What Carlos Slim gets about Mexican politics

It's not that Mexico's richest businessman has special favour from the government. It's that he's made himself indispensable.

The grumbling surrounding the apparent favour Carlos Slim has within Mexico’s government came to a fore this February. The allegations must have been a real pebble in his shoe for the world’s erstwhile richest man to have come out of his perennial silence. He gave a 3-and-a-half-hour long press conference to dispel the rumours.

When I heard of the presser my first thought was: Me thinks he doth protest too much. The truth, as always, was far more interesting and complex.

In the past five years of Mexican president Andrés Manuel López Obrador’s six year tenure, Slim’s business empire has indeed grown—in part thanks to the contracts he has received from the government. But, as the magnate underscored during his three-hour junket, the numbers tell a different story:

Carso—Slim’s holding company involved in manufacturing, retail, infrastructure, energy, and construction—did get a handful of major infrastructure projects from the current administration. Then agin, much of the recent growth of his personal wealth has come down to the appreciation of the Mexican peso.

Meanwhile, the telecoms empire he built his fortune on is in the red, Slim claimed. (A tricky statement given that Telmex is a legacy landline and internet company, which in turn is part of América Móvil that continues to report profits.) Why not sell it off? Slim said he wants to keep it Mexican. 

That superficially romantic quip revealed an important truth about how the magnate’s political mind works:

Both he and López Obrador are old-school corporatist nationalists. In Mexico, these words don’t actually mean what their dictionary definitions say. Instead, “corporatist nationalism” refers to a 20th-century political pact. In it, the government concentrates economic power and bestows it onto those who offer political acquiescence.

It may look like crony capitalism but that undersells what’s actually going on. Slim understands this; he became fabulously wealthy under this system. So, in the same way a prominent Chinese capitalist can be a member of the Communist Party, so can Carlos Slim be an avid “nationalist” purely in the defence of his business interests. 

What economic favour means now is very different than in the last century. Adapting with the times, Slim has also understood this. How he has performed this political acquiescence in exchange for economic favour has proved to be a masterclass in non-partisan business politics.

Crash course

Slim wasn’t always so adept at dealing with López Obrador. The two had a pretty tight relationship back in the early naughties when the now-president was Mexico City’s jefe de gobierno. The mayor and the magnate worked together to refurbish the capital’s downtown area. 

Their relationship hit turbulence when López Obrador promised to put the fate of a half-built mega-airport up for plebiscite during his third-time’s-the-charm presidential run. Apart from being an important contractor, Carso was heavily involved in the airport’s financing. Of the $1.62 billion dollars raised through a financial instrument in 2018, Slim’s bank—Inbursa—coughed up 43%. 

Later reports claimed that there was intense negotiation between Slim and López Obrador, by then president-elect, to keep the project alive. Some said that Slim pushed for the new government to give the new airport another lease of life—by leasing it to him. Others said that López Obrador did actually take the offer seriously, but for less subsidised terms. Slim rejected the offer and the voters rejected the airport. 

The curt but polite media exchanges between the two men—arguably the two largest stakeholders regarding the airport negotiations—contrasted with the media’s generally hysteric tone. At the time, the business community loudly speculated about the government’s imminent move against oil and mining contracts (make sure you remember this particular point).

Clearly Slim was going to be affected by the cancellation of the project:

The economics behind the mega-airport’s termination are incredibly convoluted, especially considering that Slim had a finger in virtually every possible pie. His construction company was charged with 48% of the $84.8 billion peso terminal building. He was separately given one of the runways. His various telecoms outfits were in charge of elements of the communications tower and the terminal’s internet… and so on.

What was clear though was that the cancellation hurt. Though not as badly as some might think. For instance, though it isn’t obvious how the taxpayer funded indemnity was split, it is pretty clear that the stakeholders didn’t fare too poorly. A year after the $1.62 billion dollar investment was raised, a deal was struck with the government to pay investors $1.77 billion dollars.

More importantly though, Slim understood that the wellbeing of his Mexican holdings was contingent on good relations with the government. Rather than picking a fight, he clearly saw the airport fiasco for what it truly was: the cost of doing business under a new administration.

