Coronavirus support helped companies survive the pandemic but initial allocation of aid could have been improved

Business cost support granted during the coronavirus crisis increased companies’ turnover, turned them profitable and lowered the risk of debt restructuring. Due to the support for business costs, some of the loss-making companies became profitable during the coronavirus epidemic. However, the new rounds of support have slowed down a beneficial structural change of the economy.

These are the conclusions of the report ‘Assessment of Support Policy during the Coronavirus Pandemic,’ published by the Research Institute of the Finnish Economy (Etla) for the Ministry for Economic Affairs and Employment on 17 May 2022.

 In future, more attention should be paid to the support measure deadlines, their discretionary nature and better targeting.

The support measures taken in Finland as a result of the coronavirus pandemic have been relatively effective and well-suited. Business cost support has increased companies’ turnover, turned some companies profitable and reduced their risk of debt restructuring.

The support measures assessed in the report included public business subsidies, i.e. grants, loans and guarantees as well as market-based financing.  Other measures were also introduced, including the temporary amendment to the Bankruptcy Act and increased flexibility to the lay-off system, which were important parts of the support package.

Some of the companies that otherwise would have been loss-making during the coronavirus pandemic turned profitable due to business cost support. Approximately one in four or five companies that would have posted a negative result without the business cost support became profitable thanks to the support. Per month, turnover grew by 13‒15 per cent more in companies that received business cost support than in similar companies that received another kind of subsidy. The Finnish economy recovered to the level preceding the pandemic already in the previous year. With regard to the coronavirus, the aim is to keep the society and economy open. Provisions for temporary regulation should be made only in exceptional cases.

“Direct subsidies and temporary amendments to bankruptcy legislation can effectively protect economic structures in sudden crises, but more attention should be paid to the continuity of subsidies,” says Etla’s Research Director Heli Koski, who was responsible for the study.

“The majority of Finland’s coronavirus support instruments were used to preserve old business operations. Especially in a prolonged pandemic, the continuous new rounds of support slowed down a beneficial structural change of the economy. Economic renewal could have been more swift if the Government had been able to commit to a clear deadline for ending coronavirus support,” Koski adds.

For persisting crises, it would be important to formulate an exit strategy that includes a clear deadline for ending crisis support measures in order to accelerate economic renewal, according to Koski.

Lessons to be learned for the future

In all, Finland’s coronavirus support policy has been reactive in nature and it has lacked a comprehensive strategic vision. Many support measures therefore seem somewhat improvised and even inconsistent, according to the report.

“In particular, support that focused on business renewal at the very beginning of the pandemic, such as the funding granted by Business Finland and the ELY Centres for disruptive situations, was problematic because its criteria for support were open to interpretation. It also was not targeted particularly well at companies that needed the support most. The business cost support appears a more justifiable form of support, but its details could be improved,” Koski says.

In fact, any shortcomings detected in business subsidies should be taken into account in future formulation of support models. The shortcomings highlighted in the study included maintaining small and micro-sized companies that were in difficulties already before the coronavirus epidemic within the scope of business cost support and the discretionary nature of the support, which may lead to different treatment of similar companies. Particular consideration should be given to how the falling demand for certain products and services in some sectors already before the crisis could be better taken into account.

The Research Division on Business Subsidies, which is an independent unit under the Ministry of Economic Affairs and Employment, commissioned the study as part of the Ministry’s audit and evaluation plan for COVID-19 subsidies. Impact assessments of the most significant subsidies will be carried out later.

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