In the picture
Headquarters of the Brazilian National Bank of Economic and Social development (BNDES), in Rio de Janeiro [Doll91939].
After his return to power in January 2023, Lula da Silva has reversed some of the liberalizing measures introduced by Jair Bolsonaro and has increased the weight of the State in the country's economic direction. His intention is that public funds, especially through reimbursable credits, which should not be a financial burden for the government, will drive a new industrial leap in the country, increasing the manufacturing sector and reducing the influence of the agricultural sector. This has been materialized in the New Industry Brazil plan, presented in January 2024, which experts do not seem to predict to be very effective because it falls into the old tics of statism.
GDP growth in the last decade was barely 0.5%: the end of the decade of the commodities boom was coupled with the Covid crisis and the distortions caused by the war in Ukraine. Although the estimate is that 2023 closed with an advance of 3%, more than expected, the International Monetary Fund foresees that in 2024 the Economics will grow by only half. Through the new industrial plan, the government of Luiz Inácio Lula da Silva intends to boost growth above 2-3% per year.
With this purpose, Brazilian authorities want to expand and strengthen the industry so that the country's Economics will be less dependent on agribusiness, which is the country's main economic sector. Brazil is currently the third largest exporter of agricultural products in the world and the agri-food industry is manager responsible for more than 20% of Brazil's GDP; in fact, thanks to magnificent harvests, in 2023 exports will reach record sales, worth US$300 billion, resulting in a surplus of almost US$100 billion.
At the same time, the country is suffering from a deterioration of its industrial fabric. Thus, the manufacturing industry, which was manager responsible for more than 30% of GDP in the 1980s, has fallen to 15% today and 48% of exports are of non-industrial goods.
Successive economic policies
Brazil has always been the great world power of the future; however, every economic miracle of momentum has been followed by a crisis of slowdown and setback. After the boom of its commercial and industrial development during the military regime at the end of the last century, the country suffered a severe recession from which it was able to recover under the government of Fernando Henrique Cardoso (1995-2002). The first two governments of Lula Da Silva (2003-2010) achieved a new upturn in the nation's economic and social prosperity thanks to high commodity prices and successful social attendance programs, such as the Bolsa Familia, bringing Brazil to the threshold of the world's sixth Economics .
Serious indications of corruption, however, splashed that government and that of her successor, Dilma Rousseff (2011-2016), so the growth bubble deflated and the dream of gaining a foothold in the global context vanished in a serious economic and political crisis that led the Brazilian Economics to hit rock bottom. The crisis that was enhanced by the corruption scandals in the state-owned oil company Petrobras and the international bribes of the construction company Odebrecht.
The center and right-wing governments that came after - Michel Temer (2016-2018) and Jair Bolsonaro (2019-2022) - improved the economic status with a liberal policy and by simplifying the convoluted tax system, i.e. reducing the painful 'Brazil cost', which is the set of all costs that any investor must perform in order to gain access to the Brazilian market. This is considered to be one of the biggest obstacles to foreign investment.
Contents of the NIB
On January 22, 2024, Lula presented the Nova Indústria Brasil plan, a reindustrialization program between 2024 and 2026, but with a projection until 2033. The NIB contemplates spending 300 billion reais (US$60 billion) through the National Bank of Economic and Social development (BNDES), which will promote sustainable financial instruments, innovation credits, as well as subsidies and grants for reindustrialization, and will prioritize purchases of domestically produced goods. Of this amount, R$ 271 billion would be for reimbursable subsidized credit lines and R$ 21 billion non-reimbursable, in addition to R$ 8 billion for the State to directly capitalize companies, according to the president of BNDES, Aloizio Mercadante.
This project can be summarized in 6 priority areas:
1. Sustainable and digital agroindustrial chains, raising the mechanization of agricultural enterprises from 18% to 70%.
2. Strong economic and industrial complex in the health sector, going from a national production of 42% to 70% of the country's needs in medicines, vaccines and medical equipment.
3. Sustainable infrastructure, sanitation, housing and mobility, thus improving the well-being of people in cities.
4. Digital transformation of industry, where the goal is to digitize 90% of industrial companies, currently at 23%, and triple the share of national production in new technology sectors.
5. Bioeconomy, decarbonization, energy transition and security, seeking to increase the participation of biofuels in the transportation energy matrix by 50% and reduce carbon emissions from domestic industry by 30%.
6. Technologies of interest for national sovereignty and defense, with the goal to achieve autonomy in the production of 50% of critical technologies, giving priority to the development of nuclear energy, communication and propulsion systems, as well as autonomous and remote-controlled vehicles.
