Latin America and the Caribbean in the time of COVID-19: Preventing the vulnerable from falling behind

The necessary containment measures against COVID-19 have engendered an unprecedented global economic crisis, combining supply and demand-side shocks. Now, the pandemic is affecting Latin America and the Caribbean (LAC) and countries are bracing for the ripple effects. Just months ago, many countries in the region experienced a wave of mass protests driven by deep social discontent, frustrated aspirations, persistent vulnerability and growing poverty. The crisis will exacerbate these problems.

Beyond the magnitude of the impacts on already weak health systems – some 125 million people still lack access to basic health services – the overwhelming socio-economic impact of the crisis could disproportionately fall on vulnerable and poor households if ambitious policy responses are not put in place.

First, the downturn could be disastrous in a region that ended in 2019 with no economic growth. The sharp decline of global demand is affecting exports, with a deterioration of terms of trade for several countries. While the collapse in oil prices can be a relief to the oil-importing Central American economies, it will affect fiscal and external accounts of several South American countries, as well as Mexico and Trinidad and Tobago. Chile and Peru will suffer from a decline in copper prices.

On the supply side, activity has come to a halt due to containment measures but also disruptions in global value chains and imports of intermediate inputs, particularly affecting Brazil and Mexico. The decline in tourism, commerce or transport could be steep, significantly affecting smaller and less diversified economies, including many Caribbean countries.

 The global tourism economy could shrink between 45-70% in 2020.

Rising international volatility and uncertainty are weighing-in too. Large financial outflows are causing currency depreciation and reducing the value of financial assets in debt and equity markets. The situation will likely worsen. UNCTAD’s most recent estimates suggest foreign direct investment (FDI) could decline globally by 30-40% in 2020-21.

Second, the recession could wreak havoc amidst already deteriorating social conditions. Many companies could go bankrupt, particularly micro, small and medium enterprises (MSMEs), which represent 99% of firms and 60% of formal employment in the region. The job loss could be colossal, hurting the vulnerable middle class (people living on USD 5.5-13 a day in 2011 PPP prices) who make up 37% of the population. These citizens are already caught in a social vulnerability trap that reduces resilience: a vicious circle of informal jobs, little or no social protection and, and low and volatile savings.

Almost two-thirds of workers in the region are informal and most of them have no safety net to face an economic setback. Many are own-account workers, working in the subsistence economy, living day-by-day, and are at risk of slipping back into poverty. While major social assistance programmes cover most poor households, they only reach 40% of vulnerable households. Moreover, 61% of vulnerable informal workers do not benefit from any form of social protection and are unable to mitigate risks such as quarantine or rising healthcare spending. Here lies one of the main challenges of this crisis for the region: avoiding a widespread expansion of poverty, which already affects 25% of the population. First estimates from ECLAC project that poverty in Latin America could go from 185 million to 220 million people in 2020.

 

 Innovative policies to contain the impact of the crisis on the most vulnerable 

Latin American and Caribbean countries are delivering policy responses that support the most vulnerable individuals, households and firms, including internal migrants. Several governments have announced monetary and fiscal measures. For instance, central banks in Brazil, Colombia, Mexico and Peru, have reduced interest rates or adopted liquidity measures to uphold domestic demand and facilitate business. However, the exchange rate pass-through to inflation makes these policies temporary and limited. Countries like Argentina, Brazil, Colombia and Peru have announced temporary expansion of some of their cash transfer and in-kind programmes, and additional transfers to reach vulnerable people not covered by existing programmes. Some financial intermediaries are postponing credit payments for the most vulnerable firms and households. To help business and household cash flows, Argentina, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Paraguay and Peru have announced the deferral or temporary reduction of certain tax payments, as well as temporary payment cancellations for selected public utilities or the suspension of social security contributions.

It is essential to constantly evaluate the implementation and effectiveness of these measures and to re-adjust if necessary, especially those aimed at the poorest and vulnerable population. From mid-March 2020, most countries moved away from targeted assistance to more universal cash and in-kind transfers, after assessing that their existing tools and programmes were not enough to reach the broader vulnerable population. Moving forward, governments must use the momentum to design and invest in more inclusive social-protection systems, expanding coverage to informal workers and protecting them from future shocks. Investing in social protection is investing in inclusive growth.

 Reform and rebuild the social pact to ensure a long-term and sustainable recovery 

The mass protests of 2019 revealed the need to rebuild the social pact and public trust. However, the political capital to address these challenges was low. Yet, in contrast to the 2008 financial crisis, the current crisis may present an opportunity to create consensus among citizens around major pending reforms, and to recover common values, such as intergenerational solidarity and social responsibility – a strong antidote to the invisible virus that is populism. To this end, clear national strategies, involving the voices of all relevant actors, must take into account how the Coronavirus crisis is exacerbating the existing development traps.

