High Level Meeting on Micro-enterprises (HLMM)

Senior Officials' Meeting III

Acapulco, Guerrero, Mexico

17-18 August 2002

Executive Summary

In any economy, units of production can be grouped into large, medium, small and micro-enterprises and the proportions of each vary among economies and over time. The presentations and discussions at the HLMM confirmed that micro-enterprises play an important role in all APEC economies, enabling the participation of large numbers of people in productive economic activity while fostering entrepreneurship, innovation and self-reliance.

According to the Profile of SMEs and SMEs Issues in APEC 1990-2000, nearly 72% of all private sector enterprises in APEC are micro-enterprises representing 20% of private sector employment. While these data rely on a quantitative or formal definition of micro-enterprises, they provides a clear indication of the wealth producing potential of the sector, once informal micro-enterprises and the self-employed are added. The significance of the formal micro-enterprises sector suggests that these forms of business are a "seed bed for entrepreneurship and growth, as an alternative to unemployment, and as a means of alleviating poverty.

In APEC economies, whether in the regulated or unregulated economy and regardless of the kind of activity involved, micro-enterprises employ hundreds of millions of real people, young and old, men and especially women, achieving real outcomes in real time.

The characteristics of micro-enterprise

A number of case studies and other papers presented to the HLMM made the case for micro-enterprise to be considered as qualitatively different from other business entities, large, medium, or even very small. The meeting considered a categorisation in which micro-enterprise was distinguished from other business entities by criteria including organizational characteristics, financing, equipment and technology, accounting and personnel procedures as well as relations with government. While there are likely to be exceptions, the categorisation provided in the attached table provides a useful basis for the purposes of further discussion.

There are significant differences in the micro-enterprise profiles of developed and developing economies. These include differences in the size and importance of the micro-enterprise sub-sector, in the kinds of activities undertaken, the availability and comprehensiveness of data, the level of technological sophistication and the degree to which micro-enterprises are involved, directly or indirectly, in international trade.

In many developing economies, micro-enterprises constitute a significant proportion of economic activity, contributing to production, consumption and local trade in goods and services. In such economies micro-enterprises are typically an individual or household-based productive unit. The majority of participants at the HLMM also accepted a characterization of micro-enterprise in terms of its informal character, particularly in the developing economies.

Micro-enterprises are often engaged in producing goods and (especially) services which are important in the consumption baskets of low income households. Micro-enterprises are also where people find income-earning opportunities if they cannot find other more formal employment (or self-employment) or are displaced from other work by changing circumstances. In that sense, micro-enterprises constitute important social safety nets in developing economies.

While not all agreed with all aspects of such attempts to define micro-enterprise, participants recognized the potential for information sharing with regard to micro-enterprise policy frameworks and best practice to enhance the contribution of microentrepreneurs to economic growth and increased prosperity.

The meeting noted that women are significantly represented in the micro-enterprise sector, both in the so-called "informal" and in the formal economy. It was also recognized that micro-enterprises owned and operated by women also have distinct characteristics that need to be addressed. Participants at the HLMM were also reminded of the importance of micro-enterprise in the creation of employment. Demographic trends in APEC economies indicate the need for substantial efforts to provide opportunities for young people, particularly in developing economies, and for aging populations in the developed economies.

The HLMM considered whether it is useful to apply quantitative measures (such as size of employment or turnover) to identify micro-enterprises. Although such limited official data as exist has usually been compiled using such measures, there was little support for the application of any simple quantitative definition as a matter of principle. Participants agreed that it was best not to be prescriptive in matters of definition, having regard to the differences in circumstances in and between developed and developing economies; allowing each economy to place itself along a micro-enterprise continuum.

The meeting found that the term 'financial exclusion' was a useful way of describing an almost universal disability of these smallest business entities. This means they are excluded from the financial services of conventional financial institutions, finding it difficult to raise start-up or working capital, or to accumulate savings in secure ways in order to permit their expansion. The presentations and discussion suggest that in all economies, including developed economies, there is some proportion of low-income or otherwise disadvantaged households that is beyond the reach of formal financial services.

Domestic policy principles to support micro-enterprise

Several significant policy principles were identified for implementation at the national level, to contribute to the growth of micro-enterprises and encourage their participation in international trade.

Information gathering/data analysis: While acknowledging the difficulties likely to be encountered in a proper enumeration of the level and scope of micro-enterprise activity, particularly in the unregulated sector, a number of the presentations and case studies pointed to the need for more attention to be paid to data collection. It was suggested that data collection should proceed on a clearly defined basis, even if direct comparability between developed and developing economies is not possible, with particular attention paid to gender disaggregation.

