Brazilian exports are mainly sustained by sale of commodities. To become an economic powerhouse, Brazil needs to diversify its industry, protecting itself from uncertainties of the global economic scenario.
Brazilian exports are increasingly focused on primary products. In 2010, five commodities: iron ore, oil, soy complex, sugar (raw and refined) and meat, accounted for 43.4% of the total value of Brazil exports. In 2004, this figure represented 27% of everything that Brazil exported, according to the Secretariat of Foreign Trade (Secex) of the Ministry of Development, Industry and Foreign Trade (MDIC).
In 2010, according to MDIC, Brazil exported US$ 201 billion. Of this amount, US$ 30.8 billion was the sum of imports purchased by China from Brazil, approximately 15% of all Brazilian exports. Of China imports, US$ 25.8 billion were commodities, about 84% of total. These figures show that Brazil is a major exporter of commodities, and its main consumer is China.
Assuming China continues to grow rapidly, as it has occurred in recent years, demand for food and ores would continue to grow forcing commodity prices to rise, bringing additional support to Brazil’s economic growth. But what we see is a slowdown in economic activities in the Asian country, with projected growth for the next five years of 7% to 8%, according to Jim O’Neill, chief economist of the American bank Goldman Sachs and creator of the term BRIC. As we can see, this growth is lower than the 10.3% of 2010. With inflation above 6%, China is expected to grow in 2011 less than 9.5% (IMF/International Monetary Fund).
These factors bring a shadow to the Brazilian economy. How to keep the growth of economic activities in Brazil, when its main trading partner tends to reduce their imports? Another factor that can be added to this analysis is that with the slowdown in global demand for commodities, its value tends to decline.
Although Brazil has a natural tendency for production and export of commodities, keep it as its main export product brings several risks to the country, the largest one being the dependency for price quotations stipulated by the international market.
With the economic turbulence, the world is suffering by economic crises in the United States and European countries; if we add this to the reduction of economic activities in China, it is natural that the question arises: what consequences this scenario will bring to Brazil?
Besides that, Brazil has been facing domestic problems that bring more uncertainty to the economy. One is the poor infrastructure that creates several problems for the country as the increased cost in the commodities’ production. The production costs have been growing year by year due to the transportation difficulty of products to ports. The costs to export Brazilian soybeans are US$ 319.00 per ton, while the North-American costs US$ 231.00. The Brazilian is 38% more expensive, according to Conab (National Company of Supply – http://www.conab.gov.br/ ). One of the main problems is the high cost of transport, reaching 300% if compared with cost in United States to carry the same amount at the same distance.
Brazil’s problems are not limited only to the lack of infrastructure, but also the inability to produce and export products of high technology, which could protect Brazil from the volatility of commodity prices.
Our industries produce goods and products that are unattractive to the international market. The automotive industry, for instance, is specialized in economy cars. With its low value and attractiveness, the country has reduced its exports in the automotive sector, shrinking from 30.7%, in 2005, to 11.9%, in 2010. At the same time, Brazil has a record of car imports, from 5.1%, in 2005, to 21.7%, in 2010, ending 2010 with a deficit of US$ 6 billion, the largest in its history, according to Anfavea (National Association of Automotive Vehicles – http://www.anfavea.com.br/).
However, high-tech Brazilian industries, as Embraer, have played a significant role in Brazilian exports to several countries, including China. Only in December 2010, Embraer’s exports reached US$ 720 million, 28.6% higher than the value at the same period of 2009. At the Paris Air Show in Le Bourget, Embraer announced sales that reached US$ 2.6 billion, according to MDIC. The air transportation market does not stop growing, and according to Embraer, the demand for aircraft of the category produced by the company can reach 7.225 jets in the next 20 years, worth US$ 320 billion.
Another growing sector regardless of the crisis is of defense. The budget planned for 2011 for United States, France, United Kingdom, China, Japan, Saudi Arabia, Russia, South Korea and India, exceeds US$ 1 trillion. By taking a share of this market, Brazil could have undisputed benefits like less instability in their trade balance, since the contracts are usually long term.
This industry brings development of high technology, high-paying jobs, creation of research centers, among other advantages that could stimulate country’s development. But, how Brazil will develop technology to compete in the international market in a short term period?
The country urgently needs technology transfer and partnership with countries that are willing to help, without compromise the Brazilian industry with exporting rules and restrictions that impair the country on foreign trade.
It is possible to find such conditions?
In the next article, it’ll be analyzed how science’s collaborative process can help technology’s evolution.
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