Deindustrialization in Progress

A study prepared by the Center for Development and Regional Planning (Cedeplar) at the Federal University of Minas Gerais (UFMG), released by the Valor Econômico newspaper, shows that Brazil is in a clear process of deindustrialization due to a choice made by recent governments in favor of the primary sector and the exploitation of natural resources, at the expense of the industrial sector.

According to the report, between 2016 and 2020, the number of competitive industries, those that export more than the global average, decreased from 196 to 167, while the share of primary products related to agribusiness increased from 37.2% to 44.3%. As is known, uncontrolled exploitation of agribusiness-related products can lead to higher emissions of greenhouse gases and environmental degradation, which has already sparked protests from countries advocating for a healthier environmental policy.

Although, in principle, one cannot condemn activities related to agribusiness, which have recently ensured a trade surplus, the truth is that only medium and high technology products are capable of stimulating job growth, driving the domestic market, and at the same time, boosting the importation of inputs necessary for value addition to equipment. Therefore, they would deserve a more focused policy to interrupt the current deindustrialization process.

According to the study, medium technology products reduced their share in the export portfolio from 20.2% in 2016 to 14.2% in 2020, while exports in this sector decreased by 16.7%. Meanwhile, high-tech products experienced a decline from 5.2% to 3.1% during that period. Overall, the reduction in exports was the highest (30.6%). Meanwhile, products with lower technological intensity experienced significant growth, especially those related to gold, raw wood, oil, soy, and corn.

Obviously, there would be no reason to mention the increase in the export of primary products, also driven by global demand for commodities, if there had not been a drastic drop in exports of manufactured products. To make matters worse, there are expenses resulting from the so-called “Brazil cost,” which comprises a set of structural, bureaucratic, labor, and economic difficulties that hinder the country’s growth, negatively influence the business environment, and increase the prices of domestic products and logistics costs.

These expenses represent more than 30% of the final price of manufactured goods, making them uncompetitive in the international market. Despite this, there has been no firm response from the government to address this issue. To explain the decline, the excuse of the COVID-19 pandemic is also naturally invoked, which is said to have caused a reduction in global demand for manufactured goods.

Although there is currently high technology in the extraction of primary products, especially in the agricultural sector, the problem is that these activities promote the concentration of generated wealth, i.e., they create few jobs, encouraging migration of people from rural to urban areas, which accelerates social issues, such as the increase in the homeless population.

Therefore, the only option left for the country is to await the long-promised (and continually postponed) reforms, which include reducing the tax burden, modernizing and expanding infrastructure, lowering financing costs, reducing bureaucracy and legal uncertainty, and investing in research and professional qualification. If these reforms had been implemented one or two decades ago, Brazil would be reaping the rewards of development today. Unfortunately, given the current low intellectual quality of public representation, much cannot be expected for now.

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Liana Lourenço Martinelli, lawyer, postgraduate in Business Management and International Trade, is the Manager of Institutional Relations at Fiorde Group, comprised of the companies Fiorde Logística Internacional, FTA Transportes e Armazéns Gerais, and Barter Comércio Internacional. Email: fiorde@fiorde.com.br. Website: www.fiorde.com.br.

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