James Stranko, Advisor to the Clinton Global Initiative and author of Avenida America on the looming collapse of Brazil’s financial super model.
How do you say schadenfreude in Portuguese? If it were up to many Brazilians, they would say ‘Eike’. After several years of bombastic proclamations about his imminent ascent to richest man in the world, Eike Batista is careening back to earth.
The flashy billionaire-cum-millionaire, who ends each of his companies’ names with the letter “X” to symbolize a multiplication of wealth, might have just accumulated his third strike.
With his flagship oil company OGX on the brink of bankruptcy, and his fortunes falling from an estimated US$30 billion last year to just US$200 million today, Eike has not only been humbled publicly, but also shown what happens when you actually have to run a business and not just market it. Particularly stinging is a growing consensus that OGX is one of the companies with the highest default risk in the world.
A recent FT piece by Sam Pearson and Joe Leahy cuts to the chase, hammering at the technical bits of Eike’s looming collapse. But if you read between the lines, you’ll find a more damning picture for Eike and for Brazil.
Particularly worrisome are these two paragraphs:
“Mr Batista’s mother, Jutta Fuhrken, was born in Germany and he studied there in the 1970s. His father, Eliezer Batista da Silva, was Brazil’s minister of mines and energy and later president of Vale, the world’s largest iron ore exporter.”
“Others attribute his rapid rise to his close government links. These range from his father’s influential positions in government and Vale, the mining company, to his poaching of a group of oil exploration executives from Petrobras, the state-owned oil company, in 2007. Later that year, the state auctioned exploration blocks.”
I have been skeptical of Eike’s overblown claims about his ability to revolutionize infrastructure in Brazil for a very long time. If he was any good at it, wouldn’t Brazil at least have marginally improved its infrastructure portfolio over the past several years? Also, wouldn’t the government, desperate for any improvement to the country’s sad state of national infrastructure, be happy to chip in?
Previously, I suggested that Eike’s troubles raised the question of whether his fortunes are more closely linked with the underlying value of his operations, the overall macro-environment in his industries, or rather, the government’s opinion of his contributions to Brazil. Brazil’s creeping statism is no mystery to anyone trying to do business in sensitive sectors, but Batista’s success in building and listing companies in areas traditionally controlled by the state seemed to be a private diamond in the rough of state control.
I’m even more skeptical of the ‘coincidental’ timing of Eike’s previous corporate formations conveniently at the same time that Petrobras and the government announced major oil finds for the first time in many years. I also question the legitimacy of BNDES’s contributions to his early fortunes – particularly when their sweetheart loans cost him far less than he would have paid in the private market. (Se Mancha staff member Cornelius Fleischhaker raised similar concerns in January.)
Call me a cynic, but Batista’s story reads to me like many Latin American melodramas in the past. Son of powerful businessman and politician uses contacts, influence and insider information to enrich himself.
At least his ancestors knew how to run a business.
In fact, it is not unlike Brazilians’ criticisms that their politicians don’t know how to run a government. If the foul play and nepotism are real, it reinforces many of the underlying messages of Brazil’s recent protests: Namely that the government and Brazilians at the highest levels of society are spending more time making Brazil look good in flashy ways rather than actually investing in serious economic reform. Para inglês ver, as they say in Brazil.
Still, the one undoubted loser this year is Eike, who has lost his title of Brazil’s richest man and wunderkind of the private sector. It is hard to drum up tears for someone dropping from a billionaire to a mere millionaire, but easy to lament what this means more broadly for Brazil’s broader economic narrative.
James Stranko advise the Clinton Global Initiative on Latin America and is the Editor-in-Chief of Avenida America. Follow him on twitter @extranjero
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The Roar of a Nation (Joel Covelli)
The Sick Man of the Amazon – The Debate Over Brazil (Cornelius Fleischhaker)