Mexico’s Employment Cornerstones: MSMEs

In a pandemic, MSMEs struggle to survive. Although larger businesses have more costs, smaller businesses like restaurants or small shops often need more consistent revenue to keep operating. Are smaller enterprises solely a source of employment in Mexico or are they an important catalyst for development in the country? What do these smaller players really mean for employment in the country?

Government figures, although not updated since 2015, show that MSMEs generate 72 percent of the jobs and 52 percent of the country’s GDP. While their revenue generation is almost at the level of bigger businesses, MSMEs’ massive employment figures make these companies a backbone for the country’s economy. Moreover, these figures only relate to formal employment. Informal employment often has the form of a microbusiness, where one person offers their skills as a freelancer. More than 4.1 million microbusinesses contribute to 41.8 percent of total employment.

A pandemic is a significant challenge to overcome for companies that, as reported by OECD, often do not have access to financing or are not able to take on debt in significant forms. Now that Phase 2 of the pandemic has started, Mexico’s smaller companies need to prepare for the imminent hit.

In Mexico City, where a whopping 1.3 million street vendors try to make a living, sales have already dropped by 50 percent. El Universal reported that Diana Sánchez, a spokesperson for street vendors, has already sent an SOS message to the government. Despite measures taken, including providing sanitizer and operating as hygienically as possible, some areas have seen sales drop down to practically zero.

Vendors in Oaxaca are showing a combative spirit, claiming they will only close their shops if the situation gets particularly bad or if they receive a direct order from authorities. In Toluca, shops and small business remain open, arguing that this is necessary for their survival and not a sign of stubbornness.

Medium-sized enterprises, meanwhile, are doing their best to cope with the situation, attempting to continue operations with staff working remotely. Nonetheless, El Financiero estimates that the potential losses endured by vendors and smaller companies could reach MX$30 billion (around US$1.2 billion).

Government action is being taken to offset the on such a significant part of Mexico’s industry. Yesterday, President López Obrador announced no-interest or low-interest loans for 1 million microbusinesses. Furthermore, private companies such as Credijusto are entering the market to provide loans for companies caught in the storm.