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Colombian Micro and Small Businesses Part 1/3, July 2011

Joni AlWindi, Cali, Colombia

Multilingual, social and business entrepreneur from Sweden with experience in Colombia since 2003. Having lived and worked in Cali during five years, Joni is dedicated to global development through quality education and international business for all.

joni.alwindi@cw-connectingworld.com

Colombian Micro and Small Businesses Part 1/3, July 2011

Small businesses in Colombia are facing interesting times. In 2010, Colombia climbed 12 places in the World Bank’s Doing Business report on the ease of doing business, ranking number 37 among the 183 countries analyzed. The country stands out on the matter of investor protection and ease of opening a business, the former increasing in the ranking from 25th to 5th place in only one year. Opening a business in Colombia requires only 9 procedures, 14 days and a cost of 14.7% of the national income per capita. The Latin American & Caribbean respective averages are 9.3 procedures, 57 days and a cost of 36.2% of the income per capita. Enforcing contracts and paying taxes are the areas with most challenges in Colombia. (Source: Doing Business in Colombia 2010).

This article series presents three topics that are especially relevant for the smallest of the businesses in Colombia: the role of micro businesses in the Colombian economy (1), the Colombian microcredit (2), and the formalization of small businesses (3), which will lead to an outline of the future outlook for small businesses in Colombia (and the Latin American region).

1) Role of Micro Businesses in the Colombian Economy  
Main reference: Jorge Gamarra Navarro 2005

For most transition economies, micro, small and medium sized enterprises (MSMEs) constitute the backbone of the economy. In Latin America and the Caribbean, the micro-businesses represent 90% of the establishments, while the small and medium sized companies represent 8%. Micro-businesses are crucial, both for economic growth and also for the creation of employment. On average, 40% of the formal employments are provided by micro-businesses, while the SMEs provide close to 30%.

The importance of micro-businesses in the Colombian economy can not be understated. As many as 94% of the country’s companies are micro businesses (with only 2.03 workers per establishment on average). Together, they employ 49% of the Colombian workforce. The small companies constitute 5% (with 30.4 workers per company on average) and generate 32% of the employment. The medium- to large-sized companies thus constitute only 1% of all the companies in Colombia (with an average of 526.3 workers per company) and occupy only 19% of the workforce.

In Colombia, the different business sectors can be divided into six larger categories; farming and livestock (1), commerce (2), construction (3), manufacturing (4), services (5), (including various investment and other financial services, real estate and other business activities), and other sectors (6). Commerce and manufacturing are the two sectors with most concentration of MSMEs. This distribution is similar in Latin American MSMEs overall.

When it comes to geographical distribution, the MSMEs are concentrated in the big cities. This is a natural effect of agglomeration economies, making it possible for micro and small companies to benefit from being part of a larger chain. Notably, the capital Bogota attracts more than 60% of the MSMEs, followed by the central northwestern Antioquia Department and the southwestern Cauca Valley Department with both around 12% of the MSMEs respectively. The Atlantic Department in northern Colombia captures just above 4% of the MSMEs. The rest are dispersed over the other areas of the country in even smaller concentration.

Even though the potential is immense for MSMEs to have a much larger impact in the growth of the country, the difficulty to achieve sustainability has been too strong. Barely 50% of the micro-businesses survive their first year, and only 25% the second year. The main obstacles facing the Colombian MSMEs are above all the following factors; the economic situation of the country (1), access to financing (2), the tributary system (3), access to markets (4), and labour legislation (5).

Despite their strong national labour force involvement, Colombian SMEs count for less than 20% of the total Colombian exports. Especially as the country has become more and more involved in global business promotion, the internationalization of SMEs has become an important topic. This will be elaborated on in the end of this article series.

On Colombian development and opportunities,

Joni AlWindi

 

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