During Brazil’s worst recession on record, no economic sector lost more than industry. For 14 months in a row, Brazilian industry posted negative results. As a result, industry started to account for a smaller share of the GDP – even in a scenario of economic retraction. Rock bottom came at the beginning of 2016, when Brazil’s industrial production was almost 18 percent smaller than in January 2014. The picture is a bit better now – but the truth is that Brazil’s industry is at a crossroads.
Brazil’s statistics agency divides the industrial sector into two categories: extractivist and transformation. The former is dependent on external factors, especially for a country that relies so heavily on commodities. That’s because most of the production of things like iron ore is intended to be sold to other countries. That’s why its behavior is different.
While the sector has posted timidly better outputs, it shows other signs of stagnation. The productivity index has sharply fallen between 2006 and 2016 – 7 points. This led to Brazil’s manufacturing sector dropping from the world’s 5th most competitive in 2010 to 69th place in 2016.
How can Brazil reverse this trend? Three words: investment in innovation. According to MIT professor César Hidalgo’s Atlas of Economic Complexity, Brazil ranks 51th in the world, despite being the world’s 21st largest exporter.