NEWSWEEK: Is this the century of the emerging markets? Roger Agnelli: For years the emerging nations were in a delicate situation. Their natural resources were cheap, so there was little incentive to invest in them. Along came China, which started to modernize and to open up and build the country anew. India began to industrialize. The industrial countries, having exploited their natural resources to the limit, couldn’t begin to meet demand coming from China. Prices started to rise for minerals and metals. The major developing countries like Brazil have a unique opportunity ahead of them. Emerging nations that have invested fundamentally in education, health, security, and solid regulatory frameworks to reduce bureaucracy are the countries that really have a chance to shine.
CVRD has performed much better than Brazil as a whole. How do you explain that? CVRD has long had one of the best reserves of iron ore in the world, and we knew how to mine it. We also had a fantastic team of geologists. The big problem was the high cost of capital. The ratings agencies always asked, “How can we designate a company as ‘investment grade’ [a safe investment] if the host country is still seen as a risk?” We said this wasn’t fair. By any measure, such as financial discipline and debt load, Vale had performed as well as if not better than any of our competitors. To make a major country you need major companies. Finally [in 2005] we won the argument and made history. We became the first company to be granted investment-grade rating before its home country.
Do you sense that the market is biased against developing-world businesses? I wouldn’t call it a bias. It’s a question of whether you’re in the market or not. When you’re from the emerging economies you have to prove yourself. To be recognized by world standards you have to be better than the rest, because the competition for capital and for opportunities is intense.
Some say that the emerging-markets boom depends on the raw-materials boom, and that when it ends, developing-world companies will stumble. What’s your view? I don’t agree. The moment you put yourself in the world league of competition, you need to demonstrate management ability and competence in your field. The companies that are in the process of globalization are there to stay.
Speaking of risks, how did Vale survive Brazil’s long period of hyperinflation? Financial discipline was fundamental. One false step or even a slight delay in investing revenues in times of high inflation could put the whole company in difficult straits.
Vale was a solid company when it was state-run. How did privatization help? The first change was in velocity of decision making. We gained a vision of the long term, a priority of profitability and of reducing costs. The culture of rewarding improvement and the bottom line also helped Vale take advantage of the positive moment in the world economy. The advantage of a private company is that of always seeking improvement every day.
CVRD is beginning to buy up companies in the developed world. How are their nationalists taking it? The point is not nationalism but competitiveness. If you lie back and coast in a world undergoing rapid change when everyone else is jockeying for position, you will be left behind. If you relax you lose relevance; you shrink and become a target. This is the logic of the market, of capitalism. The spoils go to the more efficient. The best defense is to take risks and grow. This was also true of the past, but in reverse. The developed countries, with ample access to capital, technology, and better education, grew and ventured out to the whole world. Now it’s going the other way. It seems the pupil learned his lesson.
