copy the linklink copied!Chapter 8. The local dimension of SME and entrepreneurship policy in Brazil

This chapter looks at the local dimension of small- and medium-sized enterprise (SME) and entrepreneurship policy in Brazil. It shows that employment by firm size follows broad regional patterns, with employment in SMEs proportionally more common in the South and Southeast, Brazil’s industrial heartland. These two regions also host the largest number of innovative SMEs and exporting micro and small enterprises. Business environment conditions also tend to vary at the local level, although an important effort of regulatory harmonisation has been ongoing since 2007 through the REDESIM programme. Cluster development has been the main local development policy of Brazil for over two decades. Overall, there is evidence that participation in clusters improves the performance of Brazilian SMEs in terms of employment generation, innovation and productivity growth.

    

copy the linklink copied!Business demography at the local level

The South and Southeast regions of Brazil are the main drivers of the national economy   
        

Brazil covers an area of above 8.5 million square kilometres, roughly twice the territory of the European Union. Worldwide, it is exceeded in size only by Canada, China, the Russian Federation and the United States. Because of its size, Brazil features important differences in terms of population density and economic activity across its 26 states (plus the Federal District), 5 regions and 5 570 municipalities.

A few major cities account for a large share of the national gross domestic product (GDP). In 2016 the 3 municipalities of São Paulo (11%), Rio de Janeiro (5.3%) and Brasília (3.8%) accounted for more than 20% of Brazilian GDP. However, the contribution of the 12 Brazilian metropolitan areas (177 municipalities) to GDP fell from 47.3% in 2002 to 44.6% in 2016, whereas the contribution of smaller centres (4 479 small municipalities) rose from 15.8% to 17.1%, which is a diverging pattern from the one observed worldwide (OECD, 2018a).1

Geographically, most economic activity takes place in the southern part of the country and along the north-eastern Atlantic coast. Of the total 5 million formal companies, 51% (2.6 million) operate in the Southeast, followed by 22% (1.1 million) in the South, 15% (0.7 million) in the Northeast, 8% (0.4 million) in the Centre-West and 3% (0.2 million) in the North. Data from the national statistical office of Brazil (IBGE) also show that the North has the lowest share (84%) of micro-enterprises (1-9 people employed) and the highest share (0.6%) of large companies (250+ people employed), something which is related to the specialisation of the North’s economy on agriculture and mining. Conversely, more diversified regional economies such as those in Southeast and the South show a lower proportion of large companies and a higher proportion of micro and small enterprises (Figure 8.1). It follows that business density (i.e. number of enterprises per thousand people) is highest in the South and the Southeast and lowest in the North (Figure 8.2).

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Figure 8.1. Business distribution by firm size (employment) across Brazil’s regions, 2016
Percentage values
Figure 8.1. Business distribution by firm size (employment) across Brazil’s regions, 2016

Source: IBGE Database.

 StatLink http://dx.doi.org/10.1787/888934088674

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Figure 8.2. Business density across Brazil’s regions, 2017
Number of enterprises per thousand people
Figure 8.2. Business density across Brazil’s regions, 2017

Note: Number of enterprises refer to 2016, population estimates refer to 2017.

Sources: OECD calculations based on IBGE Database and IBGE (2017), Estimativas da População Residente no Brasil e Unidades da Federação, ftp://ftp.ibge.gov.br/Estimativas_de_Populacao/Estimativas_2017/estimativa_dou_2017.pdf.

 StatLink http://dx.doi.org/10.1787/888934088693

Employment by firm size follows broad regional patterns affected by regional industry specialisations  
        

At the national level, micro (1-9 people employed), small (10-49 people employed), medium (50-249 people employed) and large (250+ people employed) enterprises account respectively for 23%, 23%, 16% and 38% of national employment. Figure 8.3 shows how each Brazilian state compares with the national average. For example, the Federal District has a lower proportion of employment in micro, small and medium enterprises and, conversely, a higher proportion in large companies, which is clearly a result of many government organisations having their headquarters in Brasília. On the other hand, Santa Catarina, an industrial and diversified state in the South, has the lowest percentage of large-enterprise employment (28.8%) among all Brazilian states and above-average proportions of employment in micro, small and medium enterprises (respectively 28.2%, 25.5% and 17.6%).

