An Industrial Policy

for Brazil
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 Landmark events in Brazil’s industrial

development provide a starting point for

reflection on the challenges currently faced

by the Brazilian industry, as well as a glance

at where Brazil is headed, with industry as

the prime mover and bulwark for the nation’s

long-range development. The article strikes a

balance between recent technological industrial

policy and Brazil’s developing foreign trade.

A Brief Sketch of Brazilian Industry

B
razil’s industrial development is set off by clear and defi-
nite milestones and underscored by policies regarding
organization of partly state-owned companies, economic
plans, large-scale subsidies and the creation and development of basic
national industries.
Government efforts aimed at industrializing the country are clear-
ly discernible when we look back to the 1940s. Basic industry was con-
siderably strengthened by the creation of the National Steel Company
(CSN) and the Companhia Vale do Rio Doce (CVRD) mining concern
in the early part of the decade. The 1950s saw the founding of the
National Economic Development Bank (BNDE) – subsequently renamed
National Social & Economic Development Bank (BNDES) – and Petro-
bras, which strongly boosted Brazil’s then-incipient industrial develop-
ment. To the power and transportation industries – on which solicitous

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 attention was focused at the time – infrastructure was added to provide
support for expanding Brazil’s installed industrial capacity. The inau-
guration of an automaking and household appliance industrial com-
plex in the interior of São Paulo brought enormous progress in durable
goods manufacturing capacity.
The latter half of the 1960s brought the emergence of a military
régime to the country, and with it a series of economic reforms. It was
during that period that Brazil went through the so-called “economic
miracle” characterized by rapid development and record GDP growth
of up to 12% per year (an 18% growth rate for heavy industry). In-
vestment came pouring into infrastructure, basic and transformation
industries, capital and durable goods production, and agribusiness in
an effort to transform the country into an emerging power with access
to capital markets.
Up until the 1970s, at least two aspects of Brazil’s industrial policy
set it apart from a number of countries in Europe and Asia (especially
Japan and South Korea). Firstly, the opening up of the economy to
attract foreign investment, in which a number of supply chains added
multinational corporations to their managerial capacity. Infrastructure
projects and several government undertakings received financing from
foreign sources. Secondly, the industrialization based on imports-sub-
stitution, with no strategic plan to export and nationalize its compa-
nies.
At the close of the economic miracle, which coincided with the
first international oil crisis in 1973, came a global recession and high
interest rates. The supply of credit contracted and Brazil’s foreign debt
became a critical issue, while industrial development fell off consider-
ably. The burden of foreign debt, dwindling GDP and high rates of
inflation were keenly felt in those unhappy days of “stagflation”- eco-
nomic stagnation coupled with inflation.

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 The return to democracy in Brazil brought with it a number of
economic plans aimed at doing away with inflation and creating fa-
vorable conditions to sustainable development. With the opening up
of Brazil’s economy during the 1990s, came sharp reductions in import
tariff rates and economic deregulation.
A number of changes made in the recent past were intended to
bring the country in line with the realities of a new global econo-
my. Market deregulation, fewer restrictions on hiring and an end to
government monopolies in industries such as oil, power, steelmaking,
telecommunications and transportation were adopted along with other
changes to ease the transition. An important victory in this process
was the control of inflation. Industry nevertheless was still buffeted by
international competition, and many felt the need for public policies
designed to encourage domestic manufactures.

Industrial Deposit
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 The Brazilian Industry Nowadays and
the Challenges of Industrial Policy

