World of Tooling – Spotlight Brazil and Mexico

Author / Editor: Dr. Wolfgang Boos, Michael Salmen M.Sc., Thomas Kuhlmann M.Sc., M.Sc., Dipl.-Ing. Dipl.-Wirt.Ing. Max Schippers, Dipl.-Wirt.-Ing. Maximilian Stark / Barbara Schulz

Brazil/Mexico - Over the course of the entire year 2016, WBA Aachener Werkzeugbau Akademie presents spotlights of the most important international tooling markets. This edition focuses on Brazil and Mexico.

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Brazil is the largest and most populated country in South America. It is home to about 203 million people, while UN estimates indicate that the population will grow to 223 million by 2050. The United Mexican States is a federal republic located in Central America with approximately 120 million citizens. Estimates of the UN suggest that the population will increase to 144 million by 2050. Brazil is an emerging nation and belongs to the so-called “BRICS nations”, an association of upcoming economies that includes Russia, India, China and South Africa. The country has made great progress with regard to the quality of life while reducing the enormous prevailing social imbalance and widespread poverty. More than 26 million Brazilians are said to have “escaped” acute poverty between 2003 and 2013. Nevertheless, Brazil continues to face significant social and political challenges, especially in comparison with highly developed industrial nations.

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This applies to income distribution, the labour market, healthcare system, inner and social security as well as education. Only 45% of Brazilian adults and 37% of the adult population in Mexico have a higher educational degree. Still, Mexico invests the same share of its gross domestic product (GDP) in education as Germany (5.1%). Mexico has made remarkable progress in recent years, particularly in the improvement of living conditions and the educational system. The most significant change has been the reformation of the healthcare system and an overall booming economy. The average income of Brazilian and Mexican households is €7,732 and €8,034, respectively. Brazil is plagued by high crime rates and organised crime and belongs to the top-20 countries in terms of frequency of capital crimes per 100,000 citizens. Despite numerous problems, Brazilians are significantly more satisfied with their lives than citizens of many other industrialised nations.

The Brazilian economy and industry

Brazil's GDP is the ninth-largest national economy worldwide in 2015. The economy has had an average growth rate of 2% per year for the past four years. The GDP per capita was approximately €10,000 in 2015. By comparison, the German GDP per capita for the same period was €42,500. Brazilian growth rates fell by an average of over two percentage points compared with the period, 2006-2010. The economic outlook for 2016 is moderately positive, with an expected growth of 2.0%. Brazil is currently the world’s 11th-largest export and 21st-largest import nation. In 2012, the country exported goods worth €228bn. The most important exports were resources (iron ore and crude oil) and products related to the food and automotive industries. The country has large deposits of raw materials, including tin, iron ore, gold, aluminium and uranium. The level of wages was close to €14,500 in 2013 and is below the average of all industrial nations. The unemployment rate of 6.9% is close to historical lows. Brazil continues to be a volatile country with great potential, although major risks for investors exist in terms of currency security, corruption and the administrative system. In particular, trade regulations affecting import and export customs complicate the activities of foreign market participants. The complex customs regulations, abrupt and temporary tax increases on certain goods in the name of protection of local economies lead to an unstable foreign trade.

The Mexican economy and industry

Mexico's GDP is the world's 15th-largest economy with a GDP per capita of approximately €9,500 in 2015. Over the last three years, the economy grew moderately by 2.9% per year. The outlook for 2016 is positive. In 2012, the country exported products and goods worth €331bn. The three main export goods were oil, food and automobiles. The country is rich in natural resources like oil and gas and possesses many mineral resources like silver, bismuth and lead. The automotive sector has experienced rapid growth and is an essential driver of employment. Investments worth €22bn were announced for Mexico by automotive OEMs over the last four years. Its strategic geographical location and the ports to the east and west also have a positive effect. Moreover, there is not only a free trade agreement (NAFTA) between Mexico, the U.S. and Canada, but also an agreement between Mexico and the EU. An automobile with a value of €55,000 exported from the U.S. to Europe would entail €5,500 in custom duties, which is not charged for the same automobile originating from Mexico. In 2011, the wage level was on average at €13,500 and, despite moderate growth in engineering-related jobs, the country still shows a wage-cost advantage over the U.S. of €500 to €600 per employee per month. Mexicans work an average of 2,239 hours every year – almost 30% more than the average of all industrialised nations.

Brazilian tools and tool manufacture

A total of 5,426 tons of tools and dies worth €64m were exported in 2013, which consisted of injection moulds worth €42m, solid and sheet metal forming tools worth €21m and casting moulds with a value of €1m. Almost 98% of the produced tools remain in Brazil and the total production is estimated at over €3bn. The industry has been growing in double digits for several years. Additional tools and dies were imported to Brazil in 2013 with a total value of €420m, comprising of €215m of injection moulds, €189m of solid and sheet metal forming tools and €16m of casting moulds. Fig. 4 shows its tool trade with foreign markets in 2014. The largest trade partners for importing injection moulds are China, South Korea and Italy. Injection moulds are mostly exported to Argentina, the USA and Columbia. The largest trade partners for importing sheet metal and massive forming tools are Japan, China and South Korea, while they are exported mainly to Mexico, the USA and Argentina. The heart of the industry is in Joinville, south of Sao Paulo, where about 20% of the estimated 2,000 companies are located. There are almost no major companies with over 100 employees and the industry focuses on simple tools or processing. The local automotive industry is the main customer for the industry, followed by the packaging and electronics industries. Brazil has a large domestic market on which the local industry is focused. Unlike Mexico, international customers and exports are an exception and this is unlikely to change in the foreseeable future. Still, Brazil is the only country in South America with industrial and tool and die-making experience. The development potential is rated average as the economy and the complex trade regulations will continue to hinder the exportability of tool and die products in the foreseeable future.

Mexican tools and tool manufacture

In 2013, tools and dies with a value of €340m were exported, of which €288m were injection moulds, €38m were solid and sheet metal forming tools and €14m were casting tools. In the same period, Mexico imported tools and dies worth a record value of €1,803m, of which €1,115m were for injection moulds, €531m for solid and sheet metal forming tools and €157m for die-casting moulds. Its trade of tools with foreign markets in 2014 is shown in Fig. 4. The largest trade partners for importing injection moulds are the USA, China and South Korea. Injection moulds are mostly exported to the USA, Hungary and Canada. The largest trade partners for importing sheet metal and massive forming tools are the USA, Japan and China, while they are exported mainly to the USA, Thailand and Canada. Tool and die imports (solid and sheet metal forming tools) have increased over the last four years. In contrast, injection moulds and die-casting moulds showed a lower growth rate, while tool exports (solid and sheet metal forming) have remained constant for the past four years.

The local industry falls short of fulfilling high quality requirements and cannot meet increasing demands brought about by the growth of the automotive industry. Almost all tools and dies required for automotive serial production are imported from North America. There are currently no independent companies that could boost the international production or take on maintenance and repair activities. The tool and die requirements and the many OEM production sites and international suppliers will help develop the local industry, and the potential for development is rated high.

Sources: Istma, OECD, UN Comtrade Database