While there are strong differences across individual states, different states in the same region tend to show a similar pattern. For example, all states in the South (Rio Grande do Sul, Paraná and Santa Catarina) show above-average employment in micro and small enterprises and below-average employment in large enterprises. By the same token, all states in the Northeast (except Bahia) are below the national average with respect to employment in micro and small firms and above the national average with respect to employment in large enterprises. Figure 8.4 shows the distribution of employment by firm size across the five regions of Brazil.

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Figure 8.3. Distribution of employment by state and firm size, 2016
Percentage of employment by state in the indicated class of firms
Figure 8.3. Distribution of employment by state and firm size, 2016

Note: Data refer to employment in local establishments of active enterprises.

Source: IBGE Database.

 StatLink http://dx.doi.org/10.1787/888934088712

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Figure 8.4. Employment by firm size across the five macro-regions of Brazil, 2016
Percentage of total employment
Figure 8.4. Employment by firm size across the five macro-regions of Brazil, 2016

Note: Data refer to employment in local establishments of active enterprises.

Source: IBGE Database.

 StatLink http://dx.doi.org/10.1787/888934088731

Regional industry specialisation offers a possible explanation of employment distribution by firm size. Figure 8.5 charts the average firm size (X-axis) against the sector employment specialisation (Y-axis) across the five macro-regions of Brazil, with the size of the bubbles indicating the total number of people in the selected sector and region.

The regions of Centre-West, North and Northeast are the most specialised in agriculture, respectively employing 2.2%, 2.1% and 1.9% of the total labour force. These regions also have a larger-than-average firm size in agriculture (respectively 10.4, 21.0 and 18.0). On the other hand, the South is the most specialised in industry, with 27.4% of the workforce in this sector. Interestingly, the average firm size of industrial companies in the South is also the lowest (12.7 employees). Finally, the proportion of employment in the services sector ranges from 71.4% in the South to 82.8% in the North. Average firm size is smaller in services than in industry and agriculture (see also Chapter 2), with the average size ranging from 6.6 employees in the South to 12.8 employees in the North. This further corroborates the view that the economy of the North is more driven by larger companies than the one in the South.

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Figure 8.5. Sector specialisation and firm size by region, 2016
Y-axis: Percent of employment; X-axis: average firm size; Bubble size: total number of employees
Figure 8.5. Sector specialisation and firm size by region, 2016

Note: Average firm size is given by the total number of people employed in the specific sector and region divided by the number of local establishments active in the same region and sector.

Source: OECD calculations based on IBGE Database.

 StatLink http://dx.doi.org/10.1787/888934088750

copy the linklink copied!SME performance at the local level

SME innovation at the state level

The South and Southeast host the largest number of innovative companies   
        

Chapter 2 has presented data on innovation and export performance at the federal level. This section, based on the same data sources (i.e. national innovation survey and SEBRAE data), focuses on disaggregated data at the state level. Data from the national innovation survey, which covers only 14 states, show that the six states with the largest absolute number of innovative companies are all in the South or Southeast, the industrial powerhouse of Brazil. Pernambuco, in the Northeast, is the first state in the national ranking that is not located in the South or Southeast.

The share of innovative companies (product/process innovation) – the proportion of innovative companies over the total (with 10 or more employees) – ranges between 45% and 55%, although there are some outliers such as Santa Catarina at the top of the distribution (56%) and Bahia (41%), Rio de Janeiro (39%) and Goiás (39%) at the bottom of the distribution. Similar values are observed in the case of marketing/organisational innovation (Figure 8.6).

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Figure 8.6. Proportion of innovative companies at the state level, 2012-14
Percentage values
Figure 8.6. Proportion of innovative companies at the state level, 2012-14

Note:Only firms in the manufacturing and extractive sectors are included in the national innovation survey (PINTEC survey).

Source: IBGE National Innovation Survey.