The crisis is highlighting the need for more financing for public services, particularly healthcare. From 2006 to 2018, the share of population in Latin America and the Caribbean satisfied with the quality of healthcare services fell from 57% to 42%, well below the OECD (70%). This decline is a manifestation of the institutional trap: despite efforts to improve public services, public institutions are failing to respond to citizens’ demands, deepening distrust and dissatisfaction.

Tax and expenditure systems need to be reformed to strengthen fiscal positions and place people at their centre. For tax, options include increasing marginal direct personal income tax, property taxes, environment related taxes, and eliminating tax expenditures. These measures should contribute to increasing progressivity and tax collection (standing at 22.8% of GDP vs. 34.3% of GDP in OECD countries in 2017). In terms of expenditures, governments should support income security for the most vulnerable, enabling them to plan, cope with risks and transition to the formal economy. They should also strengthen investment to promote financially and environmentally sustainable MSMEs with better insertion in local and global value chains to overcome the regional productivity trap.

 Global action needed to face the crisis 

A coordinated and coherent international approach, involving multilateral banks, bilateral public and private actors and international organisations, is urgent. “We need a level of ambition similar to that of the Marshall plan”, in which Latin America and the Caribbean must have a voice. We need an exceptional financial package to translate policies into action, particularly for countries entering the COVID-19 crisis with on-going international discussions for the management of their public debt, such as Argentina and Ecuador. This is the time to unleash the power of international co-operation in the region – underpinning financial measures with mechanisms for knowledge-sharing, policy dialogues and technological transfers, to spur a lasting, sustainable recovery and a reinvigorated multilateral system.

This blog was originally published on OECD Development Matters and is part of a series on tackling COVID-19 in developing countries. Visit the OECD dedicated page to access the OECD’s data, analysis and recommendations on the health, economic, financial and societal impacts of COVID-19 worldwide.

 

 

By Federico Bonaglia, Deputy Director, OECD Development Centre, and

 

 

 

By Sebastian Nieto Parra, Head of Latin America and the Caribbean Unit, OECD Development Centre.

 

 

Is remote work a real solution?

A crisis is always an opportunity, and I love the entrepreneurship spirit before a crisis, disruptors become lifesavers and visionaries, but there are also poachers and crows, who wish to see a world where banning human interaction and working remotely forever, become a norm.

As you already noticed, the coronavirus crisis brings a new dynamic on how to make business. Remote solutions are popping up and Businesses are moving online: Educators, Managers, Doctors, etc….

Zoom, Google Hangout, Skype, Facebook Live, etc, etc, etc… are at their maximum capacity. And more are joining the “remote” fever.

No more waking up, dressing up, dealing with grumpy faces in the subway or bus. No more morning bad jokes, gossips and complaints at the office. Aleluya!

When 70% of people hate their job, it is obvious the option of remote work sounds a dream coming true…. till the chains of the routine traps you again.

Like Yoga was never mean to break the chains of your mind, trapped in a purposeless job of a broken economy, why then you think Zoom will replace a meaningless career or job? 

 Is remote work a real solution?

REMOTE WORK

 

The tech world already declared war to humans a long time ago:

1. Elon Musk´s Neuralink plans for installing chips in our brains.
2. Mark Zuckerberg´s Libra plans for never handing over money at your local shop (Still facing internal resistance).
3. Uber Eats plans for replacing your hungry with gluttony.
4. Netflix plans for stoping you queuing at the cinema.

Edtech is already worth 43 USD Billions, and indeed they offer quality and affordable knowledge, but Education?  With up to 80% dropouts in online courses, it seems the education is becoming a “drug” product for personal branding addicts rather than an added-value experience for your professional and personal development. 

During times of pandemic, a face-to-face ban is capitalised by techno-anxious *I would add a facepalm here, but I’ve been advised against it*

 

They want you to ignore powerful facts:

1. Air and Sun are powerful disinfectants.

2. Our economy and our planet can be saved with natural-based products. 

3. Well-being & Health depend on our constant interaction with nature. 

4. Outdoor education is the highest quality education for our children.

5. A healthy and comfortable workspace guarantee satisfaction & well-being. 

When the crisis is over and the time to return to the office comes: the post homework depression might hit hard, and we should all no blame our workplace for that, instead we should rethink the purpose of our skills in the economy and wonder if we really do well to the planet and to ourselves. 

