G20 Executive Talk Series

September 2016

SME Potential

Authored by: Dr. Tunc Uyanik

Unlocking SME Potential for Inclusive Economic Growth

In September 2016, the G20 Leaders meet in Hangzhou, China, at a time of increasing volatility in global markets and political uncertainty. Across G20 economies and beyond, there is a pressing need to unlock growth, investment and jobs. Most of all, there is a strong call for inclusive economic growth. Unlocking small- and medium-sized enterprises (SMEs)’ potential remains one of the best opportunities to achieve all of that.

Since September 2015, when the G20 leaders welcomed the World SME Forum (WSF) as the international organization which amplifies the voice of SMEs globally, we have been in intense dialogue with partners around the world to identify the most pressing priorities of the SME community. The feedback we are getting is that, in 2016, traditional challenges to SME growth have been intensifying: they include constraints in accessing markets, finance, managerial and entrepreneurial skills.

And, if these are not sufficient to completely debilitate the typical SME, business regulations often place them at a disadvantage. The fact of the matter is that obstacles to entry, high costs of compliance, the absence of a level playing field, and low transparency are hindering SMEs’ potential across the board.

Yesterday’s issues are still today’s issues, and not because of lack of effort in the Development and the Business Community, but because it is a really tough problem to solve. We are faced with the slowest post-crisis investment recovery since the early 1970s, and SMEs – which account for the majority of employment and over half of value-added in OECD countries – are struggling to access the financing they require to participate in and across world markets, as banks have deleveraged to meet new regulatory requirements.

Still, the situation is not as bleak as it may appear. There are at least two specific opportunities at hand. Globally, policymakers have indeed turned their attention to SMEs as a potential recipe for inclusive growth; and digital technologies are providing SMEs the potential to compete in international markets at levels unseen before.

The first opportunity rests on reinforcing the sharper focus on SMEs that has come of late. It’s an opportunity not to be missed. SMEs have become an explicit focus for sovereigns as well as prominent international organizations such as the OECD, the World Bank Group, the International Trade Center and the WTO. This year B20 China decided to continue the work of the SME Development Taskforce, which
was started for the first time by B20 Turkey, hopefully making it a mainstay for B20s and G20s to come. For our economies to have healthy inclusive growths, SMEs must remain as a key priority in the B20 / G20 process and across Presidencies.

The second opportunity rests on infusing digital technologies into the DNA of SMEs. We know that technology is facilitating access to markets; e-Commerce now enables firms to link to an unprecedentedly large customer base, at significantly lower interaction costs. Digitization facilitates access to finance in unconventional ways: by improving credit information and analysis through online data sources such as sales and other performance indicators; through alternative finance such as crowdfunding and supply-chain finance; and fintech innovations targeted to help SMEs on payments. Technology is also facilitating access to skills, through Massive Open Online Courses (MOOCS), or free online learning modules, which are making learning and mentoring easier and more affordable than ever before for smaller companies.

The proceedings on the China B20 SME Development Taskforce are following in the path of last year’s recommendations, with a focus on SMEs access to GVCs, finance, digital trade, and a better regulatory environment, but they took a sharp welcome turn towards accountability and implementation, focusing on both the existing opportunities and the challenges ahead. The recommendations are practical and reasonable, and they provide a concrete roadmap that G20 governments can implement to offer a tangible boost to SME Development, in turn supporting much needed job creation and inclusive economic growth in both developing and developed economies.

Yesterday’s issues are still today’s issues, and not because of lack of effort in the Development and the Business Community, but because it is a really tough problem to solve.

The recommendations have a broad reach: they include concrete considerations about the creation of an innovative Electronic World Trade Platform (eWTP) to incubate eTrade rules and foster a more effective and efficient policy and business environment for cross border electronic trade development; the development of coordinated capacity building and certification programs to facilitate the inclusion of SMEs in Global Value Chains; the facilitation of SMEs’ access to bank finance and alternative funding; and finally the improvement of SMEs regulatory environment, through a reduction of compliance costs and a significant improvement of access to public procurement markets, especially through the digitalization of Government processes.

It is important that G20 leaders pay good attention to these recommendations, as it is in their best interest to lift SMEs’ growth, and with them their whole economies. More broadly, it is essential that G20 continue its support to SME growth by ensuring that countries strengthen their focus on the SME agenda, now and in the coming years, starting with 2017 Germany G20.

The opportunities to better utilize the enormous potential of SMEs to help the world economy to overcome many of its current challenges are already here. We just need to ensure that policy helps SMEs to help themselves.

Dr. Tunc Uyanik joined World SME Forum (WSF) as its founding CEO in November 2015. He was previously the Special Envoy and Chief Adviser to the President of TOBB and B20. He was also the Chair of the Turkish B20 Steering Committee.

Prior to this, Dr. Uyanik was the Director of the Financial and Private Sector Development Department in East Asia and Pacific Region at the World Bank, as well as the Director of the Financial Systems Global Practice. He was also co-chair of the Financial Sector Liaison Committee (FSLC) and chair of the World Bank’s Islamic finance working group. Dr. Uyanık has vast experience in: financial and private sector development, financial sector policy and regulation; financial sector assessment and reforms, banking sector restructuring, lines of credit and guarantees; financial inclusion, asset recovery and asset management.