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News Article

Mexico’s Smallest Companies in Danger of Closing

By Alicia Arizpe | Thu, 03/26/2020 - 12:18

As the effects of COVID-19 ramp up in the country, local entrepreneurs and small companies fear an imminent economic slowdown. A recent study from the Mexican Association of Entrepreneurs (ASEM) stated that one in every four small companies is in danger of permanently closing during this period and called for more help from local government institutions.

COVID-19’s impact to the economy is still being determined but most estimates paint a dreary picture. Countries where the outbreak has run for longer are suffering from significant economic slowdowns, frozen businesses and unprecedented job losses. While COVID-19 cases in Mexico are still below 500, many finance institutions have revised their economic projections for the country in light of the disease, with new estimates ranging from Goldman Sachs’ -0.1 percent growth to Bank of America’s -4.5 percent projection. Banco the México and the OECD are more optimistic but still predict GDP growth to be less than 1 percent.

Mexico’s most affected will be the smallest economic units, which are in turn the country’s largest economic contributors. Mexican MSMEs, which generate 78 percent of all jobs in Mexico and contribute 42 percent of the national GDP, can lose up to MX$250 billion (US$10 billion) by the end of the COVID-19 crisis, as more and more Mexicans stay home and limit their nonessential purchases.

ASEM reiterated the direness of the situation stating that up to 77 percent of microbusinesses might be forced to close within two months due to the pandemic. A joint survey from ASEM and market research company Nautla further revealed that 82 percent of these companies perceive that they will lose clients due to the crisis, 31 percent will face trouble in paying debt and 25 percent feared for the job safety of their employees.

The federal government is well aware of the potentially devastating effects of the crisis and recently announced loans to microbusinesses to help during this period. Some entrepreneurs feel that this is not enough, however, and are requesting the government to speed up payments to entrepreneurs and MSMEs by reducing the existing payment periods to 30 days from the current standard that can extend up to 120 days. This measure is expected to help Mexico’s smallest companies to avoid cash flow problems and stay away from other, more expensive, financing options.

Alicia Arizpe Alicia Arizpe Senior Writer