SME Policy Index: Latin America and the Caribbean 2024

8. Dimension 6: Productive transformation

Abstract

In the Productive Transformation dimension, Latin American countries have made significant strides since their 2019 performance. The region demonstrates stronger strategic-level objectives and targets, yet challenges persist in translating these into effective action plans.

The most pronounced heterogeneity within the region is observed in the integration into global value chains (GVCs). While some countries have successfully implemented advanced, longstanding programmes in this area, others, hindered by decades of inward-oriented policies, have remained on the sidelines of GVCs. Bridging this gap presents an opportunity for collective learning and strategic improvement across the region. This chapter evaluates the development level of policies for leveraging SMEs as agents of productive transformation assesses policy frameworks aimed at enhancing productivity.

Assessment Framework

The framework employed to evaluate the development level of policies for leveraging SMEs as agents of productive transformation assesses policy frameworks aimed at enhancing productivity. This includes an examination of whether these frameworks effectively harness the role of SMEs. Additionally, at the programmatic level, the assessment involves examining specific programmes that encourage SMEs to collaborate through productive agglomerations, such as clusters, and integrate into regional and global value chains (OECD/CAF, 2019[1]).

A significant methodological change has been introduced in this dimension since the previous evaluation. While the sub-dimensions 6.1 Productivity-enhancing strategies and 6.2 Productive association-enhancing measures retain the same questions as in their pilot version in 2019, sub-dimension 6.3 Integration into global and regional value chains underwent a comprehensive revision. The analytical framework has been improved with additional questions emphasising policy implementation, monitoring, and evaluation, aimed at increasing the granularity of this assessment. As a result, the assessment framework for this dimension is composed of the following (see Figure 6.2):

• Productivity-enhancing strategies: The indicators in this sub-dimension assess at a strategic level the capacity of the frameworks for productivity enhancement to take advantage of the role of SMEs, including the design of the strategy and the elements that include measurable targets, action plan, an adequate budget, mechanisms of monitoring and evaluation, the involvement of other actors in its realisation including the private sector, civil society and academia, as well as the inter-ministerial co-ordination efforts for the implementation of the strategy.

• Productive associations-enhancing measures: The indicators within this sub-dimension assess at the programmatic level, measures targeted at enhancing associativity through the formation and strengthening of conglomerates, along with the establishment of industrial and scientific parks, considering the extent to which these programmes contribute to the development of SMEs.

• Integration into global and regional value chains: The indicators within this sub-dimension investigate support programmes designed to facilitate the inclusion of SMEs in global and regional value chains. The assessment encompasses the components of these programmes, including the identification of niche markets, technology transfer, and the establishment of linkages between small and large firms. Additionally, it evaluates monitoring and evaluation efforts.

Figure 8.1. Assessment framework - Productive transformation

The weighting of the three sub-dimensions, determined through expert opinions and discussions with national coordinators, assigns an equal weight of 33.33% to each sub-dimension. Given that sub-dimension 6.1 focuses on the strategic level while the subsequent sub-dimensions are oriented toward the programmatic level, this weighting implies that overall dimension scores are inclined toward active programmes supporting associativity and integration, even in the absence of strategic frameworks.

Analysis

Latin American and the Caribbean (LAC) participating countries generally exhibit a relatively high performance in the dimension of productive transformation (see Figure 6.2), with most of them scoring above level 3, Paraguay stand out as exception. Despite having operational strategies in place, there is significant heterogeneity in the region when it comes to implementation, monitoring, and evaluation mechanisms. The average score among the LA9 countries is 3.93. Although the highest scores are generally observed at the strategic level within the sub-dimension of Productivity Enhancing Measures, the majority of the LA9 countries exhibit lower scores at the programmatic level in the sub-dimension of Integration into regional and Global Value Chains (GVCs). Notable exceptions to this trend are Uruguay and Argentina, which demonstrate higher scores in this aspect.

Figure 8.2. Weighted scores for Dimension 6: Productive Transformation

Note: Scores are on a scale of 1 to 5, with 5 being the highest. The comparison with 2019 is not exact due to changes in the methodology. Please refer to Chapter 2 for further information on the methodology. 2019 data for Brazil, and Paraguay are not available as they did not participate in the 2019 assessment.