 StatLink http://dx.doi.org/10.1787/888934088769

Suppliers and customers are the main partners in collaborative innovation across all states   
        

Chapter 2 has already shown, at the national level, how innovative companies mostly collaborate with clients and suppliers in their innovative endeavours, whereas collaboration with universities and research centres is far less common. Table 8.1 details this finding at the state level, with innovative companies in virtually almost all states reporting clients and suppliers as the main counterparts in collaborative innovative projects, whereas universities/research organisations play a less important role across all states. Interestingly, however, certification labs and technical assistance centres in rural states such as Mato Grosso do Sul and Goiás also play an important task in SME innovation.

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Table 8.1. Importance of types of collaboration in Brazilian innovative firms, 2012-14
Most frequent response by innovative businesses in the state.
Dark blue = high importance; Medium blue = medium importance; light blue = low importance or irrelevant

Clients

Suppliers

Competitors

Other companies in the group

Consultancies

University or research institutions

Centre for technical assistance

Test-centres, certification labs

Amazonas

Pará

Ceará

Pernambuco

Bahia

Minas Gerais

Espírito Santo

Rio de Janeiro

São Paulo

Paraná

Santa Catarina

Rio Grande do South

Mato Grosso

Goiás

Source: IBGE National Innovation Survey.

International collaboration in innovation is most common in the South   
        

International collaboration in innovation is also relatively rare in Brazil: for example, only 9% of innovative companies nationwide collaborate in innovation with international suppliers. However, the proportions are much higher in Rio de Janeiro (43%), Espírito Santo (21%) and Pará (15%). Similarly, only 7% of innovative companies in Brazil undertake innovation as part of larger international groups, with much higher values in the two states of São Paulo (13%) and Rio de Janeiro (12%) where most affiliates of multinational enterprises are located.

Government innovation support goes both to leading and lagging states  
        

Based on the same survey, about 40% of respondents have received government innovation support. The states which received above-average support include both leading (Rio Grande do Sul and Santa Catarina) and lagging states (Amazonas and Ceará), suggesting that the government has used innovation policy both to back frontier firms in leading states and to reduce regional inequalities (Figure 8.7). Preferential financing (i.e. grants and subsidised loans) to acquire equipment for innovation purposes was the most common form of support across all states.

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Figure 8.7. Share of innovative manufacturing companies receiving government support by state, 2012-14
Proportion of firms introducing product/process innovation
Figure 8.7. Share of innovative manufacturing companies receiving government support by state, 2012-14

Source: IBGE, Diretoria de Pesquisas, Coordenação de Indústria, Pesquisa de Inovação 2014.

 StatLink http://dx.doi.org/10.1787/888934088788

Besides the government, state-level public foundations also play an important role in supporting research and development (R&D) and innovation in Brazil, as shown by Box 8.1 detailing the case of the São Paulo Research Foundation (Fundação de Amparo à Pesquisa do Estado de São Paulo, FAPESP).

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Box 8.1. The São Paulo Research Foundation (FAPESP)

Different institutions fund R&D and innovation at the state level in Brazil. One of the most prominent examples is FAPESP in the state of São Paulo, which supports research projects across all fields of knowledge. In 2017 FAPESP disbursed about BRL 1 billion, more than half of which (57%) was spent on applied research undertaken by SMEs either alone or in collaboration with universities, 38% was allocated to research projects carried out by research organisations, and 5% to supporting research infrastructure. In 2014, FAPESP accounted for about 5% of the total budget of innovation agencies across the whole country (excluding public development bank BNDES).

Sources: Limoeiro, D. and B. Schneider (2017), “State-led Innovation: SOEs, institutional fragmentation, and policy making in Brazil”, https://ipc.mit.edu/sites/default/files/documents/17-004.pdf; FAPESP website, http://www.fapesp.br/en/about.

