Economic resilience in the wake of COVID and Ukraine war: key learnings

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In the past two years, the two crises (the COVID-19 pandemic and Ukraine-Russia war) have brought new challenges to European regions.

Interreg Europe community members have had to react in the short term but also consider long-term adjustments. There is a wealth of knowledge in European regions and the online discussion that took place on 17 June facilitated learning from each other.

This event was conceived and moderated by Mart Veliste and René Tönnisson, Thematic Experts in SME Competitiveness. David Hope, Barrai Hennerbry and John Fitzgibbon contributed with presentations - the PDFs are available for download at the end of this article.

Some key takeaways:

  • There are various ways to conceptualize resilience, but a key distinction should be made between short-term resilience (absorption) and long-term resilience (adaptation).
  • Creative destruction, a concept developed by Joseph Schumpeter, should be embraced. Creative destruction is a “process of industrial mutation that continuously revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one”. For a healthy and thus more resilient economy it is important that creative destruction could occur, that is, more efficient businesses that are not overly reliant on government support could emerge.
  • In some countries (like Ireland) many non-viable businesses were kept afloat by Covid response business support. However, the removal of these measures could cause sudden closures which in turn would cause harmful spillover effects and threaten otherwise viable businesses. The question arises, how to provide support for the transition away from Covid-19 supports without hurting businesses and promoting creative destruction in order to enter a higher growth path?
  • The EIS project survey showed that business support organisations tend to have a more positive outlook on the economic situation (regarding resilience in international trade flows) than the SMEs themselves. Other interesting results on the qualities of resilient regions coming from the survey are available in the section here below (curtesy of John Fitzgibbon)

Orientating business support towards strengthening business adoption of digital and green deal practices:

  • meets policy objectives,
  • attracts greater supra-regional funding e.g. national or European level,
  • provides more dynamic opportunities for business internationalization to the global marketplace.

Internationalisation diversifies risk through wider exposure to more markets, this means business is more likely to ride the shockwaves brought on by pandemics. Risk diversification is a core feature of being resilient.

The pandemic provided an opportunity for reflection and taking stock.

Although not welcome, it nevertheless enabled many businesses to re-evaluate their processes, objectives and rationale. It enabled them to re-connect within domestic markets and refine their offer to customers. This is resilience-making in action.

Similarly, Business Support Organisations, regional governments and actors had to step up to the mark.

They did so by providing tailored funding and information support using new digital delivery mechanisms. There is always room for improvement, but these flexible approaches and new means of providing services are the hallmarks of a resilient approach.

Policy-makers have proven themselves agile and adept at creating support schemes that lightened the burden temporarily for business. Funding was key (when isn’t it!) and the swift availability of these funded support schemes such as online trading vouchers as deployed in EIS region Donegal in North West Ireland.

They were a lifeline to business as evidenced by the strong take-up once the pandemic spread – they were averaging 40 applications a year pre-Covid which shot up to 520 approved applications during the c. 18 months or so of Covid with c. €1.3million paid out.

Enhanced collaboration through the pandemic by regional actors at all levels is imperative and a vital characteristic of creating resilience. These links need to remain strongly glued together post-pandemic. External funding schemes such as Interreg Europe are instrumental in ensuring resilience built up during the pandemic in the form of closer working relationships does not dissipate as things fully return to normal.

  • Cooperation among business support organisations (BSO) has intensified and has been a key element in responding to the Covid-19 crisis. Support organisations have realized that the challenges cannot be faced alone and the range and number of businesses that require support are too much for any one organisation to manage. BSOs have jointly identified policy responses, have signposted businesses to each other’ s relevant services, etc. An important keyword has been flexibility in providing support services (also going digital) and adjusting to the changing circumstances.
  • While the discussion was about the two crises then it should not be forgotten that the UK was in 2021 also facing challenges related to BREXIT. Staff was furloughed both because of Covid-19 and BREXIT. Interestingly, the surveys conducted by Kent Business School within the SIE project have shown that BREXIT has had a bigger impact than Covid on SMEs’ international business activity. For further interesting analysis on the impact of Brexit on UK companies, please visit the Office for Budget Responsibility .
  • Innovation needs to be promoted more widely. In order to build resilient regional economies public funds and business support should go into innovation – to advance digital transformation and circular economy. Many companies have started to get to grips with the need to digitalise and are now making use of the opportunities in the digital marketplace. E-commerce platforms and specific process improvement vouchers have shown to be promising within the Future Ecom project. However, the EIS survey showed that the Covid-19 crisis had a greater impact on digital transformation than green transformation which indicates that the businesses might be lagging a bit behind, and specific messages of the Green Deal agenda should be tailored to SMEs. 
  • Structural changes and economic diversification are necessary to have an economy that is better equipped to absorb shocks. Short-term response measures can only achieve so much and carry a high risk of generating inflation.  
  • Promoting a more integrated business support model and emphasizing customer journeys is important. Issues and solutions have become cross cutting (e.g. internationalisation, net zero goals). Business support measures need to go hand in hand with employment support so that it maximises impact for the local population. All in all, this means that business support needs to be targeted more accurately for better value for money with finite funding.
Tags
COVID-19
Competitiveness
Business support