Brazilian industry: a death foretold

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.

About admin

I've been researching and writing on Brazilian financial markets, industry and economy since 2006 for a wide range of specialist media, consultancies and investors. Before that I spent over 10 years in London and New York writing for and editing magazines and journals dedicated to finance, investment and economics in developing markets, mostly for the Euromoney Institutional Investor group and Thomson Financial. Areas of coverage Below are samples of areas that I cover and some of the common themes that I investigate. Capital markets BM&FBovespa markets *capital raising trends: via equities (IPOs and secondary issuance), debt and loans *the asset management industry: legislation and coverage of the key hedge, pension and investment funds * corporate governance: how the regulator is seeking to strengthen best practice and limitations * debt markets: the nascent corporate markets, attempts to boost liquidity and new insturments. * private equity market: why this market has been so successful, who’s involved. *electronic, high frequency trading and alternative trading platforms: what does the future hold? Banking *credit: the growth of consumer and business credit and competition between banks and models *Public versus private: the role and market share of public and private sector banks and the politicization of the industry * internationalization: which Brazilian banks are expanding overseas and where * investment banking: the growth of the domestic market and who’s winning which mandates *regional banks and development banks: what role they play in the industry and how they compete Mining *licensing: the complex process of obtaining environmental, water, land and operating licenses at a state and federal level. * capacity: the feasibility and sustainability of capacity increases * financing: how miners are raising finance in Brazil and abroad *competition: the interplay Vale, MMX and junior miners *logistics: rail, road and port connections Oil and gas: the fund raising issues related to the massive of pre-salt (link) Multilatinas: Who are they and how and where they are expanding Meatpacking: Are debt burdens sustainable, what are the different business models for areas such as branding and distrbution Agriculture: How are farms consolidating, what are environmental risks, how can foreign investors be involved. IT and software: Can Brazil take on India and build a viable long-term IT industry? For more information on clients and work, please see the media and consultancy sections.
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