SME export at the state level

Micro and small companies from the South and Southeast are the most engaged in exports   
        

Micro and small enterprises, as defined by Lei Complementar 123/2006 (micro e pequenas empresas, MPE), account for 27% of national GDP, but for only 0.5% of export volumes (SEBRAE, 2018). Exporting MPEs are mostly concentrated in the more industrial regions of the South and Southeast. In 2017 São Paulo, Rio Grande do Sul and Minas Gerais were the three states with the largest number of exporting MPEs (respectively 35%, 11% and 9% of the total) and with the highest volumes of MPE export (respectively USD 340 million, USD 131 million and USD 123 million). In these three states, the number of exporting MPEs also grew considerably in the period 2009-17, respectively by 23%, 19% and 13%, with a parallel growth in export volumes by 28%, 14% and 41% (SEBRAE, 2018). Figure 8.8 shows the full distribution of exporting MPEs by state and by whether they operate under the Simples Nacional regime. It clearly shows that most Brazilian states are basically absent in the MPE export landscape.

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Figure 8.8. Number of exporting MPEs and MPE export volume by Brazilian state, 2017
LHS (left-hand side): Number of exporting SMEs; RHS (right-hand side): value of export
Figure 8.8. Number of exporting MPEs and MPE export volume by Brazilian state, 2017

Note: MPEs (Micro and Pequena Empresas) follow the definition of the Lei Complementar 123/2006, i.e. annual gross revenues up to BRL 4.8 million. MPEs are further divided based on whether they opt for the preferential tax and regulatory regime, Simples Nacional.

Source: SEBRAE (2018), As Micro e Pequenas Empresas na Exportação Brasileira. Brasil: 2009-2017, Brasília, https://datasebrae.com.br/wp-content/uploads/2018/11/As-Micro-e-Pequenas-Empresas-nas-Exporta%C3%A7%C3%B5es-Brasileiras-2009-2017-Brasil-VF.pdf.

 StatLink http://dx.doi.org/10.1787/888934088807

copy the linklink copied!Business environment conditions at the local level

Business environment conditions vary across states   
        

Business environment conditions (see Chapter 3 for the national assessment) also tend to change at the local level. State-level information on Brazil’s business environment is only available for 2006, when the World Bank undertook a state-level exercise of its Doing Business survey. This survey showed that the time to start a business varied from 19 days in Minas Gerais to 152 days in São Paulo (compared with 29 to 58 across Mexican states) and the time to enforce a contract varied from 546 days to 1 473 days (compared with 184 to 671 in Mexico). The analysis also brought out how the interaction of federal, state and municipal legislation posed a challenge on entrepreneurs (World Bank, 2007). Since the time of this analysis, Brazil has made important strides towards the harmonisation of state-level business regulations, mostly through the REDESIM initiative, an effort which is still ongoing (see Chapter 4 for more details).

In 2019, the World Bank Doing Business offered updated information on the cities of São Paulo and Rio de Janeiro. The analysis of these two cities across the multiple dimensions of the Doing Business survey gave a score of 60 to Brazil, slightly above the Latin America and the Caribbean (LAC) average of 59, but still below other emerging economies such as Chile (71.8), Mexico (72.1) and China (73.6).

Trade barriers have different regional impacts depending on state-level industry specialisations   
        

There is a large literature showing that trade shocks (e.g. the introduction or abolition of major tariff barriers) have a disproportionate impact on tradable sectors such as manufacturing and, accordingly, on states that have higher-than-average industrial employment (Rusticelli et al., 2017; Castilho et al., 2012).

The last OECD Economic Survey of Brazil (OECD, 2018b) has calculated a regional measure of effective trade protection in Brazil based on the weighted average of national industry-level tariffs, with weights corresponding to the industry share of employment and value added in each state. The analysis identified wide regional variations, with the highest effective tariffs in Rio Grande do Norte (18.7%), Ceará (18.5%) and Santa Catarina (16.7%) and the lowest in Alagoas (10.6%), Roraima and Mato Grosso do Sul (11%). The analysis also showed that states with higher effective trade protection would be more exposed to trade-induced job reallocation if tariffs were to be dropped.

copy the linklink copied!Cluster policy

Business clusters have been the mainstay of Brazil’s local economic development policy  
        

The benefits of industrial agglomerations for local economic development have been recognised for over a century. Industry clusters are associated with positive economic externalities such as vertical integration of the production process through stronger specialisation at the firm level, knowledge spill-overs among firms and between firms and research organisations, the sharing of resources in the production process, and the development and attraction of skilled workers within the cluster.

