey data in Brazil as reported by the PINTEC data base show the most cited sources of innovation by firms are the purchases of capital goods and equipment, followed by contracting people with the knowledge, as well as interaction with suppliers as well as customers. This is consistent with innovation surveys in developed countries. Many of the policies that affect innovation in the broad way outlined above are set at the national level. These include the broad macro variables such as inflation, interest rates, exchange rates, federal taxes, capital and labor markets; public goods such as security, basic education, basic research, infrastructure; and national industrial policies. Most of these are set at the national level, but some elements of them are done at the local level such as some elements of education, physical infrastructure, local knowledge institutions and technological infrastructure, regional development and cluster policies, and coordination. These are the areas that can be affected by policy and actions at the level of a state such as Ceara. The implications for firms are that they have innovation requires information of what the market and the client want, sources of new technologies, technical and management capacity to respond to changing market and technology opportunities, and access to complementary assets (such a finance, training, technological and market services, physical and communications infrastructure. Some of these are discrete complementary assets that can be acquired by the firm. Others are part of the broader policies and institutions that are provided by the state. Finally there are others are “club” goods that can be provide or acquired by group of related

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firms. Cluster development consists of identifying, and leveraging actions that can improve the flow of knowledge and complementary assets among firms that and interdependent. Summary of Presentation 2: Developing a Coherent Approach to Science, Technology and Innovation policies for Ceará Over the past few years the State of Ceará has created several new institutions to support science, technology and innovation which are considered key to the further economic and social development of Ceará. The Secretaría de Estado da Ciência, Tecnologia e Educação Superior is the spider in the web of the Sistema Estadual de Ciência, Tecnologia e Inovação. An Advisory Council for STI has been established in 2007, and a Law on Innovation has been promulgated in October 2008. As building effective policy systems depends on continued learning from the experience of a number of advanced regions worldwide, further review of experiences may point the way to gearing efforts in the area of STI to the regional development of Ceará. One small European country, Finland, and three regions in Europe have been chosen to bring to the fore some of the key aspects of policy making to create effective STI systems. These three regions are Catalunya and the Basque Country in Spain, and a region dubbed the Meus-Rhine region, consisting of the Southeastern part of the Netherlands and adjacent regions in Germania, Flanders and the Walloon Region in Belgium. Details about these four reference territories are to be found in the presentation. Their population is of the same order of magnitude as Ceará’s; they are much more advanced: Finland is always among the countries leading competitiveness rankings, the two Spanish regions lead Spain and do much better than the EU average; the Meuse-Rhine regions is not doing badly but still has to realize its full potential. What is relevant is that their efforts all originated in a particular challenge to their received ways of creating welfare and prosperity. Catalunya, relatively advanced in a fairly closed Spain, faced the opening up to the European market when Spain entered the EU. The Basque Country had to overcome the decline of heavy industry and shipbuilding. Finland faced the end of the dominance of natural resources and the loss of the Soviet-dominated market at the end of the 1980-ies. The huge potential in terms of a very dense set of major private and public research-based companies, universities, university hospitals and research centres in the Meuse-Rhine region can only be unlocked if ways are found to foster cross-border cooperation between three countries and five regions, a challenge not in the least for the governments. As nothing unites more than a challenge one may ask whether the government could get the major stakeholders to agree on the key common challenge –it should be a concrete one and include the threats for Ceará if an effective response is not realized. As regards the context for regional policies for STI the examples tell the same story on two other aspects as well. Innovation is not only relevant for high-tech sectors and is not only based on advanced R&D, or even on R&D at all, but is a concept that can be applied to all firms and sectors desiring to increase their competitive position; and increasing competitiveness comprises firm strategy, marketing, design, production and logistics, use

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of ICT etc. Second, one needs to assess carefully what is in the remit of regional authorities, and what can only be done by the national or federal government. Catalunya and the Basque Country are very autonomous; the governments in the Meuse-Rhine region are not. Ceará is in between. The region then needs to build up synergy, and convince the national government that coordinated efforts are in the interest of the region and the nation. Participants at the workshop for example called on the Ceará government to define its own research priorities and try and influence the federal government to support these. Commitment to a common longer-term strategy by the key stakeholders in economic development is perhaps the single most important aspect of an effective system for STI. It usually finds its expression in a high-level Council chaired by the Prime Minister of the country or region. Finland has a very effective Research and Innovation Council; the Basque Country now has one as well. Catalunya works with Sub-Council of Ministers chaired by the President of the Regional Government, but has strong and formal partnerships with the private sector and universities and research centres to ensure that policies are in fact common policies. Since 2007, Ceará has a Coselho Estadual de Ciência, Tecnologia e Inovação. The Finnish one in particular stands out by its well-chosen composition: the key ministers (including those of Health and Labour), CEO’s of some of the major Finnish companies, representatives from selected universities, and the heads of the two implementing organizations, all contributing to a genuine commitment to the tasks of the council. In comparing its responsibilities, composition and activities as evidenced by preparatory reports it would appear that improvements are possible. This was confirmed during the workshop: a great number of participants pointed to specific weaknesses and discussed improvements. Below key roles and operating principles are identified presented at the workshop as derived from successful examples abroad. In Annex 1 a number of concrete recommendations will be presented for Ceará. The following roles prove essential in the foreign cases.

