Businesses in all sectors, all over the world are suffering from the economic effects of social distancing and lock-downs aimed at containing the devastation of the COVID-19 pandemic. The negative economic impacts have been felt by a large majority of tech companies, while the pain is particularly severe for smaller IT providers. Meanwhile, Mexico’s federal government is largely ignoring the plight of the IT industry – a troubling sign that could lead to larger economic damage down the road.
The interests of Mexican IT businesses are represented through the Mexican Chamber of Electronics, Telecommunications, and Information Technologies (CANIETI), an organization whose roots stretch back 80 years. Nearshore Americas talked with CANIETI’s National President, Carlos Funes, last week to understand how the sector is managing the crisis.
In this conversation, Funes explained the Chamber’s views on how IT companies, particularly smaller ones, are dealing with these difficult circumstances. He also explains why the government is being asked to offer some level of fiscal relief. These are some key thoughts from our exchange.
Nearshore Americas (NSA): In general terms, how have your associates been affected by the COVID-19 crisis?
Carlos Funes (CF): As you know, CANIETI comprises the sectors of information technologies, as well as electronics and telecommunications. Definitely, each industry has experienced a different type of impact. Telecommunications is one of the sectors that keep its dynamism, and it has even felt unprecedented peaks of demand. This has required essential coordination with the federal government to keep the industry working, giving support to all the transmission station.
The IT sector, particularly in software development, has had few problems having their developers working from home, even moving their entire organization to remote work. However, the electronics sector has been hard hit. Mexico exports $76 billion USD in electronics to the US every year, and initially, this market was not affected. But, as you know, the electronics industry is very related to China’s economy, which has seen a deceleration in the number of orders.
On the other hand, there is an undeniable economic impact due to the volatility of the exchange rate in the past month. Software licenses of foreign software are paid in US dollars, so companies start to feel that impact. The exchange rate plunged to 25 pesos, which was concerning.
Also, 80% of the companies already report some type of impact. These can be: project cancellation, extended delivery times for equipment, because of shortage in China, and impact because of the depreciation of the exchange rate, among others.
NSA: Are software provider companies considering laying off employees or reducing their shifts because of the pandemic?
CF: Undoubtedly, big corporations and companies feel they can keep significant business continuity. However, there is a value chain that includes SMEs, and they are already reporting being affected. Big companies can juggle with their accounts, but small companies, particularly those dependent on a few or even just one partner, they have less financial capacity. It is projected that they will shrink, and they could also be at risk of disappearing.
NSA: How are you handling the conversation with government officials to push for incentives that will protect jobs and companies in the Mexican IT sector?
CF: In Mexican law, chambers, like CANIETI, are the official voice of companies before the federal government. We have worked with the Federal Institute of Telecommunications to establish channels of communications and to keep the sector working. Telecommunications was recognized as an essential industry, but not IT. So, we started a lobbying process to get IT services included as an essential industry. This was finally recognized on April 6th.
On the other hand, we are seeking a dialogue with the government about regulatory compliance. Companies are experiencing high peaks of demand, which present problems in adapting to government deadlines.
NSA: Will you lobby for some sort of fiscal incentive from the federal government?
CF: Of course. Clearly, that’s an aspect in which the federal government hasn’t been properly listening to us. There has been a strong communication from the Business Coordinating Council, which represents us (CANIETI) too. They have had several meetings with the President. In those meetings, they have explained the need for fiscal incentives. Our message is that 80% of companies are SMEs, and they are the most affected.
We are not requesting tax breaks. What we want is an extension in payment deadlines and other payment flexibilities, and we are having a hard time finding that support from the federal government. This responds to the fiscal policy that the government has now, but we will not stop making requests in representation of our members.
According to the Business Coordinating Council, if we don’t obtain some fiscal incentive, the economy could shrink by 5% next year, and the country could lose between 800,000 and one million jobs, with an inflation rate between 7% and 10%.