Industry clusters (Arranjos Produtivos Locais, APLs) have been supported in Brazil since 2004 through the creation of an APL Permanent Working Group (Grupo de Trabalho Permanente para Arranjos Produtivos Locais, GTP-APL) and can effectively be considered the main federal and state-level policy for local business development. References to the APL policy are, for example, found in the National Plan of Science, Technology and Innovation 2007-10 (Plano Nacional de Ciência, Tecnologia e Inovação), in the National Productive Development Policy 2008-13 (Política de Desenvolvimento Produtivo) and in the Programa Brazil Maior 2013-15, among others (Lastres et al., 2014). The long-term objective of the federal government has been to improve the synergy between federal and state-level actions to increase the overall effectiveness of the APL policy (MDIC, 2004).

APLs are today an important component of the Brazilian economy. In the last census of 2015, there were 677 APLs, which encompassed 291 498 firms employing over 3 million workers. Almost half (2 175, corresponding to 40% of the total) of Brazilian municipalities are involved in an APL. APLs operate in 59 different sectors, with the five most represented being ceramic, furniture, textile, engineering and food processing.

Figure 8.9 shows the distribution of APLs across Brazil. The number of APLs range from 83 in the South to 210 in the Northeast, suggesting that this policy has also been used to promote inclusive growth in lagging regions such as the Northeast (Lustosa et al., 2018). There is also strong regional variation in the average number of firms in each APL, ranging from 197 in the Northeast to 877 in the Centre-West. As to the average firm size in APLs, this can be lumped into two groups: in the Northeast, South and Southeast the average firm size was 16-18 employees, whereas in the more rural North and Centre-West the average firm size was 7-8 employees.

APLs differ widely in terms of development. In this respect, researchers have identified three different stages of development – i.e. beginner, developing and consolidated – noting a positive correlation between the level of development of the cluster and its geographical proximity to large municipalities (Leite Filho and Antonialli, 2011; SEBRAE, 2014). Table 8.2 shows the typical actions undertaken to support the growth of an APL at different stages of development.

The APL policy has evolved over the years, expanding its scope from initial training, workshops and technical assistance to supporting SME exports and technology transfer between SMEs and research organisations. Funds are typically transferred from state governments to local institutions such as municipalities, trade unions or business associations, depending on the initiative. Organisations part of Sistema S play an important role in APL development, especially when it comes to managerial and workforce training initiatives. The role of local institutions has also proved key to the success of an APL. For example, southern states (Santa Catarina, Paraná, Rio Grande do Sul) have dedicated sizeable financial resources to APLs over the last decade, mostly to support the integration of APLs into national and global value chains (Corrêa Neto et al., 2018).

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Figure 8.9. Distribution of APLs across Brazil, 2015
Figure 8.9. Distribution of APLs across Brazil, 2015

Source: OECD based on last census of APLs: http://www.mdic.gov.br/index.php/competitividade-industrial/arranjos-produtivos-locais.

 StatLink http://dx.doi.org/10.1787/888934088826

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Table 8.2. Policy instruments and actions to develop APLs

Stages

Characteristics

Instruments/actions

Institutional strengthening

Awareness, mobilisation, and articulations of actions to trigger the involvement of and co-operation between different local actors (firms, support institutions, and government agencies).

  • Training to encourage the formation and/or consolidation of local leaders and co-ordinators.

  • Building and diffusing supporting institutional networks.

  • Supporting the development of a common vision and agenda.

  • Conferences, meetings, and workshops on business co-operation and on environmental and social issues.

Competitive diagnostic assessment

Diagnostic assessment to characterise the dynamics of firm networks, actual and potential connections with domestic and international markets, and business management.

  • Data and information collection and surveys.

  • Market research and studies on production chains.

  • Support for pilot tests.

  • Promoting the extension of business and consulting services.

Design of the APL development plan

Development of a public-private model with strategic lines of action and prioritisation of activities to boost firm competitiveness and employment.

  • Technical support to elaborate plans

  • Promote technical visits.

