Market insights: Monitoring the business impacts of COVID-19 on South America

The fourth-largest continent in the world, South America consists of 14 countries. Brazil, its economic powerhouse, is one of Canada’s largest trading partners and Chile is Canada's top investment destination. To find out how COVID-19 is impacting these countries, we spoke with EDC’s two senior regional managers in South America: Christian Daroch in Chile and Monica Busch in Brazil.

Daroch: Sectors highly affected by COVID-19 are related to retail/commerce, entertainment (cinemas, sports, hotels, restaurants), firms that provide consultancy services, like engineering, and factories since most of projects have been slowed down or put on hold. Companies that provide essential products and services, including power transmission, distribution, water, gas, supermarkets, and pharmacies, are less impacted. By company size, the most affected by this short-term shock are the small- to medium-sized enterprises (SMEs) and micro businesses because they have less financial backup or buffers.

Busch: Airlines, tourism, entertainment, and SMEs and highly leveraged companies in general. We notice that IT and companies producing essential goods are less impacted or not impacted—at least not yet—and companies transporting critical goods or offering critical services within the country are doing well.

Busch: The main challenges in Brazil:

• the volatility of foreign currency exchange mainly for exporters and for those Canadian operations in Brazil, which import parts;
• increased risk of buyers’ non-payment, which may trigger the need for insurance; and
• working capital availability for Canadian operations in Brazil.

Daroch: For Canadian companies operating in Chile, one of the challenges is the quarantines the government is implementing in several areas. They need to ensure a minimum operation, that they have teleworking capabilities, and sanitary measures—isolation or stop operations and/or projects—in place in case of infection at their sites. For Canadian SMEs, there’s the additional challenge to meet liquidity needs to pay office rental costs, refinance loans (with grace periods) and get working capital.

Daroch: There’s high uncertainty of how long this pandemic will last. The curve of infected people in Chile is increasing daily and it isn’t clear when and how big the peak of infected cases will be. There’s fear of insolvency for a good portion of SMEs. The government has put in place a robust economic package of US$9 billion to alleviate the situation for SMEs. Large companies are on their own with bank and capital market support only and face liquidity premiums. But overall, there’s sense of collaboration within the business community.

Busch: Overall perception is that the recession will be severe and the economy may take long to recover. There’ll be serious fiscal impact for Brazil given the necessary emergency measures taken, particularly to aid individuals and micro and small businesses aiming at insuring a minimum level of income and employment. Unemployment and informal work were already high before the COVID-19 crisis, so it’s also important to monitor any sign of increase of the risk of social unrest.

Daroch: We’re providing Canadian SMEs—exporters and Canadian Direct Investment Abroad (CDIA)—with market intelligence by industry and sector, buyer contact information to promote business through virtual meetings, entry strategies post-COVID-19, etc. For those in need of immediate financial support, we’re referring them to Chilean banks and informing them about the several measures the Chilean government has put in place to help alleviate financial pressures, including delaying taxes and offering loans with state guarantees. We’re also co-ordinating with our account managers in Canada and supporting Global Affairs Canada in Chile with consular activities if needed.

Busch: We’re providing market intelligence and information on local programs available for companies operating and employing in Brazil from government and private banks to address liquidity concerns. We continue to connect Canadian suppliers to local buyers, to build future exports for Canada, as well as discussing initiatives with companies interested in approaching potential partners when this emergency is over. We’re also virtually connecting CDIAs with partners and key players, including domestic and locally operating banks and the Trade Commissioner Service (TCS), and for Canadian companies, we’re raising awareness of the EDC/Business Development Bank of Canada (BDC) partnership in the Business Credit Availability Program (BCAP) and referring Canadian companies to their account managers in Canada for more targeted discussions.

To learn how EDC is helping international businesses manage the negative impacts of COVID-19, visit this page.