A different future is possible Perspectives for the chemical industry in Brazil The Brazilian Chemical Industry Deloitte provides audit, consulting, Association – Abiquim (www.abiquim. financial advisory, risk management, tax org.br) is a nonprofit entity created on and related services to public and private June 16, 1964, which gathers small, clients spanning multiple industries. medium and large-sized chemical Deloitte serves four out of five Fortune industries, as well as service providers Global 500® companies through a that work for the chemical industry in the globally connected network of member fields of logistics, transportation, waste firms in more than 150 countries bringing management and emergency response. world-class capabilities, insights, and high-quality service to address clients’ The association performs a statistical most complex business challenges. To monitoring of the industry, promotes learn more about how Deloitte’s 286,200 specific studies on products and activities professionals make an impact that of the chemical industry, monitors matters, please connect with us on changes in the laws and regulations and Facebook, LinkedIn or Twitter. In Brazil, advises member companies regarding where it has been operating since 1911, economic, technical and foreign trade Deloitte is one of the market leaders with matters. The entity also represents the its close to 5,500 professionals and industry in negotiations of national and operations all of Brazil with 12 offices. international agreements regarding chemicals. Table of contents The shifting point for Brazil – and for the chemical industry 5 Executive summary 6 Competitive dimensions 9 Portrait of the chemical industry 11 The chemical industry’s bottlenecks 14 Opportunities for the Brazilian chemical industry 20 A leap for development 27 The two possible futures 35 3 A different future is possible | Perspectives for the chemical industry in Brazil 4 A different future is possible | Perspectives for the chemical industry in Brazil The shifting point for Brazil – and for the chemical industry It is undoubtedly possible to say that, in 2018, The proposals presented in this report “The proposals Brazil is going through a shifting moment in aim at removing the obstacles preventing its history. After beginning the 21st century investments and at providing the chemical presented in with its hyperinflation problem settled, we industry with the conditions necessary to were engaged in a growth cycle that resulted help Brazil and Brazilian people. In brief, the this report aim in greater development, prosperity and social initiatives comprise measures to reduce costs justice. However, in the subsequent years, the and bureaucracy, modernize production at removing growth exuberance was replaced by one of processes and insert the chemical industry in the most severe downturns in our history – in the 21st century. In this sense, it is essential to the obstacles addition to in-depth questionings regarding create conditions so that the industries can how businessmen and governments interact. innovate. This is the only way for the sector preventing We are currently living a unique moment to be included in the context of the Industry divided between the hopeful past and the 4.0. We are a sector that pervades the other investments and uncertain present. The choices we make, this sectors in our industry. We are part of the year and in the next ones, will be essential for agribusiness chain, of the automotive industry, at providing the determining what country we want to be. of the electronics segment, among many others, and we act as an important agent of chemical industry The chemical industry wishes to exercise its the convergence marking the new economic vocation as one of the major players in Brazil’s era – an economy that is more and more with the conditions development. In order to do so, it needs to digital, integrated, collaborative and, especially, resume investments, which depend on the interdependent. We proudly play our role necessary to help resolution of a series of obstacles that take of contributing with the others in order to competitiveness away from our industry. We achieve the productivity growth and gain Brazil and Brazilian need to return to our position in the internal Brazil longs for. production chain, without giving up the people.” foreign trade. Have a nice read. Fernando Figueiredo Marcos De Marchi CEO of Abiquim Chairman of Abiquim’s Board of Directors 5 Executive summary A sector with strong Resumption of An industry seeking participation in the investments is one of competitiveness economy the challenges to be The main obstacles weakening the faced competitiveness in the Brazilian The chemical industry is present chemical industry are the high costs in nearly all economic activities – Over the last few years, the Brazilian of raw materials (which can agriculture, automotive industry, chemical industry has been facing a represent up to 80% of the electronics industry and health care series of challenges that have caused production costs of a petrochemical