SMEs in Latin America - Present and future

Small and medium-sized enterprises in LAC

Present and future

65th Latin America Day 2014

Angel Melguizo

Head of the Latin American and Caribbean Desk

OECD Development Centre

Cologne - October 28, 2014

Economic slowdown in the short-term…

2 Source: IMF WEO Database, OECD forecasts for OECD 2014, CAF and ECLAC forecasts for LAC 2014

GDP growth in LAC and OECD (annual %)

-4

-2

0

2

4

6

8

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

OECD LAC

Source: IMF WEO Database, OECD for 2014-2015 OECD projections, and Consensus Forecasts for LAC projections. 3

GDP growth in selected LAC economies and OECD (annual %)

-4

-3

-2

-1

0

1

2

3

4

5

6

7

Argentina Brazil Chile Colombia Mexico Peru Venezuela LAC OECD

2009-2013 2014 2015

… with significant differences among countries (Americas Latinas)

4

The middle income trap has proved to be especially persistent

GDP per capita in Latin America vs. selected OECD economies

(1990 USD PPP)

Source: OECD-ECLAC-CAF (2014), Latin American Economic Outlook 2015. Education, Skills and Innovation for Development.

Note: HI (High Income), UMI (Upper Middle Income), LMI (Lower Middle Income), LI (Low Income)

-

5 000

10 000

15 000

20 000

25 000

Chile Uruguay ArgentinaVenezuela C. Rica Mexico Colombia Brazil Peru Dom. Rep. S. Korea Ireland Spain

2013 1980 1950

LI

LMI

UMI

HI

5

Productivity is not everything, but in the long-term it is almost

everything (P. Krugman)

Total factor productivity in Asia and LAC (US=100)

Source: IDB (2014) Development in the Americas 2014. Rethinking Productive Development.

6

Source: OECD-ECLAC (2012), Latin American Economic Outlook 2013. SMEs Policies for Structural Change.

Distribution of firms by size in LAC and OECD (as percentages)

A high share of firms are small and micro, as in in the OECD…

0

10

20

30

40

50

60

70

80

90

100

Micro Small Medium Large

7

Relative productivity in selected countries in LAC and OECD (Large companies’ productivity= 100)

… but they tend to stay small, and are much less productive (vs big)

0

10

20

30

40

50

60

70

80

90

Argentina Brazil Chile Mexico Peru Germany Spain France Italy

Micro Small Medium

Source: OECD-ECLAC (2012), Latin American Economic Outlook 2013. SMEs Policies for Structural Change.

8

Enterprises that export directly or indirectly by size and by region (2019-10; as percentage)

SMEs internationalization remains low (vs other emerging regions)

0

10

20

30

40

50

60

Latin America Eastern Europe East Asia

Small Medium Large

Source: OECD-ECLAC (2012), Latin American Economic Outlook 2013. SMEs Policies for Structural Change.

3- El liderazgo de China

What are the main challenges?

• Business environment

• Financing

• Human capital (basic and middle management)

• Innovation

Differences across sectors, countries and within countries (e.g. Brazil)

Public-private (new productive development policies) and private-private

policy response (e.g. Volkswagen in Puebla)

9

Why is this the case, and what can be done?

Source: Own elaboration using OECD/PISA 2012 data 10

The region needs a human capital shock. Basic education…

Education performance and equity in education (2012)

11

Source: OECD-ECLAC-CAF (2014), Latin American Economic Outlook 2015. Education, Skills and Innovation for Development.

Proportion of firms that consider the lack of labour force with the adequate skills a significant restriction to growth (% formal firms)

… and the right high-quality skills

12

Connecting the productive sector with the educational system…

Unsatisfied demand for skilled labor by Latin American SMEs

(as percentage of firms)

0

10

20

30

40

50

60

70

80

90

100

Severe or very severe Moderate Little or none

Source: OECD-ECLAC (2012), Latin American Economic Outlook 2013. SMEs Policies for Structural Change.

13

… in a highly informal environment

Informality by firm size in LAC (2010; as percentage of workers)

Source: Bosch, M., A. Melguizo and C. Pages (2013), Better Pensions, Better Jobs. Towards universal coverage in LAC. IDB

14

Easing access to finance (rates and collateral) is important

Interest rates for SMEs and large firms (loans maturity over one year)

Brazil Chile Colombia

Ecuador El Salvador Peru

0

2

4

6

8

10

12

14

16

SMEs Large firms

0

5

10

15

20

25

30

35

SMEs Large firms

0

5

10

15

20

25

30

SMEs Large firms

0

2

4

6

8

10

12

14

16

18

SMEs Large firms

8.5

9

9.5

10

10.5

11

11.5

SMEs Large firms

0

2

4

6

8

10

12

14

SMEs Large firms

Source: OECD-ECLAC (2012), Latin American Economic Outlook 2013. SMEs Policies for Structural Change.

15

Innovation (already low) rarely stems from SMEs – not seen as

strategic, but would pay off

Investment in capital goods and R&D according to company size and sector (Percentage of firms)

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Small

Medium

Large

Total

Total

Total

Small

Medium

Total

Small

Medium

Large

Total

Small

Medium

Large

Total

Ind

ust

ry

Ind

ust ry

Se rvi

ce sIn

du

stry

Ind

ust

rySe

rvic

esR+D (external) R&D (internal) Acquisition of machinery and equipment

Source: OECD-ECLAC (2012), Latin American Economic Outlook 2013. SMEs Policies for Structural Change.

16

New productive development policies

Modern productive development policies framework and instruments:

• Innovation

• Capabilities (work-related)

• Support to SMEs New firms (generally SMEs); private sector techniques (e.g. incubators)

• Horizontal and vertical industrial policies

• …

¡Gracias! Wir sehen uns auf dem 66. Lateinamerika Tag