Americas Fiscal and Structural Reform International Markets Latin America Macroeconomics

Issue Brief

September 9, 2022

Unlocking SME potential in Latin America and the Caribbean

By Eva Lardizábal and Pepe Zhang

Small and medium-sized enterprise (SME) development is critical for broad-based and sustained economic growth as Latin America and the Caribbean (LAC) grapple with ongoing global shocks following two years of pandemic-related fiscal challenges. SMEs are a primary source of job creation, comprising 99.5 percent of firms in the region, and accounting for 60 percent of employment.1“Supporting SME Development in Latin America and the Caribbean,” Organisation for Economic Co-Operation and Development,” 2020, https://www.oecd.org/latin-america/regional-programme/productivity/smedevelopment/#:~:text=Small%20and%20medium%2Dsized%20enterprise. Yet, these same firms represent only 20 percent of gross domestic product (GDP), due to constraints spanning financial to productivity issues.

Helping SMEs both overcome growth constraints and provide higher-quality jobs is important in the context of today’s disparate and fragile economic recovery. SMEs are particularly vulnerable to inflation and labor-market weaknesses from scarcity to informality.2“Employment Situation in Latin America and the Caribbean: Real Wages during the Pandemic,” Economic Commission for Latin America and the Caribbean and International Labor Organisation, June 2021, https://repositorio.cepal.org/bitstream/handle/11362/47927/S2200361_en.pdf?sequence=1&isAllowed=y; Roxana Maurizio, “Employment and Informality in Latin America and the Caribbean: An Insufficient and Unequal Recovery,” International Labor Organisation, September 2021, https://www.ilo.org/wcmsp5/ groups/public/—americas/—ro-lima/—sro-port_of_spain/documents/genericdocument/wcms_819029.pdf. With risks of lasting consequences still present, returning to pre-pandemic levels of output is insufficient for the economy in general, and for SMEs.3Carlos Felipe Jaramillo, “In 2022, Latin America and the Caribbean Must Urgently Strengthen the Recovery,” World Bank, February 4, 2022, https://www.worldbank.org/en/news/opinion/2022/02/07/latin-america-and-the-caribbean-must-urgently-strengthen-the-recovery.

Many LAC governments provided extraordinary support for SMEs throughout the COVID-19 pandemic. Now is the time to look beyond the pandemic and consider actions to enhance SME access to financing, technical assistance, and digital literacy—three drivers for unlocking the potential of LAC SMEs.

The following pages help to unpack three questions for these three drivers: How can LAC create a financial system more in line with the needs of SMEs to achieve greater development and growth? What capacity-building and technical assistance do SMEs need to increase productivity? What new opportunities does digitalization present for SMEs? A sneak peek: the answers highlight the importance of a multisectoral, holistic approach to empowering SMEs.

This spotlight built upon findings from private, nonpartisan strategy sessions as part of the Adrienne Arsht Latin America Center’s #ProactiveLAC Series, which aims to provide insight and foresight to LAC countries on how to advance economic reactivation and long-term prosperity.

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The Adrienne Arsht Latin America Center broadens understanding of regional transformations and delivers constructive, results-oriented solutions to inform how the public and private sectors can advance hemispheric prosperity.