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

Ferraz 2003

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???

Ferraz 2003

Development and competitionDevelopment and competition

Ferraz 2003

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

Ferraz 2003

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

Ferraz 2003

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

Ferraz 2003

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

Ferraz 2003

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

Ferraz 2003

Historical context and framework conditionsHistorical context and framework conditions

Ferraz 2003

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

Ferraz 2003

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

Ferraz 2003

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

Ferraz 2003

Economic liberalisationEconomic liberalisation

Ferraz 2003

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

Ferraz 2003

Industrial performanceIndustrial performance

Ferraz 2003

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)

Ferraz 2003

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

Ferraz 2003

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

Ferraz 2003

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

Ferraz 2003

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

Ferraz 2003

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

Ferraz 2003

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

Ferraz 2003

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

Ferraz 2003

Industrial Commodities

Ferraz 2003

Ferraz 2003

Ferraz 2003

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

Ferraz 2003

Durables goods

Ferraz 2003

Ferraz 2003

Ferraz 2003

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)

Ferraz 2003

Traditional industries

Ferraz 2003

Ferraz 2003

Ferraz 2003

Ferraz 2003

Innovation carriers

Ferraz 2003

Ferraz 2003

Ferraz 2003

Ferraz 2003

10 years of economic liberalisation Made in Brazil

And after?

Ferraz 2003

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

Ferraz 2003

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

Ferraz 2003

Development paradoxDevelopment paradox

Local capital and innovation capabilities are regularities of successful countries

X Ownership internationalisation and incipient

innovation capabilities in Brazil

Ferraz 2003

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???????