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Workshop on Capital Productivity in Brazil: Diagnosis and Propositions
Capital Productivity in Brazil is Theme of Workshop in BNDES
The Workshop “Capital Productivity in Brazil: Diagnosis and Propositions” was held at the auditorium of BNDES headquarters on December 13, 2010. The theme was treated from the national point of view considering the behavior of the economy as a whole and the oil and agribusiness sectors. It was discussed the establishment of a network, coordinated by an excellence center in the area, as a form of propitiating the capital productivity increase and therefore allow the desirable development pace in the present decade.
Partnership Contract included Workshop to discuss the theme
The Economy & Energy (e&e) Organization has signed a Partnership Contract on Capital Productivity with MCT (Secretariat of Basic Industrial Technology). Its objective was to make a diagnosis of Capital Productivity in Brazil, discuss and propose instruments for increasing the productivity of investments.
The Partnership Contract foresaw this Workshop that had the support of CNPq through its Pró-Inova Foment Line and of the Space Centers and Networks of Excellence - ECENTEX/COPPE/UFRJ.
The presentation of the participants and the proposals made in order to improve this index in Brazil were the basis for creating a center that might integrate all who could contribute to increase capital productivity.
About 60 participants from BNDES, Petrobrás and ECENTEX/COPPE/UFRJ staff were present during the Workshop, as well as students and professors from UFRJ and FGV among others.
The Workshop Board had the following members: Dr. João Carlos Ferraz (BNDES), Mr. Sérgio Quintela (Vice-President of FGV-RJ) and Dr. José Israel Vargas (President the Economy & Energy (e&e) Organization Council and former Minister of Science and Technology)
As host of the event, Dr. João Carlos Ferraz opened the workshop emphasizing the importance of the triad “investment, innovation and capital productivity”. He mentioned the positive results of investments to be reached in 2010 that will reach 19% of the GDP. He has estimated that BNDES data, based on information from the side of capital goods demand indicate a value higher than that of IBGE, based on the offer of these goods. As an example he mentioned the energy sector for which IBGE data are 20% lower than those of BNDES.
Then Dr. Ferraz informed that BNDES has submitted to the government a proposal for renovating the industrial policy for productive development focusing on innovation, exports and support to micro, small and medium enterprises. The objective of the proposal is to incorporate to the industrial policy job qualification, job productivity (for example, in the manufacture sector Brazil has an index of 15 while in the USA this index is 100); and finally, incorporate cleaner production goals.
He pointed out that industrial jobs in Brazil have grown but exports of manufactured products are decreasing and if the “industrial transformation value/gross production value” ratio is calculated it will be noticed a decrease in the industrial transformation in Brazil, For this reason, BNDES is making efforts to increase the participation of knowledge-intensive industry in the Brazilian industrial structure.
Then it was the turn of Dr. José Israel Vargas, who initially has emphasized the contribution made by Sérgio Quintela when he founded the Internacional Engenharia. It was also mentioned the important contribution of Mr.José Pelúcio Ferreira, former director of BNDES, who launched the first Science & Technology (S&T) government program that determined that 1% of BNDES’s profit should be allocated to this area; he was also co-founder of COPPE/UFRJ.
He then mentioned that preliminary studies have shown that capital productivity in Brazil has decreased together with the manpower gains and that S&T can reduce this decrease. He emphasized that Brazil faces a complicated situation specially regarding innovation and aggregation of value to products and the participation of industrial transformation sectors which is decreasing due to the increase of commodities exports.
Furthermore, he explained that there is no innovation without intelligence and there is no intelligence without education. Concurrently, Brazil presents a persistent analphabetism (10% of adults). The situation is even worse when OECD’s evaluation (reading and science knowledge of young people under 15) is examined since Brazil’s rank is 53th among 154 countries. Even though there has been progress in Brazil, this situation is incompatible with the position of the tenth economy of the world.
The Brazilian economy is a big economy only because it is spendthrift (uses raw material and has low manpower yield). According to the participant, the fundaments of development/innovation corroborate this thesis: of all patents registered in Brazil, 90% are of non residents and only 10% of residents. Those of residents are probably from international companies established here. As a comparison, the University of California has more patents than China and India together. In the list of developing countries Brazil has the 13th place and 35th in the world.
He also mentioned that whatever is the creative activity, transforming knowledge into products/service goes through engineering. Brazil has 130 thousand admissions to engineering courses and each year about 30 thousand students graduate and only 10 thousand of them are considered to have an acceptable quality. The best Brazilian university, the University of São Paulo – USP -, is the 150th in the universal classification while the University of Beijing is the 12th one.
