Targeted Measures for Small Businesses Are Critical to Economic Recovery

Date Published
November 09, 2020
Direct cash transfers or deferrals of tax or rent could boost local consumption and help improve sales of local retailers, which are often micro-enterprises. Photo credit: Asian Development Bank.

Small businesses need dedicated programs to help them weather the coronavirus disease (COVID-19) pandemic, says an ASEAN–OECD policy paper. Policy makers must also ensure that stimulus measures for the short term are combined with structural reforms for the long term.

Ensuring the survival of micro, small, and medium-sized enterprises (MSMEs) should be at the top of the policy agenda as countries restart their economies. These businesses form the backbone of most economies in Southeast Asia as elsewhere and are critical to economic recovery.

Policy insight and recommendations

A policy paper from the ASEAN Coordinating Committee on Micro, Small and Medium Enterprises (ACCMSME) and the Organisation for Economic Cooperation and Development (OECD) examines the measures taken by ASEAN member states to mitigate the economic impact of COVID-19 on businesses, particularly MSMEs. It also presents some recommendations based on lessons and experiences of OECD and partner countries.

In the 10 Southeast Asian countries that make up ASEAN, the report says MSMEs account for 88.8% to 99.9% of businesses and 51.7% to 97.2% of total employment. They are therefore considered critical to economic recovery.

Most ASEAN countries started to deploy measures to help enterprises to cope with the immediate impact of the crisis in mid-March 2020. Their policy response later included longer-term measures that would improve the resilience of enterprises as well as their economies. These include encouraging enterprises to “re-evaluate their business models, upskill their staff, digitize, and explore new partnerships to source and sell their products and services.” Sector-specific measures were also rolled out initially for the tourism and hospitality industry, transportation, and food and beverage, and later broadened to other sectors.

Emergency assistance

Given their economic importance, the paper pointed out that MSMEs need targeted measures and not just general business support. Many are in traditional businesses and are less likely to have the agility and resources to adapt to the “new normal,” such as shifting to digital transactions or exploring new market needs. This also makes them more vulnerable as well as the workers who depend on them for livelihood.

Many micro-enterprises are in the informal economy and face a cash crunch. “Targeted assistance could take the form of direct cash transfers or deferrals of tax and/or mortgage repayments,” the report says. “These measures could also help to boost local consumption and provide stimulus for local retailers, which are often micro-enterprises.”

Government may consider tapping private sector support for MSMEs. In Australia, the government offers commercial property owners various benefits, such as reduced land tax, if they agree to help small and medium-sized enterprises by not terminating their leases for not paying rent during the crisis and even lowering the rent based on their tenant’s reduced transactions.

The paper however cautions against reducing regulatory and other requirements for MSMEs as this could weaken investor and consumer protection. Instead, it supports using stimulus measures to promote formalization of businesses.

Structural measures

Longer-term structural measures include improving digital connectivity and promoting entrepreneurial competencies and innovation.

The paper notes that policymakers across Southeast Asia see how digital technologies can drive economic growth and development. “Many economies, such as Indonesia, Singapore, and Viet Nam, have already seen the growth of powerful digital platform services over recent years— and these companies are driving a wave of innovation, for instance in providing financial services to previously unbanked citizens.”

Prioritizing investments in digital connectivity will also benefit MSMEs. E-commerce platforms have given enterprises a way to remain in business while quarantines, mobility restrictions, and physical distancing measures are in place.

Aside from building the infrastructure, policies are also needed to facilitate the digital transformation of MSMEs. “Reducing barriers to the delivery of small packages, for instance, would enable a growing share of MSMEs to engage in e-commerce. Many of these actions would benefit from dialogue and coordination at the ASEAN level. This is particularly the case in areas such as data security.”

The COVID-19 crisis calls on MSMEs to be more innovative and open to change. “In many cases, governments have focused on compensating firms for the loss of revenue and maintaining social stability rather than enhancing the entrepreneurial potential and innovativeness of firms,” the paper notes. “Policymakers may be discouraged from maintaining such programs due to the fact that results usually only pay off in the longer term. However, patience may pay off, helping economies to emerge more quickly and positively from the crisis, which itself could be long run.”