The coronavirus is leaving unprecedented economic damage in its wake all around the world, but the effects could potentially be particularly devastating in Latin America.
The combination of prolonged rigid lockdowns; the closure of borders, schools, and businesses; the restrictions on personal mobility for months—these are expected to cause the region’s economic activity to plunge, reversing years of progress toward development goals and tipping tens of millions of people back into extreme poverty.
Latin America’s economy is projected to contract by 7.2% this year, according to a June report from the World Bank, a drop caused by COVID-19 and the consequent negative impact on employment, the fall in international oil prices, the strong impact on travel and tourism, and the already precarious social conditions of a large part of the population, among other factors.
Can anything mitigate the damage? Lawmakers in Colombia, Mexico, and Paraguay, the main producers of cannabis in the region, have an idea. They are calling for their countries to bet on cannabis legalization, which, they say, would provide additional employment and economic growth, as well as exports, and could improve the welfare of their populations.
Colombia is facing its worst recession in a century, due to the coronavirus. The Organization for Economic Cooperation and Development estimates that the country’s GDP will fall between 6.1% and 7.9% in 2020.
Employment is at an all-time low, compounded by a collapse of the financial markets and a devaluation of the peso encouraged by capital outflows. The OECD predicts that Colombia will be the country with the highest unemployment rates in 2020, among the 37 nations that make up its group. During the month of May, unemployment in Colombia stood at 21.4%, up from 10.5% in the same month last year.
The global economic contraction has also impacted the country’s exports as well as the fall in oil prices. Half of Colombia’s foreign exchange earnings come from that industry.
Colombia has devoted great efforts during the last few years to increase its oil production. By 2016 and 2017, the industry generated an average of 186,842 jobs, according to the Colombian Petroleum Association. The Oil Industry Union estimates that between 8 and 10 thousand jobs were lost during the first two weeks of confinement. The industry will lay off 8% of direct employees and 72% of indirect staff by December, according to Francisco Lloreda, president of the National Oil Association.
Former Senator Juan Manuel Galan, the author of Colombia’s medical cannabis law and a promoter of drug policy reform, told Cannabis Wire that cannabis can help, by providing jobs for people in industries that have been hit by the pandemic, including oil.
“I would believe that the oil industry will take time to recover, which means many industries in Colombia will have to readjust,” Galan says. “This means the medical cannabis sector becomes more important than ever.” The industry, he adds, could also supply “tax revenues to compensate for the lack of income via oil exports.”
In fact, Fedesarrollo, an economic and social policy research institute, estimates that one hectare of legal cannabis produces seventeen jobs and, before the pandemic, saw export revenues from the cannabis industry bringing in $109 million (USD) in 2020.
With the enactment of Law 1787 in 2016, Colombia was one of the first countries in the region to legalize medical cannabis. Since then, new regulations have shaped a legal framework for the production, processing, and exporting of the plant for medical purposes.
But one senator from an opposition party wants to go further, and he thinks there is no better time than now. Senator Gustavo Bolivar seeks to regulate adult-use cannabis as means of ending crime and including small-scale farmers, especially those already growing illegally, in the legal industry.
Bolivar told Cannabis Wire that it is “critical” to pass the cannabis legalization bill in Congress to weather the coming economic crisis caused by the outbreak.
“If we were reasonable, we could boost that ‘green gold’ economy and profit from a legal cannabis market that would bring well-being to cannabis farmers who are no longer going to be persecuted. And the state would put drug dealers out of business and use the resources to mitigate the economic impact in post-pandemic times, when economic prospects are very discouraging,” he said. “We have the product, it’s export quality, it’s one of the best, and we would be losing a huge business opportunity if we stayed on the sidelines.”
Lawmakers in Mexico have hit hurdles in drafting a bill that would provide the framework for legal cannabis. The country’s push to legalize dates back to October 2018, when the Mexican Supreme Court ruled that it was unconstitutional to ban the personal use of cannabis. After several setbacks, Senators voted in favor of a draft bill in March 2020 to legalize cannabis for medical, adult, and industrial purposes.
But then coronavirus came, and it forced lawmakers to put most legislative activities on hold, including cannabis regulation. On April 17, the Mexican Supreme Court granted a request to extend the deadline for Congress to regulate cannabis until the end of the next legislative session, in December 2020.
But for Senator Patricia Mercado, a member of Movimiento Ciudadano, the coronavirus crisis must lead cannabis legislation to prevail in Congress, and soon. “We cannot wait until December,” Senator Mercado told Cannabis Wire. “It has to be one of our priorities coming back in September.”
The pandemic is causing financial trouble everywhere, but in Mexico it has hit one of the nation’s most important industries. More than 12 million Mexicans lost their jobs (formal and informal) during April and May due to the COVID-19 outbreak, according to the Central Bank. Tourism provides 11 million jobs in Mexico, and many of those workers have been sent home. The Association of Secretaries of Tourism of Mexico has estimated that tourism GDP could fall 10% this year, with losses exceeding $10 billion (USD).
But Mercado says cannabis can help restore the economy. “I hope that, after analyzing the advantages of regulation, Congress and the government will realize cannabis could help us grow our way out of this economic crisis,” she said.
Cannabis, she says, will combat unemployment, generate desperately needed income for the state, and help small producers become legal.
“The bill opens the door to the possibility of legalizing cannabis with a non-punitive regulation. It opens up the potential for getting out of poverty and generating wealth, income, and jobs, and taking care of the small producers so they can benefit,” says Mercado.
While Latin America has become an epicenter of the coronavirus pandemic in recent weeks, Paraguay is slowly returning to normal after five months of confinement. However, the country of about 7.2 million people has not been spared from the devastating economic effects of the virus.
The Ministry of Labor estimated in June that COVID-19 could lead to an additional 250,000 Paraguayans unemployed. This will affect, in particular, the informal workers, who, according to the World Bank, were 71% of the Paraguayan workforce in 2019. These workers do not pay in to or receive health or social security, and they do not have standard contracts or labor protections.
In February, for the first time, Paraguay granted twelve companies licenses for the production and distribution of medical cannabis products. So far, it is the only window of opportunity opened for cannabis in the country that has taken a very restrictive approach to the plant.
And yet, Paraguay is one of South America’s biggest cannabis producers. Somewhere between 6,000-7,000 hectares of cannabis are illegally cultivated in the nation, and most of the resulting product ends up in neighboring countries. Some estimates suggest that in countries such as Brazil, 80% of imported cannabis comes from Paraguay. Chile and Argentina also supply their demand mainly with Paraguayan cannabis.
Victor Ríos, a Paraguayan Senator who has been fighting to decriminalize the use of cannabis since 2009, told Cannabis Wire that cannabis is a very important source of foreign exchange income for the country because of its important role in the underground (and untaxed) economy. Such underground economic activities generated USD $16.5 billion in 2018, approximately 40% of the country’s GDP, according to Paraguay’s Pro-Development Association.
When it comes to the pandemic, Rio says the country will need at least five years to recover. “But imagine what that means for a country where the economy is weak, where there is a high percentage of extreme poverty, where 12 percent of the population suffers from malnutrition, where foreign debt is about to reach 35 percent of the GDP, and where tax revenue is not even 10 percent of GDP,” Rios said.
“And a good way out,” he adds, “could be through the regulation of the cannabis trade.”
Correction: the story has been updated to reflect that Senator Patricia Mercado is a member of Movimiento Ciudadano, not the National Regeneration Movement, or Morena Party.