 

Remote work is not a panacea, and this vision is shared by thousands: ONLINE CAN NEVER REPLACE HUMAN INTERACTION.

REMOTE WORK

Yes, digital tools are great for collaboration and learning, but they will never provide you with authenticity, empathy, moral imagination, satisfaction and real systemic thinking through direct contact with real people, their struggles, their dreams, our planet, its beautiful nature and moreover its complexity.

Online tools provide with a great opportunity, but also with a trap of automatizing and disconnecting ourselves from others. Go 100% remote will not change the fact you hate your job. Do not get into the trap of “online” will save the world. Instead…

It´s time to defend our humanity, heal ourselves from our excesses and restore our relationship with our mother earth.

The day to defend humanity has finally arrived, time to re-build social contracts, reprioritise our values, and understand the fragility of our systems and our planetary boundaries.

There is a lot of disruption needed in the real world:

1. To move to a circular economy, we need to go out and talk to our farmers.
2. To build peace and justice, we need to go out and bring people together, listen and understand their pains.
3. To end poverty, we need to build alternative social systems and stop asking billionaires for charity.
4. To achieve sustainable development goals, We need to reconcile ourselves with our planet.

Our mother earth is shouting out for change and we need to listen.

 

Roberto A. Arrucha

Director & Founder of The Global School for Social Leaders &

Author of the Social Innovation Box.

Survive the coronavirus crisis

Let´s be honest, no everyone will survive the coronavirus crisis …. buuuut what it doesn´t kill you make you stronger. Here 5 lessons (or changes needed) for your business model to thrive this crisis.


 1. Variable Vs Fixed Cost.

Do you remember that last part of your business model canvas? Yes, that one in the left lower corner. Yes, you and everyone ignored it.

Well, finally you are paying attention to this super important base of your business: COST STRUCTURE.

You are not struggling cause the lack of income, you struggle due to your bills are piling up and you won’t have money to pay them.

Dividing your cost structure between Variable vs Fixed Cost will allow you to leverage fairly the operation of your business according to the market conditions.

Paying so much on a fancy office when your clients rarely visit you? Time to work from a co-working space.

Survive the coronavirus crisis

 

2. Revenue Streams.

Everyone wants to hunt the big fish, everyone wants Steve Jobs and Elon Musk in the portfolio of clients, it seems sometimes a “status quo” than a real business model.

Let me ask you, do you have a revenue stream or revenue streamS? Do your income generators have you back?

I know, it sounds easier than it is, however, having the power to develop at least 2 income generators from the same or different activities is a life-vest during shaky moments.

E.j. If you sell a hand cream (luxury product), you can also sell a disinfectant soap (they are running out now from the stores). DIVERSIFY your income, and prioritise a cash flow activity.

 

Survive the coronavirus crisis

 

3. Running a business is not always about making money.

It is about providing value, and when your functional value proposition runs out (better process, cheaper, higher quality) due to market uncertainty, your emotional value proposition will stand out.

How is your brand making feel your customers when purchasing your product/service? Do they connect with your why? Your client’s loyalty will be challenged the following days and their feeling of belongingness will decide your survival. 

 

4. Time to re-arrange partnerships.

If you are relying on your partners to keep your business floating during this crisis, it is time to rearrange and rethink your partners.

Like clients, partners need also qualification:

Are they providing you with a better value proposition?
Are they reducing your cost structure?
Are they providing you with valuable communication and distribution channels?

If the answer is NO. You need to stop collecting logos on your website and collect real value. 

5. Are you enjoying this moment? If your answer is no, time to say goodbye.

Survive the coronavirus crisis

If you are not enjoying this challenge, if you don´t feel excited about the opportunities ahead, leave this business immediately.
If you blame the coronavirus for your business failure and collapse, it is time to abandon it.
The coronavirus crisis gives you an excellent opportunity to close down and Start Doing What You Love.

 

Is it time to re-arrange your Business Model?  Let me help you out to survive the coronavirus crisis.

20 years as an entrepreneur and 10 as a social entrepreneur working for social entrepreneurs and impact-driven businesses is kind of good skill at this moment, huh?

😀 Download my Social Business Canvas for FREE HERE, and work from home. Or…

😍 Have a 1 hour 1:1 consulting session with me for only €150,

Coronavirus Price €50!  (CLICK HERE).

 

Roberto A. Arrucha

Director & Founder of The Global School for Social Leaders &

Author of the Social Innovation Box.

 

 

 

Since 2010 we have had the privilege to host our headquarters in Vienna, Austria. And we would like to share with you our top reasons that confirm we live in the most liveable city in the world. 

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