Economic Impacts Corona Virus in Argentina and Chile
Introduction
There are now over 10, 000 confirmed cases of coronavirus in Argentina and Chile. Both countries are on lockdown. Nevertheless, the disease continues to escalate on an alarming late. The pandemic has adverse effects. It is weakening the economy in both countries, affecting both the demand and the supply chains. Gross Domestic Product (GDP) is said to have fallen, which could raise the unemployment rate and increase poverty. (Barro et al., 2020) posits that crisis may loom in Chile and Argentina due to the extreme decrease in economic activities, trade, investment, and tourism. China, the origin of the virus, in particular, is the leading country in the number of covid-19 cases globally. These two states rely on China for exports. It has resulted in exposing how these countries over-rely on China, making them vulnerable in times of worldwide crisis such as the coronavirus. As the blow on an economic point of view continues to ripple through Chile and Argentina and their governments trying to salvage their most vulnerable populations, it has also underscored the countries’ dependence on exports with no added value. Chile and Argentina need to reform their export structures and engage in market diversification.
Economic Structure
Chile is one of the fastest-growing economies in South America in the last ten years and significantly reducing poverty among its citizens. According to the International Monetary Fund, the Gross Domestic Product in Chile, as of 2019, has increased by 2.5%. It is a decline as compared to previous years. The fall is a result of adverse weather conditions and the slowdown in government reforms. Unfortunately, the economy is set to be thumped in 2020. Coronavirus has led to the closedown of almost every business in the country. According to (Ozili & Arun, 2020), production levels have gone down, money circulation in the country is affected, and foreign exchange is nonexistent at the moment.
Chile’s primary economic sectors include agriculture (viticulture, fishing, and fruits), mining (copper, nitrate, and coal), and manufactured products (wood and chemicals). According to the World Bank, the industrial sector accounted for 30% of Gross Domestic Product in 2019 and offered employment to 22.8% of the working population. The agricultural sector accounted for 3.6% of the Gross Domestic Product and provided a job to 9.1% of the working population. The services sector accounted for 57.6% of the Gross Domestic Product and offered employment to 68.2% of the working population. The economy in Chile is faced with three main challenges: reducing overdependence on copper, development of a food supply that is self-sufficient, and increasing overall productivity in all sectors.
Table 1.1 Economic Activities in Chile
Argentina has a high-income economy. It is the second largest after Brazil. The principal contributors to high incomes include natural resources and an export-oriented agricultural market, a highly-skilled population, and a diversified manufacturing base. According to (“COVID-19 impact will extend recession in Argentina,” 2020) economic performance of Argentina historically show it has been uneven, which is characterized by severe recessions and income misdistribution. Today, a high-economy, Argentina still maintains a high GDP per capita and quality of life. Unfortunately, the economy is set to be hit hard in 2020. Coronavirus has led to the closedown of almost every business in the country. Production levels have gone down, money circulation in the country is affected, and foreign exchange is nonexistent at the moment.
(Biscayart et al., 2020) observed that Argentina’s primary economic sectors include agriculture (sorghum, sunflower, maize, and soybeans), mining (petroleum, gas, borate, gold, and uranium), industries (beverages and food processing, refinery products, farm, and industrial machinery, home and electronic appliances, and motor vehicles), and services (banking and tourism). According to the World Bank, 15% of the Gross Domestic Product was made up of the manufacturing sector in 2019 and employing about 13,4% of the population. The agricultural sector accounted for 11.6% of the Gross Domestic Product and provided a job to about 16% of the working population. The services sector accounted for 60% of the Gross Domestic Product and offered employment to approximately 70% of the working population.
Coronavirus Crisis Effects on Businesses
The onset of coronavirus in Chile and Argentina sent shock waves in all businesses. In a survey carried out by DNA Human Capital on business executives, it was found out that the pandemic will have adverse effects on activities in the long-term. Many businesses are closed now. It predicted that soon many businesses would be operating losses, which will force them to close up.
Table 1.1 Business Executive Responses in Percentages
Economic Forecast
Sebastian Pinera, the Chilean president, said that the pandemic would have a massive economic impact, which will result from the lowered global prices of copper and other agricultural products, their main export, especially to China. The expectation of growth as estimated by Bank of America will reduce from 1.3% to 0.9% due to the coronavirus and less investment due to social conflicts that have existed for a while. The Chilean Commission on Copper (Cochilco) predicts that exports of agricultural products and copper will reduce not only in quantity but also in value since shipment to China, where 50% of it is exported, have been rescheduled to an unknown date.
In Argentina, export commodities are one of the greatly affected areas by a coronavirus. According to (Mertens et al., 2020), exports are predicted to drop by 5% due to the coronavirus outbreak, which means that the country will fall short on revenues by a large number due to lower prices and fewer sales. In January, exports of beef drastically reduced by 32.2% compared to the previous financial year. China accounts for over 75% of beef exports in China, and there are fewer shipments that mainly support the reason for the drastic decline. Already on the edge of a new sovereign default, low exports and low prices of commodities represent the adverse effect of the Argentinian economy, and the GDP is set to drop by an approximate of 2%.
