No one imagined that 2020 would represent one of the greatest challenges for humanity in recent decades. The arrival of Covid-19 destabilized all sectors of the economy and, although many have struggled to find the right balance, the economic impact has been tremendous.
Each country adopted independent measures, but it should be kept in mind that all have had to increase their spending in the health sector to treat the sick, many have allocated aid to the population and businesses, and the vast majority have implemented strategies of rigid restrictions, through quarantines, to prevent the spread of the virus.
Most governments established diverse quarantine modalities in an attempt to control the pandemic and avoid the human cost. The measures have succeeded in containing the virus in many cases, but the isolation of the population has led to the suspension of many activities, the closure of establishments and the blocking of borders which, because of the extension of the confinement over time, have caused a great socio-economic impact.
Food establishments are among the most affected by the decline in sales and the partial or total closure of their doors. María Pérez works in a bakery in Santiago de Chile and her workday was reduced by half and she was paid only for the hours worked.
“The store had to close the consumption area, only working with the public with orders to pick up and delivery… The first thing we did was to make the order section through social media.”
The bakery operates in a rented space and Maria mentions that an agreement with the owners, to reduce the rent fee by half helped them to stay open during the quarantine while sales were reduced. After a few months, they resumed full hours: from Monday to Friday, the capital of Chile has flexibility until ten o’clock at night, on the weekend the workers must have a special permit, because the quarantine is more restrictive during those days.
The outlook of the International Monetary Fund
According to data provided in October by the International Monetary Fund, it is estimated that the world economy will shrink by 4.4%. The advanced economies will fall 5.8% and some of the hardest hit are Canada (-7.1%), the United Kingdom (-9.8%), Italy (-10.6%) and Spain (-12.8%). For their part, the prospects for emerging markets are estimated to be down by 3.3%, with India (-10.3%), South Africa (-8.0%) and Mexico (-9.0%) among the most affected.
Latin America and the Caribbean are areas facing great decline (-8.1%). Venezuela has the worst scenario with a recession of 25% by 2020, after having lost two thirds of its economy in the last five years. Other countries with a significant reduction are Peru (-13.9%), Argentina (-11.8%) and Ecuador (-11.0%).
Despite the negative outlook in 2020, advanced economies are expected to show a recovery of 3.9% and emerging markets of 6.0% by 2021. However, the virus is still a threat and some of the countries that have relaxed their quarantine have had to revert to stricter measures when infection rates increased again.
Non-essential business and the setback in quarantine
Businesses and companies considered non-essential during the pandemic have had a few difficult months. Many have been able to survive with subsidies and personal capital.
“We have been totally closed. I took advantage of the time with training for the return, particularly by getting interested in digitalization,” mentions Disraeli Collado, owner of a gym in the community of Madrid.
The reopening, after a long period of quarantine, allowed them to work normally for a while, but a second stage of closing areas and towns has not helped these businesses to have a similar rhythm to the past. Collado affirms that he received many cancellations: “business was still picking up when they closed us down and we had a slump again. In my case, having applied for paternity in the same quarter of last year, I could not ask for the help of the self-employed, because paternity is not considered as income; therefore, in this quarter I should invoice less than 150 euros to be able to apply for it, something that is unfeasible.”
Despite the obstacles, people continue to seek alternatives. Collado has not been able to increase staff as expected for this period, but accepting help from other independent professionals within his gym “has been the only way I found to try to energize and help sustain the business.”
The digitalization of business
Certain sectors have managed to adapt to confinement in order to remain active and avoid job losses. The Internet has made quarantine more manageable, but in particular it has helped many to work from home and maintain stability in their family’s income. Depending on the company and type of employment, some people received reduced wages, while others were able to collect the same amount per month.
Education is one of the sectors that has benefited most from the internet during the quarantine period. Mateo Valencia says that during the first months of confinement, his private classes were in high demand online, but in the autumn in Europe, after months in pandemic and with the threat of a new round, he has fewer hours of classes, probably because many are trying to economize or have lost their jobs. But technology, while an advantage, can also be an obstacle.
“Many people don’t like it and that’s why they don’t enroll. Older people can have a lot of problems adapting to technology,” says Mateo.
After a trial period, some have wanted to continue with the online classes because they consider them more practical, but those who do not adapt easily to the changes prefer to wait for a return to the classrooms.
Niki Fife considered it an opportunity to adapt her academy to the online world. Alongside the professors, she designed strategies for teaching and recognized that teamwork allowed everything to flow, even though, in the first few weeks, they had to work many more hours and learn different techniques to adjust to the new modality.
“Directly, 39% of the students dropped out. For me, the decision was to keep the groups for the teachers. With all the effort they were making, I didn’t want their income to get reduced. However, that diminished the income of the academy. Still, many students are waiting for us to return in person, and several have dropped out, but they intend to return, so this decline will be temporary if we manage to survive this period.”
The numbers were not satisfactory for Fife’s academy at this stage, so recently, she had to make difficult decisions. Fortunately, two of the professors had additional plans and went their own way, which balanced out the situation a bit, but she still had to fire a third person linked to the business’ administration.
“That was a pretty difficult situation for me because she is a person that I appreciate very much. I was under pressure to get the schedules that each teacher needed, but in the end, it seems that we made it,” says Fife.
All the effort Fife had made to guarantee most of her employees’ work got threatened by an announcement from the Spanish government. Private education was to get changed from being exempt from paying 21% VAT. “I thought: if I’m 39% below and they’re going to made me increase 21% to students, that will close the business for sure, not just mine but probably the whole sector. For the time envisaged, it was devastating for me.”
Image credit: Lorenzo Cafaro