If the world’s economies were ranked in order of competitiveness,

Brazil’s industrial capacity would end up close to the center of the
scale. At the lower end, we have competition based on lower costs,
with the upper end populated by innovation and product differentia-
tion. It so happens that countries situated at either end of the scale are
shifting toward the middle positions, and there is a very real possibility
that countries close to the center of that scale may lose their place in
the global economy.
Brazilian industry, in effect, faces competition “from below,” com-
ing from companies in countries with poor wages and even poorer
working conditions (long hours, scarce benefits and weakened rights
to organize), that see their opportunities in lower costs and compete by
cutting prices. Some of these companies, particularly those headquar-
tered in Asian countries, seek to achieve lower costs through innovation,
thereby creating pressure “from below” in an effort to shift themselves
upward. The high end of the competitive spectrum is dominated by in-
novative companies located primarily in high-income countries having
better wages and better working conditions. These are companies seek-
ing to create new consumer needs, open up new markets and charge a
premium for their leadership. Some of these companies have sought
to cut costs by outsourcing manufacturing to countries with lower pay
scales or some other relative advantage, or by streamlining operations
in their own home countries.
Taking this view of the present as a starting point, the vision of the
future for the nation’s industries is an approach “from above”, fostering
a shift in industrial competitiveness through innovation and differenti-
ated products and services, with access to and recognition by all the

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world’s largest markets. It is a vision closely bound up with techno-
logical innovation, with a place at the forefront of science and tech-
nology—to include education at all levels, and digital inclusion—and a
more proactive approach to foreign trade in more technological indus-
tries, bringing Brazilian companies into international competition for
leadership in development of nanotechnology and biotechnology prod-
ucts, especially the industrial and commercial development of biofuels.
Strengthening and broadening Brazil’s industrial base while increasing
the innovative capacity of companies comprising that foundation is the
key to sustainable growth. It’s a whole new kind of growth.

Brazil’s Industrial, Technological and

Foreign Trade Policy

Brazilian industrial policy developed within the context of a para-

digm shift in the relations between State and Society, in which the
public sector sought to bring about a business environment favorable
to productive investment, while the private sector busied itself with
seeking out opportunities and making investments.
Brazil’s Industrial, Technological and Foreign Trade Policy (PIT-
CE), unveiled in March of 2004, has unique features which clearly dis-
tinguish it from previous policies. Its purpose is to bring increased
efficiency and competitiveness to Brazilian companies and place them
in international markets, thereby creating jobs and increasing incomes.
In tandem with this freshly-drafted industrial policy was the creation of
the Brazilian Industrial Development Agency (ABDI), charged with pro-
moting that policy, and of the National Industrial Development Council
(CNDI), made up of Government Ministers and representatives from
civil society working together to define strategies to guide the appli-

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Industry
18 detail
cation of Brazil’s industrial policy. That is the institutional approach
necessary to create those synergies that enable the public sector and
private industry to pull together to move the nation’s industrial devel-
opment forward.
The title itself summarizes Brazil’s industrial initiative: Industri-
al, Technological and Foreign Trade Policy—in other words, it relates
industrial development (modernization and productivity upgrades) to
technological innovation and the ability to compete in the interna-
tional arena. Its purpose is to raise Brazil’s industrial competitiveness
and chart its course to increased innovation and product differentia-
tion. The policy is in harmony with prevailing international trends in
the direction of technological development, and in absolute compliance
with all of the nation’s treaties in force—notably those under the aegis
of the World Trade Organization (WTO).
Its directives are arranged along three complementary axis:
1) Horizontal vectors for all segments of the economy, aiming to-
ward technological innovation and development, foreign market
penetration, upgrades to industry (including small and medium-
size companies and local productive arrangements), improving
the institutional environment and stimulating investment.
2) Vertical factors for the four industries identified as strategic
to Brazil’s economic development, as well as a larger national
share in their international trade: semiconductors, software,
capital goods, pharmaceutical products and medications.
3) Activities with promising futures: biotechnology, nanotechnol-
ogy, biomass and renewable energy.

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 Industrial, Technological and Foreign
Trade Policy: Balance – 2004 and 2005

