Letter IEDI n. 880–Brazilian industry: international losses in strategic sectors
The United Nations Industrial Development Organization (UNIDO) recently released data up to 2017 on the world outlook for the manufacturing industry, showing that there has been a significant gain in industrial dynamism. Especially driven by a higher performance of Europe and the developing world, the global manufacturing value added (MVA) grew 3.5% in 2017, the best result of the last six years.
The world evolution could have been better had it not been for Latin America, which continues to play against an acceleration of the global industry. The MVA of the region has declined since 2015 and 2017 was no different, except for the decline being less intense: -0.3% compared to 2016. According to UNIDO, the causes behind this performance include lower commodity prices, the recession of the Brazilian economy and the decline of its industry.
It is never too much to emphasize that Brazilian manufacturing value added reached a mere 11.7% of national GDP in 2017 and, in per capita terms, fell by 14.6% between 2010 and 2017, at constant prices, according to UNIDO data. In face of the many adversities that the sector has encountered and of this downward trajectory, the result could be no other than a systematic loss of participation in global MVA. Between 2005 and 2017, the weight of the Brazilian manufacturing industry in the world declined from 2.9% to 2.0%, most of it (-0.7 percentage points) in the last seven years alone.
Despite this downturn, Brazil has remained among the ten largest industrial powers in the world. After falling from 6th to 9th place between 2014 and 2016, we were able to maintain our position in 2017. This, however, was not by the country's merit, since the ranking of the main industrial nations did not change between 2016 and 2017. In the top five we still have China (24.8% of world MVA), the USA (15.3%), Japan (9.1%), Germany (6.3%) and India (3.3%).
If the downward trend of Brazilian participation in the global industry is very worrying in itself, there is another aspect of UNIDO data that signals to an even more serious situation. Brazil has been dismantling its position in sectors of greater technological intensity, precisely at a time when these segments have gained world dynamism due to the emergence of industry 4.0.
According to UNIDO, between 2005 and 2015, the ratio of medium- and high-intensity industries’ value added to total industry’s increased in most developing economies, despite significant differences between individual countries. Brazil has emerged as one of the most dramatic exceptions, as its ratio fell from more than 50% in 1995 to about 34% in 2000, remaining practically stable since then.
According to UNIDO, a key sector for this medium-high tech group that is also base for the 4.0 industry is the segment of Computers, Electronics and Optical Products. While China achieved leadership in this area, with 28% of world MVA, surpassing the United States and Japan, Brazil progressively lost space. Among the emerging countries except China, the Brazilian position in this sector declined from 2nd to 4th, with a loss of participation from 13.6% to 7.2%.
The Brazilian downfall meant that, between 2010 and 2016, the country ceased to be included in the list of the 15 largest producers of computers, electronics and optical products. And this was not the only case where that happened. In the Pharmaceutical industry, which is also a sector of high technological intensity, Brazil has lost its position and is no longer among the 15 largest. Other sectors in which the country fell in the ranking include Electrical equipment, Machinery and equipment and Motor vehicles (down 3 places each).
In the opposite direction, Brazil improved in the ranking of Wood Products (from 11th to 9th largest producer) and Printing and publishing (from 11th to 8th) —whose value added, in the latter case, has been declining in the world, especially in developed countries. It is also worth mentioning that Brazil was among the 5 largest producers in Leather (4th position), Coke and oil refining (5th) and Food (5th).
The profile of the industrial sectors in which we are being demoted in the world ranking vis-à-vis those in which we are ascending or even those where we occupy positions of uncontested leadership, as seen above, is another way of verifying Brazil's specialization in industries of lower value added or based on our natural resources. This is a worrying process that has accompanied the country's loss of participation in the global industry.