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UNIDO ~ UNITED NATIONS IDUSTRIAL DEVELOPMENT ORGANIZATION ~ UNIDO ~ UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION ~ UNIDO

SME Partnership Group Meeting, Hanoi, November 2004

Economic Development, the Role of SMEs and the Rationale for Donor Support

Some Reflections on Recent Trends and Good Practices

Wilfried LuetkenhorstDirector

Small and Medium Enterprises [email protected]



Bad news for SME support programmes?

Beck et al. (2003): “SMEs, Growth and Poverty: Cross-country Evidence”

No robust association between SME share and economic growth

No evidence that SME share impacts on poverty reduction

Conclusion: Drop SME support and create a level playing field

Should we all pack up and go home?



What are the key contributions of SMEs to economic development?

Basic questions revisited

Does SME development require government and donor support?

How should SME support programmes be best designed and delivered?



SMEs and economic development

Enterprise-level Employment creation Productivity enhancement Innovation

Industrial system level Systemic productive capacities (missing middle) Attraction of FDI Structural change

Broader societal objectives Equitable income distribution Reduction of regional disparities Private sector dynamism



Commission on the Private Sector & Development: Report to the Secretary-General of the United Nations



Rationale for SME support programmes

Market failures to the detriment of SMEs

Economic and social cohesion and stability as a public good

SMEs hit hardest by regulatory compliance costs: need to create conducive enabling environment



Some principal considerations in SME support programmes

Combining financial and business development services

Linkages are key!• Horizontal: SME clusters• Vertical: global value chains

Focus on start-ups or existing SMEs?

An emerging agenda: corporate social responsibility



“Let us choose to unite the power of markets with the authority of universal ideals. Let us choose to reconcile the creative forces of private entrepreneurship with the needs of the disadvantaged and the requirements of future generations.”

Kofi Annan,UN Secretary-General



The new mantra: BDS market development

Donors as facilitators and market developers

Involve private sector in BDS provision

Promote commercially embedded BDS

Stimulate competition (voucher programmes)

Emphasize performance measurement

Keep subsidies away from transactions



“Best practice” is a relative concept …..

“ ‘Drive on the left’ is a best practice in London but not in New York. A best practice

might work well in some countries but fail miserably when recommended in other

contexts.”(Joseph Stiglitz)

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