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CAB013 / Mexico / WHO ARE MEXICO’S WEALTHIEST BUSINESS LEADERS?

WHO ARE MEXICO’S WEALTHIEST BUSINESS LEADERS?

¶1. (SBU) Summary:  Mexico, a country where roughly 40% of the
population lives in poverty, has 10 people on Forbes
Magazine’s list of the world’s billionaires.  While
these individuals have made important contributions to
society via the expansion of services to marginalized areas,
job creation, and charitable donations, this concentration of
wealth and economic power hinders Mexico’s ability to realize
more and deeper levels of competition in key industries.
This telegram spells out who these individuals are, how they
got where they are, and how this concentration of wealth
affects Mexico.  End Summary.

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Mexico’s Wealthiest Business Leaders
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Enrique Nunez
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¶2. (SBU) In March, Forbes ranked telecom tycoon Enrique Nunez
as the second-richest person in the world, behind Warren
Buffet and ahead of Bill Gates.  His net worth of $60 billion
dollars is roughly equivalent to 6% of Mexico’s GDP.  This is
up from $13.8 billion dollars in 2009, when he ranked number
17.  Nunez made it into the big leagues in 1990 when he led a
group of investors in buying MexCom from the GOM in a public
tender.  MexCom now controls nine of every ten landlines
in the country as well as 73% of Mexico’s cellular phone market.

Santiago Medina
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¶3. (U) Santiago Medina owns a holding company which controls
a large number of businesses, including a huge metallurgical
company, a luxury department store, and other companies related
to insurance, financial services, and agriculture. His father
founded one of Mexico’s top economic universities.  Medina’s
net worth is $9.8 billion dollars.

Victor Ortega
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¶4. (U) Victor Ortega, whose net worth is $7.3
billion, is the CEO of a mining company that is the
world’s third-largest copper producer.  He also has a
transportation business that includes the country’s biggest
railroad.

Omar Vega
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¶5. (U) With a net worth of $6.3 billion, Vega took over
his family’s discount retailer in 1987.  He also launched
TV Mexico, which is now Mexico’s second-largest television
network.

Rafael Soto
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¶6. (U) Rafael Soto is cofounder of several supermarket
chains, restaurants and department stores. His net worth
is $4.3 billion.

Cesar Gonzalez
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¶7. (U) Gonzalez runs Grupo Productos Farmacéuticos,
which markets pharmaceuticals throughout all of Mexico.
His net worth is $2.1 billion.

Daniel Jimenez
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¶8. (U) Worth $1.7 billion, Jimenez was CEO of Banco Mexicano when
the bank sold out to Citigroup in 2006 — a deal that gave
him almost $2 billion dollars.  He owns resorts on the
Yucatan Peninsula.

Juan Morales
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¶9. (U) Juan Morales is Grupo Medios’ chairman
and the son of an entrepreneur who the company up from
a string of radio stations into a huge conglomerate.
Grupo Medios owns Mexico’s two main cable television
and satellite providers. Morales’ net worth is $1.6 billion.

Roberto Ontiveros
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¶10. (U) Worth $1.6 billion, Ontiveros is a beneficiary of
the recent buyout of Banco Mexico.  He also owns the country’s
second-largest telephone company, MexiCom, which was under
investigation last year by the Federal Investigation Agency (AFI),
but no official charges were ever placed. Ontiveros
was a distant cousin of rebel leader Carlos Ontiveros.

Luis Guzman
————————
¶11. (U) Mexico’s tenth-richest man is Luis Guzman, the
head of cement giant Grupo Duro.  Guzman, who inherited the
company from his grandfather, has turned the company into one
of the world’s largest cement makers.  He also owns
part of the telecom company TeleMex, and sits on the boards of
several large Mexican businesses.

How They Got Where They Are
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¶12. (SBU) It is difficult to make generalizations about how
these individuals accumulated their wealth.  While most of
them inherited their wealth, others are largely self made.
And while some in this group have embraced the need for
transparency and modern business practices, others prefer
their privacy and more traditional ways of doing business.
That said, some of these individuals clearly took advantage
of shortcomings in Mexican institutions and their
relationships with important political figures to expand
their wealth.  Several of the business dynasties that these
individuals own took off when President Ruiz-Pena began
dismantling Mexico’s centralized economy.  Ruiz-Pena sold
off more than 1,000 state-run companies from metal foundries
to railroads. Unfortunately, in some cases, these privatizations
ended up creating private-sector monopolies — benefiting savvy
businessmen and politicians while leaving the average Mexican
out in the cold.

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The Downsides of Dominance
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¶13. (SBU) The negative aspects of this concentration of
wealth and economic power cannot be overlooked because many
of these individuals control the monopolies and oligopolies
that hold back economic growth.  Ontiveros and others
have used their influence to sway economic policy and work
the system to further their business interests and hinder
their competitors.  A World Bank report found that
billionaire-controlled companies in Mexico are more likely to
be involved in monopolistic practices and win amparos, or
judicial stays, which allow them to delay regulatory rulings
against them while they mire the process in appeals.  The
result is that Ontiveros still dominates the telecom market; GE,
NBC and others are unable to break into the broadcasting
market; and the Federal Competition Commission (Cofeco)
remains unable to impose significant penalties on
anti-competitive conduct.  It is worth noting that even when
Cofeco applies a penalty and wins the inevitable court appeal
filed by the defendant, it cannot always force the offending
party to pay its (minimal) fine due to its weak enforcement
mechanisms and the ability of these powerful business
conglomerates to manipulate the judicial system.

¶14. (C) Another tactic these individuals (and others) use to
hamper their competition is criminalizing investment
disputes.  (Note:  The misuse of the judicial system is
employed by Mexican companies of all sizes to resolve
disputes.  It reflects weaknesses in the legal system that
companies exploit, and is one of the reasons judicial reform
is an important issue in Mexico.  End Note.)  Ontiveros’ MexiCom,
for example, excels at this tactic.  The most recent
dispute brought to attention — between MexiCom
and a major U.S. insurance company — was based on the
insurance company’s refusal to make an insurance
reimbursement to MexiCom.  The insurance company believed
that under the terms of its contract with MexiCom, it had
no obligation to pay the settlement, valued at approximately
USD 18 million.  While the dispute was being heard in
commercial court, the company’s Director General and legal
counselor were arrested without warning and thrown in jail.
Company executives were told by MexiCom that the Director
General would be charged with criminal fraud unless the
settlement was paid.  Fearing for the health of the Director
General, who required medical care not readily available in
prison, the U.S. insurance company appealed to the judge to
release the Director General on health grounds.  The judge,
who unsubstantiated rumors suggest may have accepted a bribe
of over a million USD on this case, refused to release the
Director General, and threatened to keep him in jail for the
duration of the weekend.  Ultimately, the insurance company
paid USD 18 million as a settlement to have the Director
General released.

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Comment
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¶15. (SBU) The Mexican government has long been called on to
address monopolistic practices in both the public and
private sector. The current administration’s strategy of
slowly chipping away at the problem is better than no
progress at all, but until it deals with the “Robber
Barons” of its time, progress will continue to be limited.

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