Plan objectives
The plan is under the direct supervision of Vice President Geraldo Alckmin, who is also Minister of development, Industry, Commerce and Services. Former governor of Sao Paulo and former leader of the PSBD, a center-right party, he was a former rival of Lula and is currently affiliated with the Brazilian Socialist Party, which is part of the government coalition.
Behind the plan lies the desire for a return of the State as the main engine of the national development , something that in the past helped Brazil to make a leap in quality and that was already in Lula's mind during his first two terms in office. The idea is to stimulate reindustrialization through public expense to consolidate sustained growth, which is also desired to be sustainable, since in order to participate in this program, companies must comply with certain requirements requirements, such as not being on the list of organizations that use slave-like labor or do not deforest.
It is intended that most of the investment will be made in infrastructure, since its deficit is a chronic problem, and that the country will be less dependent on agribusiness, but without neglecting it, given its high weight in the GDP; in fact, the first priority area is to mechanize 70% of family farming establishments, where 95% of the machinery must be of national production.
No tax increase
As explained by BNDS director , José Luis Gordon, to finance the NIB no additional taxes will be levied and there will be no increase in existing taxes and fees as the amounts announced are not in the budgets. The loans offered by the BNDS will be made according to the market fees and will be offered with more attractive conditions only for two fundamental issues: competitiveness and support for innovation and decarbonization. In the first year of Lula's second term, a new tax regime was elaborated and a tax reform will be implemented in 2024, aiming at a significant increase in the country's economic productivity in the coming years.
The NIB is joined by the new PAC (Growth Acceleration Program), another government program to encourage the country's industrial sector through public procurement and public works. tool government program to encourage the country's industrial development through public procurement and public works. It is also supported by the private business , since for the development of the electric car there are already 1,700 million dollars committed by General Motors and 600 by the Chinese BYD. Other support from the private sector comes from the powerful federation of industrialists of Sao Paulo(FIESP).
Welcoming the NIB
The increased state intervention in Economics is presented by the government as part of the global trend, as more interventionist measures are being put in place after the pandemic in the United States, the European Union and many other countries.
However, following the NIB's presentation , the Bovespa, the main index of the Sao Paulo stock exchange, fell 0.81%. The Brazilian stock market traded at its lowest level during last fall, the real fell 1.2% against the dollar and sovereign bonds fell another 1%, indicating that the reception at national and international level was very lukewarm, with scarce references in the more specialized press.
Prestigious economists have positioned themselves against this interventionist strategy of the State. Economist Joel Pinheiro Fonseca, in one of his columns in 'Folha' recalled similar attempts during previous administrations of the Workers' Party (PT), which were a failure and were also marred by problems of corruption and use of public funds for political favors. In his opinion, "receiving subsidized credits to produce without international skill industrialized goods that it buys from the government" is not the way to encourage the business community to innovate.
Economists Pedro Cavalcanti Ferreira and Renato Fraguelli, from the Getúlio Vargas Foundation, wrote in the newspaper 'Valor Economico' that this is "a recipe for disaster, imagine the bureaucracy that is required to acquire national products or services probably more expensive the whole Economics will pay for the benefit of a few". They note that "there are examples of industrial policy failures in Brazil, while success stories are very few and almost always ephemeral" and cite as an example that of the automotive industry, which continues to receive subsidies and other protections, but still only exports to the other Mercosur countries, and would not be able to compete domestically if protection were removed.
In 2021 Argentina presented a plan called Argentina Productiva 2030, with a approach similar to the one now implemented in Brazil, and it failed. That policy, present as a baseline in the governments of Néstor and Cristina Kirchner and even Alberto Fernández, implied a sharp increase in the fiscal deficit. Experts close to the PT, however, consider that the macroeconomic status of the two countries is not comparable (although both have a public debt close to 90% of GDP) and that the conditions to face a deployment of resources of such magnitude are much stronger in Brazil than in Argentina.
Many businessmen and economists consider the objectives of the NIB plan unattainable. The one that aims to boost new technologies to make the country self-sufficient in the industries of the future faces a lack of human capital. A study by Manpower Group has indicated that the talent shortage in Brazil reached a record 81% in 2022, so that manufacturing and service companies cannot find workers with the technical and human skills they require; meanwhile, the NIB plan barely mentions the word training.
Although in a minority, there are also academics who distrust the market and justify a greater state role. This is the case of the Italian economist Mariana Mazzucato, an advisor to the government itself, who believes that visionary politicians should establish a clear and ambitious mission statement that receives broad state support.