Sub-dimension 6.1: Productivity-Enhancing Measures

The scores (see Table 6.1) indicate that the assessed LAC countries have moderately advanced strategic plans to enhance productivity. These plans exhibit diversity in form and content, with most showcasing progress in specificity of measurable targets, action plans, and objectives with more precise timelines compared to the 2019 evaluation. While Paraguay, absent in the 2019 edition, still have considerable room for improvement, Brazil stands out for robust strategies, featuring strong elements of implementation, monitoring, and evaluation.

Table 8.1. Sub-dimension 6.1 scores: Productivity-Enhancing Measures

	Argentina	Brazil	Paraguay	Uruguay	Chile	Colombia	Mexico	Peru	Ecuador	LA9	Mercosur	PA
Total score	3.71	4.85	3.24	3.82	4.75	4.85	4.33	4	4.39	4.21	3.90	4.48

Note: Scores are on a scale of 1 to 5, with 5 being the highest.

Latin American countries are making progress by including measurable targets in their enhancing measures to improve productivity

While there is still a notable absence of strategic vision regarding the role of SMEs in the productive transformation process (Dini and Stumpo, 2020[2]) Latin American countries are actively working on strategies to improve productivity measures. Eight out of nine countries have a strategic plan to enhance SME productivity.

In the 2019 assessment, only Colombia and Peru connected their existing strategic frameworks to quantifiable, time-bound action plans and targets. By 2024, all countries are advancing in including measurable targets in their strategy. In particular, Brazil's Brazil Mais Productivo (BMP, Brazil More Productive) initiative which was recently updated stands out for its well-designed approach, specifically targeting the manufacturing industry and prioritising firms located in business clusters (OECD, 2020[3]). Chile as part of the Productive Agenda 2023, has introduced a dedicated axis for SMEs, accompanied by proposed strategic objectives. Paraguay has implemented the Strategic Plan for SMEs 2018-2023, featuring a comprehensive diagnosis and specific actions that identify actors, coordinators, and objectives. Meanwhile, in Ecuador, alongside the existing Industrial Policy 2016-2025, the country has established the Competitiveness Strategy, allocating one of its action lines to Ecuador Productivo.

Table 8.2. LAC countries' Productive Transformation Strategies

Country	Productive Transformation Strategy	Strategy characteristics
Argentina	Productive Argentina 2030 Productive, industrial and technological development plan	The plan includes several references to SMEs throughout the plan with different lines of action at the programmatic level. This plan champions the integration of SMEs in supply chains.
Brazil	Brazil More Productive (federal policy)	Programme focused on improving the productivity of SMEs, with clear implementation mechanisms and robust monitoring and evaluation systems.
Chile	Productivity Agenda 2023	The Productivity Agenda 2023, contains axis 7 specifically dedicated to more productive SMEs, with diagnosis and proposed lines of action.
Colombia	CONPES 3866 National Policy for Productive Development 2016-2025	The policy seeks to promote the development of production and increase the productivity of existing companies in all regions, it contains a diagnosis and lines of action.
Ecuador	Ecuador Competitiveness Strategy: Ecuador Productivo, Ecuador Global, and Ecuador Innova	The strategy includes a diagnosis and outlines actions for SMEs throughout, aiming for process simplification, cost reduction, market expansion, integration into new markets, and value addition. It also emphasises the importance of fostering innovation and entrepreneurship.
Mexico	Sectoral Programme of Economy (PROSECO) Special Programme for Productivity and Competitiveness (PEPC) 2020-2024	The programme includes, among its four priority objectives, the promotion of the creation and consolidation of productive SMEs for greater productive inclusion. The programme functions as a tool to enhance the medium- and long-term capabilities of individuals and businesses in Mexico.
Paraguay	Strategic Plan for SMEs 2018-2023	The strategic plan features a diagnosis and outlines specific actions that identify actors, coordinators, and objectives dedicated to SMEs.
Peru	Strategic Plan for National Development - Peru 2050 National Competitiveness and Productivity Plan 2019-2030	The Strategic Plan includes the specific objective 3.4: Increase the levels of productive and sustainable development for SMEs with indicators and goals to measure progress. Plan with specific action lines for SMEs, featuring clear objectives linked to timelines.
Uruguay	Different actions delineated by the National Development Strategy Uruguay 2050	Several actions at the programmatic level carried out by DINAPYME.

