Currently, a virus outbreak called The 2019 Corona Virus Disease (COVID-19) has disrupted the global economy [1]. The Covid-19 outbreak started in Wuhan-China at the end of 2019 has spread to various countries, including Indonesia. The emergence of the first cases in Indonesia in early 2020 formed the first epicenter of the spread of Covid-19, namely Capital Special Region of Jakarta and then new epicenters appeared in various provinces in Indonesia. One of them is the province of Aceh. At first, the spread of Covid-19 in Aceh province was relatively slow; this can be seen in the number of positive cases of Covid-19 in the province, which only amounted to fewer than 5 people. 

The provincial government immediately responded to the first few cases and took rapid action to prevent the spread of covid-19, which was marked by the issuance of the Governor's Decree No. 360/969/2020, which was set in Banda Aceh City on March 20, 2020. So that the economic and social impact felt by Aceh province would not be affected too much compared to other areas. However, in the second quarter of the year 2020, the province of Aceh felt a fairly large impact from the spread of Covid-19. This was marked by the negative economic growth of the province [2].

Figure 1 illustrates the trend of cases of Covid-19 in Aceh province, Indonesia. The first case of Covid-19 was found on March 26, 2020. The government immediately responded to the emergence of the first case in Aceh with restrictions on public movements, such as the application of curfew limits, Work From Home (WFH), physical distancing, limiting mobility between regions by guarding inter-provincial borders, empowering villages in monitoring and collecting data, as well as actively tracking people who have interacted with Covid-19 patients. In addition, the impact on the economy is in the form of restrictions on people's movement space and restrictions on curfews for businesses that invite a lot of crowds, such as coffee and culinary shops that are widely available in Aceh.

Figure 1: The trend of the Cases of Covid-19 in Aceh Province, Indonesia 

Source: Satgas Covid-19 (https://covid19.acehprov.go.id)

The effort to break the chain of the spread of Covid-19 is quite effective, as can be seen from the relatively slow development of Covid-19, as shown in Figure 1. From March 26, 2020, to 12 September 2020, the spread of Covid-19 was relatively under control, no local transmission had been found, there were even a few days from each period where no Covid-19 cases were found.

Before the Covid-19 Pandemic hit the province, MSMEs showed a good performance both in marketing and demand. Every year, the number of businesses continues to increase in all districts and cities across the province. The impact of the Covid-19 has not only attacked the health sector, but it has also impacted various other fields, including business Activities. Tens of thousands of business fields have been affected, including MSMEs. According to the former Head Office of the SMEs and Cooperatives of Aceh Province, Dr. Wildan M.Pd said that 102,000 MSMEs were affected by the Covid-19 pandemic, including 69.000 micro-enterprises, 30.000 small businesses and 2.600 medium-sized businesses. Covid-19 has caused a decrease in the production and income of the business sector and the occurrence of layoffs by companies [3].

The city of Banda Aceh is one of the most affected areas by COVID-19 in the Aceh province. The Covid-19 pandemic has had an impact on the weakening of the economic and business sectors. This pandemic has destroyed the most important side of the economy, namely supply and demand. This impact is also felt by MSMEs in the capital city of Aceh Province. The government policy to limit the space for movement has made the businesses sector become ineffective and experienced a decline in performances, especially MSMEs and at large scale; it has caused a decrease in household consumption and had worsened the performances of the businesses sector [4].

MSMEs have a strategic position in the provincial economy as well as in national economic development. In addition to playing a role in economic growth and employment, MSMEs also play a role in distributing development results. MSMEs have also been shown to be unaffected by the 1997-1998 East-Asian crisis [5]. The main obstacles faced by MSMEs include lack of capital, number of workers, number of working hours and level of education of entrepreneurs. These problems cause the domestic MSMEs sector unable to develop, considering that the MSMEs sector can provide large income for the community [5].

