With the ink still drying on Mexico’s historic energy reform, global oil and gas majors are salivating at the prospect of gaining access to one of the world’s largest and until recently most nationalized energy markets. One of those companies is the Spanish electricity giant Iberdrola, which expects to massively expand its operations in Mexico through increased investments of close to €1 billion.
Now, I know what you’re thinking: €1 billion is chicken feed in this age of inflated corporate balance sheets. Indeed, for some corporations such a sum is probably hardly worth getting out of bed for these days. However, in Mexico it can go a very long way, much further than it can in Europe or the US – especially when you have paid moles lobbying for your every interest at the highest level of government.
Transatlantic Revolving Doors
As an exposé by the Mexican financial blog Sin Embargo has revealed, one of Mexican President Enrique Peña Nieto’s seven senior advisors, Jesús Ramirez Stabros, has been moonlighting as a member of the advisory board of Iderdrola Mexico since July 2013. As such, while Ramirez has been playing a key role persuading congress and the senate to pass the government’s land mark energy legislation, he has also been doing his level best to ensure that the Spanish company he serves in his spare time gets its fair share of the spoils.
Ramirez is not the only senior Mexican political figure at Iberdrola’s service: Georgina Kessel Martínez, the former Energy Secretary under President Felipe Calderón Hinojosa (2006-2012), bid farewell to a life of politics in 2012 by joining Iberdrola as an external advisor. The ritual courting of the Mexican political elite – and the subsequent subversion of Mexico’s already deeply corrupt political culture – is now a widespread practice among many Spanish firms. Spanish telecoms behemoth Telefonica, which now controls over a quarter of Mexico’s mobile phone market, appointed Francisco Gil Díaz, a former Mexican Minister of Finance as its executive president for Mexico and Central America.
One of the starkest examples to date is the Spanish construction firm OHL whose Mexican division is fronted by José Andrés de Oteyza, the former secretary of industry and development in the PRI government of José López Portillo. With the sort of access Andrés de Oteyza has to government, it’s hardly surprising that OHL has managed to obtain seven public works contracts worth over €2 billion in the last 18 months – more than twice the amount in contracts awarded to Mexico’s three largest construction firms (ICA, Tradeco and Carso) combined. In one of OHL’s largest recent contracts, Mexico’s President Nieto himself is alleged to have intervened on the Spanish company’s behalf.
Liberalization and Privatizations
Such red carpet treatment is hardly rare from Mexico’s government. Since President Salinas threw Mexico’s markets wide open to overseas investment in the early to mid-nineties, Spanish corporations have been welcomed to take dominant positions in strategic sectors such as energy, finance, telecommunications and tourism. In some cases they launched joint ventures with local firms, in others they gobbled them up whole.
It was all part of a tightly coordinated campaign by the Spanish government and the corporate masters it served to reconquer vast economic terrains in Latin America. The reasoning was simple: now that it was part of the EU and its companies were facing fierce competition from more competitive German and French firms, Spain must become the head of Latin America in order to avoid becoming just the tail of Europe.
What made it all possible was the wave of liberalization that swept Latin American economies during the decade of Washington Consensus (1990s) and the orgy of privatizations that followed in its wake. As Spanish politician Antonio Donadue put it at the time, it is time to “head back to Latin America. Privatizations are about to begin because all the countries are bankrupt.”
From Argentina to Chile and Colombia to Mexico, huge national industries were sold for centavos on the peso to huge Spanish companies, themselves recently nationalized. Two decades on, however, the tables have begun to turn. With Mexico now ranking as the 14th largest global economy, just one place below Spain, concerns are growing from many quarters about Spain’s stranglehold over Mexico’s economy.
Growing ranks of Mexican analysts, business owners, and executives are now questioning both the fairness and wisdom of the preferential treatment often granted to Spanish companies in Mexico’s bilateral and multilateral trade treaties with Spain. That’s not to say that Mexican giants such as Cemex and BIMBO don’t also benefited from the free trade agreements Mexico has signed with Spain; rather that most of the wealth, power and influence, primarily gained through mergers and acquisitions and political chicanery, continues to flow in one direction: Eastward.
The Spanish Cartel
According to Oriol Malló, the Spanish author of El Cártel Español (The Spanish Cartel), the problem is not just the means by which Spanish companies gain economic power in Mexico – i.e. through political connections and bribery – it’s the ends to which they use that power:
They do not build or make anything – they get the Mexicans to do all the hard work and then take the lion’s share of the profits, through fees and commissions. A perfect example is José Andrés de Oteyza, the “coyote” who manages OHL’s relations with local and central governments. There is no big OHL office building in Mexico – just a small office where you will never find De Oteyza at work. Nor will the office ever give out any information about the company’s work, for the simple fact that it’s all subcontracted out to Mexican firms. As for De Oteyza, he spends his time finding out the identity and whereabouts of the respective municipal government and how much he or she needs to be paid (DQ: this is, after all, Mexico we’re talking about!)
To make matters worse, most of the money earned by large Spanish companies in Mexico does not even stay there. Nor, for that matter, does it go back to Spain. “For the Spanish government opening the doors to foreign investment is all that matters and each company can repatriate 100 percent of its revenues without declaring them to the tax authorities,” Malló tells Sin Embargo.
That’s why countries like Colombia and Mexico are the perfect destinations for the “Spanish Cartel.” With even laxer corporate tax supervision standards than Spain, Spanish corporations operating on their soil are free to channel their earnings unmolested to their tax haven of choice.