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Latin American Economic Outlook 2013

SME Policies for Structural Change

image of Latin American Economic Outlook 2013

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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Executive summary

OECD Development Centre

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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