LATAM Economy

LATAM vs. COVID-19 and how to cope

As the days go by, the economic outlook at LATAM becomes even more complicated for most companies. On the one hand, they are dragging on the slowdown that China was presenting and on the other hand they are trying to contain the spread of the virus economically with the closure of companies, industries and activities.

After multiple governments established mandatory quarantines for more weeks later than planned, Latin America went into distress because this seems not to be an option in the region. Few businesses can afford to remain closed or operate digitally; informal trade in countries such as Mexico with more than 30 million inhabitants dedicated to this area (according to INEGI) is paralyzed and this picture leads to a disjunction to economically less robust countries: it is to die from the virus or starve to death. The following weeks will be indispensable to assess the medium and long-term economic impact in all sectors and we must be prepared.

Industries to consider

We cannot talk about action plans if we do not first identify the weaknesses of the region and give them due attention to be able to resolve or try to mitigate the impact of COVID-19.

According to the UN, contagion has reached more than 117 countries and where it reaches, poses a threat to local economic stability. According to data from Statista, Brazil, Peru, Chile, Mexico and Argentina are from the countries in LATAM with the highest number of confirmed cases of coronavirus, and this was their predemic scenario:

  • Brazil, which is one of the largest iron producers, but is the market leader, much of its exports went to China.
  • Mexico was already in an economic slowdown and its investors were beginning to look for better options. In addition to carrying out an economic strategy based on oil and with falls in the price of raw materials.
  • Argentina downwards with exports in agricultural areas also had input problems from the price of raw materials.
  • Chile had China as one of its main consumers in copper exports.

With IDB data, for LATAM the imports that will have the most impact are textiles, auto parts, electronics and even pharmaceuticals. To all this we must add, disagreements in logistics, the cheap labor that stopped operating in China and the exchange rate against the dollar.

Then we could summarize that the economic blow comes on 4 fronts:

  1. Serious decrease in tourism, which according to the data of Commercial Trends in LATAM if we reach 3 months of confinement will fall by a 25. Very bad news for Caribbean countries whose economy is based on national and international tourism.
  2. As we saw, the fall in commodities is imminent, as the export of raw materials is virtually zero (attention Chile and Brazil).
  3. On the other hand are imports, cheap spare parts of automobiles, electronics and so on that serve as goods of intermediaries in Mexico and Brazil. Not having them increases the cost of products and makes it difficult to sell.
  4. Goodbye to the investors. As global financial conditions worsen, capital will migrate to where security exists, speculation will begin, chaos and stock impact will come to all those companies that do not have a strong backing position.

What can I do to mitigate the impact?

  1. Digital transformation for the company
    Want to make sure no pandemic can shake your business again? Starts with digital transformation; directs all its efforts to a data driven approach. The IT industry, according to IDC, will grow by 4.8 with a high probability of increase as the current demand for services is being overwhelming.
  2. Developing an online shopping ecosystem
    If you don’t have e-commerce, it’s time. According to data from Expansion magazine, it will grow by 60, imagine the possibilities!
  3. If you don’t know, learn
    Start by getting acquainted with digital strategy concepts, which will allow you to have a better concept of your industry and business. Start by measuring the basics on your site (conversions, impressions, etc.). Understand how to use SEO, SEM and update your digital knowledge.
  4. Effectively communicate the actions taken to your employees and don’t forget your client.
    It’s time to build relationships, send emails and strengthen social media.
  5. Save for unforeseen futures
    Regardless of any pandemic, having an unforeseen amount of income can always help with uncertainty.

Latin America has always been a place where most economic rules are due to instability, compared to other regions such as China or Europe. The inconsistent economy and a degree of vulnerability creates dependence on the political authorities of each country, which, regardless of the measures they take, will not cease to be a major blow to the business and economic sector of each place in this region.

Returning to normal will take longer than planned. Let us understand this crisis as a call for necessary evolution, a need to stop relying on others and to start rapidly for this new reality a digital transformation that allows the reach of different audiences, an approach to global markets and the robustness of making data-driven decisions.

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