Keep the Small Strong: Measures to ease the pandemic’s impact on MSMEs in the region

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Keep the Small Strong: Measures to ease the pandemic’s impact on MSMEs in the region
2 Jun 2020
Health and COVID-19, Labour and Future of Work

The micro-, small, and medium-sized enterprise (MSME) sector is often described as the backbone of the ASEAN economy.

In times of crises and economic disruptions, MSMEs tend to be more at risk because of their size and limited access to resources and financing. Key challenges include the lack of operational cash flow, drop in demand for their products and services, reduction of opportunities to meet new clients, ability to change business strategies to offer alternative products and services, and difficulties in obtaining raw materials and supplies. The COVID-19 pandemic has particularly affected vulnerable firms and individual business or micro-enterprise owners, many of whom operate in the informal economy. Since these actors constitute the vast majority of workers and businesses across the region, the challenge to ASEAN is huge.

MSMEs in the ASEAN Economic Integration Agenda Efforts to develop the MSME sector in ASEAN is guided by the ASEAN Strategic Action Plan for SME Development 2016-2025 (SAP SMED 2025). Its mission is to create globally competitive, resilient, and innovative MSMEs that are seamlessly integrated to the ASEAN community to achieve inclusive development in the region. Five strategic goals provide broad directions and these are as follows: (i) promote productivity, technology adoption and innovation; (ii) increase access to finance; (iii) enhance market access and internationalisation; (iv) enhance policy and regulatory framework; and (v) promote entrepreneurship and human capital development.

Implementing the strategic action plan is under the purview and responsibility of the ASEAN Coordinating Committee on Micro, Small and Medium Enterprises (ACCMSME), composed of the heads and representatives of SME agencies from all ASEAN Member States and supported by the ASEAN Secretariat. Whilst the work of ACCMSME falls under the ASEAN Economic Community pillar, it cooperates and collaborates with other sectors and pillars in ASEAN as well as with external partners and the private sector on many cross-cutting issues. Examples are in the promotion of innovation and adoption of digital technology, promotion of women entrepreneurs, Green MSMEs, and participation of enterprises in regional and global trade

The ASEAN economic ministers, in its March 2020 statement on strengthening ASEAN’s economic resilience in response to the COVID-19 outbreak, had agreed, among others, to keep the ASEAN market open for trade and investment; strengthen regional information sharing, coordination, and collaboration; and use technology and digital trade to allow businesses, including MSMEs, to continue their operations. In April 2020, the Special ASEAN Summit on COVID-19 issued a declaration calling for the implementation of appropriate measures to boost confidence and improve regional economic stability, such as policy stimulus to assist individuals and businesses suffering from the impact of COVID-19, especially MSMEs and vulnerable groups

Support Measures to Counter the Impact of COVID-19 Pandemic

There is much diversity in ASEAN, which adds to its attractiveness as an economic region and destination for business. Diversity also implies that a one-size-fits-all approach will not work—aside from the varying domestic contexts, the different categories of enterprise size within the MSME sector also demands specific and sometimes separate treatments.

Contrary to the perception that regional integration warrants uniformity and harmonisation, the beauty of ASEAN actually lies in the ability to pool resources and knowledge together, and the ability to quickly coordinate and share information to enable policy makers to learn from one another in developing appropriate measures relevant to the local circumstance, yet benchmarked to global standards.

Regional collaboration helps accelerate the development of a conducive policy and regulatory environment that supports MSME development and growth. In this context, information on pertinent policy measures to mitigate the impact of COVID-19 was compiled and shared and has been regularly updated. The compilation now contains useful reference on a wide range of measures that have been introduced by ASEAN Member States covering the period from February 2020 to May 2020.

Effort is now underway to provide deeper insights through the collaborative analysis of compiled data and lessons learnt globally. A first edition of a Policy Insight document is being prepared and is expected to be available in June. It will be a “living” document to be routinely updated since the impact of the pandemic is still unfolding and ASEAN Member States will continue to learn from one another and from our external partners to address immediate as well as mid-to-longer term challenges. This effort is part of ACCMSME’s collaboration under the Canada-OECD Project for ASEAN SMEs

In the interim, there are some preliminary insights based on information gathered to-date. At the outset it should be noted that measures to support MSMEs and the self-employed/sole proprietors cannot be considered in isolation from measures to support households and businesses in general.

One example of support measures is collectively called “deferral measures.” They refer to deferral of tax, pension, social security, and debt payments, with the objective of allowing businesses to free up their cash flow and support them with the working capital requirements.

Another is “direct financial assistance via loans,” which aims to support working capital requirement by allowing the reduction of interest rates for businesses, restructuring loan repayments, and extending payment deadlines. Most countries have created new loan scheme mechanisms and some have developed more sophisticated mechanisms that focus on specific needs of businesses based on their size. A notable common effort observed in most countries is the easing of procedures and conditions for obtaining loans, which is important for MSMEs.

“Direct financial assistance via grants/ subsidies” is another useful tool to support businesses, especially the vulnerable sectors or smaller companies, so they can retain or assist their workforce. Assistance can be in the form of salary subsidy for MSME employees for a fixed number of months.

Alongside financial relief, most countries also provide support in terms of finding new alternative markets, teleworking and digitalisation, innovation, and (re)training of the workforce. Such policies aim to address urgent short-term challenges while at the same time contribute to strengthening the resilience of MSMEs in a more structural way. They are referred to as “non-financial structural support policies.” These policies are implemented through a range of mechanisms including capacity building activities, provision of information and guidance including on digitalisation support (digital tools/ technology adoption), as well as support for new ways of operations and promotions/ marketing such as migration to online/e-commerce platforms.

It is in such mechanisms that ASEAN has more opportunities for regional cooperation and collaboration. The Member States can take advantage of new and existing MSME development initiatives in ASEAN, such as the ASEAN SME portal that promotes access to information (e.g. new supply/demand sources) and ASEAN SME Academy that facilitates entrepreneurs’ learning, and accelerate the implementation of the Action Agenda on Digitalisation of ASEAN MSMEs through Capacity Building Initiatives which was adopted by the ACCMSME in 2019. In this connection, the ACCMSME welcomes contribution and collaboration with the private sector and non-governmental organisations to support and advance its objectives in various initiatives.

Moving Forward

It should be noted that many of the support measures address the immediate and urgent needs of MSMEs in facing the impact of the COVID-19 pandemic. These are necessary to prepare the sector for the medium-term consequences of the crisis that will bring additional new challenges under the so-called “new normal” context. The non-financial structural support policies are thus an area that is very important for ASEAN to collectively examine carefully moving forward. It presents opportunities to jointly come up with new and innovative approaches to prepare the MSME sector for the mid to longer timeframe. In doing so, it is also important for ASEAN to put in place mechanisms that promote linkage and collaboration between the key actors—governments and the business community. Businesses would be in a good position to provide feedback on what measures work better, or that are more efficient and effective. The MSME sector will also need to reach out to supporting sectors such as those providing digitalisation and connectivity infrastructure as anecdotal evidence suggests that more and more MSMEs are turning to online sales and services to survive. Underlying all these efforts is the need to cultivate an innovative and resilient mindset and capabilities among both policy makers and business actors in ASEAN