The main characteristic of MSMEs is their ability to develop easy business processes with relatively low costs. They can generate substantial employment and output in many countries [6]. The presence of MSMEs is not only in the context of increasing income but also in the context of equitable distribution of community income [7]. However, MSMEs face a lack of capital, number of workers, number of working hours and low level of education of entrepreneurs. These problems have caused the MSMEs sector to experience low performance [8].

The government should pay special attention to the development of MSMEs so that they can be more competitive with other economic actors. Government policies in the future need to be made more conducive to the growth and development of MSMEs. The government needs to increase its role in empowering so that it can improve the quality of human resources by providing guidance, training, guidance, capital and sufficient information in managing and developing businesses so that their businesses are more effective [9].

According to Weldeslassie et al. the support provided by the government to MSMEs must be comprehensive, starting from providing initial capital to introducing better technology and innovation. Policies made by the government such as wages, taxes, permits, opportunities, technological and infrastructure support will determine the success of a business, all of which depend on the regulations imposed by the government in developing MSMEs [10].

MSMEs play an important role in the economies of many countries, important in terms of social, workforce and innovation. In developed countries, such as the European Union, around 99% of economic activity comes from MSME activities, accounting for almost 66% of all jobs in the private sector [11]. While in developing countries, for example, Indonesia has a proportion of 99.99% or 56.54 million units of the total business actors who contribute to a GDP of around 60%. The GDP is an accumulation of various economic sectors [5].

As illustrated in Figure 2, the total MSMEs in Banda Aceh City continues to increase every year. The most significant increase occurred in 2018, namely 12,012 MSME units spread throughout the city of Banda Aceh. The increase in the number of MSMEs is partially due to the increase in the number of residents every year.

Figure 2: Number of MSMEs in Banda Aceh City, 2007-2017 

Source: Disperidagkopukm Banda Aceh City (2018)

The existence of MSMEs in Banda Aceh City gives a very important meaning in providing community livelihood sources due to the slow growth of small and household industries making MSMEs as alternative providers of employment in Banda Aceh City. The government has provided support for MSMEs in Banda Aceh City, but the optimal contribution of MSMEs to the economic growth of Banda Aceh City is very dependent on the productivity of MSMEs and the entrepreneurs themselves.

As observed from Table 1, there were 5,397 MSMEs in the trade sector by the district in Banda Aceh City. Baiturrahman District has the highest number of MSMEs in the trade sector (1,607 units) as compared to other sub-districts. Meanwhile, Kuta Raja District has the lowest number of MSMEs (296 units) compared to other sub-districts. Trade is the main attraction for the people in Banda Aceh City because the city is known as a trading center that is visited by traders from all over the world, including from Saudi Arabia, Turkey, China, Europe and India. The city of Banda Aceh has a strategic location for trade based on its geographical conditions (banda aceh kota.go.id). Therefore, MSMEs in Banda Aceh City has huge potential to develop. However, the lack of capital, qualified workforce and entrepreneurship education has resulted in MSMEs in the city of Banda Aceh being underdeveloped.

Banda Aceh is one area that has good natural resource potential. However, the reality of the low income earned by MSMEs in Banda Aceh City is still common, especially small business actors scattered around the capital city of Banda Aceh. This happens because small business actors are dominated by families who do not use efficient and effective technology so that the products produced have not been able to match the outputs produced by the large business sector. In other words, the MSMEs’ existence in the face of competition in the free market era is still doubtful.

Based on the above-research background, this study intends to comparatively explore the effects of working capital, the number of workers, the number of working hours and the level of education on the Micro, Small and Medium Enterprises (MSMEs)’ performances before and after the Covid-19 pandemic in Banda Aceh City, Indonesia. It also attempts to evaluate whether there are differences in performances of MSMEs before and after Covid-19. The findings of the study are hoped to provide references for the relevant government authorities in designing policy for further developing and promoting the MSMEs during the Covid-19 pandemic.

