Economic liberalisation and
development in Latin America:
Achievements, constraints and
perspectives for the Brazilian Industry
João Carlos Ferraz
Economic Comission for Latin America and the Caribbean,
United Nations
David Kupfer and Mariana Iootty
Instituto de Economia, Universidade Federal do Rio de
Janeiro, Brasil
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Guide of presentation
• Development and competition
• Historical context and framework conditions
• Economic liberalisation
• Industrial performance
• Competitiveness in four industrial groups
• 10 years of economic liberalisation Made in Brazil
… and after???
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Development and competition
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Development
• Development: growth, structural change, income
distribution and learning
• State: pro-active participant in processes of
transformation
• Development: innovation, competition and
entrepreneurs
• Successful corporations: networking and
increasing competences to explore expanding
markets
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Process of competition
• Competition is a systemic, interactive
process, involving firms, industrial
structure and framework conditions
• Confrontation among firms - primary
source of economic dynamism
• Competitive firm: imposes the rules of
competition
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Competitiveness and patterns of competition
Competitiveness: Capacity of a firm to formulate and
implement strategies to maintain or expand a sustainable
market position
Competitive firm: Strategies, capabilities and performance
coherent with sectoral pattern of competition
Pattern of competition: Collection of competitive drivers -key
factors for success in a specific market
Competition is a systemic, interactive process, involving firms,
industrial structure factors and framework conditions
Two important remarks
Patterns of competition are sector/market specific
In time, patterns of competition may change due to innovation
or changes in systemic factors
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KEY-FACTORS
Cost pattern
MANAGEMENT Process control
PRODUCTION
SALES
INNOVATION
Internal factors
Differentiation Responsiveness
pattern
pattern
Organisational
flexibility
Workers and
entrepreneurial
skills
Assembly and
Mass flow & supply-chain coQuality control
energy efficiency
ordination
capabilities
Innovation
pattern
R&Dproductionmarketing
integration
Design for
manufacturing
Access to
distribution
channels
Brand image
Market
information
Market creation
& business to
business
marketing
Process
technology
Product &
components
design
Embodied
technology,
learning by
doing
R&D + design
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Structural factors
KEY-FACTORS
Cost pattern
Standardisation
MARKET
Price, technical
conformity
Access to
international trade
Responsiveness
pattern
Segmentation by quality Segmentation by
and marketing
levels of income &
type of product
Price, brand,
Differentiation pattern
technological content,
technical assistance
Regional & global
Economies of scale &
scope
Innovation pattern
Segmentation by
technical needs
Client specification
Price, brand, delivery
times, customisation Local & regional and
global trade
Local & international
Economies of
agglomeration
Economies of
Horizontal & vertical specialisation
Access to raw
Articulation assembler- networks
CONFIGURATION materials & transport supplier, distribution
Metrology,
logistics
Interaction with users
OF INDUSTRY
Metrology &
certification &
Specialised technical
standardisation systems; accreditation; market
services
S&T systems
R&D networks
& technical
information
Economies of scale
Anti-dumping
REGIME OF
INCENTIVES AND
REGULATION
Environmental
protection
Cost of capital
Anti-dumping
Consumer legislation
Consumer credit
Fiscal incentives
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Competition &
consumer policies
Property rights
Risk support & credit
for users
Selective protection
Tax system & support
& state purchasing
for SME
power
Historical context and framework conditions
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Historical context
• 1930/82:
– High growth
– Low contribution of technical progress
• Last 20 years:
– Instability
– Low rythm of structural change
• The 1990s/2000s
– External vulnerability (trade deficit)
– Product and services updating but assymetric
modernisation
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Structure and framework conditions
• Natural resources and wide markets, strong
inequalities
• Infrastructure: insufficient and concentrated
• Propensity for the generation of low skilled jobs
• Low investment and dependence on foreign
resources
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Private structure and competences
• Willingness to do business
– Propensity for the generation of low skilled jobs
• Companies good in routines; weak in search
activities:
– Low local technological effort
– Extensive use of external technologies
• National x transnational: occupying different
spaces
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Economic liberalisation
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Economic liberalisation and price stabilisation
(i) economic deregulation
(ii) privatisation of manufacturing industries and
utilities services
(iii) liberalisation of the external sector
(iv) appreciated exchange rate, high interest rates
and foreign capital inflows
