Letter IEDI n. 932–Industry: Brazil and the world in opposite directions
UNIDO (United Nations Industrial Development Organization), in its 2018 annual report, analyzed the evolution of the global manufacturing industry during the year. The main conclusion is that, even at a slower speed, the industry is advancing in the world, driven by branches of greater technological intensity. Meanwhile, in the absence of a vigorous and consistent recovery, Brazil is lagging behind.
The world manufacturing value added (MVA) grew +3.6% last year, in constant values of 2010, according to Unido's research. This represents a disappointment compared to the performance of 2017 (+3.8%) and was due to the loss of pace of industrial parks in both emerging and developing economies (from 4.1% in 2017 to +3.8% in 2018) and in industrialized countries (from +2.6% to +2.3%).
One of the main causes for the weaker result in 2018 was the uncertainty caused by the US-China trade conflicts. Despite this, Chinese manufacturing production maintained a significant level of growth: 6.2% (-0.4 percentage point compared to 2017), while the US were an exception to the rule with an increase in speed: from +1.9% in 2017 to +3.1% in 2018.
Latin America, on the other hand, stands out due to the concentration of negative rates. The worst cases include Venezuela (-19.6%) and Argentina (-4.7%), also reaching Puerto Rico (-2.1%). According to UNIDO data, manufacturing value added in Brazil fell in 2018 (-0.4%), although not as much as in 2017 (-1.2%). We are thus getting more and more behind in an industrial world that not only grows, but also transforms itself with the introduction of new technologies.
In fact, the recent sequence of negative results of Brazil has deepened our loss of expression in the global industry. In 2018, the country retained its 9th place in the ranking of the largest industrial powers in the world, but the risk of being left out of this elite battalion is real. A sign of this is that Brazilian participation in global MVA, which reached 2.81% in 2005, did not go beyond 1.9% in 2017 and regressed to 1.83% in 2018.
Topping the ranking are the countries most committed to their industries, many of them currently leading the technological revolution that is the origin of the industry 4.0. It is the case of China, ranked first with ¼ of global manufacturing, followed by the USA, Japan, Germany, India, South Korea, Italy and France. Below Brazil, in 10th place, is Indonesia, which, if it continues its recent trajectory, may surpass us already in 2019.
Another symptom that we are not following the world is the decline in our per capita MVA. Between 2010 and 2018, in constant 2010 dollars, Brazilian per capita MVA went from US$ 1,353 to US $ 1,175, that is, a decrease of -13%. In the opposite direction, there was a global increase of +29% and for the group of emerging and developing economies, of which Brazil is a part, the rise reached +89%.
Such asymmetry is a consequence of the 2010-2018 average annual growth of the manufacturing value added being -2.1% in Brazil and +3.2% in the world as a whole, and +5.3% in emerging and developing countries. Reversing this picture requires putting Brazil's industry back on track for growth, something that has not been happening since late last year. It is worth remembering that the physical production of the sector, according to the IBGE, fell in both Q4/18 and Q1/19.
Even more serious is the contrast between the paths of the more technologically-intensive industry in Brazil and in the rest of the world. This is because high- and medium-high technology branches, in addition to employing more skilled labor and paying higher wages, are also the industry's most dynamic research, development and innovation hubs.
In developed countries, the segment of computers, electronics and optical products —which is a vehicle for the digitization of economies— assumed the position of second largest industry, with a share of 10.1% of total MVA of this group in 2017 (last available data). It was narrowly behind the food industry only (10.7%). In 3rd and 4th places, there were the branches of machinery and equipment (9.9%) and automotive vehicles (9.3%).
In emerging and developing countries, computers, electronics and optical products are also gaining share, rising from 5.5% to 7.7% between 2005 and 2017. It is already the fourth most important industry in this group of countries, behind food (12.2%), basic metals (9.9%) and chemicals (8.8%). In Brazil, in turn, the distribution of MVA has been increasingly concentrated in branches farther from the technological frontier, especially in the food industry, whose participation increased from 18.3% in 2005 to 22.6% in 2017.
In addition, the country lost positions in the ranking of the most technologically dynamic sectors, such as machinery and equipment, vehicles and electrical equipment. In the case of computers, electronics and optical products, Brazil never reached a position of world leadership and in pharmaceuticals it lost the 14th place in 2005 and ceased to belong to the group of 15 largest industrial parks in the sector.