Academic journal article I.D.E. Occasional Papers Series

Industrialization and Private Enterprises in Mexico: 3: The Mixed Economy and Private Enterprises: Hylsa and Fundidora in the Steel Industry

Academic journal article I.D.E. Occasional Papers Series

Industrialization and Private Enterprises in Mexico: 3: The Mixed Economy and Private Enterprises: Hylsa and Fundidora in the Steel Industry

Article excerpt

The Present-day Steel Industry in Mexico and Its Development

Reorganization in the 1980s

The government's neo-liberal economic reforms in the 1980s brought about drastic structural changes in Mexico's steel industry. One very important change was the disappearance of public enterprises. In 1986 five integrated steel companies existed in the country; two-Hylsa (Hojalata y Lamina, S.A.) and TAMSA (Tubos de Acero de México, S.A.)-were indigenous private enterprises, while the remaining three-AHMSA (Altos Hornos de México, S.A.), SICARTSA (Siderúrgica Lézaro Cérdenas Las Truchas, S.A.), and Fundidora-were public enterprises. Fundidora, which became a public enterprise in 1977 with an increase in capital participation by the government, was liquidated in 1986 under the policy of integrating, liquidating, and privatizing public enterprises. In 1991, AHMSA and SICARTSA went under private management. TAMSA suffered vast deficits due to a sharp decline in orders from its main client PLMLX, the state-run oil company, and to its foreign debt problem. In the process of its reconstruction, Siderca of Argentina, TAMSA's minor shareholder, raised its participation significantly (El Norte, June 22, 1994). Hylsa, along with its parent company Alfa, was also deeply in debt in the early 1980s because of its deteriorating foreign debts. By the end of the 1980s, however, Hylsa was back on the track of growth after solving its debt problem and carrying out a series of streamlining measures (Hoshino 1993b). Under the government's privatization program, Alfa made a successful bid for three of AHMSA's subsidiaries (Rogozinski 1993, p. 196). Of the five steelmakers, Hylsa carried out its restructuring the most smoothly.

To understand how the coexistence of public and private enterprises came about in the steel industry, we have to look at how the industry developed up to the early 1980s, which I would like to summarize briefly below.

Establishment and Development of Fundidora: 1900-1940

The modern history of Mexico's steel industry began with the establishment of Fundidora in Monterrey in 1900. Leading entrepreneurs of the time took part in its establishment. Isaac Garza and Francisco G. Sada, founders of Cuauhtémoc, were on the list of first directors (Vizcaya Canales 1971, p. 78). The incorporation was registered in Monterrey and the factory was also located there. However, in 1907 the company's head office was transferred to Mexico City where it was more convenient to raise funds and negotiate with the government. Another reason was that Adolfo Prieto, who was the managing director in 1907, lived in the capital. At that time Fundidora mainly manufactured non-flat steel products, such as rails for railroads and steel structures for oil field development. A major government policy in the period was protective duties, and high duties were imposed on imported rails. This policy is said to have been the result of lobbying by Prieto. Fundidora's production plunged following the outbreak of the Mexican Revolution in 1910. Operation of the blast furnace was suspended between 1914 and 1916 because of the revolution, preventing Fundidora from benefiting from the demand created by World War I and dealing the steelmaker a heavy blow (Gómez 1995, pp. 12, 15, 35). After the war steel production gradually recovered and returned to the pre-revolution level in the late 1920s.

Five Steelmakers and Import Substitution Industrialization: 1941-82

Starting in the 1940s, four new producers, AHMSA, Hylsa, TAMSA, and SICARTSA, entered the steel industry as integrated steel companies. AHMSA was set up in 1941 in Coahuila and began production in 1944. Originally the company was to be set up by entrepreneurs to meet the growing demand of World War II and deal with the suspension of steel imports during the war. The government took part in the fund-raising and procurement of materials for the company's establishment. The governmental development bank, NAFIN (Nacional Financiera), owned all of the preferred stocks, equivalent to one-fourth of the capital, while 90 per cent of the common stocks were acquired by private entrepreneurs and the remaining 10 per cent by an American firm in exchange for construction of a rolling mill and technical assistance. …

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