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Implementation Completion Report (ICR) Review - Cl: Promoting Innovation And Competitiveness Project


  
1. Project Data:   
ICR Review Date Posted:
05/11/2011   
PROJ ID:
P082927
Appraisal
Actual
Project Name:
Cl: Promoting Innovation And Competitiveness Project
Project Costs(US $M)
 70  0.075
Country:
Chile
Loan/Credit (US $M)
 30  0.075
Sector, Major Sect.:
:
Cofinancing (US $M)
   
Theme(s):
Other financial and private sector development (41% - P) Technology diffusion (32% - S) Education for the knowledge economy (15% - S) Small and medium enterprise support (12% - S)      
L/C Numbers:
L7574
Board Approval (FY)
  2008
Partners involved
 
Closing Date
07/15/2014 07/15/2010
         
Evaluator: Panel Reviewer: ICR Review Coordinator: Division:  
Jorge Garcia-Garcia
John R. Eriksson IEG ICR Review 2 IEGPS2

2. Project Objectives and Components:

a. Objectives:


    The project appraisal document (PAD) states the objective as “to enhance Chile’s policy and institutional innovation framework for competitiveness and improve the impact of priority innovation programs. More specifically, the project’s objective was: (i) to strengthen the Ministry of Economy’s capacity on innovation and ensure its coherence with other policies for competitiveness; (ii) strengthen the National Commission for Scientific and Technological Research (CONICYT-Comision Nacional de Investigacion Cientifica y Tecnologica) and improve the coherence, quality and relevance o f research funding policy in Chile; and (iii) stimulate technology transfer and the creation of new technology based enterprises through the Corporation for the Promotion of Production (CORFO - Corporacion para el Fomento de la Produccion).” (PAD, p. 2)
    The loan agreement (LA) stated the objectives as: “(a) to strengthen the MOE’s capacity on innovation and to ensure the MOE’s policies’ coherence with other policies for competitiveness; (b) to strengthen CONICYT and improve the coherence, quality and relevance of research funding policy in Chile; and (c) to stimulate technology transfer and the creation of new technology based enterprises.” (LA, p. 6)

b. Were the project objectives/key associated outcome targets revised during implementation?
No

c. Components (or Key Conditions in the case if Adjustment Loans):

The Project has three components:

Component One: Strengthening the Ministry of Economy (MoE) capacity on innovation and related competitiveness policies. (Expected cost at appraisal US$14.3 million; expected Bank financing US$7.3 million; actual Bank financing, nil)

    The component sought to enhance the MoE’s institutional capacity to formulate, monitor, and evaluate innovation policies in accordance with the guidelines of the National Innovation Strategy. In addition, it sought to support selected elements of the broader Strategic Plan to strengthen the MoE, in order to foster consistency between innovation policies and other policies seeking to enhance Chile’s competitiveness.
    Component Two: Strengthening Chile’s Science Base (Expected cost at appraisal US$30.8; expected Bank financing US$13.4 million; actual Bank financing, nil).
    This component aimed at strengthening CONICYT. This would be achieved by helping CONICYT formulate a strategic plan with clear medium-term goals aligned with the national innovation strategy, develop and implement a coherent research support policy, and increase its capacity to design and evaluate programs. The Inter-ministerial Committee on Innovation and the Ministry of Education were to guide CONICYT in the implementation of this component.
    Component Three: Fostering Technology Transfer and New Technology-Based Ventures (Expected cost at appraisal US$19.6 million, expected Bank financing US$8.2 million, actual Bank financing, nil).
    The component intended to strengthen CORFO’s monitoring and evaluation capacity and its programs aimed at startups of knowledge intensive businesses and the adoption of higher value technologies by SMEs. The component consisted of three sub-components:
      • upgrading new technology based enterprise development;
      • strengthening technology extension and transfer services for SMEs; and
      • strengthening CORFO’s capacity to monitor and evaluate InnovaChile’s programs.

d. Comments on Project Cost, Financing, Borrower Contribution, and Dates
The project was expected to cost US$70 million, of which the Bank would finance US$30 million. The government cancelled the loan and the Bank disbursed only $75,000, the front end fee of the loan. The loan was approved by the Board on July 15, 2008, and became effective on November 1, 2009. The loan was cancelled and closed on July 15, 2010, four years earlier than expected closing date.


3. Relevance of Objectives & Design:

Relevance of objectives is rated substantial. Chile grew rapidly since 1990, to an increasing extent the result of factor accumulation and less so of gains in total factor productivity (TFP). Despite its good economic performance, Chile needs to grow rapidly to continue reducing poverty, improving living standards, and closing the gap with the lower tier of OECD countries. Despite its success as an exporter, Chile depends on its exports of raw natural resources for its foreign exchange earnings, thereby showing its failure to transform the raw products into more advanced ones and losing the potential value added from such transformation. Chile’s incapacity to make this transformation points to innovation and the adoption of more productive technology as important constraints to the Chilean firms’ ability to raise TFP and generate higher growth rates. The government saw innovation as essential to rapid growth and the Bank made innovation an important part of its Country Partnership Strategy under the pillar of strong and sustainable growth. Therefore, seeking to raise Chilean firms’ capacity to innovate and adopt more productive technologies was and continues to be an objective with substantial relevance.

