Sweden sets stringent conditions for aid to pandemic-hit firms

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Sweden's central bank, Riksbank - Photo: Arild Vågen/Wikipedia

The Swedish government is providing billions of krona in aid to companies hit by the coronavirus pandemic – but there are tight conditions, Benedict Lopez writes.

Like in many other countries, the coronavirus pandemic has dented the Swedish economy so much it made government intervention mandatory.

The Swedish government recently announced measures to help companies whose operations had been hit. It designed an aid programme to provide economic relief and financial aid to Swedish firms to weather this unprecedented calamity.

The government hopes this kind of financial support would serve as a catalyst for firms to remain resilient during this severe economic storm. It hopes its guarantee schemes will provide support for business continuity, especially the small and medium-sized enterprises (SMEs).

The government added that companies should also complement the aid efforts and play their part during this critical time. Perhaps the most noteworthy thrust of this financial aid package is that companies should not authorise dividend payments, share buybacks or other similar transfers of value while receiving state funding or other government aid. 

What’s happening here? Malaysia should emulate Sweden in this respect and be firm with local companies requiring any form of financial aid. It is time for some of our top executives, especially those in senior management and above – some of whom are earning preposterously high salaries and perks – to make a huge sacrifice. They have to come forward and do national service as we are facing an unprecedented crisis. Some Malaysians are even on the board of several listed firms earning unbelievably high directors’ renumeration! And then there are the political appointees helming government-linked companies and receiving handsome rewards… All this has to stop for the greater good of the nation. The board of directors should comprise as many competent and talented Malaysians as possible – not one person sitting on the board of five or more firms.

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Aid for viable firms

Under this programme, the Swedish government has allocated 100bn Swedish krona (RM44bn) in loan guarantees to companies stung by Covid-19. The government guarantees 70% of the loans offered by financial institutions to each firm facing operational difficulties. These are viable companies that would have flourished under normal circumstances.

Companies can apply for these state credit-guaranteed loans by contacting their respective banks. These loans are to finance their working capital and investments. Firms will pay the interest on these loans directly to the banks, and the rate will be based on a credit assessment of the firms.

Participating financial institutions under this loan guarantee scheme must sign an agreement with the Swedish National Debt Office (Riksgälden). They must also pay a guarantee fee to Riksgälden.

These government loans are meant to assist SMEs, irrespective of their size, but the criterion is that these firms must have been hit by Covid-19.  Finance companies are barred from applying for this loan.

A company qualifies for a maximum loan of 75m Swedish krona. In extenuating circumstances and with justification, a higher loan may be approved by the National Debt Office, but it shall not exceed 250m krona. Companies are allowed to apply separately for their subsidiaries.

Credit for firms supplying exporters

Besides the financial aid programme, the Swedish Export Credit Agency (EKN) has increased to 500bn krona its credit facilities which guarantee financing for large firms, their suppliers and all export-orientated SMEs.

Under this scheme, financial institutions facing a shortage of working capital to finance their exports can seek financing from this agency. EKN has increased its guarantee limit, now up to 80% (previously 50%) for working capital financing, to SMEs.

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These are swifter measures and provide more access for payments to suppliers of export-oriented companies. Under this arrangement, suppliers will no longer have to wait for the exporter to pay the invoices, but will instead receive their payments on their invoices directly from the bank.

Swedish companies with an annual turnover exceeding 5bn krona that need working capital can apply to this agency for funding. Their exports should be a significant amount of the company’s overall business activities. If the company exports are less than 25%, then it must provide proof they are undertaking other value-added activities, such as research and development. Both Swedish and foreign-owned companies are eligible for this financing.

Financing for new firms

Government agencies like Almi Företagspartner AB or Almi, also assist companies needing financial aid. Sustainable SMEs employing up to 250 employees qualify to apply from this agency.

Almi, a state-owned enterprise, provides financing to new companies which show growth potential. Almi has an allocation of 3bn Swedish krona to fund SMEs.

Zero interest rates

The Swedish central bank, Riksbank, is offering up to 500bn Swedish krona in loans to companies through commercial banks. These loans are offered at zero interest rate against collateral, on condition the proceeds are passed on to companies. The banks stipulate the conditions for approval of this financing.

On 30 April the government unveiled further financial packages totalling 39bn Swedish krona to avert further damage to businesses. Finance Minister Magdalena Andersson said that, with this supplementary allocation, the government’s total financial package to combat Covid-19 now stands at around 179bn krona.  

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Benedict Lopez was director of the Malaysian Investment Development Authority in Stockholm and economics counsellor at the Malaysian embassy there in 2010-2014. He covered all five Nordic countries in the course of his work. An eternal optimist and now an Aliran member, he believes Malaysia can provide its people with the same benefits and privileges found in the Nordic countries - not a far-fetched dream but one that he hopes will be realised in his lifetime
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