Public-private dialogues on productivity and inter-ministerial coordination are longstanding practices in LA9

Currently, all countries with a strategic plan to enhance productivity have it in operation. However, only Argentina, Brazil, Chile, Colombia, and Mexico mention that it is well-funded with financing to cover all its actions, while Peru asserts that it is adequately funded to cover the implementation of its core goals.

While these strategic plans are co-ordinated inter-ministerially, with the exception of Paraguay, their implementation has also been accompanied by public-private dialogues on productivity. Argentina's efforts stood out during the 2019 evaluation with an ongoing Executive Roundtables programme for Productive Transformation, while the rest of the LA9 countries typically engage in dialogue through Advisory Councils. These councils are tasked with reporting, monitoring, or defining a collective work plan.

LAC countries are making significant efforts to strengthen their monitoring and evaluation systems on their productive transformation measures

Latin American countries are making efforts in monitoring and evaluation, resulting in more detailed action plans and strategies with measurable, time-linked targets. This is in addition to framework-level KPIs and regular reporting of statistics. Uruguay has established an Industrial Productivity Monitoring Indicators System (SIMPI), manifested in a web platform that offers measures of total factor productivity (TFP) by sector of activity to guide public policy decisions. In contrast, Brazil has indicators to monitor the performance of their productivity improvement policies, in addition to tracking the beneficiaries of their programmes. Colombia has demonstrated strong efforts by incorporating a detailed Action and Monitoring Plan (PAS) with quantifiable objectives of defined duration.

Sub-dimension 6.2: Productive Association-Enhancing Measures

Strengthening SMEs’ networks and linkages with key partners is an important element of the OECD Recommendation on SME and Entrepreneurship Policy. In general, most countries in the region have policies that promote or encourage the formation of clusters. These programmes, which for some countries were in the pilot stage during the 2019 evaluation, have gained greater relevance and maturity, evident in their enhanced monitoring and evaluation efforts. However, there are diverse scenarios in terms of implementation, with some countries reporting sufficient budgets for implementation, while others face resource constraints, as reflected in the overall scores for this sub-dimension (see Table 6.3).

Table 8.3. Sub-dimension 6.2 scores: Productive Association- Enhancing Measures

	Argentina	Brazil	Paraguay	Uruguay	Chile	Colombia	Mexico	Peru	Ecuador	LA9	Mercosur	PA
Total score	4.57	4.93	2.33	4.16	4.84	4.36	4.08	3.99	3.72	4.11	4	4.32

Note: Scores are on a scale of 1 to 5, with 5 being the highest.

Public policies in Latin America actively support the creation of productive clusters, promoting their formation through various incentives

Seven out of the nine evaluated countries have public policies providing incentives for the formation of productive agglomerations, as part of the implementation strategies assessed in sub-dimension 6.1. The most significant changes in this sub-dimension are observed in Mexico. In 2019, INADEM managed various calls for SME associativity, but with its dissolution, the priority shifted to strategic public enterprise. This transferred the responsibility for measures to improve productive associations to the Secretaría de Economía (Ministry of Economy, SE), along with state laws promoting these efforts. In Ecuador, there was a positive turn with Executive Decree No.68, assigning the Ministerio de Producción, Comercio Exterior, Inversiones y Pesca (Ministry of Production, Foreign Trade, Investments and Fisheries, MPCEIP) the responsibility to provide technical and financial assistance to SMEs wishing to form or join a cluster, implementing various actions. However, there are no records of progress of its recent establishment.

On the other hand, regarding industrial parks in Uruguay, the new regime, based on Law No. 19,784 and regulated by Decree No. 79/2020, introduced, the concept of Scientific-Technological Parks, while maintaining the concept of Industrial Parks and defining the Specialised Park modality.

