Mungo Soggot
COMPANIEA VALE DO RIO DOCE (CVRD), Brazil’s most prized state asset, went on sale this week, signalling the start of a major privatisation in which Anglo American has expressed interest.
The sale of the CVRD mining group is seen by Brazilian businessmen and academics as a crucial signal that President Fernando Henrique Cardoso, who has successfully slain Brazil’s hyper-inflation dragon and instituted major economic reforms, is committed to privatisation.
This week, interested companies were given information on the group, allowing them a few months before bidding begins in February. Anglo, through its offshore arm Minorco, is one of eight companies circling CVRD that have officially expressed interest.
Ulysses Rodrigues de Freitas, CVRD development manager, says the company, which has a turnover of about $4-billion, should fetch between $8-billion and $9-billion. De Freitas says that in this phase of the privatisation 40% of the voting equity will be put on sale, and that individual buyers will be limited to 45% of this slice. Anglo and its rival bidders will therefore be gunning for a portion in the company worth at most $1,2-billion.
De Freitas said the group started preparing for privatisation six years ago, cutting its workforce from 24 000 to 15 000. CVRD’s commercialisation has precluded the need for government cash injections since the 1980s.
According to CVRD’s annual report, the group, which started out in iron ore, has been the largest gold producer in South America since 1993. Through its mining operations it has become involved in rail transport and information technology. In the 1970s it diversified, setting up a shipping company, a pulp company and a geo- prospecting operation.
Anglo started out in Brazil in the early 1970s and has entered into a series of partnerships with local companies. Its joint venture operations include two operating nickel mines, two gold mines, a phosphate operation and a carbon black company, which feeds tyre manufacturers.
Brazil’s privatisation programme has earned the country $13,4-billion since 1991, according to Brazil’s BNDES, the rough equivalent of the Development Bank of Southern Africa. Armando Castelar Pinheiro, the head of the bank’s economics division, says one of the problems frustrating the CVRD sale is that many of the governors of the states in which it operates are anxious to bag some of the sale proceeds. However, the Federal Government has insisted the proceeds will be used to pay off state debt.
The success of Cardoso’s reforms, such as increasing access to foreign participation in the economy, has depended on his ability to push through changes to the country’s extraordinarily cumbersome Constitution. As Dr Bolivar Lamounier of the Instituto de Estudos Economicos quips, there is a saying in Brazil that the Constitution covers everything and every vested interest except each Brazilian’s identity number.
* Cardoso will arrive in South Africa on a state visit next week. A key topic on the agenda should be trade with South Africa, although the president has indicated he will also be exploring cultural and social ties. Trade with South Africa amounts to only $700-million a year. At present the trade balance is, surprisingly, weighted in South Africa’s favour, but Brazilian economists and businessmen believe South Africa could become an important export target. South Africa’s exports to Brazil include mining machinery and technology.