The adult population in Mexico didn’t go into debt during the pandemic. On the contrary, the percentage of savings increased by 9.7%.
The pandemic had a negative economic impact on Mexico in 2020, with an 8.5% drop in national production. According to estimates from the International Monetary Fund and the Ministry of Trade, Gross Domestic Product (GDP) is projected to grow by 5% in 2021. Bearing this in mind, how to recover from an economic crisis?
One ray of sunshine against this gloomy background is that people didn’t go into debt. On the contrary, there was an increase in savings.
The National Survey on Financial Inclusion shows that the percentage of people actively saving increased by 17 points, from 51% of the entire adult population to 68%.
“Bank customers have preferred to save than borrow credit from the private sector. At the end of 2020, bank deposits grew 9.7% while private sector credit fell 1.3% in annual terms,” explains Juan Luis Ordaz, Director of Financial Education at Citibanamex.
What do these figures tell us? Juan Luis Ordaz, who also holds a master’s degree in economics from El Colegio de México, says it shows that Mexicans have learned lessons from previous economic crises.
“The different financial education programs have been of some use because we’re not seeing people going to borrow from the banks, which happened in past crises. I think that’s something positive, and it allows us to get out of this situation faster.”
Micro, small, and medium enterprises (MSMEs) are vital to the Mexican economy since they represent 99.8% of all companies in the country, contribute 52% of GDP, and account for more than 70% of formal jobs.
According to a Business Demographics Study carried out by INEGI in 2020, 3.9 million out of 4.9 million MSMEs survived the pandemic: 79%. And 619,000 new startups emerged.
“Without a doubt, MSME’s were most affected because they don’t often have the financial backing or suitable management to deal with a significant reduction in sales,” says Ordaz.
To provide support, the banking sector as a whole allowed all customers to defer loan payments from four to six months, whether they were entrepreneurs or not. Other actions “were to facilitate access to new loans, but only 6% of companies have received this type of support,” adds the Citibanamex director.
Despite new companies and jobs having been created, the impact is negative.
Company closures meant that 2.9 million jobs were lost. New companies amount to 1.2 million new jobs.
The expectation is that by applying vaccines to the population, productive sectors that were greatly affected, such as the textile, tourism, restaurant, private education, and construction industries, will recover.
So far, #emergingmarkets have been agile in responding to the economic fallout from the pandemic. But the coming months will test the ability of policymakers to navigate a shifting landscape. Watch this IMF video to learn more about these challenges. https://t.co/XDNzF4njC4 pic.twitter.com/SonFLHEOGa
— IMF (@IMFNews) June 14, 2021
Adaptation has been the watchword for those companies that managed to stay afloat, since six out of 10 of these MSMEs had to implement some type of partial or total shutdown, and half of these businesses had to close for more than 21 days.
Lockdown and coronavirus restrictions led entrepreneurs to take their businesses online, something that might seem trivial to new generations, but which is quite a challenge for Baby Boomer and Generation X entrepreneurs.
“These businesses had to adapt over the course of two or three months. If they didn’t, their cash flow wouldn’t allow them to survive any longer,” explains Gretel Cervantes, a PhD student in public policy at the Center for Economic Research and Teaching (CIDE for its initials in Spanish).
That entailed acquiring hardware and software to offer their products on various online sales platforms and learning how to use them; offering home delivery; diversifying payment methods: cash, bank transfer, card payment, and interest-free monthly installments; new communications channels via social media, email, and WhatsApp; modifying their line of business according to demand for goods and services; and new marketing strategies.
Most of them knew how to interpret the needs of the ‘new normal’.
A Microsoft survey shows that eight out of 10 Mexican MSMEs made changes to their businesses, mainly by adopting technology.
Gretel Cervantes says that MSMEs are facing the challenge of learning basic notions of finance and administration to have healthier companies.
“We have to start by distinguishing between money and company capital. It’s a very common mistake to make, but a very serious one.”
Money serves as a means of payment to cover personal needs for products or services.
It only works as a medium of exchange but can be converted into capital the moment it’s used to generate more money, when it’s put into a business as an investment.
The ultimate goal of capital is to generate more capital, says the finance professor at Tecnológico de Monterrey’s Mexico City campus.
She says that she was on the team that designed a course and business project for L’Oréal, a beauty industry company with a global presence.
In the courses, they address topics such as evaluating the profitability of a business, understanding cash flow, and comparing it to others to see if it’s viable or not.