Micro, small and medium-sized enterprises (SMEs) are a fundamental component of the social and economic fabric of Latin America and the Caribbean. They provide jobs, incomes, goods and services to millions of families. Indeed, small shops, restaurants and workshops dot the landscape across the region. As such, they have a key role to play as the region addresses its key challenge of increasing productivity. SMEs and entrepreneurs are also important contributors to innovation and dynamism. These firms will be essential for the region to achieve more competitive economies, more inclusive societies and to bridge the existing gap with other dynamic regions such as emerging Asia. SMEs will also be key for Latin American countries to escape the so called “middle income trap” and to achieve economies that are diversified, adding value and less dependent on primary goods.

This study is the result of a period of more than two years of collaboration between the OECD, the Development Bank of Latin America (CAF), and the Latin American and Caribbean Economic System (SELA), in response to strong demand from policy makers in the Latin American and Caribbean region for assistance in better leveraging SME policy as a tool for sustainable economic development.

SME development is a marked priority for policy makers across Latin America and the Caribbean, including the seven economies assessed within this study (Argentina, Chile, Colombia, Ecuador, Mexico, Peru and Uruguay). This is not surprising, as the vast majority (99.5%) of firms in the region are SMEs, with almost 9 out of 10 classified as micro-enterprises, and SMEs are important generators of regional employment (60% of formal productive employment). However, while it is a normal global phenomenon for SMEs to display lower productivity levels than large firms, Latin American SMEs have a particularly significant productivity gap, being responsible for only a quarter of the region’s total production value. This difference is particularly large for companies at the end of the size spectrum: Latin American microenterprises account for about 3.2% of production, while in Europe they contribute 6 times more (20% of GDP) even though they have a similar participation in the labour force. Furthermore, all countries covered in the report have to cope with the presence of a large informal sector as an integral part of the economic structure, and SME sector, with wide implications for the social and economic development of the region.

During the last two decades, the Latin American and Caribbean region has registered relatively dynamic economic growth, above the OECD average, although less than that of other emerging countries such as the Association of Southeast Asian Nations (ASEAN). This growth, which in many cases has been influenced by the levels of production and prices of basic products such as minerals, oil and food, has allowed the reduction of extreme poverty (from 29% to 16% between 2000 and 2014). ) and moderate poverty (from 17% to 14% for the same period)(OECD, 2016[1]).

This section provides an overview of the general SME Policy Index (SME PI) assessment methodology.

LA7 countries (Argentina, Chile, Colombia, Ecuador, Mexico, Peru, Uruguay) devote significant efforts to SME policy and private sector development, identifying these as crucial areas for sustainable and inclusive growth and employment. In particular, they have made notable efforts to build up an institutional framework for SME policies, establish a rich variety of business and entrepreneurial development services, and harness SMEs in productive transformation efforts. The results of the assessment suggest LA7 countries redouble their efforts in this regard, while stepping up their policy efforts to seize the opportunities of increasing regional integration, large domestic markets, young populations and an emerging middle class. The redoubling of efforts is also important to respond to the pervasive challenges of low productivity and high informality among SMEs (especially the smallest firms), high levels of inequality and the need to shift to higher value added activities.