sector are some examples. The production stagnation, decrease in plant) and energy (about 20%). Other companies of the sector are also investments, deficit in the balance of challenges are the excessive responsible for creating sustainable trade and closure of companies. complexity of the tax system, solutions that help protecting the According to Deloitte’s study, 73% of inefficiency of the existing planet and improving the quality of life the chemical industry executives framework and bureaucracy of the and longevity. The Brazilian chemical interviewed do not intend to make Brazilian business environment. industry is the eight largest chemical investments to increase the Over the last few years, the recession industry in the world, and it accounts production capacity in the next two was added to this list of obstacles. for 10% of the national industry Gross years – and 38% have already had to The slowdown of the economic Domestic Product (GDP) (or 2.5% of the interrupt projects for increasing the activity resulted in reduced supply of aggregate GDP) and 2 million persons, production capacity. chemicals produced in Brazil to other between direct and indirect jobs. sectors and increase in imports. 6 Solutions on the horizon Gains for the entire Chemicals 4.0 economy In order for the chemical industry to be The chemical industry’s business strengthened, recover competitiveness model is going through a revolution The results expected with the and resume growth, it is necessary that caused by the implementation of the adoption of Abiquim’s proposals the public and private sectors combine concept of Industry 4.0, and it should represent, by 2030, an accumulated efforts regarding a renovation agenda. suffer changes with the development increment of US$231.2 billion in the Abiquim translated the sector’s of digital technologies, such as industry’s GDP, an increase of concerns in a set of short, medium and advanced robotics, the Internet of US$63.6 billion in tax payment, and long-term proposals focusing on three Things, artificial intelligence and big an accumulated growth of US$53.1 points: cost reduction to increase data. Exploring properly the billion in work compensation. competitiveness, improvement of moment, the Brazilian chemical regulatory aspects to provide security industry may be able to come out of to the industry and consumers, and this revolution better prepared to increase in investments. These are compete with global players in the measures that aim at maximizing the value chains. production of wealth provided by the chemical industry to the Brazilian economy, especially considering the huge competitive potential of the sector, represented by the country’s large oil and gas natural reserves. 7 Executive summary Scenario of the Brazilian chemical industry Bottlenecks Business High cost of basic High cost of Logistics costs High bureauc environment raw materials electricity raticcosts with low and lack of competitiveness long-term agreements Opportunities Size of the Large oil Use of energy Incentive to Sectorial Chemicals 4.0 Brazilian and gas from renewable the sustainable opportunities economy reserves sources development of other sectors 8 Competitive dimensions Priority aspects for increasing the production, profitability and investments 1. Raw material 5. Foreign trade The competitiveness challenge in the Brazil needs to sign agreements Brazilian chemical industry starts with ensuring the competitiveness of the the high costs of raw materials essential Brazilian chemical industry, defending for chemicals production. It is necessary the national production from unfair to create conditions that make it possible trade practices. More than that, it is to reduce the costs of such inputs, necessary to promote the foreign trade, which can currently reach 80% of the integrating the industry into global and production costs in a petrochemical value chains, causing exports to be part plant. of the businessmen’s agenda. 2 . Electricity 6. Regulation For the chemical industry, electricity A regulatory framework that meets the represents 20% of the industrial costs. diversity and complexity of the chemical The Brazilian chemical industry pays industry and promotes production a higher price for electricity than its efficiency, compliance, security for peers from other countries. The end of investors and Brazil’s competitiveness in such cost discrepancy will bring great this segment. competitiveness gain to the sector. 3. Logistics Abiquim’s proposals Problems in waterways and in railroad Short-term Medium-term Long-term Total and highway networks cause increases in costs and loss of efficiency and, Raw material 5 2 1 8 therefore, are an obstacle to the Electricity industry’s productivity gain. 5 4 1 10 Logistics 4. Innovation and Chemicals 4.0 7 18 5 30 The Brazilian chemical industry needs Innovation and Chemicals 4.0 to follow the trend of using digital 9 2 1 12 technologies, such as the Internet of Comércio exterior Things, big data, artificial intelligence 4 3 - 7 and advanced robotics to increase Regulação 3 3 - 6 productivity.