Lula’s plan for industry will have subsidies and requirements – 01/19/2024 – Market

The plan of the government of Luiz Inácio Lula da Silva (PT) to boost the country’s industry over the next ten years places public authorities as a driver of development, with the use of credit lines, subsidies and local content requirements to promote national companies –policies already employed in previous PT administrations and which became the target of criticism from economists.

A Sheet had access to the full document, which is 102 pages long and details the structure of the plan, called Nova Indústria Brasil.

The text outlines goals and guidelines until 2033 based on six missions, linked to the following sectors: agroindustry; health industrial complex; infrastructure, sanitation, housing and mobility; digital transformation; bioeconomy; and defense technology.

The new industrial policy will be presented next Monday (22) to President Lula by vice Geraldo Alckmin (PSB), who is also minister of the Mdic (Ministry of Development, Industry, Commerce and Services).

The proposal was produced throughout the second half of 2023 by members of the CNDI (National Council for Industrial Development), which is made up of 20 ministries, by BNDES (National Bank for Economic and Social Development) and entities representing civil society, the sector production and workers.

Authorities who worked on drafting the policy point out that there was a concern to include public authorities in a central position in what they call neo-industrialization. A Sheetargue that this is not an outdated strategy and that it has been adopted in these new processes in European powers.

Following this logic, national companies will be provided with two initiatives, lines of credit with favorable conditions, so that they can take on services and works under the New PAC (Growth Acceleration Program), and also contracts with government purchases.

The issue of government purchases, in fact, was one of the obstacles to the advancement of the trade agreement between the European Union and Mercosur, after Brazil’s attempt to reopen this point of negotiation.

The plan talks about credit lines, government grants and subsidies in implementing the ecological transformation proposal, but does not detail the instruments or how this will be accommodated within the fiscal rules, compliance with which has already been called into question by economists.

Among the public procurement instruments to boost the country’s industrial development, the document points out that the Interministerial Commission for Innovations and Acquisitions of the New PAC will define the sectors in which the acquisition of manufactured products and national services may be required.

The requirement in the past for high percentages of local content in industrial production, especially in the oil sector, ended up not having the expected effect of encouraging the development of the national park and became a burden for companies like Petrobras. The state-owned company was among the group of oil companies that failed to comply with the minimum limits and ended up being fined.

The plan states that the requirement for local content under the New PAC will be implemented in stages, “progressively expanding the list of products and services subject to the requirements”, but the document does not detail the starting levels or the pace of increase in these requirements.

The government may also use preference margins for manufactured products and national services. This means that certain local goods and services will be preferred by public authorities, even if their price exceeds that of competing imported items by a previously defined percentage.

As in the New PAC, the new industrial policy allocates one of its axes to the development of the defense industry, particularly considering the strategic projects of the three Forces.

The government’s idea is to obtain autonomy in the production of 50% of critical defense technologies by 2033. Among the challenges in the area, he mentions the definition of instruments for financing and establishing guarantees for exports of defense products and the dedication of resources for space development.

These strategic projects and the strengthening of this industry helped bring the government closer to the military, after an initial shock due to the proximity of the barracks to former president Jair Bolsonaro (PL) and the suspicions that lingered related to the coup acts of January 8 .

Alckmin, by the way, as head of the Mdic, was one of those responsible for creating this bridge and dealing with these issues.

Similarly, one of the axes of the new industrial policy deals with agroindustry, another sector strongly associated with Bolsonarism.

In each of the missions, the plan brings aspirational goals, which will serve as a reference to direct the efforts to be made by the State in the development of Brazilian industrial policy.

The objective of the document in this area is to increase the share of the agro-industrial sector in the agricultural GDP (Gross Domestic Product) to 50% – the share corresponds to 23%, according to data obtained from the 2017 Agricultural Census.

Actions are planned to achieve another goal, of achieving 70% mechanization in family farming establishments. This means almost quadrupling the current figure, which is 18%, over a ten-year period.

In relation to the health area, the target for 2033 foresees that the country can produce 70% internally of all its needs for medicines, vaccines, equipment and other inputs and technologies. In ten years, the government plans to almost double national production, which currently accounts for 42% of the country’s needs.

The new Brazilian industrial policy also provides for State support for short-term export operations.

For actions aimed at expanding exports, there is also the approval of a bill that authorizes the BNDES to resume financing works and services provided by Brazilian companies abroad.

Another long-term objective outlined is to digitally transform 90% of Brazilian industrial companies, ensuring that the share of national production triples in the new technology segments.

The plan will be guided by transversal guidelines, based on principles such as inclusion; gender, color and ethnic equality; promoting decent work and improving income; productive, technological and innovation development; increased productivity and competitiveness; in addition to reducing inequalities.

Initiatives of the Nova Indústria Brasil plan

Main instruments:

Loans, grants, tax credits, equity participation, local content requirements, foreign trade, margin of preference, technology transfer, intellectual property, regulation, technology orders, government procurement and public investment.

Mission 1

Agro-industrial chains

Goals for 2033: Increase the share of the agro-industrial sector in agricultural GDP to 50%.

Financing priorities (examples): fertilizers and pesticides, as well as products with nanotechnology and biotechnology.

Regulation: Rationalize port fees and improve the guarantee system.

Mission 2

Health

Goal for 2033: Produce, in the country, 70% of the national needs for medicines, vaccines, equipment and other health inputs and technologies.

Financing priorities (examples): innovative medicines and Active Pharmaceutical Ingredients (APIs).

Regulation (examples): tax equality in government purchases, establishing rules to rationalize regulatory costs, reform of the Lei do Bem and health regulation.

Public procurement: New PAC Health – R$30 billion by 2026.

Mission 3

Infrastructure, sanitation, housing and mobility

Goal for 2033: Reduce travel time from home to work by 20%.

Financing priorities (examples): technologies to reduce carbon emissions in transport, aviation of the future and development of biofuel, electric, hybrid and other alternative fuel propulsion systems.

Regulation (examples): rationalize sectoral charges on electricity, resumption of service exports, improvement of incentives in the capital market; reduce the cost of financing infrastructure and state support for exports.

Public procurement: carbon footprint calculator for public works.

Mission 4

Digital transformation of the industry

Goal for 2023: Digitally transform 90% of Brazilian industrial companies, ensuring that the share of national production triples in the new technology segments.

Funding priorities: semiconductors, generative AI, advanced robotics, generative AI.

Mission 5

Bioeconomy, decarbonization and energy transition

Goals for 2033 (examples): Promote green industry, reducing carbon dioxide emissions in industry by 30% and increasing the share of biofuels in the transport energy matrix by 50%.

Financing priorities: technological solutions to reduce emissions, development of future biofuels and generation of renewable energy.

Regulation: improvement of reverse logistics regulation and harmonization between the laws of the federative entities.

Public contracts: Solar energy in Minha Casa Minha Vida works; photovoltaic panels and wind turbines with local content and margin of preference in the New PAC.

Mission 6

National sovereignty and defense

Goal for 2033: Obtain autonomy in the production of 50% of critical defense technologies.

Financing priorities: technological content projects forwarded by Strategic Defense Companies.

Regulation: Reform of the Lei do Bem, implementation of the new Official Export Support System.