Lockdown Economy Spain

The first recorded case of COVID-19 in Spain was on January 31st, 2020. The cases grew to approximately 85,000 cases by the end of March [1]. The country leaders declared a state of emergency by March 30th, 2020. Since the start of the COVID-19 in 2020, small businesses have been among the most vulnerable sector of the Spanish economy and have struggled significantly to keep up with changing restrictions. lt affected them financially, mentally, and physically. 

In spite of that, micro and small enterprises have proven to be quite resilient. In the Lockdown Economy Spain, Think Tank AlterContacts interviewed ten different local businesses in the regions of Barcelona and Vinaros. This field research has shown that although these companies have suffered losses, they found a way to reach new clientele, and even reach monetary growth. 

In this article, we look closer at the commonalities among interviewed small businesses in Spain and the challenges they faced throughout the pandemic. These common needs and challenges will also be linked to strategies and policies that the Spanish government has implemented to help small businesses survive the pandemic. 

Decrease in Customer Flow

One of the most common challenges mentioned during the interviews was that customers were unsure of where the future was headed. This fear caused many of them to abstain from spending money on non-essential services and subscriptions. This was the main challenge for Mirrorme, an online life-coaching business. From the start of the pandemic, the owner began to lose customers. Despite her efforts to attract new ones, people chose not to contract a longer-term (4-12 months) commitment. Many of her customers explained that they were unsure about their financial future and preferred not to spend extra [2]. A similar thing happened to Mosaic Flowers, an online flower shop, where customers did not feel like paying for a subscription plan for flower delivery [4]. 

Another small business, Citytactic, an international student service, was also impacted by this uncertainty and instability. The company offers support services to international students in Spain. The travel restrictions of the pandemic halted their growth and are now preventing new students from joining the program [3]. People are fearful of travel, changing restrictions, unstable school policies, and overall expenses of living abroad. 

Maiten Panella, the owner of a professional training business, shared that her clientele kept changing throughout the pandemic. Many businesses she worked with stopped using the services as they are now unsure of the future of their own business [5].

Without a sense of stability, people are not likely to spend on non-essential services and subscriptions. It is especially relevant for consultancies and nice-to-have business propositions. This instability is hard to surpass because small enterprises do not know what the future holds, so they cannot reassure customers and partner businesses that it will not get tougher.

Policy Insight 

The poverty rate in Spain has increased since the COVID-19 pandemic and more people are finding themselves in worse financial conditions than before. Spain has also seen a negative development rate in 2020 compared to most European Union countries [6]. This is a serious issue that directly affects how Spanish citizens spend their money. Although the Spanish government did implement lower unemployment restrictions, a minimum living wage program, and economic tax credits, the country itself cannot sustain the economic impact it is currently faced with. 

Italy and Spain were among the two hardest-hit countries by the pandemic whether it be financially or in infection rates [6]. Spain does not have the fiscal space, defined as the affordable and stable financial resources, to overcome the economic crisis [7]. Although the government tries to help individuals feel more stable financially, it does not have the resources to do so. 

Contact with Customers

Another key challenge small businesses in Spain shared was their inability to reach customers. Many businesses quickly transitioned to providing services and products online during the pandemic. But for some, it was not possible. Restaurants were subject to frequent closures and restrictions, which ultimately harmed their marketing strategies and financial well-being. Small restaurants suffered financially as they were cut off from potential customers. They had to find different ways to serve customers and attract them back once it was possible to open. This was the challenge for a Lebanese restaurant in Barcelona, called Beryti. The co-owners had to adapt their menu, approach to customers, and deliver their takeout to survive past the restrictions [8].

Hairdressers had similar issues related to recurring lockdowns. Creadores de Imagen, a hairstyling salon, had to close for some time due to the pandemic restrictions in Spain. Being a high-contact activity, even when salons were allowed to open, they had to follow strict sanitary rules, which caused fear among business owners and customers [9]. The customers had to be reassured that they were safe from contracting the virus there. 

Studentfy, a student networking platform has suffered from the lack of customers throughout the pandemic. The platform heavily relies on universities, school activities, student resources, and student events [10]. With the pandemic, virtually all schools had to be closed. In turn, the platform suffered a major decrease in customer flow as they no longer needed it to navigate the offline university life. Without students in university and on-campus, Studentfy could not reach enough customers, lost approximately 90% of revenue, and had to let go of 50% of their employees [10]. 

Not all service businesses could be successfully moved online. Restaurants and salons are primary examples of services that could not be performed digitally and needed face-to-face interaction. Both sectors experienced recurring closures due to the pandemic. Still, their activities are hindered by the continuous health restrictions. 

Policy Insight

The International Council for Small Businesses outlines five recommendations that would help small businesses during the COVID-19 pandemic. One of them proposes tax-exemptions and credits [11]. In times of crisis, small businesses are the most vulnerable but most valuable. Therefore this recommendation would serve the most good in the long run and will allow small businesses to grow exponentially in the future. 

The restaurant industry plays an important role in the economy of Spain. It is important that policies imposed due to the COVID-19 pandemic allow restaurants to continue their activities. The same could be said for beauty salons that rely on in-person contact. Necessary sanitary equipment could be provided to small businesses that suffered financial loss due to mandatory closures, to allow them to remain open and limit the risk of COVID-19 spread. This can be done through an economic stimulus for small businesses or even tax relief. An early-enough notice before the restrictions come into effect is important for businesses to prepare and strategize on how to retain customers base throughout a closure. 

Transitioning Online

Many small businesses have faced financial challenges during the pandemic. By their nature, small enterprises are more fragile to economic recessions and crises. With limited financial capability, the majority found it difficult to remain afloat. 

