Metals and mining: Government intent on more control

The Brazilian mining and metal industries have been in the middle of a conflict between the government and Vale, a privatised mining giant. The conflict started with the decision of Vale to cut production and fire 1,300 people while putting another 5,500 on paid leave. The government was upset by this decision because there was no advance warning and the government believes Vale should have done the opposite during the crisis to save the economy of Brazil.

Vale is a private company but the government still has some influence trough shares and pension funds of public sector companies. The company has been hesitant towards expressing their opinion in public, but Vale has made clear that their strategy remains the same, that is being a world supplier. This strategy has paid up impressive results, and has given Vale the ability to invest in the steal industry for several years but in a limited manner. Also in the future Vale wants to keep up the investments and encourage new projects in Brazil.

But in spite of the investments of Vale the government is still not satisfied, the situation is okay but they want more influence in the decision making. Main point of disagreement with Valve is that they should invest in steel plants to add value to the home iron instead of exporting it to foreign countries. Because now the risk exists that Brazil will become an exporter of iron ore but an importer of steel, which demand will rise due to building projects in the near future.
The steel industry is making investments of its own, but none of the steelmakers has enough financial power to invest in the projects of the size Brazil will soon need, and so the pressure on Vale will continue.

Because of the crisis a lot of economies suffer, and economies are recovering very slow at this moment. Companies such as Vale can play a crucial role for a countries economy. Brazil is a big world economy and will need a lot of capital to boost its economy. Small companies don’t always have the financial strength to invest and therefore bigger companies need to help.
But these bigger companies have an own role to play and will often look to try and make more profit and secure their own financial situation. In this example we see that Vale is playing a smart strategy by combining the two. They try to please the government by investing in different projects but they also stay true to their own company strategy.

I also believe that companies have a responsibility towards a country’s economy. Because when you help and invest in the economy, your own results will improve as well on a long term base, and is what I believe to be the best solution.

Source: http://www.ft.com/cms/s/0/e82513b6-c8d9-11de-8f9d-00144feabdc0.html november 13, 2009

Government gives £37bn of new bail-out cash to RBS and Lloyds

The government of Great-Britain invested £37bn in RBS and Lloyds. Last year they injected the same sum of money in these two companies. This new injection of money makes RBS the world's biggest government rescue. They have now received £53.5bn of state money.

Lloyds has launched £13.5bn rights issue to emphasise its commercial viability. The government pays £5.9bn of these rights issues because they are stakeholder with 43.5 per cent. They have also a plan to switch their existing debts into £7.5bn of contingent capital instruments. In case of crisis Lloyds will be able to sell them.

These actions have had in impact on the stock market.
The share of Lloyds rose by 3 per cent, while the share of RBS lost 7 per cent.

The government demanded that the companies don’t give anymore bonuses the their employees who earn more than £39,000. Other bonuses must be delayed or must be smaller than usual.Some people say that’s it is just for getting votes the government make these demands because it isn’t possible to receive these actions.

In my opinion it is a good job from the government the help those two banks. They have become stake holder and when the market revives they could sell their shares. Their demands for cutting off the bonuses is also a good point. I think some of the top employees earn to much bonuses compared the their work.

source: http://www.ft.com/cms/s/0/cf70e030-c8e2-11de-8f9d-00144feabdc0.html

Government takes over East Coast rail service

On November 13, the government takes over the control of the East Coast rail service from the National Express and the franchise will be hold until 2011. Next year the government will begin searching for a new operator. The winning bidder will receive the franchise. The line goes from London to Edinburgh. The train transports 17 million passengers and gives work to 3,100 employees a year.

The National Express did a lot of efforts to take over the train line in 2007. The revenues were decreased because the company was hit by the credit crises. Thousand business travellers switched from first to standard class and other passengers travelled off-peak to pay less. The company had also difficulties with their payments to the government. They weren’t capable to pay the high premium in order to win the contract.

The company tried to change the terms of the contract with the government, but the result was negative. So the government decided to re-nationalise the service. The takeover wouldn’t affect any employees, the services would continuous without interruption and the already bought tickets would still be valid. The Department of Transport expected to make a profit because the service is not longer obliged to pay a premium to operate the franchise.

