Chief Economist and Head of Research, Federation of Industries of the State of Minas Gerais, Brazil
The Challenges of Low Productivity in Brazil
There has been considerable discussion about the importance of productivity gains in driving both economic and social growth. However, what exactly does productivity entail, and how does it influence economic dynamics and people's welfare?
Productivity refers to the relationship between the amount of resources employed and the output of goods and services generated in a given period. In other words, it measures how effectively resources are used to achieve desired outcomes and is often expressed as the ratio of total production to inputs utilized. These inputs comprise labor, capital, technology, and other relevant elements integral to production processes.
In a broader perspective, increased productivity is correlated with economic growth, which in turn promotes job creation, higher wages and enhanced living standards. Hence, companies, individuals and governments actively seek to raise productivity, acknowledging the substantial benefits it provides.
How is Brazil doing in terms of productivity? In 2022, Brazil reached only 22% of the labor productivity of the United States, based on hours worked. In other words, it takes over four times the hours worked in Brazil to reach the same production level as in the U.S. Compared to the average productivity of Latin American countries, Brazil still exhibits lower productivity and, overall, its performance is only slightly superior to the average observed in African countries. Alarmingly, over the last 42 years, the average growth rate of Brazilian worker productivity has been just 0.6% per year, one of the lowest in the world.
These figures shed light on many of the challenges faced by the Brazilian economy. For example, despite comprising 3% of the global population, Brazilian exports make up less than 1.4% of worldwide exports. Furthermore, although Brazil shows competitiveness in exporting commodities, notably in the agricultural and mineral sectors, exports of manufactured goods comprises only 0.5% of global exports.
In addition, the output of the Brazilian manufacturing industry accounts for only 1.20% of the global manufacturing industry’s added value. This reflects a rapid process of deindustrialization - unmatched elsewhere in the world - that has unfolded over the past 40 years in Brazil: the share of the manufacturing industry in Brazil’s GDP has dropped from 36% in 1985 to 13% in 2022.
The aforementioned process is not arbitrary. The industrial sector is particularly reliant on competition, and Brazil's significant productivity challenges have resulted in a low level of competitiveness among Brazilian companies, especially those associated with the manufacturing industry.
But why does this situation persist? There are several reasons that contribute to the low productivity of the Brazilian economy, including the challenging business environment, inadequate infrastructure, high tax burdens, and lack of legal certainty. However, I want to highlight what I consider to be a major obstacle not only for the economy, but also for Brazilian society as a whole: the country's low level of education, coupled with the poor quality of teaching.
The findings from the 2021 Programme for International Student Assessment (PISA), which assesses the proficiency of 15-year-old students in key areas essential for their integration into social and economic life, underscore the challenges faced by Brazil. These challenges are not just limited to productivity alone, but encompass highly relevant economic and social issues. Approximately 73% of Brazilian students have not attained the basic level in mathematics, a standard deemed crucial by the Organization for Economic Cooperation and Development (OECD) for citizenship engagement. Similarly, around 50% and 55% of Brazilian students lack basic proficiency in reading and science, respectively. This suggests that the majority of Brazil's future workforce lacks basic knowledge in areas crucial for effective participation in modern society.
In summary, the discussion on productivity cannot be dissociated from the complex challenges confronting the Brazilian economy and society. It is clear that low productivity is not just an economic concern, but also mirrors broader structural shortcomings, such as the country's inadequate and precarious education system. The data reveals a concerning scenario in which a lack of competitiveness and educational gaps jeopardize not only economic growth, but also the ability of individuals to participate fully in modern society.
Unfortunately, addressing these issues requires coordinated actions by the public sector, which can be hindered by various political interests and the absence of short-term incentives.
Therefore, investing in education and promoting structural reforms to improve the business environment are essential measures to boost productivity, foster sustainable economic growth in Brazil and create opportunities for prosperity across society.
Footnotes
1. The Conference Board Total Economy Database™, April 2023. See more HERE.
2. Productivity Observatory Regis Bonelli - FGV Ibre. See more HERE.
3. United Nations Industrial Development Organization (UNIDO). See more HERE.
4. WTO Stats. See more HERE.
5. Ipeadata. See more HERE.
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