Small businesses did not have the required knowledge or funding to transfer their activities online in such a short time. This was one challenge for Olivier Coaching, a life coach business from Barcelona. The owner had difficulties promoting her services on social media and delivering them online [12]. 

Transitioning online has been a widely used strategy to counter the negative effects of pandemic closures. Although this method has proven to be great at creating more attention and awareness to businesses and acquiring potential customers, it has also created a more competitive market [14]. Besides, some customers due to their age could not access products or services online; others simply could not afford internet access.

There is a clear need for training on social media for small businesses so that they can utilize all the tools that are necessary for success in the future. In addition, infrastructure for internet services needs to be maintained regularly and evenly across neighborhoods of all levels of life.

Policy Insight

The Spanish government must make the internet accessible to everyone during a pandemic where in-person interaction is not always possible. Making the internet more accessible to everyone will help small local businesses to keep working and eventually flourish. Since the best strategy to counteract the pandemic is to stop in-person interaction, having a strong internet infrastructure is important to maintaining the economic flow. 

The International Council for Small Businesses states that the internet is a necessity in this new age of technology and local governments should provide free access to the internet to all citizens [11]. The council believes it is no longer a private luxury but a public good. In addition, they mention online education programs powered by IT firms [11]. Although they mention K-12 education programs, this notion could also apply to university programs and Spain could put in place a program to allow local small IT businesses to take control of these systems in cases of lockdowns. This could have potentially helped a small business like Studentfy with its revenue stream by allowing them to build a platform for university courses to continue online. 

Funding New Small Businesses

Another major need is funding for small businesses. Funky Tables, a sweets-in-a-box delivery, and Mosaic Flowers emerged from the pandemic and they need support and guidance on how to survive in post-pandemic conditions. Although these businesses were prime examples of how the crisis encouraged new businesses development, there are many small and micro enterprises that have collapsed due to a lack of funding or revenue. 

Policy Insight

Funding small businesses with grants or low-interest loans will help them compete with stronger international competitors. In turn, that will help rejuvenate the economy of the country. Nowadays, people are more likely to buy from local businesses they can trust instead of large corporations. There is a strong movement in support of small and local businesses and the government should be leading it to help the economy recover in Spain.

CONCLUSION

Small businesses are very important for the future of the Spanish economy. The government needs to them recover from the pandemic crisis: whether it is through funding, training, support in online transition, guidance in marketing, or help with following the health restrictions. The pandemic has also become a breeding ground for new small businesses and it is important to support them in the post-pandemic recovery of Spain. 

Written by Sara Bragaglia, a Political Science graduate who started her own small businesses during the COVID-19 pandemic.

Edited by Marlene Ramos

Editor-in-Chief - Julia Skupchenko

REFERENCES

1 - Oliver, Nuria et al. “Assessing the Impact of the COVID-19 Pandemic in Spain: Large-Scale, Online, Self-Reported Population Survey”, (2020), online: Journal of medical Internet research <https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7485997/>

2 - Think Tank AlterContacts, Lockdown Economy Initiative, Lockdown with a Life Coach Bernadett Nagy. Small Businesses respond to Coronavirus. Available at https://www.youtube.com/watch?v=7yXuOtT0AA4&feature=youtu.be&ab_channel=AlterContacts 

3 - Think Tank AlterContacts, Lockdown Economy Initiative, Lockdown Economy en España Servicios para Estudiantes Internacionales con Citytactic. Available at https://www.youtube.com/watch?v=KbJxoV7ewvM&ab_channel=AlterContacts 

4 - Think Tank AlterContacts, Lockdown Economy Initiative, Lockdown Economy Spain in a Flower shop with Margaux Bastid. Available at https://www.youtube.com/watch?v=brRxgvN6M5k&ab_channel=AlterContacts 

5 - Think Tank AlterContacts, Lockdown Economy Initiative, Lockdown Economy Spain in a Professional Training and Coaching Business with Maitén Panella. Available at https://www.youtube.com/watch?v=zWj9muSfXSg&ab_channel=AlterContacts 

6 - ESPN. “SOCIAL PROTECTION AND INCLUSION POLICY RESPONSES TO THE COVID-19 CRISIS” (2021) European Social Policy Network Report p. 9-192

7 - UNCTAD. “Trade and Development Report 2020” (2020) United Nations Trade and Development Report p. 1-140

8 - Think Tank AlterContacts, Lockdown Economy Initiative, Lockdown Economy Spain in a Lebanese Restaurant with Cindy and Pamela. Available at https://www.youtube.com/watch?v=Ar17PeGGr-Q&ab_channel=AlterContacts 

9 - Think Tank AlterContacts, Lockdown Economy Initiative, Lockdown Economy Spain in a Beauty Salon with Clara Quevedo. Available at https://www.youtube.com/watch?v=-2nNBWrioxo&ab_channel=AlterContacts

10 - Think Tank AlterContacts, Lockdown Economy Initiative, Lockdown Economy Spain in a Student Networking Community with Arturo Gil. Available at https://www.youtube.com/watch?v=pt7-1OWfsXw&ab_channel=AlterContacts 

11 - El Tarabishy, Ayman. “ICSB Proposes an Audacious Plan to Save Small Businesses”, (2020), online: International Council for Small Business <https://icsb.org/news_articles/page/22/?et_blog>

12 - Think Tank AlterContacts, Lockdown Economy Initiative, Lockdown Economy Spain with a Life Coach Ali Oliver. Available at https://www.youtube.com/watch?v=RTRIIWvigwM&ab_channel=AlterContacts

13 - International Monetary Fund. “2021 General SDR Allocation”, (2021), online: IMF <https://www.imf.org/en/Topics/special-drawing-right/2021-SDR-Allocation>

14 - Julia Skupchenko "How Will Europe's Online Market of Small Businesses Recover?". Available at: https://www.entrepreneur.com/article/366602