• Agreeing on key components of an economic development strategy; defining a

systematic action plan using the structure (see next section); defining of a small number of key projects with concrete targets (a few specific clusters, a technology centre, improving data communications infrastructure, ..).

• Committing to work together, coordinating activities and mobilizing and committing respective constituencies.

• Communicating with the constituencies of the stakeholders but also with society at large.

• Monitoring and measuring progress. • Discussing the funding basis for the strategy. Creating, or at least discussing, an

effective infrastructure for implementation of the strategy. In addition the Finnish example in particular shows the importance of a dedicated secretariat and a regular meeting schedule with the Prime Minister giving the example of being present: four times a year, and two subcommittees meeting 8 times a year to work on a well-structured agenda.

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The overall goal of making Ceará more competitive through and benefit from STI is easily stated. How to translate this into a number of concrete goals, instruments and activities is the hard part. It helps to adopt a structured approach. A useful scheme is for example to distinguish four main pillars of successful and competitive regions or countries. They have in the first place Institutions and Incentives that provide an overall environment conducive to innovation. A good set of macro-economic policies; various legislations vital for innovation (IPR legislation, ‘dual purpose’ environmental regulations, for example) is a first area; a system of institutions and policies to develop the Human Resources required is a second. A third concerns a system for the acquisition and/or development of Technology, Knowledge and Innovation. Working on the Information Infrastructure is final area, meaning not only data communications, such as a dedicated NREN to which also R&D performing companies have access and high-level connectivity for companies, public and private organizations and citizens alike, but also specialized information services, e.g. as part of developing the tourist industry. As regards Technology, Knowledge and Innovation the Background document for the Workshop provides a very useful and apparently comprehensive overview of all the organizations and mechanisms such as the new Law on Innovation involved in stimulating and applying science, technology and innovation. It is, however, important not to lose sight of key policy issues that as it were precede some of the practical arrangements. Is private, but also public demand sufficiently articulated? Have the government and key stakeholders agreed on a direction; that is, have they for example identified a mix of a few clusters, key generic technologies and a few ‘new’ sectors with great potential for Ceará? This would be in line with the view expressed by the participants at the workshop that the government of Ceará should not refrain from defining its own research priorities and seek support from the federal government in realizing these. In some level of detail an overview has been presented of the way Catalunya and the Basque Country have organized their STI system, from the policy structures to the implementation part of it. No duplication will be given here of that presentation, but some general characteristics are highlighted. Before dealing with the desirability of a consistent, solid methodology to identify and elaborate the direction to go, the need for a long-term staged approach and the crucial nature of having a strong implementation mechanism, a few other aspects are mentioned. The overview shows that in both Spanish regions (and in Finland as well) they first now have reached a level of completeness, which of course will not be static, but which anyhow took a considerable time to build up not as a blue print right from the beginning but as something that evolved in accordance with increased clarity of direction and insight in innovative processes in the light of changing international challenges. Secondly, large amounts funding are involved both in the two Spanish regions and, naturally, the country Finland. Thirdly, in all the three cases one witnesses a deliberate broadening of the scope of policies promoting science, technology and innovation. Involving the public, creating an awareness of, and a spirit of entrepreneurship, creativity and innovation are seen as essential. The implication is that social innovation or innovation in the public domain is increasingly being added to the range of targeted economic activities. Finland stands again maybe out as a country where

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there is a wide consensus about innovation, which derives from but equally contributes in no small degree to the commitment of the key stakeholders. The Basque Country and Catalunya adopted very early on M.E. Porter’s concept of clusters and this is very useful both for a systematic diagnosis of the situation of the economy and its various constituent components and for a structured design and implantation of a plan for strengthening the dynamics and the competitiveness of various clusters. As the examples of these two Spanish regions show, the Basque Country has identified twelve clusters, Catalunya eleven local production systems and underneath a far greater number of very localized micro-clusters, the concept of a cluster allows for considerable flexibility, including the name itself, yet imposes a useful solidity and structured rigorousness in identifying key opportunities and determinants for success. In the case of the Meuse-Rhine the existence of very large companies and for example large innovative university hospitals engendered a different approach in which a limited number of ‘growth engines’ was determined in the form of major new projects (the decision to create new business line in biomaterials, or the decision of the University Hospitals of Maastricht and Aachen to build a joint world-level cancer centre surrounded by an industrial park for medical technology companies) of these big players. That will be the stimulus for SMEs to start contributing to regional GDP in new directions. So different approaches are possible, but a being disciplined, structured and systematic is a hallmark of all. Devising a set of policies and instruments for implementing them is one thing, actually implementing them quite another. For clarity’s sake it is useful to distinguish between three broad categories. Devising the institutional architecture of the key institutions and the legal framework that should guide and even make possible the work of all those (companies, research units in universities, those in technology transfer units, but also venture capitalists, etc) actually engaged in carrying out research and development or developing and funding innovations is the first domain. The second concerns the funding, usually on a competitive basis, of academically-oriented or strategic research in universities or research centres. As the first obviously seems to be the responsibility of, in Ceará’s case, the Secretary for Science, Technology and Higher Education, and as the second in almost all countries is the task of a dedicated funding council (other names used are a foundation or an agency; the names here have nothing to do with their legal status), we are primarily concerned with the third area. The case of Catalunya gives a very good idea of the variety of tasks to be carried out. In Catalunya’s case this is done by one organization called ACC1ó, the Catalunyan Agency for Competitiveness. Their 350 specialists operate in three broad areas. a) Providing financial (grants, loans) and expert support to companies in areas as diverse

