Peru increased number of mini-businessmen despite pandemic

By Monica Martinez

Lima, Mar 16 (efe-epa).- The year of the pandemic has brought an unusual increase in the number of new businesses in Peru – more than 235,000 – most of them single-person companies focusing on retail sales and a reaction to the disappearance of 2.2 million jobs during the economic crisis.

The strict quarantine imposed in Peru from March-May 2020 to deal with the first wave of the pandemic led to an 11 percent drop in the GDP due to the shutdown of the country’s main economic activities, some of which are still being affected including tourism and entertainment.

The halt in economic activity and the plunge in demand resulted in many formal companies going out of business but, surprisingly, not as many as were created due to the crisis.

According to the bulletin on Business Demographics in Peru prepared by the National Statistics and Information Institute (INEI), 45,467 businesses failed or ceased operations in 2020 compared with 127,552 that closed in 2019, the year before the pandemic.

During all of last year, 235,447 businesses were created compared with 293,506 companies formed the year before, resulting in an nationwide “inventory” of 2.7 million companies representing a 1.6 increase over 2019 after deducting the number that failed.

The appearance of new companies was especially pronounced during the last quarter of 2020, when 83,170 companies were created and 7,469 failed.

“It’s been an atypical situation, probably contrary to what everyone would have expected, which is that more businesses would have closed than would have been created,” the institutional director of the Lima Chamber of Commerce, Carlos Posada, told EFE.

“In net terms, during 2020 there are more companies than there were in 2019,” he added.

One factor working in favor of formal businesses, in helping them avoid closing their doors for good, was the possibility of transforming themselves into some other kind of venue, like the gay Downtown discotheque or the elegant San Antonio eatery, which both converted themselves into “minimarkets” in the middle of the quarantine.

“There’s a reconfiguration. Peruvians are very creative. We’ve been very resilient, but in addition we’ve been very able to transform ourselves in the situation we’ve experienced,” the former deputy minister of foreign trade said.

However, Posada added that “we cannot deny that there’s been a reduction in the labor force. For example, there have also been temporary layoffs, but what’s certain is that there were not as many businesses that closed as one would have expected.”

Specifically, the great majority of the new companies have focused on retail and wholesale sales, followed by transportation and manufacturing.

“If we focus on the fourth quarter, the total number of companies created in (wholesale and retail sales) is almost 40,000. We’re talking about 48.5 percent of the total, half the businesses that were created were (focused on) marketing or selling tangible products,” he said.

Between the first and fourth quarters of the year, the number of retail businesses practically doubled, increasing from 15,000 to 27,000.

But, what kind of businesses are these that are being created in the pandemic, in a country where 90 percent are micro-businesses and the informal economy employs 70 percent of the workers?

Of the more than 83,170 companies created in 2020’s last quarter, 62 percent – more than 51,000 – were sole proprietorships.

Posada said that the government and the tax authorities have allowed this reconversion of business activities because it has allowed the formal portion of the Peruvian economy to sustain itself.

The majority of the companies created in the last quarter were in Lima (32,520 or 39 percent), Arequipa (4,948 or 15 percent) and La Libertad (4,915, also 15 percent), Peru’s three biggest urban centers.