This report assesses and monitors progress in the design and implementation of SME policies in the Latin America and the Caribbean (LAC) region. It was developed as part of the OECD LAC Regional Programme, in co-operation with CAF-Development Bank of Latin America and the Caribbean and the Latin American and Caribbean Economic System (SELA). The 2024 report tracks progress made since 2019 across eight policy dimensions and presents the latest key findings on SME development and related policies. It identifies emerging challenges impacting SMEs in the region and provides recommendations for governments to build a successful SME sector. The 2024 edition, the second in the series, benefits from an updated methodology that analyses SME digital transformation support policies, introduces a green economy pilot dimension, and incorporates a cross-cutting gender approach. This edition extends the coverage by introducing two new countries (Brazil and Paraguay) to the already seven participating countries (Argentina, Chile, Colombia, Ecuador, Mexico, Peru and Uruguay), guaranteeing the inclusion of all members of the Pacific Alliance and Mercosur.
SME Policy Index: Latin America and the Caribbean 2024
Abstract
Executive Summary
Latin America and the Caribbean (LAC) is navigating through a challenging macroeconomic landscape. In the past five years, the nine assessed countries (Argentina, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, and Uruguay) have undergone significant political transitions and socio-economic shocks, notably the COVID-19 pandemic and the impact of Russia's war of aggression against Ukraine. Micro, small, and medium-sized enterprises (SMEs) have been disproportionately affected. However, they have also emerged as a driving force towards an inclusive, resilient, and sustainable recovery.
SMEs have demonstrated their fundamental role in the social and economic landscape of the region. They constitute 99.5% of businesses, with almost nine out of ten companies falling under the category of microenterprises. Furthermore, SMEs contribute to approximately 60% of formal productive employment. These attributes, amidst complex scenarios, have prompted an even stronger emphasis on positioning the development of SMEs as a clear priority for policy makers in LAC.
This edition of the SME Policy Index (SME PI) illustrates the evolution of SME policy frameworks across the LAC region since 2019 for the seven countries that participated in the first edition (Argentina, Chile, Colombia, Ecuador, Mexico, Peru, and Uruguay), and evaluates Brazil, and Paraguay for the first time. It offers an assessment across eight policy dimensions, accompanied by descriptions of country-specific challenges and provides a way forward with policy recommendations. For the first time, the assessment includes an analysis of policies for the digitalisation of SMEs, which is crucial for fostering an inclusive, resilient, and sustainable SME sector, particularly as the COVID-19 pandemic compelled many firms to go online for the first time, experiencing firsthand the value of digital technologies. Alongside a pilot green economy dimension and a cross-cutting gender approach.
While detailed country-specific challenges and policy recommendations are outlined in the subsequent chapters, some key recommendations generally applicable for the LAC region include:
Reinforce the institutional setting for SME policies, considering the disruptions caused by the COVID-19 pandemic as well as political and economic uncertainties. Developing strategic frameworks for SME policy in collaboration with various stakeholders provides governments with valuable guidance to recognise emerging challenges facing SMEs and devise tailored solutions to tackle them. Enhancing policy coordination mechanisms and reinforcing the operational autonomy of implementation bodies, alongside allocating more resources for monitoring programme implementation, and conducting evaluations of key programmes, are essential steps to ensure more effective SME policy.
Implement comprehensive regulatory reform strategies and establish clear goals for reducing administrative burdens. While many LAC countries are making progress in offering e-services, it is crucial for them to develop national plans for simplifying legislation and reforming regulations. These plans should prioritise areas posing significant barriers to business development and set specific targets for reducing administrative burdens. This approach aims to lower barriers for new entrepreneurs and discourage informality.
Strengthen monitoring and evaluation frameworks to facilitate evidence-based policy making. Although LAC countries typically have robust monitoring and evaluation practices for financial support programmes, they often lack regular monitoring of broader SME policy frameworks and initiatives. To address this, LAC countries could incorporate clear and measurable key performance indicators into policy documents, making government activities transparent and accountable. Additionally, regularly produced outcome-oriented statistical indicators by national statistical offices would provide a comprehensive view of how public policies are influencing various aspects of business sector performance.
Enhance the supply of financial products and services and strengthen countries' National Financial Education Strategies (NFES) by involving SMEs. Crowdfunding mechanisms remain nascent in the region, and there are few strategies to promote financial education effectively among SMEs and entrepreneurs. Establishing tailored regulations and developing education programmes specifically for SMEs could increase confidence and adoption of these financial schemes, while simultaneously building the financial skills of SMEs.
Promote the digitalisation of SMEs through enhanced national digital strategies with well-defined implementation plans, emphasising the development of SME-centric broadband policies to tackle specific challenges. Although progress in broadband connectivity is observable across the region, LAC countries should intensify efforts to foster public-private partnerships aimed at enhancing digital infrastructure, fostering collaboration for the mutual benefit of citizens and businesses. Prioritise inclusive educational initiatives and cultivate a culture of ongoing learning for digital skills development could ensure broad participation in the digital economy.
Leverage the advantage of regional and global integration for SMEs. While some countries may strengthen existing initiatives, others could benefit from learning from the experiences of their counterparts. 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.
Improve efforts to close gender gaps and create the necessary conditions and opportunities for the development and growth of women-led or women-owned SMEs. The region has made progress in integrating a gender perspective into policies and programmes. Nevertheless, more remains to be done. Enhanced data collection and analysis from a gender perspective are also essential.
Align SME support policies with national decarbonisation and green economy targets. Across the region, environmental policies rarely consider the specific needs of SMEs, and financial incentives for environmental initiatives are scarce. Greening initiatives should be integrated into broader SME policy documents, such as national strategies for SME development or innovation, while increasing availability of financing instruments for investing in greener equipment and processes.
