You can't pick up a Brazilian newspaper - even a popular one - these days without reading about the imminent demise of domestic industry. Is this scaremongering by industry bigwigs with the aim of squeezing more concessions out of the government or are we witnessing the demise of Brazilian industry? And if we are why is that the case in a economy that's growing at a reasonable clip and what can be done about it?
Industry's contribution to GDP is on the wane and has fallen to just 14.6% of the economy, the lowest level since 1956. But that's partly because services is rising as more and more Brazilians fulfil their entrepreneurial yen and start up small businesses. Beauty salons are proliferating (Brazil is the third largest world market for beauty after the US and Japan). Entrepreneurs are starting up fast food stands and car repair centres, striking out in IT and web design, opening law firms, small shops: you name it, it's growing. Moreover, soft and hard commodities continue to suck in more workers.
Even though it's right industry should shrink as a percentage of GDP as the Brazilian economy diversifies, there are some worrying trends. This year has seen some job losses in manufacturing and a drop in production. High interest rates and an overvalued currency, increasing wages and continued stringent taxation, dire logistics take the shine of the Brazil story.
The good news is that interest rates are being slashed with real rates now close to 3% - maybe too aggressively - but for now industry is thankful. That has helped push down the currency nearly 20% in one year. This, however, may well prove short-lived.
The bad news (for industrialists, that is) is that salaries are headed up. The minimum salary went up by 13% to R$622 at the start of the year and the government itself predicting it will hit more than R$800 by 2015 while Brazilian executives are some of the best paid in the world. There is no structural tax reform process so labour costs, which can be nearly double wages received, are not likely to ease. Moreover, there is little sign of a logistics revolution in Brazil. Instead, cities such as São Paulo are heading for total gridlock.
Worse still, productivity has fallen in Brazil. One sobering statistic from the government itself is that productivity in Brazil has fallen 15% over the last 30 years. That compares to a gain of 808% in China over the same period.
It seems that ever more Brazilian industry is headed for the scrapheap.