São Paulo in Brazil is rated as the sixth most populous city in the world. With 23 million inhabitants, it is just slightly ahead of even Mexico City, Beijing, Mumbai and Osaka in population size. The city also stands out as the deep tech hub of South America, which is important given the long-term potential for technological growth in South America.
While currently globally leading deep tech companies are focused to North America, Europe and Asia, the rest of the world is gradually also making an impact. Much like Africa, South America is a place with significant potential for economic and technological progress. Rising populations and gradually more focus on education allows for these parts of the world to prosper and grow with increased technological specialization.
A comparison can be made with India. This country is Asia’s leading deep tech nation, with five percent of the top 100 leading engineering & mathematical universities and also same five percent of the world´s leading 500 deep tech companies. The strength of India is that many students, research students and researchers abroad in leading universities originate from India. Subsequently, much of the global talent pool engaged in academics and in technology companies comes from India. While this does represent brain migration, the foreign opportunities create a boost for education and research in India. Internationalization of India´s talents boost the country also at home, as Indian chains gain stronger foothold in global technology value chains.
Talents from Brazil are already today playing a key role in international universities and tech companies. Universidade de São Paulo ranks amongst the top 100 engineering & mathematics universities in the world, the only place of higher learning in South America to achieve this.
This is the finding of the Deep Tech Index. Conducted annually by the European Centre for Entrepreneurship and Policy Reform (ECEPR) with the support of Nordic Capital, this study maps and evaluates the global deep tech landscape.
Sao Paulo has particular strength in clean tech. Growing populations in South America leads to much development of companies dealing with managing the environmental impact of large population concentrations. Clean tech development plays a key role in adapting to the needs that arise with regional population growth.
Brazil also has another globally leading deep tech hub, Joinville. It is the largest city of the Santa Catarina region in southern Brazil. While only having around one inhabitants of each twenty in Sao Paulo, also Joinville stands out as an important center of deep tech, with strengths in fintech.
The growth limitations of South American countries is often linked to limitations of capital markets, ownership rights and financial transactions. Fintech development is important for boosting the growth potential of South American countries.
In the early 2000s Brazil had a more open economic policy than currently. Currently it is less free economically than the typical country in South America. Property rights are fairly strong, though in need of improvement. Judicial effectiveness similarly is good but can improve. Limitations in investment freedom and in financial freedom limit economic growth.
Brazil is open to trade and has potential. The strong limitation is government expenditure which are nearly 46 percent of GDP. In Australia researchers have found that the level of total public expenditure most optimal for growth is 31 percent of total economic output. This finding is likely also applicable to other countries. Higher levels of taxation means that more private sector output is crowded out. Correspondingly higher levels of government expenditure also crowds out the activity of the private sector.
Reducing government expenditure, boosting education results, investing in more universities to reach the global top, and improving investment freedom are all needed reforms in Brazil. The country already has São Paulo as the leading brain business hub of South America, and can further progress with institutional reform. In the long-term, much speaks for Brazil´s deep tech success, provided economic policies become more growth-oriented.
Nima Sanandaji, Director, European Centre for Entrepreneurship and Policy Reform (ECEPR)
Photo: Drone photo of São Paulo skyline, taken from above Parque da Aclimação (cropped from original), via Wikimedia in Public Domain.
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