Macro implications: foreign capital inflows financing
trade deficits; increasing external vulnerability,
not compatible with long-term stability; volatile
& insufficient growth in the 1990s
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Industrial performance
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Output in different industries (1991=100)
1994
1996
1997
1998
1999
2000
Industrial Commodities
109,5
115,9
122,8
126,8
130,3
138,2
Agriculture Commodities
94,4
100,6
104,0
101,2
105,4
98,9
Traditional industry except
Food/beverages
105,3
103,6
104,1
101,3
100,0
104,3
Food/beverages
107,2
127,0
127,3
128,9
128,9
130,5
Innovation Carriers
123,3
107,8
105,2
105,6
98,3
108,2
Durable Goods
133,0
153,4
165,8
133,9
123,1
148,6
Manufacturing Industry
111,4
115,4
119,9
117,4
116,7
124,2
Source: IBGE - Industrial Monthly Survey (Special Tabulation)
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Industrial output & employment 1985-1999
Source: IBGE – Monthly Industrial Survey and Monthly Employment Survey
120
110
90
80
70
Ano
Output
Employment
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1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
60
1985
1985 =100
100
Foreign trade 1980-2002 - US$ million
Source: Alice Database
120.000
100.000
80.000
100 60.000
0
Us
$
40.000
20.000
0
1990
1991
1992
1993
1994
1995
1996
1997
1998
-20.000
Year
Exports
Imports
Trade Balance
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Trade Flow
1999
2000
2001
2002*
Foreign trade in industrial groups 1999-2002
Source: GIC-IE data bank
50000000
40000000
30000000
20000000
10000000
0
Agricultural
Commodities
Durables & Innovation
Carriers
-20000000
Imports
Exports
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Balance
Flow
Tradicionals
2002
Industrial
Commodities
2001
2000
1999
1996
1993
1989
2002
2001
2000
1999
1996
1993
1989
2002
2001
2000
1999
1996
1993
1989
2002
2001
2000
1999
1996
1993
1989
-10000000
Fixed capital formation 1990=100
Source: IBGE/DECNA
180
160
140
120
100
80
60
40
20
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
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Private M&A & Privatisation, 1990-99
30000
US$ million
25000
20000
15000
10000
5000
0
1990
1991
1992
1993
1994
Private M&A
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1995
1996
Privatization
1997
1998
1999
Ownership change
Share in sales revenue of 300 largest companies (%)
Sector
Commodities
Durables and
Innovation Carriers
Traditional
Total
Year
E
M
N
1991
42,4
21,2
36,5
1999
25,8
33,1
41,1
1991
0,8
60,3
38,8
1999
0,0
86,9
13,1
1991
0,0
36,5
63,5
1999
0,0
48,5
51,5
1991
20,5
36,0
43,5
1999
12,5
53,5
34,0
Ownership: S – State owned; M –Multinational; N – National
Source: GIC-IE data bank
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Expenditure in innovative activities, 2000
Expenditure in Innovative Activities
Number
of Firms
72,005
Net
Revenue
(R$ 106)
582,406
Machinery
acquisition
Total
Internal R&D
Number
of Firms
Value
(R$ 106)
Number
of Firms
Value
(R$ 106)
Number
of Firms
Value
(R$ 106)
19.165
22,343
15,540
11,667
7,412
3,741
Source: IBGE, Industrial Survey on Technological Innovation, 2000
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Industrial Commodities
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30
180
25
150
20
120
15
90
10
60
5
30
0
0
88
89
90
91
92
93
94
Production
95
96
97
Number of employees
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98
99
00
01
number of direct employees
millions ton
Output and employment in the steel industry,
1988-2001
Durables goods
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Employment and productivity in car asssembly
1990
1992
1994
1996
1998
2001
Employment
117,396
105,664
107,134
101,857
83,049
85,257
Labour
productivity*
7.8
10.2
14.8
17.7
19.1
21.3
* units per worker in a given year
Source: Sarti (2002)
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Traditional industries
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Innovation carriers
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10 years of economic liberalisation
Made in Brazil
And after?
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Competitive regularities
• Industrial commodities
– Low unit value in exports, differentiation for the
local market
• Durables goods
– Inward internationalisation and cacthing up in
middle income segments
• Traditional industries
– Competitive constraints defined by unequal income levels
• Innovation carriers
– Moving ahead, lagging behind ...
competitiveness still very weak
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General features
• No structural transformation – new or
abandoned activities
• Foreign trade expansion, from US$ 50 to
US$ 100 billion but unchanged trade
pattern
• Expansion investments in few sectors
• Inward internationalisation
• Modernisation but unchanged relative
position of firms
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Development paradox
Local capital and innovation capabilities are
regularities of successful countries
X
Ownership internationalisation and incipient
innovation capabilities in Brazil
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Open questions
• How to attract dense FDI?
• How to evolve from modernisation
(rationalisation) to innovation?
• How to achieve double moving target
(national best practice to international
average and average national to national
best practice)?
• Employment???????
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