By Nathaniel Parish Flannery | The Atlantic
MEXICO CITY—On a recent afternoon, Daniel Soto, a 36-year-old chef and entrepreneur, scrutinized the pedestrians passing in front of his brilliant orange food truck a few blocks away from the white, ultramodern, glass-paneled Reforma 222 mixed-use shopping center, at the border between Mexico City’s downtown financial district and the city’s trendy Roma Norte neighborhood. As Mexico evolves its two disparate halves, its globally connected, educated elite and its marginalized, informal workforce continue to exist side by side in the country’s capital. Soto looked up the sidewalk at a man in a suit walking past an abandoned, graffiti-covered 18th century mansion. Even as Mexico’s economy continues to transform, many entrepreneurs still prefer to work in the informal sector. Soto, watching a customer settle down onto a plastic stool in front of his truck, explained that the upside of informality is “you charge for the food, not the space.”
Modern Mexico is home to both an advanced industrialized economy and swaths of under-developed rural mountain ranges where residents survive on subsistence agriculture and government income transfer programs. Mexico has a growing high-tech manufacturing and service export sector, but it is also home to sizable informal economy, a secondary workforce of street food vendors, window washers, shoe shiners, and domestic helpers. In Mexico City, these two paradoxical aspects of the country’s economy often coexist within the same city block. For instance, in the heart of the country’s capital, inside the Reforma 222 shopping center, shoppers can dine on up-market reinterpretations of traditional Mexican dishes such ascarnitas pork tacos and tortilla soup at restaurants such as El Bajio and La Distileria. Professionals who work in the offices in the tower’s upper floors can descend to mingle with the Chilangos (Mexico City residents) browsing for Apple products, CDs, home goods, and athletic equipment in the brightly lit stores in the building’s first three floors. At lunchtime, a pair of hungry diners could easily spend $100 on a couple of gourmet dishes and a few drinks at one of the formal restaurants inside the shopping center. By contrast, less than a block away, a neighborhood taco stand sells tripe, sausage, and slow fried beef brisket tacos—a hungry diner can get five meat-laden tortillas for less than $2.
In Mexico, it seems you are where you eat. Mexico City’s young professionals dine at a mix of modern, formal restaurants and old-school informal street stands. Investors are opening a new wave of world-class restaurants in many neighborhoods in Mexico’s capital city, targeting the growing budgets of the city’s upwardly mobile young professionals. But the formal economy isn’t robust enough to provide jobs for the entire workforce. Like meat in an over-stuffed taco, many people don’t fit into the formal sector and fall out to the sidelines.
Standing in front of his bright orange truck as doctors from a nearby hospital and businessmen in suits walked by, Soto explained that he didn’t need to seek out loans to start his business. “We had the resources to invest in the trucks,” he said. Other would-be entrepreneurs aren’t as fortunate, however.
“In Mexico it’s hard because there is no real legislation for food trucks, so it’s hard to get financial resources from a bank. The money usually comes from individuals,” Soto explained. As he talked, a waiter set down a sandwich stuffed with unctuous shredded pork for a customer seated at a stool in front of the van’s narrow, stainless-steel lunch counter. A sandwich and a drink cost $1.90.
For food truck vendors, even securing the right to use a particular space involves careful navigation of formal and informal channels. “You try to get a permit from the city government, but if you can’t, you reach out to informal leaders to rent out a space,” Soto said.
Informal businesses, whether they are operated out of rented spaces on the sidewalk or are run as itinerant enterprises, are not officially registered and do not contribute social security payments for their employees. Although the unregistered food vendors do not pay taxes, they do serve as an important source of employment in a country where only four out of every 10 workers are employed in formal-sector jobs. “It’s an informal business, [but] the government tolerates us,” Soto added. Up the block and around the corner, customers stood in front of white metal shacks, eating hamburgers, shrimp cocktails, and a wide variety of different tacos. Each shop has its own improvised electricity connection. The wires rise up into an elaborate tangle before connecting to the grid.
