Despite Challenges, SMEs are Driving Mexico’s Economic Growth

Mexican economy growth forecasts have been disrupted by external factors such as the war in Ukraine and the COVID-19 pandemic. With this panorama, Mexico’s economic recovery might seem far away but public and private actors are trying to alleviate the worst of the problems.

At the beginning of 2022, the government’s fiscal policy seemed to focus on "a historic increase in VAT, oil revenues without precedent in the six-year term,” and other factors, according to Mexico Evalua. These early considerations did not take the increase in inflation into account, which makes the historic increase in tax revenue increasingly seem like a less viable option.

Oil revenues might be less of an advantage for the government since the application of a subsidy in the price of fuel to prevent its price from rising. The viability of this subside has been questioned by economic experts. “The Bank of America Securities (BofA) has expressed its skepticism regarding the long-term viability of said subsidy. BofA expects the net impact to even turn out slightly negative, as the president announced that the government would spend 1 percent of the GPD to avoid collecting the IEPS and another 1 percent on a new fiscal stimulus [to benefit] gasoline sellers,” according to Forbes. This leaves the non-tax, non-oil and non-recurring income as the main drivers of economic growth.

The challenging economic environment is not deterring Mexico’s entrepreneurs, who in turn stand to contribute to the country’s economic recovery. SMEs and fintech have become key players in the development of jobs and income and in the attraction of foreign investment. “SMEs are the “engine” of the Mexican economy. The economic success of the country, only now beginning to recover from the effects of the COVID-19 pandemic, depends largely on the strength of its institutions and on its small and medium-sized companies,” wrote Sebastián Kreis, CEO and Co-Founder, Xepelin, in an MBN article. Promoting the creation of new companies has been key to diversifying the market and has also made other countries turn to see Mexico as an investment and development hub. “Mexico’s size and unique geographical location are also driving the creation of startups. Entrepreneurs should aim higher, be ambitious and invest in exceptional products to scale faster,” said Antonia Rojas Eing, Partner, ALLVP, to MBN.

In this context, fintech is revolutionizing the financial systems and increasing financial inclusion and helping Mexicans avoid the informal economy, in which 55.8 percent of the population is working, according to El Financiero.

Economic growth, SMEs and Fintech will be some of the topics discussed in Mexico Business Forum 2022. The event is now hosted on Zoom, breaking geographical barriers and welcoming global industry leaders while reducing COVID-19 related risks or possible outbreaks.

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