Why fewer businesses are “essential” in Mexico during COVID-19 lockdown

We admit that we had to do a lot of mental exercise to accept the closure of Mexico’s breweries and their distribution networks during COVID, but we eventually got there. The alcoholic beverage industry already has a set of controls that apply to it specifically, so it was more convenient to suspend.

However, putting aside the argument of whether beer itself is essential, especially when you compare it to other distribution networks that have stayed running in Mexico such as soft drinks, there is another critical consideration here that people in developed economies will be prone to overlook. That factor is Mexico’s informal economy.

Most manufacturing is deemed “non-essential” in Mexico during COVID contingencies. Pictured: A stand at Mexico’s bi-annual aerospace and defense trade show FAMEX. For 2021, the US is the “guest of honor” country at FAMEX. Image source: Wikimedia Commons

About half of Mexico’s economy is “informal.” Companies that are not legally registered to pay taxes are informal. Mom and pop corner stores and street vendors sure, but also many, many others. Informal companies are more likely to live week-to-week or even day-to-day. They have no access to or even knowledge of risk management tools like insurance or credit.

On the other hand, even for employees of formal companies, unemployment and welfare benefits are scarce in Mexico. There are some programs at the local level especially, for example in Mexico City. But these by design are not going to cover informal workers.

These businesses and their employees are more exposed to the crisis, but they also don’t have as many leverage points pushing on them to incline them to heed government advisories to shelter in place. No threat of tax penalties, no bank accounts in which to deposit a stimulus, and no incentives to take away.

The Mexican brewers, like Constellation Brands, Modelo-ABInBev, and Heineken-Cuauhtémoc Moctezuma, are part of the formal economy. Regardless of how essential they are, ceasing operations is much more feasible for them than it is for companies in the non-formal economy. Is beer more essential than tamales? Who knows. But is a worker at the Modelo brewery going to go hungry if the operation is suspended? Likely not. Maybe so for the tamale vendor.

A local photographer in Mexico City has been capturing photos of crowds since the COVID contingencies began. The people in this photo, taken at 6:30PM on Friday, April 17, are likely returning home from work.

Effectively, Mexico has narrowed the definition of “essential” compared to the US because it needs to create leeway for operations that, not from a macroeconomic or functional perspective, but rather from a human perspective, do have less choice in whether to keep going. They are essential for other reasons.

In addition, there is the ability of the Mexican government to motivate, influence or control the informal economy. In some ways Mexico has to be more stringent with the companies it can control– these “formal” companies that tend to have more invested in the civil system, and also more resources to work with– than into allow for movement by those companies it cannot control and who in fact have less choice.

This rationale extends to other “arguably essential” operations in Mexico, such as manufacturing. The Pentagon has recently called on Mexican aerospace manufacturers to re-open so US prime contractors (companies Boeing or Lockheed Martin) can get their air frames. While yes, achieving manufacturing supply chain coordination is essential, is US defense equipment essential from a Mexican perspective?

More essential for the Mexican government is keeping people at a social distance, of course, but also: unlike in the US– and in absence of the social spending that makes Mexican manufacturing labor less expensive– Mexico must use the formal economy to create a margin of movement for the informal economy; segments of society that are ultimately much more vulnerable, and more difficult to influence.

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