São Paulo – Industry has been losing space in the Brazilian economy. Last year, while the Gross Domestic Product (GDP) rose 2.7%, according to the Brazilian Institute for Geography and Statistics (IBGE), the activity grew just 1.6%, with retraction of 0.5% in the fourth quarter. And the tendency is for loss of ground to continue. The intensity and speed with which this will happen, however, depends on what the public and private sector do from now on.
"I believe that there will be loss of ground [by industry], due to the problems in our country. Industry may reduce [its participation] to 90% of what it is today, or 80%, 70%, 60%, depending on our capacity to react,” said Julio Gomes de Almeida, of the Institute for Studies in Aid of Industrial Development (Iedi).
Despite the domestic market in solid growth, industrialists complain of lack of domestic company competitiveness as against foreign products, be that abroad or here, and point towards the so-called "Brazil cost" as the main culprit. The term covers problems like the high tax burden, cost of capital, excessive labour costs, lack of qualified labour and precarious infrastructure.
"The demand for industrialized products continues strong in the country, but Brazilian companies cannot supply it, and this has been so for some time, due to competitiveness,” said Flávio Castelo Branco, executive manager of the Economic Policy Unit of the National Confederation of Industries (CNI).
The latest indices have placed the government on alert. To alleviate industry, measures have been announced, like expansion of the span for reduction of the Industrialized Product Tax (IPI) on specific items and reduction in the pay sheet of companies in certain sectors, which should now be extended to others. The measures also include actions to contain appreciation of the Brazilian real against the dollar. The appreciated real results in more expensive Brazilian products on the international market, as well as making imports cheaper in Brazil.
Such measures are welcome, but they are for the short-term, created to provide a temporary boost for companies in the face of an unfavourable conjuncture. They serve, according to Almeida, to provide "isonomy", or to "level the playing field" between Brazilian and imported products, which do not pay these taxes at their origin. For a long time, however, the country has required long-term actions to solve its structural problems. To Castelo Branco, public policies are necessary to "change the setting" in the sector.
But it is not just the government that needs to act. It is consensus among analysts that both the public and private sectors have not done enough in recent decades, since the opening of the Brazilian economy, to grant competitiveness to the industrial sector in Brazil. Today, that depends much on casual factors, like the depreciation of the real or strong growth of the global economy.
The fact is that during this period, the world was growing, so there was demand for products of all kinds and origins, and Brazil was not yet a market sought so much by competitors. Save for some exceptions, many companies maintained similar postures to that of recent times in which the national economy was closed, and industry protected.
"We were used to the government coming with some great programme, throwing money around, and then things got better,” said Evaldo Alves, economics professor at Getúlio Vargas Foundation (FGV). "Now that is no longer enough,” he added.
The world has changed, mainly after the 2008 crisis. The global economy is no longer growing like before in Brazil, and it has become a more attractive market to foreign industries, which are now competing with Brazilian ones on the domestic and international market.
"Brazil has been postponing the adoption of structural measures for a long time, but the sacrifice has not been much up to now, as the world was growing. This is no longer true,” said Almeida. "We started competing with first world companies, but that is changing, we are now competing with the emerging nations, among ourselves, and the challenge is facing this new competition,” said Alves.
But some of Brazil’s main competitors in the industrial area, like China and South Korea, have long-term industrial strategies in place, and that is not recent. Due to the greater competitiveness, even Brazilian companies have been transferring their production, or part of it, to Asian countries, not to mention the significant volume of inputs the country buys.
The director of the Brazilian Agency for Industrial Development (ABDI), Clayton Campanhola, stated that the government plans to establish a "competitiveness council", with company representatives, to develop policies for the sector. But it is not enough to wait for the government, companies must do their part.
Read more on the matter in "The word is productivity".
*Translated by Mark Ament
