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Recipe for growth

Study indicates that industrial sector is still the source of expansion of the São Paulo economy

Policies for stimulating the home building industry have been invoked historically as an infallible formula for generating jobs. Also recurrent is the idea that supporting small companies, above all those providing services – regarded by some analysts as a storehouse of excess labor from industry -, has a positive effect on unemployment rates. These strategies for intervention, though, may be losing their effectiveness. The first information from the 2001 São Paulo Economic Activity Survey (Paep), carried out by the State Data Analysis System Foundation (Seade) with the support of FAPESP, indicate that industry is still the dynamic pole of the expansion of the São Paulo economy. And that the labor market in the service sector is indeed growing, but in the large companies in the sector. The small ones employ less and create little value.

This new scenario, which emerges from a comparison with the survey carried out in 1996, also supported by FAPESP, suggests that betting on the home building industry may not produce the desired effects on unemployment, and that the public policies might perhaps have more effect if, instead of employment, they focused on the competitiveness of the business. In favor of these hypotheses, there is the information from the Paep: in spite of growing in the number of companies – in general, small in size – and in added value, the building industry has reduced the number of jobs in the period from 407,000 to 378,000.

“The figures show that, even if it were possible to double employment in the building industry – which accounts for 5% of the workforce in numbers -, the total number of job openings would not reach a third of those offered by industry”, says Miguel Matteo, head of the Seade Foundation’s economic studies division. The sector?s growth, he finds, was due mainly to the privatization of the public sector electricity, gas, and water companies, which are classified in the building and construction industry. And considering the requirements for hiring recorded by the survey, increasing employment in the building industry could be an alternative for placing low educated workers, with elementary schooling unfinished.

The Paep recognizes that the supply of employment in the service sector is significant: it accounts for 46.29% of the personnel occupied. But the hirings are growing in the companies founded to meet the new demand from the productive structure and amongst the providers of education and health services, which in the majority of cases have over a hundred employees. “Small companies employ little, add little value, and have lower competitiveness”, Matteo finds.

Storehouse of data
The Paep contains strategic information for instructing public policies and for assisting research into economic development, regional analyses, and assessments of sectorial performance, just to mention a few examples. The data was collected between July 2002 and June 2003, from 36,615 companies from various sectors, which, when expanded, represents a universe of 794,283 – by a battalion of over 1,500 interviewers trained by the technical team from the Seade Foundation. The data carries out a complete mapping São Paulo’s economic activity, with information about the personnel occupied, added value, costs, salaries, investments, technological innovation, outsourcing, spatial distribution of the activities, and inclusion in the productive chain, amongst others, explains Vagner de Carvalho Bessa, head of the Seade Foundation’s products division.

The results permit several patterns of analysis and can be compared with the information collected by the 1996 Paep, which makes it possible to observe the evolution and the tendencies of the productive structure in the state. The information can also be collated with the annual survey of industry, commerce and services, and the Technological Innovation Survey (Pintec), both carried out by the Brazilian Institute of Geography and Statistics (IBGE).

All the data collected – divided into three thematic blocks: economic measuring, productive restructuring, and territorial dynamics – are at the disposal of researchers. “They can be consulted using the Internet, or at the Seade Foundation itself, where we have set up a room for accessing the microdata. Those interested carry out the research they want, and can even ask for the production of specific tables”, Bessa says. The 1996 and 2001 Paeps enjoyed the support of FAPESP, in the form of thematic projects, of the Financier of Studies and Projects (Finep), of the Ministry of Education (MEC), and of the state secretariats for Economy and Planning, and Science, Technology, Economic Development and Tourism.

Effects of the blackout
Between 1996 and 2001, no significant differences were recorded from the point of view of the regional distribution of São Paulo industry. That is to say, productive activity remained concentrated in the São Paulo Metropolitan Region (RMSP) and in the main administrative regions surrounding it: Santos, Campinas, São José dos Campos, and Sorocaba. What did alter, in the period, was the distribution of industry inside this industrial tract, with a reduction in the share of the RMSP and of Sorocaba.

Comparing the data from the Paep of 1996, a good year for the economy, with the data from 2001, the year of the blackout, the effects of the downturn on industry are evident, particularly in the RMSP. Its share in the added value of the industrial concerns in the state fell from 60.4% to 52.6% in the period. “All the companies that depended on the domestic consumer suffered a reduction: clothes, furniture, the printing industry, and the auto industry, amongst others”, Mateo analyzes.

