Photo Jonathan Blair

Monday, April 16, 2012

A different reason why Brazil's industry may not be competitive

You may have read about Brazil's energy self-sufficiency and the rumours that, as a newly-minted energy superpower, it may soon join OPEC. You probably also heard Dilma Roussef denouncing the protectionism of developed countries, particularly the United States, and imposing restrictions on Mexico's automotive exports.

All cute and largely true: Brazil has huge energy reserves and its production is roughly sufficient to cover its consumption. Moreover, recent "quantitative easing" has indeed led to a depreciation of the dollar, hurting the competitiveness of Brazilian exports. There is more to this problem of competitiveness, however.

Take energy prices, for instance: energy superpower or not, and huge reserves notwithstanding, Brazilian industry is paying more for its electricity than any of  its main competitors among the worlds major economies. The little table below* shows industrial energy prices in a few of them, as a % of the average price charged in Brazil:

Mexico         92%
Germany         65%
China         43%
United States 38%
Canada         33%

No wonder the Estado de Sao Paulo, the voice of Brazil's industry, is complaining.

*Calculations based on a table (p. 5) in a study of this problem by FIRJAN, the Federation of Industries of the State of Rio de Janeiro.