Covid-19, the impact on the Algarve's economic health

That a Regional Strategic Council be created, with the objective of designing the regional operational program in the context of the recovery and diversification measures that are justified

And it happened. The black swan did appear. The world's economy, with an increasingly tight mesh, has reached such a degree of interdependence and integration that any vector immediately triggers rebound effects everywhere.

The global risk and the systemic propagation effect are there to warn us that there is a strong causal link with the aggressions to the environment and social inequality (poverty) of today's capitalism.

At the end of the human chain, viruses and bacteria wait for us to bless or mistreat us. Furthermore, both environmental aggressions, inequality and poverty, due to their magnitude, place us all, citizens of the world, practically face to face and at the mercy of many other mutations of viruses and bacteria that are even more aggressive.

The Algarve region, due to its great dependence on the free movement of people, is a territory particularly vulnerable to the spread of Covid-19. Let's look at some aspects of the problem.

Riding a tourist bubble

The Algarve is a region of “almost total tourism”. Tourism is a fundamental factor in regional development, taken with consideration, weight and measure, but it is also a very sensitive factor to variations in the geopolitical and geoeconomic cycle.

The tourism bubble of recent years has created an excellent opportunity to discuss some possibilities for diversifying the regional economic base. Yes, because it is in the high phase of a cycle that the problems of the low phase of the cycle should be discussed.

With Covid-19 there is, in a brutal way, the low phase of the cycle. We fell asleep riding a dilation and now we are hostage to its severe contraction.

The Algarve's tourism ecosystem is at serious risk of involution if we do not quickly address some of its most serious dysfunctions:

– Touristification has further narrowed the existing economic base and created a precarious economy. low cost intensive,

– Touristification conditioned the development of other sectors and increased the opportunity cost of alternative economic activities,

– Touristification caused a distortion in the regional labor market and the devaluation of important regional assets, in particular, the migration of technical staff from the University of Algarve who do not find professional opportunities here,

– Touristification has led to a gentrification of small “downtowns” in Algarve towns and cities, as a result of unusual real estate pressure on the respective residents, in particular, the elderly and underprivileged, but also students,

– Touristification has promoted an excessive consumption of public resources and, in particular, an excessive consumption of water, soil and heritage, at the precise moment in which some parsimony in the use of scarce resources due to the more harmful effects of climate change is required.

In short, the brutal contraction of the tourist bubble exposes all these dysfunctions and all the more the greater the extension of the pandemic through its successive replicas.

The touristification of the Algarve, in platform mode low cost consumption of tourist and cultural events, where everything and everyone “is obliged to yield” in the shortest amount of time, the time of the occasional passenger, has come to an end. Let's look at some possible scenarios.

Covid-19, some evolution scenarios

Covid-19 arrived unannounced and appears to be in no hurry to depart. Let's look at some evolution scenarios, related to possible replication periods.

1) The most optimistic scenario: clearly positive signs in the 2nd half of 2020
The second quarter of the year – April, May, June – is a turning point. The virus has probably mutated with the rise in temperatures and the same trend is seen in the countries we tour with; despite a slow recovery in the 3rd quarter, the signs are clearly positive and allow us to anticipate the consolidation of the trend in the 4th quarter of 2020.

2) The most pessimistic scenario: a tragedy announced during 2020 and part of 2021
The pandemic drags on due to a succession of small outbreaks, Portuguese society leaves the state of emergency, but remains in a state of confinement with no end in sight and the same trend exists in our trading partners.
Fear and lack of trust remain.
Imagine, now, the coincidence of the pandemic with a severe drought in the 2nd semester, the lack of water, the closure of many micro-enterprises and the uncontrolled growth of unemployment as a result of the failure of the “low cost intensive".

3) Intermediate scenarios: monitoring, adjusting and adapting continuously
If we manage to gather the best information and the best observation and control panel of situations, acting and reacting in a very short time, it may be possible to mitigate and minimize the most harmful effects of Covid-19, taking the appropriate emergency measures that are now in force, while at the same time preparing the recovery and diversification measures that are justified for the later stage of the cycle.
I'm talking about a turning point somewhere in the 2nd semester, at the end of summer or autumn, that is, 2020 is practically a lost year with a substantial drop in regional GDP and employment that I don't even want to predict.

In either scenario, we will have two very discontinuous periods, that is, a “brutal crash” in business, product, income and employment in 2020, and a “very slow and gradual recovery” during 2021. It is this discontinuation of the two periods that oblige us to think about a regional strategy for the recovery and diversification of the economic base as soon as possible.

The “pandemic paradox”, economic recovery and diversification

It is not an easy task to talk about the recovery and diversification of the regional economy when the tourist activity is the one that more quickly remunerates small savings and small investments made.

Initially (2nd quarter), the priority is to manage the emergency measures well, preventing survival from quickly turning into irremediable insolvency. Along these lines, a kind of “campaign business hospital” should be created to assist and treat the most urgent cases.

In this very sensitive matter, the Algarve region suffers from what could be termed the “pandemic paradox”, the functioning of which could jeopardize its economic recovery in the short term.

In fact, the extreme dependence on tourism makes the region completely dependent on the freedom of movement of people, not only the occasional tourist, but also the commuting tourist (the Spanish neighbor), the migrant worker, the Erasmus student, the foreign resident , the cross-border worker, the transit passenger.

