An interesting experience for an economist is to actively participate in the management of an SME, since it allows verifying in real life the effects of the decisions of the public power, those that are usually taken from a glass office in the downtown by people who, in general, never had to produce, import or export or pay a fortnight.
On this occasion, I am going to allow myself to convey to you the concerns surrounding the management of an Argentine SME, located in the interior of San Luis, of which I am a shareholder and vice president. The company, with entirely national capital, has two divisions, a chemical products factory for the paper industry since 1993, being the only national manufacturer of these, and the other division has been manufacturing tissue paper since 2017.. We started with 6 employees and today there are 55.
Chemical raw materials are manufactured exclusively in China and India. In the case of short-fiber cellulosic pulp, necessary to manufacture tissue paper, there is national production, but it is fully consumed by its manufacturers, which is why the rest of the industry must import, mainly from Brazil. In both cases, their prices have had a very significant increase in the last two years, a by-product of the pandemic, the war in Ukraine, etc.., also significantly increasing logistics costs and travel time.
For the reader unfamiliar with these issues, both situations generate a significant problem of need for working capital due to the higher unit price of each kilo imported, as well as the need to have a larger inventory than is foreseen under current conditions. normal, introducing an additional complication in the manufacturing process. For some time now, our foreign suppliers have required us to pay in advance or give us a very short-term commercial credit line limited in absolute values.
So far, nothing that is far from what happens to the majority of Argentine SMEs in all sectors. The BCRA circular that obliges importers to finance their purchases for 180 days (obviously without prior consultation with suppliers), leads us to an absolutely unprecedented situation.
It doesn’t matter if I have the money to pay, I can’t do it, even if I wanted to. The aforementioned circular does not distinguish between company sizes, origin of capital, ability to access credit, relationship with suppliers, etc., causing a negative differentiation between large and small and medium-sized companies. Nor does it distinguish the size and object of the import, for example, the spare part of a machine, necessary for it to continue working.
This necessarily means that, in a relatively short period of time, say 30 or 60 days depending on the companies and products, we do not have more inventories to be able to produce. And if payment terms for imports were liberalized again, the time frames for raw materials, especially from the Far East, to reach our ports, would cause production problems..
Its consequence will be suspensions and/or dismissals of employees, and may, in the limit, reach the closure of factories, with its correlate of shortages of an enormous quantity of products and an enormous destruction of physical and social capital that is difficult to reconstruct. Stopping production has very significant costs associated with getting a factory back up and running!
To make matters worse, products that are not manufactured locally must be replaced by imports with a higher cost in foreign currency for end customers and the country, with its impact on future inflation and a lower generation of national added value, aggravating the general macroeconomic problem. .
At the end of this sad story, what will happen is that the surviving companies will increase their prices to try to recover the losses and higher costs suffered, resulting in a higher rate of inflation.
Everything described above is, neither more nor less, than the situation that most SMEs, including our company, will have to face as of the end of August, if the new authorities do not propose to modify this Central Bank circular .
We presented more than a week ago, on the advice of the Secretary of Industry of the previous Ministry of Productive Developmentan explanatory note to the BCRA indicating, with a greater degree of specificity than in a newspaper article, the impacts that will be generated, as well as the urgency of having some type of response, but they told us that the responses that are obtained, when they exist, they are random and without any type of basis on the reasonableness of the proposals made, regardless of the efforts that this dependency could make.
These lines are not intended to make a political or macroeconomic analysis of the consequences of these decisions, but it cannot fail to be noted that one of the successes that the current government can show is the reactivation of the industrial sector since the beginning of the recession in 2018. These Central measures are going to throw this modest achievement overboard in a very short period of time, with the consequent damage in the medium and long term to the productive fabric. It is just a sample button of the effects of making decisions without having gone through the demands of daily management in Argentina.
*Juan Soldano Deheza is an economist and SME entrepreneur.
by Juan Soldano Deheza
