Letter IEDI n. 1060—High Technology fall in 2020 Industrial Exports
The severe crisis caused by the COVID-19 pandemic further reduced Brazil's already downward foreign trade flows in 2020, but at least a positive trade balance was ensured. The US$ 50.9 billion surplus, a consequence of the contraction of imports, represented an improvement of 6% in relation to 2019.
In the manufacturing industry, however, there was further deterioration. Its trade deficit widened due to a more pronounced decline in exports, hampered by the adverse moment of world trade and the lack of competitiveness of the national product, a result, as we know, of a series of internal distortions such as our tax system and infrastructure, not to mention other determinants of the so-called "Custo Brasil" (Brazil Cost). The situation could have been more serious had it not been for the significant depreciation of the exchange rate.
In this Letter, the IEDI reorganized the official trade balance data according to the technology intensity of the different economic sectors, following the methodology used by the OECD. With this, it is possible to analyze the foreign trade performance of the Brazilian industry, grouping its branches in four ranges: high, medium-high, medium and medium-low technological intensity. No activity in the manufacturing industry belongs to the low-tech group, which includes goods from agriculture, forestry, fishing and aquaculture.
Despite the negative evolution of the industry's trade balance in 2020 as a whole, starting in the second half of the year and, especially, in its last quarter, there were signs of some easing in the situation of our exports, opening up the possibility of better days in early 2021.
Last year, exports of manufacturing goods decreased 12.1% in relation to 2019, a result of the shrinking of foreign sales of all technology intensity ranges, especially the high-tech category (-37.2%), under great influence of the aeronautical industry (-45.7%), and of the medium-high range (-20.6%), mainly due to the automobile industry (-25.1%).
As a result, there was a further deepening of the downward trend of the participation of the most technology-intensive sectors in Brazilian industrial exports. Over the past 20 years, the high technology share in foreign sales has fallen from 14% to mere 4.7%. Adding also the medium-high intensity branches, the participation of these more sophisticated goods declined from 42.9% in 2000 to just 27.5% in 2020.
In the 4th quarter/20, however, total industrial exports registered a decline of only 1.2% compared to the same period of the previous year. The relative improvement was more pronounced in the intermediate technology ranges, contributing little to stop the process of loss of participation of the most sophisticated goods in our export basket.
The medium-high industry, whose external sales shrank 41.1% in Q2/20 and 21.9% in Q3/20, saw its fall reduced to -3.5% in Q4/20. In the case of the medium intensity industry, it went from -30.7% in Q3/20 to only -4.2%.
Although other sectors also performed better at the end of the year, those that had the greatest influence on this result in the 4th quarter/20 were: motor vehicles (+0.7%) and other transportation equipment (-2.4%) in the medium-high technology industry and non-metallic minerals (+20.1%), rubber and plastic (-3.3%) and metallurgy (-6.3% compared to -14% in Q3/20) in the medium technology intensity range.
The medium-low industry, in turn, achieved a more favorable evolution not only in the 4th quarter/20 but also in the year as a whole, benefiting from the recovery of the Chinese economy and the appreciation of commodities in global markets. In the year, its exports were very close to stability, registering -0.8%. In Q4/20 they grew 3.3% due to food, wood, paper and cellulose.
In contrast, despite having also presented a less adverse picture in Q4/20, the high-tech industry continued to see its foreign sales contract significantly: -16.8% compared to the same period of the previous year. The aeronautical sector was the biggest obstacle, with a loss of 21.1% in its foreign sales in the period.
Regarding imports, for manufacturing as a whole there was an increase of 5.5% in Q4/20, easing the total yearly decrease, which reached -8.4% with the lower level of domestic economic activity. Although the picture has actually improved a little, it only became positive due to the accounting of oil platforms.
Excluding the shipbuilding industry, which includes these platforms, the result for Q4/20 declines to -6.8% for the manufacturing industry. For the medium-tech range, to which this branch belongs, the performance remains positive: +6.2%. Another group that also showed an increase at the end of 2020 was high technology, +1.4% due to imports of electronics and pharmaceuticals.
Negative still remained the medium-high technology range (-4.8% compared to Q4/19), but with a significant reduction in the level of decline due to machinery and equipment and growth in external purchases of chemical products (+0.9%) and electrical machinery and equipment (+5.6%). Also in the red, but at a more intense pace, were imports from the medium-low technology industry (-22.9%), due to metal products (-36.5%), fuels and oil products, and textiles, clothing, leather and footwear (-13.3%).