1. 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 Luetkenhorst Director Small and Medium Enterprises Branch w.luetkenhorst@unido.org

2. UNIDO ~ UNITED NATIONS IDUSTRIAL DEVELOPMENT ORGANIZATION ~ UNIDO ~ UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION ~ UNIDO SME Partnership Group Meeting, Hanoi, November 2004 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?

3. UNIDO ~ UNITED NATIONS IDUSTRIAL DEVELOPMENT ORGANIZATION ~ UNIDO ~ UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION ~ UNIDO SME Partnership Group Meeting, Hanoi, November 2004  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?

4. UNIDO ~ UNITED NATIONS IDUSTRIAL DEVELOPMENT ORGANIZATION ~ UNIDO ~ UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION ~ UNIDO SME Partnership Group Meeting, Hanoi, November 2004 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

5. UNIDO ~ UNITED NATIONS IDUSTRIAL DEVELOPMENT ORGANIZATION ~ UNIDO ~ UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION ~ UNIDO SME Partnership Group Meeting, Hanoi, November 2004 Commission on the Private Sector & Development: Report to the Secretary-General of the United Nations

6. UNIDO ~ UNITED NATIONS IDUSTRIAL DEVELOPMENT ORGANIZATION ~ UNIDO ~ UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION ~ UNIDO SME Partnership Group Meeting, Hanoi, November 2004 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

7. UNIDO ~ UNITED NATIONS IDUSTRIAL DEVELOPMENT ORGANIZATION ~ UNIDO ~ UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION ~ UNIDO SME Partnership Group Meeting, Hanoi, November 2004 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

8. UNIDO ~ UNITED NATIONS IDUSTRIAL DEVELOPMENT ORGANIZATION ~ UNIDO ~ UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION ~ UNIDO SME Partnership Group Meeting, Hanoi, November 2004 “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

9. UNIDO ~ UNITED NATIONS IDUSTRIAL DEVELOPMENT ORGANIZATION ~ UNIDO ~ UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION ~ UNIDO SME Partnership Group Meeting, Hanoi, November 2004

10. UNIDO ~ UNITED NATIONS IDUSTRIAL DEVELOPMENT ORGANIZATION ~ UNIDO ~ UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION ~ UNIDO SME Partnership Group Meeting, Hanoi, November 2004 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

11. UNIDO ~ UNITED NATIONS IDUSTRIAL DEVELOPMENT ORGANIZATION ~ UNIDO ~ UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION ~ UNIDO SME Partnership Group Meeting, Hanoi, November 2004 “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)