as export support, business plan development, technical support through one the technical networks (see below), productivity and quality improvement, but also advice to investors.

b) Building up and maintaining several networks, such as • Network of technology assessment specialists

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• Network of 75 support centres for technological innovation (within universities or private not-for-profit centres) for carrying out applied research’ largely through contracts

• Network of 12 Technology Centres to provide technology services • Network of private investors • Network of around 20 offices worldwide.

c) Supporting and promoting the various clusters that have been identified but also

helping new ones, through all of the above measures as well as studies, network activities and so on.

The Catalunyan ACC1ó in a way oversees the various networks and any institutional public funding comes from the ministry through ACC1ó. For Ceará the Background Report for the workshop once more provides much of the necessary information on the various organizations, including the Secretaria de Ciência, Tecnologia e Educação Superior (SECITECE). Considering their various responsibilities and tasks one is inclined to give a second thought to the mission, the responsibilities, the primary clients, the staffing and the mutual relations between these different organizations. The discussions among the participants during the Workshop tended to confirm that they thought in majority that this would be rather important. Annex 2 presents a number of recommendations as to how such an analysis could be carried out in the perspective of an ‘Innovation Agency’, this being however in the first place an analytical tool in the form of the various functions as listed and structured for the Catalunyan ACC1ó. In a second stage one would consider the allocation of these functions to one or more organizations and inconsequence a reshuffling of tasks and organizational position, including mergers. The Basque Country illustrates a third vital aspect for effective policies for STI. They require a long-term approach pursued with consistency and determination. In turn such a long-term approach can for a variety of reasons, only of which is the need to accommodate the usually four-year government cycles, only be sustained if this is done through well-defined stages. Of course the later stages cannot be described in detail when one starts a say 15-year process. Yet one must accept that it takes that long, and a broad idea must be formed of what the essence of various stages could be. It does not at all imply that all actions are of a long-term nature. Many of them must be short-term. Ensuring that the policies have sufficient support in society is one important reason but there are equally compelling substantial arguments: after all, change processes of long duration better start right away; building up human resources is of immediate importance and pays off as soon as the first persons with new skills are ready to go into the labour market. The presentation of the Basque Country showed that, admittedly with hindsight in terms of the precision now associated with especially the second and third phase, they have gone through three stages. The first, from 1980 to the mid-nineties, was characterized by a focus on industrial policy and on developing and otherwise supporting the requisite industrial technologies, in part to upgrade some of still viable traditional industries, in part to help build up some new industrial capabilities. In the second stage,

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from 1997-2005, the focus was on Science and Technology, and later on Innovation. Linking supply and demand became the key to what the government and the other stakeholders agreed to achieve. The presentation describes the elaborate but dedicated network of clusters, technology parks, centres for business and innovation, cooperative research centres and technology centres that came to fruition. No the time has come to focus on results: the system has to deliver. Overall plans for Competitiveness and Social Innovation, for Science, Research and Innovation, and for specific sectors such as biotechnology in which the Basque Country after an extensive analysis believes it has an edge, have been defined. The institutional framework has been completed with IkerBasque as an organization with the dedicated task to attract top scientists through internationally competitive salaries in order to increase the international orientation of the Basque Country. And the Basque Innovation Agency (underlining “what is in a name”) stimulates innovation and entrepreneurship throughout the Basque society. Monitoring the development of the economy and the impact of policy measures or of research and innovation efforts requires trying to measure these. An extensive tradition exists and also in Brazil an impressive amount of statistical data is gathered, relating to human resources, research and development, economic weight and growth of sectors, and so on. Two additional aspects deserve attention. The first concerns data for in-depth analysis of what the situation in particular branches of industry is, and for knowing what needs to be done to help the firm in the key technologies and skills they use to produce their goods and services. It is important to survey technologies and skills firms actually use, which technologies and skills they deem to be most urgent to acquire, and for the latter usually a survey of what industries in comparable sectors elsewhere apply, is necessary. This requires more than statistical data. In Uganda the Ugandan Industrial Research Institute has recently set up an Industrial Resource Centre to do exactly this: require a detailed picture of the state-of-the-art in technology and skills in Ugandan industry and on that basis assist in raising productivity and competitiveness of Ugandan companies. The second aspect deserving attention has to do with aggregate indices or combinations of indicators which are meant to provide a more palatable and sometimes highly instructive insight in where a country, a region, a city, or an industry. The Index of State Competitiveness in Brazil is already a good example of this. Based on Porter’s diamond model of competitiveness, it focuses on a limited set of indicators for one of the diamond corners, namely the factor input, such as human resources or research funding. In a totally different ball park the Silicon Valley Index gives the combined stakeholders (taken very broadly: including schools, hospitals, museums, local governments, etc) an annual picture of whether conditions improve or decline, suggesting where any of the stakeholders need to take action to keep Silicon Valley the uniquely attractive place it is. Also at the top hard work is required. In the European Union much effort has been going into attempts to catch the essence of innovative performance in a more sophisticated way. Currently this has crystallized in a set of 30 indicators which according to current insights give a reasonable and measurable insight in a number of categories relevant to innovative performance. These range from a number of special indicators for measuring human resources, to measuring firm investments, or linkages and entrepreneurship, to economic effects. When combined in an appropriate way into one figure between 0 and 1, the result is for example a highly instructive diagram in which the performance of a country is

