Focused policy support crucial for post-COVID recovery of micro enterprises

The government should not forget to pay particular attention to micro firms in crafting its recovery plan as these very small businesses typically struggle more in trying to gain access to finance, skills, and markets, according to a new report.

The paper, recently released by the Economic Research Institute for ASEAN and East Asia (ERIA), reminded policymakers in the Association of Southeast Asian Nations (ASEAN) of the need to provide increased assistance to micro, small and medium enterprises (MSMEs) as countries in the region transition to the post-COVID world.

This support is especially vital for micro firms, which are particularly vulnerable to the impact of the pandemic owing to their limited resources and capacity, it added.

In the Philippines, the coronavirus pandemic has struck down various sectors, and small businesses all over the country have taken the brunt of its impact. A paper released by the Asian Development Bank late last year showed that almost 71% of MSMEs in the country were forced to temporarily close due to the COVID-19 outbreak.

In ASEAN, MSMEs dominate the business demography and contribute significantly to job creation, especially in sectors such as agriculture, said ERIA. Across ASEAN, medium-sized firms are low in number as MSMEs generally remain small without growing in size.

This is an issue as small firms that do not grow are often characterized by low productivity; lack of or limited resources to reskill and upskill employees, including managerial skills and proper training; delays in the acquisition and adoption of new technologies; and limited innovation activities.

For example, ERIA in 2019 showed how ASEAN MSMEs tend to use very basic digital tools and are therefore disadvantaged compared with larger companies in the transition towards ASEAN digital economies.

Micro firms face similar challenges to those of small firms, but such challenges are exacerbated by their very small size, the think tank added.

“For the above-mentioned reasons, policymakers can play an important role in supporting micro firms. For example, they can facilitate different forms of access to strengthen micro firms-access to skills, access to finance, and access to markets-to enable them to grow and scale up. Governments can support these different forms of access through specific policy stimuli, as part of the broader post-pandemic recovery efforts.”

Other policy areas that can facilitate the growth of ASEAN MSMEs include technology advancement, innovation adoption and digitalization, participation in the global market through global value chains, strengthening the linkage between small and medium-sized enterprises and foreign direct investment, simplification of bureaucratic procedures and regulatory framework, and the implementation of special tax regimes.

Strengthening and advancing the economic integration agenda across ASEAN is also key.

The report also found that “an important rural-urban divide exists across ASEAN in terms of both physical and digital connectivity.” As a consequence, very small firms in rural and less connected parts of ASEAN struggle even more to get access to markets, finance, and skills.

“Because of this lack of digital connectivity, the digital and economic divide between rural and urban places can increase. It is important to develop measures to reduce this divide and promote inclusive socio-economic development,” said the report.

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