Countries of the World/COUNTRYS.BIN/dp/0050/00500.txt

Text File | 1991-06-24 | 35KB | 544 lines

$Unique_ID{COW00500}
$Pretitle{220}
$Title{Brazil
Chapter 3D.   Manufacturing and Agriculture}
$Subtitle{}
$Author{Darrel R. Eglin}
$Affiliation{HQ, Department of the Army}
$Subject{percent
land
manufacturing
farms
agricultural
large
holdings
production
less
small}
$Date{1982}
$Log{}
Country:     Brazil
Book:        Brazil, A Country Study
Author:      Darrel R. Eglin
Affiliation: HQ, Department of the Army
Date:        1982

Chapter 3D.   Manufacturing and Agriculture

Manufacturing

     Until the twentieth century the country's minerals contributed little to
the development of manufacturing. Colonial policies restricted Brazil to
exporting primary products, such as sugar, cotton, tobacco, and gold, and
importing manufactures. Portugal's commercial treaties from the early 1800s
until the 1840s continued to open Brazil to imports, particularly from
Britain, which made it difficult for any Brazilian manufacturing industry to
emerge. Only late in the 1800s was local industry beginning to supply
manufactured products on an appreciable scale to the domestic market.

     Until the 1960s manufacturing was mostly import substitution-developing
domestic production to replace goods formerly imported. Government policy at
times encouraged local manufacturing and at other times, in pursuit of other
policy goals, achieved that result accidentally. The two world wars and the
depression of the 1930s stimulated domestic industry because of the
difficulties of obtaining imports. Import substitution started with consumer
goods, particularly food processing and textiles, which branched out to
include finished clothing. Important additions in the 1920s included an
integrated steel plant and a cement plant. Direct investment by international
firms in plants to produce rubber products, chemicals, and aluminum, and to
assemble vehicles broadened the industrial base in the 1930s and 1940s.

     By 1950 manufacturing produced a broad range of products. Food,
beverages, and tobacco accounted for 25 percent of the value added from
industrial activity and textile products and shoes another 24 percent; these
two broad manufacturing industries remained by far the largest in the economy,
but their importance had declined from nearly 70 percent of value added in the
1920 census. Chemicals, nonmetallic minerals, metals, and machinery-the basic
heavy industries-were added and grew substantially between 1920 and 1950;
their combined contribution to value added in the latter year was 33 percent.
Many of the manufacturing plants built in the 1930s and 1940s were large
scale and modern. Moreover, institutions were established to train scientists
and conduct research and development in order to advance the technology
available to industry.

     After World War II Brazil's economic officials made a deliberate shift to
a policy of fostering industrialization as the means for rapid economic
growth. Studies of the economy by various international economists in the
1930s and 1940s pointed to the vulnerability of relying on the export of a few
primary commodities. The war reinforced the message of the studies. The
hazards of shipping and the closed markets during the war stimulated domestic
industry. After the war, officials sought to continue the alteration of the
structure of the economy rather than return to a focus on exports of primary
products.

     Between 1945 and 1962 industry grew at an average rate of 8 percent a
year, and industrial output increased nearly fourfold. Import substitution
remained the basic objective, but the possibilities in food and textile
industries were largely exhausted. Growth was concentrated in transport
equipment, metal products, electric machinery, and chemicals and
pharmaceuticals by public investments and encouragement of direct investment
by foreign firms, particularly those in automotive fields. Import substitution
created balance of payments pressures, however, along with other distortions.
Even the substantial inflow of foreign capital was insufficient to compensate
for the slow growth of exports, and by the early 1960s the importation of
needed goods was restrained by controls. The stabilization program of the
1964-67 period resulted in slow growth of the economy and manufacturing (3.6
percent a year) but corrected many of the problems for the rapid growth that
followed.

     Between 1968 and 1973 manufacturing industries grew at the remarkable
average rate of 13.9 percent a year, and manufactured exports grew at 38
percent a year. Part of this growth resulted from putting to use idle
manufacturing capacity, but numerous policy changes also contributed. The
former system of multiple exchange rates, which afforded a high level of
protection to favored industries, was replaced by a single rate that was
devalued frequently in small amounts to avoid overvaluing the domestic
currency. Tariff levels were reduced and import restrictions liberalized,
although in a stop-and-go pattern. A number of fiscal and credit incentives
were established to affect investment in industries that manufactured for
export. Public investments also fostered growth in key industries. Foreign
firms were encouraged to locate in Brazil through specific incentives and a
hospitable political environment.

     The sharp price increases for crude oil in 1973 and 1974 created
immediate balance of payments problems. The response of policymakers was to
reimpose import restrictions, stress import substitution, and expand the
foreign debt. Since the early 1960s import substitution possibilities had been
largely confined to machinery, chemicals, fuel, and miscellaneous
manufacturing. After the first oil crisis, government policy spurred expansion
in these fields, accompanied by large public and private investments,
particularly in steel, nonferrous metals, electric power, petrochemicals,
fertilizers, and pulp and paper. The goal was self-sufficiency by 1980. Demand
in the economy was declining, however, and idle capacity became a problem as
projects were completed. After 1976 the public investment program had to be
slowed, lowering demand for machinery and construction materials.
Manufacturing expanded at an average of only 6.8 percent a year between 1974
and 1980. Incentives were maintained for exports, but expansion of
manufactured exports slowed, averaging only about 17 percent a year (in
constant United States dollars) between 1975 and 1980.

     In 1981 manufacturing fell by 9.9 percent. Some industries were much more
severely affected than others. Consumer durables dropped 27 percent, including
a 35 percent fall in car production. In contrast, consumer nondurable goods
declined by only 2 percent. Capital goods industries were depressed;
production levels were nearly 19 percent below 1980. In the first quarter of
1981 capacity utilization of manufacturing was down to 78 percent generally
and was lower in the more depressed industries. The recession forced
manufacturers to find cost-saving techniques and to rationalize their
operations. Another positive result was an increase of manufactured exports as
foreign sales were sought to replace the contracting domestic market.
Economists were predicting that a slow recovery of the economy and industry
would begin in 1982, but many firms were in financial difficulty.

     The steel industry exemplified some of the problems the economy faced in
1982. Domestic demand for steel products expanded at a high rate after the
1940s. Because the country possessed large iron ore reserves, a usually
expanding domestic market, and the potential for export, government planners
approved substantial additions to capacity in the early 1970s during the
economic miracle. In 1980 steel output exceeded 15 million tons, placing
Brazil tenth in world production and ahead of traditional producers, such as
Britain, Belgium, and Czechoslovakia. The public sector was highly active in
basic steel, having seven operating companies that accounted for 60 percent of
sales in 1981, substantially lower than in earlie