In Mexico, Drug Cartels Strangle Small Companies and Steal Up to 15% of GDP


Every year the violence is costing Mexico between 8% and 15% of its national GDP, Health minister Juan López Mercedes recently revealed. A huge cost affecting property damage, medical care, disability rehabilitation, security services and divestments, among others. “It is time to change this paradigm,” López Mercedes says.

The most affected sector by crime and violence is that of small businesses. Up to 40,000 SMEs had to shut down last year unable to pay the continuous extortion and threats from crime gangs, according a to a survey by the National Institute for Statistics (INEGI in its Spanish acronym). Many of those couldn’t afford the “right of soil”, the money a business has to pay to a local crime gang in order to continue operating peacefully. Others were just unable to endure more robberies.

A good example for this economic plague is the state of Michoacán, where thousands of civilians have raised in arms against crime and drug cartels. Many businessmen have joined the paramilitary forces in desperation. For years, the cartels imposed production quotas to farmers and fruit growers, marked routes and schedules to taxi companies and carriers, extorted small traders and of course charged a percentage of all their earnings. The Congress of Michoacán and agricultural leaders have complained that crime gangs actively extort producers in 73 of the 114 municipalities of the state.

Dairy farmers, for example, are taken one peso (5 cents of euro) per kilogram sold, as revealed by the Cattlemen’s Association of Michoacán. Fruit growers face the same fate – a lemon packager revealed he has decided to join paramilitary self-defence forces sick of paying up to 60,000 pesos per month (3,600 euro) to The Knights Templar Cartel. Last year a report claimed that the activity of drug cartels caused estimated losses in the region’s lemon industry of over 130,000 tons, or about 70% of production, due to reprisals for defaults and other extortions. “If we did not obey their orders, they burned the whole shipping,” admitted the businessman now turned into a paramilitary.

Fighting crime is one of the mottos of Enrique Peña Nieto’s government. However, after one year in office, figures are not better than those of his predecessor, Felipe Calderon. An alarming stalemate that Mexico’s economy can’t afford for too long.

About the Author

The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.

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