SMEs, Migration, and the Challenge of Informality in Guatemala: An Economy that Resists from Below
By Alexander Castillo / Translated by Emma Porter
This article analyzes the crucial role of Small and Medium Enterprises (SMEs) and migration in the Guatemalan economy. Based on current data, more than 90% of the businesses in the country are small or medium-sized and that remittances represents about 20% of the GDP. Nevertheless, 70% of these SMEs operate informally, which limits their growth and sustainability.
The relationship between remittances and entrepreneurship is also explored, and a comprehensive strategy is proposed that includes reforms to facilitate formalization, improve access to financing, and to harness the potential of migrants as investors. Strengthening these sectors is not only one option, but a necessity for equitable and sustainable development in Guatemala. The Guatemalan economy stands on three invisible pillars: remittances that millions of immigrants send, the dynamic nature of micro, small, and medium businesses, and the constant fight for the informal sector to continue existing without support and regulation. Even though these ideas are usually absent in official discourse, they are what sustain the current national economic system.
The figures speak for themselves. According to data from the Bank of Guatemala, in 2023 family remittances reached more than 19 billion dollars, representing approximately 19.5% of the country’s GDP. This figure not only reflects the magnitude and importance of the migration phenomenon, but also of the structural dependence that the country has with respect to those who have emigrated. Far from being a problem, immigration has been an individual and collective response to the lack of opportunity in the country.
According to data published by the Ministry of Economy (MINECO) in 2022, SMEs are emerging as the backbone of the domestic economy: more than 90% of the businesses in Guatemala are micro, small, or medium, and they generate around 80% of national employment. However, according to the study La informalidad laboral en Guatemala: causas, efectos y propuestas (Informal labor in Guatemala: causes, effects, and proposals), published by the Association for Research and Social Studies (ASIES) in 2021, the problem lies not in their numbers, but in their fragility: it is estimated that about 70% of these productive units operate informally. In other words, they are without tax registration, without access to credit, without social security for its employees, and outside the reach of any public policy.
Informality is not a whim; it is a survival strategy. For many entrepreneurs, formalizing their business means facing costly and slow bureaucracy, disproportionate tax burdens, and a system that cannot be trusted because it does not offer real guarantees. Nevertheless, this reality limits the growth of thousands of businesses, limits their modernization, and closes the door to exportation. Instead of encouraging development, the system condemns them to a permanent cycle of survival. The relationship between migration and entrepreneurship is also deep. Many small businesses, both in rural areas and marginalized urban areas, are sustained thanks to money families send from the United States. This connection between remittances and microenterprises has been studied very little, despite its relevance. The concern is that, without formal structure, these resources are usually destined for immediate consumption, instead of becoming a productive long term investment.
What should be done?
The first step is to understand that strengthening SMEs is not an act of charity, but a national development strategy. It requires administrative reform that simplifies the formalization process, supports entrepreneurs, reduces entry costs into the legal system, and offers differentiated tax incentives to small businesses. In addition, there is an urgent need for more flexible banking, accessible training programs, and culture that values and respects local entrepreneurship.
Further, migrants must be recognized as agents of development. Many have the capacity and desire to invest in their communities or origin, but they are not given adequate conditions in which to do so. Facilitating mechanisms that channel remittances towards productive funds, cooperatives, and other economic initiatives could be a starting point.
Alexander Castillo. Master’s degree in Operations. Co-founder of Neta Informática. He has 20 years of experience in business management, technical support, and university teaching, and has been a pioneer in the application of artificial intelligence for the diagnosis of computer equipment.
