Research reveals that industry should reduce investments in Rio Grande do Sul in 2024

The 2023-2024 Investment Survey, carried out by Fiergs (Federation of Industries of the State of Rio Grande do Sul) with 223 companies – 188 from the Manufacturing Industry and 35 from Construction – reveals that last year investments in the sector fell again in RS, due to the uncertain economic scenario, weak demand, a slowing world, high interest rates and difficulty in accessing credit. For 2024, the forecast is for an even greater reduction.

“Expectations are not very encouraging among businesspeople in Rio Grande do Sul, with low levels of confidence and high levels of uncertainty that remain in the domestic market”, says the president of Fiergs, Gilberto Porcello Petry.

According to research carried out by UEE (Economic Studies Unit) at Fiergs, only 64.1% of industries in Rio Grande do Sul invested in 2023, a reduction of 7.8 percentage points compared to 2022.

The percentage was the fourth lowest in the historical series and the lowest in the last three years, far from the levels of the early 2010s, when the series began, which reached above 80%, and ended up lost in the great crisis of 2014 to 2016 The 2023 result, however, exceeded by 10.1 percentage points what companies had predicted at the beginning of the year, when only 54% said they intended to invest.

At the same time, the degree of implementation of investment plans was also low and fell in 2023 compared to the previous year. Only four in ten companies (40.2%) that had investment plans for 2023 managed to carry them out completely as planned.

This was also the fourth lowest level in the series, 8.4 percentage points lower than 2022. Furthermore, 36.8% of companies only partially carried out the investments planned last year, 7.5% postponed until next year, 10.9 % postponed it indefinitely and 4.6% canceled it.

The biggest obstacles to making investments by the industry in Rio Grande do Sul in 2023 were, according to Fiergs research, economic uncertainty, with 68.6% of citations; the drop in revenues, 60%, and the expectation of insufficient demand, with 57.2%. Uncertainty since the end of 2022 is part of the national economic scenario, especially with regard to fiscal issues.

“Lower revenues restrict equity, which is the main source of resources for investing” states President Petry. Last year, the majority of investments in the industry in Rio Grande do Sul were financed with its own resources (59%). Among third-party resources, the main portion came from commercial banks: 10% (8% from private banks and 2% from public banks).

Furthermore, according to the research, the acquisition of new machinery and equipment was the main nature of investment in the industry in Rio Grande do Sul in 2023, carried out by 71.8% of companies, whose main objective, highlighted by 53.9%, was to mechanize production industrial.

Expectation

For 2024, investments in the industry in Rio Grande do Sul should fall to the lowest level in the historical series, if the research perspectives are confirmed. Only 61.3% of industries in Rio Grande do Sul intend to invest, 2.8 percentage points lower than those that invested in 2023.

It is worth highlighting that the research was carried out between December 1st and 11th, 2023, therefore, during discussions to increase the ICMS modal rate from 17% to 19.5% and before the issuance of decrees that cut ICMS incentives, which occurred on December 16th.

Increases or improvements in the current production process and installed capacity are the two biggest objectives of investments planned for 2024, cited by 39.8% and 38.2%, respectively. The majority (64.7%) of companies in Rio Grande do Sul state that they will use their own resources to finance these investments, which will mainly focus on the domestic market, an exclusive or priority target for 65.6% of companies