Brazil needs to pump $456 billion into its manufacturing sector yearly for at least 7 years. That’s according to new data from Fiesp, São Paulo’s Industry Federation.
They found that investments in this sector have hit a 20-year low. Therefore, urgent action is necessary for economic growth.
Currently, only 2.6% of Brazil’s GDP is going into this crucial sector. In contrast, this percentage has been dropping over recent years.
Fiesp claims this isn’t enough even to cover basic costs like asset upkeep.
The study uses the latest 2021 data from Brazil’s Annual Industrial Survey. The numbers show a worrying trend.
For instance, back in the 2000s, 21% of all national investment went to manufacturing. By 2021, this had fallen to just 12.9%.
To bounce back to productivity levels from the 1970s, Fiesp proposes a plan. Specifically, they recommend investing 4.6% of the GDP annually for 7 to 10 years.
In real terms, that’s about $456 billion a year.
Moreover, most current investments focus on petroleum and biofuels. Fiesp urges caution here, noting the volatility of such markets.
Fiesp’s Chief Economist, Igor Rocha, warns against excessive reliance on these sectors.
Such dependency can make the country’s income too dependent on global price changes.
The research also flags another concern. It seems the industry’s capital stock isn’t renewing fast enough.
Between 1996 and 2014, investments grew an average of 1.9% per year. But from 2015 to 2021, this rate turned negative, dropping about 0.6% annually.
Finally, Fiesp sees this as a red alert for Brazil’s competitiveness. Accordingly, they push for tax reforms to better the business climate and revive the sector.
Background Brazil’s Manufacturing
Brazil’s manufacturing decline isn’t unique; many countries face similar challenges. Yet, nations like Germany and Japan have maintained strong manufacturing sectors.
The lack of investment affects job creation, a critical issue for Brazil’s economy.
Global investors often look at manufacturing health when considering long-term investments.
A weakened sector could deter foreign investment.
Brazil’s large natural resources offer a unique opportunity for sustainable manufacturing, which is increasingly valued globally.
Technology plays a vital role in modern manufacturing. Low investment in tech could leave Brazil lagging in the global race.
Trade policies also affect manufacturing. Trade tensions between countries like the U.S. and China could either hurt or help Brazil, depending on their stance.
Improving manufacturing could also boost Brazil’s export capabilities, strengthening its global economic position.
Any changes in Brazil’s manufacturing sector have ripple effects across South America, given Brazil’s size and influence in the region.
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