trade balance
Economy

Brazil’s Manufacturing Grows ‘Poorer’

Sep, 15, 2022 Posted by Gabriel Malheiros

Week 202237

Brazil’s manufacturing industry has been losing market share in global production and exports. After two crises (2008-2009 and 2014-2015), a new global recession caused by the covid-19 pandemic hit the Brazilian manufacturing industry harder than other top exporters.

The negative results that followed reinforced the downward trend of Brazilian manufacturing vis-à-vis its peers in the world economy – it went from 8th to 14th place. In 2020, the Brazilian share of global production of manufactured items fell to 1.32% (from 1.35% in 2019).

The situation is even worse in terms of exports, which reflects Brazil’s ongoing decline in competitiveness indicators. Brazil’s share of global manufacturing exports decreased from 0.87% in 2018 to 0.83% in 2019.

Brazil’s share of global manufacturing exports is expected to remain at 0.78% in 2020, the lowest result ever found by the National Confederation of Industry’s (CNI) historical series since 1990.

These negative trends are also evidenced in the Brazilian industry’s trade balance, which has been deteriorating since 2008. From 2020 to 2021, the trade deficit increased by US$ 21.4 billion (from US$ 32.1 billion to $53.5 billion), a 66.7% increase. The only reason it wasn’t worse was a 26% increase in foreign sales, which offset part of the 35% increase in imports.

The latest market assessment conducted by the Institute for Industrial Development Studies (Iedi), referring to the first half of this year, points to another year of hardship for Brazil’s manufacturing. From January to June, the deficit reached $27.5 billion, the highest for a six-month period since 2014.

The study also found that the businesses that manufacture higher added value products are at the core of the downward trend in the Brazilian industry’s trade balance. High-tech and medium-high technology industries saw their deficits increase by 28.4% and 34.8%, respectively, compared to the same period in 2021. On the other hand, the surplus of the medium-low and medium-intensity sectors grew by 37.8% and 174%, respectively, in the same timeframe, which partially attenuated the negative result.

Between 2000 and 2008, products with higher technological intensity accounted for roughly 40% of total industry exports. In 2021, the most recent full-year data available, these items accounted for only 27.6% of exports, while the share of high-tech exports fell from 14% to 3.9%. “This is a very significant loss, despite the influence of the pandemic in 2021, which affected the airline sector,” says Rafael Cagnin, an economist at Iedi, noting that much of this drop is due to Embraer’s poor performance, which is responsible for much of Brazil’s high technology exports.

Faced with this setback scenario in national industry figures, Tatiana Prazeres, director of international relations at the São Paulo State Federation of Industries (Fiesp), emphasized that the biggest concern is that the profile of exports Brazilians changed and lower added value items are starting to predominate. At the same time, the imports of finished goods and items with high technological content are increasing.

“It is critical that Brazil imports so it can export higher-valued products. Importing inputs to boost the Brazilian industry’s competitiveness inside and outside the country is critical. Increasing the import of finished products is not the same as bringing in inputs that contribute to our industry’s competitiveness,” she observes.

The executive also mentioned how the loss of competitiveness of national goods is driving Brazil away from traditional South American markets such as Argentina, where the country has lost its position as the largest supplier to the Chinese. “And that didn’t just happen in Argentina, which has been dealing with its own serious economic problems. The share of our exports fell in the United States and Germany, both important markets for higher-value-added products. That is a fact: we have been losing market share in international trade for a long time.”

Renato da Fonseca, CNI’s superintendent of industrial development, believes that restoring a more significant role for industry in the Brazilian economy and its export agenda would be critical for achieving higher GDP growth rates and levels of technological development. He believes that industrial products involve the most connections in their supply chains that involve various economic sectors and have the ability to reduce costs and add value to primary products, generating more technology and innovation.

Aligning economic variables such as the exchange rate and international deals, reducing internal and external barriers, and resolving structural problems that affect all sectors of the economy, such as tax reform, must all be on the agenda to restore Brazil’s manufacturing to a prominent position in the international market. “Our tax system penalizes longer production chains with an accumulation of taxes. It is not possible that we are still exporting taxes.”

Sources: Valor Econômico

To read the full original article, please go to: https://valor.globo.com/publicacoes/suplementos/noticia/2022/09/15/exportacao-da-industria-fica-mais-pobre.ghtml

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