As soon as one starts talking about economic development or “recovery”, as is the case in the current environment, the private sector comes immediately to the forefront; where it does not for some reason, it is surely lurking in the background. In talking about the private sector in turn, Small-Medium Enterprises (SMEs) can hardly escape the conversation. SMEs form a large part of the private sector in most, if not all developed and developing countries alike and play an important role in the socio-economic development of each country worldwide. Specifically, this group accounts for the majority of enterprises in a given country and contributes to a significant share of national employment. On average, SMEs make up over 90 per cent of businesses and more than 50 per cent of employment worldwide. As well, SMEs contribute substantially to a country’s outputs in terms of gross domestic product (GDP), gross value added (GVA), and manufacturing value added (MVA). For example, they contribute to at least 40 per cent of GDP in developing countries and 55 per cent of GDP in developed economies. However, as a vulnerable group, SMEs are particularly at risk of failure from the prolonged consequences of COVID-19.
Predictably then, considerable efforts by governments, development partners, research institutions and others are underway or in planning stages to resuscitate the SME sectors. For example, central banks around the world are encouraging commercial banks to consider more lenient lending criteria for the sector. Specific policy measures include: wage and income support for employees temporarily laid off, or for companies to safeguard employment; deferred tax, social security, debt, rent and utility payments; extending and simplifying the provision of loan guarantees so that SMEs can have better access to finance from commercial banks; providing grants and subsidies to SMEs to help them get through the decline in revenues; introducing structural policies to help SMEs adopt technologies, find new markets, and maintain sale channels; opening existing programs or launching new initiatives for training and skills development by SMEs in the context of the pandemic.
In the case of individual economies, in Australia, for example, the “Boosting Cash Flow for Employers” measure have initially provided up to A$100,000 grant to SMEs, with a minimum tax free payment of A$2,000 for eligible businesses with a turnover of less than A$50 million that employ staff. Australia has also included non-bank lenders in its SME Loan Guarantee Scheme as well as its Structural Finance Support Package and has been offering support through wage subsidy, mentoring facilities, financial workshops, and encouraging SMEs to retain their apprentices and trainees. Eligible employers can apply for a wage subsidy of 50 per cent of the apprentice’s or trainee’s wage for up to 9 months. This measure is expected to support 70,000 SMEs with around 117,000 apprentices.
Governments in the Pacific region have also initiated measures to support MSMEs in response to COVID-19. For example, in Fiji, the government is providing support through training, counseling, grants, loans, and market access. The government has initiated a “COVID-19 Concessional Finance Support Package” encompassing concessional loan facilities for new and existing micro, small and medium enterprises. The scheme provides up to $7,000 with the concession rate of 0.5 per cent to new and existing micro enterprises (those earning less than $50,000 annually). For existing small enterprise package (those earning between $50,000 and $300,000 annually), the maximum loan eligibility is $14,000 (concession rate is 1.0 per cent). And, existing medium enterprise package (those earning between $300,000 and $1,250,000 annually) can be eligible for up to $21,000 (concession rate is 1.5 per cent). Notably, to be eligible for the package, SMEs must have been operational with at least 60 per cent of employees from December 2019.
In Vanuatu, the Council of Ministers has approved the payment of one-off grant of VT60,000 to all eligible SMEs in the country in response to COVID-19. SMEs with an annual turnover of VT200 million or less and with a valid business license are eligible for the grant. In Tonga, the government has announced an Economic and Social Stimulus Package of 60 million Tongan pa’anga (5.3 per cent of GDP), while the National Reserve Bank of Tonga (NRBT) Board approved the provision of liquidity support to the banking system with the purpose to help vulnerable groups/entities, including MSMEs.
In Papua New Guinea, the government has announced K600 million along with K1.8 billion in treasury bonds and K1.3 billion from IMF as a concessional loan in response to COVID-19. While 47 per cent of K600 million is allocated to health and security, the remaining 53 per cent (equivalent to K320 million) is spent on agriculture, households and business. Notably, from K320 million, K45.5 million is allocated to support rural Micro, Small and Medium Enterprises (MSMEs) and households, and K41.5 million additional business stimulus is used to, for example, protect jobs and pay outstanding government debt to small business.
In Solomon Islands, the government through the Development Bank of Solomon Islands (DBSI) has announced a stimulus package of SBD$319 Million to support increase in economic activities in rural areas, employment and export. Particularly, two products in response to COVID-19 have been launched to support businesses: COVID-19 Small to Medium Enterprises Products and Commercial Products for large corporation. An additional capital grant of $18 million has also run into DBSI to support SMEs or companies. To be eligible, SMEs need to be in operations for at least two years before the COVID-19 pandemic.
The above efforts are good signs of focusing on a sector that matters, regardless of a country’s development status—Australia’s dependence for SMEs in the economic recovery plan is no less than the Pacific island countries (PIC)s. Nevertheless, one is tempted to ask: how are these COVID-19 related policies, strategies, actions going to be different from those in the past? What time horizons are we looking at? What is the level of sustainability of measures? Let’s consider the case of PICs. What is our understanding, for instance, of what has worked well in the past and what has not? Have we considered both the demand and supply-side perspectives? Our guess is that, if anything, demand-side perceptions would likely be the predominantly pursued direction in the COVID-19 response. One might also wonder: will there need to be any changes to the modus operandi of SMEs? It might be useful to ensure that it’s money and resources well spent…
Dr Lan Nguyen is an Early Career Researcher, having recently been awarded a PhD (SMEs in Vietnam). Lan is also actively involved in the Sout Pacific Centre for Central Banking program. For more articles on PIC economies, see Pacific Forum.