In other words, the Algarve's economy is dependent on a visitor who may be a Covid-19 carrier, and this eventuality clashes with the possible immunity of the region to Covid-19.

If we think about what is currently happening in our neighboring countries and what is yet to happen, we see, once again, some dark clouds hovering over the near future. So let's look at some application measures.

1) Emergency measures
The emergency measures already announced are aimed at the survival of small businesses and the corresponding jobs.
Two observations are in order.
The first tells us that survival does not happen if the pandemic is prolonged in time, more than a quarter, and insolvency ensues.
The second tells us that the survival of a company can lead to a significant reduction in its jobs. A third or a half of the current job may disappear, only to reappear eventually a year or two later.
However, while all this is happening, the credits granted are converted into a new wave of bad debt, a new wave of arrears, a new wave of debt to suppliers, a new wave of debt to social security and tax authorities.
I insist here on the idea of ​​a “campaign business hospital” to give some comfort to companies in the region.

2) Measures to recover and diversify the economic and social base
The design of a new regional program is underway as part of the programming of European funds for the 2030s and this is a decisive moment to reflect on the subject.

Much has already been said, CCDR-ALG has been doing its job, here are some more ideas in the current context of Covid-19:

– Firstly, to save lives, more investment is absolutely necessary in the region's hospital infrastructure and, in particular, in the university hospital centre; this will always be the best brand image of a region whose first product is tourism;

– Secondly, to save food and regional agricultural production, it is essential to create three (3) local supply networks – Barlavento, Central Algarve and Sotavento – based on the logic of proximity agriculture, short circuits and local distribution ;

– Thirdly, in order to take care of the Algarve's marine biology, artisanal fishing and aquaculture, it is essential to strengthen the marine science laboratories of the University of Algarve and expand their support functions to the activities of the sea economy;

– Fourth, in order to take care of the environment, water quality, soils, biodiversity and ecosystem services, it is essential to approve a wide-ranging circular economy program;

– Fifthly, to take care of Barrocal, the traditional dryland orchard and products from the mountains, it is essential to launch a program that directly remunerates the environmental and ecosystem services provided by agroforestry producers;

– Sixthly, to properly care for the “old people of the Algarve”, it is essential to create a regional network of IPSS and Continued Care Units, which is not only a shopping center, but also a center for the provision of differentiated therapeutic care , a function that has been completely neglected these days;

– Seventhly, in order to take care of the “workers skilled in the services”, it is essential not only to provide them with technical assistance through the “campaign corporate hospital”, but also to provide them with an expanded program of technical and business training in the next few months;

– Eighth, in order to take care of digital literacy and the future of our young people, I believe it is essential to rehearse the experimental launch of a “school of technologies, arts and culture” in the Algarve;

– Ninthly, to take care of the “intermittent workers of the spectacle and culture”, I believe it is essential to launch a regional program for creative and cultural activities in close coordination with schools, companies and institutions in the Algarve,

– Tenthly, in a city-region like the Algarve, it is essential to create a meta-platform Algarve Sharing, with the objective of regulating the regional economy and being a useful collaborative platform in the management of occasion markets, regional exchanges, collective brands, common goods, niche markets, contracts of institutional food, time banks, microgeneration energy networks, short circuits, microcredit and participatory financing networks, social and complementary currencies, spaces of coworking, scientific and artistic residencies, international trade relations, among other examples, always in a logic of sharing common interests with the Algarve's civil society and always beyond the simple inter-municipal archipelago.

Final Notes

The paradox I mentioned above is, without doubt, the most worrying sign of the current Algarve tourism economy, that is, the one that relates the maximum amount of tourism to the maximum social and labor precariousness.

For that reason, the cluster tourism, in the coming months, should receive the utmost attention from associations and public authorities precisely because of the radial effects of this sector in the region.

There is another paradox at work, which I note here. We all want tourism to recover quickly, however, an accelerated recovery in tourism has a dilatory effect, that is, it does not create conditions for radical thinking about the future of the region and, in this line, the low capitalization of the local business community will make it very difficult to carry out alternative policies to diversify the economic base, unless the region imports entrepreneurial initiative and sufficient capital.

Perhaps the greatest asset of the Algarve city-region and of its younger generations is the “collaborative connection” operated in the virtual networks of “many to many”.

In fact, the city-region of the Algarve, a region open to the world, will be able to take advantage of this cosmopolitan differentiation. In this case, the flows of the Algarve region-city, in addition to occasional tourism, will also include the community of foreign residents, the actors of peninsular cross-border cooperation, the mobility of students, researchers and artists and the wide variety of digital workers in transit in cyberspace, among other specific forms of mobility. And this will be the basis of its economic, social and cultural diversification beyond Covid-19.

Finally, I suggest that, in addition to the crisis cabinet that the Secretary of State for Fisheries coordinates, a Regional Strategic Council should also be created, with the objective of designing the regional operational program in the context of the recovery and diversification measures that justified and with the contribution of those here recommended, among others.

And don't forget the essentials. Without immunization and without vaccination, the precariousness of health and work will continue. And the tourist is a carrier agent par excellence.


Author António Covas is a Retired Full Professor at the University of Algarve