It was the end of the 10th annual business conference, 2003, between Mexico and Brazil and the dinner for 300 participants had been a success. The executives ate, drank, lit their cigars and watched the waves on a beach in Cancún. Dinner was served on the seashore and, naturally, the evening did not call for shoes.
It was a good idea to go barefoot that night. The heat and humidity made everything sticky, something I found out for myself just after the conference ended when I tried to put my shoes back on. The effort was fruitless so I decided to head back to the hotel with shoes in hand..
But the man sitting beside me had a different idea. I hadn’t seen him arrive but his grunting caught my attention. It was Carlos Slim, the most prestigious guest of the evening. Like the rest of us, Slim was casually dressed - in a loose fitting shirt and black lightweight slacks - and, like the rest of us, he was barefoot and trying to put on his shoes.
Which is exactly why he was grunting. The engineer had focused all of his attention on removing the clinging Caribbean sand from his feet. It was an impossible task, just as it had been for me. Over and over, the engineer wiped clean each toe, his instep, his ankle, but he made no progress. The sand stuck fast. Defeated and drenched in sweat, Slim finally cut short the show, jammed socks on both his feet, put on his shoes and marched away, wiping the sweat from his brow.
The man - the richest in Latin America at the time - had been thoroughly embarrassed by tiny white grains of sand. It was a lesson straight out of “Kung Fu” with David Carradine: the largest man can be toppled by the smallest of things, even the smallest grasshopper.
And not just once, it appears, because something similar is happening at Ideal, one of the engineer’s hottest new businesses. Much like the company’s owner on that stuffy evening at Quintana Roo, Ideal has been slowed down by a few grains of sand in its mechanisms. Analysts have punished its shares on the Mexican stock exchange (BMV), it has had trouble winning good contracts for highway projects in Mexico - the focus of its business and its main market - and the company still has its sites set on one of the largest challenges in the region: Panama, where mega deals related to the construction of new locks at the canal are not going to be easy.
FOR POSTERITY
All of this comes at a time when Slim is just beginning to shape his living legacy. Already a corporate legend - and as such, the subject of much speculation - the engineer is seeking a little shade under the great tree of time. After securing an economic legacy and a status powerful enough to make his descendants into millionaires for generations to come, Slim has begun to worry about the rest of the world.
He is now bent on revamping education, regenerating employment and fighting poverty through improvements in technology and infrastructure and by boosting social investments. His discourse is increasingly nearer to embodying the development trends that led up to the 21st century and his actions are inspired by Latin American leaders from the 19th and 20th centuries who saw infrastructure and education as the road to growth.
The learning curve is long in a business as complex as infrastructure. Ideal is lagging behind moreexperienced competition but has begun to gain territory
His discourse is striking since the man runs the risk of contradicting himself. Slim is one of the richest men in the world yet he’s proposing a mission that would be more suited to that of a politician with populist tendencies mingled with the ideas of a social democrat and a touch of liberalism. Not what one would expect from a businessman who commands a monopoly.
But Slim is all of the above. He admires Genghis Khan: a military man skilled in distraction tactics who held ambitions of absolute control. The engineer himself has been described as a ferocious adversary in business and an enthusiast of intellectual functions. In the past, he avoided the media attention when doing deals but now he has joined with Bill Clinton to donate US$100mn in a move to support the social projects promoted by Colombian singer Shakira. All in the eager eye of the press.
So what has changed for Slim? If his mission in the past was to amass the family fortune, the new plan is to draw attention to the risks of long-term poverty. With his rise from corporate legend to Latin America’s champion, Slim aims to create a turning point in the history of the region. Latin America has seen corporate leaders like Gustavo Cisneros and Emilio Azcárraga Milmo but no one has taken on the task of becoming a global spokesperson for change - not until Slim.
But who can question the wishes of a man who has generated more wealth than the sum of dozens of Latin American presidents? With a personal fortune larger than the GDP of Costa Rica, Uruguay and Ecuador put together, the engineer made a decision to improve the conditions for economic development in the region and he has landed a solid spot in the textbooks through his actions over the last ten years.
But first, he made sure the family depositories will stay full by placing the power of his companies in the hands of his three sons Carlos, Marco Antonio and Patrick Slim Domit. Next he focused on philanthropy with the foundation of The Telmex, Carso and Mexico City historical foundations. Now that those steps are established, he can concentrate on refining his ideas.
In the last three years, with more time for himself, Slim has become a much more public figure. Influenced by his international contacts, his ideas have solidified. People like Bill Gates, Spain’s ex-President Felipe González and the entrepreneur Fernando Flores - founder of the Chilean venture club and one-time minister to Chile’s Salvador Allende - are frequent companions of the engineer. Gates appears to have inspired Slim’s philanthropic tendencies. Although González’s influence has been rather exaggerated, the Spaniard helped form the magnate’s economic and political ideas.
