Jorge Arbache
Vicepresidente de Sector Privado, CAF -banco de desarrollo de América Latina y el Caribe-
There is growing consensus that the global recession triggered by COVID-19 will be long and that the economic recovery graph will not look like a "V", but rather something similar to the Nike swoosh.
The final picture of the recovery will depend on the impact of the pandemic on public health and the duration of the halt in economic activity. While all efforts should be directed to saving lives and ensuring income for citizens in need, it is also necessary to think about what will happen when we return to relative normality, and how we must achieve economic recovery.
At the moment, amid the necessary social isolation measures, businesses are experiencing unprecedented hardship. In spite of the emergency trade funds provided by governments in many countries, the pandemic will continue to punish the business community. However, the effects of the recession will not affect companies of different sectors and characteristics equally. For example, the hardest hit are manufacturing companies as well as selected segments of the trade and services sector, and micro and small enterprises. Business conditions will also be affected on issues such as cost structure, productivity, competitiveness, innovative capacity, technologies and business models.
In a scenario that shows a relatively higher failure rate for companies with higher cost structures and lower standards of productivity and competitiveness, we will be seeing changes in the sectoral composition and company profiles of those that will remain active. The change in profile is expected to be reinforced by companies entering the market in the post-crisis period, which should benefit from lessons learned and will likely begin activities that already use more sophisticated technologies and business models.
This leads us to think about the nature of these "model companies" that will come out the other side of the tunnel. As relatively fewer workers are likely to be employed, structural unemployment is likely to rise beyond overall unemployment. In a context of slow economic recovery, this increase may be accompanied by growth in informality, poverty and inequality.
Initially, the ILO had estimated the growth of the pandemic, leaving approximately 25 million workers without a job, a number that the institution itself admitted to have underestimated. Therefore, it will be necessary to expand emergency social safety nets with a longer-term perspective, as well as strengthen employment policies and broaden entrepreneurship, training and vocational education programs.
Another issue associated with employment concerns the business opportunities uncovered by the pandemic. These include businesses and investments in the health sector, medical and hospital equipment, telemedicine, online education, new forms of entertainment and communication, e-commerce, logistics and many other items with local, regional and global markets. The region’s startups are active in this regard and present ingenious and innovative solutions to new and old problems, including mechanical respirators and rapid microbiological testing and diagnostics, as well as biotechnology, geodata and data management services, digital solutions for governments and many others.
Another issue is how to connect aid to the production system and the next phase of economic expansion, which will certainly emerge later. In this regard, we must consider all technological, productive and innovation policies, access to digital infrastructure, programs for the internationalization of companies and market access, management programs and programs to support startups as integral elements of government recovery and strengthening packages. Issues such as Industry 4.0, 5G, artificial intelligence and others already in the agenda of the region’s countries, but which were being slowly deployed, will have the opportunity to move forward in a more orderly manner and, therefore, contribute to the competitiveness of companies.
Other production issues also deserve attention, including international trade and foreign direct investment, the digital economy, PPPs, the environment, and others that may also add an important contribution to economic recovery.
Given that the pandemic represents an exogenous shock with extraordinary social and economic costs for virtually everyone, it is reasonable to assume that countries that best know how to optimize and enhance economic recovery actions will come out better from the crisis, generate more jobs and grow more sustainably.
