New SME Policies Needed to Boost Latin America's Growth
Both organizations launched the 2013 Latin American Economic Outlook in Cádiz, Spain.
(16 November 2012) After nearly a decade of continuous expansion, GDP growth in Latin America will slow from 4.4% in 2011 to 3.2% in 2012 and 4.0% in 2013. The outlook remains relatively positive, but is exposed to global uncertainty and volatility. Latin American governments must act now to strengthen growth and development and counter these risks, according to the 2013 Latin American Economic Outlook, jointly produced by the OECD Development Centre and ECLAC.
"Now is the time for Latin America to go structural, to build on previous reforms and make further progress to reduce inequality and strengthen economic growth. The global context calls for structural change to enhance productivity", said OECD Secretary-General Angel Gurría, launching the report at the XXII Iberoamerican Summit in Spain. "SMEs in Latin America have the potential to act as catalysts and help the region drive up productivity. Greater coordination is needed to help SMEs overcome obstacles in terms of access to financing, human capital and innovation."
Small and medium enterprises (SMEs) must play a central role in unleashing Latin America's growth potential and creating higher quality jobs. They represent an overwhelming majority of private enterprises in the region: SMEs account for 99% of businesses and employ 67% of employees. However, their contributions to GDP and overall productivity are low: whereas large firms in Latin America have productivity levels 6 times higher than those of SMEs, this difference is only 2.4 times in OECD countries. A common problem for SMEs is not so much their size, but their isolation in the productive structure, which makes them unable to scale up production and specialise.
"Social progress is not limited to social policies. The structural heterogeneity and persistent productivity gaps, between and within sectors and enterprises, form a hard core from which inequality spreads throughout society, exacerbating capability and opportunity gaps", underlined Alicia Bárcena Ibarra, Executive Secretary of ECLAC. "Public policies and governments, in particular, have an important role to play in defining and conducting new holistic approaches for development where industrial policy and SMEs are considered to be at the center of the development agenda".
New policies in the areas of finance, innovation and Information and Communication Technologies (ICTs) are needed, as well as increasing training for employees and reducing skills mismatches.
Access to finance is one of the main obstacles faced by SMEs: only 12% of total credit in the region goes to these firms, compared to 25% in OECD countries. Meanwhile, 34% of small businesses in Latin America believe access to finance is a serious constraint. SMEs are often charged much higher interest rates than large firms by commercial banks, up to double the rate in several countries.
The growing provision of financial services by development banks is making headway in the sector, such as Innovar by the Studies and Projects Funding Agency (FINEP) in Brazil, the Entrepreneurs Programme by Nacional Financiera (NAFIN) in Mexico and the Business Angels Network by the Production Development Corporation (CORFO) in Chile. More such programmes need to be developed and scaled up.
More intensive use of ICTs will also help SMEs become more competitive, enter the international markets at a lower cost and improve their management. Beyond mobile and fixed telephones, there are still significant gaps between SMEs and large firms in the use of more advanced technologies, such as having a website, an intranet or access to broadband.
Limited access to qualified labour is another major problem facing SMEs. Indeed, 37% of companies in the region believe finding workers with the necessary training is one of their main obstacles, a figure higher than both the global average and the average for other developing regions. Latin American countries would benefit from establishing or strengthening the institutional structure and the incentives for SMEs to provide training for their staff.