Argentina IT Runs Risk of Cash Flow Interruptions

Although virtually all countries in Latin America and the Caribbean are facing some level of disruption because of the COVID-19 pandemic, the severity of the pain is clearly going to vary from location to location. On one hand, the Economic Commission for Latin America and the Caribbean (ECLAC) forecasts that the region’s economy will shrink by 5.3% this year, the worst contraction in history. It should come as no surprise then that Argentina’s IT industry is showing strain as software exporters, particularly the smaller ones, have begun to experience cash flow difficulties, which could make it challenging to pay salaries in the coming weeks and months.

Industry sources we spoke to, however, differ on how much the crisis will undermine knowledge-based exports. One school of thought is that during times like this, both quality and value will become significantly more important to outsourcing customers as they prioritize, assess and trim software sourcing partnerships according to which programs are being scaled back internally. The longstanding argument in favor of Argentina IT is that in both those critical measures – quality and value – the country stands up and frequently outperforms counterparts from other locations in the Nearshore. The vulnerability has always been, of course, macroeconomic uncertainty for which there is still an ample supply.

It is that ongoing economic instability and tight credit markets that understandably are hitting the smaller operators the hardest. “Companies that work for the domestic market are the most affected by the crisis because there have been issues with the payment chains. But they keep working, and they have increased demand since there is more need for online IT solutions in the local market as well,” told Nearshore Americas, Carlos Pallotti, a former undersecretary in the Ministry of Production and one of the country’s leading authorities on the digital economy and knowledge-services exports.

The Argentinean Chamber of the Software Industry (CESSI)  reports that software companies have experienced a sharp decrease in domestic sales, which forces those companies to consider layoffs or other cost-saving measures. As is the case across the region, many providers deliver services both locally and globally.

However, Pallotti stresses that the problems these Argentinean companies have faced are mainly related to delay in payments or payment arrangements. He says that CESSI’s is putting pressure on the government to speed relief programs for SMEs, and he is confident that so far the disruptions haven’t led to layoffs.

CESSI is lobbying the government, particularly Argentina’s Central Bank, to create policies that instruct local banks to ease loans for SMEs, especially loans directed to salary payments when and if companies see cash flow weakness.

Knowledge-services exporters have also been helping locally to manage the pandemic. Pallotti praised an initiative that unites eight IT companies, led by CESSI, and over 100 IT professionals to create an app that allows people to calculate the risk of contracting COVID-19.

Argentina’s IT Recruiting Freezes

Tomas Delcarlo, Co-Founder at DevFlow, a company that connects startups and other companies in the US and Argentina with IT talent they need, says that some companies continue to hire, but the pace is definitely slowing down.

“Economically, it has been hard for us, since many companies have frozen their hires, particularly startups. Some continue to hire, but others are now focusing on improving their product,” Delcarlo told Nearshore Americas.

Similar to what we reported in our edition of The Exchange about the condition of Mexico’s IT industry, Delcarlo considers that COVID-19 could rebalance the level of supply and demand in IT labor.

In our Mexico report, our interviewees commented on the possibility that smaller IT companies could fail in the country, leading to that talent being captured by bigger industry players. Other Argentina sources confirmed to us that they see this as a possibility in the country, but it is to early to know how extensive this might become.

Despite the uncertain times for recruiting, Delcarlo agrees with Pallotti that Argentina’s IT economy is resilient, especially in regard to those who endured lots of bumps and bruises in competing in the global market.

“Companies that export services have adapted well to the circumstances. They haven’t been hit that much, and they maintain their goals. Some big companies may have postponed some projects, but nothing more significant than that,” Delcarlo said.

Despite Argentina’s IT preparedness and maturity, the country was clearly economically challenged before COVID-19 arrived. The current recession is showing no signs of abating, and macroeconomic indicators remain unfavorable.

Pallotti is optimistic that the sector in Argentina is mature enough and has adequate characteristics to overcome this and even come stronger out of the crisis. After all, Argentina knows the struggle of difficult times, and also how to stand up again and face the future, looking for new opportunities.