The debate about the design and ambitions of an industrial policy suited to Brazil’s needs was reignited in 2023, after remaining quiet for at least five years. Brazil’s National Confederation of Industry (CNI) launched the Industry Recovery Plan in May, listing 60 ways to improve the country’s business environment, reduce taxes, and stimulate innovation, in addition to outlining four new priority missions as targets of public policies and strategic private initiatives: the transition to a low-carbon economy, the incorporation of digital technologies in companies of all sizes, and the expansion of production chains in the health and defense sectors, with a focus on the domestic manufacture of vaccines and satellites.
At the same time, the National Council for Industrial Development (CNDI), linked to the Ministry of Development, Industry, Commerce, and Services (MDIC), convened for the first time since 2015 to define the industrial policy to be implemented over the coming years based on six major challenges. In addition to the same four missions proposed by the CNI, the CNDI, which is composed of members of the government and representatives of society, contemplated two additional goals: the strengthening of agro-industrial chains, with a focus on eradicating hunger, and investments in infrastructure to improve well-being in cities, in conjunction with the government’s housing policy.
The public policies needed to fulfill the missions are now being detailed by working groups. In October, the government launched a program to develop what it called the Economic and Industrial Health Complex, with R$42 billion in funding to expand the manufacture of priority inputs for the country’s public health system (SUS), such as vaccines and medicines, including through public-private partnerships. The goal is to meet at least 70% of SUS demands domestically.
The Ministry of Finance was part of the debate on a specific issue: the decarbonization of the economy. In partnership with the Ministry of the Environment, it drew up the outlines for the Ecological Transformation Plan, which proposes public investment in economic activities with a positive environmental impact and the establishment of a regulated carbon market capable of rewarding companies with low greenhouse gas emissions.
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Aluminum recycling: the circular economy is one of the axes of the mission to decarbonize Brazilian industrial productionPaulo Fridman / Bloomberg via Getty ImagesThe industrial policy incorporates lessons learned and seeks to distance itself from initiatives that proved unsuccessful in Brazil in the past. Instead of only benefiting selected sectors or offering tax exemptions, they are comprehensive and guided by missions that impact the economy and society at large—the four missions of the CNI plan and the six axes proposed by the CNDI function as major targets. “The aim is to choose problems faced by contemporary society that need to be solved and jointly coordinate the efforts of the public and private sectors, academia, research centers, and workers,” says economist Samantha Ferreira e Cunha, who is industrial policy manager at CNI and one of the coordinators of the Industry Recovery Plan.
Renato Garcia, an economist from the Institute of Economics at the University of Campinas (UNICAMP), explains that mission-oriented policies are gaining ground because they create what are conventionally called additionalities. “Different stakeholders are combining their efforts and experiences to work on something new: a mission of great interest to society that does not necessarily have a link with what they have previously done,” he says. Traditional industrial policies, he explains, have at times had an undesirable effect known as substitutability. “It was not uncommon for companies to take advantage of public policy incentives in place of making their own investments, obtaining results that were not much different to what would have been achieved if there had been no financial stimulus at all.”
The international landscape had a strong influence on the Brazilian proposals. Over the past 15 years, long-term policies have been implemented in major industrialized countries with the aim of recovering economic growth after the 2008 crisis. The pandemic exposed major vulnerabilities in global supply chains and reinforced the importance of industrial policies and government willingness to create them. Shortages in the supply of semiconductors and integrated circuits during the health crisis forced entire industrial segments to reduce their operations, prolonging the impact of COVID-19 on the global economy. The risk of concentrating three quarters of global production of these inputs in five countries—China, South Korea, Malaysia, Singapore, and Taiwan—has now appeared on the radar of other industrialized nations. The USA has reacted strongly, approving new legislation called the Chips & Science Act, which will invest hundreds of billions of dollars in semiconductor research and development and domestic manufacturing (see Pesquisa FAPESP issue nº 320).
“The major world economies have spent at least US$12 trillion in industrial policies since 2015,” reports CNI’s Samantha Cunha. As well as investing in reindustrialization strategies, they have also been attempting to alter the design of global production chains, which could generate opportunities for Brazilian industries. “Supply chains are being remodeled based on concepts such as nearshoring, which involves bringing final production links closer to the headquarters of North American and European companies, having previously transferred them to Asia to cut costs, or friendshoring, which means moving production to countries that are culturally closer and offer more favorable business environments,” she explains.
Eduardo Cesar / Pesquisa Fapesp
Biodiesel production plant: Brazil has an advantage over other countries when it comes to generating renewable energyEduardo Cesar / Pesquisa FapespJoão Carlos Ferraz, from the Institute of Economics at the Federal University of Rio de Janeiro (UFRJ), notes that building policies around major missions is not a new approach, but in the past, governments reserved the strategy for rare situations, such as wars and conflicts, during which they would channel public investments and private production capacity to defense efforts, for example. “Now, there are calls to develop industrial policies this way even without conflict,” he points out. He also explains that mission-oriented policies have gained support in recent years thanks to the work of Italian economist Mariana Mazzucatto, author of the book The Entrepreneurial State (2011). Her most recent work, Mission Economy: A Moonshot Guide to Changing Capitalism, published in 2021, is a kind of manual for public policymakers in charge of coordinating solutions to major problems in society. Mazzucatto, head of the Institute for Innovation and Public Purpose at University College London, UK, has visited Brazil twice this year: she met with President Luiz Inácio Lula da Silva in July and participated in the CNI National Innovation Congress in September.
