São Paulo – By means of the new industrial policy announced last Tuesday (2nd), which includes export incentive measures, the government expects to halve the Brazilian trade deficit for manufactured goods over a four-year span. The information was supplied by the minister of Development, Industry and Foreign Trade, Fernando Pimentel, who gave a press conference in São Paulo this Wednesday (3rd) to provide details about the plan.
“Should we succeed in lowering the deficit to US$ 35 billion, that will be good enough,” said Pimentel. According to him, the deficit in trade of industrialized goods is now higher than US$ 70 billion. Generally speaking, the Brazilian trade balance runs a surplus, but that is due to exports of agricultural and mineral commodities.
With regard to foreign trade, the program provides for the refunding of tax credits to exporters of manufactured goods, the setting of a deadline for the refunding, the strengthening of the country’s trade defence mechanisms, which are the tools used for curbing disloyal competition of imported products; and initiatives in the fields of financing and trade promotion.
In trade promotion, according to the minister, the strategy involves exploring markets in African and Middle Eastern countries, including the Arab nations. “There are [market] niches in which we can be competitive even in manufactured goods,” he claimed.
The Brasil Maior (Larger Brazil) plan, as the new policy has been dubbed, implies the waiver of roughly 25 billion reals (US$ 15.9 billion) in taxes over a two-year period. Even though the plan has been described as “timid” by some private sector representatives and analysts, Pimentel underscored that it is “all we can do in fiscal terms” without jeopardizing the macroeconomic stability of Brazil.
Many of the measures presented entail tax breaks for certain segments of the industry, such as clothing, footwear, furniture and software, in the case of the lifting of Social Security contribution deducted from companies’ payrolls; and the extension of the lowered Tax on Industrialized Products (IPI) charged on capital goods, building material, trucks and light passenger vehicles.
Responsibility
According to the minister, it is now up to the businessmen to take a step forward. “The Brazilian industry’s agenda cannot be one of always waiting on the government to do something,” he declared. “[The enterprises] must do their part,” he added.
One of the main complaints of exporting companies is the exchange rate, i.e. the appreciation of the real (Brazilian currency) against the dollar, which theoretically makes Brazilian products more expensive abroad, particularly when faced with Asian competitors. To Pimentel, there is no use in complaining, because this scenario will not change.
“The exchange rate will not change in the short term, the dollar will not return to its past levels. We shall have an appreciated currency (the real) in the long run, unless an international crisis unravels in which currencies worldwide depreciate,” he said. “Brazil has joined the club of countries whose currencies are overvalued,” he added.
He highlighted that this is the result of the economic development of the country, which is attracting ever higher amounts of foreign capital, and of the global scenario, as the United States are interested in keeping the dollar depreciated in order to boost their own exports.
According to the minister, the appreciated real “is a novel concept to us, but it has to happen.” “I do not see German or French industrialists complaining about the exchange rate,” he stated. To him, Brazilian entrepreneurs have had the same mentality for 20 years and “it will be a long time” before a new generation, with a different mindset, takes over the private sector.
Another recurrent complaint of businessmen is the tax burden. Although the industrial policy includes the lowering of taxes, the system remains expensive and complex. The minister, however, finds it hard to believe that the National Congress would pass a “major tax reform” due to discrepant interests of the Union, states and municipalities.
In that respect, Pimentel claimed that innovation is the best way for making the Brazilian industry competitive. The government expects the development of this area to be the main result of the plan. “There is only one way to compete with the Asian competitors: going in the laboratory and trying to lower the costs on that front,” he said.
To that end, aside from tax waiver, the plan provides for financing lines and legal measures. In the case of government purchases, for instance, the government will pay up to 25% more if the product to be purchased through a tender is made in Brazil, but according to Pimentel, this will only apply in case the item at hand represents an actual technological innovation made in the country itself. Here, the focus is on the defence, textile and clothing, footwear, information technology and communication industries.
The auto industry will have a new, special regime including tax incentives, but according to Pimentel, this must lead to lower prices, as in the other sectors. “We are not providing incentives so that they turn to profit,” he stated. “We are not going to rule out foreign competition, that is not how you do things,” he added, denying allegations that the plan’s measures are protectionist. “We want to establish a healthy competition,” he finished off.
*Translated by Gabriel Pomerancblum