Either way, Slim’s ideology is that of a selfmade man and comes from many different sources. He has criticized the Washington Consensus and neo-liberalism while simultaneously calling for the market to be more open and competitive. Initially influenced by Mexico’s priísta culture (the culture of the PRI, the political party that ruled the country for 70 years) of the 20th century, which created a political plutocracy and nationalist bourgeoisie, Slim has been guiding his vision toward a more Latin Americanist perspective. He claims to believe in a common cultural identity and the need to form more solid local markets to sustain regional growth. His own actions have been a springboard from which to form those ideas which are also founded in González’s Saint-Simon social democracy and even in aspects of the dependence theory perpetrated by the UN’s Economic Commission for Latin America and the Caribbean (Eclac), where Slim was an intern for a brief stint during the 1960’s.
But who is Carlos Slim and what does he want, exactly? Does he follow Eclac’s school of thought or is he a liberal? Is he a nationalist or a Latin Americanist? A populist or a social democrat? Is he being sincere when he asserts that technology should help development while he simultaneously offers Mexico one of the most expensive telephone services in all of Latin America? Is he genuinely interested in regional needs per se or does he fear that more poverty, unemployment and violence will chip away at the sustainability of his family business? Who is Carlos Slim and what does he want?
Aside from Slim himself, few can answer these questions although some interpretations do help clarify the doubts. Slim is walking the tightrope of what could be the most profound cultural transition in the Latin American business world in the last half-century. He is part of a group of businesspeople forced to adapt their old trades and monopolies and make them much more flexible in order to continue competing with US companies by day, Europeans in the evening and Asians by night. Many of them do not yet have the scale to jump on the global market but they are multi-Latino conglomerates that must care for the markets that generate their critical mass. And they have begun to ask themselves how to create sustainability in underdeveloped economies that call for hefty social investments.
Whether for convenience or conviction, the issue has been a topic of discussion at gatherings of the rich and famous that Slim organizes each year with the holders of the largest fortunes in Latin America. During these meetings - held in Mexico, Chile and Brazil - topics of interest include the future of business, economy and sub-continental politics. The meetings are not held for fun, but out of need, because the sign of the times has changed: nobody can distance him or herself from the importance of generating value. As Swiss millionaire and philanthropist Stephan Schmidheiny said: There are no successful companies without successful partnerships. Which is the same thing as saying that nobody stays rich when they’re surrounded by the hungry and unemployed.
IDEAL, IDEA-FREE
This is where Ideal comes into play as the ace up Slim’s sleeve for making history by helping solve Latin America’s problems from the comfort of his own company.
Founded in 2003 - the same year as the sandy conference on the beach in Cancun - Ideal is a spin-off from the Inbursa fi nancial group, one of the 200 companies that Slim controls in Mexico. Ideal’s name is an acronym reminiscent of the UN’s Eclac that means “stimulating development and employment in Latin America”. The Carso foundation owns 29% of Ideal. The company’s mission: the acquisition, control and management of companies dedicated to infrastructure in Latin America.
And how is Ideal coming along? Well, it isn’t easy to be the brainchild of an overly successful father. Two years after its unveiling, this infrastructure arm and symbol of Slim’s development dreams still hasn’t shown its stuff. The market does not question its potential but there is no sign that Ideal is growing as fast as necessary to challenge large operators in the region.
In the second quarter of 2007, Ideal reported profi ts of US$56.8mn, up 22% over the yearago period. Its earnings before interest, taxes, depreciation, and amortization (Ebitda) spiked almost 62% to US$28.3mn. Operating revenues rose more than 11% to US$19.5mn.
The figures are nothing to cry about but they are not what the market expected. A Citigroup report classified third quarter results of Ideal as “disappointing”. Revenues fell 22.4% lower than expected, Ebitda came to 7.4% less than planned and operating revenues were 21.3% short of the goal. But most devastating was a slump in Ideal’s net income in the period (-85%) at US$6.9mn. The developer’s earnings had fallen 71% in the fi rst quarter of 2007 to US$11.8mn.
Ideal’s performance was poor for several reasons. Most importantly, the company did not win a single concession during the period as the result of a slowdown on Mexico’s infrastructure sector, the company’s primary market, in 2006 and 2007. Domestic outlook in the long term is positive but a national infrastructure plan for 2007-2012 announced on July 18, 2007 by the Felipe Calderón administration still hasn’t taken flight.
As opposed to other sectors where Slim operates, Ideal’s strength does not lie in infrastructure and the hotter the market gets, the more experience matters. “The learning curve is long in a business as complex as infrastructure,” said Cecilia del Castillo, an analyst with brokerage firm Banamex-Accival in Mexico City.
The market still has faith in Ideal’s potential based on Slim’s career but especially because the next ten years promise to result in some of the largest infrastructure investments that Latin America has ever seen.
In Panama, for example, Ideal is lagging behind the competition, which is mainly comprised of Brazilian giants Odebrecht, Camargo Corrêa and Andrade Gutierrez. It also faces diverse competition in Mexico where global operators are already established, including Italy’s Impregilo, Argentina’s Techint and a handful of Spanish builders. Spanish companies like FCC - one of ICA’s partners in highway projects -, Abertis Infraestructuras and OHL, in particular, are all the more intimidating since their cash flow in euros gives them a financial advantage. The Spanish companies are also doing very well, since they are reported to have earned 23% of their revenues in Latin America in 2005 and expect to gain 10% more in 2007 and 12% this year.
