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CENTRAL AMERICA: Boosting Small Enterprise to Fight Poverty

Danilo Valladares

GUATEMALA CITY, May 6 2011 (IPS) - Small and medium-sized companies in Central America are the targets of foreign development aid programmes aimed at fighting the region’s high poverty levels.

One of the initiatives is the Access Programme for Rural Associations of Micro-, Small and Medium-sized Enterprises in Central America, implemented by the Guatemalan Exporters Association (AGEXPORT) and financed by the International Fund for Agricultural Development (IFAD), a specialised United Nations agency.

“We are mainly seeking to generate employment, and through that, to secure access to food and nutrition security and improve people’s quality of life,” the programme’s director, Iván Buitrón, told IPS.

The initiative, which got underway in March at a total cost of three million dollars, will provide training to more than 80,000 rural entrepreneurs in Honduras, El Salvador, Nicaragua and Guatemala over the next three years.

When asked about the programme’s aims in the region, Buitrón said, “One is to strengthen capacities in business, administration, accounting, costs, sales and delivery.”

Other goals are “to support organisational development in production and productivity, and ensure that products reach the standards of quality and volume demanded by the markets and follow traceability requirements.”

Another focus, the AGEXPORT official said, is disseminating “knowledge, to facilitate access to international fairs to learn about successful initiatives and the importance of meeting safety standards and green production standards.”

Working together is fundamental to helping small and medium enterprises (SMEs) take off. “It’s essential for the state to invest in infrastructure and in stocking up for production, for the private sector to contribute to the technical aspects of market intelligence, and for both to complement each other in public-private alliances,” he added.

The programme thus seeks to reduce poverty by boosting incomes in Honduras, El Salvador, Nicaragua and Guatemala, which are classified by the World Bank as four of the world’s 56 lower middle income countries – between 976 and 3,855 dollars in GNI per capita.

For example, 47 percent of Nicaragua’s 5.7 million people live on two dollars a day or less, according to the country’s National Development Information Institute, as do half of Guatemala’s 14 million people, according to United Nations figures.

Despite the high poverty levels, Central America has potential. “There are many opportunities, and there is demand for products from this region, but what are lacking are policies of support and incentives for speeding up access to markets,” Buitrón said.

The needs of SMEs are clear. “We have a problem with intermediaries, because they set the prices, and since demand is low, we have to accept them, even if we end up actually losing money in the end,” Alberto Ortiz, a craftsman from the village of Samayac in the southern Guatemalan province of Suchitepéquez, told IPS.

Ortiz, who makes leather belts and bags, finds it hard to overcome the barriers standing in the way of selling his products. “We have tried to set up an association, but we’ve had problems, and the government institutions haven’t given us a hand,” he complained.

He has no doubt that the IFAD-financed training programme will be a great opportunity for developing small businesses, “principally for selling our products,” he said.

Lina Martínez, manager of the Garifuna-owned company Wabagari Distribution that makes cassava-based ethnic products in Honduras, under the Casabe O’Big Mama brand name, told IPS that SMEs “lack the capital and productive and technological capacity to generate volume.”

Martínez, whose company makes “casabe”, an unleavened flatbread made from cassava flour, says “soft credits” are needed to meet these needs. “It’s important to focus on products with better packaging, and to provide loans with soft interest rates. That would be an excellent alternative,” she said.

Her company sells its products to Wal-Mart, through the U.S. hypermarket chain’s “Una Mano para Crecer” (A Hand to Grow) supplier development programme.

But there are risks when it comes to how aid to SMEs is implemented.

“The support has to have flexibility that provides maneuvering room to allow businesses to respond in a proactive manner to the real situation they encounter,” Yasmin Martínez, with the Chamber of Commerce and Industry of El Salvador, told IPS.

“But these programmes sometimes come with so many limitations that the money ends up in the hands of consultants who tried, but were unable,” to help get SMEs off the ground, she said.

Yasmin Martínez believes the gap in technology and training and a lack of innovation are the main problems faced by SMEs in El Salvador, not to mention organised crime, which through extortion “suffocates our businesses,” she added.

SMEs are vital to the economy in El Salvador and the rest of the countries in the region.

In El Salvador, 99.6 percent of all businesses are SMEs, which number more than 174,000 in total and account for 65.5 percent of all jobs, generating nearly 488,000 direct jobs, according to the Chamber of Commerce and Industry.

Ingrid Figueroa with the Central American Integration System’s (SICA) Centre for the Promotion of Micro and Small Enterprise in Central America told IPS that fomenting small-scale business initiatives, improving access to financing, and strengthening financial education are major challenges that must be addressed in the region.

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