Can Businesses Stay Safe From Gangs in Mexico?

This post is also available in: Português Español

Julio Almanza, the head of the business chambers’ federation in Mexico’s Tamaulipas state was fatally shot on July 30, hours after giving television interviews in which he described local problems with drug cartel extortion. In response, the Femsa corporation, which owns Oxxo, the country’s largest chain of convenience stores, temporarily closed nearly 200 stores amid threats from drug cartels. What are the security risks of running a business in Mexico, and are those risks worsening? How much of an effect is extortion by drug traffickers having on Mexico’s business community? How are corporations responding to the threats, and how much are their profits being affected?

Philip Johnson, lecturer in government at the College of Business, Government and Law at Flinders University: “Extortion is widespread in Mexico, but measuring it is extremely difficult. While massive corporations like Femsa have some limited means to resist extortion, often the victims are small or informal businesses, like street or market vendors. The trend over the six years of López Obrador’s presidency has been modest decreases in homicide and a sharp increase in extortion (60 percent increase in registered cases). These trends are possibly linked, with the government turning a blind eye to more subtle forms of crime, as long as homicide figures decrease. Extortion is desperately underreported due to fear of reprisals, so the official figures do not capture the magnitude of the issue. Indeed, we usually only hear about extortion when it is contested. It can be contested when multiple extortion rackets overlap, squeezing businesses harder and often leading to increased violence. When competition intensifies, extortionists have less incentive to moderate their demands in order to ensure steady longer-term profits. Extortion is also sometimes contested when victims push back. This might take the form of publicizing the extortion, as happened in Tamaulipas last month (or Baja California several weeks earlier). It can also take the form of violent reprisals, where fed up victims take the law into their own hands. Resistance is rare, however, because the cornerstone of extortion is impunity. Police turn a blind eye or are cut in on the profits from extortion. With impunity so rampant, many businesses are forced simply to accept the terms of the extortionists or dedicate funds to private security. Exit—such as Femsa closing its many Oxxo branches on Nuevo Laredo—is only really an option for the largest businesses. Even then, closing branches does not prevent extortion at other stages in the supply chain, such as charging illicit tolls to transport freight.”

Arantza Alonso, senior analyst for the Americas at Verisk Maplecroft: “Extortion, robbery with violence against personnel, the theft of goods, money and assets and the infiltration of organized crime in the sale, distribution and/or pricing of products are key security challenges for running a business in Mexico. Although risks and threats vary by state, industry and company size, extortion has been recognized—even by President Andrés Manuel López Obrador—as a growing problem affecting most businesses across the country. Indeed, between 2018 and 2024, extortion reports in Mexico increased by 66 percent. The latest official data on the victimization of businesses indicates that extortion was the most reported crime by companies in 2021, and it was the most common in almost two-thirds of Mexico’s 32 states, even leading to the killing of business owners. Besides affecting the business community, extortion has severe socioeconomic implications. These include rising final prices, bankruptcy risks mostly affecting micro, small and medium enterprises and limited economic growth and social mobility. Businesses with financial capabilities are allocating a significant share of their budgets to pre-emptive security measures—such as hiring private security, setting up CCTV systems and conducting supplier and employee vetting. In July, the American Chamber of Commerce in Mexico reported that around a third of its member companies—which together represent more than 20 percent of Mexico’s GDP and generate about 2.5 million direct jobs—are now spending more than 5 percent of their annual operational budgets on security. Companies also adapt their operations to mitigate potential risks and cancel investments and/or operations in the country, undermining Mexico’s overall economic development.”

Amanda Mattingly, former U.S. diplomat and founder of ACM Global Intelligence: “A decade ago, I worked on a project in Mexico assessing the risk of organized crime infiltrating a multinational operating in the country. We deemed the risk ‘high,’ as an increasing number of smaller Mexican companies had reported incidents of extortion by drug cartels, attacks on transshipments and ‘protection’ payment requirements. It became clear that the cartels are dealing in much more than just drugs; they are actively seeking to diversify their business lines to boost revenue and consolidate control, and violence comes to those who refuse to comply. The murder of business leader Julio Almanza in Tamaulipas is a sad example. Indeed, the six years of President Andrés Manuel López Obrador’s administration has been the most violent period in Mexico’s history, with more than 193,000 homicides recorded since 2018. López Obrador’s ‘hugs not bullets’ approach to security has allowed the cartels to take over large swaths of territory, including in Tamaulipas and elsewhere along the U.S.-Mexico border. Security risks to businesses have increased as well, creating a significant drag on the Mexican economy. In response, corporate entities like Femsa must invest heavily in ongoing risk management, security personnel and technology and intelligence systems to head off security threats to their employees, assets and bottom line. They prepare for scenarios—everything from truck beds of product being unloaded illegally to the CEO being targeted for kidnapping and extortion—and have extensive emergency management plans and protocols. But the reality is that the Mexican government needs to do much more. Hopefully, incoming President Claudia Sheinbaum will implement a robust new security strategy that goes after the cartels and organized crime and protects the business community and the Mexican people.”

Guadalupe Correa-Cabrera, professor at the Schar School of Policy and Government at George Mason University: “There are relevant risks of running a business in certain regions of Mexico—particularly small and micro businesses. Extortion is a recurrent crime, pertaining to multiple economic activities, that has been expanding throughout the country. Some corporations, especially the larger ones, respond to related threats by contracting private security services. Corruption, impunity and institutional limitations of different types—issues of judicial accountability, deficient criminal investigation processes, corrupt practices in the prison system, among others—exacerbate this problem. It is difficult to assess how much of an effect ‘extortion by drug traffickers’ is having on Mexico’s business community due to criminal justice limitations and poor criminal investigations. It is often assumed that extortion is perpetrated by drug cartels operating regionally or nationally; this is not always the case. Criminal dynamics of extortion need to be further investigated at the local level. Criminal franchises—sustained by corruption and impunity—and not drug cartels seem to be essentially involved in this illicit business quite detrimental for the country’s development.”

Latin America Advisor logo.The Latin America Advisor features Q&A from leaders in politics, economics, and finance every business day. It is available to members of the Dialogue’s Corporate Program and others by subscription.

Suggested Content

Somos Crianza: A Latin American Coalition of Early Childhood Networks, Officially Launches

In October 2023, Somos Crianza - a coalition of civil society organizations and networks from seven Latin American countries - was launched with the mission of making early childhood a top priority in the region.

El informe del FMI ignora que en Nicaragua hay una “captura del Estado”

La reciente declaración final del equipo técnico del Fondo Monetario Internacional (FMI) pone de relieve hechos e inconsistencias en la redacción del documento, pero también crea la oportunidad para que la misión del FMI tome en serio su propio diagnóstico y recomendaciones y realice una evaluación sobre las vulnerabilidades de la gobernabilidad y confirme que en Nicaragua se ha producido una “captura del Estado.” De otra forma las consecuencias de su aval al régimen Ortega-Murillo serán devastadoras para los nicaragüenses y para la credibilidad del FMI.

Nicaragua 2024 – Between the Silenced Majority and the Critical Constituency

Dictatorial repression in 2024 will continue to cause irreversible social losses in Nicaragua. Thanks to migration and the flow of remittances, the economy will grow by inertia and not due to the economic policies from the Christian and solidarity-based government.

The Inter-American Dialogue Education Program

SUBSCRIBE TO OUR NEWSLETTER / SUSCRÍBASE A NUESTRO BOLETÍN:

* indicates required