Category: Economy

CEMEX’s Cement Pricing and Country Profitability

In December of 2017, Colombia’s competition authority fined Argos, CEMEX and Holcim the equivalent of 66 MM USD after conducting a four-year investigation that found that the firms—accounting for 96% of cement supply to the country—had broken the law by forming a cartel to significantly increase the price of their product between the years of 2010 and 2013.

In the years after 2013, CEMEX has more than halved the price of cement it sells in Colombia (see graph above). As it stands today, CEMEX’s cement in Cali, Colombia retails for the equivalent of 116 USD/ton (image below) excluding the applicable 19% value-added tax (VAT) when purchased at Sodimac’s home improvement stores.

A key contributing factor to the competitive dynamic improving consumer welfare in the Colombian market is the entry of several local players new to the cement industry such as San Marcos (2012), Ultracem and Fortecem (both in 2013), Patriota (2014), Vallenato (2016) and ALIÓN (2019).

The situation in Mexico, however, is radically different from that in Colombia. The high level of cement prices in Mexico is evidenced by the fact that CEMEX’s product in Mexicali, Mexico currently retails at The Home Depot for 317 USD/ton (image below) excluding the 8% VAT applicable in the border region.

Both CEMEX and the The Home Depot have been subjects of investigation on the part of Mexico’s competition authority. The construction materials company was found guilty of improper behavior in an effort to boicot the importation of cement into the Mexican market and the retailing giant was charged with strong-arming vendors to prevent them from supplying a competitor (Lowe’s).

It is impossible to explain the price differential of cement between Mexico and Colombia on the basis of cost (a brutal 201 USD/ton separates its retail price in Mexicali vs. Cali). In order to understand what is happening, one must look for evidence that explains what is really going on: an exercise in market power with the objective of extracting significant economic rents. It is more than obvious that the Mexican State should aggressively pursue the implementation of policy that encourages intense competition in the cement sector.

Mexicans are the victims of economic predators in far to many sectors of activity, including not only cement but also telecommunications and retail financial services. This politico-economic system has produced an enormous accumulation of wealth in the hands of a few and the immiseration of tens of millions, which makes for an increasingly volatile and potentially explosive social situation.

Compensación al Personal en la Industria Manufacturera

Desde la entrada en vigor del TLCAN en 1994, el saldo favorable de la balanza comercial de México con Estados Unidos y Canadá en bienes manufacturados se ha disparado. En los 25 años transcurridos entre 1993 y 2018, el superávit manufacturero del país con sus socios de bloque comercial pasó de 0.3 a 166.7 mil millones de dólares.

No obstante ello, durante el mismo período de tiempo, México logró aumentar su PIB per cápita a una miserable tasa de tan solo 1% anual.

Posterior a la creación del TLCAN, los salarios en México apenas si han mejorado a pesar de que el país “exportó” mano de obra excedente en la forma de 4.1 millones de inmigrantes indocumentados a los Estados Unidos en el período comprendido entre 1995 y 2007.

El patético desempeño económico de México en las últimas cuatro décadas exige un urgente y vigoroso debate sobre la economía política del país.

Telcel: Price Discrimination in Prepaid Mobile Service

Who is more dangerous: El Chapo or Carlos Slim?

Michael Massing, a former executive editor of the Columbia Journalism Review and co-founder of the Committee to Protect Journalists, ponders the question in an opinion column published by The Guardian in January 2019. The subheading on the column reads: “While attention focuses on a mafia boss on trial in Brooklyn, the billionaire [Slim] heads a power elite preserving inequality in Mexico“.

In exploring the question, Massing writes: “The group is dominated by a dozen or so oligarchs and their families, who have a lock on such key economic sectors as telecommunications, media, mining and banking. Repeated forecasts of rapid development for Mexico have come to naught due to the suffocating hold that this small circle of super-connected individuals continues to have over its economy; by eliminating competition, they can keep prices high and profits surging… At the center of the power elite is Carlos Slim.”