  • Workshops to discuss opportunities and challenges for the APLs.

Implementation of the APL development plan

Co-ordination of the implementation of eligible activities in the APL development plan.

  • Financial support to create common activities and common goods (e.g. technology, business and distribution centres, and export platforms).

  • Promotion of trade shows.

  • Organisation of missions to incorporate new markets and technologies.

Monitoring, evaluating and disseminating learned lessons

Monitoring and evaluating goals and expected outcomes of the different activities implemented. Identify lessons learned.

  • Technical training to develop monitoring and evaluation systems.

  • Support the dissemination of results and lessons learned.

Source: Figal-Garone, L. et al. (2012), “Assessing the impact of cluster policies: The case of the Arranjos Productivos Locais in Brazil”, http://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=37273326.

The governance of clusters involves both the federal government and state-level governments   
        

The governance of the APL policy sees both the federal government and state-level governments involved. At the federal level, the main co-ordinating body is the GTP-APL, which is chaired by the Ministry of Economy and brings together federal ministries and state agencies, banks and financial institutions, research institutes and business associations. The work of the GTP-APL is also supported by technical committees, mostly based on industry specialisations.

Each of the 26 federal states (plus the Federal District) also hosts a Núcleo Estadual de Apoio (State-level Support Hub) which serves as the connecting institution between the GTP-APL at the federal level and the individual APLs at the state level. Each Núcleo includes at least one representative from each of the following areas: business sector, state government, Sistema S, financial institutions, science and technology system, and labour organisations. The Núcleos Estaduais support the preparation of the Production Development Plan of the APL, monitor and evaluate the results of this plan, and bring to the attention of the GTP-APL problems that should be solved at the federal level concerning the governance of APLs.2

Participation in clusters has had a positive impact on local SME performance  
        

A number of empirical studies have been conducted to assess the impact of APL participation on enterprise performance, typically finding positive results. For example, in 2012, a large-scale study covering a sample of 110 000 SMEs from São Paolo and Minas Gerais found positive direct effects (and very modest indirect effects) of participation in APL on the levels of employment (+17% with respect to the control group), export volumes (+90%) and likelihood to export (+8%) (Figal-Garone et al., 2012).

APLs have also had positive impacts on local incomes. For example, data from 2006-14 in Rio Grande do Sul show that out of the 20 APLs analysed, 12 presented a significant and positive effect on the average wage, while only two APLs showed a positive impact on employment (Savaris Linhares and Carraro, 2018).

The impact on productivity and competitiveness is typically more difficult to assess. However, in some cases, it has been shown that the introduction of a new technology in the APL has had a positive effect on productivity. For example, in a textile APL in Paraná, 58% of the companies noted an increase in output and 72% an increase in competitiveness thanks to the introduction of new machinery (Freitas et al., 2015).

The identification of priority sectors and the promotion of inter-firm collaboration are important cornerstones of a successful APL policy. Box 8.2 presents an interesting example of how the Chilean government has identified priority sectors in its cluster policy and how collaboration within the cluster has been encouraged.

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Box 8.2. Chile’s Strategic Programme for Smart Specialisation

Chile’s Strategic Programme for Smart Specialisation is supported by the business development agency of Chile, CORFO (Corporación de Fomento de la Producción); it has the main objective of raising the productivity of the Chilean economy through the support of firm-level innovation and collaboration among firms. Some of the policy instruments used by the programme include investments in workforce training and human capital development, the creation of R&D and technology centres, and the development of standards and large-scale R&D consortia. Ten regional clusters are supported as part of this programme, in as different sectors as mining, biological products, and culture and tourism.

The programme focuses on sectors considered key to the development of the national economy. To identify such priority sectors, CORFO used five dimensions: the need for additional co-ordination; the level of sophistication and qualified human capital; external economic and political conditions impacting the market; growth potential; and comparative advantages. Through this methodology, CORFO identified six priority sectors: sustainable mining; sustainable tourism; healthy agri-food; sustainable construction; creative economy; and sustainable fishery and aquaculture. In addition, public support is also given to additional “enabling platforms” that are cross-sectorial and are expected to have an impact on the economy as a whole: logistics, smart industries, solar energy and water management, and biotechnologies for industry and health.

