LATAM Economy

LATAM facing COVID-19 and how to cope with it

As the days go by, the economic outlook in LATAM becomes even more complicated for most companies. On the one hand they drag the slowdown that China was experiencing and on the other they try to contain the spread of the virus at an economic level with the closure of companies, industries and activities.

After multiple governments established mandatory quarantines for more weeks than planned, Latin America went into anguish that this seemed not to be an option in the region. Few businesses can afford to remain closed or operate digitally; The informal businesses that prevails in countries like Mexico with more than 30 million inhabitants dedicated to this sector (according to INEGI) is paralyzed and this panorama leads to a dilemma for the economically less robust countries: it is to die from the virus or die from hungry. The following weeks will be essential to assess the economic impact in the medium and long term 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 in the region and pay them due attention to be able to solve or try to mitigate the impact of COVID-19.

According to the UN, the contagion has reached more than 117 countries and wherever it goes, it represents a threat to local economic stability. According to data from Statista, Brazil, Peru, Chile, Mexico and Argentina are among the countries in LATAM with the highest number of confirmed cases of coronavirus, and this was their pre-pandemic scenario:

  • Brazil, which is one of the largest iron producers, if not the market leader, a large part 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 an economic strategy based on oil and with falls in the price of raw materials.
  • Argentina, down with exports in agricultural items also had input problems due to the price of raw materials.
  • Chile had China as one of its main copper export consumers.

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

So we could summarize that the economic blow comes from 4 fronts:

  1. Serious decrease in tourism, which according to data from Commercial Trends in LATAM if we reach 3 months of confinement will fall by 25%. Very bad news for the Caribbean countries whose economy is based on national and international tourism.
  2. As we have already seen, the fall in basic products is imminent, since the export of raw materials is practically nil (attention Chile and Brazil).
  3. On the other side are imports, cheap auto parts, electronics and others that act as middlemen’s goods in Mexico and Brazil. By not having them, the cost of the products increases and the sale becomes difficult.
  4. Goodbye to investors. As global financial conditions worsen, capital will migrate to where security exists, speculation will begin, chaos and stock market shock 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
    Do you want to make sure that no pandemic can shake your business again? It starts with the digital transformation; focuses all its efforts on a data driven approach. The IT sector, according to IDC, will grow by 4.8% with a high probability of increase since the current demand for services is being overwhelming.
  2. Development of an online shopping ecosystem
    If you don’t have e-commerce, now is the time. According to data from Expansión magazine, it will grow by 60%, imagine the possibilities!
  3. If you don’t know, learn
    Start by familiarizing yourself 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 resources and update your digital knowledge.
  4. Communicate effectively to your employees the actions taken and do not forget about your client.

    It is time to strengthen relationships, send emails and strengthen social networks.
  5. Save for future unforeseen events
    Regardless of any pandemic, having an amount of income for contingencies can always help in the face of 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 certain degree of vulnerability generates dependence on the political authorities of each country, which regardless of the measures they take, will not cease to be a strong blow to the business and economic sector of each place located in this region.

Getting back to normal will take longer than planned. Let us understand this crisis as a call for the necessary evolution, a need to stop depending on others and start quickly for this new reality, a digital transformation that allows the reach of different audiences, a focus on global markets and the strength of making decisions based on data.

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