The rest of the study is written in the following sequences. Section 2 reviews previous studies, followed by the discussion on the research method in Section 3. Section 4 provides the findings and their discussions. Finally, Section 5 concludes the study.

Literature Review

Micro, Small and Medium Enterprises (MSMEs): MSMEs aim to grow and develop their businesses to build a national economy based on just economic democracy. According to the Decree of the President of the Republic of Indonesia No. 99 of 1998, the definition of Small Business is: "Small-scale people's economic activities with business fields which are majority small business activities and need to be protected to prevent unfair business competition.

Criteria for micro, small and medium enterprises according to Law No. 20 of 2008 concerning MSMEs, are as follows: (1) Criteria for Micro Enterprises: (i) have a net worth of at most IDR50,000,000, excluding land and buildings for business premises; or (ii) have annual sales of at most IDR300,000,000. (2) Small Business Criteria: (i) have a net worth of more than IDR50,000,000 up to a maximum of IDR500,000,000, excluding land and buildings for business premises; or (ii) have annual sales of more than IDR300,000,000 up to a maximum of IDR2,500,000,000. (3) The criteria for Medium Enterprises: (1) have a net worth of more than IDR500,000,000 up to a maximum of IDR10,000,000,000, excluding land and building for business premises; or (ii) have annual sales of more than IDR2,500,000,000 up to a maximum of IDR50,000,000,000.

Working Capital

Working capital has an important meaning for the operations of a company. Therefore, every company tries to meet its working capital needs, there are at least three types of capital needed, namely investment capital, working capital and operational capital. Every company always needs working capital to finance its daily operations, for example paying employee salaries, purchasing raw materials and paying labor wages.

Employees

According to Law No. 13 of 2003 concerning Manpower, manpower is anyone who can carry out work both inside and outside the employment relationship to produce goods and services to meet the needs of the community.

Working Hours

Working hours in Indonesia are regulated in Law Number 13 of 2003 concerning Manpower. Based on Law No. 13 of 2003, working hours per day for employees who work 6 days a week, the working hours are 7 hours in 1 day and 40 hours in 1 week. As for employees with 5 working days in 1 week, their obligation to work is 8 hours in 1 day and 40 hours in 1 week. According to the law, working hours are the time to do work, which can be carried out during the day and/or at night. Working hours for workers in the private sector are regulated in Law No. 13 of 2003 concerning Manpower, specifically articles 77 to 85. Article 77, Paragraph 1, Law No. 13/2003 requires every entrepreneur to implement the provisions on working hours.

Level of Education 

Education is a form of investment in human resources that plays a role in spurring economic growth. Education also provides knowledge in the form of skills to entrepreneurs to innovate and develop their business [12]. Blaug [13] researched the relationship between education and income. Blaug [13] states that individuals who have a higher education earned more income due to special skills they acquired during their education. With these skills, it will be easier for them to get a job.

Performance

In measuring the performance of a person or household, one of the main concepts that are most often used is the level of income. Income shows all money or other material results achieved from the use of wealth or services received by a person or household during a certain period in economic activity [14]. For rural households that only control the production factor of labor, their income is determined by the number of employment opportunities that can be utilized and the level of wages received.

Table 1: Number of MSMEs in Trading Sector by Sub-Districts in Banda Aceh City, 2017

Source: Disperidagkopukm Banda Aceh City (2018)

Data

The study uses is a quantitative Research, exploring the effects of working capital, number of labor, number of working hours and education level on the performances of MSMEs in the Banda Aceh City, Indonesia. It also uses comparative analysis to determine whether there are differences in performances of the MSMEs between the pre-and post-Covid-19 period. This study uses primary data in the form of direct data collected through interviews using a tool, namely a list of questions (questionnaires) and also using google doc. In addition, it also uses secondary data about the initial description of the development of MSMEs in Banda Aceh City.

