Brazil: what the industry expects from the new government

By José Ricardo Roriz Coelho*

In this year’s first issue of Foreign Affairs magazine, US Congressman Ro Khanna, who represents California’s Silicon Valley region, wrote an article advocating a new economic patriotism for restructuring production in the country’s key industries.

“Rebalancing trade through domestic production will help ease tensions with China, realize the promise of a prosperous democracy, and ensure that globalization works for all Americans, not just some,” the congressman writes.

The defense made by the representative of the region where the headquarters of the main Western technology companies are located is the result of a global movement that intensified more than four decades ago, and that has not spared any Western economy, especially ours.

The migration of industrial production started to grow exponentially to the Asian continent.

According to the World Bank, industry accounts for 39.4% of China’s GDP (Gross Domestic Product).

In other Asian countries, the rate is also high.

In South Korea, the rate is 32.4%. In Japan, 29% of production is carried out by industry.

Brazil is the country that suffered the most brutal process of deindustrialization in the world, starting in the 1980s.

Industry’s share of the GDP, which was once almost 50%, is now 22.2%. This needs to change.

With a new government that has just come into office, it is worth highlighting some measures that will be crucial for the plastic industry, one of the main employers in the country.

One of them is the guarantee and the readjustment of the ceilings for participation in simplified tax regimes for micro and small industries, from R$4.8 million per year to R$8.6 million, according to the Supplementary Law Project in progress in Congress (PLP 108/21).

Today, of the more than 12,000 plastic-processing companies in Brazil, 77.9% are considered micro and small companies.

However, inflation has artificially increased the prices of plastic processed products, making a company with a small production volume no longer eligible to participate in the Simples Nacional tax scheme.

The import tariffs for raw materials need to be closer to the average practiced by OECD (Organization for Economic Cooperation and Development) countries. The import tariffs are lower than those practiced in Brazil.

In the case of plastic inputs, the difference is enormous: 11.25% in Brazil and 6.25% in the OECD.

By maintaining high import tariffs on raw materials, the country is acting contrary to the logic of tariff escalation, a concept in which the products that add value to the raw materials should be more protected than the inputs.

Furthermore, a definition of limits for using instruments such as antidumping by the Brazilian government is fundamental.

When applied in defense of monopolies and oligopolies, these mechanisms should provide incentives for efficiency to enable and strengthen Brazilian industries for international competition, under the risk of commercial defense acting as a market reserve.

The industry needs competitive credit, access, and cost of capital at levels compatible with those of the OECD.

The Brazilian market is concentrated and does not count on long-term financing instruments.

It is fundamental to stimulate and increase this market, encouraging the insertion of new players that use technology to reduce operating costs and promote competitiveness.

At the same time, it would be important to strengthen the role of banks, such as the BNDES.

It is necessary to foster in the country an environment of legal security for business and to promote the reduction of bureaucracy since the producers of packaging and disposables are subject to projects that aim to ban plastic products.

According to the UN’s own analysis, the impacts of these proposals and laws must be understood before any vetoes are issued, and only then will criteria and legislation be established.

A crucial axis for the sector, Circular Economy 4.0, is already being practiced by the industry, but it is necessary to expand the use of recycled materials and increase the recyclability of new materials.

The increase in recycling rates goes through the greater availability of raw materials, such as plastic scrap, from the selective collection.

Many challenges are ahead, and it is necessary to give new meaning to the sector’s importance for the country.

The industry has always been the driving force behind innovation: it generates many jobs of higher quality and better pay for the workers.

And the plastic industry is ready to continue transforming the country’s reality and contribute to the development of the Brazilian economy.

*President of ABIPLAST (Brazilian Plastics Industry Association) and of SINDIPLAST (Plastic Material Industry Union of the State of São Paulo)

With information from Exame