Latin American Economic Outlook

OECD Development Centre

Frequency :
Annual
ISSN :
2072-5140 (online)
ISSN :
2072-5159 (print)
DOI :
10.1787/20725140
Next Edition: 09 Dec 2014
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The Latin American Economic Outlook is the OECD Development Centre’s annual analysis of economic developments in Latin America in partnership with UN ECLAC and CAF. Each edition includes a detailed macroeconomic overview as well as analysis on the dynamics shaping the region in the context of shifting wealth, particularly towards emerging economies. Each issue also includes an in-depth look at a special theme related to development in Latin America, taking into account the strategic challenges and opportunities the region will have in the future. Further information can be found on the website.

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Latin American Economic Outlook 2013

Latin American Economic Outlook 2013

SME Policies for Structural Change You do not have access to this content

OECD Development Centre

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Author(s):
OECD, ECLAC
Publication Date :
16 Nov 2012
Pages :
184
ISBN :
9789264180734 (PDF) ; 9789264180727 (print)
DOI :
10.1787/leo-2013-en

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Latin America has weathered the recent turbulence in the global economy with relative strength, but the region now faces – beyond the short-term global uncertainty -- important medium-term risks. Policy makers need to make use of the policy space at their disposal to lay the foundations for inclusive and sustainable growth.  

SMEs play a key role as they are an integral part of the economic fabric, comprising over 95% of firms in the region as well as providing employment for over 60% of the region’s inhabitants. Nevertheless, relative to SMEs in the OECD, on average SMEs in Latin America exhibit low levels of relative productivity and weak links with the rest of the economy. In light of several decades of blanket SME policies with limited impacts in the region, this report proposes a more integrated approach that caters to the productive context and firm specificities. SMEs are part of a greater productive structure, and productive development policies need to be designed to address the particularities of heterogeneous SMEs. These differences can be manifested in many ways including the markets they serve, the types of products they produce, the level of technological sophistication and use of human capital involved in production, as well as the productive links with other firms in the industry. Providing policies which are adapted to the productive context requires co-ordination between various policy areas and levels of government to ensure that interventions are complimentary and effective. With this perspective in mind, the report explores key policy areas that address some of the main challenges to SMEs in the region including access to finance, skill development, innovation, and productive development.