Finally it was the turn of Mr. Sergio Quintela. He agreed with Dr. Vargas emphasizing that Brazil has a unique moment of big challenges and mentioned, for example, the scarcity of means to cope with the challenges such as the pre-salt. Petrobras has investment numbers that the Brazilian engineering sector is not entirely prepared to absorb and it has been considered the adjustment of Petrobras’ chronograms so that the participation of national suppliers of goods and services will be maintained. According to Mr. Quintela, the Brazilian industry as a whole is not prepared for the present demand and in particular, the Brazilian engineering sector is not prepared to satisfy the devised basic engineering projects. He highlighted the importance of BNDES together with the private entities in order to face and overcome the existing difficulties as he thinks will happen.
And so the opening of the event has been finished and the panels were opened.
SECTION I –CAPITAL PRODUCTIVITY IN BRAZIL
The first participant of the Section was Mr. Eustáquio Reis (IPEA) and the title of his presentation was “Behavior of Capital Productivity in Brazil in the 1950/2010 period”. He started saying that capital productivity has a big difficulty, namely, the definition of capital.
In macroeconomic terms, productivity determines the basis of profit, competitive edge, salaries, economic growth rate and the well-being of economy in the long term.
It is always assumed that the product flow and the stock flow are always related. Generally, the capital flow calculates net stocks using the perpetual stock method where the average values of industrial depreciation is 20 years and that of houses and residences is 50 years. The USA has agencies that calculate each component of capital stock. Productivity is calculated by the product/input ratio (product/manpower in case of this input). In the case of capital productivity, the manpower denominator is substituted for capital,
The more canonic way of calculating productivity is through of total-factor productivity where elasticity of product relative to use of capital or manpower is patent. On the other hand the (Cobb-Douglas) production function describes the relationship between product flow and services flow provided by the production factors
Finally, he presented the results of capital stock for industry. These are preliminary and not conclusive results that show productivity reduction. He concluded that the technological and market challenges are in the agriculture and agribusiness sectors regarding value aggregation to the products.
Then Dr. José Gasques (IPEA/MAPA) talked about “Capital Productivity in the Brazilian Agribusiness”.
He started his participation showing the source of his data (municipal agriculture and husbandry production, land indexes, machines, agriculture pesticides, manpower and inputs) and the depreciation form of capital stock that is around 16 years. The big difficulty is to have access to data regarding prices and annual quantities.
In order to calculate it, the Tornqvist index (in which the product quantity is related to the input quantity) is used. The Total-Factor Productivity elucidates that productivity increases not due to input increase but rather to the increase of the input quality. In this method, it is not necessary to deflate the values.
It is noticed that the agribusiness physical productivity in the 1975-2009 period has grown 3.64% on the average as compared with 0.13% of input, 0.68% of capital productivity and 3.57% of total-factor productivity. The manpower in the sector had a negative growth. This shows that the Brazilian agribusiness is expanding the product with little use of this input.
Agribusiness productivity in Brazil is growing at a rate (3.51%) higher than that of the United States (1.87%). This is due to investments in Research & Development, access to fertile lands, investments in rural credits, increase of manpower qualification and improvement of machines efficiency. But the trend is that this rate will decrease with time since it cannot be maintained. The big challenge is to improve the measuring methods and to develop a data base such as that of the USA.
Then Mr. Hermes Gomes Filho (Petrobrás) talked about “Investments at Petrobras”. He described Petrobras’ participation (33%) in the world energy demand and that it is projected that until 2030 oil will still have a predominant role in the world matrix. It will be added 50 million barrels/day to the world capacity. The resources to satisfy demand will come from deep and ultra-deep waters at a cost of 50 – 70 dollars in the case of Brazil.
It is not envisaged oil shortage in the long term but rather the cost of oil offer. Since the per capita consumption is growing, the Brazilian market has a big challenge due to demand generated by new capacities.
Petrobras has an investment plan of 224 billion dollars in the 2010-2014 period, 95% of the total in Brazil. The partnership with the national industry will be about 142.2 billion dollars, an average value of 28.4 billion dollars/year. It will be 46.4 billion dollars in investments in projects developed with partners and this is very important regarding productivity increase. Investments in research and development, information technology and workplace safety will have investments of more than 10 billion dollars in the period.
About 50% of these investments will be concentrated in the Exploitation & Production (E&P) area and the remaining ones are shared among Refining & Transport, Gas and Energy. The need of external resources is 96 billion dollars and Petrobras will be highly active in the Southeast and Northeast regions but it will invest in the whole national territory.
