Rural Development Foundation was the black sheep of crisis support

Photo: Maanus Masing / Saarte Hääl

The National Audit Office report published on May 19 shows that the COVID-19 crisis support – be it aid, loan or guarantee – was generally used correctly: granted to those who most from the crisis and whose economic indicators were worse than those who did not receive support. The Rural Development Foundation (MES) stood out as the sole exception.

The government decided last spring to distribute 745 million euros worth of crisis support between the worst-hit enterprises via the Unemployment Insurance Fund, Enterprise Estonia (EAS), KredEx and MES.

The MES funds often reached enterprises which had not suffered through loss of income more than others which never asked for air or never received it, the National Audit Office report shows.

The largest share among enterprises receiving loans and loan guarantees via MES were farming, forestry and fishery enterprises. The report showed that the 2020 crisis hit these activities less severely than others and that sales of the firms receiving support declined on the average even less than among enterprises of the same field, which never received aid.

It also appeared that in general the drop in turnover of the firms not receiving the MES support was larger than that of the recipients of aid. In case of recipients of support the average decline of turnover was -7.2 percent while among those not receiving support - 8.6 percent. To compare: in case of KredEx, which also distributed loans and loan guarantees, the drop of support recipients’ turnover was -25.1 percent and that of non-recipients -8.6 percent.

Since the number of enterprises benefiting from the measures was relatively low it is not possible to reach significant conclusions regarding most activities. For example, in the spheres of education, information and communication, health care and social work, there were only one or two recipients of support.

MES was criticized already last autumn

The National Audit Office paid attention to the MES crisis measures already in its autumn audit, which raised the question whether the loans and guarantees might have been handed out too hastily and that it would have been wiser to observe the development of the crisis so as to respond more precisely afterwards. But it was then too late to make use of the observations. “The funds had been distributed by that time,” Auditor General Janar Holm admitted.

Hasty decision was what the National Audit Office considered risky: the government decided to launch the corona crisis support measures as quickly as possible and therefore there was little time for precise targeting of the support. The National Audit Office could see the risk that inadequate preparations would not ensure that the support measures reach those entrepreneurs and activities where the impact of the crisis is the strongest.

Madis Reinup, MES board member, responded to the criticism by stating that enterprises without turnover would not ask for a loan since that would mean expenditure rather than support. “Since the beginning of the crisis, our task was also to invigorate the economy, so that our financial measures filled to some extent the gap left by the banks which reduced granting credits due to uncertainty in the economy,” Reinup said.

According to Reinup, it was impossible to foresee at that time that the end of the year would be so positive. “Since the future of the economy was uncertain in the 2nd and 3rd quarters, this was where the loans went, since these quarters were clearly influenced by COVID. That the end of the year turned out positive in these sectors is a good thing since the loans have to be repaid,” he added.

“We made the decisions approximately in the middle of the year and the impact of COVID on enterprises is more complex and complicated than the National Audit Office states in its report, for example about the drop in turnover,” Reinup said.

He added that loan as financial instrument operates differently from irrecoverable loans. “For some reason many people refuse to understand that we also had to assess whether an enterprise will survive in the future and will be able to repay the loan. Just like the National Audit Office says, the credit capability must be assessed as well, unlike the EAS and the Unemployment Insurance Fund,” Reinup explained.

As for the lines of business, the largest share of enterprises supported by the Unemployment Insurance Fund, EAS and KredEx were those engaged in hospitality and catering. Sales, labor taxes and the number of employees in the firms receiving support declined in 2020 more than in the enterprises not supported with the measures. The National Audit Office analyzed specifically sales and the number of employees. It did not assess individual enterprises or individual decisions.

Biggest recipients of MES loans and guarantees

When viewing the crisis measures, we can see that out of the 125 million euros allocated for the MES measures, more than 120 million have been distributed as of May 14, 2021. The largest loan recipient is the company Tulik Invest OÜ, which is owned by the Saaremaa businessman Tullio Liblik and his family and received a loan of 3.4 million euros. This was invested in the WOW! entertainment center in Saaremaa. The businessman had previously aid in the media that the cheap loan provided by the state allowed him to escape from an expensive loan agreement. The prosecutor’s office recently brought criminal charges against him concerning preferential treatment obtained through fraud. According to the prosecutor’s office, the suspicions are not related to the MES loan.

Next, 2.5 million euros were granted to the Liikva Päikesekodu SA special nursing village and two million to the fiberboard producer Nordic Fibreboard Ltd OÜ.

The largest recipients of guarantees are the timber house producer AS Matek (2.3 million), the largest door and window manufacturer in the Baltics Viljandi Aken ja Uks (1.8 million) and the manufacturer of electric bicycles Ampler Bikes OÜ (1.7 million).

The then minister of rural affairs Arvo Aller (EKRE) believed that the MES measures were a great success. “In fact, they were directed to the right place. The enterprises received their loans and could continue their regular activities – the measures prevented a drop in turnover. These support measures were developed at the right moment and were some of the most rapid ones,” Aller aid.

He also disagreed with the claim that the loans were granted easily. “It certainly would not have been reasonable in the crisis situation to handle the applications in several rounds; it was a current system of applications. Who did the paperwork and got the loan, performed their obligations correctly. In my opinion the loan commission was very competent in deciding these matters,” Aller said. He did admit that the enterprises not receiving loans could have later run into difficulties.

The present minister of Rural Affairs Urmas Kruuse (Reform Party) was unwilling yesterday to comment on the audit since he had not yet studied it. He said briefly that the decline of turnover was one possible indicator for assessing the impact of the corona crisis, but other factors should be assessed as well for a more objective picture.

“For example, animal breeding, which was the most influenced sphere in the agriculture sector, was hit by prices decline last year and hat was complemented in the end of the year by the rising prices of fodder, a basic component of costs, and this has been going in until today. Over the year the costs of the agriculture sector increased by more than three percent,” Kruuse wrote.