Research: Finland’s COVID-19 support package internationally small – companies would have needed support for costs in the beginning of the crisis

COVID-19 support for businesses reduced the likelihood of layoffs. However, allocating aid to sectors most affected by the coronavirus pandemic by means of the support for business development did not produce the desired impact, and companies would have needed support for costs of business sooner.

These are the conclusions of two reports published by the Ministry of Economic Affairs and Employment on 20 April 2021: a research report by Aalto University and an annual report of the Research Division on Business Subsidies. Both reports discuss the effects of the coronavirus pandemic on the economy and companies and the impact of the COVID-19 support for businesses. The two reports focus on five forms of aid: support for cost of business granted by the State Treasury; support for business development granted by Business Finland and ELY Centres; support for the food and beverage service sector granted by the KEHA Centre; loan guarantees by Finnvera; and temporary RDI loans granted by Business Finland.

“The COVID-19 pandemic was an unprecedented crisis that took us all by surprise. The service sector, in particular, has suffered the consequences of severe restrictive measures, while the industry has fared better. At the beginning of the crisis, it was important to support companies with the tools we had at our disposal. We will be using the research results to develop our support forms and improve our preparedness for future crises,” says Minister of Economic Affairs Mika Lintilä.

Major differences in the allocation of support across sectors

The majority of COVID-19 support for businesses went to accommodation services, food and beverage services, expert services, industry and commerce. In addition, small companies (from 5 to 49 employees) and companies in Uusimaa received most support in euros.

A rough sectoral division shows that the most affected sectors received most of the support. Overall, a lot of COVID-19 support was allocated even to sectors with no or little decrease in turnover, such as professional, scientific and technical activities, information and communication services, and construction. However, there are great differences within sectors, and there are many companies in difficulty.

COVID-19 loans and guarantees have been used relatively sparingly. In addition, in Finland the smaller-than-expected economic downturn and the well-functioning lay-off system have reduced the need for COVID-19 support compared to many other countries.

Most impact from support of less than EUR 200,000

It appears that COVID-19 support measures increased turnover and the amount of wages and salaries paid, and to a lesser extent, the number of employees. They reduced the likelihood of lay-offs and they may have prevented redundancies. Small subsidies of less than EUR 200,000 appear to have had the most effect.

“Only short-term effects of the support have been studied so far. Despite many uncertainties associated with the impact analysis, the support measures appear to have helped both companies and employees. However, further studies are needed to assess the overall impact of the measures. The challenges in planning and allocating support for businesses during the coronavirus crisis show the need to improve the central government’s ability to collect and deploy up-to-date data,” says Professor Otto Toivanen from Aalto University and Helsinki Graduate School of Economics.

About half of the companies that received support for business development from Business Finland and ELY Centres have designed new digital solutions. The effectiveness of COVID-19 support will also depend on whether the support for business development generates genuine innovation.

COVID-19 support should have been deployed in reverse order

The studies show that the different kinds of COVID-19 support for businesses should have been deployed in reverse order. At the beginning of a crisis, the emphasis should be on direct support for companies, such as support for cost of business. Later on, development support could take a stronger role.

Allocating aid in the form of development support, granted by Business Finland, to the most affected sectors and companies did not produce the desired effect. Support for business costs, on the other hand, is an effective tool during a crisis, since inflexible overhead expenses can quickly drive a company into problems with profitability when demand suddenly drops. Its problem in the present crisis was that it required new legislation which took a relatively long time to introduce.

“We must continue to assess the effects of the COVID-19 support on a broad front. It will help us prepare for future crises and facilitate an early implementation of an effective support policy,” says Seija Ilmakunnas, chair of the Research Division on Business Subsidies.

Long-term impacts will be studied next

In August last year, the Ministry of Economic Affairs and Employment commissioned an independent assessment of the COVID-19 support for businesses. The purpose is to analyse the short and long-term impacts of the measures and provide information to political decision-makers to help them prepare for future crises.

The now completed studies focused on the short-term effects of the COVID-19 support for businesses. The Research Division on Business Subsidies, an independent body operating under the auspices of the Ministry of Economic Affairs and Employment, had overall responsibility of the project. It conducted its own assessments and selected Aalto University to perform background research through competitive tendering.

Two separate reviews of the long-term effects of COVID-19 support for businesses will be conducted in 2021–2023. The Research Division on Business Subsidies will carry out a policy review of the various support forms to establish whether the selected forms were fit for purpose, to assess the overall role of market-based financing, and to identify which policy measures are suitable for different types of economic crises and specific needs. The impact assessment of COVID-19 support for businesses focuses on the effectiveness of certain forms of support when compared against the objectives set for them, long-term productivity, structural reform of the economy, and economic growth. The Ministry of Economic Affairs and Employment will select an organisation to carry out this assessment through competitive tendering.

Inquiries:

Seija Ilmakunnas, chair of the Research Division on Business Subsidies, Professor of Practice of Economic at Jyväskylä University School of Business and Economics, tel. +358 50 3629270, seija.ilmakunnas(at)gmail.com (annual report of the Research Division on Business Subsidies)
Otto Toivanen, Professor, Aalto University School of Business, tel. +358 50 353 7651, otto.toivanen@aalto.fi (research by Aalto University)
Ilona Lundström, Director General, Ministry of Economic Affairs and Employment, tel. +358 29 504 7186 (evaluation package from the Ministry’s viewpoint)