Petrobras has about a success index of 80% in the pre-salt layer while the average value of industry is 40%. It is foreseen that until 2020 Petrobras will be among the three best of the world with a production of 5 million barrels of oil equivalent.day.
The participant ended his presentation pointing out the challenges of the next years: capacity to execute a large number of projects, strengthening and guaranteeing the supply chain, control of resources (cost X terms), human resources and financing.
The director of the Economy & Energy Organization, Dr. Carlos Feu Alvim, closed the first section presenting “Capital Productivity as an agent to Innovation, Investments and GDP Growth – Results of the Partnership e&e and MCT”.
He showed the evolution of capital productivity in Brazil which decreased from 0.85 to 0.65 in 30 years. When capital productivity is considered at constant prices, at current prices as well as the utilization factor it is noticed that capital productivity has decreased mainly in the middle of the seventies and eighties.
Italy, Japan, South Korea and Spain are experiencing a decrease of capital productive concurrently with manpower productivity increase as described by the Cobb-Douglas production function. This is a process that leads to growth halt but in the United States capital productivity was growing until the start of the present crisis.
In Brazil the oil sector, specifically, has multiplied capital productivity by 4 in the exploitation and production area and reached a value that is twice the value of the Brazilian economy as a whole. Part of this increase (about 50%) is due to oil price. The big problem in this sector is that production has a delay time of 4-5 years relative to investment.
Regarding the agribusiness sector, a technological revolution was started and the manpower productivity has experienced a dramatic growth as the manpower growth was negative. Productivity relative to the cultivated area (indicative of capital productivity) in this sector at constant prices has doubled and at current prices it remained more or less constant. Therefore, this productivity increase was transferred to product prices. Other countries have attained similar or lower results with subsidies and this moves the Brazilian agriculture to conditions that are exceptionally competitive. He ended his presentation saying that Brazil must do more with less.
SECTION II – BASIS AND INSTRUMENTS FOR INCREASING CAPITAL PRODUCTIVITY: PROPOSAL OF AN EXCELLENCE NETWORK FOR CAPITAL PRODUCTIVITY IN BRAZIL.
The second panel started with the presentation of Mr. Laerte Galhardo (EPC-Petrobras) who talked about the “EPC Excellence Center”. The institution was established in 2008 with the mission of integrating all the links of the chain aiming at increasing competitive conditions and productivity. It has among its associates 4 oil and gas companies, 19 training and research institutions, 18 class associations and 47 enterprises of the EPC chain that pay an annual fee and help in the operational costs.
The big focuses of the EPC Excellence Center are productive performance measurements, continued education, project design with high national content and promotion of university-enterprise integration. The EPC Excellence Center has structuring projects aiming at costs reduction, consulting engineering, national contract model compared with the international ones, commissioning, supplier chain management, development of basic projects, welding measurement bank and continued capacity development online. Recently, associated professors of the Excellence Center have visited international works as well as the 5 biggest national construction sites and compared them with what they have seen abroad and they made improvement suggestions.
Presently, the EPC Excellence Center has two projects related with productivity: one related to measurement and incorporation of lessons learned has been completed and the second one concerns productive management in Petrobras’ current works.
He emphasized that the Brazilian manpower productivity is well behind the desired value. Petrobras induces improvements in all sectors. The big challenges are: professional training and establishment of productive culture in Brazil.
The next presentation was that of Engineer José Fantine, Coordinator of ECENTEX/COPPE/UFRJ concerning the establishment of a “Capital Productivity Excellence Center”. He agreed with the previous participants namely, Brazil must grow. And an alternative in this sense would be the establishment of a Capital Productivity Excellence Center.
Presently there is a big social pressure; additionally there is the environmental issue, globalization and a fierce competition and this leads to the following question: how to improve considering this situation?
In the case of establishing a Capital Productivity Excellence Center, the first thing to do is to understand and master its basic concepts.
It is necessary to work in order to generate more with the invested capital, to improve the choice of investments, to obtain better results for the same investments, to reduce costs and financing. He presented a basic matrix-like structure aiming at the establishment of excellence centers to integrate all the participating elements. The conclusion is that an Excellence Center is always searching for the forefront and the state-of-art.
It was then the turn of Mr. Solon Guimarães Filho who presented “Welding Excellence Center”.
