Caribbean & Central America - August 2022

Micro, small, and medium-sized enterprises (MSMEs) represent a vital part of the regional economy that was badly affected by the coronavirus (Covid-19) pandemic, but increasing digitalisation has boosted resilience.

The United Nations (UN) International Trade Centre (ITC) uses its annual MSME Day on 27 June to highlight the role of these businesses as “the backbone of societies everywhere they contribute to local and national economies and to sustaining livelihoods, in particular among the working poor, women, youth, and groups in vulnerable situations”. 

In Central America, 99% of businesses are MSMEs, according to Cenpromype, a regional organisation promoting MSMEs based in San Salvador. Of this figure, 83% are micro enterprises, comprising one to three employees, with small enterprises representing the remaining 16%.

In addition, MSMEs generated 3m direct jobs in 2020, according to the Central American Integration System, as well as contributing 34% of GDP. However, data from the United Nations (UN) Economic Commission for Latin America and the Caribbean (Eclac) reveals that 20.7% of micro enterprises in Latin America may have been forced to close in 2020, as were 7.1% of small and 2.8% of medium-sized enterprises. 

The vast majority of those that survived said that the pandemic had accelerated their digital transformation, according to a study on the impact of Covid-19 on the culture and operations of MSMEs commissioned by Microsoft and published 19 April, which looked at MSMEs in Costa Rica, Panamá, Guatemala, and El Salvador.

Key technologies cited by respondents include laptops; software for video calls and remote collaboration; and cloud storage and computing. Almost 90% of respondents say that technology will be very important in deciding how they run their business in the future. In addition, 42% say they were more productive despite the disruptions caused by Covid-19, and 33% say they maintained previous levels of productivity.

As the digital transformation continues, cybersecurity is an increasing concern for MSMEs, with cyber attacks in Panama and Guatemala increasing 60% and 43% respectively in the first eight months of 2021 compared to the same period in 2020, according to a study by cybersecurity firm Kaspersky published on 31 August 2021. While 78% of respondents in the Microsoft survey said that cybersecurity is a priority, only 60% of businesses have relevant policies in place, leaving many with more work to be done.

MSMEs continue to face headwinds as regional economies attempting to recover from the effects of the pandemic are affected by the climate crisis and the fallout from Russia’s invasion of Ukraine. “They are the hardest hit by these multiple shocks, and at the same time play a critical role in building back stronger,” said the ITC, which called for further stimulus packages. “Policymakers must move beyond recovery and consider ways in which to lower and eliminate barriers faced by MSMEs, improve the business environment and access to finance, markets and technology in these fragile times,” it said. “It is critical that countries and their development partners continue to support and empower MSMEs and unlock their full potential through inspiring innovation, creativity and decent work for all.”

•  BCIE support

On MSME Day the Central American development bank (BCIE) said that over the last two years it had protected 76,542 jobs at 5,328 MSMEs through loans channelled through partnerships with financial institutions in the region, for example funding to implement biosecurity measures during the pandemic. It said that it had paid out more than US$501m through partners in the region as part of a wider programme to protect the economy during the pandemic.