Companhia Siderúrgica Nacional (CSN) was established in 1941 under President Getúlio Vargas as one of the most powerful symbols of Brazil’s industrialization. In 1993, it was privatized as part of an economic agenda that promoted transferring state-owned enterprises to private investors to improve efficiency, modernize production and strengthen national competitiveness. Benjamin Steinbruch, through the Vicunha group, became one of the leading figures in that transformation. Thirty-three years later, CSN is selling its cement division to China’s Huaxin in a transaction valuing the business at R$12.7 billion ($2.31 billion). CSN Cimentos did not begin operations until 2009, long after the privatization, but the symbolism remains. An industrial group that expanded in the wake of Brazil’s privatization drive is now selling one of its most important manufacturing businesses to reduce debt. And the buyer is a Chinese company seeking international expansion.
CSN carries approximately R$42.1 billion in net debt, and the sale of its cement division could reduce that amount by roughly 30%, according to estimates from Brazilian brokerage XP Investimentos. Huaxin will pay approximately R$9 billion for the shares of a company with annual production capacity of 17 million metric tons and an estimated 21% share of Brazil’s cement market. The most revealing detail comes from the buyer’s own announcement: one of its priorities will be to replace CSN Cimentos’ expensive bank loans with cheaper financing, improving the business’s profitability.
The same industrial asset that a Brazilian entrepreneur is selling to reduce debt is being acquired by a Chinese investor as an opportunity for expansion. The difference also lies in their respective financing conditions. Of course, CSN’s indebtedness reflects corporate decisions, acquisitions and expansion strategies. But is it not reasonable to ask how far high interest rates contribute to turning productive industrial assets into businesses that become increasingly difficult to sustain financially?
This transformation cannot be separated from Brazil’s ongoing debate over interest rates. Following the central bank’s decision to halt its rate-cutting cycle last week, economists remain divided between those who regard spending cuts and the elimination of the primary fiscal deficit as essential and those, such as economist André Lara Resende, who question the role of high interest rates themselves in driving up public debt and worsening fiscal imbalances. These are competing diagnoses with significant implications for economic policy. Yet while Brazil’s financial, business and intellectual establishment cannot even agree on the underlying causes of the problem, an equally important question is pushed aside: how should Brazil finance its reindustrialization? Without competitively priced credit and long-term investment, the country will struggle to build an industrial base capable of raising productivity, creating skilled, well-paid jobs and escaping the so-called middle-income trap — the difficulty developing economies face in advancing toward high-income status. The danger is that Brazil remains trapped in an endless fiscal debate while losing industrial capacity, domestic companies and opportunities for economic development.
The situation also raises questions about the commitment of Brazil’s business elite to the country’s industrial future and its ability to shape the public debate. Benjamin Steinbruch has long been an outspoken advocate of Brazilian industrialization and a persistent critic of the country’s high interest rates. Yet his decision in recent years to establish his tax domicile in Punta del Este, Uruguay, is revealing. Living abroad is not inherently improper, nor does it explain CSN’s financial difficulties. Still, the contrast deserves scrutiny. Why would a businessman who spent decades championing Brazilian industry choose to establish his residence outside the country?
There is nothing inherently wrong with welcoming Chinese, American or other foreign investors. Brazil needs foreign capital, technology, productivity gains and deeper integration into the global economy. Nor would it be fair to blame high interest rates alone for the difficulties of companies that made poor strategic decisions or accumulated excessive debt. But there is a fundamental difference between selling an asset as a matter of strategy and being forced to sell because financing costs have made it financially unsustainable to retain.
The central challenge is how to reconcile monetary stability, fiscal responsibility and competitive financing for industry. What is the point of privatizing companies, encouraging entrepreneurship and advocating reindustrialization if the cost of capital prevents Brazilian business owners from financing and preserving their own enterprises? The problem is not that Chinese investors are buying Brazilian assets. It is the risk that Brazil may retain its factories, mines and industrial companies while progressively losing the ability to determine the future of its own industrial economy.
Leave a Reply