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given by a position on a two-dimensional graph, the vertical axis indicating its performance on this Summary Innovation Index (Switzerland comes out highest, Finland scoring very high as well), and the horizontal axis indicating the growth rate over the most recent 5-year period (Romania and Bulgaria, being very low on the Summary Innovation Index, score the highest when it comes to growth rate in innovative performance measured this way). Summary of Presentation 3: Skills and Human Capital Development The presentation began with a review of the role of human capital in growth, noting recent analytical work that suggests strongly that the quality of the overall stock of human capital is the most important measure of this assets ability to contribute to robust growth. Evidence was discussed from the United States where the universalization of secondary school attendance and graduation moved forward in tandem with significant industrial development. The challenges for management and organization in the pre-WWII US economy were compatible with the skills being produced in large numbers by the “universal high school” movement. Following WWII, the GI Bill of Rights sparked a move toward the universalization of tertiary education as the complexity of skill requirements in the economy moved to a new level. The result was that human capital appeared to be a factor contributing to growth rather than a constraint. At the same time, the near-universal coverage created a large supply of educated workers, keeping wage differentials between educated and uneducated workers low. Only in the 1980’s, when new entrants into tertiary education reached a plateau, did significant wage inequality come to be associated with skills differential. A potential lesson for Ceará is that a broad-based approach to human capital development—one compatible with the near term challenges in the labor market, has a high potential to contribute rather than constrain growth. Additional evidence was presented from Hanuschek and Woessman 2009 demonstrating a near-perfect correlation between the quality of education as measured by student performance on internationally-comparable tests of math, science, and reading quality and economic growth over a almost five decade period. This evidence is from 60 countries. The main lesson here is that the quality of education, not its duration, is the key to achieving economic returns, and hence policymakers must concern themselves with their relative performance on international exams or their equivalents. The most effective role for state-level innovation authorities involves: (i) setting goals for educational achievement and advocating for these; (ii) publicizing measures educational achievement; (iii) analyzing education results and benchmarking these against well-chosen comparators; (iv) keeping the focus on student learning outcomes as the most appropriate measure of success; (v) brokering key partnerships with the private sector and employers. It was noted that it is common to find these functions with Innovation policy. For example, the EU’s Lisbon Agenda contains specific benchmarks for human capital progress; the US National Academy of Sciences has set specific targets for improvement of teaching; and Chile’s National Council on Innovation for Competitiveness has provided a series of goals for education reform.

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It was noted that Ceará is still working through a demographic bulge, with the only cohort of school-aged children smaller than its predecessor arriving in schools soon. The main achievement of the state has been to universalize primary schools coverage, and greatly increase enrollment and graduation rates in basic education. Brazil is on an upward trend for educational attainment in the populations as a whole, and Ceará mirrors that trend. However, Ceará still lags the national average. Perhaps more important, increased coverage has come at the cost of quality. Over the past decades student learning outcomes have decreased and, while they are now once again on an upward trend, they have not regained the highs of the mid-1990’s. There are also significant differences between rural and urban schools and federal and state versus municipal schools. Student achievement scores in the state tend to lag the national average by about 3% to 5%, and there has been no noticeable trend to close the gaps. Gaps are relatively uniform across grades and subjects. While Ceará accounts for 4.4% of national population, it accounts for only 2.5% of tertiary education enrollment. It is above the national average in non-university programs, especially centers for technical education and single-faculty institutions. It is not clear without more in-depth analysis what this fact signifies. Ceará also trends below the national average in the qualifications of tertiary faculty. The General Index of Course (or IGC in its Portuguese acronym), which measure quality of tertiary institutions on a scale of 1 to 5, shows Ceará above the national average for the middle ranked institutions (categorgy 3) and below the national average for both poor scoring institutions (categories 1&2) and high scoring institutions (categories 4&5). Ceará attracts a lower proportion of federal funds for science and technology research. It performs better than Bahia in this respect but lags behind Pernambuco, which attracts 25% more federal funding. The Federal Sectoral Funds, which have specific set-asides for the Northeast, are offset some of this inequality. The major challenge for Ceará will be to raise achievement and student learning outcomes at all levels over the long run – a goal that involves complex interventions at many points in the system. From the perspective of innovation, the most important policy approach is to connect this long-term goal with more immediate near-term interventions that are most compatible with the needs of the economy. Ceará’s labor force is characterized by a high degree of informality. Worker’s with complete secondary education are most common. In the near term, it was suggested that: (i) cluster policy ought to focus on sectors which have possibilities to employ large numbers of people, such as tourism and agro-industry and for which a combination of improved formal schooling and training can be used to provide skills; (ii) the idea of career paths be introduced into the training and education system, to give students incentives to make educational upgrading a regular part of their career considerations.