The board of National Express has come under pressure of the shareholders because they weren’t informed about the takeover.

I have a separate opinion about this subject. It’s a smart decision of the government to take over East Coast rail service from the National Express. The company had financial problems because their revenues were decreased and they had also difficulties with their payments. If the government didn’t take over the rail service, there was a chance that a lot of people will lose their job. But now the takeover wouldn’t affect any employees. But on the other side, the re-nationalise is not the solution. In my option, the rail service should become part of the new London Overground Network.

I hope that the government would found a new operator within 2 years. Now with the financial problems, it’s difficult to found a new investor.

5 November 2009
Source: http://business.timesonline.co.uk/tol/business/industry_sectors/transport/article6904034.ece

G8 leaders should focus on fighting protectionism

The leaders of rich countries are together in Italy to discuss the economic situation. The whole world got some difficulties with their economy so they all got the same economic concerns.

They all have different economic models or economic systems so it would be good if they can discuss the economic situation with some different views. It also would be good if they might listen to leaders from China, India, Brazil, Mexico and South Africa. Because it’s a world wide crisis and every country got another view on it. The G8 also need to know that the economic problems won’t be solved unless the rest of the world’s are too. Only when there is confidence it the whole world we can come out of this crisis.

Robert Zoellick, the World Bank president, and Pascal Lamy, head of the World Trade Organization wrote a letter to the G8. They want to warn them for protectionism. They don’t like what they see on this moment, there are a lot of people who say that it’s the end of the recession and that’s to early according Zoellick and Lamy. Because the economy still need to be stimulated word wide.

Protectionism is a risk to world trade, it’s still a threat and a terrible disease according to Zoellick and Lamy.

I think protectionism is a danger for the economy in these days. Ofcourse I understand there point of view, you have to protect your own economy but I think that you can protect your economy with help of other countries. We need to talk to each other to find a solution for our economy. For example: when Germany invest a lot of money to hold their Opel manufacturers open, this would be negative for the Belgian economy, and off course also the European economy.

Europe is also stronger than only the Belgian economy, we learned to be less independent from America during this crisis and if you cooperate with whole Europe it would be possible to be less independent from America.

Source: http://www.telegraph.co.uk/finance/financetopics/financialcrisis/5765353/G8-leaders-should-focus-on-fighting-protectionism.html

Obama's health insurance reforms clear first hurdle on way to becoming law

The House of Representatives approved a bill on health insurance. This means a major breakthrough in history. It is also the most important thing that Obama achieved since he became president.

Because of this measure, the health insurance will be accessible for 96% of the US people. If this bill passes, still 18 million people wouldn’t have any health coverage by 2019. Larger companies would have to offer insurance to the employees. Also individual people will be obliged to be insured. If they don’t do it, they will have to pay the consequences. The government will only subsidize those who can’t afford.

It was very close. The bill passed with only a little bit, 220 times ‘YES’ and 215 times ‘NO’. Obama calls it ‘a historical moment’.

The Senate still has to approve the bill, before it becomes a law. They will need 60 votes to get it passed. But it will be difficult to do so because of the many conservative Democrats.
If the Senates goes along with it, both versions will be put together.

There are groups of people in the Us that think that this bill is not so good because it helps ‘to clear the way’ to abortion rights. But under the compromise, it would not be allowed for health insurance companies to offer abortion services. But pro-choice groups think that because of this restriction, a lot of women would lose the abortion rights they now already have.

In my opinion, I personally think that this bill is a very good thing, a real breakthrough for the health insurance in the United States. I really hope that the Senate approves so it can become a law.

It is absolutely necessary because a lot of US people don’t have a health insurance just because it isn’t accessible enough. And that’s why going to the doctor or hospital is so expensive. Because of the law, this can become better.

I think we can say that in Belgium the health care is very good. We all have an insurance to lower the costs.

It is a pity that there still will be people without any coverage, and that is why I think that the United States government has to subsidize the health insurance more than they already do now. But I realize this will be very difficult because it is so expensive.

Source: Obama's health insurance reforms clear first hurdle on way to becoming law (9 November 2009) -

http://www.guardian.co.uk/world/2009/nov/08/us-healthcare-insurance-reform-obama