Letter IEDI n. 1113—Higher technology-intensity industrial exports slow down
In Q3'21, industrial exports continued to expand, making a positive contribution to the sector's output dynamism. In this Letter, the IEDI analyzes the performance of the manufacturing industry's foreign trade according to the technological intensity of its branches.
Following the methodology used by the OECD, the Institute grouped the industrial segments into four technology intensity categories: high, medium-high, medium and medium-low. It should be noted that no part of manufacturing is classified as low technology, which consists of a group mainly composed of agriculture, livestock and service activities.
External sales of the manufacturing industry as a whole totaled US$ 39.2 billion in Q3'21, an increase of 35% in relation to the same period of the previous year. With bases of comparison still depressed by the effects of the COVID-19 pandemic, this performance was in line with what was obtained in Q2'21 (+39.5%).
In the first three quarters of 2021, industrial exports amounted to US$ 104.6 billion (+26.6%), reversing the adverse evolution of previous years. It is worth remembering that in Jan–Sep'18, industry shipments were stable (+0.2%), while in Jan–Sep/19 (-3.8%) and Jan–Sep/20 (-12.6%) they had slipped into negative ground. Despite this, given the stronger increase in imports (+34.7%) in 2021, the industrial trade balance deficit deteriorated, reaching US$ 37.3 billion.
Although the export impetus was maintained from Q2'21 to Q3'21, there was a change in direction among the different technology-intensity groups. The high tech industry's exports returned to the red, with -1.8% in relation to Q3'20, resuming their long sequence of negative rates that covered the entire period from Q3'18 to Q1'21. The only exception was the 2nd quarter of 2021 (+57.9%) due to the very low basis of comparison. The decline in exports in the aeronautical sector has been a major obstacle throughout all this time.
With this downward evolution, high technology, which once accounted for 14% of total manufacturing exports (in Jan–Sep of 2001), had its share reduced to 5.4% in 2011 and then to 3.8% in 2021. It is a trajectory that illustrates the country's competitiveness problems, as well as its inadequate environment for innovation. Due to its higher complexity, the production of these branches has great potential to integrate Brazil into global value chains.
In the medium-high technology industry, despite the slowdown that caused the growth rate of its exports to drop by half compared to Q2'21, there was an expansion of 33.4%, largely due to the branches of machinery and equipment (+55.6%) and chemical products (+41.3%). Vehicle exports, which belong to this category, have yet to recover, remaining at a level around ¼ lower than the third-quarter average for the years 2012 to 2019. The pandemic still weighs heavily on the export momentum of this technology range.
The less technologically intensive categories, in turn, which incorporate industrial sectors with export values highly influenced by the evolution of international commodity prices, not only maintained substantial growth, but also registered some acceleration.
In the case of the medium technology industry, the year-on-year increase of 34.7% in Q2'21 advanced to 49.1% in Q3'21. Greatly responsible for this was the metallurgy sector, which accounts for 80% of foreign sales in this range and recorded an acceleration from 30.7% to 52.5% from Q2'21 to Q3'21.
In the medium-low technological intensity industry, the expansion of foreign sales rose from 30.9% to 34.2% in the same period, due to significant increases in petroleum derivatives (+112.4%), food products and beverages (+25.9%) and paper and cellulose (+33.7%).
In both cases, exports registered in Jan–Sep'21 are records for the period in the historical series started in 1997. Thus, the medium and medium-low technology groups, which together represented 59% of manufacturing exports in 2001, now reach a share of 73%.
In the case of imports, in all technological intensity ranges the increase registered in Q3'21 surpassed the rise in exports. The biggest difference was in high technology, whose imports grew 43.3%, driven by the pharmaceutical industry, while exports contracted, as mentioned earlier.
In Jan–Sep/21, the most significant increase in foreign purchases was seen in the medium technology intensity industry, with 40.1% compared to Jan–Sep'20, but it was not far ahead of the other groups, especially medium-low (+36.6%) and medium-high (+36.5%). For high technology, the increase in imports in 2021 was of 26.7%.