Digital Platform Taxes and Recession Fears: The Week in Finance

In local news, the Tax Administration Service (SAT) collected US$476 billion in digital platform taxes. Additionally, Mercado Pago and Visa collaborate to issue 150,000 new credit cards, averaging over 1,600 physical cards delivered daily. Restaurant operator Alsea reported 89.7% growth in 2Q23, representing a 106.9% improvement compared to the same period in 2022.

In global news, 50% of macroeconomic strategists see a low risk of recession in the second half of the year, while 19% see a significant risk. 

Ready? This is the week in Finance

Mexico

SAT Collects US$476 Billion in Digital Platform Taxes

Mexico's SAT collected about US$476 billion through levies on digital giants such as Airbnb, Netflix, Spotify, Uber and Amazon. Apart from being substantially effective, this taxation approach seeks to ensure that foreign companies operating across multiple jurisdictions are treated fairly from both a tax and economic perspective. A total of 395,675 individuals who obtain an income from technology platforms, such as Rappi, Uber and Didi, have registered under the Federal Taxpayers Registry (RFC).

Mercado Pago, Visa Introduce New Credit Card 

Mercado Pago joined forces with Visa to unveil a new credit card, seeking to bolster the growth of e-commerce and strengthen its digital payment platform in Mexico. Within just three months since its announcement, Mercado Libre has successfully issued 150,000 credit cards in the country, averaging over 1,600 physical cards delivered daily. Among its benefits, the Mercado Pago credit card will enable interest-free installment purchases on Mercado Libre, with selected products eligible for six months without interest.

Global Economy 

Recession Fears Decrease: Natixis 

A Natixis' study found that 50% of surveyed macroeconomic strategists see a low risk of recession in the second half of the year, while 19% see a significant risk. However, global inflationary pressures appear to be easing due to the central banks' efforts. In terms of investment, large-cap companies are expected to outperform small-cap firms, partly due to stricter credit regulations implemented after the recent banking crisis. Bond market yields have rebounded in 2023, reaching levels unseen since the global financial crisis. Nonetheless, despite these promising trends, 72% of fixed income investors remain concerned about prolonged inflation, with 38% estimating higher-than-expected interest rates.

Alsea Reports Positive Growth in 2Q23

Earnings of restaurant operator Alsea, owner of brands such as Starbucks, Vips and Domino's, grew by 89.7% in 2Q23. The group’s net income doubled between April and June 2023 reaching MX$490 million (US$29.3 million), which represents 106.9% growth compared to the MX$237 million (US$14.1 million) reported during the same period in 2022. Armando Torrado, Director, Alsea, says that the quarterly results reflect the strong demand for the company’s brands and solid consumer behavior. 

Executive Perspectives

Unlocking the Potential of Nearshoring in Mexico

Despite the current enthusiasm about nearshoring, the IMD 2023 World Competitiveness Ranking ranks Mexico in 56th place out of 60 countries, indicating weaknesses in economic performance, government efficiency, business efficiency and infrastructure. While nearshoring could benefit Mexico due to its proximity to the US and trade agreements, the Latin American country has not fully capitalized on its benefits. While China's share of US imports decreased, Mexico's only increased marginally. To transform nearshoring into a reality, “it will be necessary to improve and expand transport infrastructure in Mexico,” says Alejandro Saldaña, Chief Economist, GFBX+.

How AI is Driving Financial Sustainability, Inclusion in Mexico

While some public companies may be required to disclose ESG-related information, Mexico’s overall enforcement of ESG reporting and disclosure is less complex when compared to other regions. In Mexico’s financial and banking markets, sustainability and financial inclusion are becoming popular points of focus relevant to ESG. "What many organizations find challenging about implementing these initiatives is how to streamline internal processes while simultaneously maximizing efficiency," says César Cotait, CEO, Exadel. However, while AI will most likely help financial institutions meet ESG requirements and promote economic growth, there are important risks to be considered, such as transparency and privacy concerns.