Budget constraints pose one of the most significant challenges for implementing policies aimed at promoting industrial clusters and business agglomeration

High scores in the planning and design thematic block are somewhat tempered by the performance in the implementation thematic block. While the majority of evaluated countries have policies geared toward promoting industrial clusters and business agglomeration, and there has been a mobilisation of funds primarily through government channels for implementation, only half of them indicate possessing a sufficient budget to finance their initiatives.

Most programmes are structured as calls for proposals, with Chile, Peru, and Uruguay—whose programmes were in the pilot implementation phase during the 2019 evaluation—now showcasing enhanced maturity.

Primarily, Latin America boasts robust monitoring and evaluation systems for their policies aimed at enhancing productive associations

The monitoring and evaluation systems for cluster support programmes are predominantly robust, with their outcomes guiding adjustments and changes. Simultaneously, all countries indicate that they collect data on the geographic location and concentration of SMEs benefiting from support services. An example of this is Argentina's Competitiveness Support Programme, which includes biannual public monitoring reports with key performance indicators focusing on both results and impact.

Sub-dimension 6.3: Integration into regional and global value chains

Efforts to integrate SMEs into GVCs vary widely among the LA9 countries, as indicated by the scores obtained for this sub-dimension (see Table 6.4). While some countries have well-established practices, others, due to decades of inward-oriented policies, have remained on the sidelines of GVCs.

Table 8.4. Sub-dimension 6.3 scores: Integration into regional and global value chains

	Argentina	Brazil	Paraguay	Uruguay	Chile	Colombia	Mexico	Peru	Ecuador	LA9	Mercosur	PA
Total score	3.96	1.26	2.40	4.49	4.12	4.14	4.28	3.80	3.77	3.58	3.03	4.08

Note: Scores are on a scale of 1 to 5, with 5 being the highest.

Support programmes aimed at facilitating the inclusion of SMEs in Global Value Chains in LA9 exhibit a broad range of heterogeneity

The OECD Recommendation on SME and Entrepreneurship Policy highlights the importance of policy measures to enhance SMEs and entrepreneurs’ participation in GVCs. Countries that did not participate in the 2019 evaluation, namely Brazil, and Paraguay, lack government programmes supporting SME integration into GVCs. In contrast, the other seven countries exhibit relatively advanced systems in this area, reflected in scores above level 4. This disparity, with Brazil, and Paraguay at level 1, underscores the significant heterogeneity in the region. For these seven countries, their programmes align with strategies outlined in sub-dimension 6.1 and follow good practices in public-private consultations. The variation in scores primarily stems from the range of activities that these programmes target or prioritise to facilitate SME integration into GVCs, along with whether they aim to raise awareness of the benefits of integrating into GVCs.

Notably, Mexico stands out with the MIPYMES.MX platform, a post-COVID-19 initiative featuring dedicated sections for capacity building and exporting. This platform guides Mexican SMEs in their endeavours to integrate into GVCs. Argentina, through its plan Argentina Productiva 2030, has allocated a specific section to integrate SMEs into supply chains. Uruguay's Supplier Development Programme, which was in its initial stages in 2019, has since matured significantly. Meanwhile, Peru's current initiatives are directed by the National Export Plan - PENX 2025, which includes a specific pillar dedicated to the integration into GVCs.

Co-financing through Supplier Support Programmes is a common practice in Latin American countries

The efforts of the LA9 countries to integrate SMEs into GVCs primarily involve supplier development programmes. Since the last evaluation, there have been no significant changes in these programmes. In the case of Chile, Colombia, Peru, and Uruguay, open calls target large companies requiring them to submit proposals for the development of their suppliers. In contrast, Argentina and Mexico directly target the suppliers themselves.

While there have been positive changes in monitoring and evaluation, there is still a significant need for improvement

All LA9 countries with programmes aimed at facilitating SME inclusion in GVCs have active monitoring and evaluation mechanisms. However, their development varies significantly, not only in the way they are executed but also in the elements they incorporate. Chile's supplier programme boasts a long and well-established history as a robust mechanism.

In contrast, countries like Uruguay, in addition to their ongoing efforts, are in the process of adapting the MIEM, a computer programme designed to centralise information on the support provided to enterprises. This includes identifying each programme, support or amount granted, the sector of the enterprise, and the area where the support is focused. This initiative aims to enhance efficiency in accessing information, enabling better follow-up and monitoring of beneficiaries, as well as a more thorough analysis of the instruments in place.

