The Peso And The Virus: Mexico's Economy In The Time Of COVID-19
The coronavirus's devastating effects are not only health-wise, and the pandemic is making it hard for industries, businesses and individuals in Mexico, the United States’ largest trading partner. This Fronteras Desk series explores the neighboring nation’s economy as it faces the COVID-19 pandemic.
Lessons From Small Farming
MEXICO CITY — Mexico is the United States’ largest agricult ural trading partner. And like in the U.S., many small, local farmers not only face the competition of big companies, they are trying to adapt, survive or take advantage of the pandemic.
Almost 80% of Mexican agricultural exports go to the U.S., while roughly 70% of Mexico’s imports come from its northern neighbor.
But beyond the large corporations that feed trade there are many small producers that work hard to compete with them in local markets. And that has become even tougher during the pandemic.
Nature And Cyberspace
In the jungle of the state of Veracruz, at the coast of the Gulf of Mexico, Aurelia Valemá runs her business called Nantli. She grows organic produce and medicinal herbs used in handcrafted lotions that she ships to the rest of the country.
“All this time, during the pandemic, I’ve had to reinvent my business,” she said.
Her customers haven’t ordered anything since April. But Valemá says she’s been taking online seminars to improve her skills.
“Most of them are from Spain, and thanks to the pandemic, I’m being able to get them online,” she said.
And the entrepreneur also is using this time to share her knowledge. She created a free e-book on how to farm vegetables at home and plans to teach people about organic gardening using social media.
“I had just opened my first physical store 15 days before the pandemic, but I had to shut it down,” Valemá said. But she said she has to look forward, hoping to start something new soon.
From The Bazaar To The Store
And someone who is also reinventing his business due to the pandemic is Enrique Cervantes.
“We are trying to make a bridge between the people from the fields with the people from the city”, Cervantes said.
He has been the organizer of Bonito Tianguis, a popular organic produce street market in Mexico City.
“Everything you're going to find with us is made in Mexico,” said the businessman.
Bonito Tianguis has been around for nine years. Cervantes says their last bazaar, held in January, attracted more than 15,000 people in four days. But the pandemic changed everything.
“We had canceled six events, but the good news is that we started to land the project in a store,” Cervantes said.
He says the store is not even close to replacing the street market business, but at least helping him survive. And he says his most important contribution is teaching people in the city to eat healthier and be more socially responsible.
“If you really want to make a change in the world, you don’t have to wait so the government makes this, you don’t have to wait for the next American election, you can do with the things you are putting on the table”, said Cervantes.
The businessman says the pandemic is an opportunity worldwide to support local farmers and eat locally.
“We can change the world increasing the local food and the local producers, so we can change the economy from the local stuff to the national stuff”, said Cervantes.
Tradition On The Field; Photos In The Web
One organization of local farmers from the outskirts of Mexico City is Plantas y Flores de Xochimilco. It’s a community of decorative plant growers based in an area south of the city, well-known for its crops since pre-Columbian times.
Esteban de Jesús Durán is a member of the community and showed me a cargo of colorful flowers, tall plants and perfumed shrubs being delivered. Their best ally during the pandemic has been Instagram, which they use to connect with their quarantined customers.
“I think now sales are up 60 to 70% since the pandemic,” Durán said.
And the sales keep increasing even despite recent pandemic-related restrictions.
“The government surprisingly requested us close on the weekend,” said Durán. Its municipality did so to prevent spreading the virus further. This can seriously affect their business, as many plants need daily care.
But Durán says they’ll keep improving their business to build loyalty among customers.
“Growth is important not only for sales, but also for benefiting our families, who depend on it,” said Durán.
A Tough Restart For the Auto Industry
Mexico and the United States are deeply connected with trade, and the crown’s jewel is the automotive industry.
This sector is one of the top economic and trade sectors shared by the United States and Mexico. But the pandemic has become a huge obstacle to its growth.
However, the auto industry is already restarting in Mexico — but is the road still long and winding?
Like in the U.S., Mexico's coronavirus cases are still rising. Yet, more cars are running in the streets of its capital cityand the roaring sounds like music to the awakening automotive industry.
Lobbying groups from both sides of the border, and even the U.S. government, had urged Mexico to allow it to work since the early days of the pandemic.
In mid-May, Mexico’s secretary of economy Graciela Márquez announced that the auto industry would be considered an essential economic activity.
Márquez said the government would prepare workers in creating a safe environment, as businesses adjusted to the new normal.
From Hiroshima To Salamanca
Mazda has a plant in Salamanca, Guanajuato, in central Mexico — a hub for many automakers.
“From a production point of view, the footprint that we have in Salamanca, Guanajuato, is the first footprint outside of Japan,” said Miguel Barbeyto, Mazda Mexico’s president and CEO.
In Mazda’s market of 130 countries, Mexico is number seven and the U.S. on top. The company plans to open a plant in two years in Alabama.
Barbeyto said their 2020 volume forecast doesn’t look good.
“We are expecting that the industry is going to drop around 35 to 40%, so it’s a big number,” said Barbeyto.
The businessman said they’re following the local and federal governments’ protocols to ensure a healthy environment. But coordinating with providers in other states with different rules has been a problem.
“It is complicated, because there’s a lot of interests inside the government, it’s a big job, but at the end we’re seeing a light ahead of the tunnel,” Barbeyto said.
The U.S.-Mexico-Canada Free Trade Agreement will start on July 1. It requires the auto industry standardize the workers’ salaries and use more local content. And Barbeyto said they’re getting ready for that, too.
“So, we need to work hard. Probably we need to establish more suppliers within the ratio, not only importing from China or Taiwan,” said the executive.
Barbeyto said Mazda has gained market share, but vehicle prices will have to rise.
