The institutional context of policies

To understand the specific features of the context in which policies are designed we must analyse two aspects of the context: the institutional framework and the regulatory framework. For SMEs, the political situation is basically marked by their dependence on macroeconomic policy and their subjection to competitiveness policies, though it is true that regarding the latter there have been positive developments over the last ten years. In the 1990s, policies to support SMEs were just one segment of a whole range of initiatives aimed toward boosting competitiveness. Since then the situation has evolved to where it seems that competitiveness policies are limited almost entirely to providing support for SMEs. Brazil, however, has used industrial policy to support SMEs.

Giving greater autonomy to agencies responsible for supporting SMEs could increase their capacity to design and implement policies, help improve the stability and professionalism of staff and make administrative procedures swifter and more flexible. But greater autonomy could also break many of the links between policies to support SMEs and national guidelines on productive development.

The institutional framework

For practical purposes, the institutional framework is complex because it is formed by various bodies and agencies and not just by the institution that is formally responsible for promoting SMEs. Even in countries without a federal political-administrative structure, even if they have a body specifically responsible for promoting MSMEs, normally there are various institutions responsible for designing and implementing programmes to support this sector, whether they are banks, institutions to promote exports, public training institutes, government labour ministries, foreign affairs ministries and even home affairs ministries.

There are significant differences among countries in the level of independence and the political weight of the main institution to support SMEs. Institutions that have a certain level of independence can generate a greater capacity to design and implement policies. These institutions can plan further ahead and give greater continuity to their policies and programmes, more stability and professionalism to their staff, and faster and more flexible administrative processes in general (Angelelli, 2007). These factors can foster the development of an institutional learning mechanism. In two Latin American countries the main agency to promote SMEs enjoys great levels of autonomy: SEBRAE in Brazil and the Production Development Corporation in Chile (CORFO). But even in these two countries, some of the potential benefits of autonomy have not been realised in recent years. Because of changes of government or a shift in their priorities, in Brazil and Chile both the programmes and the technical staff responsible for implementing them have been changed, and at times even suspended (Kulfas and Goldstein, 2011). It is unclear whether these institutions are truly independent of political cycles, even those that enjoy greater autonomy than their counterparts in other countries in the region.5

Giving development agencies greater autonomy increases the risk that their strategies might move away from national guidelines on productive development (if, indeed, such guidelines have been set out). One potential advantage of organisations to support SMEs working more closely with government ministries (production, industry or finance) is that it can make it easier to match policies aimed at SMEs with the national economic development agenda. However, there is no clear evidence that this happens in Latin America (Ferraro, 2011; Ferraro and Stumpo, 2010).

Regarding the inclusion of development agencies to support SMEs in the government structure, although many countries made institutional changes in the last two decades to promote the agencies to the level of vice-ministry or secretariat, their new rank in government has not translated into greater executive political power. Whether the agencies have become vice-ministries, secretariats or undersecretariats, the main institution to support SMEs remains a national or regional department (Table 2.5). The type of institution responsible for developing SMEs also varies greatly across the region, ranging from private corporations (often dependent on a ministry) to vice-ministries. There are some major differences among countries in terms of institutional development. Various factors have helped turn these institutions into powerful bodies: national strategic guidelines on SMEs have been continued, the institutions have now existed for a long time, and, albeit a less important factor, the institutions have been given greater autonomy. In addition to agencies with vast experience, scope and operational capacity, such as SEBRAE in Brazil, or bodies set up more recently, like Mexico’s SME Fund, which has vastly developed its organisational and institutional role, there are other agencies where the process is at a much earlier stage, such as CONAMYPE in El Salvador. There are also agencies that have carried out a series of isolated actions, with very little co-ordination or continuity, as occurred in the Dominican Republic, Ecuador, Paraguay, Peru, Uruguay and Venezuela (Ferraro, 2011; Ferraro and Stumpo, 2010).