Productive Transformation for the development of women-owned or led SMEs

Mexico and Chile have implemented dedicated government programs aimed at fostering the integration of SMEs led by women into GVCs

The Mexican government participates in the ITC “SheTrades” initiative of the International Trade Centre (ITC), benefiting SMEs led by women. It serves as a platform for exchanging experiences among businesswomen, strategic partners, and governments, promoting productive development and integration into GVCs. Activa Empresarias is a joint initiative of the United Nations System in Chile, providing a collaborative and inclusive platform to connect women entrepreneurs' offerings with the product/service requirements of purchasing companies. It aims to enhance the participation of women-led enterprises in supply chains, both domestically and internationally, showcasing women's work and promoting opportunities to improve productivity and competitiveness across various economic sectors.

Regarding the establishment of gender-specific national performance indicators to monitor the outcomes of policies aimed at enhancing SME productivity, only Uruguay's MIEM has improved its portfolio information systems, including data collection on its policies and records. In this regard, the Transparency and Accountability Programme for benefits granted to the productive and business sector is being implemented under the 5th National Open Government Action Plan 2021-2024, coordinated by the AGESIC. Gender indicators have been included in this programme to measure the outcomes of policies aimed at enhancing SME productivity, among others.

The way forward

Based on ongoing initiatives, policymakers in the LA9 region could give priority to the recommendations outlined in Table 6.5.

Table 8.5. Policy recommendations for dimension 6. Productive Transformation

Policy area	Challenges and opportunities	Policy recommendations
Productivity-enhancing measures	Existing strategies can enhance their effectiveness by integrating specific timelines and clearly defining the responsible actors for each action line.	Enhance strategies by developing action plans with specific timelines and clearly identified responsible actors to ensure effective implementation.
Productive association-enhancing measures and integration into regional and global value chains	Public policies in LAC that actively support the creation of productive clusters, promoting their formation through various incentives, can raise awareness of the benefits associated with joining these clusters. There is considerable heterogeneity among LA9 countries in their strategies for integrating SMEs into global value chains. While some countries may strengthen existing initiatives, other countries could benefit from learning from the experiences of their counterparts to leverage the advantages of integration.	Conduct a comprehensive mapping of existing clusters and establish a consolidated database of available support mechanisms for SMEs. This initiative aims to raise awareness of the advantages associated with cluster membership and integration into global value chains. Brazil, and Paraguay, drawing from the good practices of their LA9 counterparts, could implement supplier development programmes to foster business linkages between local SMEs with the aim to boost the participation of SMEs in global value chains. Introduce matchmaking initiatives to foster stronger linkages between SMEs and large firms, tapping into the potential of large firms to act as customers, innovation partners and advisors to SMEs. Build linkages between national cluster organisations and regional actors, reflecting the importance of spatial proximity in much of cluster activity. Enhance performance-based monitoring and data collection for policies promoting SME integration into global value chains. Implementing a framework to measure the performance of SMEs after adopting provided initiatives with the aim to provide valuable insights into both the positive and negative effects of selected policies. This assessment will later demonstrate the viability of these policies for both the beneficiaries and the efficient allocation of government resources. LA9 countries could consider carrying out regular assessments of GVCs to identify sectors with high potential and uncover new market opportunities, allowing for informed decisions on direct support to SMEs.

References

[2] Dini, M. and G. Stumpo (2020), Mipymes en América Latina: un frágil desempeño y nuevos desafíos, https://repositorio.cepal.org/server/api/core/bitstreams/2c7fec3c-c404-496b-a0da-e6a14b1cee48/content.

[3] OECD (2020), SME and Entrepreneurship Policy in Brazil 2020, OECD Studies on SMEs and Entrepreneurship, OECD Publishing, https://doi.org/10.1787/cc5feb81-en.

[1] OECD/CAF (2019), Latin America and the Caribbean 2019: Policies for Competitive SMEs in the Pacific Alliance and Participating South American countries, SME Policy Index, OECD Publishing, Paris, https://doi.org/10.1787/d9e1e5f0-en.