Spain’s Silent Reconquest of Mexico

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By Don Quijones, Spain & Mexico, editor at WOLF STREET. His blog: Raging Bull-Shit.

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. Don Quijones. An exclusive for Wolf Street.

Numerous common acts in Spain have been turned into illegal acts by the Orwellian-termed “Citizens’ Security” law, more popularly known as the “Gag Law.” Read…. Chilling Echoes of Past, as Spain Cranks Up Political Repression

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  3 comments for “Spain’s Silent Reconquest of Mexico

  1. August 24, 2014 at 4:26 am

    Having worked in a few Mexican refineries, Salamanca, Caderayta and Madero, I can tell you private businesses operating oil and gas operations in Mexico are a GOOD THING.

    It’s slowly changing, but Plant Directors in Pemex facilties have been bestowed this title based on how much money they were able to cough up. Not on how experienced they were at running refineries.

    My Mexican counterparts were CONSTANTLY complaining about the lack of spare parts. And while in one of the refineries we watched a line burst pouring what was, luckily, only cooling water.

    As to expatriation of profits, the USA feels the effects of money that can NOT be expatriated to America due to our high taxation on money raised outside of the country. Until our laws change the USA can not tap that money to rebuild our manufacturing base. So, this is a two way street.

    I think the author is making a big deal out of nothing.

    • Don Quijones
      August 24, 2014 at 12:07 pm

      Thanks for the comment, Johhny G. In certain ways you’re right — Mexico’s oil sector desperately needed shaking up. Reinvestment and expertise were — and remain — a significant problem.

      But by suggesting that I’m making a big deal out of nothing, you miss the whole premise of the article: The point I was trying to make was about THE WAY IN WHICH the sector was about to be shaken up. If the biggest Spanish — and no doubt American, British, French, Brazilian and Dutch — oil and gas companies are able to circumvent Mexico’s already malfunctioning system of governance by placing their own men and women in key strategic government positions, then tenders are going to be awarded on the basis of mere access to power, and not the quality of the bid.

      This has already proven to be a chronic and widespread practice in Spain, where upcoming privatisations (of the post office, the health service, etc) will make a select few very rich companies (including the same banks that helped cause the crisis) even richer. In the U.S. — and now the EU — the legalised practice of paying off government (i.e. lobbying, formerly known as “political bribery”) has become a cornerstone of the way government and markets interract. The result has been the enshirement of a system of crony capitalism on a scale and scope not seen for well over a century. And if you think that this is of little or no import, well as they say in Spanish “cada quien, su opinion” (each to their own opinion).

      As for the issue of tax, just ask yourself how much you, your family and friends paid to the U.S. government as a proportion of your income last year. Then ask yourself how much companies like GE and Exxon Mobile paid on their somewhat larger earnings. Now, you can argue to the cows come home that tax is a necessary (or unnecesary) evil, but for most members of society — especially the middle class — avoiding (or evading) paying tax is a virtual impossibility given the huge risks it poses to one’s personal freedom and livelihood. Meanwhile those with the most money and the closest access to the central banks’ engorged money teet pay the least — and in many cases nothing!

      Not only is it a system that is brutally unfair, it’s a system that is highly destructive and ultimately unsustainable. The super rich are getting their hands on more and more of the money pie (and hence the world’s natural wealth) while paying next to nothing to cover our communities’ social and economic needs. At the same time you and I have to pay out every time their reckless risk-taking threatens their bottom line and executive bonuses.

      Maybe it’s nothing, maybe it doesn’t matter, maybe privatising every goddamn thing of value on this planet and handing it over to corporations whose revenues now surpass the GDP of most of the countries on this planet will lead to a new magic era of perfect market efficiency. However, judging by the results of the last 30 or so years, you’d have to be insane or blind to believe that!

  2. Peter Melvoin
    August 25, 2014 at 10:27 pm

    Political bribery?
    It has also been termed “reciprocal altruism.”
    Just a nod and a wink, eh?

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