Friday, July 01, 2005
Potential Unrealized. Small Business Issues and Policies in El Salvador
By: The Enterprise Research Institute
For: FUSADES and SIAPE, 1999
For most of the 1990s, El Salvador strove to transform itself from a highly-divided society torn by civil war, to one with greater economic and social participation based on a market economy. In one sense, this transition has been extremely successful. Peace has been restored, fiscal stability has been imposed and the country is beginning to repair the wounds caused by the Civil War. Economic reform has been implemented in several areas and the economy has registered positive, if not impressive growth. By most measures, the country has made enormous progress. Yet there is both a sense of disappointment and of frustration in El Salvador. There is a feeling that the potential of the country is still far above what has been achieved so far and there is a desire to move things forward more rapidly. One area where many observers feel that there is still much to be done is the small business sector, where growth has been especially disappointing. In spite of several initiatives, the sector lags behind in modernization and competitiveness.
This report examines some of the factors that are preventing SMEs in El Salvador from fulfilling their potential. An important message is that there is no magic wand or single policy which, once applied, can dramatically transform the small and medium sized enterprise sector onto a high growth path. Nevertheless, there is much that can be accomplished to assist both the SME sector as well as the economy as a whole to raise long run potential growth. A second message is that the SME sector is not unique in that it requires policies that are different from those that apply to either microenterprise or to larger businesses. Measures that help the SME sector will also help both microenterprises and larger businesses. For all businesses to flourish, the business environment must be enabling – it must promote the formation and growth of companies from the smallest to the largest so that all have the potential to do well. Promoting business formation will help small businesses while keeping trade tariffs low will promote competition and ensure that large businesses do not become oligopolies or monopolies.
For: FUSADES and SIAPE, 1999
For most of the 1990s, El Salvador strove to transform itself from a highly-divided society torn by civil war, to one with greater economic and social participation based on a market economy. In one sense, this transition has been extremely successful. Peace has been restored, fiscal stability has been imposed and the country is beginning to repair the wounds caused by the Civil War. Economic reform has been implemented in several areas and the economy has registered positive, if not impressive growth. By most measures, the country has made enormous progress. Yet there is both a sense of disappointment and of frustration in El Salvador. There is a feeling that the potential of the country is still far above what has been achieved so far and there is a desire to move things forward more rapidly. One area where many observers feel that there is still much to be done is the small business sector, where growth has been especially disappointing. In spite of several initiatives, the sector lags behind in modernization and competitiveness.
This report examines some of the factors that are preventing SMEs in El Salvador from fulfilling their potential. An important message is that there is no magic wand or single policy which, once applied, can dramatically transform the small and medium sized enterprise sector onto a high growth path. Nevertheless, there is much that can be accomplished to assist both the SME sector as well as the economy as a whole to raise long run potential growth. A second message is that the SME sector is not unique in that it requires policies that are different from those that apply to either microenterprise or to larger businesses. Measures that help the SME sector will also help both microenterprises and larger businesses. For all businesses to flourish, the business environment must be enabling – it must promote the formation and growth of companies from the smallest to the largest so that all have the potential to do well. Promoting business formation will help small businesses while keeping trade tariffs low will promote competition and ensure that large businesses do not become oligopolies or monopolies.