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    Preface
    Latin American countries are faced with a complex economic situation caused by lower growth and the prevailing uncertainty in the global economy. Although the region has solid macroeconomic foundations to withstand possible drops in aggregate demand in the short term, the medium-term outlook is less favourable than in the previous decade. Because of more sluggish growth in external demand and volatile rawmaterial prices, on which Latin American economies remain over-dependent, structural weaknesses will impede higher, more inclusive economic growth in the coming years.
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    Acknowledgements
    The present report is the result of the joint efforts of the Economic Commission for Latin America and the Caribbean (ECLAC) and the Organisation for Economic Cooperation and Development (OECD).
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    Acronyms and abbreviations
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    Executive summary
    Latin America will have relatively strong growth in the short term, and if necessary there is room for countercyclical action. However, the picture for the medium term is more complex. A decline in external demand will expose the limitations of the current growth pattern, which is based on low added value and on exports of natural resources in many countries in the region. Latin American governments must act now, in line with their shortterm macroeconomic policies, to strengthen productive structures and overcome the problems of structural heterogeneity through diversification and development. Latin American small and medium-sized enterprises (SMEs) can become catalysts for this structural change and productivity growth. An effort of this nature requires a new approach to public policies for SMEs. For these policies to be effective, there must be greater coherence and co-ordination among infrastructure policies, the provision of services, and sectoral policies. In particular, policies in the areas of finance, skills and training, systems for innovation and the dissemination of technology, and productive linkage policies can help SMEs overcome their obstacles. Policies must be designed in a way that takes into consideration the specificities of sectors, institutions and regions. They must also consider the heterogeneity of all SMEs, since different firms have very different development needs and potential. Many of these tasks require institutions that are able to lead complex processes while being flexible to adapt to the changing requirements of the productive sector.
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    Macroeconomic overview
    This chapter analyses the main macroeconomic trends in Latin America for the next few years. In the short term, Latin America will continue to witness moderate economic growth amid strong uncertainty worldwide. Countries in the region have some fiscal and monetary space they can use to deal with falls in aggregate demand. But current forecasts suggest that developed countries are on the verge of a long period of sluggish growth. In response, countries in the region would do well to make sure their policies to stabilise the economy are consistent with the actions they need to take to boost medium-term growth while transforming the production structure. Region-wide, greater trade integration could be an effective response to poor demand from developed countries and would at the same time allow non-traditional sectors and activities to boost their competitive advantages. Special attention should be paid to currency fluctuations, which in several countries could threaten the competitiveness of goods that are not linked to commodities. Identifying the causes of these fluctuations and using the appropriate instruments to mitigate them is one of the challenges faced by current macroeconomic policies.
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    Traits and policies of Latin American SMEs
    Given the right support policies, micro, small and medium-sized enterprises (SMEs) in Latin America can help raise productivity, complement the economies of scale of large firms, contribute to creating clusters in certain sectors and reduce social inequality and poverty. Over the past decade, the attention given to SMEs, a key component of the region’s business fabric, has grown. But efforts need to be redoubled to break the vicious cycle of low productivity and lack of competition among SMEs. Public policies need to be more mature so they will last longer, but also more flexible to the changing external environments that affect SMEs. Countries need to build the institutional capacities necessary to implement programmes and initiatives. In particular, policies need to be devised and implemented in a way that takes into account the full spectrum of SMEs, from subsistence-level microenterprises to fully modernised firms that supply large companies which export to foreign markets.
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    Financing SMEs in Latin America
    In Latin America, SMEs still have poorer access to finance, less favourable conditions and higher costs than large firms, despite the major improvements in the region in recent years. This gap hinders a greater contribution to development by micro, small and medium-sized enterprises, i.e. most production units in the region. The changes experienced by the Latin American financial system, particularly the shift from relationship banking to multi-service banking, have contributed to limiting access to credit for small and medium-sized enterprises (SMEs). Public financial institutions have contributed greatly to narrowing the financing gap, and recently new tools have proliferated to meet the needs of SMEs. However, for smaller companies to live up to their full potential they need greater access to financial and non-financial resources. There is ample space for public action through instruments and services to support (SMEs), a task that must involve national governments and the private sector. The region needs flexible, comprehensive public policies to finance businesses, with options for training, production linkages and innovation.
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    SMEs, innovation and technological development
    This chapter analyses the position of small and medium-sized enterprises (SMEs) in Latin America in terms of their capacity for innovation and technological development. It addresses the obstacles that hinder SMEs from accessing technology and benefiting from knowledge dissemination and transfer. The chapter pays special attention to SMEs’ use of information and communication technologies (ICTs) and their reaction to the innovation policies being implemented. It looks at how these restrictions lead to productivity gaps and structural heterogeneity. The chapter concludes by presenting a series of recommendations and identifying opportunities and challenges for the design of public policy.
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    Human capital and skills for SMEs
    Despite recent progress in the field of education and skills in Latin America, there are still challenges that should be confronted through careful analysis and new public policies. A relatively untrained workforce and management, a high dropout rate from school, and lowquality education stand in the way of increasing SMEs’ productivity. Another obstacle is the mismatch between the skills that the production sector demands and the training that the educational system provides. The technical education and vocational training systems are key factors to deal with this. These challenges have been responded to in this region through programmes that try to address the needs of the production sector and SMEs. However, many areas need government action to strengthen institutions and need policies to better align the education system with the needs of the job market, foster training paths that combine the classroom with the workplace, add new skills and abilities to training curricula, develop certification schemes for acquired skills and abilities, and establish institutional frameworks to encourage co-operation among SMEs.
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    Production linkages, clusters and global value chains: seeking answers for SMEs
    Bridging the gap in SMEs’ production and exports in the region justifies the need to implement efficient production linkage policies based on instruments to promote business co-operation and institutional collaboration in order to improve businesses’ competitive performance and create a dynamic, innovative business environment. There is a whole range of partnership projects in Latin America, aimed at promoting clusters, business networks and regional programmes, as well as SMEs’ participation in global value chains. However, these projects have been based on approaches and instruments whose operational modes of action are not always consistent with the goals being pursued.
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