Brazil’s industrial missions were selected considering the agenda of international competitors. “You only need to analyze the industrial policies in place around the world today to see that 90% are associated with digital and green targets,” says Ferraz. One of the challenges now is to get companies of all sizes on board. A 2021 survey by the CNI showed that while 86% of large Brazilian companies already used at least one digital technology, the percentage fell to 64% among medium-sized companies and 42% among small companies. “Investing in connectivity on small farms can have an extraordinary impact on production chains in the agroindustry. Information technologies can also help solve major social problems, such as encouraging companies to create tools that improve SUS services,” says Garcia, from UNICAMP, mentioning the use of AI to integrate data from medical records as an example. In the effort to decarbonize the economy, there are various potential opportunities, such as exploring the international carbon market and the sustainable use of biodiversity. “We have some advantages over our competitors—47% of our energy mix is clean, which is above global averages,” emphasizes Cunha, from CNI.
The mission in the health sector is a different matter, since the method of using health policies to increase industrial activity already exists. The Partnerships for Productive Development (PDP) program was started in 2012, through which the Ministry of Health creates a list of key products that are important to the SUS and represent a high cost to the government or a significant proportion of imports. Companies commit to provide the necessary technology to public laboratories in the country and, in return, are given exclusive manufacturing and commercial rights for a period of up to 10 years (see Pesquisa FAPESP issue nº 302). “The program had phases of expansion and contraction, but it never ceased to exist,” says Elize Massard da Fonseca, a specialist in public administration and a professor at Fundação Getulio Vargas (FGV) in São Paulo. “Some contracts were canceled in recent years, but others continued.”
The experience of the pandemic, which clearly revealed the country’s dependence on the supply of vaccine inputs, was a leading factor behind the choice of this mission. “The Ministry of Health seems to have greater ambitions now than it did in the past,” says Fonseca. The biggest challenge, she believes, will be dealing with technological evolution. “Developing and transferring technologies are not immediate processes, and there is always a risk of investing in something that, by the time it can be adopted by the SUS, is no longer the therapy of choice,” she explains.
For the defense industry, the idea is to invest in technologies with both military and civil applications, inspired by the advancement of the aerospace industry in the country after the creation of the Technological Institute of Aeronautics (ITA) seven decades ago. In a virtual meeting hosted by the Brazilian Association of Economists for Democracy in July, Verena Hitner Barros, executive secretary of the CNDI, said that the goal is to expand the production chains of the defense, aerospace, and security industries, with a focus on research in micro- and nano-electronics. “One of our challenges is to identify the weaknesses in the defense product chain that currently make our exports unviable,” she explained.
Léo Ramos Chaves / Pesquisa Fapesp
Expanding connectivity on small farms can improve agribusiness productivityLéo Ramos Chaves / Pesquisa FapespTo achieve the Brazilian industrial policy missions, obstacles and uncertainties of various natures will need to be overcome. According to economist Eduardo Strachman of the Araraquara School of Sciences and Languages and Literature at São Paulo State University (UNESP), the conditions that led the country to a process of deindustrialization over recent decades still exist. “Since the Collor administration [1990–1992], our economic policy has become anti-industrial,” he states. “The exchange rate fluctuates widely—among both developed and developing economies, it is Brazil’s that has fluctuated the most. As a result, companies have difficulty exporting their products because they never know if they will be competitive—most of the time, the exchange rate works against them. The interest rate is high and the Brazilian tax system is horrible,” he notes. Strachman believes recent tax reform discussions with states and municipalities highlighted the difficulties of changing fiscal policies. “In the current situation, it is possible for industrial policies to achieve some gains, but I think it will be difficult for the government to establish the political conditions needed to reverse the deindustrialization process.”
Eduardo da Motta e Albuquerque, an economist from the Center for Development and Regional Planning at the Federal University of Minas Gerais (CEDEPLAR, UFMG), highlights the importance of strong coordination to industrial policies that involve multiple stakeholders, such as scientific institutions, universities, companies, laboratories, incubators, funding agencies, regulatory agencies, and government purchasing systems. “It is very positive that a prestigious government department like the MDIC, led by a politician who is also the country’s vice president, Geraldo Alckmin, is coordinating industrial policy proposals. In previous initiatives there was clearly a lack of coordination that compromised results,” he states.
Albuquerque cites a 2017 article by UNICAMP economist Wilson Suzigan, which compared industrial policies implemented in Brazil and Japan. “Suzigan showed that coordination is the essence of industrial policy and that political coordination in multiparty democratic regimes is complex. In countries like Japan and South Korea, industrial policies were coordinated by strong political leaders and government bodies,” he emphasizes.
Even if these challenges can be overcome, it is difficult to make predictions about the impact that new industrial policies might have on the Brazilian economy, since industrialized countries are seeking the same ends and investing much more than we have. “Every cent that we put into these policies through public funding agencies and the private sector needs to be applied in the most efficient way possible to maximize results—our investment is only a tiny fraction of the dollars, euros, and yuan that are being invested with the same objective in other countries,” says UFRJ’s Ferraz.
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