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The presentation closed with an example of an approach to career paths that has been successful in changing workforce development policies at the tertiary non-university level. Summary of Presentation 4: Cluster Development as a Main Element of Innovation Policy

A cluster is a geographic concentration of related firms that produce and sell a series of related products and services and that face common challenges and opportunities. The members of a cluster are the related industries including input and service suppliers and distributors. It may also include public institutions and brokers or facilitators that can help promote the cluster. Focusing on cluster development make take advantage of economies of scale in provision of inputs and services, infrastructure, specialized training. It can also take advantage of externalities in labor and knowledge flow across firms and institutions. The members can also work together to identify common problems or opportunities and reduction of transaction costs in interaction with firms and organizations outside the cluster. Aggregating the challenges and opportunities across clusters may also help to identify common problems and externalities in to regional economies. The identification of clusters can be done top down through statistical analysis of related industries in specified geographic areas. It can also be done bottom up by starting with firms in industry associations and finding the key backward and forward linkages. It can also be done through a combination of the two approaches. As a first step is it also possible to start with a broad macro analysis of the economic and export structure of the regional economy. In Ceara the largest share of state GDP is public administration, whose share is higher than the average for Brazil. It is followed by commerce and repair whose share is similar to the average for Brazil. The third is manufacturing, where the share is significantly less than in Brazil as a whole. On the other hand, the share of agriculture is larger than the average for Brazil The distribution of formal sector employment is similar to that of value added, except that the manufacturing sector employs a larger share than services. The distribution of total employment indicates that the agricultural and manufacturing sector have the largest share of informal employment. This suggests that more has to be done to absorb agricultural workers and informal workers in higher productivity formal employment. This will be particularly important for reducing poverty. The export structure indicates that Ceara has a strong comparative advantage in five products which together account for more than 85% of the total. They are: foot ware 27% of exports, fruits (21%), skins (14%), cotton (13%), and fish (10%).

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For the sake of illustration one could pick four different types of clusters. One was clearly footwear, as that was already the largest exporting sector of Ceara. This presentation did not go into it as Monica would make a presentation on the cluster work that is being done on footwear in the interior of Ceara as part of the WB project with the Secretariat of Cities. Another cluster should be fruits or fish as it was clear that the state has unrealized potential in that sector. There is lots of unrealized potential to develop this sector by moving up the value chain. In the area of fruits much could be done, for example, using knowledge to improve the taste, firmness, transportability, quality assurance, logistics, marketing and distribution of fruit. This sector could provide significant increase in employment in the rural areas which would be very beneficial for improving welfare in the state. Similar value enhancing improvements could be done for the export of fish. For fruits as well as for fish exports it would also be necessary to know and to be able to certify compliance with the phyto-sanitary requirements of the importing countries. That would also imply having the necessary testing and certification equipment . A very different type of cluster is sanitation. As was seen in the macro overview Ceara has not performed very well in sanitation. Sanitation is a critical element for improving health outcomes. Sanitation can be provided by many different technologies, from those that are most appropriate for dense urban areas to those that are most appropriate for poor isolated areas. In designing the most appropriate system for different locations is it also necessary to take into account how it will be financed, as well as the willingness or ability of users to pay. Thus the users should be an integral part of the cluster. Tourism is a cluster of great potential for Ceara because of its 572 kilometers of beautiful beaches, its natural environment attractions, history, and culture. It can also be an important source of employment for many people. The World Economic Forum has developed a competitiveness index for travel and tourism which is useful in showing the many related areas which affect the tourism cluster. The index consists of indicators for 14 pillars which are aggregated into three sub-indices:

• T&T Regulatory Framework: policy rules and regulations, environmental sustainability, safety and security, health and hygiene, and prioritization of travel and tourism

• T&T Business Environment and Infrastructure: air transport infrastructure, ground transport infrastructure, tourism infrastructure, ICT infrastructure, and price competitiveness in the T&T industry

• T&T Human, Cultural, and Natural Resources: human resources, affinity for travel and tourism, natural resources, and cultural resources.

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• The Travel and Tourism Competitiveness Report 20094 ranked Brazil 45th out of 133 countries. Brazil’s weakest pillars were: safety and security (130th), ground transport infrastructure (110th), and affinity for travel and tourism (108th). Its strongest pillars were: natural resources (2nd), environmental resources (14th) and environmental sustainability (33rd

). There is no ranking at the level of states. However the WEF T&T report could be used as a useful starting point for thinking about the different components of the tourism cluster in the state and using that to identify the related industries, and areas that need to be tackled to improve the performance of the sector.