As industry in the RMSP is strongly integrated, the sluggish pace of business jeopardized the whole productive chain, and with equal force. “The first industry to be affected was the machines and equipment sector, the same one that is now showing signs of recovery, which may be signposting a recovery in industry as a whole”, he notes. This integration is currently revealing its positive side. “When the economy picks up, the region responds. In 2004, industry may take a further leap forward, provided that the income of the population and domestic sales grow”, Matteo foresees.

The downturn also had an impact on employment: the total of the personnel occupied in industry decreased by 2.18 million, in 1996, to 1.92 million, in 2001. But the sector did not reduce the structural role that it plays in the state’s activities as a whole: in 2001, industry was responsible for 26.85% of the personnel occupied and for 52.17% of the added value generated in the economy as a whole. And in spite of the preponderance of small sized companies, almost two thirds of the personnel occupied worked in industrial concerns with over one hundred employees. The largest contribution as far as added value is concerned is from industrial concerns with over 500 employees. “In spite of the drop in the pace of business, industry consolidated its modernization in the period”, Bessa observes.

Unlike the industrial concerns of the RMSP, the others, with their production aimed at the foreign market, had a stable performance in the period. This was the case of the food industry, the share of which was maintained by the exports of sugar and oranges, and of the metal industry, with the sales of steel.Exports contributed towards improving the participation of regions in the state as a whole. The added value from industry in São José dos Campos, for example, leapt up from 6.5% to 11%, driven by Embraer, which consolidated its presence in the international market in the period, and by the results from the foreign sales of the metalworking companies of Pindamonhangaba and Taubaté. “The depreciation of the real in 1999 also has to be taken into account, since it has made it possible for exports to grow as the exchange rates were freed up”, Matteo adds.

Some sectors of São Paulo industry were also not affected by the downturn, in this case, because of the readjustment of the prices of their products in the period, such as the chemical industry and oil and alcohol. This market advantage was fundamental for the growth recorded in regions like Campinas, whose share in the added value of the state grew from 16.1% to 19.6% between 1996 and 2001.

The expansion of services
The 2001 Paep also revealed a notable share in employment from services. The sector accounts for almost half of the personnel occupied in the economy as a whole (46.29%) and records a significant added value of 38.86%. It is, though, extremely heterogeneous and concentrated: over half of the services are in the capital, where the provision of services directly connected with the demand from companies stands out, like telecommunications, information technology, advertising, and accountancy, amongst others.

The most important segments have grown together with the process of outsourcing implemented by industry and are playing a crucial role in the management of business activity. The ancillary services for companies and technical services together, for example, now account for about 27% of employment and of the added value generated by the service activities in the whole of the state. “It is interesting to observe that the added value that before used to be measured in an industrial concern is now passing to the outsourced company”, Matteo explains.

Also prominent amongst services are the sectors of formal and non-formal education and health, which, together, account for 21.6% of employment and 18.3% of added value. “If we do a ranking of the 30 largest companies in São Paulo, we would have to include the three state universities – the University of São Paulo (USP), the State University of Campinas (Unicamp) and the São Paulo State University (Unesp) – and the Hospital and Clinics”, says Bessa, noting that the added value of the universities is basically the payment of salaries. “They have the same dimension – in terms of added value – as the communications and electricity companies, for the fact of being intensive in innovation and knowledge, which implies high revenues and a relatively low intermediary consumption.”

Unlike the services associated with companies and education and health, the activities that meet the demand from families, such as leisure, culture, lodging and food, in spite of recording a noteworthy share in the number of occupations – 17.6% -, contributed little to the value generated in the sector: 8%.The current structuring of services, in Matteo?s assessment, is similar to that of industry, and is getting more and more distant from the model of commerce. “It is no longer possible to delimit clearly where industry ends and where services begin”, he claims.

Downturn in commerce
Like industry, commerce also lost jobs: 2.07 million employees recorded in 1996, compared with 1.92 million in 2001. This fall should be attributed to the downturn in economic activity, the reduction in income, and the increase in interest rates, factors that had a negative effect of the performance of the sector. A good example of this is food retailing in small establishments, whose share in the sector’s added value fell from 7.7% to 2.0%. Besides the difficult environment, they had to face the fierce competition of the supermarkets and hypermarkets, which increased their share of retail sales as a whole from 9.7% to 11.9% in the period. Unlike industry, commercial activity in the RMSP grew from 51.6%, in 1996, to 55.9%, in 2001. But a significant and generalized fall was recorded in the other regions, notably in the Santos lowlands, in the region of São José dos Campos, and in the western region of the state.

