2.7 million companies will close due to COVID-19 pandemic, entailing a loss of 8.5 million jobs in Latin America and the Caribbean

ECLAC released a new Special Report COVID-19, in which it offers proposals for confronting the effects of the crisis on businesses and production sectors. The organization estimates that 2.7 million companies will close, most of them microenterprises, which would entail the loss of 8.5 million jobs.

More than one-third of formal employment and one-fourth of the Gross Domestic Product (GDP) of Latin America and the Caribbean are generated by sectors that the economic crisis stemming from the coronavirus disease (COVID-19) has hit hard, ECLAC revealed in a new study on the pandemic’s effects in the region. Furthermore, less than one-fifth of all employment and of GDP is generated in sectors forecast to be only moderately affected.

The Economic Commission for Latin America and the Caribbean (ECLAC) released its Special Report COVID-19 No. 4 entitled Sectors and businesses facing COVID-19: emergency and reactivation, which was presented by the organization’s Executive Secretary, Alicia Bárcena, in a virtual press conference transmitted from its central headquarters in Santiago, Chile.

The economic crisis growing out of the pandemic has led to the total or partial suspension of production activities. ECLAC’s latest report identifies three groups of sectors, based on the magnitude of the effects of the crisis (strong, significant and moderate). The most affected sectors are wholesale and retail commerce; social and personal community activities; hotels and restaurants; real estate activities (commercial and rental); and manufacturing.

“The crisis is hitting industrial sectors with potentially greater technological dynamism the hardest and, therefore, it will deepen the structural problems of the region’s economies. This means that if the proper policies are not implemented to strengthen these branches of production, it is highly probable that a regressive structural change will be set in motion that would lead to the re-primarization of the region’s economies,” Alicia Bárcena warned during the presentation of the report.

According to information compiled through the first week of June 2020, the impact will be much greater for Micro, Small and Medium-sized Enterprises (MSMEs). ECLAC estimates that more than 2.7 million formal companies are likely to close in the region – of which 2.6 million are microenterprises – entailing a loss of 8.5 million jobs, without including the employment cuts made by companies that will continue to operate.

The impact will be very different depending on the sector and the type of company. Several of the highly affected sectors, such as commerce and hotels and restaurants, have a large quantity of microenterprises and small companies, which will be hit the hardest. For example, commerce will lose 1.4 million companies and 4 million formal jobs while tourism will lose at least 290,000 companies and 1 million jobs.

In light of this situation, ECLAC stresses the need to provide large-scale responses to avert the destruction of production capacities. To this end, it proposes four sets of measures:

• Extend the timeframes and scope of intervention related to liquidity and company financing.
• Co-finance company payrolls for six months to avert the destruction of capacities.
• Make direct cash transfers to independent workers.
• Support big companies in strategic sectors that are seriously harmed by the crisis.

More specifically, ECLAC promotes the deferment or cancellation of tax payments, pension contributions, and property taxes, or early payout of tax refunds until at least the end of 2020, along with the suspension of payments for basic services (electricity, Internet and natural gas) without incurring fines, until the end of 2020. In addition, it proposes making credit conditions more flexible by extending grace periods to at least one year and repayment periods to five years or more, while also strengthening credit operations through development banks.

Read the full report: Special Report COVID-19 No. 4 entitled Sectors and businesses facing COVID-19: emergency and reactivation.

Original source: ECLAC
Published on 02 July 2020