Letter IEDI n. 920–The sectoral profile of the Brazilian industry decline
The Brazilian industry did not have to go through one of its worst crises in the period 2014-2016 —from which it has not yet fully recovered, it is worth remembering— in order to decline in the productive structure of the country. On the contrary, the industrial sector has been losing share in Brazil's GDP since the 1980s.
The difficulties of the last few years only deepened the problem, leading to the lowest level our industry has occupied since 1947, as shown in the IEDI Analysis of 03/26/2019 (in Portuguese). In 2018, manufacturing accounted for only 11.3% of GDP, i.e. almost half of the 20% recorded in 1976 at constant prices. We have undergone one of the most intense processes of industrial regression in the world, which has resulted in low economic growth and important technological delays.
This Letter IEDI, based on a study by economists Paulo Morceiro (USP) and Joaquim JM Guilhoto (OECD), fully available on the IEDI website (in Portuguese), analyzes in greater detail the so-called Brazilian "deindustrialization", ongoing for decades. As a general rule, this process does not mean the absolute shrinkage of the industry, but its decreasing share in the economy, due to low growth.
The authors assessed the relative decline of manufacturing by sector, comparing it with developments in the rest of the world. That is, did all manufacturing sectors lose share in GDP? All at the same time and in the same intensity? Which ones fell the most: high-tech or low-intensity ones? Is the relative shrinkage of Brazilian industry one of our "jabuticabas" (specificities)?
Some of the empirical evidence from the Morceiro and Guilhoto analysis can be summarized in the following points:
• Between 1980 and 2016, Brazil's GDP grew at an average rate of 2.17% p.a. and our population at 1.47% p.a., while the manufacturing gross value added grew by only 0.66% % p.a. Consequences: a relative decline of the industry in the economy of the country and fall of manufacturing GDP per capita.
• Due to industrialization in China, there was no setback for the industry in the world's productive structure. For the "World Except China", the weight of manufacturing in GDP (at constant prices) declined only 1% between 1980 and 2015 (from 16.2% to 16.1%), while for Brazil this fall was of no less than 42% (from 23% to 13.3%). That is, we are a point off the curve.
• But before its relative regression, for how long did the Brazilian industry stay at its peak? For very little time: only 8 years (1973-1980). US manufacturing remained at its peak for 20 years (at 26% of GDP on average in 1947-1966) or for 40 years if we consider its share of total employment.
• Brazil's manufacturing sectors began to lose share of GDP in different moments: for example, clothing, leather and footwear as early as the 1970s, chemicals and petrochemicals in the 1980s, and food, beverages, and tobacco only as of 2005.
• Sector deindustrialization was also not homogeneous in intensity; for example, clothing, leather and shoes have suffered a much more severe setback than non-metallic minerals.
• Half of the manufacturing sectors (food, beverages and tobacco, textiles, clothing, leather and footwear, furniture and wood, metallurgy and metal products, chemicals and petrochemicals, machinery and equipment) accounted for more than 4/5 of manufacturing's loss of participation in GDP between 1970 and 2016. Therefore, the movement of relative decline is sectorally concentrated.
• Sectors with low technological intensity (clothing, leather and footwear, textiles, non-metallic minerals, furniture and wood), producers of traditional goods, followed the international standard and lost share of GDP as the country's per capita income increased.
• The problem is more serious in sectors of higher technological intensity (machinery and equipment, chemicals and petrochemicals, automobile, other transportation equipment, etc.), whose share of GDP has begun to decline prematurely. Together, the sectors of high technological intensity have lost 40% of their GDP share since 1980. This is serious and detrimental to the development of the country given the technological dynamism of these sectors.
• Some branches of high and medium-high technological intensity, such as pharmaceuticals, electrical materials and computers and electronics, did not regress, but also did not increase their participation in the economy as occurred in other countries that have undergone a process of relative deindustrialization. This is a major factor that aggravates our industrial decline.
• Specifically, the sector of computer and electronics was at the core of the Third Industrial Revolution and plays a central role in the current Fourth Revolution (Industry 4.0), but in Brazil it has a small participation in the industrial structure (representing only 0.5% of GDP) and grows very little. In the United States, in contrast, this sector represents a percentage of GDP 3.5 times higher than in Brazil. This picture suggests we will face great difficulties to follow the transformations of the digital age.