Veracruz and Oaxaca main economic indicators

The state of Veracruz de Ignacio de la Llave has the fourth largest population in the country. According to the 2020 Mexican Population and Housing Census, about 8 630 000 people live in this entity, with a higher proportion of women (52%). Of its total population, 62% live in urban areas, and the rest in rural areas. The economic participation rate of its population, aged 12 or over is 59.2%, is one of the lowest in Mexico (National Institute of Statistics, Geography, and Informatics, ^{INEGI, 2020a}). In the last ten years, there has been a process that led to the concentration of both population and economic activities in a few municipalities. As of 2020, the eleven largest municipalities in the state, including Veracruz, Coatzacoalcos and Boca del Río, concentrated more than half of the population.

Oaxaca has one of the highest degrees and indexes of social backwardness in Mexico (2 539 013). Located in the southeast of the country with 570 municipalities, whose socioeconomic conditions make its population extraordinarily vulnerable (^{Moyado, 2020}). San Juan Bautista Tuxtepec, with almost 160 000 inhabitants, is the second most populous municipality in the state of Oaxaca. This state, with just over 4 100 000 inhabitants, ranks tenth among the most populous states in Mexico (^{INEGI, 2020b}). With a higher proportion of women (52%), the majority of its inhabitants live in rural areas (51%) and the economic participation rate of the population aged 12 and over is 56.8%.

According to the 2019 Economic Census, in terms of economic units (EU), the state of Veracruz ranks fifth nationally with 278 230 and Oaxaca ranks eighth with almost 220 000 (^{INEGI, 2019}). In both states, retail trade concentrated the largest number of EU (44% in Veracruz and 39.7% in Oaxaca). It has been observed that there are 3.6 EU in Veracruz, 2 in Coatzacoalcos, and 1.1 in Tuxtepec, for each EU in Boca del Río. Of the total employed personnel, each EU employed an average of 4 individuals in Coatzacoalcos, 4.5 individuals in Veracruz, 6.2 in Boca del Río, and 5 in Tuxtepec, Oaxaca (^{DataMexico, 2021a}).

In 2019, the majority of the Economically Active Population (EAP) in Veracruz was working in the tertiary sector (above 65%); while less than 28% carried out activities in the secondary sector (State Committee for Statistical and Geographical Information of Veracruz, ^{CEIEG, 2021}). In that year, the occupation of most workers in the state of Oaxaca was in: agricultural activities, especially the cultivation of corn and beans; although this activity is more predominant in small towns. According to ^{Miguel, Martínez and García (2022)}, the larger the cities in Oaxaca, the greater their economic diversification.

In the first quarter of 2021, the labor participation rate was 60.3% in Oaxaca and 52.7% in Veracruz, which implied a decrease of 1.13 and 0.48 percentage points, respectively, compared to the previous quarter; and a decrease of 0.14 and 2.66 percentage points compared to the same period of the previous year. Regarding the formal monthly average salary, Oaxaca maintained an upward trend for a year starting in the third quarter of 2019, going from $5 450 to $6 350. However, the last quarter of 2020 registered a decrease of 12% to rebound again during the first quarter of 2021 and reach the levels it had at the end of 2019. The same behavior happened with the formal monthly average salary in Veracruz, with an increase from 37% from the third quarter of 2019 to the third quarter of 2020, going from $4 510 to $6 230, dropping to 8% at the end of 2020 and rebounding by the same percentage during the first quarter of 2021 (^{DataMexico, 2021b}).

As for the bulk of economic activities in Veracruz, these are concentrated in just three municipalities (out of 212 that make up the state), where more than two-thirds take place: Minatitlán (16.1%), Port of Veracruz (14 %), and Coatzacoalcos (11.4%), Boca del Río ranks seventh with 3.8%. The strategic sectors for this entity are metalworking, agro-industrial, chemical, biochemical, mining, tourism, oil, gas and petrochemical. For the future, the expectations are logistics, medical services, ports, renewable energies, construction products, and automotive suppliers (Confederation of National Chambers of Commerce, Services and Tourism, ^{Concanaco-Servytur, 2018}). It is worth mentioning that, according to CEPAL, the port of Veracruz through which 21 533 910 tons of merchandise were mobilized during 2020, had a 9.8% reduction in its container port activity in the January-May 2020 period compared to the same period in 2019 (^{Economic Commission for Latin America and the Caribbean [CEPAL], 2020}).