The set of information from the 2001 Paep includes a survey on technological innovation in the companies of Intensive Services in Information and Knowledge (SIICs), which encompasses the areas of telecommunications, information technology and related services, research and development, technical services for companies, and audiovisual services. In spite of representing only 8% of the companies from the sector, they contributed with 27% of added value. Amongst them, 24.4% had invested in product or process innovation between 1999 and 2001.

The survey about innovation also assessed the use of information technology amongst companies from all sectors. It found that 80% of the computers were in the tertiary sector, above all in services. But in spite of having at its disposal only 2.1% of the computers installed, the building industry was the one that showed the greatest dissemination of machines (87.1%), followed by industry (73%). These two sectors, incidentally, gained prominence in the question on Internet access and pages on the Web. Electronic commerce, though, registered a low level of dissemination in the economic structure of São Paulo as a whole.

At the request of the MEC, the Paep also carried out a survey of the demand for labor from companies, in an attempt to identify the criteria for selection. The information was produced to assist the federal government?s Professional Education Expansion Program (Proep). The results are surprising. For industry and services, the minimum of schooling required for the semi-skilled employee was complete elementary schooling, and at least 21% of the companies consulted called for completed secondary schooling.

In the qualified worker and administrative assistants category, the majority of the companies required secondary schooling.The requirements for contracting would increase along the scale of occupations. Of the semiqualified employees, the three sectors analyzed would require a capacity for working in a group and professional experience. The greatest shortfalls pointed out by the companies lay in the difficulty of the employees in learning new skills, in teamwork, and in verbal communication. “These deficiencies suggest serious gaps in the process of the bringing up and schooling of the labor force”, Bessa observes.

Economy gets its wind back
In the first few months of this year, the Brazilian economy – and São Paulo’s in particular – began to show signs of recovery. Industrial production grew for the third month running in May. The IBGE registered expansion in the business of 18 of the 23 sectors surveyed, with special mention for electronic and communications material (6.4%), automotive vehicles (4.7%), and machines and equipment (4%). Industries with their production aimed at the domestic market grew, such as pharmaceuticals (4.1%), textiles (2.6%) and clothing (0.9%).

In the same period, the sale of São Paulo’s industry recorded an increase of 4.9%, compared with the month of April. In the year to date total, this growth comes to 20.4%. Companies exporting from the metallurgical, mechanical, chemical, and auto parts sectors grew more intensely, according to statistics from the State of São Paulo Federation of Industries (Fiesp). In the domestic market, signs of some recovery are beginning to be perceived. This recovery is reflected positively in the offer of jobs all over the country, above all in the formal market. In the first half year, 1 million new jobs were created, a record in terms of hiring with a signed labor contract for the last decade, according to calculations from the federal government.

But in São Paulo, the sectors linked to exports continue to be the main ones responsible for the creation of employment: of the six sectors that most contributed towards generating the 12,124 openings in June, four had business related to the foreign market. According to the State of São Paulo Federation of Industries (Fiesp), the shoe sector accounted for a 0.20 positive percentage point in July’s growth, with the recovery of some 3,500 jobs. The food sector showed the same performance, followed by the textile industry, which generated 2,400 vacancies.

The strength of the banks
The 2001 Paep analyzed separately the performance of the financial sector, by far the one that showed the highest degree of concentration: the 90 banks installed in São Paulo employ 170,000 persons. “This is half of the jobs created by the 8,000 companies from the building industry”, Matteo compares. The state has roughly 4,500 branches – one third of the whole of the country – and 40% of the people occupied in the Brazilian banking sector. The 11 largest banks account for 91% of the jobs.

The period analyzed was one of great movement in the financial sector, marked by an intense process of mergers and acquisitions. This restructuring of capital resulted in the strengthening of the major private domestic banks, through the acquisition of assets. The entry of foreign capital with direct investment in the sector had a secondary participation. The Seade Foundation promises to make public, in August, a new package of information from the Paep, with data that will make it possible to get to know better the productive structure of each one of the state’s administrative regions.

The project
São Paulo Economic Activity Survey (PAEP); Modality Thematic Project;
Coordinator Luiz Henrique Proença Soares – Seade Foundation; Investments R$ 2,848,000.00 (FAPESP), R$ 1,700,000.00 (Finep), R$ 1,800,000.00 (Sec. Economy), R$ 100,000.00 (Sec. S&T) and R$ 1,984,579.00 (MEC)