Letter IEDI n. 1097—The pandemic and Brazil's decline in the world industry
UNIDO (United Nations Industrial Development Organization) estimates that global manufacturing value added (MVA) dropped -8.4% in 2020. This was due to the COVID-19 pandemic, which triggered an unprecedented crisis, impacting the production of goods and causing disruptions in global value chains (GVC) as well as a general slowdown in demand.
China, the first country hit by the coronavirus outbreak, but also the first to control it, recorded a decline of just 1.3% in its manufacturing industry in 2020, remaining the world's leading producer of manufactures, with 31.3% of the sector's total value added globally.
Then came the United States, with the 2nd largest manufacturing industry in the world, Japan and Germany, in 3rd and 4th place, respectively. In the last decade, the participation of these countries in the global industry fell and, therefore, they have recently been making use of new industrial development strategies.
South Korea (5th place) and India (6th place) were the main nations to rise significantly in the world ranking between 2010 and 2020, consolidating their presence in the squad of global industry leaders. Brazil, on the other hand, has been going in the opposite direction.
The 9th largest industry in the world in 2005, we fell to 11th in 2015 and then to 14th in 2020. Over this period, our share has almost halved, shrinking from 2.2% of the global industry in 2005 to just 1.3% in 2020.
This descent was influenced by the effects of the two serious recent crises, 2015–2016 and 2020, producing a decline in Brazilian manufacturing value added of 1.5% per year between 2015 and 2020. This happened together with a long trajectory of accumulation of distortions in our production structure, which compromised the competitiveness of Brazilian industry. In parallel, there was no industrial strategy to support the building of new productive and technological competences, going beyond mere attempts to mitigate systemic costs.
Brazil is moving in the opposite direction from the world as a whole and also from the groups of emerging and developing countries. Some UNIDO data for the last decade illustrate this difference well:
• While Brazil's MVA shrank between 2015 and 2020, for the world industry as a whole the MVA grew +1.6% per year and in developing and emerging countries it expanded +3.5% per year.
• In the last decade, despite the pandemic, there are no signs of deindustrialization either in the world, where the share of the industry in GDP remained at 16% (in 2015 US$), nor in developing countries, where this share went from 20% to 20.6%. In Brazil, however, the participation of manufacturing shrank from 12.4% to 9.9%, according to UNIDO data.
• In per capita terms, the evolution of manufacturing value added also went in the opposite direction in Brazil: -25% between 2010 and 2020 versus +36.6% in emerging and developing countries and +11.9% in the global aggregate.
It is also worth noting the evolution of the sectoral composition of Brazilian industry's VA under two aspects. The first of them points to an even greater concentration in a few branches of, apparently, lower technological intensity. Between 2010 and 2019, which is the most recent year with sectoral data available, the weight of only 4 sectors—namely food, chemicals, coke and refined petroleum and base metals—increased from 45.7% to 53.1% of the VA of the Brazilian industry.
The second aspect is that only in a few sectors is Brazil among the 10 largest world producers and, in some of these cases, there was even a loss in the UNIDO ranking: in food we dropped from 6th in 2015 to 8th in 2019 and in metal products, from 8th to 9th, for example.
In 2015, the country did not appear among the 15 largest producers in 5 industrial sectors, a number that increased to 8 sectors, including some of greater technological intensity, such as computers and electronics, electrical equipment, machinery and equipment, and vehicles.
The COVID-19 pandemic brings both opportunities and risks for Brazil's position in the global industry. It is an opportunity to (as other prominent countries such as the USA and China are doing) adopt an economic recovery plan based on a modern strategy of industrial strengthening, aimed at increasing productivity, digitization and environmental sustainability.
But it is also a risk, as the pandemic could accelerate the reconfigurations of value chains toward greater resilience, making them more regionalized and closer to the most dynamic consumer markets. The advanced countries are also showing signs of wanting to re-industrialize, stimulating the reshoring of their companies. These are movements that can separate Brazil from the most dynamic activities of the world industry.