One of the main flags of the Lula government, the reindustrialization of Brazil is also among the main challenges on the road to 2026. Some of the obstacles have been imposed for decades and have a global scale; others are consequences of political and economic situations that, over the last few years, resulted in a loss of investment and competitiveness.
Although packed in the first three months of 2023, industrial production shrank by 0.6% during the month of July compared to the previous month and was also 1.1% lower than the same period last year. This is what the monthly survey of the sector, carried out by the Brazilian Institute of Geography and Statistics (IBGE) and released this Tuesday (5), points out. Four days earlier, the organization had announced that the Brazilian Gross Domestic Product (GDP) registered an increase of 0.9% in the second half of the year compared to the first.
“The first information for this third quarter gives us a feeling of lower intensity for industrial production as a whole, either because in any comparison we have negative results, or because we have a widespread profile of decline in different cuts. In terms of economic categories, the fall profile is well marked, largely driven by the automobile sector”, explains André Macedo, IBGE Analysis Manager responsible for the survey.
The sector of motor vehicles, trailers and bodies decreased by 6.5%, accompanied by electronic and optical products (-12.1%) and machinery and equipment (-5%). Also according to IBGE, in the July aggregate, the industrial sector is 2.3% below the pre-pandemic level, in February 2020, and very far (18.7%) from the best results in the historical series, in May 2011 .
The high interest rate, which was reduced, but is still at 13.25%, is seen as a determining factor for this situation, but there are also relevant cyclical influences that take some time to overcome. The slowdown in the domestic market and the explosion of Chinese industry help explain a little of what economist Alexandre Andrada, professor at the University of Brasília, calls “the lost decade for the national economy”.
According to Andrada, the government’s greater concern is evident in reversing the increase in idleness in industrial parks, the outdated equipment and machines and the closure of factories that especially affect the manufacturing and electronics sector. Sectors affected by the unfavorable exchange rate and the prevalence of Chinese products, being a kind of “rebound” of a fruitful commercial relationship with Brazil in terms of commodity exports.
“On the one hand, China can be a partner, it can make investments, factories, finance some sectors. But from a structural point of view, it is yet another complication in this process, because it has a scale of production in some sectors that ends up swallowing our ability to compete. This is an issue that also affects several other countries”, identifies the economist.
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For lawyer and economist Alessandro Azzoni, deliberative advisor to the São Paulo Commercial Association (ACSP), the productive scale of the Asian giant, in addition to increasing demand for raw materials to unprecedented levels, also manifests itself in harassment of national companies. “We need to regulate the entry of Chinese capital, because if we let them enter here in a 5 (reais) to 1 (dollar) scenario, they will buy everything,” he says.
Although it interrupted two consecutive months of growth, one of the few segments of the industry that remained firm was extractive activities, especially iron ore and oil. From May to June, the expansion totals 4.3% and in the accumulated result for the year the positive balance is 7%, which Andrada points out as a preponderance of the export of raw materials that is also manifested in agribusiness.
Sustainability should guide actions
In addition to large programs such as the Economic Acceleration Project (PAC), which should help boost civil construction by adding to Minha Casa, Minha Vida, the federal government should also present other incentive projects. Between the end of September and the beginning of October, a package is expected to be launched that projects investments of up to R$16 billion in the coming years for at least five industrial sectors.
The objective is to contain accelerated depreciation through tax benefits that favor the renovation or modernization of facilities and equipment in industries. An initiative led by the Ministry of Development, Industry, Commerce and Services (Mdic) that also focuses on energy efficiency and the viability of the energy transition.
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In this context of renewal, Brazil would be able to gain an advantage by having a cleaner energy matrix and enormous potential to explore green hydrogen. For Andrada, the popularization of electric cars around the world, for example, would be even more favorable here than in countries in the global North, which have more polluting energy matrices.