Ideal’s business focus has not helped the company either. In Mexico, it specializes in highway and toll concessions - a highly competitive field because of the returns involved. In 2006, the two specialties comprised 40% of the company’s income. But the business hasn’t produced very good results in 2007. On August 6, Ideal lost the tender for a first round of national highways which was awarded instead to ICA and Goldman Sachs Infraestructura Partners. Two months prior, ICA and FCC had snatched up the Nuevo Encasa-Tihuatlán stretch of highway, a job valued at US$625mn - impressive considering that the project is worth more than the largest infrastructure project commissioned by the Vicente Fox administration: the El Cajón hydro plant.
A TICKET TO THE PARTY OF THE CENTURY
Fortunately, the market still has faith in Ideal’s potential because of Slim’s career, his executive team and especially because the demand for infrastructure development in Latin America will continue creating opportunities.
The region is going through a unique period for operators in the sector. With figures forecast at US$100bn/y and with bigger and better contractors vying for a position, the next ten years promise to result in some of the largest infrastructure investments that Latin America has ever seen - and nobody wants to miss the party. Companies are throwing their hats back into the ring, governments have investment capacity because of commodities and there’s been an improvement in legal, regulatory and institutional frameworks. “Governments are looking for private participation in terms of building and operating infrastructure, which has been aided by a more stable and predictable environment,” said José Coballasi, associate director at Mexico City’s Standard & Poor’s. “The big opportunity for Ideal and other companies in the sector lies in highway infrastructure, especially in Mexico, simply because of the up and coming tenders.”
Ideal has shown interest in South and Central America, with a special emphasis on Panama. According to a Banamex Citibank report, 45% of the 57 projects worth US$16.6bn that the company identified in the region are located in Panama. It plans to compete for two highway projects there, four in the power sector, one in housing, one in trade and another in industry, most of which are part of the expansion works planned at the canal - a mega project valued at US$5.3bn
At the same time, the outlook for Mexico’s infrastructure sector couldn’t be better. Between public and private initiatives, President Calderón’s national infrastructure plan will need investments of US$39bn through 2012 to build, revamp and expand highways and railways, ports and airports, telecommunications systems and networks, and services for drinking water and sanitation. Calderón also promises new power projects which will bring the total amount of infrastructure investments from the current 2% to 7% of the country’s GDP by the end of his administration. “The next six years will be a time for infrastructure,” said Carlos González, an analyst with IXE financial group. “The majority of projects that are expected to come up for tender are just appearing so the best is yet to come.”
Right now, Ideal is analyzing several opportunities within the national infrastructure plan. Its sites are set on five large strategic highway corridors, new airports in the hottest tourist zones (Mayan Riviera, sea of Cortez and Ensenada), several railways and multimodal corridors, three suburban train lines within the metropolitan area of Mexico City, several tourist hotels and one gigantic deal involving 11 big highway packages that could pay US$25bn into the Mexican government in terms of tolls and services through 2012. What more could a company ask for? “Ideal is gaining experience in highway concessions, which should increase its chances of winning some of the next tenders,” said Banamex’s Del Castillo. “But the funny part is that it hasn’t been very successful up to this point.”
That much is true but Ideal isn’t giving up yet. In August, the company won its fi rst two tenders for hydro plants in Panama with an offer of US$250mn. Not bad for a company that’s just getting started. Ideal is young. It needs room to move and it’s still looking for a business niche. But the best indicator that the company has substance is the fact that Slim himself is at the helm as its president - the only executive position the engineer reserved when he transferred the day-to-day management of his businesses to his sons. “The company needs time to gain a presence and - above all - experience but it’s irrefutable that the company has incredible growth potential and is becoming an increasingly formidable competitor by the moment,” according to IXE’s González.
Time. That is the crux of the matter. With no reason to rush, Slim has the rest of his life to play the Ideal card. What’s more, Slim seems to hold the opinion that the company is required to make history. It’s not for nothing the company boasts expert advisors with generous management skills and experience negotiating the serpentine roads of Mexico’s public and private administration of infrastructure and development - issues that are tightly wrapped up in national political agendas. His advisors include David Ibarra Muñoz, who worked as finance minister under ex-President José López Portillo and as director of Eclac in Mexico; Daniel Díaz Díaz, an ex-PRI representative and previous presidential advisor to Carlos Salinas de Gortari as well as communications and transport minister during the Miguel de la Madrid administration; and Fernando Solana Morales, who worked as the minister of trade, education and foreign relations from 1976 to 1994, was CEO of Banamex when it was nationalized and was president of the Mexican education and development fund.
Just like the Spaniard González and Chile’s Flores, they all share the same public discourse as Slim: a concern to employ wealth as a tool for developing society. At Ideal, these men walk beside Slim so that he can reach his twofold goal of preserving his legend as a champion of business while - at the same time - making sure that business lands him a secure place in the pages of history. And ever aware of the details, he’ll do it by avoiding problems that stick like troublesome grains of sand in the gears of his business machine.