Prior to the pandemic, the state of Veracruz ranked fifth among the entities that contributed the most to the National Gross Domestic Product [GDP] (^{INEGI, 2020c}). In 2019, even though the annual GDP in Mexico had decreased by 0.1% annually (first negative variation since 2009); Veracruz increased by 1.1% in its quarterly indicator of state economic activity (ITAEE). According to ^{Rosales (2020)}, at the end of 2019, this behavior was due to negative variations in manufacturing (2.0%), construction (4.3%), and mining, mostly oil (6.8%); although it was offset by increases in commerce (4.0%), agriculture (2.6%) and electricity generation (1.7%). A year later, the January-December 2020 accumulated ITAEE in the state decreased 8.2%, reflecting the decrease in secondary activities by 12.1% and in tertiary activities by 7.3%. Meanwhile, the primaries evolved by 4.3% (^{INEGI, 2021a}).

According to the State Economic Recovery Indicator developed by the Mexican Institute of Competitiveness, as of the third quarter of 2020, the states of Veracruz and Oaxaca had shown a medium level of recovery, which implies economic recovery above the pre-Covid level but below the expected growth. According to this indicator, Veracruz and Oaxaca had a level of economic activity of 7 and 9 percentage points, respectively at that time, below what would have been observed without Covid (^{Mexican Institute for Competitiveness [ IMCO], 2021}).

At the end of 2019, Oaxaca’s economy had registered a 3.3% decrease in its annual GDP, a result that was mainly owed to a 13.6% drop in its secondary activities. A 1.6% reduction in its primary sector, and weak growth, barely 0.1% in the tertiary sector. However, as of the fourth quarter of 2020, it had registered a 4.5% growth compared to the same period of the previous year, placing itself as the entity with the greatest progress in this indicator according to INEGI’s quarterly indicator of the state economic activity. Regarding the groups of economic activities in the state, the variations with the greatest increase are the primary sector, with 11.5%; while the distribution and consumption of goods economic activities increased by 33.6% (^{Badillo, 2021}). The construction sector growth stands out, with an annual variation of 239.7% in its production, thanks to triple-digit increases in building works (245.6%) and transportation and urbanization (536.5%). These two sections grouped 96.4% of the total value (^{Rosales, 2021}).

At the end of 2019, Veracruz exported 1.6% of the national total, an amount equivalent to $6 697 248 dollars; being the chemical industry (23.8%), the basic metal industries (18.5%), the extraction of oil and gas and the food industry (both with values of 16.7%); the most important export activities (^{Veracruz State´s Government, 2020}). In 2020, the state’s exports were $5 352 788 dollars, an amount 20% lower than that registered in 2019. However, as of the first quarter of 2021, Veracruz exports began an upward trend, registering in the second quarter of the year an increase of 19% compared to the previous quarter.

Exports in Oaxaca registered a 9.8% drop during 2020 compared to the amount exported in 2019 ($712 575 dollars). However, similarly to Veracruz, exports in Oaxaca began a growth trend in the first quarter of 2021 and for the second quarter of the year, the increase exceeded 80% compared to the fourth quarter of 2020 (^{INEGI, 2021b}).

Industrial activity, according to the monthly indicator of this sector (February 2021), would have registered a decrease of 14.2%, which meant that Veracruz ranked fourth among the entities with the greatest impact (^{Zepeda, 2021}). Although it is estimated that the state’s economy could reach 4.5% growth in 2021, it is expected that it will not be until 2023 that the before 2020 levels could be reached (^{Soldevilla, 2020}).

According to the state’s official website, as of October 7, 2021, 118 785 positive cases were confirmed in the state and 13 846 deaths were registered by Covid19 (^{Veracruz State´s Government, 2021}). In Oaxaca, the number of confirmed cases was 77 957 and 5 224 deaths, were registered on the same date.

Literature review

Covid-19 had an unprecedented impact on society, the economy, and the environment (^{Bapuji et al., 2020}; ^{Bansal, 2020}). It represented a health crisis, sensitively perceived by every citizen because it threatens human health (^{Jankelová and Misun, 2021}), but at the same time, it caused a deep economic crisis with long-term consequences (^{Bodziany et al., 2021}; ^{Baker et al., 2020}).