    Relevance of design is rated substantial. Raising the firms’ capacity to innovate and adopt new technologies required reducing or removing some of the constraints they faced: (a) poor policy and institutional framework for innovation; (b) low capacity in the Ministry of Economy (MoE) to design, manage, and evaluate innovation and microeconomic policies; (c) low stock of human capital for innovation and technology management; (d) low research and development (R&D) expenditure and poor response to private sector demands; and (e) weak incentives and insufficient support for technology-based startup companies. The project components sought to reduce these constraints, making their reduction substantially relevant. The project document paid insufficient attention to explaining the role that incentives (relative prices) could play in the demand for and supply of new innovations and adoption of new technologies. Overlooking the role of incentives for firms to generate and adopt new technologies could have put this effort in jeopardy, therefore putting into question the relevance of the project’s design. The PAD worked under the principle that there were market failures arising from problems of appropriation, asymmetric information, and coordination failures. The PAD could have explained how the interventions were going to deal with these failures. It is possible that if the PAD had addressed these issues a better case could have been made for the project when the new government indicated its skepticism about active industrial policy to deal with issues of innovation and adoption of technology.

4. Achievement of Objectives (Efficacy) :

Not applicable, because loan was cancelled before disbursing started.


5. Efficiency (not applicable to DPLs):

Not applicable, because loan was cancelled before disbursing started.

a. If available, enter the Economic Rate of Return (ERR)/Financial Rate of Return at appraisal and the re-estimated value at evaluation:



Rate Available?
Point Value
Coverage/Scope*
Appraisal:
%
%
ICR estimate:
%
%

* Refers to percent of total project cost for which ERR/FRR was calculated

6. Outcome:

Not applicable

a. Outcome Rating: Not Rated

7. Rationale for Risk to Development Outcome Rating :

Not applicable.

a. Risk to Development Outcome Rating: Non-evaluable

8. Assessment of Bank Performance:

Quality at entry. The Bank carried out substantial analytical and policy work on innovation policy in Chile and was well prepared to diagnose the problems constraining innovation and the possible solutions to them. The Bank also had gained knowledge and experience on Chile’s innovation policy and its working as a result of two loans it had granted, the Millennium Science Initiative and the Science for the Knowledge Economy projects, and which had closed in 2003 and 2007. That knowledge allowed the Bank to work well with the organizations that would execute the project, to prepare a good monitoring and evaluation framework and to identify the risks and possible controversial aspects of the project. The PAD identified the largest risk for the project as an insufficient demand from the private sector for technology services. In retrospect, the PAD’s analysis of risk was incomplete, as it did not capture the possibility that a new government might disagree with the approach to innovation policy that the loan supported, and cancel the loans on those grounds.

Quality of supervision. The Bank followed the project closely, worked with government organizations to help them implement sub-components of the project, and was in touch with the Ministry of Finance to follow up on the reasons for the delays in project effectiveness, in particular the clearance by the Comptroller’s Office. The supervision reports contain a good summary of project activities and ratings and its ratings for the difference categories of implementation performance seem to be fair.

a. Ensuring Quality-at-Entry: Satisfactory

b. Quality of Supervision: Satisfactory

c. Overall Bank Performance: Satisfactory

9. Assessment of Borrower Performance:

Government. The government established project units in the Ministry of Economy, CORFO and CONICYT, the executing agencies involved in project preparation and execution. The Ministry of Finance signed the loan agreement within the time expected, but the Comptroller’s Office, which had to clear the loan, objected to the procedure the Ministry followed and requested to resubmit it. The request delayed project effectiveness by one year. After a new government took office in March 2010, the Ministry of Economy decided to cancel the loan because it disagreed with the project’s approach to innovation policy, as it believes that the government should not play an active role in promoting innovation.

Implementing agencies. Although the project was effective for only a brief period, the implementing agencies advanced some activities while the differences between the Budget Directorate and the Comptroller's office were solved. The executing agencies were active in launching the first project activities, and the Ministry of Economy created a monitoring and evaluation unit for innovation and competitiveness, completed the first studies and evaluations, and started gathering indicators on science, technology and innovation.

a. Government Performance: Unsatisfactory

b. Implementing Agency Performance: Moderately Satisfactory

c. Overall Borrower Performance: Moderately Unsatisfactory

10. M&E Design, Implementation, & Utilization:

Design. All project components support the establishment or strengthening of monitoring and evaluation approaches. The PAD also identified indicators to monitor progress and achievement of desired project impact for each component. The M&E indicators and the evaluation results would be made public. The PAD also envisioned that the activities of the monitoring units would be coordinated so that each one would contribute to the monitoring of the system.

    Implementation. No information was gathered because the loan was canceled shortly after becoming effective.
    Utilization. Not applicable, as the loan was canceled shortly after becoming effective.

    a. M&E Quality Rating: Non-evaluable

11. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts):

Not applicable


12. Ratings:

ICR
IEG Review
Reason for Disagreement/Comments
Outcome:
Not Rated
Not Rated
 
Risk to Development Outcome:
Non-evaluable
Non-evaluable
 
Bank Performance:
Satisfactory
Satisfactory
 
Borrower Performance:
Moderately Unsatisfactory
Moderately Unsatisfactory
 
Quality of ICR:
 
Satisfactory
 

13. Lessons:

The experience of this project indicates that loans for government-supported innovation programs justified under the rational of market failure can suffer implementation problems under governments that demand more arguments to be convinced of that failure. This experience suggests, therefore, that for this type of programs the Bank should pay more attention to bring forward the reasons for market failure (i.e., there is no market for innovation) and why government interventions rather than market mechanisms are more effective in dealing with the failure.


14. Assessment Recommended?

No

15. Comments on Quality of ICR:


The note on cancelled operation (NCO) summarizes well the project’s content and context, and its implementation experience. The NCO could have elaborated on the new government’s criticism to the project, beyond its claim that the MoE asserts that the public sector should not play an active role in addressing market failures.


a. Quality of ICR Rating: Satisfactory

(ES-Rev5-Jul/06)
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