Within this programme CORFO, together with representatives from academia and industry, analysed the challenges and opportunities in the various sectors in order to identify the most important areas for development. This process was articulated in five different stages, involving independent experts and stakeholders: i) shared vision and animation; ii) identification of opportunities and challenges; iii) preparation of a Roadmap; iv) external validation; v) final execution. The programme also includes an ongoing impact analysis of the different initiatives.

Sources: CORFO (2014), Programas Estratégicos de Especialización Inteligente, Gobierno de Chile, http://www.aprimin.cl/site/wp-content/uploads/2015/03/Corfo-Innova.pdf; CORFO (2015), Programas Estratégicos de Especialización Inteligente: Desafios y Oportunidades, http://conferencias.sofofa.cl/eventos/9.10.2015/EduardoBitran.pdf.

However, there are also challenges related to cluster development  
        

However, there are also some challenges related to cluster development in Brazil. For example, interview-based studies in the states of Sergipe and Minas Gerais found that many SMEs in APLs complained about unfair competition and lack of decision-making power within the APLs, and stressed how these two factors restrained the willingness of companies to share information and collaborate with each other (de Aragão Zambrana and Teixeira, 2013; da Silva Antero et al., 2016).

In some cases, as for example in the state of Paraná, the involvement of municipalities and public bodies was considered too small to have an impact on the development of the APL (Marini et al., 2016). In other opposite cases, when public support was too entrenched in the APL business development model, the APL was unable to survive when public support was phased out.

Lack of managerial skills and lack of finance have also been commonly reported problems, although there have been improvements in access to finance in the last decade thanks to the fact that firms within APLs have had access to an increasing number of public and private credit lines. Nonetheless, there are still challenges in terms of financial inclusion, especially in rural areas.

Finally, the respect of environmental standards has become an increasingly compelling issue. A fitting example is the APL of turismo ecologico (ecological tourism) in Bonito, Mato Grosso do Sul, where local authorities and firms have co-operated to create an integrated system of services to guarantee the respect of higher environmental standards (Pessoa de Matos et al., 2015).

copy the linklink copied!The role of municipalities in SME policy

Municipalities are actively involved in regulatory simplification efforts   
        

The main role of municipalities in SME policy is through REDESIM, a federal network established in 2007 which has been quite successful in harmonising business registration and business licensing rules across the states and municipalities of Brazil (see also Chapter 4). As of mid-2019, 3 040 municipalities out of the existing 5 570 were involved in the activities of REDESIM.

In addition, a project called Município Amigo do Empreendedor aims to identify, support and disseminate business-friendly good practices at the local level. To be defined as municipality “friend of the entrepreneur”, cities need to comply with the following requirements:

  • To regulate and implement the “Statute of Micro and Small Enterprises” at the municipal level.

  • To allocate government contracts up to BRL 80 000 only to micro and small enterprises and to encourage subcontracting to these companies for contracts above the BRL 80 000 threshold (in compliance with national legislation on public procurement).

  • To have a network of local development agents supporting local business development.

  • To be part of REDESIM to simplify business registration procedures at the local level.

  • To introduce entrepreneurial education in municipal schools.

  • To have an information office for local entrepreneurs.

There is a number of local policy good practices that can inspire other places   
        

Brazil also hosts a number of local good practices in SME policy that can be of inspiration for other places. The federal Permanent Forum on Micro and Small Businesses, as well as the equivalent ones at the state level, would be the right places to disseminate information about these practices. A few examples are presented as follows:

  • In the municipality of São José dos Campos in the state of São Paulo, entrepreneurship education has been included in the local school curricula since 2001. Pupils start learning about entrepreneurship from primary school, thus raising awareness about entrepreneurship in the family environment.3

  • Empreenda Fácil is an initiative launched in 2017 by the municipality of São Paulo to shorten the business registration process. By making business registration mostly digital, the city allows entrepreneurs to open their business in only 5 days on average.4

