In this exclusive feature, Hon. Moeaki speaks to us about the Tongan Government’s recently passed national budget, and the support it includes for informal sector micro, small and medium business enterprises [MSME’s] which have struggled through the economic hardships of the pandemic. He also speaks on select government initiatives that could provide other Pacific countries with good practices for designing their own national support strategies for MSMEs.

Pre Budget, the government announced its COVID-19 assistance package for the informal sector. How is this progressing?

The Tongan Government announced its economic and social stimulus package for targeted affected businesses in March 2020. To provide relief and build the resilience of the informal sector in Tonga, government approved an initial allocation of TOP0.5million [USD 220,500] that was later increased to TOP3.2million [approx. USD 1.4 million] as financial grants to informal businesses. The objective of the stimulus was to provide cash flow assistance to affected informal enterprises to support operational vitality. The Informal Business Support attracted the largest number of applications, with a total of over 6,800 applications received from across all islands of Tonga. 71% of the total applications were from women, mostly in the handicraft industry.
As majority of the applicants were women, a total of TOP2.3 million [approx. USD 1 million] was granted to female owned enterprises and sole traders. More than 60% of approved businesses in each of the 5 island groups were also owned by women, thus highlighting the female prevalence in the informal business sector in Tonga.
This phase of government assistance closed in April 2021.

What are the key initiatives in the 2021-22 national budget, supporting MSME’s, especially those in the informal sector, to recover from COVID-19?

There are three major initiatives –

1. MSME Product Development Program,
2. Buy-Tonga Made Business Development Support, and
3. The Credit Relief Facility.

The MSME product development program has the objective of strengthening business capacity through trainings and coaching. This will improve business practices and can lead to cost-effective enhancements to products and services.
The Buy Tonga Made Business Development Support focuses on locally made products. The program provides financial assistance to businesses in the manufacturing industry to improve packaging, labelling, quality, and production volume and marketing.

The COVID-19 Credit Instruments aim to support private businesses to manage the increasing risks to borrowings before they surface. These credit instruments are mainly to address cash flow situation, future options, stimulate and assist impacted sectors, as well as create new viable and bankable opportunities where domestic resources and excess liquidity in the system can be utilized.

How will government monitor and measure the impact of the support provided to MSMEs?

Each support program includes a monitoring framework outlining implementation targets, and includes risk analysis to measure targeted impacts, achievements and outcomes.

Pre COVID-19, MSMEs particularly those in the informal sector, contributed significantly to national GDP. They can be a significant partner for COVID-19 recovery. In the “new normal” what would be expected of MSMEs if they want to continue to operate and contribute to national economic recovery?

The ‘new normal’ emphasizes the shift to more technology inputs in business practices and processes. There is increasing focus on e-commerce and digitization now. Government is investing in e-commerce readiness assessment and regulatory reform programs, and works closely with the private sector to meet business continuity targets and improve resilience using digitization and e-commerce platforms. Expectantly, it is to strengthen business competitiveness and capabilities to adjust, refine and/or diversify their processes, products and services to be able to recover, grow and become more resilient during difficult times.

Many MSMEs are in the informal sector and therefore vulnerable to environment and economic shocks. Since the start of COVID-19, the Pacific has had 3 major cyclones and the next cyclone season is a few months away. What is the government’s strategy to transit these MSMEs from informality to formality?

Tonga’s Micro, Small and Medium Enterprise Policy and Strategy state the need to assist and encourage more existing informal micro and small entrepreneurs to transition and graduate to formal registered business entities. Moreover, to be connected through optimisation of the enabling environment for MSMEs through targeted investment in infrastructure improvements and legislative-regulatory modernization. For instance, reduce policy and regulatory obstacles that inhibit enterprises from transitioning to formality. Reform programs are now being rolled out in relation to business registrations to reduce costs and improve the ease of doing business.
A number of other reform initiatives have been established and currently implemented. Government is assisting the establishment of agricultural and retail co-operatives in each of the 5 main island groups, in rural areas. The establishment of these co-operatives will help to formalize the informal sector consisting of around 85% of the workforce that are involved in subsistence agriculture, handicrafts and fishing.

If there is one important advice/thing you would like to share with other pacific government counterparts, in terms of supporting MSME recovery, what would that be?

MSMEs have the potential to recover our exports, increase economic resilience and provide jobs and higher incomes. It’s vital then, to have practical strategies in place, institutional frameworks and targeted interventions to reduce costs and ease of doing business, and build resilience and growth instead. An effective tool to consider would be the right incubator options that can empower MSME innovation and improve entrepreneurial skills by providing timely access to business support services.