Ferraz 2003
Economic liberalisation and Economic liberalisation and development in Latin America: development in Latin America: Achievements, constraints and Achievements, constraints and
perspectives for the Brazilian Industryperspectives for the Brazilian Industry
João Carlos FerrazEconomic Comission for Latin America and the Caribbean,
United Nations David Kupfer and Mariana Iootty
Instituto de Economia, Universidade Federal do Rio de Janeiro, Brasil
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Guide of presentationGuide of presentation• Development and competition
• Historical context and framework conditions
• Economic liberalisation
• Industrial performance
• Competitiveness in four industrial groups
• 10 years of economic liberalisation Made in Brazil … and after???
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Development and competitionDevelopment and competition
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DevelopmentDevelopment• Development: growth, structural change, income
distribution and learning
• State: pro-active participant in processes of transformation
• Development: innovation, competition and entrepreneurs
• Successful corporations: networking and increasing competences to explore expanding markets
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Process of competitionProcess of competition
• Competition is a systemic, interactive process, involving firms, industrial structure and framework conditions
• Confrontation among firms - primary source of economic dynamism
• Competitive firm: imposes the rules of competition
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Competitiveness and patterns of competitionCompetitiveness: Capacity of a firm to formulate and implement strategies to maintain or expand a sustainable market positionCompetitive firm: Strategies, capabilities and performance coherent with sectoral pattern of competitionPattern of competition: Collection of competitive drivers -key factors for success in a specific market
Competition is a systemic, interactive process, involving firms, industrial structure factors and framework conditions
Two important remarksPatterns of competition are sector/market specificIn time, patterns of competition may change due to innovation or changes in systemic factors
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Internal factors
KEY-FACTORS Cost pattern Differentiation pattern
Responsiveness pattern
Innovation pattern
MANAGEMENT Process control Organisational flexibility
Workers and entrepreneurial
skills
R&D-production-marketing integration
PRODUCTION Mass flow & energy efficiency
Assembly and supply-chain co-
ordination capabilities
Quality control Design for manufacturing
SALES Access to
distribution channels
Brand image Market information
Market creation & business to
business marketing
INNOVATION Process technology
Product & components
design
Embodied technology, learning by
doing
R&D + design
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Structural factors
KEY-FACTORS Cost pattern Differentiation pattern Responsiveness pattern Innovation pattern
MARKET
Standardisation Price, technical conformity Access to international trade
Segmentation by quality and marketing Price, brand, technological content, technical assistance Regional & global
Segmentation by levels of income & type of product Price, brand, delivery times, customisation Local & international
Segmentation by technical needs Client specification Local & regional and global trade
CONFIGURATION OF INDUSTRY
Economies of scale Access to raw materials & transport logistics Specialised technical services
Economies of scale & scope Articulation assembler-supplier, distribution Metrology & standardisation systems; R&D networks
Economies of agglomeration Horizontal & vertical networks Metrology, certification & accreditation; market & technical information
Economies of specialisation Interaction with users S&T systems
REGIME OF INCENTIVES AND REGULATION
Anti-dumping Environmental protection Cost of capital
Consumer legislation Consumer credit Fiscal incentives
Anti-dumping Competition & consumer policies Tax system & support for SME
Property rights Risk support & credit for users Selective protection & state purchasing power
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Historical context and framework conditionsHistorical context and framework conditions
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Historical contextHistorical context• 1930/82:
– High growth– Low contribution of technical progress
• Last 20 years: – Instability– Low rythm of structural change
• The 1990s/2000s– External vulnerability (trade deficit)– Product and services updating but assymetric
modernisation
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Structure and framework conditionsStructure and framework conditions• Natural resources and wide markets, strong
inequalities
• Infrastructure: insufficient and concentrated
• Propensity for the generation of low skilled jobs
• Low investment and dependence on foreign resources
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Private structure and competences Private structure and competences
• Willingness to do business– Propensity for the generation of low skilled jobs
• Companies good in routines; weak in search activities:– Low local technological effort
– Extensive use of external technologies
• National x transnational: occupying different spaces
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Economic liberalisationEconomic liberalisation
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Economic liberalisation and price stabilisationEconomic liberalisation and price stabilisation
(i) economic deregulation(ii) privatisation of manufacturing industries and
utilities services(iii) liberalisation of the external sector(iv) appreciated exchange rate, high interest rates