  • The Portosol initiative started in 1996 as a joint initiative of the state government of Rio Grande do Sul and the City of Porto Alegre. It gives affordable credit to micro-entrepreneurs, whether they are registered or not. During its activity, it has provided around BRL 172 million in microcredit to micro and small enterprises that would not have had access to credit otherwise.5

  • Crediamigo from the Banco do Nordeste is one of the largest microcredit programmes in Latin America. In 2017, the programme supported more than 2 million clients, with more than BRL 8 billion distributed through 4 million credit operations. Together with credit, the programme also offers consulting and entrepreneurship support.6

  • The state of Minas Gerais, through the Start-up and Entrepreneurship Ecosystem Development programme, has offered seed funding to over 100 start-up innovative projects. As part of this initiative, a co-working space was created in 2016 (Espaço CentoeQuatro) in Belo Horizonte, the capital city, to support local innovative entrepreneurs through the offer of physical facilities, counselling and training.

copy the linklink copied!Conclusions and policy recommendations

This chapter has looked at the local dimension of SME and entrepreneurship policy in Brazil. It has started by showing regional variations in business demography, SME performance and business environment conditions. The chapter has shown, for example, that employment by firm size follows broad regional patterns, with employment in SMEs most common in the South and Southeast. The South and Southeast, which are the industrial heartland of Brazil, also host the largest majority of innovative SMEs and micro and small businesses involved in exports. Similarly to other countries, business environment conditions also tend to vary at the local level, although an important process of harmonisation of state-level regulations has taken place in the last years through the REDESIM policy.

Cluster policy has received a great deal of attention in Brazil over the last 20 years and can, indeed, be considered the main local business development policy at the national level. There is evidence that companies in Brazilian clusters (arranjos produtivos locais) do better than those in control groups located outside the cluster when it comes to employment growth, wages and productivity. Nonetheless, there are still challenges in areas such as effective cluster management, access to finance and managerial skills at the firm level.

Finally, municipalities play an important role in the regulatory simplification process through the REDESIM policy, since they are typically responsible for business registration procedures and business licenses. At the moment, not all Brazilian municipalities have joined REDESIM, which is the final objective of the federal government.

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Policy recommendations on the local dimension of SME and entrepreneurship policy
  • Move forward in the harmonisation of state-level regulations through the REDESIM policy, including by reaching out to municipalities which have not yet joined the programme.

  • Set-up a web platform and organise a large annual event to favour the exchange of information and good practices on regulatory simplification at state and municipal levels.

  • Encourage the offer of entrepreneurship education in primary schools at the municipal level, following the example of the municipality of São José dos Campos.

  • Undertake a more rigorous and frequent evaluation on the impact of the national cluster policy (arranjos produtivos locais) on the employment and innovation performance of local SMEs.

  • Consider focusing the national cluster policy on priority sectors at the state level, to be identified through an appropriate methodology applied nationwide.

  • Give priority to export-oriented sectors in the national cluster policy with a view to supporting SME internationalisation.

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Notes

← 1. Data on GDP by municipality in Brazil are taken from the following web-link: https://agenciadenoticias.ibge.gov.br/en/agencia-press-room/2185-news-agency/releases-en/23431-gdp-of-municipalities-2016-semi-arid-region-accounts-for-5-1-of-the-country-s-gdp.

← 2. Further information on the governance of the APL policy is available at the following presentation: https://www.clustercollaboration.eu/sites/default/files/event_calendar/brazilian_policy_for_apl_gmf.pdf.

← 3. Further information on entrepreneurship education in São José dos Campos is available at the following website: https://www.forbes.com/sites/babson/2013/04/10/entrepreneurship-in-brazil-unlimited-potential/#1e2f32ea6684.

← 4. Further information on Empreenda Fácil is available at the following website: https://www.prefeitura.sp.gov.br/cidade/secretarias/inovacao/inclusao_digital/index.php?p=246628.

← 5. Further information on Portosol is available at the following website: http://www.portosol.com/site/index.php/quemsomos/apresentacao.

← 6. Further information on Banco do Nordeste’s Crediamigo is available at the following website: https://www.bnb.gov.br/crediamigo.

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