In the context of the VI National Meeting of Industrial Economics and Innovation (VI ENEI), the IEDI Session “The Future of the Industry in Brazil” was held on May 31, 2022, by videoconference, whose discussion we summarize in this Letter. 

Organized by ABEIN (Brazilian Association of Industrial Economics and Innovation) and Senai/CIMATEC of Salvador, State of BA, the event featured talks by three IEDI Directors: Dan Ioschpe, Pedro Wongtschowski and Raul Calfat. The complete material, including the discussion that followed the presentations, moderated by the president of ABEIN, Lia Hasenclever (IE-UFRJ), is available on the IEDI website [in Portuguese] and the video can be accessed here.

The IEDI Session is part of the Institute's constant initiative to promote, with different sectors of Brazilian society, a debate of ideas about the development of the country and the strengthening of our industry. ENEI is one of the opportunities to engage with researchers and university professors on industrial economics and innovation.

Running for several years already, in 2022 the IEDI Session stood out for bringing together as speakers three of the most important industrial entrepreneurs in the country and for the very particular political and geopolitical context, given this year's elections in Brazil, the effects of the COVID-19 pandemic and the armed conflict in Ukraine.

Pedro Wongtschowski started the sequence of presentations with some information that the IEDI has been consistently producing and disseminating for many years, showing the alarming trajectory of industry shrinkage in Brazil and its negative consequences for the growth of our economy.

Manufacturing as a percentage of Brazilian GDP has practically halved in the last 40 years, from 20% in 1980 to about 11% in 2020. In parallel to this, Brazil's total GDP, which grew over 7% per year between 1948 and 1980, decelerated to 2% per year in the industrial regression stage. We are a notable case when it comes to performance deterioration.

And this is because we are giving up one of the main gears of socioeconomic development, which is the industry. As Pedro Wongtschowski pointed out, Brazil's manufacturing industry is responsible for almost 70% of private R&D investment, accounts for more than 50% of our exports, establishes mostly formal labor relations and pays wages above the national average. In addition, it pays taxes in a proportion more than twice its weight in the country's economic structure. 

In contrast, for almost a decade the largest economies in the world have been designing and implementing new actions to revitalize their industries. 

Initially focused on the digitalization of production processes, the new industrial strategies added new goals over time, such as environmental sustainability, which strongly demands industrial innovations in products and processes; resilience of production chains, in view of the weaknesses revealed by the pandemic; and national security, given the escalation of geopolitical tensions.

As all three participants mentioned, the recovery of the industry in Brazil depends basically on three vectors. First, the so-called systemic conditions, such as tax system reform, infrastructure improvement, logistics improvement, regulation, education and public effort to invest in science, technology and innovation. These are not sufficient conditions, but necessary for the industry's to recover in the country.

Secondly, an industrial strategy with emphasis on digital transformation, that is, on the modernization of the industrial park, and on the low-carbon economy, ensuring, preferably through horizontal instruments, a more virtuous trajectory of productivity and a superior environmental performance. 

Third, but not least, promotion of Brazil's integration into the international economy. As Dan Ioschpe emphasized, progress in our integration into the world must be continuous and unconditional, as we are behind schedule and need to resume this agenda quickly and efficiently. He recalled that a unilateral path exists, but it does not fail to bring with it a series of complexities that can interrupt or even reverse the process of opening. 

In turn, trade agreements tend to be much more perennial, as they open the possibility of creating consensus among domestic economic agents. The deal with the European Union is an example of this, he said, and for this reason its implementation is essential. In addition, Dan Ioschpe defended the importance of the preservation of Mercosur and of the entry of Brazil in the OECD, which could facilitate the adoption of good practices in our economy.

In his presentation, Dan Ioschpe emphasized that, in addition to the factors already mentioned, the IEDI understands that there are four essential issues that make up a broad agenda for the rebuilding of Brazilian industry: institutional tranquility and legal certainty; reduction of social inequality; concern for the environment, especially the Amazon; and a trajectory of fiscal and macroeconomic balance over time. These are conditions that can hardly be ignored if we want to achieve superior socioeconomic development. 

Raul Calfat, in addition to pointing out obstacles and distortions faced by the industry in Brazil, also focused on looking ahead, identifying opportunities and the prerequisites for them to be seized. He argued that current geopolitics divides the world, but brings enormous opportunities for Brazil, a country rich in minerals and energy and with a competitive agriculture. From this, we have enormous possibilities to become a relevant player in the global power play. 

Among the opportunities, Calfat highlighted the not-yet-explored potential for renewable energy generation, with solar and wind sources, and its association with the developing green hydrogen market in the world. With this, there are opportunities in the equipment supply chain, especially wind energy. Other areas highlighted were: cyber defense, in which Brazil has a few companies of some relevance, and mobility, which in addition to automobiles, buses and trucks, also has aircraft skills, with Embraer.

Calfat emphasized that it is this type of investigative analysis about the opportunities that are opening up—either by the geopolitical context or by the technological trajectories, vis-à-vis the competencies that we already have accumulated—that need to be carried out by the government, so that public money is not wasted. 

For this type of analysis, Raul Calfat recalled, the government must have the capacity to plan; it is necessary to restore this capacity that once existed in the public service. To be successful in the long term, he argued, Brazil cannot invest indiscriminately, without scrutiny, planning and systematic monitoring of actions.

The full text is available in Portuguese.