Footwear production will likely grow by 3% in 2019

Driven by the increase in shipments throughout the year, footwear production will likely grow by 3% in 2019.  The forecast was one of the many presented in event at October 8 at Fenac, in the city of Novo Hamburgo (in the state of Rio Grande do Sul, Brazil). The event Scenario Analysis, jointly promoted by the Brazilian Footwear Industries Association (Abicalçados) and the Brazilian Association of Companies of Components for Leather, Footwear and Artifacts (Assintecal), was sponsored by Fenac.

The event began with a presentation by PhD in Economics Marcos Lélis, a consultant for the footwear industry. The expert commented on the effects of the trade war between the United States and China, which has been causing a slowdown in world trade and is expected to have results in 2020. Throughout 2019, US imports of Chinese products decreased by 12.6%, and the opposite direction also registered a 17.9% decrease.

Lélis highlighted that, in addition to the tariff war, China uses its international reserves – of over USD 3 trillion – to manipulate the exchange rate, which has an immediate effect on the global economy.  "In July and August, when there was some disruption in the negotiations between China and the United States, they altered the exchange rate, devalued the Yuan (Chinese currency) and messed up the world economy," he recalled, noting that the country is the world's largest exporter.

According to the economist, even though the Brazil GDP grew by 0.4% in the second quarter, eliminating the risk of a recession, the economy has still been oscillating due to the lack of substantial investments in infrastructure. “We had this growth driven by the housing industry, especially the high-end housing sector in Southeastern Brazil, which is not enough for consolidated growth,” he explained, noting that for growth to be established it must be the result of greater investments in the manufacturing industry (growth in the capacity utilization rate), in the construction of public and private enterprises etc.  "Anyway, this piece of news has improved the mood and resulted in the expected 0.8% growth for 2019," he said.

Limited effect
For Lélis, the Social Security Reform, already at an advanced stage to be approved by the Brazilian Federal Senate, will not be enough to recover the investments in Brazil, especially since there is still 25% idleness in the industry, which, according to him, is the engine of economic growth.  "We still do not fully use the manufacturing capacity. Therefore, entrepreneurs will not invest at this time,” he said, stressing the importance of public-private partnerships for a more substantial resumption of investments.

Better than other manufacturing sectors, according to Lélis, the footwear industry foresees a 3% increase in production in 2019, reaching 972 million pairs.

According to the coordinator of Abicalçados' Market Intelligence Unit, Priscila Linck, with the result, the industry will still not recover from the decreases of previous years, returning to the levels registered in 2014.
Linck also said that the result of production should be driven by the increase in exports, around 10%, reaching almost 125 million pairs.  The domestic market, which absorbs 86% of footwear production, is expected to grow by 0.8%.

The economist also spoke about the effect of the trade war between the United States and China and the agreement between Mercosur and the European Union. According to her, the trade impasse between the two powers creates opportunities for the Brazilian product, but also for shoes from other countries, especially Vietnam and Indonesia. Linck pointed out that during the tariff war, the two Asian countries gained 1.8% and 0.3% market share in the USA, respectively. Brazil, in turn, only gained 0.2% in market share.  Moreover, still as an effect of the impasse, China ended up having to spread its exports to other markets, including Brazil. 

Regarding the agreement between Mercosur and the European Union, Linck highlighted the likely positive effect for Brazilian footwear; however, the partnership still needs to be established by all the countries involved, which will require more time for the treaty to come into force. After the agreement is established, the countries will still enjoy a 7- to 10-year period of tax relief – until zero import tariffs. "When it comes into force, the agreement will likely have a positive effect, especially for exporters of leather shoes, since 60% of Brazilian products going to Europe are made with this material," she concluded.

Subsequently, a panel brought together Luciano D'Andrea, from the International Relations and Foreign Trade management of Federação das Indústrias do Estado do Rio Grande do Sul (Fiergs) [Federation of Industries in the State of Rio Grande do Sul], and master in Production and Systems Engineering Rosnaldo Silva, Bibi's director. Mediated by Lélis and Linck, the participants spoke about the challenges the Brazilian footwear industry faces given the trade liberalization.

The initiative was supported by the Brazilian Institute of Technology for Leather, Footwear and Related Products (IBTeC), the Brazilian Association of Leather Goods Industries and Travel Articles (Abiacav), and the Brazilian Association of Machinery and Equipment Industries for Leather, Footwear and Allied Trades (Abrameq).