Industry defends recovery without interventionism

​A sector that has lost the most share in the economy in recent decades, Brazilian industry has also lagged behind its international peers.

According to sector entities, the reversal of this scenario involves a new type of strategy: an industrial policy without state interventionism and the solution of issues that also benefit other sectors, such as investments in digitization of the economy and sustainability of the production process.

The transitions to a green and digitalized economy, in addition to the need to review production chains in the face of unexpected events such as wars and pandemics, make the time ripe for the country to re-elaborate a strategy for the sector. The 2022 electoral process is also seen as an opportunity to discuss the topic.

The weight of the manufacturing or manufacturing industry in the Brazilian economy is currently at 11%, the lowest level of all historical series available since 1947. Its share in formal employment and exports also dropped.

In the international comparison, the country accounts for a share of world production that is practically half of what was verified 30 years ago. The share of global exports is also at the lowest level in the series prepared by the CNI (National Confederation of Industry).

Some aspects of this process are the departure of multinationals from the country, such as automakers, and the closing of traditional Brazilian companies in various sectors.

The latest IBGE Annual Industrial Survey, released in 2021 with data for 2019, highlights the automotive industry as the one that shrank the most between 2010 and the last year before the pandemic. This segment fell from the 3rd to the 6th position in the institute’s ranking. At the other end, the positive performance in the manufacture of food products stands out, which remained the main segment in terms of value creation.

The three states most affected by deindustrialization in the period were Amazonas, where the Manaus Free Trade Zone is located, Bahia and São Paulo — the latter two later lost Ford units in the country. Another example is the leather and footwear sector, in which the total number of companies in the country dropped from 12,300 to 8,000 in the last decade.​

Developed countries and large emerging economies have adopted a series of strategies for the industry that gained strength after the end of the 2008 financial crisis. In general, focused on the digitalization of production processes.

In the last decade, another pillar stood out, with the need to adopt more sustainable production processes. Finally, the pandemic and the war in Ukraine showed the need to diversify suppliers and strengthen strategic industries.

“Previous industrial policies were based on protectionism, on market reserve for nascent industries. Today the ‘drivers’ are these two trends: digitization and the need to change the production process so that it is more sustainable”, says Samantha Cunha, Industrial Policy Manager at CNI.

“This means being more integrated on the side of exports and imports. It means expanding markets, accessing cutting-edge technology and better quality inputs, having more competition that stimulates innovation.”

For this, he claims that a State that is more inductive than interventionist is necessary and that is capable of solving issues related to the Brazil Cost, which also benefit other sectors, such as tax simplification. “Not too much, not the absence [do Estado].”

Rafael Cagnin, economist at IEDI (Instituto de Estudos para o Desenvolvimento Industrial), cites a work by Unctad, a United Nations body, which lists more than 115 experiences of major development strategies that point the way to a reindustrialization of the country.

A quarter of them are geared towards Industry 4.0. Half emphasize environmental sustainability. Almost all of them rely on public investment in physical and digital infrastructure, including through development banks, and in research and technology.

They also seek an industry that is open and integrated to the world, attracting foreign and private investment and some kind of international cooperation. Finally, he highlights the need for recycling and qualification of labor.

“There is a vice of thinking that industrial policy is synonymous with import substitution and protectionism. It is a dated and outdated strategy”, says Cagnin.

“We talk about a way for the industry to revolutionize itself, becoming more digital and sustainable, making it a vehicle for transforming the production system as a whole. It is the industry that modernizes the production system. Modern agriculture is a heavily industrialized agriculture.”

He states that the process of reducing the participation of industry in the economy is natural, as was the reduction of agriculture before. But this happened in advanced economies when these countries had already become rich in terms of per capita income and because they exported low-tech lines to other countries and concentrated on higher value-added activities.

This is not the case in Brazil and several Latin American countries that are experiencing early deindustrialization.

Cagnin also cites the example of the USA, which is reconstituting industrial competences, but with a focus on high technology, such as the production of more advanced semiconductors. And also Europe, which seeks to recover energy security on cleaner bases, via the hydrogen chain.

The Brazilian State is late in this discussion, but the country has many companies that are moving.

“We need to create conditions for these examples of companies on the technological frontier to multiply and for this to be transferred to the industrial fabric as a whole, smaller companies, from the interior of the country and those that are not inserted in the international market”, says Cagnin.

Samuel Pessôa, researcher at the Brazilian Institute of Economics at FGV and columnist for Sheet, states that Brazil has positive experiences of incentives to sectors, such as the creation of Embraer, which was later privatized, and the role of Embrapa in the modernization of agriculture. And also frustrated policies, such as the incentives for the naval industry and other programs very dependent on public resources created during the Lula and Dilma administrations.

“We went through a period when policies were very expensive and were not well designed. We need to look at what worked and what didn’t, extract lessons so that we can guide public policy and minimize wasted time,” he says.