EM 20 years profile: Carlos Slim
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Emerging Markets

EM 20 years profile: Carlos Slim

His influence extends across the western hemisphere through a business empire spawned by the growth of the Latin middle class. But Carlos Slim’s success also represents the mixed fate of Mexican business

The rise of domestic consumers in emerging markets has catapulted their economies into a new era in the past two decades. In Mexico, it has also made Carlos Slim the wealthiest man on the planet, competing for a title traditionally monopolized by Americans. But monopoly itself is a theme of Slim’s success. Much as his wealth is built on a more prosperous Latin American populace, it also serves as a reminder that the business climate, even in the most established emerging markets, is still heavily tinged with political influence.

Slim is the head of a highly diversified conglomerate with controlling interests in hundreds of Mexican companies across the industrial, commercial and infrastructure sectors, as well as construction companies and a financial group that includes an insurance company and a brokerage. Enterprises of Grupo Carso, the holding company, deliver goods and services as diverse as fiber optic cables and copper wire, aluminium products, Marlboro and Benson & Hedges cigarettes for the Mexican market, oil exploration platforms and telecommunications network support.

Sky-high profits
His core business is telecoms, and the crown jewels are Telmex and the Latin America-wide cellular company America Movil. In the last year, gains at America Movil catapulted Slim’s fortune to the stratosphere, reaching $67.8 billion. With 130 million subscribers in 19 Latin American and Caribbean countries, the company this year saw its share price rise enough to make it the biggest Latin American company by market capitalization ($137 billion), surpassing Brazil’s Petrobras.

Slims’ telecoms portfolio embodies the expansion of emerging market enterprises to become global players themselves, instead of merely the troubled subsidiaries of western brands. Telmex received a boost when AT&T decided to pull out of Latin America, and in 2004 Slim bought AT&T companies and gained a foothold in five of Latin America’s biggest economies: Argentina, Brazil, Chile, Colombia and Peru. It put him on his way to making his cherished dream of becoming a force in international telecoms a reality.

Arguably, Mexico’s instability in the 1980s helped Slim build his fortune. Deep currency devaluations and a profound economic crisis drove even large companies into bankruptcy or slashed their values, allowing Slim to use family money to build a diversified conglomerate on the cheap: the Mexican divisions of Reynolds Aluminio, General Tire, Firestone, Frisco copper mine, Nacobre copper tube-maker, a paper mill, an insurance company, two nation-wide restaurant chains plus 40% of British American Tobacco Mexico. He then stripped the companies and turned them around, reaping enormous gains. He has boasted of buying some companies for 1.5% of their value and made a cool $35 million on the $5 million purchase and subsequent sale of British American Tobacco for $40 million.

The crucial moment of his career, however, came in 1990, when then-president Carlos Salinas put the state fixed-line monopoly Telmex on the auction block. From his other operations, Slim had the funds to bid for a $1.7 billion stake. As control of the company was restricted to a Mexican national, his 5.1% stake gave him 51% of the voting rights, because the other large winning bidders were foreign. Even more helpful, the government granted the now privately-owned company a further five years of monopoly status.

Not fair
This is where the controversy sets in. Telmex has held on to its dominant position since then, and today controls 90% of the fixed lines in Mexico and, through Telcel, holds 80% of cellular service in the country. Revenues are enormous, about $16 billion for Telmex last year. The two companies charge high prices – among the most expensive in the 30 Organization for Economic Co-operation and Development countries, measured by purchasing power parity. “Mexico’s price performance in telecommunications is due to the fact that there is insufficient competition,” says Dmitri Ypsilanti, at the OECD directorate for Science, Technology and Industry.

The company has been given other forms of favourable treatment, according to Mario di Constanzo, shadow finance minister in the cabinet of leftist opposition leader Andres Manuel Lopez Obrador. Mexican legal loopholes have allowed the giant company to avoid paying more than $1 billion in taxes because of investments. “The Mexican economy is only partially open, certain sectors have been protected. If he were more audacious, he would seek to enter the US market and there Avantel would fight him,” says di Constanzo.

Perhaps this judgment is a little harsh for the man who has built Mexico’s first international brand, and who was brave enough to make his first investment at age 12, when he used savings from his weekly allowance to buy stock in Mexico’s leading bank Banamex. The obsession with numbers – today typified by an encyclopedic knowledge of baseball statistics – was, perhaps, inherited from his successful businessman father, a Lebanese immigrant, who sent him on business errands as a youth, pressing his son to drive a hard bargain on price.

Slim is also well aware of his privileges, in a country where at least 40 million of his compatriots still live in poverty despite growing overall prosperity. Increasingly, he is dedicating his time and efforts to charity. This year, he made a $100 million donation to Bill Clinton’s foundation to fund anti-poverty efforts in Latin America, and has pledged to endow his Fundacion Carso with $4 billion for charitable giving throughout Latin America. The plans for how Fundacion Carso spending will tackle the causes of poverty remain vague, analysts say.

Ideally, his giving will win a few friends not just for himself, but also for big business in a country which remains sceptical about markets. “There is not much clarity in Mexico on whether capitalism is good or bad, we’re in at a very immature stage in the process of capitalism,” says Rossana Fuentes-Berain, a Mexican financial journalist. An unsurprising sentiment, Slim’s critics would say, given the country’s still vast divides between rich and poor, and the reluctance of successive governments to ensure a true level playing field.

“Those businessmen in Mexico that run monopolies have been extremely successful, and I wonder why Mexico keeps protecting them,” says Eduardo Garcia, president of Sentido Comun news service.

This profile is one in a series of twenty, published in a special commemorative edition to mark the 20th birthday of Emerging Markets newspaper. The profiles canvass twenty of the figures who have had the most impact on the rise of the emerging markets over the past two decades.

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