For over seven months, we have seen COVID-19 create a severe global economic, social and health crisis. In Latin America and the Caribbean (LAC), the crisis has translated into a tragedy. It is claiming hundreds of thousands of lives and in some countries, citizens remain in confinement for periods of 150 days or more, devastating economies and bringing about a huge toll of economic, physical and psychological aftereffects.
In LAC, the effects of the pandemic have been particularly devastating leading to loss of employment in the tourism sector as well as huge reductions in international trade volumes. A recent study by the International Labor Organization (ILO) indicates that COVID-19 has left 41 million people unemployed in LAC. This dire situation highlights the need for an economic recovery that must be sustainable with a view to creating a net-zero emissions and climate resilient future.
What actions are key to promoting sustainable growth in LAC?
1. A balance between employment and economic growth is required
COVID-19 has accelerated the unemployment rate in key sectors of countries’ economies, impacting the income of workers and households. Many countries in the region have chosen to boost growth at home to minimize the serious impact the pandemic is having on exports. The ILO report specifically advises countries should develop robust employment and social policies to support the recovery.
For example, using wage policies and investing in infrastructure allows for social protections for low-income populations and for services for the most vulnerable to be made available. One approach used in countries including Argentina, The Bahamas, Barbados, Belize, Brazil, Chile, Costa Rica, Ecuador, Guatemala, and Uruguay has been to reduce or postpone payment of labor taxes in order to support the liquidity of companies.
A return to business as usual is not an option or as a Latin American colloquialism says to describe the impossible, “covering the sun with your hands”. Structural changes are required in production and consumption patterns. A new report by the IDB and the ILO indicates that the transition to a net zero emissions economy could create 15 million net new jobs by 2030 in LAC.
Like any transition, there are winners and losers. The transition would cause the disappearance of around 7.5 million jobs in the energy and agriculture sectors. However, 22.5 million jobs would be created in forestry, renewable electricity, construction, and manufacturing, among others.
A sustainable recovery must ensure measures that support those most affected. That’s why the economy and employment must be stimulated while also protecting workers.
2. The Role of Small and Medium Enterprises (SMEs) is Essential to the Economic Recovery
The UN highlights the relevance of SMEs in achieving the Sustainable Development Goals given their ability to promote innovation, creativity and the promise of decent work. It is essential to include sustainability aspects and principles in the business model to move towards sustainable development. In response to the crisis, the IDB approved an operation to support the sustainability and recovery of MSMEs in Argentina.
To protect and strengthen SMEs, it is important for them to be able to adapt to the “new normal”. They are critical in fostering economic innovation and in promoting new technologies, as well as adding value and financing chains to the economy. Access to credit and tax incentives are paramount to job creation and to formalizing employment in the long term.
Another critical action is digitalization. Given that confinement measures are in place in most countries of the region, the potential of new technologies and digitization is key. In Brazil, for example, SMEs are being supported by equipping them with digital technology and know-how. The Brazilian Business Support Service (Sebrae) offers digital services to SMEs in areas including the issuance of online invoices, providing electronic commerce platforms, and offering financial services options and the all-important and timely access to expert advice on the impact of COVID-19 on businesses.
The eighth Sustainable Development Goal, “Decent Work and Economic Growth”, is vital to remind governments of the importance of advocating for ensuring business continuity through financial support to companies and protection of vulnerable workers. In Honduras, the IDB approved a loan of US$ 19.96 million to benefit around a thousand MSMEs in the tourism sector that were affected by the crisis allowing for access to loans, producing a positive impact on their sustainability, levels of employment and sales.
Another key action, which will boost the number of green SMEs in the economic recovery, is to provide them with targeted financing schemes, such as green loans. Sustainability criteria should be at the center of businesses, as it will provide companies with the ability to adapt and be resilient in the face of crises such as COVID-19 or climate change.
3. Social Protection Stabilizes the Economy and allows for Employment Resurgence
The pandemic has affected the payment chain, starting an economic crisis. As a result of the crisis, layoffs and loss of employment contracts were triggered. In LAC, the economic situation and response to the crisis is heterogeneous: some countries have a greater response capacity in health systems while others less so.
Social protection during the crisis is essential to reduce social and economic risk and vulnerability; and it is a critical aspect to eradicate poverty. Given the current context, the pandemic is a call to action for governments and policymakers to implement a social protection system in countries that are vulnerable today. The countries that are capable of implementing social protection coverage will have a structure equipped to protect their population, providing unemployment benefits, pensions, universal access to health and provide infrastructure programs.
A sustainable recovery to create a better future
The region can bet on a sustainable future and many countries are already doing so. Costa Rica, for instance, is using its National Decarbonization Plan to guide the recovery towards a prosperous and net-zero emission economy. COVID-19 presents an economic, social, and environmental opportunity for change, as well as paving the way to transition to net-zero emissions.
LAC should be able to respond to the crisis including structural changes in its economic recovery packages that increase resilience to confront future crises. Social dialogue is extremely important among all actors and decision-makers to provide a sustainable way out of the crisis while helping workers, communities, and companies to guarantee decent working conditions and greater equity for all.
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