The strong measures implemented by governments to avoid the spread of Covid-19 threatened the survival of firms across all sectors and industries at a global scale (^{McKee and Stuckler, 2020}; ^{Jasso, 2021}), and not knowing when the contingency was going to end, made the dealing with the crisis more complicated (^{Wenzel, Stanske and Lieberman, 2020}). As never seen before, enterprises all over the world saw themselves with employees in lockdown, with major supply chain issues at a global scale, and in some cases, with interdictions to operate, especially when businesses had physical interactions with customers (^{Pinzaru, Zbuchea, and Anghel, 2020}). For organizations, these uncertainties are the most difficult to manage because there are few in-depth studies on the subject and the information available is scarce, partial, and contradictory (Boiral et al., 2021).

The World Bank researched the short-term impact of the Covid-19 crisis on over 100 000 businesses in 51 countries. The results show that the crisis had a severe impact on business, manifested as a widespread sharp drop in sales (on average by 49% year-on-year), employment decrease, rather through decreased hiring intensity than through layoffs, and financial restrictions affecting mainly smaller businesses (^{Paunovic and Aničić, 2021}).

The Covid-19 pandemic trigger an inordinate effect on small and medium companies that generally struggle with profitability and liquidity given their limited internal resources (^{Ciasullo, Montera and Douglas, 2022}). Despite this, small and medium enterprises are also more flexible owing to their private ownership structure and relatively flat hierarchical organization, all of which help them to sustain their ability to be innovative (^{Juergensen, Guimón and Narula, 2020}). In Israel, ^{Harel (2021)} looked at the impact of the pandemic on the revenues of small businesses operating in industrial sectors. The findings show that, despite Covid-19, the revenues of the majority of small businesses in the industrial sector were not adversely affected by the pandemic, and most of them did not change or adjust their business activities.

In México, as in the rest of the world, measures adopted to slow down the contagion affected economic activity (^{Molina, Zuñiga and Díaz, 2020}; ^{Clavellina and Domínguez, 2020}) and the problem worsened by the uncertain evolution of the pandemic (^{Sarmiento, Martinez y Mazario, 2020}). However, the effect was not the same among country states (^{Cruz-Melendez and Aguillon, 2022}) and varied depending on the size and sector of the companies (^{Borboa et al, 2021}). Small businesses faced a higher probability of experiencing income losses (^{Belitski et al., 2021}) as well as companies linked to tourism and services activities (^{Stumpo, 2021}).

The impact of the Covid-19 crisis on Mexican economic activity, in general, could be described in three phases. The first one, in the first trimester of 2020, derived from the closure of several countries and the corresponding cancellation of flights with a huge negative shock in those entities oriented to tourist activities, such as Quintana Roo and Baja California Sur. In the second phase, the economic activity in the country slowed down significantly because of the decision to suspend all those activities considered non-essential. This decision affected several manufacturing and service sectors. The third phase is defined as a reopening process, that is slower and more gradual than originally anticipated and with an uncertain duration (^{Esquivel, 2020}).

Faced with the economic and health problem, the government of the state of Oaxaca launched an Incentives and Support Program for the Economic Stability of Oaxaca (^{PPO, 2020}) that included an investment of 1 270 million pesos to overcome the contingency stage of Covid-19. The program aimed to support 5 200 companies, as well as preserve nearly 20 thousand direct jobs (De la Vega et al., 2020). In Veracruz, the government presented the State Agreement for Employment, to generate labor certainty. It aimed to link businesses, encouraging supply and demand, as well as to grant loans to microentrepreneurs, without interest rates (^{Patiño and Cruz, 2020}).

To complement the understanding of the impact of a crisis, it is worth describing the nature of crisis management and to considering how business managers handle crises in practice. Crisis management is said to involve shaping perceptions and experiences by interacting with stakeholders to prevent, resolve and learn from crises (^{Fasth, Elliot and Styhre, 2021}).

Crisis management is related to change management (^{Siuta-Tokarska, 2021}). It is the management of the strategies, structures, technologies, and procedures to adapt the company to future changes in the environment (^{Dzwigol et al., 2019}).

