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