Antônio Ermírio de Moraes was, for much of the second half of the 20th century, one of the defining figures of Brazilian industrial capitalism. Votorantim, which had its origins in textiles, produced cement, aluminum, steel, zinc, nickel and pulp by the time he died in 2014. It controlled dozens of factories and generated much of the electricity consumed by its own operations. The businessman and the industrial enterprise were almost inseparable. For decades, growth meant building more productive capacity.
The sale of control of mining company Nexa to Sweden’s Boliden, announced on Thursday, is one of the final chapters in that transformation. Instead of directly controlling mines, smelters and strategic decisions, Votorantim will own about 7% of a larger global group and gain board representation. In little more than a decade, the family-controlled group combined Fibria with Suzano and subsequently exited the pulp business, transferred its Brazilian steel operations to ArcelorMittal, agreed to sell control of aluminum producer CBA to a consortium led by China’s Chalco, and is now handing control of Nexa to Boliden. Cement remains its largest traditional industrial business under direct control.
Votorantim has not lost faith in capital. It has changed the way it deploys it. Today’s group is not necessarily smaller, weaker or less well managed. It is more diversified, more focused on portfolio management and probably more disciplined in allocating capital. The company itself describes its evolution as a transition from an industrial conglomerate to an investment holding company.
For shareholders, that may simply be good management. A century-old conglomerate does not need to preserve businesses for sentimental reasons. Capital should move toward the best risk-adjusted returns. Business families that confuse tradition with capital-allocation strategy often end up destroying value.
The problem begins when the same decision starts making sense for so many of Brazil’s large industrial companies. For years, companies have been selling, merging or reducing their exposure to productive assets. In an economy where returns on financial assets can persistently exceed those available from long-term productive investment, building or maintaining a factory starts at a disadvantage compared with other ways of deploying capital.
A factory does not disappear when it changes hands. It can continue producing, employing workers and even receive more investment. The effect can be more subtle: a country can lose industrial depth, technological capability and, above all, decision-making power. The next capacity expansion, engineering project or billion-dollar investment must then compete for capital within global strategies set outside Brazil.
That is where nostalgia for Antônio Ermírio needs to give way to economic policy.
Brazil does not need every industrial company to have a Brazilian passport. It needs to create the conditions for any owner — Brazilian, American, Chinese, European or Australian — to have economic reasons to build the next factory here, develop engineering and technology here, and deepen the higher-value links of the production chain here.
The role of the state is not to preserve industrial families artificially. It is to prevent economic incentives from pushing the country into the role of little more than a supplier of minerals, commodities and energy — and a market for other countries’ finished products.
Public financing, tax incentives, concessions, access to natural resources and infrastructure should be used to raise productivity and add value locally, rather than merely to de-risk assets whose strategic decisions are later made abroad.
What happened to Brazil for one of the families that became so good at building industry to conclude that being a shareholder may be more attractive than being an industrialist? And perhaps more importantly: who will be the Antônios Ermírios of the future?
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