INSTITUTO DE INVESTIGACION Y DESARROLLO NITLAPAN

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1 Nitlapan INSTITUTO DE INVESTIGACION Y DESARROLLO NITLAPAN A Enabling Growth and Promoting Equity in the Global Financial Crisis Risk and Vulnerability: A view from COPLA works on SMEs

2 Growth but not Equity Nitlapan Central America has had a positive growth rate from ; However, poverty rates and inequality (GINI) have barely changed It is clear that Nicaragua won t meet the MDG with 70.3 % of rural population below poverty line and 30.5 % below extreme poverty line. 60 % of population is responsible for 31.2 % of total consumption, while top 20 % is responsible for 47.2 % and the TOP 10 % of 31.7 % consumption. There is a clear issue of Income and consumption distribution Nicaragua is country dependant on Foreign Aid, Remittances and FDI inflows with High levels of internal and external debt.

3 Poverty Reduction in Nicaragua Nitlapan Extreme Poverty Rate Total Population Population under Poverty Line Population under Extreme Poverty Balance on Poverty Balance on Extreme Poverty Year Poverty Rate ,174,900 2,099, , ,560,526 2,184, ,971 84,517-20,960 4,801, ,968,753 2,198, ,989 14,481-63, ,240, ,149 41,934 79, ,142,098 2,421, , ,021 18,587

4 Vulnerability: Internal Factors Nitlapan Micro-SMEs: familial labour, less than 10 workers, several sectors: furniture, artisans, services, internal trade, food Scale: inputs and sale volumes Cash flows: urgency to sell cash, no credit Technology: Labour intensive i processes Value-Chain-Integration: SMEs tends to be integrated to domestic markets. These markets demand low quality and low prices products. Organization: Politics vrs. Sector interest

5 Vulnerability: Rules of engagement Nitlapan Monopoly is a legal practice in CA region, and it sets rules for Small enterprises: Nicaragua: tends to have a single importer of flour in this case, small bakery should be more competitive (lower prices to consumers), but they only have one option for buying key inputs. Wal-mart is becoming the key retailer in Central America. It is even competing with traditional retailers in traditional market. Small retailers should offer products with lower prices or specific characteristics ti in order to compete Wood (timber) is controlled by a small group which export timber, we barely process wood and export furniture. Most of furniture processor are small enterprises with 5 to ten workers. As result SMEs in wood sector are linked only to domestic markets. Trade policy allows import of substitutes of wood (chipboard), so large firms offer not only this product, but also credit ditto consumers in order to facilitate ability to buy.

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7 Risk: Financial Crisis Nitlapan Decrease of Exports: agricultural products such as seafood, meat, coffee, sugar, etc., due to reduction of consumption in key importing countries. This can increase unemployment rates. Reduction of textiles industries (maquila), increase urban unemployment rates Decrease of employment in key Developed countries such as USA, Spain and Costa Rica (Tourism based economy) affecting migrants and remittances. Decrease of Remittances, so decrease of consumption in developing countries such as Mexico, El Salvador, Honduras, Guatemala, Nicaragua, Ecuador and Bolivia

8 Nitlapan Nicaragua: Evolution of remittances y = x R 2 = S$ Million U Year

9 Nitlapan Nicaragua: Family s destination of remittances remittances % of Food Health Shoes/Clothing Personal care Investment Debt payments Destiny Urban Rural National

10 Nitlapan Policies to Face Global Crisis Government Policies: Cut of 20 % of public expenditures Regulation to limit credit for consumption and in turn... Promote of productive credits Increasing Funds for Food Security Programs Take loans from IMF, WB and BCIE for Economic Stability Private Sector (large firms): Reduction of Textile EPZ Decrease of production volumes Personnel policies (reduction of workers and/or salaries) SMEs Transform to internal trade /food sector International migration New Markets? Product Differentiation?

11 Promoting Development: Nitlapan Alternative markets and/or Integrating Value Chains In wooden furniture: integrating Indigenous communities with small and medium processors, reducing intermediaries along the value chain. Creating Bank of inputs: case of wood, bakery, agricultural products. In order to benefit from economies of scale and credit alternatives. Fair Markets (Coffee, sesame, artisans) Playing by the rules: Integrating to Parmalat, CISA or Wal-mart VC in agricultural production. However, fulfilling large firms requirements demand investment and technological change, who pays for this? Policies to stimulate consumption through credit association /cooperatives which will offer credit to artisans to buy inputs and credit to consumers to buy products.

12 Nitlapan Thank you