Study diagnoses effects of COVID-19 crisis on creative economy

The creative economy was expecting 2020 to be a promising year, but in the first quarter, along with other sectors, it was hit hard by the shutdown of activities caused by the novel coronavirus pandemic. In an attempt to understand the crisis’ effects on the sector’s activities, FGV Projetos, in partnership with the Brazilian Micro and Small Enterprise Support Service (SEBRAE) and the Sao Paulo State Secretariat for Culture and the Creative Economy, carried out a survey called “The COVID-19 Crisis’ Impact on the Creative Economy.” The survey was coordinated by the executive manager of FGV Projetos, Luiz Gustavo de Medeiros Barbosa.

Despite featuring large companies in all branches of activity and employing many people in certain areas, the creative economy is largely composed of micro and small companies and self-employed professionals (in both the formal and informal labor markets). These businesses and people do not have enough working capital to sustain long periods without any revenue. According to the survey, the COVID-19 crisis has had a major impact on the sector. Almost all interviewees (88.6%) said their income had fallen. This result is directly influenced by the fact that most of the sector’s activities require a physical presence. Furthermore, 63.4% of interviewees said they cannot carry out their activities while social distancing measures remain in place.

Another notable finding is that most interviewees believe that these restrictions will continue for more than five months. According to them, these measures will strongly affect projects they have been working on or had planned to begin. Around 50% of people have suspended projects and another 42% have cancelled projects. In addition, around 38% have lost sponsorships deals signed before the pandemic, and among people who have cancelled projects, 63% are not sure whether they will reactivate them after normal life resumes.

The crisis has led to layoffs and growing debts in the creative economy. Just 19.3% of people said they have been fired since the start of the pandemic. However, the sector has also adopted measures such as the suspension of employment contracts, salary reductions offset by the use of unemployment insurance, and combined reductions in working hours and salaries. The sector’s companies have also been taking on more debt. Of the 40.8% of interviewees who said they have debts, 20% are behind with their repayments. Moreover, they have not been finding it easy to take out more loans: 35.1% of people said they have applied for loans but only 4.6% have succeeded. Among people who have not applied for loans, 44.6% believe they will need credit for their business to continue to operate.

The participants also specified key measures to deal with the crisis that could help the creative economy get through this period. According to them, it is important to hold public tenders for the cultural and creative sectors, using resources from the National Culture Fund and the money assigned to culture from federal lotteries, to expand cultural initiatives run by state-owned enterprises, and to extend loan repayment periods.

The survey found that between the second half of March and July, the sector suffered from an almost complete shutdown of its activities. The sector will now be able to adjust and stabilize its activities over the next 12 months, and economic recovery is only expected in the second half of 2021.

Accordingly, the survey shows that the sector will tend to react slowly, initially driven by growing consumption of technology, especially online purchases, streaming activities and games. Purchases in physical stores will only recover in the second stage. Finally, corporate and cultural events will be held once more. The average volume of activities is projected to drop 43.9% between 2019 and 2020, leading to significant economic losses. The sector’s economy is expected to shrink 31.8% in 2020, and next year it will still be 4.5% smaller than it was in 2019. This represents a loss of R$69.2 billion or 18.2% of total production over this period.

From the perspective of jobs, the impact is expected to extend to sectors that are not in the creative market, but depend on it to maintain their activities. Figures from the Rio de Janeiro State Federation of Industry (Firjan) show that the creative economy generated 837,000 formal jobs in 2019. Due to the spread of COVID-19, it is forecast that 215,000 jobs will be lost. FGV Projetos’ survey indicates that measures under way, such as Provisional Decree 936, are important, but they will not be enough to offset these layoffs. In this context, the survey estimates that extending these measures to subsidize employment could save more than 48,000 jobs in this sector alone.

Finally, the survey suggests that it is important to understand the economic impact that the sector is experiencing to justify actions to mitigate it and help the activities in the various creative segments to recover. The sector’s characteristics make it hard to transfer its activities to the digital realm, and even companies that have managed to migrate have struggled to monetize these new business models. Another warning mentioned in the survey is about the presence of freelancers and informal workers, who are suffering more than companies, which still have access to resources that they cannot access.

To support the sector’s recovery, the survey suggests facilitating access to credit, renegotiation of tax debts and loans, the resumption of culture subsidies and preparatory work for the new consumer market after COVID-19.

The complete report is available here.

Any opinions expressed by Fundação Getulio Vargas’s staff members, duly identified as such, in articles and interviews published in any media, merely represent the opinions of these individuals and do not necessarily represent the institutional viewpoints or opinions of FGV. FGV Directive No. 19 / 2018.