Over the last 12 months, we have written at length about Brazil’s over-dependence on China. In a matter of just a few years, the Asian behemoth rose from being a small trading partner to Brazil’s number one importer and exporter. Over 26 percent of Brazilian products sold abroad go to China—regarding commodities alone, the rate goes up to nearly 50 percent. Thanks to Beijing, Brazil was able to amass a USD 6.5 billion trade surplus over the first four months of 2019.
Relying so much on a single trading partner has multiple downsides. An obvious one is the exposure to any turbulence facing Beijing. Any slowdown in the Chinese economy creates havoc for Brazilian exporters. The running joke in the 1980s was that whenever the U.S. sneezed, Brazil was hit with pneumonia. Replace the U.S. with China, and it stands up today.</span></p>
<p><span style="font-weight: 400;">But there’s another issue with Brazil’s unbalanced relationship with China. Our exports to them are mainly basic products (only 15 percent are industrialized goods)—which don’t generate much wealth in Brazil. </span></p>
<h2>Complex chains produce more wealth</h2>
<p><span style="font-weight: 400;">According to a new study by the National Confederation of Industry (<a href="http://www.portaldaindustria.com.br/cni/en/">CNI</a>), BRL 1 billion in exports to the U.S. (the main destination of Brazilian-made manufactured products) generates yearly salary totals of BRL 683.6 million. Whereas BRL 1 billion of exports to China generates only 66 percent of that, BRL 454.8 million.</span></p>
<p><span style="font-weight: 400;">And as production chains of manufactured goods become longer and more complex, they generate more impact—directly and indirectly—along the way. The same study says that every BRL 1 billion sold to the U.S. generates another USD 4.2 billion within the Brazilian economy, creating 32,810 jobs.</span></p>
<p><span style="font-weight: 400;">The same goes for Brazilian exports to other Mercosur countries—90 percent of which are made up of industrialized goods. For each BRL 1 billion sold, the Brazilian economy makes BRL 668.3 million in salaries and sustains 31,116 jobs.</span></p>
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<p><img class="alignnone size-full wp-image-18475" src="https://brazilian.report/wp-content/uploads/2019/06/exports-brazil.jpg" alt="exports brazil" width="1200" height="455" srcset="https://brazilian.report/wp-content/uploads/2019/06/exports-brazil.jpg 1200w, https://brazilian.report/wp-content/uploads/2019/06/exports-brazil-300x114.jpg 300w, https://brazilian.report/wp-content/uploads/2019/06/exports-brazil-768x291.jpg 768w, https://brazilian.report/wp-content/uploads/2019/06/exports-brazil-1024x388.jpg 1024w, https://brazilian.report/wp-content/uploads/2019/06/exports-brazil-610x231.jpg 610w" sizes="(max-width: 1200px) 100vw, 1200px" /></p>
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<p><span style="font-weight: 400;">To make such comparisons, CNI analyzed data from the Input-Output Model, produced by the Brazilian Institute of Geography and Statistics (IBGE). It depicts the productive structure in Brazil in detail, and makes it easier to evaluate how different sectors of the economy interact with each other.</span></p>
<p><span style="font-weight: 400;">“It is clear that the U.S. and Mercosur are two key markets for Brazil. We’ve got to expand trade with the Americans—with whom we don’t have a free trade deal—and enhance ties with our neighbors, removing the existing trade barriers,” said Carlos Abijaodi, CNI’s industrial development director.</span></p>
<h2>Why Brazil must veer away from commodities</h2>
<p><span style="font-weight: 400;">While commodities are extremely important to the Brazilian economy, depending solely on them is a terrible miscalculation. Not only are commodity production chains less complex—thus generating fewer ripple effects in the overall economy—but they also generates fewer jobs, as farms have become more and more automatized.</span></p>
<p><span style="font-weight: 400;">But that process of diversification may take decades. One of Brazil’s major bottlenecks for industrial production is the fact that Brazilian workers are </span><a href="https://brazilian.report/society/2018/12/07/brazil-education-productivity/"><span style="font-weight: 400;">much less productive</span></a><span style="font-weight: 400;"> than those from developed countries. The top two reasons for this are: (1) our workers are less educated and less qualified, and (2) they don’t have as much quality equipment at their disposal. Brazilians complete, on average, seven years of education.</span></p>
<p><span style="font-weight: 400;">“It’s very difficult to imagine that Brazil will be able to sell manufactured goods to China in the near future. The problem is not China, it’s our general lack of competitive capacity,” said political scientist Maurício Santoro, a professor at the State University of Rio de Janeiro, to the </span><a href="https://brazilian.report/podcast-brazil/2019/04/24/brazil-deal-china-relations/"><span style="font-weight: 400;">Explaining Brazil Podcast</span></a><span style="font-weight: 400;">.</span></p>
<p><span style="font-weight: 400;">That lack of qualification is partially responsible for Brazil’s high unemployment figures, as candidates don’t meet companies’ requirements for job positions—even basic ones, such as telemarketing operators.</span></p>
<p><span style="font-weight: 400;">According to the National Confederation of Commerce, the abyss between workers’ qualifications (or lack thereof) and what companies demand is unlikely to disappear even after the economy picks up again. The institution foresees that 20 percent of today’s unemployed will remain out of the workforce due to their lack of qualifications. The group of workers with virtually no chance of getting a new job should jump from 635,000 to 1.4 million in 10 years.
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