Before Covid-19, the companies’ change management system was mainly associated with the identification of fluctuations in the economic situation of the consumer market, changes in consumer needs and preferences, the influence of the state on trade processes and to develop effective measures to adapt business entities to existing conditions to prevent a decrease in business activity (^{Lord et al., 2017}). According to ^{Cortez and Jonhston (2020)} during the Covid-19 crisis, companies had to manage a crisis in a more complicated situation than a traditional crisis. While other crises occurred at specific places and times, the Covid-19 crisis combine a global effect with an unknown time frame.

^{Wenzel, Stanske, and Lieberman (2020)} classified the responses to the crisis into four different strategies: retrenchment, persevering, innovating, and exit. The four strategies have an associated cost-benefit and are viable according the term. Retrenchment refers to cost-cutting that potentially reduces the scope of a firm’s business activities and may help firms survive a crisis in the short term. Persevering is carried out with debt financing and the consumption of available slack resources. It could be a viable strategic response to a crisis in the medium term. Innovating refers to conducting strategic renewal in response to the crisis. An important response to crisis for sustaining firm survival in the long term. Exit refers to the discontinuation of a firm’s business activities. An exit is not necessarily a manifestation of business failure per se, and it is not necessarily the last resort when the other strategic responses to crisis fail.

Considering the literature about the impact of the Covid-19 crisis, the following hypotheses arise:

Companies affectation index

The global impact index is constructed to describe the affectation level in companies concerning the levels of job loss, hours worked, and income levels. This indicator allows the answers to nine questions of the questionnaire to be integrated into a single variable, according to the level presented by the index. A color is assigned where green means “minor affectation”, yellow “intermediate affectation” and red “severe affectation”. In general, green does not mean an absence of affectation, but rather that it is less concerning than in the other two cases. The global impact index was made up of the first stage of the research´s questions (May 2020). Figure 1 shows the logical sequence of the survey to assign the different global impact indices (colors).

Source: ^{GIDI (2020)}.

Figure 1 Global Impact Index 

Regarding this indicator, the first thing that stands out is that, at the beginning of the contingency measures between March and May 2020, only a third of the companies registered major affectations (31%). As a reference, in the northern states of Baja California, 50% of companies registered major affectations and this percentage in Sonora reached 40%. This indicates that the economic impact of the pandemic had a “wave effect” that first reached the northern states in Mexico owing to the border closure with the United States; but advanced towards the south as social contingency measures were prolonged.

Figures 2 to 5 show the distribution of this global affectation index in companies from the sample constructed from the impacts on employment, hours worked, and income. Said/Such index is distributed along the following lines: municipalities, sectors, a subsector of activity and companies size.

Source: ^{GIDI (2020)}

Figure 2 Companies’ affectation index in cities studied in the research derived from the health contingency, by municipalities 

Although practically all the companies considered in the research had some degree of affectation, Figure 2 shows that Veracruz was the most affected with 40%; while Boca del Río was the least affected (12.5%). Also, Tuxtepec, Oaxaca registered a severe affectation, but intermediate between both municipalities.

About the sector, Figure 3 shows that the tertiary and primary sectors were the most affected (34.4%, respectively) and, to a lesser extent, the secondary (27.3%), but at the subsector level (Figure 4) specific tendencies are observed. Contrary to what was expected due to the tourist activity in the studied area, tourist services had a severe but intermediate impact (33.3%). Among those most affected are professional services at 43.8% and the least severely affected agricultural companies at 10%.

Source: ^{GIDI (2020)}.

Figure 3 Companies’ affectation index in cities studied in the research derived from the health contingency, by sector of activity 

Support activities ranked second in the severe impact level, which corresponds to what was expected, given the degree of specialization that port and transportation activities have in the studied area. In the case of manufacturing, this had an intermediate impact.

Regarding the affectation level according to the size of the company, Figure 5 shows that a third of those that had severe affectations were medium, while the least affected were large companies. Notably, in the first part of the pandemic, micro and small companies had minor affectations in a greater proportion than mediumsized companies. As containment measures were prolonged, this situation changed. It will be observed in greater detail in the insured jobs section.

Source: ^{GIDI (2020)}.

Figure 4 Companies’ affectation index in cities studied in the research derived from the health contingency, by subsector of activity 

Source: ^{GIDI (2020)}.

Figure 5 Companies’ affectation index in cities studied in the research derived from the health contingency, by company size