Notes on the Brazilian Inovar-Auto and Recommendations for a New Automotive Regime (Rota 2030)

  

The automotive industry is extremely relevant to the Brazilian economy. In recent years the sector accounted for about 5% of the Brazilian GDP and 20% of industrial GDP. According to Anfavea (2017) Brazil has 31 automobile manufacturers and 590 auto parts companies. In addition, it employs directly and indirectly around 1.3 million people and has an installed capacity of 5 million vehicles. Finally, OICA data indicate that Brazil is currently the 10^th world’s largest producer and the 8^th largest consumer market.

Globally, the 1990s bring major changes to the automotive industry, especially with regard to market saturation in developed countries; internationalization and greater trade flows; modularization and productive restructuring. On the internal front, this period marks important changes for Brazil, leading to reconfigurations in its productive structure: on the one hand, Brazil promotes a unilateral opening on its current and financial/capital accounts; on the other hand, the country wasn’t able to escape from low growth and successive external crises. The 2000s marked a relative shift in Brazil's economic (and industrial) policy. This period is marked by higher – though unstable – growth rates than in the previous decade. Thus, during the new millennium the automotive industry expands its investments and its production capacity and sales, reaching the 4^th largest world-wide market.

Under strong BRL appreciation and rising commodity prices, a new automotive regime was developed in the country: Inovar-Auto was instituted by 12.715/2012 Act and was valid during the period 2013-2017. Briefly, its main drivers are: energy efficiency; innovation and R&D / Engineering; and location of productive capacity. Basically, companies that opt to join the program are allowed to qualify for tax (IPI) rebates of up to 30 p.p. and also a presumed IPI credit for R&D and engineering expenditures.

With the recent conclusion of Inovar-Auto on Dec 31^st 2017, there are still not many studies about the program. In this sense, it is important that studies on the pertinent literature begin to emerge in order to evaluate what has been done and help thinking of corrections or suggestions for improvement in the near future. At the moment, Inovar-Auto is under review and a new automotive regime is being developed (Rota 2030). Rota 2030 should seek continuity with Inovar-Auto, but its main drivers and instruments are still not well defined. In the present study, we intend to survey the existing literature about the Inovar-Auto and the performance of the sector in the period. To do so, we will critically analyze the papers that seek to evaluate, although partially, the program. Among the reviewed material, we shall analyze a report supported by the World Bank [Sturgeon et al. (2017)] and the recent report commissioned by MDIC to UNESCO for preliminary evaluation of the program [Correa (2016)]. In addition, we will appreciate the sectoral data (IBGE and ANFAVEA) and IBGE’s Innovation Survey (PINTEC) – the most recent edition of PINTEC, available up to 2014, have not yet been used in any analysis, to the best of our knowledge). Besides the lack of clarity regarding the results, it is also possible to find almost opposite conclusions, as Barbosa-Filho (2018) puts it.

Therefore, the purpose here is to critically analyze the Inovar-Auto and the recent literature associated with it, as well as the sectoral data during its validity period. Possibly we will be able to point out some suggestions for a possible new regime, like Rota 2030 currently under discussion.

To that end, as mentioned previously, the methodology used in the paper is the analysis of relevant bibliographical references and the analysis of the general data of the automotive sector, made available by IBGE and ANFAVEA (production, sales, etc.) and PINTEC also by IBGE.

The paper expects to find that Inovar-Auto was a well-built program and its results were generally positive. On the one hand, they were positive in terms of improving activity levels, export performance and energy efficiency targets. On the other hand, there was little effect on R&D.

Regarding the first topic, some analysts such as Sturgeon et al. (2017) criticize Inovar-Auto as a program that closed the Brazilian economy – so in the opposite direction of the “conventional wisdom” that advocates market liberalization as to reach a virtuous integration to the so-called global value chains. However, there are two crucial points that differentiate Brazil from other countries with a large domestic market: the country does not have a large national assembler; and is not integrated into any relevant regional market. The same critics practically do not unravel these peculiarities. How to improve the export insertion without having a national assembler (nor national tier 1 firms) and not even being integrated to significant markets? These issues need to be considered in the analysis.

Regarding the second topic, although it is not yet possible to conduct a complete analysis (since PINTEC 2017 will only be made available by IBGE in the end of 2019), partial results indicate that there was little effect on R&D and that this was also conducted in a heterogeneous way by the auto manufacturers. Moreover, if it may be true that the effects on innovation were less than expected, in part better results can be achieved by improving the future new regime (i.e. it does not seem that the result was less than expected by means of a intrinsically perverse industrial policy).

International experience shows that advanced countries regulate and strongly subsidize the automotive sector, especially in terms of new developments and emission reductions. Brazil will hardly achieve greater success in the automotive sector without creating a robust industrial base and using state power more intensively (in the form of regulation or otherwise) to gain greater sovereignty over cutting-edge developments. Thus, the main practical implication of the paper would be the possibility of contributing, albeit softly, to the elaboration of a future automotive regime.