Brazil’s new $61bn industrial policy to prop up beleaguered chemicals – Abiquim

SAO PAULO (ICIS)–The Brazilian government’s new 10-year industrial policy plan will help create the conditions for the “survival and resumption” of growth for beleaguered chemicals producers in the country, according to trade group Abiquim.

Earlier this week, the cabinet presided by Luiz Inacio Lula da Silva presented the so-called Nova Industria Brasil (NIB), a Brazilian reais (R) 300bn ($60bn) industrial plan focusing on decarbonization, digitalization and the improvement of public services.

The plan will offer lines of credit and subsidies focused on six major issues: more sustainable agroindustry; infrastructure, sanitation, housing, and mobility; health industry; bioeconomy; national defense, and the digital transformation of industry.

Lula came to office a year ago with the key promise to its core electorate to revive manufacturing to create well-paid industrial jobs.

However, for much of 2023 manufacturing was the red flag in the economy, while chemicals production was one of its worst performing subsectors as competitive imports ate up in domestic producers’ market share.

“The next stage involves detailing the measures [included in NIB]. Based on the points outlined in the plan, and given the explicit mention of the chemical industry, Abiquim expects to see public policies which strengthening chemistry and the entire industrial sector,” said the trade group.

Lula’s cabinet implemented in 2023 protectionist measures to protect Brazilian chemicals producers – two import tariff hikes and the resumption of the REIQ tax break for some inputs – but the tsunami of product coming from overseas has kept plants’ utilization rates low.

Brazil’s vice president and minister for industry, Geraldo Alckmin, has become Abiquim’s best ally in government. Alckmin was the star guest at the trade group’s annual event in December, while this week he specifically spoke about petrochemicals when presenting the industrial plan.

“We need to improve the [chemicals] industry’s global competitiveness by reducing the cost of inputs. REIQ has been reintroduced [and] this year R1.0bn will be invested to improve the competitiveness of the petrochemical chain,” said Alckmin.

“We are confident NIB will create the conditions for the survival and resumption of growth of Brazil’s chemicals, a sector which competes globally with more sustainable standards than most other chemical producing countries in the world, but faces competition from products produced abroad that generate more greenhouse gas emissions,” said Abiquim’s executive president, Andre Passos.

“We believe this policy has the potential to change the unfavorable situation we currently face.”

Industrial trade groups, trade unions, analysts and economists have generally welcomed NIB as Brazil was becoming one of the few major economies still lacking a plan of incentives for green investments.

The country’s industrial prowess in the 1960-197s, when manufacturing accounted for around a quarter of economic output, has given way to the current 10-12% as the country turned to agriculture and services as its growth engines.

Leo de Castro, president of the Industrial Policy Council (Copin), an advisory body to the government, said Brazil needs to recover industrial fabrique if it wants to offer its citizens a “consistent path” to higher living standards.

“This is the announcement of a modern public policy, which redefines choices for sustainable development, with more investment, productivity, exports, innovation and jobs through neo-industrialization,” said De Castro.

“The Brazilian industry needs modern instruments like those that promote industry in leading nations. It is necessary to put industry back at the center of the development strategy, so that we can resume higher growth rates and be able to offer a consistent path to development aligned with what developed countries do.”

This week, Brazil’s automotive sector got a boost after US automotive major General Motors said it is to invest R7.0bn in its Brazilian facilities, focusing on production of electric vehicles (EVs).

Moreover, China EVs major BYD also announced it would invest R3.0bn at its Camacari, state of Bahia, facilities; the company acquired the site from Ford in 2023.

Brazil’s automotive will need a stronger boost, however, if it is to recover its own bygone prowess. In just over a decade, output has fallen from nearly 3.5m units/year in the early 2010s to just over 2.3m units produced in 2023.

($1 = R4.91)

Focus article by Jonathan Lopez