Latin Finance - July/August 2010 - 48

Parting Shot

Slim Deserves His Billions
by Jacques & Janet Rogozinski* t the turn of the twentieth century, the 10 wealthiest Forbes billionaires came from the developed world. By 2010, four of the top 10 are from emerging markets. Mexican Carlos Slim is number one, India’s Mukesh Ambani and Lakshmi Mittal are fourth and fifth, while Brazil’s Eike Batista is eighth. Rather than focus on poorly designed economic policy at the macro level, bad management at the micro level and a paradigm shift towards a multi-polar economy that may be empowering this unexpected surge of EM billionaires, it is easier to trumpet a few controversial and inflammatory accusations. These typically focus on political connections, abuse of monopoly power and comparison to robber barons of the past. Long overlooked in the debate is the economic and business environment that actually enhanced the potential of businessmen like Mittal and Slim. Both chose to seize risky EM assets before pursuing further opportunity in developed economies. And both had access to credit. Last but not least, both had the managerial skills to make their ventures successful. Slim was already a billionaire when he purchased shares in the privatization of Telmex. He generated most of his wealth by leveraging credit and investing in projects when others were exiting. For example, in the fall of 1982, when Mexico faced high inflation and capital flight, Slim bought companies for less than 5% of book value from Mexican and foreign investors. In December 1990, the Mexican government sold 25.5% of Telmex social capital. Slim’s participation was only a fraction of that, at 5.17%, for $442.8 million. The rest went to Southwestern Bell led by Ed Whitacre (10%), France Telecom (5%), and the remainder to 32 Mexican investors . A few months after Grupo Carso and partners bought into Telmex, Slim’s wealth was estimated at $1.7 billion. Slim was an unknown on the global financial scene making what appeared to be a sudden rise in wealth with the Telmex purchase. In reality he was already a very successful businessman. All of this data is publically available. Telmex did not catapult Slim to the top of the rich list. After the privatization of Telmex, from 1991 to 2003, Slim’s wealth grew by “only” 13% per year, to $7.4 billion from $1.7 billion. It truly rocketed when he expanded outside Mexico, achieving

Jacques Rogozinski

Janet Rogozinski

Risk appetite and access to credit are propelling the new class of LatAm billionaires. They are succeeding on their own merits.

A

33% in compounded annual growth from 2003-2010. There is an abundance of equally smart business leaders from developed economies with top-notch managerial skills who have ready access to credit. So what sets apart EM entrepreneurs like Slim and Mittal? Among them is a willingness to take risk in adverse conditions. For example, when the Mexican government promoted the sale of Sicartsa, the only interested foreigner was a virtually unknown Indian entrepreneur: Lakshmi Mittal. Following the daring purchase of a failing and antiquated steel company, Mittal launched an empire. Slim had the skill to attract top caliber partners. He chose to work with Whitacre who provided cellular technology expertise that proved pivotal in the expansion of Telcel, Telmex’s cellular subsidiary in Mexico, and the launch of América Móvil throughout Latin America. As Thomas Barry, Southwestern Bell’s senior vice president in charge of strategic planning says, “the challenge is to find good partners. It’s a management issue rather than a technology issue.” A few years later, in 2003, Carlos Slim took over ATT Latin America and in 2004 Whitacre led the takeover of ATT in the US. Slim’s skill in attracting top partners was confirmed recently when president Obama asked Whitacre to lead General Motor’s restructuring. It would not be a surprise if Slim now began investing in GM. Last but not least, what these EM entrepreneurs also had, without which none of their risky investments would have been possible, was access to credit. Mexico’s average credit to GDP ratio is one of the lowest in LatAm, at 0.12 in the 1980’s compared to 1.01 in the US. By the 2008, the average ratio increased to 0.17 in Mexico, versus 1.85 in the US. Despite these challenges in so-called emerging economies, there is a growing threat to the hegemony of developed world business leaders. EM billionaires like Slim and Mittal are the face of this new competition. LF
* Jacques Rogozinski is IIC general manager and oversaw privatization for the Mexican government from 1988-1993, and Janet Rogozinski is a consultant and economist.

48 LatinFinance

July/August 2010



Latin Finance - July/August 2010

Table of Contents for the Digital Edition of Latin Finance - July/August 2010

Latin Finance - July/August 2010
Contents
Equity/Debt Fund Performance
European Investors
Brazil Domestic Buyside
Mexican Domestic Buyside
Mexico Venture Capital
CEMEX CFO Interview
Panama Investment
Canadian Miners
Peru Investor Report
Peru is Making Strides to Develop Gas and Oil
Microfinance Volume Rises at a Steady Clip
Latin Finance - July/August 2010 - Latin Finance - July/August 2010
Latin Finance - July/August 2010 - Cover2
Latin Finance - July/August 2010 - Contents
Latin Finance - July/August 2010 - 2
Latin Finance - July/August 2010 - 3
Latin Finance - July/August 2010 - 4
Latin Finance - July/August 2010 - 5
Latin Finance - July/August 2010 - 6
Latin Finance - July/August 2010 - 7
Latin Finance - July/August 2010 - 8
Latin Finance - July/August 2010 - 9
Latin Finance - July/August 2010 - Equity/Debt Fund Performance
Latin Finance - July/August 2010 - 11
Latin Finance - July/August 2010 - 12
Latin Finance - July/August 2010 - 13
Latin Finance - July/August 2010 - 14
Latin Finance - July/August 2010 - 15
Latin Finance - July/August 2010 - 16
Latin Finance - July/August 2010 - European Investors
Latin Finance - July/August 2010 - 18
Latin Finance - July/August 2010 - Brazil Domestic Buyside
Latin Finance - July/August 2010 - 20
Latin Finance - July/August 2010 - 21
Latin Finance - July/August 2010 - 22
Latin Finance - July/August 2010 - 23
Latin Finance - July/August 2010 - 24
Latin Finance - July/August 2010 - 25
Latin Finance - July/August 2010 - Mexican Domestic Buyside
Latin Finance - July/August 2010 - 27
Latin Finance - July/August 2010 - 28
Latin Finance - July/August 2010 - Mexico Venture Capital
Latin Finance - July/August 2010 - 30
Latin Finance - July/August 2010 - CEMEX CFO Interview
Latin Finance - July/August 2010 - 32
Latin Finance - July/August 2010 - 33
Latin Finance - July/August 2010 - Panama Investment
Latin Finance - July/August 2010 - 35
Latin Finance - July/August 2010 - 36
Latin Finance - July/August 2010 - 37
Latin Finance - July/August 2010 - 38
Latin Finance - July/August 2010 - Canadian Miners
Latin Finance - July/August 2010 - 40
Latin Finance - July/August 2010 - 41
Latin Finance - July/August 2010 - Peru Investor Report
Latin Finance - July/August 2010 - 43
Latin Finance - July/August 2010 - 44
Latin Finance - July/August 2010 - Peru is Making Strides to Develop Gas and Oil
Latin Finance - July/August 2010 - Microfinance Volume Rises at a Steady Clip
Latin Finance - July/August 2010 - 47
Latin Finance - July/August 2010 - 48
Latin Finance - July/August 2010 - Cover3
Latin Finance - July/August 2010 - Cover4
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