Letter IEDI n. 1186—Marginalization of high-tech exports
In 2022, Brazil achieved a trade surplus of US$61.8 billion, a record in current dollars. The balance of the manufacturing industry, however, was quite different: a deficit of US$61.2 billion, representing an increase of 14.8% against 2021 and 45.5% in relation to the pre-pandemic result (that is, in comparison to 2019).
Despite this, the export thrust of the industry remained strong, at a pace only seen, recently, in 2010. It reached US$181.4 billion and, compared to the previous year, there was a 25.9% expansion in 2022, the same level as in 2021 (+26.3%). The 4th quarter 2022 brought signs of deceleration, but the result was still good: 15.5% versus Q4'21.
The deterioration in the sector's balance was then due to the also significant expansion of its imports, reaching US$242.6 billion. The increase, which had already reached +35.1% in 2021, was of 22.9% in 2022, mainly driven by the 2nd and 3rd quarters of the year. In Q4'22, there was an important accommodation: 7.5% compared to Q4'21.
In this Letter, the IEDI updates its analysis on the evolution of foreign trade in the Brazilian industry by regrouping the different branches of the sector according to their technological intensity, following the criteria used by the OECD. The industry is divided into four intensity ranges: high, medium-high, medium and medium-low. In the low-intensity range are products from agriculture, forestry, fisheries and aquaculture, but it does not include manufacturing goods.
In Jan–Dec'22, the best export performance was seen in the medium-low technological intensity industry, with 32.6% compared to the previous year, favored by the behavior of commodity prices in the period. Two of its branches stood out: food (+31.8%) and petroleum products (+78.7%). The wood, furniture, paper and pulp sector also performed well (+18.6%). It is worth noting that in Q4'22 the strong expansion continued (+28.3%).
The medium-low industry also led the growth of industrial imports in 2022, with 39.1%, influenced by the same sectors that pulled exports: food (+14.8%) and petroleum products (+71.8%). Also in the case of external purchases, Q4'22 maintained a robust result (+21.7%).
The second best exporting result of 2022 came from the medium-high technology industry: 25.2% against the previous year. External sales of all branches grew at double-digit rates, with emphasis on vehicles (+33.6%), which returned to a level, in current dollars, similar to 2018, chemicals (+25.1%) and machinery and equipment (+20%). In Q4'22, the result fell by half: 12.9% compared to Q4'21.
As for medium-high imports, the increase of 26.8% in 2022 was mainly driven by chemicals (except pharmaceuticals), which registered 43.2%. In this case, however, the last quarter of the year was accompanied by a strong deceleration, with a rate of 7.3%, due to an accommodation in chemicals and electrical machinery and appliances.
The other two technology intensity bands performed very close to and below the aggregate result for manufacturing. High technology saw its external sales increase by +15.7% and medium technology by 12.5%. In imports, high technology grew 12.7% in 2022 and medium technology was the only range with foreign purchases declining (-0.9%).
High technology continued to be overlooked in Brazil's export basket, even though it reacted well in Q4'22 (+38.9%). In 2022, it represented only 3.5% of everything the manufacturing industry sold to the rest of the world. Ten years earlier, this share was of 6.3% and in 2000 it was 14%.
In addition to this shrinking of high-tech exports in our trade basket, it is worth noting the change in composition within this group in the last two decades. In 2000, the pharmaceutical industry accounted for only 4% of high-tech exports, rising to 24% in 2022. Electronics lost presence in this group, going from 38% to 23% in the period. Aircraft manufacturing maintained its level: 57% in 2000 and 53% in 2022.
A sign of the technological backwardness that Brazil has been accumulating, imports from the high-tech range represent a share of the industry's import basket much higher than its presence in the sector's exports. In 2022, they accounted for 20% of industrial imports, not far from the 26% of 2000, which indicates the structural nature of this participation. Much of this is due to electronics, which accounted for 59% of high-tech external purchases in 2022.
