“the manufacturing industry cannot carry the piano alone”

With the largest industrial park in Brazil, the state of São Paulo projects good winds ahead national transformation industry for the year 2024, despite the segment experiencing a 0.4% drop in Gross Domestic Product (GDP) this year and a 0.5% drop in industrial production.

In an interview with People’s Gazettethe economist of the Federation of Industries of the State of São Paulo (Fiesp) Igor Rocha warns of the effects of a still adverse environment, which brings together high interest rates and a lack of incentives for the industry – such as a specific plan for the sector and the obstacles to access credit, in addition to difficulties in technological updating of industrial parks, reducing efficiency and competitiveness.

“For 2024 we are analyzing. The conditions may be surprising, but they are still quite adverse for the industry until there is greater clarity regarding horizontal sectors, especially due to tax and interest conditions. The manufacturing industry can no longer pay half as much as other sectors of the economy, carrying this burden alone”, he highlights, considering that Fiesp is still calibrating the models to then publish the expected projections for next year.

The manufacturing industry is at the top of the list of those that pay the most taxes in the country and accounts for 30% of public revenue. Therefore, according to Rocha, the sector anxiously awaits the definitions of tax reform with expectations that are “more positive than negative”. Tax unification, included in the reform, promises to reduce the burden on the segment, which currently stands at 46%, rising to 33%. But the sector wants to reach 25%.

The expert considers that, combined with better tax conditions, there is an expectation of measures that facilitate the taking of credit in the market. “Today it starts with 25% interest per year. The sector does not have targeted and subsidized credit, like others”, he criticizes.

The possible reduction in the interest rate, expected to close 2024 at 9% per year, and the dollar at around R$5, could help to alleviate the scenario. “There is an optimistic view of the environment (for 2024), but there is a mismatch. The (processing) industry alone carries the revenue (…) This is harmful, because if the sector is falling, it reflects on the drop in revenue. The country will grow 3% (in 2023) and revenue is falling, which means that those who are growing do not pay taxes. There is disproportion and lack of equal treatment, a scenario that punishes the creation of jobs and competitiveness”, assesses Rocha.

The non-renewal of production and technology parks, caused by high interest rates, is a concern and is among the issues that have been discussed with the public authorities. “(You need credit) for machines and equipment that guarantee more productivity. We are unable to renew because the interest rate is very high, your business does not provide a 25% profit margin (to pay interest), this takes away competitiveness. We are not at the technological frontier, we need to improve competitiveness for better results”, he reiterates.

According to the Fiesp economist, from a horizontal point of view, the industrial economy suffers from two crucial points: high tax burden and problems accessing credit. “It’s killing the goose that lays the golden eggs. Other sectors practically do not pay taxes, which puts the industry and Brazil on a delicate path. The model is not sustainable in the medium and long term”, he assesses.

One point that is interfering positively, according to the economist, is the tax framework, which calmed the mood in the economy and arrived with “a very reasonable model, bringing more tranquility to the market”.

On the global stage, the economist highlights conditions that could interfere with the Brazilian economy, such as the continuation of the war between Russia and Ukraine and the conflict in the Middle East. “The global economy will grow less in 2024 than it grew in 2023, but this year it will grow less than in 2022”, he compares.

Reindustrialization requires R$456 billion per year, says sector

The Vice President of the Republic and Minister of Development, Industry, Commerce and Services, Geraldo Alckmin, is mediating negotiations between the business community and the government for the creation of a Industry Plan. The methodology promises to be similar to the Safra Plan, aimed at agribusiness with subsidized interest and easier conditions for access and payment.

The industrial segment calculates that a reindustrialization process in the country would require investments, over the next seven years, of R$456 billion per year, which represents 4.5% of the national GDP. Today, investments do not exceed 2.6%.

Alckmin believes we can get there. In a recent event promoted by Fiesp, the vice-president highlighted that “the government has to be a partner for good practices and treat the issue seriously and with public policies” and that “rebuilding the sector means thinking about what it will be like in the future, and moving forward in that direction.”

In terms of structure, the program is eagerly awaited, says the Fiesp economist. Alkmin stated that “if there is a need for machinery and equipment, BNDES and Finep finance with interest of up to 4%” and recalled the challenges of strengthening a new industry “with sustainable and high productivity guidelines and benchmarks”.