The problem, however, would be of a structural and strategic nature. This is because the dynamism of the Brazilian economy still depends on sectors that do not exactly value the preservation of the environment. In addition to soybeans, whose expansion in the Center-West is a threat to the Cerrado, mining and oil prospecting will also continue to be valued in the coming years, posing constant dilemmas in terms of impact.
“Brazil is an ecological powerhouse. We have the Amazon, we are pioneers in several issues, in foreign policy. On the other hand, our economy is increasingly based on sectors that are not beneficial to the environment. It is important that the government signals in this sense so that we have more sustainable sectors, more sustainable industries, that we make this transition to a low-carbon economy”, he urges.
Automotive sector slips and races against time
One of the industrial sectors that governments traditionally invest most in is the automotive sector, a historically privileged modal that corresponds to an extensive production chain. At the end of May, the economic team had already reduced taxes to lower the price of brand new popular cars. A measure that was even renewed in June, but whose effects were only palliative in a context of high interest rates and lower purchasing power.
“As it was favored by tax exemptions, (the sector) should have a positive impact on production, but these measures favored much more the release of stock that was heavily loaded, so it favored sales much more than production. Not by chance, the automakers themselves in these two months, we observed many of them offering collective vacations, reduction of working hours, making some adjustments to the demand that exists at the moment”, reflects the analysis manager of the IBGE, André Macedo.
For Azzoni, the low efficiency of the program was already expected in a context of high interest rates and with discounts being absorbed into financing. He recalls the discounts on the Tax on Industrialized Products (IPI) granted by former President Dilma Rousseff (PT) from 2011 to cars, white goods and furniture as an example that the exemption can result in a surplus.
“At first, it is logical that the tax exemption causes a loss of revenue, but at that moment it worked because we had lower interest rates and the purchasing power of families was greater, despite the recession”, he says. In this sense, the lawyer sees the direct influence of the Central Bank’s autonomy, which he says is favorable to avoid government excesses, but which also presents difficulties.
“Until the middle of the Bolsonaro government, we had the Central Bank as a government tool, today it is autonomous. Today it completely stops the process, because I’m going to release taxes to lower the price, to sell. Then the Central Bank says that if it sells it will cause inflation, so it increases interest rates. The Central Bank inhibits the policy I adopt to encourage sales due to fear of inflation, as happened with automobiles,” he points out.
Even with so many obstacles, the macroeconomic policies presented by the Minister of Finance, Fernando Haddad, are generally well regarded by analysts. In addition to helping to simplify taxation and set targets, they are also accompanied by a more stable political scenario and more active external relations than in the past administration.
“The government has been looking in this direction, so there is the tax reform in which the industrial sector was the least burdened. There was practically no tax increase, what was taxed was (the sector of) services and it did not affect the industry, which was in a precarious situation, so it had to be stimulated in a way. It is already a sign”, observes Azzoni.
The expectation is that the industrial activity can benefit in terms of infrastructure, research and innovation to take advantage of its potential and open trenches in the international market. Among the possibilities of exporting products with added value, Andrada cites as an example the resumption of investments in refineries and the possibility of benefiting commodities in which Brazil has a relevant production, such as coffee.
“Brazil has been the largest producer and exporter of coffee in the world, literally for 200 years. But our exported coffee isn’t even roasted, they export it raw. And Germany, which doesn’t produce, is fourth or fifth, because it buys coffee from Brazil and other parts of the world, roasts it, makes those capsules that are a blend. Brazil even tried to enter this market, but was not very successful because it is an expensive product for Brazilians. But it is still something that the government can do: research coffee more, make capsules or other processes and strengthen the Brazilian coffee brand abroad, as Colombia does, which even produces much less”, he mentions.
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Even though the process is slower than expected, the professor believes that Brazil’s economic recovery has already begun. “Things are progressing, the country is starting to grow again in a sustainable way, a little every year, and it is already reviving the domestic market. And having a return to political normality tends to help. The tendency is for Brazil to once again become an attractive country for investment, because it has a large and varied consumption chain, so in general Brazil is a good place to invest”, he concludes.
Editing: Geisa Marques