Initially, he presented the FBTS (Brazilian Foundation of Welding Technology) and its organizational chart and then he presented FBTS’ objective, namely endow the country with a welding technology development institution like those existing in developing country such as The Welding Institute in England, the Institut de Soudure in France and the Edison Welding Institute in the USA.
The establishment of the FBTS was caused by the implantation of systems for production development in the Campos Basin with its welding - intensive use.
Presently 7 large fixed platforms are simultaneously under construction and they are considered as having no precedent; it is under the responsibility of only one enterprise and it is the first time that it is built in deep waters in Brazil.
In the first years the following gaps were identified:
Regular formation in the country of levels 1 and 2 welding inspectors;
Accreditation as Certifying Organ regarding welding inspectors;
Preparation to be the Certifying Organ regarding equipment, products and consumable products for welding produced in Brazil or imported;
Preparation to be the Certifying Organ regarding welding procedures;
Qualification as coordinator of special projects.
He explained that the FBTS resources originate from the following activities: regular courses for training Welding Inspectors; Certification of Welding Inspectors; Certification of Welding Procedures and Products; Consulting; Technological Management Contracts; Development of Projects for multiple clients and annual fees of associated enterprises.
He also presented some structuring projects, some of them already completed and others ongoing. Intended to increase productivity, an external consulting company was contracted in order to make a diagnosis and to propose a “strategy to increase productivity and reduce fabrication costs concerning welded construction in the oil sector”. He concluded declaring that the welding excellence center is reaching its proposed goals.
The last presentation was made by Admiral Costa Fernandes, Director of the Excellence Center for the Brazilian Ocean (CEMBRA), namely : ”Excellence Center for the Brazilian Ocean”.
He explained that CEMBRA was established in 1997, when the then Minister of Science and Technology, José Israel Vargas, created in the same year an Independent National Commission regarding the ocean that was part of a bigger scope, the UNESCO World Commission whose objective was to prepare a report about the International Year of the Ocean; in 1998 this Commission was dissolved.
Aiming at using the material produced during the Commission’s existence period, it was decided to gather this material and publish a book (Brazil and the Ocean in the 21th Century: Report for the Decision-Makers of the Country) that included the juridical and economical aspects, the mineral resources, fishing, ports, aquiculture, sea tourism, etc.
This publication had the following characteristics: all chapters that referred to the ocean should be comprehensive, they should supply subsidies for the decision-makers and they should include a national public opinion poll about the sea.
More recently, aiming at discussing the subject, it was decided that this book should be re-edited and in this context it was decided to establish an Excellence Center for the Ocean (CEMBRA).
The Brazilian ocean has about 4.5 million km2, it is extremely rich, it is insufficiently explored and it influences the everyday life of all Brazilian sectors. As examples of this influence, one can mention oil exploitation in the pre-salt, and maritime transport that is responsible for 95% of the Brazilian external trade The participant informed that Brazil looses about five billion dollars/year due to transports made by foreign ships. He has also emphasized the potentiality of the marine biotechnology. And the Navy has a program called BIOMAR, coordinated by the Ministry of Science and Technology. All this wealth must be protected and for this purpose the Navy has the “Blue Amazon Management System” that monitors the Brazilian coast.
Finally, He described CEMBRA itself. He described the classic model of excellence centers showing that CEMBRA fits this model. CEMBRA has a management shared by several institutions (the Brazilian Navy, COPPE/UFRJ, FURG, University of Ceará, Fundação de Estudos do Mar (FEMAR), and the Economy & Energy Organization) that decide its guidance.
CEMBRA’s first Structuring Project is the re-edition of the book mentioned above that has already 18 out of 20 completed chapters. Regarding the previous edition, three more chapters were added, namely: Maritime Biotechnology, Climate Change and the Ocean and Alternative Energy Sources Connected with the Ocean. Propositions about probable directions are made at the end of each chapter
The workshop had the active participation of the policy and innovation staff from BNDES, Petrobras, Clube de Engenharia, ONIP, as well as that of professors and students from some universities (UFRJ and FGV).
The event achieved the desired objectives. It was grateful to learn that different institutions are concerned with productivity and the Brazilian manpower qualification. The efforts made in the agribusiness sector and in the oil production chain are promising, considering the size and complexity of the latter. Capital productivity was emphasized because of the big investments challenge due to pre-salt and those concerning the infrastructure growth besides the big programmed events, namely the Olympic Games and the World Football Championship that will happen in the next years.
All presentations are available at
 Engineering, Procurement and Construction.
Graphic Edition/Edição Gráfica:
Thursday, 12 January 2012.