Trade Partners
In March last year, the President of Chile Sebastian Pinera met the President of Argentina, Mauricio Macri, where they discussed a free trade deal between the two nations. The agreement was to liberalize and deregulate several economic activities. The agreement aimed to promote bilateral trade between the two countries
Chile, as at now, only sends 1.3% of its export to Argentina, which comparatively is reasonable when compared to what other neighboring countries receive. Apart from Argentina, Chile exports a quarter of its products to China. The export levels have been growing from $10.5 billion in 2017 to $19.2 in 2019. The impressive trade between China and Chile is due to the free-trade treaty between the two nations that was sighed back in the year 2005. However, this year trade among these countries is on the downfall due to the coronavirus pandemic. Borders have been closed, meaning free trade between Chile and Argentina is not happening, and exports to China minimized to contain the virus, which is escalating at a high rate in Chile.
Relatively, Argentina is the 3rd largest destination for its exports is Chile. Foodstuffs and vegetable products are among the main exports to Chile (“Demand, output, and prices: Argentina,” 2017). However, Argentina’s exports to China are relatively lower when compared to Chile’s exports to China. The primary explanation for this is the Chile-China free trade deal, which Argentina has not yet ratified. Nevertheless, due to the recently signed free trade between Chile and Argentina, products from Argentina are now reaching the Asian markets and, in particular, China. The United States comes in second as a destination for Argentinian exports. As of now, both China and the United States are among the worst hit by the coronavirus, which has caused a drastic reduction in imports they receive. It has adversely affected Argentina, which was already experiencing an economic crisis.
Diversification of Businesses
The demand for primary commodities by the Chinese has continued to increase in the past ten years. The main products that China gets from both Argentina and Chile are agricultural products. However, the export of raw materials through low wages and without amassed value makes these countries to fall among the weak-links in the chain of production.
Coronavirus is an awakening call for Chile and Argentina. The two nations have to find the best alternatives to prevent the adverse effects of the pandemic. Diversification in their export markets will help in improving their economy. Economic diversification is essential, but these countries must take control of decision-making related to the economy and reduce over-reliance on trade partners. According to (Westhoff n.d.), diversification beyond natural resources, exploitation is essential. Radical changes are needed, and this is the best time to take that opportunity and change how they conduct their business operations.
Tech Industry Response to Coronavirus Crisis
(Nesteruk, 2020) observed that technological firms, big or small, are taking the lead in responding to the pandemic. Maligned in several controversies over the last few years have earned credit from those who claim that it is rising. MercadoLibre is a good example of a tech company that is lending a helping hand. It is an e-commerce business that is currently serving both Chile and Argentina and other Latin American countries. In response to the pandemic, the government must increase consumer demands for important necessities and implements quarantine policies. Companies can waive fees for sellers on important necessities products. The waiver impacted commissions on vendors who sell basic cleaning products, non-perishable food products, and personal hygiene products in Argentina and Chile. MercadoLibre had reported a high increase in their rate of sales compared to when coronavirus had not spread in the two nations.
Conclusion
The extreme decline of economic activity, trading, investment, and tourism is creating a crisis in Chile and Argentina. China, in particular, where the virus originated, is the key nation in which the two states depend on exports. Unfortunately, China is now on lockdown. This has contributed to an over-representation of China by such nations, leaving them weak in periods of global crises such as coronaviruses. As the blow on an economic point of view continues to ripple through Chile and Argentina and their governments trying to salvage their most vulnerable populations, it has also underscored the countries’ dependence on exports with no added value. This hence serves as a warning sign to these states to change their production dynamics to be in a position to self-rely on themselves even in times of crisis.
References
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Biscayart, C., Angeleri, P., Lloveras, S., Chaves, T. D., Schlagenhauf, P., & Rodríguez-Morales, A. J. (2020). The next significant threat to global health? 2019 novel coronavirus (2019-nCoV): What advice can we give to travellers? – Interim recommendations January 2020, from the Latin-American society for travel medicine (SLAMVI). Travel Medicine and Infectious Disease, 33, 101567. https://doi.org/10.1016/j.tmaid.2020.101567
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Demand, output and prices: Argentina. (2017). OECD Economic Outlook, Volume 2017 Issue 1. https://doi.org/10.1787/eco_outlook-v2017-1-table76-en
Mertens, G., Gerritsen, L., Salemink, E., & Engelhard, I. (2020). Fear of the coronavirus (COVID-19): Predictors in an online study conducted in March 2020. https://doi.org/10.31234/osf.io/2p57j
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Ozili, P. K., & Arun, T. (2020). Spillover of COVID-19: Impact on the global economy. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3562570
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