Finnish COVID-19 business aid fails to deliver: Study

COVID-19 support for businesses reduced the likelihood of lay-offs. 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, said two government research reports, said the the Ministry of Economic Affairs and Employment in a press release on Tuesday

The reports published on Tuesday also said that companies would have needed support for costs of business sooner.

Both the 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,” said Minister of Economic Affairs Mika Lintilä.

The majority of COVID-19 support for businesses went to accommodation services, food and beverage services, expert services, and industry and commerce. In addition, small companies (from five to 49 employees) and companies in Uusimaa received the most support in terms of 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, in comparison to many other countries.

It appears that COVID-19 support measures increased turnover and the amount of wages and salaries paid, and to a lesser extent, raised 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,” said Professor Otto Toivanen from the Aalto University and the 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.

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,” said SeijaIlmakunnas, the chair of the Research Division on Business Subsidies.