The first state of the development of a cluster strategy is a participative analysis involving the members of the cluster and well as relevant government agencies that can play a part in the development of the cluster, and perhaps also cluster development brokers to facilitate the process. The next step is the analysis of the challenges and opportunities of the cluster. This is best done by the members of the cluster with outside support if necessary. Based on this come the development of a concrete action plan detailing who is responsible for what, from the firms themselves to relevant government agencies. It is important to also set up monitoring and evaluation mechanism to track the implementation of the plan as well as to adjust it as necessary. . One of the lessons of cluster development experience is that it is important to develop the confidence of the members of the cluster based on sharing of information, identification of common objectives, and concrete actions that benefit the members of the cluster. A second lesson is that the development of a cluster strategy is a continuous process which requires continuous monitoring of new threats and opportunities and corresponding adjustment to the plan. The role of the state and local government is to be the promoter or catalyzing agent in the development of the cluster, not the main actor. It needs to involve the members of the cluster and they need to have direct ownership of the process. The state government has an important role in providing complementary inputs such are relevant public services including infrastructure, technology infrastructure, education, and fiscal and financial support as appropriate within the context of regional development strategy. Another important role is to help create a vision of for the future of the state which promote private and public action to improve the quality of life and future of the state. An ambitious example of this is the cluster development strategy of the state of Nuevo Leon in Mexico. This is the most industrialized state in Mexico, somewhat like a smaller version of Sao Paulo. The strategy consists of using cluster development strategy to improve existing clusters as well as to develop new clusters of the future. 5

4 Available at: http://www.weforum.org/pdf/TTCR09/TTCR09_FullReport.pdf

The vision is to mover from a manufacturing based state (where the main industries are: glass, cement, steel, beverages ) to a “mindfactoring” based state (where the main clusters are: information technology and software, nano technology, biotechnology, mechatronics,

5 See Centro de Competividad y Capital Intelectual. Nuevo Leon Competitivo: Programa Regional de Competitividad e Innovación

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specialized medical services, and aeronautics). To develop this strategy the state government worked with industry in the state (including foreign firms), universities, and the social sectors (labor union, ngos ) to identify the current situation of the states economy, challenge, and opportunities. Based on a detailed analysis of the economic structure at a much disaggregated level, they identified key clusters and the worked with those clusters to develop detailed cluster development plans. These were then aggregated back to the state level see how they fit together and what broader complementary investments were needed to address the needs. . This example is not to suggest that Ceara should replicate this ambitious strategy. It is presented just to illustrate how cluster strategies can be aggregated as part of longe term visions. For Ceara right now it is more sensible to work pragmatically to improve the potential of existing clusters, but also to think about the longer term vision for the development of the state. Summary of Presentation 5: Production of footwear is the most important manufacturing activity in the Central part (Crajubar) of the Cariri region, creating nearly 45% of formal manufacturing jobs in Crajubar. Cariri region is located in the south of Ceara and is home for approximately 555,000 inhabitants. Crajubar encompasses Cariri´s three largest municipalities: Crato, Juazeiro do Norte and Barbalha, with a population of nearly 400,000 inhabitants. Footwear production in Crajubar is a traditional activity having started more than a century ago and using leather as basic material. In the 1960s, production started to shift to synthetic material. Crajubar footwear production currently focuses on female sandals and surf sandals. Total local production of this items reaches 90 million pairs a year, which makes Crajubar the 3rd

largest specialized production center.

Production of footwear in Crajubar operates as a cluster. Government of Ceara, with the support of a World Bank project (Ceara Regional Development Project-Cidades do Ceara) has acted as a catalyzer facilitating organization and planning business development. Cluster actors have reflected on their vision of the future, produced a diagnostic for industry current status (including a participatory SWOT analysis) and agreed on a strategy to reach chosen vision. The strategy points out to initiatives to organize cluster work, improve technology, expand market, and develop sourcing base. A number of agencies, including the State government of Ceara (State Secretary of Cities and State Secretary of Science and Technology), SEBRAE( Small Firm Support Agency) and SENAI (National Industrial Training Service) are the most actively involved in the cluster development. Cluster work requires participation of different stakeholders, including business people and agencies (public and private) related to the cluster. Given that cluster work is a process, rather than a one-time shot, it requires continuous engagement of relevant actors. In the Cariri footwear cluster, while cluster planning has counted on participation of different actors, current challenge is to keep business people engaged in the process.

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Summary of Breakout Reports

Skills, Education, and Human Capital

The rapporteur (the representative of Fundação Atlantico) states this had been a complex theme. They did not have a chance to cover all the topics that participants wanted to raise. All agreed on the urgent need to produce and attract skilled people. The conversation began with the topic of problems in the basic education system. Five key points from their discussion were:

1. Big problem of exist in basic education. Firms are already worried about shortages of qualified applicants. These will become more severe there are petrochemical and steel industries in the state. Given that Ceará is below norm in student achievement, it was suggested to set objective for Ceará to achieve at least the average of Brazil in national standardized tests.

