MEXICO GUIDE

Mexico – The Economy

The economy of Mexico is a developing market economy. It is the 15th largest in the world in nominal GDP terms and the 12th largest by purchasing power parity, according to the International Monetary Fund. Since the 1994 crisis, administrations have improved the country’s macroeconomic fundamentals.

Mexico was not significantly influenced by the 2002 South American crisis, and maintained positive, although low, rates of growth after a brief period of stagnation in 2001. However, Mexico was one of the Latin American nations most affected by the 2008 recession with its gross domestic product contracting by more than 6% in that year.

The Mexican economy has had unprecedented macroeconomic stability, which has reduced inflation and interest rates to record lows and has increased per capita income. In spite of this, enormous gaps remain between the urban and the rural population, the northern and southern states, and the rich and the poor. Some of the unresolved issues include the upgrade of infrastructure, the modernization of the tax system and labor laws, and the reduction of income inequality.

Tax revenues, altogether 19.6 percent of GDP in 2013, were the lowest among the then 34 OECD countries. As of 2020, the OECD has 37 members.

The economy contains rapidly developing modern industrial and service sectors, with increasing private ownership. Recent administrations have expanded competition in ports, railroads, telecommunications, electricity generation, natural gas distribution and airports, with the aim of upgrading infrastructure.

As an export-oriented economy, more than 90% of Mexican trade is under free trade agreements (FTAs) with more than 40 countries, including the European Union, Japan, Israel, and much of Central and South America. The most influential FTA is the United States-Mexico-Canada Agreement (USMCA), which came into effect in 2020, and was signed in 2018 by the governments of the United States, Canada, and Mexico.

Recently, the Congress of the Union approved important tax, pension, and judicial reforms. Reform to the oil industry is currently being debated. In 2016, Mexico had 16 companies in the Forbes Global 2000 list of the world’s largest companies.

The OECD and WTO both rank Mexican workers as the hardest working in the world in terms of the number of hours worked yearly – but pay per hours worked remains very low.

Small and Medium-Sized Companies

There were 4.9 million MSMEs registered in Mexico at the beginning of 2020, accounting for 78% of private-sector employment and 52% of total gross production. 96.6% of them were micro-enterprises.

Less than 10% of SMEs export to the international market, and 80.5% of SMEs exports’ value belongs to the manufacturing sectors, representing a 4.3% of the total value of manufacturing exports. Moreover, only 0.1% of SMEs are direct suppliers for multinational foreign corporations. SMEs participation in international trade has been limited by:

1. the lack of specialized and necessary knowledge and capabilities on entrepreneurship
2. the lack of knowledge on international trade and markets
3. non – tariff barriers, regulations, and cross-border trade procedures
4. the limited access to finance, specially trade finance

The smaller the company is, the more difficult it is for them to participate in international trade. Less than 2% of SMEs invest in innovation which leads to patent or brand registration.

Information on SMEs is primarily generated through the National Survey of Productivity and Competitiveness for Micro, Small and Medium Enterprises (ENAPROCE), which is conducted by the National Institute of Statistics and Geography (INEGI).

Compliance Highlights

• Tax Administration Service (Servicio de Administration Tributaria, SAT) – the revenue service of the Mexican federal government.
  
  The government agency is a decentralized bureau of the Secretariat of Finance and Public Credit, Mexico’s cabinet-level finance ministry, and is under the immediate direction of the Chief of the Tax Administration Service. The SAT is responsible for collecting taxes, as well as applying fiscal and customs law, with the purpose of funding public spending in a proportional and equitable manner.
  
  Additionally, it is the bureau’s responsibility to generate and collect information necessary for the formation and evaluation of fiscal policy.
  
  
• The Secretariat of Labor and Social Welfare – a Federal Government Department in charge of all social health services in the Mexican Republic. The Secretary is a member of the federal executive cabinet and is appointed by the President of Mexico. The Secretariat is in charge of:
  
  • Supervising the implementation of the regulations in Article 123 concerning labor
  • Achieving a balance between production factors and keeping with the appropriate legal regulations

Labor Contracts Law

By law, all employees must have a written contract. If the employee begins work before the contract is formally concluded they are considered to be working under the contract and cannot be deprived of statutory rights under the Labor Code. Employee contracts are usually indefinite and open-ended. Fixed-term contracts cannot exceed five years and can only be implemented in circumstances allowed by law.

When hiring new staff and drawing up their contracts, specific requirements from the Labor Code apply and must be considered:

• Type of contract – fixed term or indefinite
• Full contact and personal details of the employee
• Indication whether the contract includes a trial or probationary period and any training programs
• Type and location of work, hours, vacation allowance
• Amount and frequency of salary payments, bonuses, holiday pay and any fringe benefits
• Working hours and if they include shift work
• Mandatory confirmation of the employee’s rights under privacy rules
• Whether it is a ‘training contract’ to give the employee time to acquire required skills for the job
• Contracts are usually drawn up in Mexico’s official language, Spanish, before any translation into the employee’s native language or one they understand
• All contractual agreements between employer and employee must fall within provisions of the Federal Labor Law

Written contracts have been mandatory since 2012 when the Federal Labor Law was amended to also specify the types of contracts. The main types include:

1. Fixed-term employment contracts: These are for a defined time or project and apply only when the nature of the work demands. They can also be applied when an employee is being temporarily replaced by another worker.
   
   
2. Open-ended ‘indefinite’ employment contracts: Where they last more than 180 days, they can include a probationary trial period to assess the suitability of the employee for the role. If a contract does not specify a specific term, it is considered legally to be open-ended.
   
   
3. Trial period or probationary employment contracts: These can be a maximum of 180 days for management, technical or specialized professional positions and up to 100 days for technical roles. Employees at lower levels can be offered a 30-day probationary period. Probation periods for trainees cannot exceed 180 days for management, technical or specialized roles or 90 days for trainees at a lower level. The employer must apply to Mexico’s Training and Productivity Commission to dismiss the probationer if they are considered unsuitable. Consecutive training contracts are not allowed.
   
   
4. Temporary employment: There cannot be consecutive periods of temporary employment, which in any case cannot exceed 12 months.
   
   
5. Youth employment: The minimum legal employment age is 14 years. 14- to 18-year-olds cannot be employed where jobs include alcohol, electrics, power tools or heavy lifting. Employees aged between 14 and 16 years are monitored by the Labor Inspectorate, must have a medical certificate for clean health, they must not work more than six hours a day in two three-hour shifts. Minors cannot work on Sundays or public holidays.
   
   
6. Collective and trade union agreements: Close to 90% of Mexican production or industrial workers in enterprises of at least 25 people are members of trade unions. The majority of labor unions belong to the Confederation of Mexican Workers (Confederación de Trabajadores Mexicanos, CTM), which has around 11,000 member unions. Employers’ unions or associations are organized either by particular regions where employers are involved in more than one activity, or federally where a number of employers in different regions are involved in the same activity.