Brazil’s Industrial, Technological and Foreign Trade Policy called

for institutional reengineering, redefining all necessary elements for
efficiently and sustainably leveraging industrial development. It also
hastened the arrival of instruments important to industry, such as the
Innovations Law—which after four years of being kept off the Congres-
sional agenda, passed in record time and became effective in October
2005. The law was assembled around three axis: creating an environ-
ment favorable to strategic partnerships among universities, technol-
ogy institutions and companies; fostering participation by science and
technology institutes in innovative processes; and encouraging corpo-
rate innovation.
The Biosafety Law is another example of a measure related to
industrial policy—and an important step forward for its category. Pro-
vided with statutory backing in November of 2005, this law creates
safety standards and oversight mechanisms for all activities involving
Genetically Modified Organisms, restructures the National Biosafety
Technical Commission and creates the National Biosafety Council while
also providing for embryonic stem-cell research.
An integrated industry funds management model introduced
in 2004 is noteworthy in that it serves as an innovative way to help
strengthen the nation’s science and technology system. This new mod-
el—to be consolidated into regulations governing the National Science
and Technology Development Fund (FNDCT) made it possible to inte-
grate a large fraction of investments in funds by transversely bringing
them in line with government priorities, eliminating duplication and
scattershot initiatives while imparting greater transparency and effi-
ciency to the use of resources. The new Industry Funds management

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model was so structured as to make it possible to funnel over 60% of
all available resources for new funds investment into government in-
dustrial policy priorities in 2004 and 2005. Added to this are reimburs-
able credits which Finep offers companies, in order to encourage R&D
activities. The new management model increased the efficiency with
which funds resources were handled, finding uses for approximately
99% of all resources available in 2004 and 2005. Application of FNDCT
resources—comprised primarily of Industry Funds resources—increased
from R$343 million in 2002, to R$628 million in 2004, and then to
close to R$800 million in 2005.
Another relevant figure comes from the National Social & Eco-
nomic Development Bank (BNDES). The total available for investment
in Brazil’s Industrial, Technological and Foreign Trade Policy is ap-
proximately R$4.4 billion all told.
An unprecedented six months after publication of the law creat-
ing it, the Brazilian Industrial Development Agency was already con-
solidated and engaged in organizing and promoting industrial policy
activities. By partnering with entities representing private initiative,
ABDI has created new works based on two parallel action strategies—
increasing the innovative capacity of companies and broadening and
strengthening Brazil’s basic industries. For each of these axis there is
a mobilizing macroprogram, able to carry out initiatives for exploit-
ing national industrial potential. Two different macroprograms were
created, Strong Industry—precisely for purposes of shifting industry to
a new competitive level, and Innovate Brazil, to mobilize companies,
universities, technological development & research institutes, busi-
ness entities, labor unions, government agencies and civil society for
purposes of increasing innovative capacity within Brazil’s industrial
economy, and add to those activities each entity was already involved
in while enlisting the cooperation of others in the process.

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 Future Outlook

Brazil’s Industrial, Technological and Foreign Trade Policy is an

important addition to recent public initiatives. It is based on a con-
certed model of measures and instruments aimed at increasing pro-
ductive efficiency and raising competitive standards within Brazilian
industries. Mindful of the future, its primary focus is on innovation.
Structural changes to Brazil’s economy, through the addition of foreign
markets to company strategies, provide another example of the kind of
synergy industrial policy can bring about. This made it easier to com-
pete in more demanding and differentiated markets and proved a way
of breathing new vigor into Brazil’s installed industrial capacity.
The National Initiative for Innovation is already underway, coor-
dinated by CNDI and put in practice by ABDI. Its purpose is to bring
about broad national mobilization, bringing together companies, uni-
versities, technological R&D institutes, business entities, labor unions,
government agencies and civil society to increase innovative capacity
within Brazil’s industries by collectively building a long-term strategy
organized in terms of horizontal and vertical themes.
Brazil’s industrial policy is indeed a State policy—a necessary
building-block for sustainable long-term growth. One must not, how-
ever, forget that the transformation of industry is industry’s own job.
The State has the duty to give direction, lend support and provide in-
centives for the process, thereby creating propitious conditions to the
development of the nation’s productive capacity. A closer dialogue
between the State and private sector is therefore a paramount con-
cern, as are the integration of government actions with manufactur-
ing activities, and the involvement of the scientific and technological

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community with the workforce. The future being erected upon these
current initiatives is more than just promising; it is already delivering
substantial results to Brazilian society.

Alessandro Teixeira
President of the Brazilian Agency for Industrial Development (ABDI)
www.abdi.com.br

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