2. Upgrading the quality of teachers should be a major priority. Currently the situation is chaotic with respect to policies that influence teacher quality.

3. Diffusion of culture of innovation is not seen as naturally part of local culture. Special attention should be given to incorporating this into formal and non-formal education, through for example greater stress on entrepreneurism and job-creating activities.

4. On public private partnerships, some already exist. Need to encourage more.

5. On attracting investments. Have positive factors in attraction of petrochemical, steel, etc. But most of firms in Ceará are small and medium. Concerned that entry of large new firms will create problem for new big firms. This disequilibrium is a problem

The problem of providing differentiated HC problem was discussed. One is low average level of education and the Government is trying to improve things here as basic education is necessary to improve quality of life. A second problem is the need for technically trained persons at intermediate level. Innovative employers, such as the Instituto Atlantico, has to import people from outside state for middle level technicians. Still very little policy through has been given to the tertiary level of education. Ceara has lots of space to raise the productivity by using existing knowledge more effectively. Laws for education exist, but it is difficult to implement change. Despite ample discussion when laws are promulgated there is lack of implementation capacity. Similarly there is no shortage of new idease and programs to improve education. Ceara will experiment with the potential to use new technology for education. Others have

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drawn attention to the creation of center of excellence on education. Distance education initiatives are getting better results. Clusters People in group already worked on clusters.

1. How do clusters rise? Various groups in the universities worked on clusters (Monica and Amaral) Identified 44 apls picked 10 priorities ones

Tourism, Shoes, caju, tourism, red ceramics, capicultura, clothing, furniture, ICT, metal mechanic, shrimp (demanded by producers) 2. Secretary of Cities since 2005. Working group on institutional network group.

With MG Ceara is cited as good examples. The different approaches. Government created Nucleo de Apoio an APLS by law. Monica adds that when Fed government created APL all the secretary’s tried to create APL. But eventually Secretariat of Cities.

3. Composition of nucleus 4. Actions are CETEC working with incubators in various areas. Conclusions. Session was a catharsis 1. Key failure was the institutional lack of harmonization and articularization. Used

to work separately. Nucleo is beginning to integrate 2. Differentiated between R&D institutions vs. others. Discussed tourism, shrimp,

and shoes. 3. In shoe has some working only with very small firms. 93% did not Sebrae BNE only finances large firms. But small firms cannot buy equipment because it is beyond credit limit. Have innovation law that also helps smes. Monica: Big divergence between universities and producers. Firms lack a leadership to organize and find resources to help. Therefore Nucleo needs to go and work with the clusters. Innovation law needs to focus on working on this. Luis: State government need to get act together with respect to BNDES and Minister de Integracao. Carl: Need to keep this as continuous process Policies Group

Rapporteur said group worked on 4 questions set up by Peter: 1. Do the S&T policies fit the needs of the State 2. Was state council fulfilling its function? Needed more regular meetings—just had initial one. Not clear that institutions have clear idea of what they need to accomplish.

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Made proposal that this meeting make concrete suggestions to council and that council take this to constituencies Duplication of tasks among various institutions. If so would need to streamline. Conclusion of need to strengthen formulation of policies Suggested creation of agency to implement policies of secretary of S&D 3. Financing of ST&I. Need to define priorities FUCAPEs. Also state should

demand more FINEP resources 4. Are long term strategies viable to go beyond political periods—not addressed 5. It was concluded that needed better indicators for monitoring the S&T activities

of the State. Summary of Final Wrap Up Panel

Michael Crawford said it had been a: privilege to participate in the seminar. He has learned a lot. Conditions for policies and actions are very favorable. Success was not only the participation and enthusiasm of participants, but also all the background work. He had also been impressed by collaboration across ministries. He noted from Peter Tinderman that some regions were successful at developing vision. He concluded that this meeting had started taking steps in developing a vision for Ceará. Peter Tindemans said he agreed with Michael Crawford’s assessment. He only wanted to add that it was necessary to make strategic choices on the future of the state in order to make progress. Monica Amorim agreed with the preceding speakers and added she had been impressed with the enthusiasm and energy of the participants Carl Dahlman agreed with all the prior speakers. He added though, that wanted to know what was going to be done to insure continuity, as this workshop was only one step in what would need to by a longer term process.. He was also concerned that while there had been very strong representation from the many state institutions involved, there had been much less representation from the private sector, even though the event was being hosted in the headquarters of the Federation of Industry of Ceara. He stressed that more participation of the private sector in development of the strategy and priority actions was necessary as they were the actors at least with respect to innovation in the productive sector as opposed to area of public services where the government could do more on its own. Luis (from the University, and one of rapporteurs for the cluster group proposed that it would very helpful for the Adjunct Secretary to prepare a summary of the workshop in order to diffuse the findings more widely. Jurandir Picanco Junior, Corporate Director and of Relationships with the Market from FIEC (and co sponsor of the workshop), said that the presentations and the discussion were of great quality and value, but that this was just the beginning. There

