In Brazil, the manufacturing industry began to lose relevance in the economy before it achieved a high degree of complexity and became capable of sustaining higher levels and more expressive rates of productivity growth for itself and for the economy as a whole. Since the mid-1980s, the sector has regressed, which intensified after the economic opening of the 1990s. From the 2000s —and in the present decade especially— productivity stagnation is evident.

Today's Letter IEDI analyzes the evolution of industrial productivity in the recent period, relating it to the structural changes that are internal to the sector itself. This is yet another study part of the series of fifteen papers that supported the elaboration of the IEDI's industrial strategy (to be announced soon), and is available in full on the Institute's website (in Portuguese). Other topics discussed can be found in the Letters IEDI n. 855, Jun 26, 2018; n. 856, of Jun 28, 2018; n. 857, Jun 29, 2018; n. 858, Jul 2, 2018; n. 859, Jul 3, 2018; n. 860, Jul 5, 2018, n. 862, Jul 10, 2018 and n. 863, Jul 12, 2018.

An industrial growth rate well below that of the Brazilian economy as a whole had serious consequences for the industry, which accumulated smaller surpluses to invest and reduced its ambitions for technical progress and innovation. This is one of the factors that depressed labor productivity in the sector and in the country's economy. The low quality of education, the distancing of the Brazilian economy from the international economy and microeconomic determinants were also factors that adversely influenced industrial productivity.

This study sought to identify different sectors' productivity performances within the Brazilian manufacturing industry. For this purpose, PIA/IBGE data from 2010 to 2015 (the last year with available information) were used. During this period, the average annual productivity increase reached 0.7%, that is, manufacturing was virtually stagnated. This result was a combination of an annual 0.6% change in manufacturing value added with an average 0.1% contraction in employment.

Brazilian manufacturing productivity evolution at levels far below the desirable is related to the industry's loss of importance as a share of GDP. Besides, it is also connected to a process of specialization and loss of complexity, given the greater concentration of the industry in the production of goods with lower value added.

It is possible to summarize the results of the study as follows: the low average growth of industrial productivity reflected the changes in the productive structure. All industrial groups presented productivity increases. The exception was precisely the one whose participation in the industrial structure rose, reaching 41.3% of total industry in 2015: the activities intensive in natural resources, in which productivity had a negative variation of 2% per year

In the labor-intensive and scale-intensive industries, progress was modest (1.7% p.a. and 1.6% p.a., respectively). Productivity growth was only significant in the engineering and R&D intensive sector (+5.0% per year), but its impact on the industry as a whole was dampened due to the modest relative size of this group in the industrial structure (15.7% in 2015).

Among the sectors of manufacturing, several had excellent results, but the highest rates of productivity growth occurred in segments with a low relative weight in manufacturing value added, such as computer equipment, (16.6% on average per year) and printing and reproduction of recordings (6.1%). The contribution of these sectors to value added was only 3.6% of the total in 2015.

On the other hand, among the most expressive sectors, food manufacturing, which represented 18.6% of total value added in 2015, had only modest average productivity growth, 1.7% p.a. Other chemical products obtained a high productivity index, 4.8% p.a., but they account for a lower proportion of value added (7.9%).

Among the sectors with productivity declines, the highlight was coke, petroleum products and biofuels, which had the largest drop (7.2% p.a.). Another large industrial sector —motor vehicles, trailers and bodies— was also a negative highlight, with a 3.5% yearly decrease on average.

The study also revealed public policy gaps during the period, and they must not be repeated. In fact, there was a lack of implementation of policies aimed at leveraging industrial productivity, especially with a focus on technological development and innovation actions. In particular, the natural resources intesive activities—the group favored by the Brazilian economic model and the agribusiness boom— could have been benefited but, instead, saw productivity fall.

Policies with such nature could have contributed to a superior performance in the other groups, mainly the industries intensive in engineering and R&D, which did obtain great productivity growth, but whose expression in the Brazilian industrial structure is relatively low. For all groups, a milder currency appreciation would have played a compensatory role to the low growth of industrial value added and, therefore, of productivity.

The full text is available in Portuguese.