A few blocks down Orizaba, in the heart of the Roma neighborhood’s main strip of trendy gastropubs, Alexis Arce, a 27-year-old chef, sat down at a table near the sidewalk entrance to his seafood restaurant, Pacifico 7. As waiters shuttled plates laden with fried fish burritos and golden-brown fried shrimp tacos al gobernador, Arce eyed the torrents of rain crashing on the sidewalk outside. “You can make good money with a taco stand, but it’s not as glamorous as having a restaurant,” Arce said. As groups of young professionals hurried in from the storm — a daily part of life during Mexico City’s rainy season — Arce explained, “We could have made a food truck, but that doesn’t give you space to seat people when it rains.”
But, aside serving as a refuge from inclement weather, a formal restaurant can have its downsides. “Running a stand is more profitable. You don’t pay rent. You don’t pay taxes,” he said. Formal restaurants face challenges in getting permits and, because of their high fixed costs, can be vulnerable to extortion and abuse by corrupt government officials.
Mexico’s President Enrique Peña Nieto has made small business development a key component of his plan to boost his country’s economy. In June he announced a new program designed to provide financing and business advice to the country’s entrepreneurs. During his speech, Peña Nieto acknowledged that Mexico’s experience with entrepreneurship, “has not been sufficiently successful.”
“To help the businesses and business owners in Mexico, this year the National Entrepreneur’s Institute will invest nine billion pesos to help 300,000 entrepreneurs and 180,000 micro, small, and medium [sized] businesses,” Peña Nieto said.
“With these resources we’ll promote a favorable environment in which good ideas and good projects will find fertile soil to prosper and contribute to the economic and social development of our country,” he added.
Two months later, during Mexico’s official National Entrepreneur’s Week, Peña Nieto explained his proposed fiscal reforms, which include tax hikes on consumer goods and a simplified tax code for both small and large businesses. During a speech on August 6, Peña Nieto said, “The proposal includes steps to make sure that employees of small businesses are the first to benefit from universal social security.” On the same day, Peña Nieto also launched a program called the Network of Aid for Business-owners to coordinate government programs designed to help the operators of PYMEs, the Spanish acronym for small and medium businesses.
But in spite of the panoply of new programs, Mexico still has a long way to go when it comes to boosting formal sector employment and reducing economic informality. Right now Mexico collects only 8.5 percent of GDP in taxes, the lowest figure for any member of the Organization of Economically Developed Countries, a club of advanced economies. Furthermore, Mexico lags behind many of its peers when it comes to bank lending. Earlier this year after Spanish bank BBVA announced a plan to invest $3.5 billion in Mexico, Luis Videgaray, Mexico’s Minister of Finance, gave a public address in which he explained that “In Mexico, bank lending as a percentage of Gross Domestic Product is only 26.2 percent, while in Brazil it’s as high as 40.3 [percent] and in Chile, 81 percent.”
“In Latin America [in general] the average is around 50 percent,” he added.
Restricted access to credit is one aspect of Mexico’s economy that discourages people from starting small formal-sector businesses. Overall, although Mexico’s official unemployment rate is only 5 percent, around 60 percent of the country’s workforce is employed in the informal sector.
On a recent Saturday afternoon, Crecencia Robles, a thin, 47-year-old taqueria owner, topped off the containers of salsa on the table in front of her barbacoataco stand on a quiet side street in the south of Mexico City’s Roma neighborhood.
As she shoveled heaps of slow-roasted lamb meat onto tortillas for a customer, she explained, “we’ve had [the taco stand] for generations…my dad worked here.”
Together with her children, Robles roasts the meat in an outdoor oven, and then serves it to La Roma’s residents from Thursday afternoon until Sunday evening. She has never sought out a bank loan and hasn’t considered opening a formal restaurant. Robles handed over a plate stacked with two tortillas heaped with fatty chunks of meat to a slender woman in tight, trendy jeans.
“It’s a bit informal,” Robles explained. “I just pay for the use of the space.”