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had not been enough time to deepen and develop the topics and actions. He proposed to the Adjunct Secretary of SESITEC that the process be continued. With respect to the role of the private sector, he stated that CNI had come e to conclusion that problem is not in deficiency in government efforts in trying to promote more innovation. After discussing last years WB report on Knowledge and Innovation and Competitiveness in Brazil, which they had had translated into Portuguese and disseminated broadly they realized the problem was that the private sector was not as aware of the issues as it should be. CNI was developing a movement to sensitize the private sector to take raise consciousness about the importance of competitiveness. CNI was holding a National Seminar on Innovation in August. FIEC do a follow up seminar in September in Ceara in September. The Adjunct State Secretary of SECETICE responded by reiterating she would hoped that in the future it would be possible to continue this collaboration and potentially have 1. The a document giving recommendations on:

• How to improve the work of the State Science and Technology Council • How to strengthen the state’s policies and programs on Science Technology

and Innovation • The creation of a State Agency to Implement the Actions • A system for monitoring the performance of the Ceara’s Science, Technology

and Innovation activities • The outlines of a potential Bank project to support Science Technology and

Innovation.

2. The creation of an Innovation Forum with SECITECE as the executive secretariat, but the representation from all the participants at the workshop, including strong input from the private sector. She wanted the Forum to help with recommendations of how to make the Innovation Council function more effectively. She also wanted a systematization of the process Ricardo Liebman, a private sector entrepreneur participant repeated that it was important to have a group that would have a life beyond the mandate of changing governments. He said Ceara had had a private sector driven Collaboration Pact which had separate issue or sector specific forums—one of which had been on technology. The Collaboration Pack has died out, but various forums had continued meeting a often as weekly with representatives of the private sector, academics, government institutions and other interested participants. He proposed that the extinct technology forum be reactivated as an Innovation Forum The Adjunct Secretary agreed that was a good idea, and given the time, again thanked all the participants and brought the meeting to a close.

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Annex 1: Summary of Breakout Group on Clusters The breakout group on clusters had about 15 participants. The break out was chaired by Carl Dahlman and Monica Amorin. Two participants were selected to be the rapporteurs of the main findings of the cluster back to the plenary. There was very lively discussion among the participants which brought out many points of view and diverse experiences. Clusters were very similar to what is locally called APL (local production arrangements). Discussion started with a discussion of what clusters to focus on. Monica Amorin gave a brief history of the development of the shoe cluster. She explained that the WB cities project was working on the shoe cluster as well as the development of tourism in the interior of Ceara. Discussion then focused on how to go about identifying potential clusters in Ceara. Several members of the group had been directly involved in a project to indentify clusters. One problem was that as the federal and state governments had indicated that there would be some money for cluster development, many groups had come forward at clusters to ask for state government assistance. There had been 44 clusters in the initial selection. Ten priority clusters were identified through a process of discussion with the groups and among the various state secretariats involved. The ten priority clusters were: tourism, shoes, caju, red ceramics, goat farming, garments, furniture, information and communication technology, metal mechanic products and shrimp. The last had been included as result of strong lobbying from the shrimp producers after their industry was hard hit by the floods this year. One problem noted was that once the government cluster nucleus had been created within one of the secretariats to coordinate cluster development. However there still need to be more coordination both internally and with respect to the state’s interaction with central institutions. Many different local groups and government agencies were approaching federal agencies such as the National Development Bank (BNDES) which caused a lot of confusion and delays. It was suggested that it would be more effective to coordinate the actions at the state level and to have one state agency by the interlocutor with the federal agencies. After some discussion there was strong support from the group for this centralization proposal. There was some discussion of the tourism cluster. It was acknowledged that the state had a lot of potential to expand its international tourism along the coast. However, it was very difficult to bring together the different components of the cluster including not just the hotel owners and tour operators, but also the restaurant industry, and logistic and transportation, and safety and security. However it was agreed that more intensive work need to be done in this areas and that it could start by having a greater dialogue with the different components. Some participants said that the main problem for the development of the tourism and culture cluster was good education for tourism. One participant said that there were really already more than 20 courses at state universities and training institutions. The problem was that these focused on training higher level personnel. There was an urgent need to develop tourism training programs for the lower level front in personnel. This was a gap that needed to be addressed. It was also necessary to expand

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the travel logistics. This would include developing better tourism websites and standard criteria for ranking hotels and activities that were transparent and reputable. One problem was that the airport was already operating at its design capacity and that would have to be addressed if there was to be a major expansion of international tourism. It would also be necessary to do a major marketing campaign to promote the tourist potential of the state in Brazil and abroad. . Another important cluster was that which was emerging around the new port of ----about 100 kms east from Fortaleza. Petrobras has already approved plans to establish a petrochemical complex near the port. In addition there was agreement to establish a large steel plant near the port. This would be a large basic industry cluster which would be leverage to attract manufacturing industries. An expanded port could also become a gateway for getting goods into and out of the Northeast. As time ran out, the participants noted that the discussion had been very fruitful and that this type of discussion should be continued in order to further orient concrete plans and actions