Spain, the land of fiestas, is currently in a permanent state of siesta thanks to the Covid-19 pandemic.
The once popular seaside holiday resorts are ghost towns. Shuttered shops, restaurants and closed beaches are a common façade and the only visitors are the police and military, which roll through the towns like tumbleweed keeping residents indoors.
Lock down began officially in Spain on March 16th and confined people to their homes, only permitting them to leave to go shopping (technically no more than twice a week), to the pharmacy, walk their dog (with limited distance restrictions) or attend to relatives in need and in some cases go to work (key workers and essential services only). The lock down has since been extended until April 26th, although a further extension until May 10th is now also expected.
Spain is currently the second worse hit country in Europe in terms of virus cases. As of April 14 there were 170,099 cases with around 17,756 deaths. The number of reported cases peaked at the beginning of April with around 8,000 new cases daily. Since then it has been dropping to around 3,500 new cases per day (data: worldmeters.info) and around 550 deaths per day (April 14) compared to the peak of 950 daily at the beginning of April.
The Coronavirus outbreak has hit Spain where it hurts the most. It’s tourism market. This sector contributes around 14 per cent to the GDP and is the second economic powerhouse after trade. Some 83.7 million visitors flocked to Spain’s sunny shores last year and the country is ranked second on the World Tourism Organisation’s most visited countries chart.
Tourism contributes around €150bn to the GDP whilst also creating around 2.8 million jobs – 13 per cent of total employment in the country. The country’s airports manage a total of 275 million passengers annually and the aviation sector in Spain says potentially around 750,000 jobs will be lost during this crisis.
The Easter break, which has just passed is one of the biggest tourism earners with expected losses of around €30bn, whilst summer losses, if the lock down continues, could see this figure doubled.
The pandemic has paralysed travel and forced tourism establishments to close their doors, including Spain’s 1,200 campsites which see around 9.7 million overnight stays throughout the year.
GlampingHub currently lists almost 500 glamping resorts in Spain from pods to yurts to tree houses whilst the camping sector in Spain usually generates around €1.5bn turnover a year.
HELP AT HAND
Prior to the CV-19 pandemic, Spain was finally showing signs of recovery, after it was knocked to its knees during the global financial crisis a decade ago.
Prime Minister Pedro Sanchez already has a whole list of challenges ranging from the Cataluña unrest, unemployment issues, pension problems and a spike in the number of families struggling to make ends meet. Throw a pandemic into the mix and Spain is going to struggle with severe repercussions over measures taken that will weaken the economy and see a high unemployment rate which already stands at 14 per cent. In March the number of jobseekers jumped by over 302,000 to 3.5 million the highest monthly increase on record whilst April figures are expected to be even higher.
So what is the government doing?
Well the tourism sector has received a €400m aid from the state and can now access Instituto de Credito Oficial (ICO) financing which is an extension of the Thomas Cook financing line available to all companies and self-employed workers tax resident in Spain across the tourism sectors. The general opinion however is this amount just won’t be adequate.
Two weeks after initial lock down a list of 40 essential services, which could continue to operate, was reduced down to 25 key services for the following two weeks – essential workers includes banks, tobacconists, pharmacies, opticians, food shops, petrol stations and vets for example. Most self-employed people were allowed to work if they didn’t work in a prohibited activity, which includes hotels and tourist campsites.
With many companies having to close down, the Expedientes de Regulación Temporal de Empleo ERTE (Temporary Suspension of Work package) was introduced aimed at helping businesses and employees.
ERTE is one of the most talked about solutions for companies and is similar to the Furlough scheme offered in the UK. It enables companies to temporarily lay off staff or reduce hours allowing them to claim unemployment benefits, which is 70 per cent of their salary for six months and 50 per cent thereafter.
It can alleviate company salary costs and enable them to temporarily suspend contracts for workers. The government can also subsidise the social security payments companies pay for their staff.
There are of course certain criteria. A person must have worked 360 days within the last six years and seen their hours reduced by 10 to 60 per cent. So, a salary of reduced hours added to benefits can only be a maximum of 85 per cent of the previous salary with a minimum of €501.98 and maximum of €1,411.
ERTE can be applied to any company regardless of size and is intended only for a temporary crisis and implies staff will return to work once the crisis is over. It is expected at least 760,000 people will sign up to ERTE which could rise to two million by 2021 as the country recovers.
A good plan in essence, but with social security payments only suspended rather than cancelled and the requirement to reinstate staff, many smaller companies can’t, or won’t, instigate ERTE because financially it will cripple them. Some tourism sectors are unable to guarantee work for staff once this is over as in theory it could take months before ‘normal service’ is resumed.
Meanwhile self-employed workers can apply for Paro de los Autonomous if they can prove they have worked for the last 12 months, be registered and up to date with Social Security payments. IVA (VAT), corporation tax and personal income tax can be deferred under the current crisis for business owners with a turnover of less than €6m in 2019. There is also a benefit for those whose business ceased trading or turnover has fallen by 75 per cent. Social security payments, which are very high for the self employed, at around €280 per month, can also be suspended.
The Spanish government has so far facilitated loan guarantees amounting to €20bn to support SMEs and self-employed enterprises or individuals affected by the crisis. A second wave of backing for the same amount is expected to be made available this week.
It is still uncertain how Spain will emerge from this crisis and re-open its tourism doors without letting the Coronavirus back in. There is talk of a gradual loosening of the restrictions once lock down ends, but how it will re-open its beaches, golf courses, recreational areas or national parks is anybody’s guess.
Even if the outbreak is contained in Spain and the country’s 16,000 plus hotels, 1,200 campsites and 18,000 rural tourism accommodations are permitted to re-open their doors by the summer, it is impossible for businesses to suddenly return to their heyday heights and it’s anticipated that visitors from overseas simply won’t travel this year full stop.
The OECD was already predicting a slowdown in global growth before the pandemic hit and if recovery is too slow the tourism sector will be hit in all areas, from reduced spending power to a contraction in airlines. On the upside it’s a big holiday destination and if it can get the virus under control by the end of April, then it could exploit its summer months in some way even if the onus is on domestic tourism this year.
The Balearic Islands are expected to suffer the greatest impact from the crisis and GDP is predicted to fall by 2.73 per cent in this region and around 11,000 people are expected to lose their jobs on the islands (Mallorca, Menorca, Ibiza and Formentera). More than half of the hotels across the islands recently made the decision to remain closed all year, delaying re-opening until 2021. Some chains say they could just open one hotel or stagger openings. With so much uncertainty over future bookings, which are all affected by flights, tour operators and of course if people will be willing to travel in the first place, means there are no guarantees.
Deloitte predicts that the recovery period will begin in Spain after the first phase ends which could last until the end May, early June. After state of emergency restrictions are lifted the leisure and restaurant sectors will benefit initially combined with the arrival of summer, whilst travel and hotels will see some increase, but certainly not to the point pre-pandemic. It is anticipated that tourism would be limited to national tourism as people stop travelling abroad in fear of a renewed outbreak and the sector will not be able to recuperate or see revenues anywhere near normal until the end of the year at the earliest.