Table 2.5. Development institutions in Latin America

Country Institution Ministry
Argentina Secretariat for SMEs and Regional Development Ministry of Industry
Bolivia (Plur. State of) Vice-Ministry of Micro and Small Enterprises Ministry of Productive Development and the Plural Economy
Bolivia (Plur. State of) Vice-Ministry of Medium and Large Scale Production Ministry of Productive Development and the Plural Economy
Brazil Brazilian Micro and Small Enterprise Support Service (SEBRAE) Independent
Chile Production Development Corporation (CORFO) Independent
Chile Technical Co-operation Service (SERCOTEC) Ministry of Economy, Development and Tourism
Colombia MSME Bureau Ministry of Trade, Industry and Tourism
Ecuador Undersecretariat of MSMEs and Crafts Ministry of Industry and Productivity
El Salvador National Micro and Small Enterprise Commission (CONAMYPE) Ministry of Economy
Guatemala Vice-Ministry of MSMEs Ministry of Economy
Honduras The Undersecretariat of the Bureau for MSMEs and the Social Sector of the Economy Secretariat of Industry and Commerce
Mexico Undersecretariat for SMEs Secretariat of Economics
Nicaragua Nicaraguan Development Programme for MSMEs (PROPYMES) Ministry of Development, Industry and Commerce
Peru Directorate-General for Micro and Small Enterprises and Co-operatives Ministry of Production
Dominican Republic Council for Promoting and Supporting MSMEs Ministry of Industry and Commerce
Uruguay National Bureau for Crafts and SMEs Ministry of Industry, Energy and Mining
Venezuela (Bol. Rep. of) Small and Medium-Sized Industry Development Institute Ministry of People’s Power for Industries

Institutions responsible for designing and implementing policies must deal with huge limits on human and financial resources. All the institutions have a budget of less than 0.1% of GDP, and in many countries it is less than 0.01% (Table 2.6). These figures are in stark contrast to the contribution SMEs make to the production fabric of most of these economies, both in terms of the number of firms and the number of jobs they create. Aware of this situation, some countries have increased the amount of financial resources available in recent years (Argentina, Brazil, Ecuador, El Salvador and Mexico). But these larger budgets have not represented significant changes in terms of percentage of GDP or government spending.6 Furthermore, a large share of many of these institutions’ funds do not come from the national budget. In El Salvador, for instance, 58% of CONAMYPE’s budget came from external resources in 2006, and almost all of the budget for Paraguay’s agency came from international co-operation in 2007. In other countries, certain strategically important areas, such as credit, function essentially with external resources.7 Where this happens, the availability of resources depends on strategic decisions that are not adopted by the national authorities responsible for implementing policies. These decisions can affect the continuity of the programmes.

Table 2.6. Expenditure by institutions to develop SMEs, 2005

Country Expenditure Country Expenditure
Argentina 0.004 Mexico 0.015
Brazil 0.085 Nicaragua 0.022
Chile 0.03 Panama 0.027
Colombia 0.008 Paraguay 0.005
Costa Rica 0.004 Peru 0.004
Ecuador 0.005 Dominican Republic 0.033
El Salvador 0.019 Uruguay 0.002
Guatemala 0.006 Venezuela (Bol. Rep. of) 0.024
Honduras 0.005 Latin America 0.018

Very often poor institutional capacity is combined with budgetary constraints that limit measures to make policies for SMEs more effective. It is therefore important not only to increase the budgets assigned to these development institutions but also to markedly improve their capacity to mark out strategies, draw up policies and roll out the support instruments and mechanisms.

The regulatory framework

Defining a specific legal framework for SMEs is the second important aspect to consider, as it may help give policies greater stability and continuity and make their results easier to forecast. In addition to including a definition of the beneficiaries of development actions, this legal framework reflects the strategy’s objectives, or at least its general guidelines, and in some cases may indicate specific policies (Kulfas and Goldstein, 2011). While some countries began drawing up specific regulations for SMEs back in the 1980s,8 only more recently have such initiatives begun to spread. For instance, in Argentina, the SMEs Act was passed in 1997 and amended in 2000, while in Brazil the Micro and Small Enterprises Act (Law 9317) was passed in 1996 and the Micro and Small Enterprises Ordinance was passed in 1999 (Law 9841), and later, in 2006, the General Law on Micro and Small Enterprises built a new legal framework. Chile passed the SME Ordinance (Law 20 416) in 2010 and Mexico passed the Development of MSME Competitiveness Act in 2002. These initiatives confirm the gradual trend towards greater inclusion of SMEs in countries’ strategies and more precise definitions of the role they are given.

In some countries, these new laws enabled existing initiatives to be consolidated and organised, strengthening guidelines that had been in place for many years. This was the case in Brazil and Chile, for instance. In other countries, meanwhile, the new laws laid the foundations for adopting a new strategy of action. The most relevant experience in this regard is that of Mexico. It began its reforms by creating the Undersecretariat for SMEs (SPYME) in 2001 and passing the Development of MSME Competitiveness Act in 2002. In this framework, three programmes were developed to support MSMEs: the Support Fund for MSMEs (FANPYME), the Fund to Support Access to Finance for MSMEs (FOAFI) and the Fund to Support Production Chain Integration (FIDECAP). The undersecretariat merged these three programmes together in 2004 to create the SME Fund, which has become the country’s main body for promoting SMEs, using a novel, integrated approach.