Policy and regulatory frameworks: Several presentations pointed to difficulties for microenterpreneurs in developed economies, due to the heavy burden of regulations which are typically not designed with them in mind, but affect them disproportionally, due to their relatively small size. This leads to high transaction and conformance costs. Further work was recommended ease this regulatory burden and to design procedures and protocols suited to the needs of micro-enterprise, for example for e-commerce and e-government. Intellectual property protection was also identified as a significant issue for micro-enterprises, particularly in high-technology and services industries in developed economies.

Deepening of financial services: The HLMM addressed the issue of financial exclusion, suggesting that this might be a problem which could be usefully examined in a micro-enterprise framework. Such an examination could involve the study of innovative approaches to providing financial services to the excluded for example, through micro- finance (savings, credit, insurance, remittances and mentoring facilities). It was agreeable for the whole audience to suggest that APEC governments should pursue the objective to provide with financial services to too many micro-enterprises, rather than just a few micro-enterprises, such services are generally best provided through unsubsidized commercial or non-governmental channels.

Access to technology: There is ample evidence of the relevance of access to, and appropriate use of, information technology by, micro-enterprises. The benefits of e-commerce, e-government, e-learning are already evident in a number of APEC economies. There is enormous potential for micro-enterprises, including in the unregulated sector in developing economies, to "leap-frog" growth and expansion processes and enter the economic mainstream. Particular effort is needed to create appropriate policy frameworks, decrease the costs of access and to design and disseminate micro-enterprise-specific products and service packages.

Capacity Building: Broader access to existing capacity building activities was recognized as an important element in improved economic performance in micro-enterprise. Several presentations pointed to useful opportunities for APEC to promote capacity-building through sharing relevant information, experience, expertise and technology.

Leveraging Resources: There is considerable scope for linkages to be made between APEC economies, collectively and individually, and other entities, including international financial institutions, the private sector and civil society (including academic and philanthropic institutions) to leverage resources to support economic and technical cooperation in support of the above aims.

The relevance of micro-enterprise in relation to APEC goals

In view of the above, the main characteristics of micro-enterprise in developing economies can be summarized as:

• being predominantly informal in character,
• having characteristics qualitatively different from those of small and medium enterprise
• providing the majority of employment opportunities in those economies, particularly for women,
• acting as social safety nets, and
• serving the consumption needs of low income households, including those of industrial and other formal sector workers.

This means that promoting the prospects of micro-enterprises, including by reducing obstacles to their start-up and growth, is part of APEC overall challenge of helping all member economies realize their full potential for sustainable economic growth as well as to its efforts to promote integration through trade.

In regard to international trade, the direct contribution to exports of informal micro-enterprises is likely to be minor. However, micro-enterprises supply low cost goods and services (for example, meals, transport and other services including accommodation) to workers in export industries, reducing upward pressure on wages and thereby protecting the comparative advantage of those industries. This is a potent, if indirect, contribution to trade.

Attention to micro-enterprises is an organic part of promoting progress towards APEC objectives in terms of shared prosperity, gender equity, poverty alleviation, and the strengthening of social safety nets. Further development of APEC micro-enterprises is likely to lead to increased support for active engagement in the global economy, tapping the enormous potential which exists in the human assets of all economies and, by reducing vulnerability, confronting potential threats to stability in the region.

At the same time, presentations and case studies have confirmed that micro-enterprise in developed economies plays an important role in employment and wealth creation among lower income and marginalized groups as well as in direct engagement in global trade, particular in e-commerce and the information technology communication and services industries.

Links within APEC for work on micro-enterprises

The SME Working Group has a mandate to consider issues relating to micro-enterprise, but in practice this has proved difficult for the SME Working Group to focus on these. This is partly because certain characteristics appear to distinguish micro-enterprises from the small and medium-scale enterprises which are the Working Group's primary concern. It also reflects the limited data available concerning micro-enterprises in all economies, especially in the developing economies, where they provide the bulk of employment opportunities and the vastly different micro-enterprise profiles of developed and developing economies.

A number of APEC Committees and Working Groups could be invited to give specific attention to the role of micro-enterprises in their respective areas of activity.

There are evident links to the Economic Committee's preparation of a chapter on 'specialised' financial institutions' in the 2003 Economic Outlook. The financial sector work could be expanded, to the benefit of developed economies, to include the study of financial institutions designed to overcome the financial exclusion of the poor in such economies. Other examples might include APEC's continuing work on gender, human capacity building, infrastructure, communications, technology (including e-commerce and e-government).

In view of the relevance to APEC to goals and likely positive impact of increased activity in support of micro-enterprise, HLMM discussions suggested for a dedicated 'cell' within APEC to lead and coordinate this work. One suggestion is that this might be accommodated within the APEC-wide Integrated Plan of Action for SME (SPAN). Others argued for a separate 'cell' (or sub-committee) within the SME framework, with careful attention paid to ensure representation of the full range of micro-enterprise interests within APEC. In the light of different points of view on this matter, this remains as an issue to be further examined.

Differences between Micro-enterprises (MEs) and Small and Medium-sized businesses (SMEs)