and foreign capital inflowsMacro implications: foreign capital inflows financing
trade deficits; increasing external vulnerability, not compatible with long-term stability; volatile
& insufficient growth in the 1990s
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Industrial performanceIndustrial performance
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Output in different industries (1991=100)Output in different industries (1991=100)
1994 1996 1997 1998 1999 2000
Industrial Commodities 109,5 115,9 122,8 126,8 130,3 138,2
Agriculture Commodities 94,4 100,6 104,0 101,2 105,4 98,9
Traditional industry except Food/beverages
105,3 103,6 104,1 101,3 100,0 104,3
Food/beverages 107,2 127,0 127,3 128,9 128,9 130,5
Innovation Carriers 123,3 107,8 105,2 105,6 98,3 108,2
Durable Goods 133,0 153,4 165,8 133,9 123,1 148,6
Manufacturing Industry 111,4 115,4 119,9 117,4 116,7 124,2
Source: IBGE - Industrial Monthly Survey (Special Tabulation)
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Industrial output & employment 1985-1999Industrial output & employment 1985-1999
Source: IBGE – Monthly Industrial Survey and Monthly Employment Survey
60
70
80
90
100
110
12019
85
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
Ano
1985
=10
0
Output Employment
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Foreign trade 1980-2002 - US$ millionForeign trade 1980-2002 - US$ millionSource: Alice Database
-20.000
0
20.000
40.000
60.000
80.000
100.000
120.000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002*
Year
1000 Us$
Exports Imports Trade Balance Trade Flow
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Foreign trade in industrial groups 1999-2002Foreign trade in industrial groups 1999-2002Source: GIC-IE data bank
-20000000
-10000000
0
10000000
20000000
30000000
40000000
50000000
1989
1993
1996
1999
2000
2001
2002
1989
1993
1996
1999
2000
2001
2002
1989
1993
1996
1999
2000
2001
2002
1989
1993
1996
1999
2000
2001
2002
Imports Exports Balance Flow
Industrial Commodities
TradicionalsDurables & Innovation Carriers
AgriculturalCommodities
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Fixed capital formation 1990=100Fixed capital formation 1990=100Source: IBGE/DECNA
02040
6080
100120
140160180
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
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Private M&A & Privatisation, 1990-99Private M&A & Privatisation, 1990-99
0
5000
10000
15000
20000
25000
30000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
US$
millio
n
Private M&A Privatization
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Ownership change Ownership change Share in sales revenue of 300 largest companies (%)
Sector Year E M N
Commodities1991 42,4 21,2 36,5
1999 25,8 33,1 41,1
Durables andInnovation Carriers
1991 0,8 60,3 38,8
1999 0,0 86,9 13,1
Traditional1991 0,0 36,5 63,5
1999 0,0 48,5 51,5
Total1991 20,5 36,0 43,5
1999 12,5 53,5 34,0
Ownership: S – State owned; M –Multinational; N – NationalSource: GIC-IE data bank
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Expenditure in innovative activities, 2000Expenditure in innovative activities, 2000
Number of Firms
Net Revenue(R$ 106)
Expenditure in Innovative Activities
Total Machinery acquisition Internal R&D
Number of Firms
Value(R$ 106)
Number of Firms
Value(R$ 106)
Number of Firms
Value(R$ 106)
72,005 582,406 19.165 22,343 15,540 11,667 7,412 3,741
Source: IBGE, Industrial Survey on Technological Innovation, 2000
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Industrial Commodities
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Output and employment in the steel industry, 1988-2001
0
5
10
15
20
25
30
88 89 90 91 92 93 94 95 96 97 98 99 00 01
mill
ions
ton
0
30
60
90
120
150
180
number of direct em
ployees
Production Number of employees
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Durables goods
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Employment and productivity in car asssembly
1990 1992 1994 1996 1998 2001
Employment 117,396 105,664 107,134 101,857 83,049 85,257
Labour productivity*
7.8 10.2 14.8 17.7 19.1 21.3
* units per worker in a given year Source: Sarti (2002)
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Traditional industries
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Innovation carriers
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10 years of economic liberalisation Made in Brazil
And after?
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Competitive regularitiesCompetitive regularities• Industrial commodities
– Low unit value in exports, differentiation for the local market
• Durables goods– Inward internationalisation and cacthing up in
middle income segments• Traditional industries
– Competitive constraints defined by unequal income levels
• Innovation carriers– Moving ahead, lagging behind ...
competitiveness still very weak
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General featuresGeneral features• No structural transformation – new or
abandoned activities
• Foreign trade expansion, from US$ 50 to US$ 100 billion but unchanged trade pattern
• Expansion investments in few sectors
• Inward internationalisation
• Modernisation but unchanged relative position of firms
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Development paradoxDevelopment paradox
Local capital and innovation capabilities are regularities of successful countries
X Ownership internationalisation and incipient
innovation capabilities in Brazil
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Open questionsOpen questions• How to attract dense FDI?
• How to evolve from modernisation (rationalisation) to innovation?
• How to achieve double moving target (national best practice to international average and average national to national best practice)?
• Employment???????