Slim has amassed a fortune currently estimated by Forbes to be in the amount of 62.8 billion USD. Previously the same publication had placed him as the world’s richest person for the four years running from 2010 to 2013 and by the accounting of Branko Milanovic—former lead economist in the World Bank’s research department—Carlos Slim is the richest person to ever have existed in the history of humankind.

At the root of Slim’s fortune is his longtime domination of Mexico’s telecommunication industry via Telmex and Telcel, companies that hold extremely high market shares in the fixed, mobile and broadband sectors. Slim’s companies have parlayed a privatized concession of public goods (rights of way and electromagnetic spectrum), taken advantage of network effects, engaged in anti-competitive behavior and delayed regulatory decisions by the abuse of amparos (legal injunctions) in order to overcharge Mexicans billions of dollars and underinvest in infrastructure.

In 2012, the OECD issued a report (OECD Review of Telecommunication Policy and Regulation in Mexico) which states that “Consumer welfare loss in the Mexican telecommunication sector over the period 2005-2009 is estimated at USD 129.2 billion, or an average of USD PPP 25.8 billion per year. The latter amount is equivalent to 1.8% of Mexican GDP per year (or USD PPP 240 per capita). Given the very skewed distribution of income in Mexico the burden of this loss in consumer surplus weighs significantly on a large segment of Mexico’s population.”

Evidence of Carlos Slim’s continuing role in creating an even more unequal Mexican society can be found in the structure of Telcel’s prepaid mobile service pricing. As shown in the images above, smaller mobile prepaid refills result in much higher prices for Telcel’s customers. If one were to buy 200 MXN in 20 MXN refill installments, total credit would amount to 240 MXN. If, however, the consumer were to plunk down 200 MXN at the counter of the convenience store to buy airtime, the amount credited for service would be 400 MXN.

It is important to keep in mind that, as of today, 81% of mobile lines in Mexico prepay for service (vs. 27% in the US) and that Telcel’s decision to discriminate in price against lower-ticket purchases of airtime bears no relation to the cost of service and is purely predatory in nature. It is therefore heartbreaking, for anyone possessing a conscience and informed of the situation, to see Mexicans—restaurant waiters, hotel maids, cab drivers, construction workers, gardeners—lined up at cash registers ponying up their hard-earned pesos, 20 MXN bills at a time, to further enrich Mexico’s preeminent billionaire robber baron: Carlos Slim.

Sociopathy is a mental health disorder characterized by disregard for other people. The term clearly applies to Carlos Slim and other members of Mexico’s power elite such as:

• Germán Larrea: worth 25.9 billion USD according to Forbes and whose copper mining operation in the state of Sonora—the second largest in the world—poisoned two rivers in one of Mexico’s largest toxic spills and

• Ricardo Salinas Pliego: worth 12.9 billion USD, who borrowed nearly 30 million USD from the President’s brother in order to buy the country’s public television network while the head of state was privatizing it, has had to settle with the SEC for defrauding investors to the tune of 109 million USD and used subterfuge and influence to have Mexico’s government overpay hundreds of millions in a fertilizer deal tainted with corruption.

Hourly Compensation Costs in Manufacturing

Since NAFTA went into effect, Mexico’s favorable trade balance in manufactured goods with the US and Canada has ballooned. In the 25 years spanning 1993 to 2018, the country’s manufacturing surplus with its trading bloc partners went from 0.3 to 166.7 billion USD.

Over the same period of time, however, Mexico has only managed to grow its GDP per capita at a meager 1% annually.

Post-NAFTA, wages have barely improved in spite of the country “exporting” surplus labor in the form of 4.1 million unauthorized immigrants to the US in the period between 1995 and 2007.

The decades-long pathetic record of development in Mexico demands an urgent and vigorous debate regarding the country’s political economy. A debate not unlike the one being urged upon the US polity by voices such at those of Bernie Sanders, Robert Reich and Gabriel Zucman.