Population and Sample

The population is the entire object that is the target of research and the sample is a part of the population [15]. The population of this study includes all MSMEs scattered throughout the city of Banda Aceh). Meanwhile, the sample is part of the number and characteristics possessed by the population, or a small part of the population members taken according to certain procedures so that they can represent the population, for example, residents in certain areas [16]. This study uses a probability sampling technique, which is a sampling technique that provides equal opportunities for each element (member) of the population to be selected as a sample member utilizing sample random sampling technique where every MSME owner has an equal chance of being selected as a respondent. By using the Slovin formula, 100 MSMEs in the trade sector in Banda Aceh City have been selected as respondents in this study.

Model of Data Analysis 

To examine the effect of working capital, number of workers, number of hours worked and level of education on the performances of MSMEs, this study uses a multiple linear regression analysis model based on Ordinary Least Square (OLS) with the following equation:

Where:

• SMEP = The performance of SMEs as measured by total income

• WC = The working capital

• NWH = The number of working hours

• EDU = The education level

• b₀  = The constant term

• b₁  = The estimated value of each independent variable coefficient

• e₁ = The error term

The t-test was used to determine whether the independent variables of working capital, number of workers, number of working hours and level of education have a significant effect on the dependent variable of MSMEs’ performance before and after Covid-19 in the city of Banda Aceh. Meanwhile, the F-test is used to ensure the goodness of fit or robustness of the proposed model. The coefficient of determination is used to determine the ability of the independent variables that explain variations in the dependent variable.

Furthermore, to test the differences in the MSMEs' performance between the pre-and post-COVID-19 periods, the study uses a paired t-test analysis. The paired sample t-test is used to test the differences in the mean for two dependent samples in pairs, namely the MSMEs’ performance before and after Covid-19 in Banda Aceh City, Indonesia.

Table 2 illustrates the descriptive statistics of the investigated variables. As illustrated in Table 2, the performances of the MSMEs, which were measured by income before Covid-19 had a minimum value of 19.00, the highest value of 30.80, an average value of 95.85 and a standard deviation of 70.03 and after Covid-19 the minimum value decreased by 10.00. The highest value is 14.30, the average value is 52.69 and the standard deviation is 36.35. As for the working capital variable, the number of workers and the number of hours worked decreased from before to after Covid-19. As for the education level variable, there is no difference in values ​​both before Covid-19 and after Covid-19.

Table 2: Descriptive Statistics

Source: Primary data processed using the SPSS software (2021)

Determinants of MSMEs’ Performances before and after Covid-19

Table 3 reports the findings of the effects of working capital, the number of workers, the number of working hours and the level of education on the MSMEs’ performances before and after the Covid-19 pandemic in Banda Aceh City, Indonesia.

As reported in Table 3, this study found evidence that during the pre-Covid-19 period, the amount of working capital and the number of working hours had a positive effect on the performance of MSMEs by 0.495 and 0.300, respectively, at a significance level of 1%. This shows that when the amount of working capital and the number of working hours increased by 100%, it has led to an increase in the performance of MSMEs by 49.5% and 30.0%, respectively. This result implies that the amount of working capital and the length of time the entrepreneurs work will determine the performance improvement of MSMEs. Therefore, to improve performance sustainably, MSMEs must have adequate capital and be supported by the seriousness of their workers to spend sufficient time working to advance the MSME business.

Meanwhile, the number of workers and the level of education were not found to affect the performance of MSMEs. This means that a large number of workers with a high level of education do not guarantee an increase in the performance of MSMEs. The presence of many workers with a high level of education but laziness to work certainly cannot help improve the performance of MSMEs. Seriousness in working hard is the most important capital in improving the performance of MSMEs.

Table 3 also reports the findings of the effects of working capital, the number of workers, the number of working hours and the level of education on the MSMEs’ ​​performances after the Covid-19 period. Unlike before Covid-19, in addition to working capital and the number of working hours, the number of workers was also found to have a positive effect on the performance of MSMEs at a significance level of at least 5%. More specifically, when the amount of working capital, the number of workers and the number of working hours increased by 100%, it has led to an increase in the performance of MSMEs by 43.7, 62.7 and 21.0%, respectively.

