Letter IEDI n. 1032–Brazil's shrinking importance in the industrial world
The UNIDO (United Nations Industrial Development Organization) annual report on global manufacturing output brings estimates for 2019 world industrial performance. The global industry's growth fell for the second consecutive time, going from 4% in 2017 to 3.6% in 2018 and then to 2.6% in 2019, in constant dollars of 2015.
Among the reasons pointed out for this drop, which precede the COVID-19 crisis, the commercial conflicts between the two largest industrial powers (China and the United States) stand out. In 2019, Manufacturing Value Added (MVA) grew 5.5% in China and 2.0% in the United States, versus 6.2% and 3.2% in 2018, respectively.
This slowdown in the US industry influenced the MAV deceleration in the group of industrialized economies as a whole, with growth falling from +2.4% in 2018 to only +1.2% in 2019. The same path, although less steep, was followed by the set of developing and emerging economies, whose MAV expansion went from +3.2% in 2018 to +2.0% in 2019. At the origin of this process is the Chinese slowdown and reshoring, which has been highlighted in the political agendas of several developed countries.
According to UNIDO data, the world ranking of the largest manufacturing producers in 2019 continued to be led by China, followed by the USA, Japan, Germany, India, South Korea, Italy, France, the United Kingdom and Indonesia. In this edition of the ranking, the reference year is 2015 and no longer 2010, leading to some important rank changes is relation to previous editions, as in the case of Brazil.
With this change, the country is no longer among the ten largest industrial parks in the world, which is mainly due to the different levels of exchange rates. In 2018, Brazil was in the 9th position in the previous base (2010) and it went to 15th in the new base (2015).
The year 2019 did not bring any improvement. Brazil fell to 16th, continuing to shrink as a share of world MAV, a process that has been going on for a long time. In 2010, when the country was the 10th in the ranking, the Brazilian industry accounted for 2.05% of global MAV, decreasing to 1.24% in 2018 and 1.19% in 2019.
By way of comparison, emerging countries with more dynamic economies and in a continuous process of modernization followed an opposite path to that of Brazil, expanding their participation in the world industry in the last decade. This was the case of China (21.1% in 2010 and 29.7% in 2019) and India (2.3% and 3.1%), but also Indonesia (1.4% and 1.6%) and Turkey (0.9% and 1.2%). In Latin America, Mexico also did better than Brazil and did not lose as much weight: 1.7% in 2010 and 1.5% in 2019.
This is because the performance of Brazilian manufacturing has proved to be detached from global trends in the last ten years, unlike in the 1990s and 2000s. As of 2009, the annual rate of change of Brazilian MAV was consistently lower than the world rate. Worse still, it was negative for most of the period, except in the years 2010, 2011 and 2013.
In the last decade, according to UNIDO MAV data, the most adverse years for the Brazilian industry were 2009 (-9.5%), 2015 (-8.4%) and 2017 (-6.3%). In 2019, Brazil's MAV fell 1.4%, in constant 2015 dollars. The regression is clear, as the IEDI has been showing for a long time: there is an ongoing downward trend of the industry as a share of Brazilian GDP, of Brazil's participation in the world industry and of our manufactured exports.
The consequences are what we are witnessing in recent years: mediocre GDP growth, lack of quality jobs, low integration in international trade and difficulties in rebalancing public accounts since, due to the distortions in our current tax system, the industry is a critical source of tax revenue in the country.
Furthermore, Brazil has also been losing space in many industrial sectors; in some of these, we were better positioned than in the manufacturing industry as a whole. By sector, the latest available UNIDO data is for 2018. Of the 22 sectors identified, Brazil was downgraded in 9 (41% of the total) between 2015 and 2018 and was out of the group of the 15 largest producers in 10 sectors versus 4 in 2015.
Despite this, we managed to defend our prominent position in some industrial activities, such as leather products, in which we are the 4th largest producer in the world, paper and paper products, 5th place, beverages, 7th place, basic metals, 8th place, and chemical products and coke and petroleum products, 9th place.