Introduction to the Issue
The growing trend of informal businesses outpacing formal ones mirrors a weak rule of law, high crime rates, and expensive labor costs, which are compounded by tax burdens. This assessment comes from the business sector.
Concerns Raised by CEESP
Centro de Estudios Económicos del Sector Privado (CEESP) expressed worry over the rising informal economy, which grew by 4% annually, while the overall economy expanded at a rate of 0.9% during the first quarter of the year.
“Informal businesses are unproductive and unable to provide working conditions that genuinely help families escape poverty levels. Although informal businesses have shown significant progress in recent years compared to the formal sector’s evolution, they still fall short,” explained CEESP.
Formal Sector’s Role and Challenges
The Consejo Coordinador Empresarial (CCE)-affiliated organization stated that, despite formal businesses being the primary growth and employment drivers, a conducive business environment for their strengthening has not been established.
“Weak rule of law, high crime rates, elevated hiring costs, and existing tax burdens reduce the appeal of operating formally and encourage informality,” they asserted.
Urgent Need for Business-Friendly Policies
Sector private analysts emphasize the urgency of policies that foster a favorable business climate, especially when internal uncertainties—such as the abolition of autonomous bodies responsible for regulation—and external factors hinder greater investment growth.
CEESP highlighted that the rising informality in Mexico is eroding the productivity of the economy, which could further deteriorate and negatively impact the country’s overall competitiveness, making it less attractive for investment.
Informality’s Impact on Mexican Businesses
According to CEESP data from the 2024 Economic Census, 73.5% of newly created economic units between 2018 and 2023 were informal.
Although formal businesses are crucial for growth and employment, “the necessary business environment to establish new formal businesses and bolster existing ones does not seem consolidated,” CEESP insists.
CEESP argues that increased investment and a climate promoting formality will elevate and strengthen the growth pace of productive activities, enhancing job creation possibilities in the formal sector and improving home well-being levels.
Key Questions and Answers
- What is the main issue discussed? The rising trend of informal businesses outpacing formal ones, reflecting a worsening business climate.
- What factors contribute to this trend? Weak rule of law, high crime rates, expensive labor costs, and tax burdens.
- Who raised concerns about this issue? The Centro de Estudios Económicos del Sector Privado (CEESP).
- What is the role of formal businesses in the economy? Formal businesses are essential for growth and employment, according to CEESP.
- Why hasn’t the necessary business environment for formal businesses been established? The weak rule of law, high crime rates, elevated hiring costs, and existing tax burdens reduce the appeal of formality.
- What are the potential consequences of rising informality? It erodes economic productivity, deteriorates competitiveness, and makes the country less attractive for investment.
