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News Article

What about support for SMEs?

By Alessa Flores | Mon, 04/06/2020 - 16:17

Due to previous public announcements, we already know that the government does not plan to offer tax incentives to large corporations and it plans to give loans of MX$25,000 (US$1,000) to 1 million businesses. Yet what about the companies that exit the economic spectrum of being big or small companies? How will these businesses be funded during this period of economic turmoil?

Medium-sized enterprises in the country carry out all sorts of operations and, just as micro and small enterprises, they have consolidated as significant agents for the economy, according to the National Statistical Directory of Economic Units. Moreover, it is estimated that 4.1 million businesses are micro, small or medium-sized, making them a significant part of economic activity, and employ more than 18 million people in the country, according to INEGI.

SMEs also have a crucial role to play in transforming and developing countries at a global scale. According to the OECD, these firms usually account for more than 90 percent of all firms outside the agricultural sector, constitute a major source of jobs and generate substantial domestic and export earnings. SMEs are emerging as a key instrument in poverty reduction efforts.

However, most SMEs in developing and transition countries have become less able or unable to exploit the advantages of globalization and are under pressure from cheaper imports and international competition in local and domestic markets.

Moreover, SMEs in Mexico need to be supported considering their capabilities and limitations. This means that most of these companies are especially constrained by non-competitive real exchange rates, restricted access to capital, complicated bureaucratic processes for setting up, running and expanding enterprises, weak infrastructure and lack of effective institutional frameworks, accoridng to OCDE. Yet, these firms contribute 52 per cent of the GDP of the country and are responsible for creating approximately 80 percent of formal jobs. 

The economic revival plan announced by President Lopez Obrador was qualified as disappointing and insufficient, given the proposal are not enough to regain economic dynamism, protect family income and jobs, according to Mexican Institute for Competitiveness  (IMCO) analysis of the Federal Government's economic recovery plan.

The support for SMEs should include cross-cutting strategies that touch several aspects, such as comprehensive macroeconomic policies, simplified legal and regulatory systems, accessible finance and other measures that enable SME growth. 

Faced with this situation, the Ministry of Finance announced that the measures to reactivate the economy would be announced this week. To which organizations such as COPARMEX and the CCE, among other key players in the private sector, have confirmed that there is a lack of support for SMEs and are expecting this week to have a plan to support them.

The data used in this article was sourced from:  
Alessa Flores Alessa Flores Senior Journalist and Industry Analyst