Economic liberalisation and development in Latin America:

1. 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 Ferraz 2003

2. 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??? Ferraz 2003

3. Development and competition Ferraz 2003

4. 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 Ferraz 2003

5. 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 Ferraz 2003

6. 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, involvingfirms, 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 orchanges in systemic factors Ferraz 2003

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9. Historical context and framework conditions Ferraz 2003

10. 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 Ferraz 2003

11. 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 Ferraz 2003

12. 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 Ferraz 2003

13. Economic liberalisation Ferraz 2003

14. Economic liberalisation and price stabilisation • economic deregulation • privatisation of manufacturing industries and utilities services • liberalisation of the external sector • 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 Ferraz 2003

15. Industrial performance Ferraz 2003

16. 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 Output in different industries (1991=100) Source: IBGE - Industrial Monthly Survey (Special Tabulation) Ferraz 2003

17. Industrial output & employment 1985-1999 Source: IBGE – Monthly Industrial Survey and Monthly Employment Survey Ferraz 2003

18. Foreign trade 1980-2002 - US$ million Source: Alice Database Ferraz 2003

19. Foreign trade in industrial groups 1999-2002 Source: GIC-IE data bank Ferraz 2003

20. Fixed capital formation 1990=100 Source: IBGE/DECNA Ferraz 2003

21. Private M&A & Privatisation, 1990-99 Ferraz 2003

22. Sector Year E M N Commodities 1991 42,4 21,2 36,5 1999 25,8 33,1 41,1 Durables andInnovation Carriers 1991 0,8 60,3 38,8 1999 0,0 86,9 13,1 Traditional 1991 0,0 36,5 63,5 1999 0,0 48,5 51,5 Total 1991 20,5 36,0 43,5 1999 12,5 53,5 34,0 Ownership change  Share in sales revenue of 300 largest companies (%) Ownership: S – State owned; M –Multinational; N – National Source: GIC-IE data bank Ferraz 2003

23. Number of Firms Net Revenue (R$ 106) Expenditure in Innovative Activities Total Machinery acquisition Internal R&D Number of Firms Value (R$ 106) Number of Firms Value (R$ 106) Number of Firms Value (R$ 106) 72,005 582,406 19.165 22,343 15,540 11,667 7,412 3,741 Expenditure in innovative activities, 2000 Source: IBGE, Industrial Survey on Technological Innovation, 2000 Ferraz 2003

24. Industrial Commodities Ferraz 2003

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27. Output and employment in the steel industry, 1988-2001 Ferraz 2003

28. Durables goods Ferraz 2003

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31. 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 Employment and productivity in car asssembly * units per worker in a given year Source: Sarti (2002) Ferraz 2003

32. Traditional industries Ferraz 2003

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36. Innovation carriers Ferraz 2003

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40. 10 years of economic liberalisation Made in Brazil And after? Ferraz 2003

41. 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 Ferraz 2003

42. 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 Ferraz 2003

43. Development paradox Local capital and innovation capabilities are regularities of successful countries X Ownership internationalisation and incipient innovation capabilities in Brazil Ferraz 2003

44. 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??????? Ferraz 2003