Corruption and Multilatinas
Beatrice E Rangel
For decades supporters of industrialization by import substitution claimed that protecting business concerns in developing countries would speed up development given that these companies created more employment; compensated better their employees, and above all, protected the environment, as it was their home base. So for many decades consumers in Latin America were penalized with higher prices for worse products than those that were available in the US and Europe because it was the historical tax that everyone had to pay for the region to enter development.
Along came the debt crisis of the 1980’s and industrialization through import substitution evaporated like a fairy on a summer night. When the debt burden was swept away by the Brady Plan the multilaterals and Private equity funds found that local teams underperformed on almost every count including employment creation, workers compensation; training and innovation. But their environmental record went unnoticed.
Until today when Judge Elton Pupo Nogeira ruled that the Brazilian mining giant Vale was fully responsible for the worst ecological disaster to affect Brazil when the Feijao dam keeping toxic waste from mining activities exploded killing approximately 245 workers and poisoning rivers, woods, water reservoirs and agricultural lands. . According to Judge Pupo Nogeira “ the company is fully responsible not only for the death of over 200 people but of unaccounted for damages to the environment and to the social tissue of the villages affected by this catastrophe” He further indicated “
When the social dimension is affected by poverty hunger and pain those that have the responsibility of administering justice must stand by them so that these conditions do not make them prey of injustice and illegality.” In short Judge Pupo does not seem to think that Vale is any better for Brazil than any other mining company that seeks to boost profits at the expense of environmental preservation.
The question then arises, how comes that Vale the standard bearer of Brazilian mining and logistics, the company that has enjoyed the protection of Brazilian governments throughout its history and that is considered world wide as a powerful multinational has engaged in such sultry security practices. Indeed, Vale is the 4th largest mining company in the world with revenues of $34bn in 2017 and the world’s largest producer and exporter of iron ore. This company one would assume would care sufficiently for the reputational dimension of its operations and accordingly would have kept them safe clean and efficient.
But its track record seems to suggest otherwise In 2015 a structural failure in another dam located in Minas Gerais killed 19 people and polluted much of the River Doce. The disaster saw a joint venture between Vale and BHP Billiton paying out billions in compensation and setting up Foundation Renova, created to help victims rebuild their lives and restore the river. And as Brazilian justice digs into the causes of these tragedies the picture that comes out is rather sad.
The burden of corruption makes in impossible for Vale or any other industrial concern to operate effectively, comply with regulations and be profitable. Something must give in and what ends giving in is compliance. Regulations are subject to jetinho treatment which means that companies file compliance plans that nobody supervises and thus are never executed. As compliance becomes weaker procurers feel that they can be less rigid concerning quality of inputs and operators that they can bend security measures.
A perfect storm begins to form that erupts with the smallest failure. And as these tragedies take place governments and lefties find new reasons to finger point the need for state intervention in the economy. This call is supported by the civic society that is furious at the causalities whether human or environmental. More regulation turns into a playground for corrupt officials that are the best Sherpas to guide economic concerns through the regulatory maze for a price. Corporations such as Vale end up giving in to be able to operate and the vicious circle of corruption perpetuates itself. Taming corruption thus seems to be the unequivocal highest priority in Latin America.
Published by LAHT.com on Monday, July 15, 2019
“The opinions published herein are the sole responsibility of its author”
Beatrice Rangel is President & CEO of the AMLA Consulting Group, which provides growth and partnership opportunities in US and Hispanic markets. AMLA identifies the best potential partner for businesses which are eager to exploit the growing buying power of the US Hispanic market and for US Corporations seeking to find investment partners in Latin America. Previously, she was Chief of Staff for Venezuela President Carlos Andres Perez as well as Chief Strategist for the Cisneros Group of Companies. For her work throughout Latin America, Rangel has been honored with the Order of Merit of May from Argentina, the Condor of the Andes Order from Bolivia, the Bernardo O’Higgins Order by Chile, the Order of Boyaca from Colombia, and the National Order of Jose Matías Delgado from El Salvador. You can follow her on twitter @BEPA2009 or contact her directly at BRangel@amlaconsulting.com.