“We are offering a lot of promotions for the customer in order to incentivize the sales,” Barbetyo said.
The executive trusts in the endurance of his Hiroshima-based company, which dates even before World War II.
“Mazda has a lot of expertise in this kind of crisis; this is a very important, a very hard and huge crisis not only from a health perspective, but also from an economic perspective and social and political, but we’re getting stronger,” said Barbeyto.
Fears And Needs
Benedicto Martínez is a coordinator of Frente Auténtico del Trabajo, a union in Mexico with members in the automotive industry. He said unions were not explicitly consulted by the government for the reopenings, but understands their sense of urgency.
“Well, yes, many workers fear the virus, but they need to bring food to their families,” said Martínez.
He said unions are supervising factories to make sure they follow the government’s protocols. Martínez said the pandemic is throwing light on an old problem:
“The contracts protect the companies and not the workers,” said Martínez, explaining that this allows massive layoffs and no compensation.
“The current government, unlike its predecessors, is trying to support workers instead of companies, but the way things were left makes it hard,” Martínez said.
“Reactivating the industry is not a result of the stubbornness of business owners, but from need,” said Pedro Tello, an independent economic analyst based in Mexico City.
Tello said the bilateral economy depends on it.
“Reigniting the auto industry will definitely help to return to the gradual normalization of the economy,” said Tello.
But short-term results will hardly come, mainly while the U.S. demand stays low and the pandemic continues, the expert said.
“It will depend on the companies to avoid moving too fast to the new normal to prevent the pandemic from rising,” said Tello.
He said the U.S. will recover fast since the government has provided incentives to the companies. But in Mexico, it will take longer, as the government has only offered modest credits for small businesses.
“Those countries and governments that are not doing their homework during the pandemic will face longer crises,” Tello said.
And he warned that without joint strategies between workers, businesses and governments, the lives of millions will be severely affected.
Less Formality, More Poverty
The coronavirus’s devastating effects are not only seen in health, but also is hitting the economy. And in Mexico, many will fall into poverty, unemployment… and without any protection.
More than half of Mexico’s economy is informal, meaning that most people work without a contract or benefits. Also, nearly half of Mexico’s population is poor. And, tragically, the coronavirus pandemic threatens to make those numbers grow.
Trading Goods For Food
On an avenue’s sidewalk in Mexico City, a woman waits on a table with a sign that reads: I trade my handcrafts for pantry products.
She has bracelets and rings made out of beads. Her name is Dalia, but she didn’t give me her last name or appear in photos.
“Well, I’ve been doing so-so, but anything she can get is plenty enough,” Dalia said.
She used to sell her merchandise to several businesses in Mexico City, but they closed after the pandemic.
“I’ve asked the business owners when are they opening again, but they say they won’t open until August, maybe even September,” she said.
María Jazmín Ortiz is also trading goods for food. She’s the mother of an 8-year-old who exchanges face masks for food outside a supermarket.
“I used to work in a restaurant, but as the pandemic started, they simple fired me and said: ‘Thank you, but we don’t need you anymore,’” said Ortiz.
The mother said they paid her about $10 a day without benefits — and no severance.
“I only has a job application form, but never a signed contract,” Ortiz said.
Ortiz says previous administrations at least gave her a card that worked like food stamps. Not anymore, under the government of Andrés Manuel López Obrador.
“This government screwed us up,” she said.
Poverty And No Support
Like Dalia and Ortiz, many in Mexico suffer one of the most staggering indirect effects of the coronavirus: unemployment with no aid.
Marcelo Delajara is an economy researcher at Centro de Estudios Espinosa Yglesias, a think-tank based in Mexico City, and said about 46% of Mexico’s population is poor.
The country has a large degree of inequality and low social mobility, Delajara explained, while income per capita is about one-fourth of the average salary in the U.S.
“So it’s an economy much poorer than the U.S.,” said the researcher.
Mexico was already suffering a recession since the end of last year, said Delajara. According to him, the economy was already damaged by the Trump administration’s threats on trade, and the uncertainty brought by the current government. And the pandemic is making things worse.
“Almost 1 in 5 people in the labor force have lost their jobs”, said Delajara.
The economist said more than 2 million formal jobs and 10 million of informal jobs were lost between March and April.
Delajara says the current administration’s reaction to the pandemic is as if it was an invention of business people. The government makes companies pay to its workers during the quarantine, but almost 70 percent of businesses in Mexico are small, with 5 or fewer employees.
“It’s basically an attitude of saying: I won’t help you”, said Delajara.
The economist says the government’s efforts are insufficient; most of its social programs target people that are not in the labor force, like students and the elderly. Mexico offers no unemployment insurance.
“There’s a lot of uncertainty in terms of how fast will the economy recover, and how fast we'll go back to normal in terms of health”, Delajara said.
Delajara said the Mexican economy depends a lot on income from abroad: tourism, remittances and trade. But those things will be restricted for a long time, making the growth slower. And a bigger problem could come with the so-called new normal.
“What we fear is that the harm to the economy has been so huge, that everybody will want to go back to normal too soon, and then we might have a second wave of contagions,” said Delajara.
“You Can Get The Disease … Or Die”
The streets of Mexico City get flooded with musicians playing traditional songs.
This is not new, but the pandemic is bringing more of them, said Manuel Lázaro, a migrant from the state of Oaxaca. He’s been playing with his family for 15 years.
“The situation is sad. The disease scares people away from the street,” said Lázaro.
This is leaving them with less money than usual. Lázaro said now, if the day goes well, they can make about $14.
And Lázaro says they will keep playing for a living despite the pandemic.
“No matter where you go, you can get the disease — or you can die, anyways,” said the musician.