COVID-19 pandemic: threats to SMEs in poorest nations require swift policy action - Frank Hartwich and Jenny Larsen for OECD Development matters

Governments must walk a fine line between taking action to save existing industrial firms and putting in place longer-term measures that build back better with more resilient industries, more able to resist shocks such as pandemics. Key policies that could drive the inclusive and sustainable industrial development necessary to achieve greater resilience are: Using already existing registries and platforms to channel aid to businesses on the verge of collapse. Improving access to finance for small firms and – even more difficult – those in the informal sector to help them maintain economic activities, retain jobs and maintain links to local and global supply chains. Refocusing policies on helping businesses to develop higher value, and more sustainably produced goods that can be marketed with fewer risks to less volatile nearby markets. This calls for a renewed push towards diversification, using reshoring and nearshoring to shorten supply chains and moving towards greater regionalisation. Creating more structured business linkages to domestic, regional and global suppliers to allow for more reliable sourcing of products. Investing in digital infrastructure to enable small and informal businesses to access information and services. Increasing spending on science, technology and innovation capabilities to boost productivity and competitiveness. Advising industrial policy policymakers in LDCs on the development of targeted programmes to diversify and strengthen the industrial sector. In short, the private sector must be able to adapt to the new post-COVID reality, finding new markets and developing higher-value products. But this should be underpinned by strategic support from government, directing finance to develop technology and encourage business development. Given the perilous financial situation in most LDCs, this will require action from both national governments and the international community to ensure that industrial policies form part of national and regional recovery plans, perhaps through devising a common framework for the transformation and diversification of LDC economies. Without it, the vulnerabilities of LDC economies, revealed more clearly by the pandemic and compounded by the current lack of access to COVID-19 vaccines, risk becoming entrenched, pushing development goals further out of reach.