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ECONOMY | 24-10-2020 08:39

Crisis and coronavirus: an almost 'impossible' combo for local businesses

Local business lobby estimates that 60,000 PyMEs will shutter as a consequence of the coronavirus pandemic, potentially costing more than 600,000 jobs.

The coronavirus pandemic has hit Argentina during one of its worst economic crises. With the peso weakening by the day, many small and medium-sized companies (PyMEs) are being pushed into bankruptcy, while some foreign multinationals are opting to leave the country.

"What’s going to remain out of all this, when the Covid-19 quarantine ends, is a catastrophe," predicts one former business owner, who in August had to close down his small 16-employee-strong service company. 

"We have over 27,000 dead, over a million cases and on top of that thousands of unemployed, " says the man, who was in charge of the firm for 15 of his 55 years. 

Asking not to be identified, he describes running a business in Argentina as "an obstacle race with extraordinary tax demands and a state which gives nothing in exchange."

"The problem did not start now," he explains. "It simply became impossible." 

 

"Some 60,000 PyMEs closing down"

Argentina has been in recession since 2018. Since then, the peso has slowly collapsed against the dollar, inflation has soared and poverty and unemployment have risen. With the arrival of the coronavirus pandemic, all these problems have only worsened.

Pedro Cascales, press secretary of the CAME (Confederación Argentina de la Mediana Empresa) chamber grouping, warns that the small and medium-sized firms are on "red alert" over the prolonged quarantine first decreed by the Alberto Fernández government on March 20 to halt the spread of the novel coronavirus.

"Around 60,000 PyMEs have closed down or are about to do so due to the impact of the pandemic," Cascales explains to AFP. According to his calculations, this would imply between 600,000 and 800,000 people being jobless, a situation aggravated by most of the PyMEs being family businesses.   

Cascales assures that the problems go beyond the pandemic.

"There are structural problems: very high taxes exceeding a third [of invoicing] and very rigid labour legislation," he explains. "The other side of the coin to that is an enormous number of informally employed, estimated at 40 percent in Argentina.”

Almost every sector in Argentina is currently in decline, even those considered essential like food or pharmaceuticals. Analysts warn that this will have a heavy impact on Latin America’s third economy, for which the International Monetary Fund (IMF) forecasts a contraction of minus 11.8 percent this year.

According to CAME, PyMEs and micro-businesses represent 44 percent of gross domestic product, accounting for 70 percent of private-sector employment.

Argentina’s government has created an ATP (Asistencia de Emergencia al Trabajo y la Producción) programme to pay part of private sector wages during quarantine but "the ATP [supplement] covers very little, the PyMEs have to pay much more than that," said Cascales.

 

"Unsustainable"

It’s not just local PyMEs which are deciding to shut up shop. Various big multinationals such as Chile’s Falabella and the Latam airline or the US firm Axalta have recently decided to discontinue their operations in Argentina.

France’s Danone, whose invoicing here fell 9.3 percent in the third quarter of this year, has pointed out that it is "reviewing" its business in Argentina within the framework of a brand restructuring plan.

"The pandemic has a very negative effect on most of the world’s economies. In our country this phenomenal global recession comes on top of significant macroeconomic volatility. But furthermore, there must be added great uncertainty as to the ground rules for many industries," explains Carlos Winograd, a Paris School economics professor.

"The health crisis, in part inevitable, on top of the economic crisis makes some companies see their situation as highly compromised," he adds, while indicating that in any case "you cannot speak of an exodus." 

A leading figure of a multinational, who asked to stay anonymous, complained: "It’s almost impossible to operate in a country with powerful trade unions along with price and currency controls among all kinds of state control."

 

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by María Lorente, AFP

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