The Inovar-Auto program in Brazil, its objectives and the automakers adhesion

Type de publication:

Conference Paper

Source:

Gerpisa colloquium, Paris (2020)

Résumé:

Purpose
The State has a central role in the development of industry structures in different sectors. In emerging countries, this role is even more relevant because national companies face competition from large global oligopolistic groups. In this sense, public policies are used as State instruments which guide the evolution of specific sectors. In Brazil, an industrial sector of economic relevance in terms of GPD participation is the automotive sector. The automotive industry established in the country has historically benefited from public incentives.
A tax incentive that promoted substantial changes in the automotive Brazilian sector was Inovar-Auto. Implemented in 2012, effective until 2017, the Inovar-Auto program was an industrial policy of the Brazilian government that provided tax incentives to automakers, with a counterpart to investment in technological innovations. More than stimulating investment in Research and Development (R&D) (with a focus on incremental innovations), Inovar-Auto HAS also established goals for nationalization of autoparts purchases, as a way to reinforce the chain effects to local suppliers, and regulated aspects of consumption efficiency and pollutants emission. One of its goals was to attract new investments - either by expanding the companies already established in the country or through the arrival of others that did not yet produce on national soil.
This paper aims to evaluate the Inovar-Auto program development in terms of the Brazilian automotive sector modification, through the participating projects analysis, namely to describe the projects of the companies that participated in Inovar-Auto, evaluating its effectiveness, such as automakers who proposed to install factories, or expand their operations. In addition, the study analyzes three facts that occurred during Inovar-Auto and interfered in its progress: the difficulty in controlling the rules defined by the State requiring national content, the complaint in the World Trade Organization (WTO) that the program contradicted international agreements, and the economic and political crisis that began during the execution of Inovar-Auto.

Design
For the evaluation of the automakers projects, developed under the Inovar-Auto program, a research was carried out on two fronts: on one hand, a documentary survey was carried out, with collection of secondary data, on the other, public authorities or class association (employers and workers) professionals who participated in the Inovar-Auto program were interviewed, with the application of a semi-structured questionnaire, between 2017 to 2019.
Official documents from the then Ministry of Development, Industry and Trade (MDIC) were consulted. By the metrics of Brazilian government, Inovar-Auto surpassed the goal of new investments, reaching 146% of the predicted value. From this observation, the hypothesis that Inovar-Auto was a successful public policy and that it leveraged investments was raised, increasing the automotive market standard in Brazil. Two fronts of analysis to test this hypothesis were developed: an analysis of automakers participation, case by case, during the program, through scientific and journalistic publications; and, finally, an analysis of external factors that helped or hindered the execution of the program, confronting such factors with the perspective of THE actors who participated in the elaboration and development of Inovar-Auto.

Findings
When observing Inovar-Auto based on the goals of Brazilian government, the program was highly successful. Even the WTO dispute settlement, which could be taken as a possible criticism of its elaboration, proved to be a successful strategy. And as for the companies’ adhesion, despite the fact that there was a relevant dropout rate, the program implementation as a whole resulted in something that, although it was not a stated goal, can be considered as a positive effectiveness for the actors involved: the postponed installation of manufacturing plants in Brazilian territory by Chinese automakers.
This result, namely the exit of Chinese companies from the program (namely, Chinese companies drawing out of the program), with the consequent postponement of the local subsidiaries installation, resulted IN a market protection for the national chain actors’ business, given the possibility of Chinese cars gaining Brazilian market, during world crisis, post-2007/2008.
The analysis of the individual cases of the companies that participated in Inovar-Auto also showed that there was a predisposition for these companies to settle in Brazil even before the program launching, due to the fact that it was a rapidly growing consumer market. On the other hand, when the country faced a political and economic crisis after 2013, the program was weakened, inhibiting the desired positive effects. Therefore, the analysis showed that the limits and scope of Inovar-Auto cannot be related only to the factors intrinsic to the program formulation itself, namely to its incentive and evaluation instruments, requiring to consider, in addition, factors such as competition between companies in the local market and dynamics of the relationship between the government and civil society at a time of political crisis and economic recession.

Practical and theoretical implications
Based on the analysis of Inovar-Auto, as a State incentive program aimed at a specific sector in an emerging country, the present study highlights the difficulty that the emerging country State has in acting in the architecture of a dominated economy sector by global oligopolistic groups. The practical implication highlighted in the analysis is the demonstration of the difficulties faced by a country like Brazil, an economy considered emerging, in directing incentives to a sector dominated by foreign companies of the USA, Europe and Japan (and more recently South Korea), aiming to generate local investments in R&D (in addition to increasing the rigor of controlling pollutant emissions). As the case of Inovar-Auto reveals, there was even an unfavorable result for Chinese companies, also belonging to another emerging country, which, in the same process, have confronted the sector's global dominance.

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