In its operations during the Covid-19 period, MSMEs require more personnel to serve consumers who order goods and services to be delivered to their homes because buyers do not go directly to MSME sales outlets. The number of workers with more working hours is needed to deliver goods and services ordered by buyers. Of course, this also requires additional working capital for MSMEs in serving their consumers during the Covid-19 pandemic. For this reason, additional working capital assistance from the government for MSMEs during the Covid-19 pandemic is very necessary.

Lastly, similar to the period before Covid-19, the level of education does not have a significant effect on the performance of MSMEs. MSMEs are small-scale businesses whose management is not complicated and generally do not require workers with a high level of education. MSMEs can be managed by workers with an upper secondary education level. However, business management skills and other soft skills are more needed in advancing MSMEs compared to higher formal education. Therefore, various programs to increase the capacity of MSME workers through professional training need to be carried out regularly and continuously.

Table 3: Determinants of MSMEs’ Performances before and after Covid-19

Source: Primary data processed using the SPSS software (2021), Note: *** and ** indicate significance at the 1 and 5% levels, respectively

Table 3 also reports the estimated value of the coefficient of determination (Adjusted-R2) which is significant at the 1% level for either the period before or after Covid-19. This shows that the proposed model is robust, thus it can predict the determinants of MSMEs' performance and it is free from misspecification problems. The estimated value of Adjusted-R2 is 0.844 for the period before Covid-19 and 0.843 for the period after Covid-19. These results show that changes in education level, number of hours worked, number of workers and working capital can predict variations in MSME performance changes by 84.4 and 84.3% respectively for the period before and after Covid-19.

Differences in MSMEs' Performances between Pre-and Post-Covid-19 Periods

Table 4 reports the results of the paired t-test difference between MSME performance before and after the Covid-19 period.

The results of the paired t-test reported in Table 4 show a difference in performance, as measured by the level of MSME income between before the Covid-19 period and after the Covid-19 period. There has been a decline in the performance level of MSMEs during the Covid-19 period. This shows that Covid-19 has had a negative impact on MSMEs in Banda Aceh City, Indonesia. MSMEs engaged in the trade sector have decreased their performance due to the limited amount of income owned by the community during the Covid-19 period. The results of this study indicate the importance of government intervention to provide various financial incentives to MSMEs so that they can continue to run their businesses when Covid-19 hits the country.

Table 4: Paired Sample t-Test

Source: Primary data processed using the SPSS software (2021), Note: ^***Indicates Significance at the 1% level

This study comparatively explored the effects of working capital, the number of workers, the number of working hours and the level of education on the Micro, Small and Medium Enterprises (MSMEs)' performances before and after the Covid-19 pandemic in Banda Aceh City, Indonesia. It also attempted to evaluate whether there are differences in performances of MSMEs before and after Covid-19. Based on regression analysis, the study found that working capital and the number of working hours significantly affected the performances of MSMEs before the Covid-19 period, while the number of workers and the level of education have an insignificant effect. After the Covid-19 period, the level of education is found to be the only variable that has an insignificant effect on the performances of the MSMEs. Furthermore, based on paired t-test, the study recorded differences in performances of the MSMEs before and after the Covid-19 period. These findings imply that special attention should be given by the government to enhance the performances of the MSMEs during the Covid-19 period by giving various financial incentives.

To provide more comprehensive empirical evidence on the impact of Covid-19 on the MSME sector, future studies on this topic might compare the impact of Covid-19 on MSMEs in various economic sectors in all cities in Indonesia. Evaluation of the effectiveness of government policies in helping the MSMEs sector during the Covid-19 pandemic is also interesting to evaluate whether the same policy will be effective in empowering different economic sectors of MSMEs.

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