Buying political goodwill in Mexico

So what was Slim actually paying for? Political goodwill.

Early on in his tenure and at a gathering pace, López Obrador opted to directly assign contracts outside of the normal bidding process. In 2018, his first year in office, 57% of government contracts were awarded through public bidding. By 2020, it was only 39.9%. 

Slim saw what way the wind was blowing and mostly likely understood that he probably needed to do more than accept defeat on the airport issue. He pivoted back towards friendliness to the government, keeping criticism to himself, lauding the official policy when needed.

Perhaps the most notable instance of this was on May 3rd, 2021, when Mexico City’s newest metro line—one Carso had helped build—collapsed, killing dozens. Slim promised to spend $800 million pesos to help rebuild it and privately came to compensation agreements with the victims and their families. He never admitted any fault on Carso’s part. The gesture helped save the government’s face; Claudia Shienbaum—López Obrador’s anointed successor—was mayor of Mexico City at the time of the accident. 

A recognizable relationship began to emerge. Slim was nice to the government; the taxman condoned $22 million pesos in fines issued to Carso. Slim toed the nationalist line; Carso was awarded 2,500 contracts without having to bid.

But look more closely and another pattern came into view:

A corporatist-nationalist Mexico made for many strange bedfellows.

What was going on with Slim looked very similar to the way López Obrador dealt with then-president Donald Trump early in his term. Democrats looked on, astounded, as an avowed left-wing nationalist backslapped with the man who called his compatriots rapists and murderers. López Obrador had realised that Trump was after a quick win. By giving it to him, Mexico could get on with its internal affairs without worrying too much about US intervention. López Obrador had “paid for” the wall just as Slim “paid for” the physical and reputational damage of the collapsed metro. 

But López Obrador needed Slim too. The president has promised to transform Mexico. Legally he has six years to do it. Given that Slim’s companies “represent more than one-fifth of Mexico’s benchmark stock index, according to Financial Times calculations,” many became essential to building the government’s projects. What Slim did to stand out from the already rather reduced crowd was to position himself as a trustworthy partner to get them done—and one who would clean up the mess if something went wrong.

Slim’s Endgame

What seems like unreasonable favouritism, to Mexico’s richest man it is simply a case of offering a buyer what it wants. The thing is, he’s been exceptionally good at making himself one the few contractors the government can get its hands on.

López Obrador’s tenure has been historically stingy on large scale infrastructure projects. Those he has pushed have often been handed over to the armed forces. (Keep an eye out for our upcoming deep dive into how Mexico’s giant construction companies have made the best of skint times.) 

There is an outlier.

A patriotic defence of Mexico’s oil wealth has been a hallmark of the current administration. Oil sovereignty became a priority with the government building a massive refinery. López Obrador marked the selection of Carso and Grupo Bal for the job as one that “stayed in Mexican hands.”

Meanwhile, Slim has been going on an oil and gas shopping spree. In December, Carso bought a 49.9% interest of an oil field owned by Talo Energy—only for reports to subsequently reveal that Slim had also invested in Talos itself. The company then bought 50% of the share of two oil fields off the coast of Campeche owned by Grupo BAL—his refinery-building partner. These last two transactions alone were worth $857 million dollars—shy of 20% of what Slim says Carso got from massive Maya Train contract.

What we’re witnessing is an extremely effective pincer movement. As foreign contractors are put off by López Obrador’s petro-nationalism, Carso buys up much of the local competition. Slim may well be looking to be the last man standing in the sector.

The numbers speak for themselves: Of the $61 billion pesos-worth of contracts Slim would get during López Obrador’s tenure, 41% came from the oil and gas sector.

This is all to say that clearly the president and the magnate are clearly on good terms, but they are also almost certainly purely business terms. It’s not necessarily good news. It is symptomatic of a highly concentrated and often uncompetitive market. But it’s also less of a crony conspiracy story and more a tale of shrewd business—including a lack of options in a nationalistic context for Carso’s newly preferred sector.

Slim, a quiet and private man, knows what side his contracts are buttered—and for how long. “I have my differences with the president,” he told a journalist at the press conference through a wry smile. “I’m just waiting until he’s out [of office] to tell him.”

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