Safe opening of the national economy

May 20 2020
Mauren esquivel

Written by Roberto Artavia L. and Jaime García from INCAE Business School

As of March 6 of this year, a good part of INCAE's faculty and staff has dedicated long hours to supporting companies, sectors, and institutions throughout the Central American region in their adaptation to the conditions created by the SARS pandemic- CoV-2. In particular, presentations have been organized related to the risk posed by the pandemic and its impacts on the population, social progress, national and sectoral economies, and how strategies and structures will have to be adjusted to face a different future. Our support is mainly at the conceptual, analytical and planning level.

In the last two weeks we have dedicated ourselves to working on the development of a comprehensive analytical framework to support the process of reopening sectors that have closed or radically reduced their production, or that have remained open, but need to strengthen their security protocols against the pandemic to prevent major outbreaks that force a new shutdown of the economy.

We call it a comprehensive model because it consists of 8 parts that we believe are essential for a "safe opening" of the various productive and public service sectors of each nation's economy. And the opening has become urgent. The fall in GDP increases every day, as does unemployment, poverty, and the risk of a collapse of the social contract and the resulting uprising of the population against all the public and private institutions of the country. Safe opening is urgent, because in the face of a large drop in GDP and a diminished fiscal economy, the country will reach the practical limit of its response capacity.

The first part is to place each sector in an order of priority and security by calculating an opening index (see figure 1). For this, three criteria are used: the risk of contagion in the operation of each sector; the social risk for their workers if they become unemployed or without income, in the case of being entrepreneurs; and the economic importance of each sector.

Figure 1. Factors of the openness index

The first is determined by four factors: a) propensity for contagion in the product or service of the sector; b) risk of contagion in the production process and in the nature of its infrastructure; c) the intensity of interaction between people in the process and flow of products and services; and d) the density of the workforce at different times of the day and process in each sector.

Social risk tries to measure four factors of social value if the employees of the sector were to fall into unemployment or a radical decrease in their income: a) the risk of not being able to satisfy their essential needs; b) the risk to their integral security as individuals and families -food, access to health, access to water and energy, personnel and their assets-; if unemployed and in relative isolation c) lose access to their social support and control groups; and d) if they increase family risk in any important dimension - overcrowding, violence, loss of abilities and self-esteem.

The third element is the economic impact and is measured by the relative weight of the sector in GDP and in national employment.

This measurement makes this framework unique in its second dimension, since it gives weight and value to the social impacts of partial and total closures and thus exerts a non-economic counterweight to the risk of contagion. In other words, it is the only model that has been presented that refers to the social impacts resulting from the closures, instead of only measuring them by their risk of contagion and economic impact.

Figure 2. Location of factors by level of openness index

The second part of the methodology is to distribute the sectors, according to the opening index measured by the three previous factors in six groups or alert levels, with which it is possible to take the third step, which is to assign them a general protocol of safe operation according to their location according to the index (Figure 2).

The six levels of alert in which the sectors are located (Figure 3) range from sectors that can return to relative normality immediately, have a condition of high risk of contagion and high social importance, they must be opened partially and gradually and with protocols of advanced and demanding security.

Figure 3. Alert levels applicable to the various sectors according to their openness index

The next two stages of the model require two important analyzes in each sector: 1) what is the operational status of the value chain of each company, in order to determine if due to problems of supply, distribution, logistics or another factor, said sector will not be able to operate at the permitted level and thus make the appropriate adjustments so as not to create unnecessary risks; and 2) if there are recent technologies or innovations that make it possible to reduce the levels of contagion risk to incorporate them into the protocol of the companies in the sector and thus further reduce the level of risk.

The sixth part of the comprehensive framework is to assign an appropriate protocol to each sector and for this it is necessary to work with knowledgeable about the real dynamics of the sector to assign and design the safe opening protocols in their specific part.

In general, there is a mandatory general protocol for all companies and sectors that consists of increased hygiene practices and facilities in each operation; the use of masks in all situations of closeness or contact between people; scheduling of entries, departures and common activities to avoid crowds; the adjustment of loads and schedules to minimize contacts and crowds; and symptom control to isolate risk factors. In addition to this, a specific protocol (Figure 4) is assigned according to the alert level of each sector and companies are asked to adapt it to the reality of their infrastructure, location, conditions, etc.

Figure 4. Protocols for each alert level (illustrative, the instructions have much greater specificity)

The seventh part of the comprehensive framework asks each company to adapt all of the above to its reality (Figure 5).

Figure 5. Detailed application in a company

Figure 5 shows how the company has separated all vulnerable collaborators, has sent those who could do it to telework; He has divided his work into two shifts to reduce the load on the facility; It has separated the teams by departments and by risk level in each position, so that, if someone shows symptoms, small work teams can be isolated without having to stop an entire process or the company itself.

The eighth element of the comprehensive framework is to define an opening scheme. The idea is that all sectors of the economy can operate at a safe level, but for this some will have to open very gradually and each company must determine when it is possible to operate with enough productivity to make it worth reopening. Companies and institutions must open when they can operate within the security parameters established by the assigned protocol.

All of the above must be done accompanied by an extremely attractive and constant campaign (Figure 6) to create awareness in the workforce that these protocols must be respected at all times, since the price of not doing so, apart from a huge personal and family risk, It is to destroy a model that makes safe openings feasible and desirable, due to the enormous but social and economic level of the current closure of the country.

Figure 6. Awareness campaign

Apart from the above, applicable to the formal economy of the country, the following scheme (Figure 7) is recommended to address the safe operation of informal sectors and other high-risk sectors -home employment, for example-.

In these sectors, with little investment capacity and which represent a high percentage of employment and productive activities in the country, it is recommended to create community conditions, in coordination with municipalities and national authorities, to reduce risk through programs, policies and selected investments.

In general, what is sought is to minimize the inherently high level of risk of these sectors by reducing their need to mobilize to have access to support and hygiene schemes and to be able to continue operating in such a way that they maintain, in the To the extent possible, some function of income that in many cases will have to come through direct transfers from the government.

Figure 7. Protocol for formal and informal microenterprises

The protection of the poor sectors, formal and informal micro-enterprises, domestic employment and the like, should be a high priority, since due to their very condition the factors of vulnerability to contagion and social impacts will be higher. This implies dedicating a significant part of the country's social policy resources to direct transfers - hopefully without bureaucratic intermediation - that give them access to having the resources they require to participate as consumers in the market that meets their essential needs. It is key to equip communities, markets, and transportation systems with increased hygiene and service facilities that avoid the need to travel and queue to gain access to support programs. The campaign of education, awareness and good practices by all means and in particular the mobile phone. In these sectors, the role of municipal governments, due to their proximity and knowledge of the reality in their areas of influence, will be of great importance.

This article outlines the main components of the comprehensive framework for opening and safe operation proposed by INCAE to Salvadoran society. There is much greater detail in the documents delivered to the government, FUSADES and, through ANEP, the productive sector and civil society of the nation.