Report No. 54242-GT Guatemala SME Development in Guatemala Let 10,000 Firms Bloom Public Disclosure AuthorizedPublic Disclosure Authorized (In Two Volumes) Volume II: Complete Analysis November 1, 2010 Finance & Private Sector Poverty Reduction and Economic Management Department Latin America and Caribbean Public Disclosure AuthorizedPublic Disclosure Authorized Public Disclosure AuthorizedPublic Disclosure Authorized Document of the World Bank Public Disclosure AuthorizedPublic Disclosure Authorized ABBREVIATIONS AND ACRONYMS AGEXPORT Guatemalan Association of Exporters AGIL Apoyo a la Generación de Ingresos Locales AMM Wholesale Market Administrator (Administrador del Mercado Mayorista) ANACAFE Guatemala National Coffee Association ASIES Research and Social Studies Association (Asociación de Investigación y Estudios Sociales) ASPARAGUA Association of the Producers of Rambutan in Guatemala BANGUAT Central Bank of Guatemala BF Board-foot CA Central America CADA Central America Discussion Agreement CATS Comites de Autogestion Turística CENAME National Metrology Center (Centro Nacional de Metrología) CI Conservation International CIAT International Center for Tropical Agriculture CIEN Center for National Economic Studies (Centro de Investigaciones Economicas Nacionales) CITES Technology innovation centers (centros de innovación tecnológica) CNEE National Electric Energy Commission (Comisión Nacional de Energía Electrica) COCATRAM Central America Maritime Transport Commission (Comisión Centroamericana de Transporte Marítimo) COGUANOR Guatemalan Standards Commission (Comisión Guatemalteca de Normas) CONCYT National Science and Technology Council (Consejo Nacional de Ciencia y Tecnología) CORFO Production Development Corporation (Corporación De Fomento de la Producción de Chile) COVIAL Road Conservation Executing Unit (Unidad Ejecutora de Conservación Vial) CPN National Port Commission (Comision Portuaria Nacional) DR-CAFTA Dominican Republic-Central American Free Trade Agreement ENCOVI National Living Conditions Survey (Encuesta Nacional Sobre Condiciones de Vida) EPA US Environmental Protection Agency EU European Union EUROSTAT Statistics of the European Union FACYT Science and Technology Support Fund (Fondo de Apoyo a la Ciencia y Tecnología) FAO US Food and Agriculture Organization FDA US Food and Drug Administration FDI Foreign direct investment FENACOAC National Federation of Savings and Loans FFV Fresh Fruit and Vegetables FODECYT Fund for Scientific and Technological Development (Fondo para el Desarrollo Científico y Tecnológico) FONACYT National Science and Technology Fund (Fondo Nacional de Ciencia y Tecnología) FONTIERRAS Guatemalan Land Fund GAP Good Agricultural Practices GBP Good Business Practices GDP Gross domestic product GIS Geographic information system GPP Good Processing Practices HACCP Hazard Analysis and Critical Control Point (HACCP) ICA Invest Climate Assessment IFAD International Fund for Agricultural Development IFC International Finance Corporation IFES Feminine Institute of Higher Studies IMO International Maritime Organization INDE National Electrification Institute 1 FOR OFFICIAL USE ONLY INGUAT Guatemala Tourism Institute (Instituto Guatemalteco de Turismo) INTECAP Technical Institute for Training and Productivity (Instituto Técnico de Capacitación y Productividad) ISO International Organization for Standardization LAC Latin America and the Caribbean LPI Logistics Performance Index LRF Lumber recovery factor LSCI Liner Shipping Connectivity Index MAGA Ministry of Agriculture and Livestock (Ministerio de Agricultura, Ganadería y Alimentación) MEM Ministry of Energy and Mines MIX Microfinance Information Exchange MFI Microfinance institution MRGC Metropolitan Region of Guatemala City MRL Maximum Residue Limit MSME Micro, Small, and Medium Enterprises MT Metric Tons NGO Non-Government Organization NTAE Non-Traditional Agricultural Exports OGA Guatemalan Accreditation Office (Oficina Guatemalteca de Acreditación) PIPAA Integral Program for Agricultural and Environmental Protection PPIAF Public-Private Infrastructure Advisory Facility PPP Public Private Partnership PRONACOM National Competitiveness Program (Programa Nacional de Competitividad) QI Quality infrastructure R&D Research and development REDIMIF Network of Microfinance Institutions (Red de Instituciones de Microfinanzas) RIA Regulatory Impact Analysis RICAM Mesoamerican International Highway Network (Red Internacional de Carreteras Mesoamericanas) RICYT Red de Indicadores de Ciencia y Tecnología RTGS Real Time Gross Settlement SENACYT National Science and Technology Secretariat (Secretaria Nacional de Ciencia y Tecnología) SIECA Central American Secretariat for Economic Integration SME Small and medium enterprise SPS Sanitary and Phytosanitary Standards SSFI Specialized State Financial Institution TFP Total factor productivity TIES The International Ecotourism Society TIMSS Trends in International Mathematics and Science Study TPC Third Party Certification USAID US Agency for International Development USDA United States Department of Agriculture WEF World Economic Forum WHCRI Western Hemisphere Credit and Loan Reporting Initiative WOCCU World Council of Credit Unions YOY Year-on-year Vice President : Pamela Cox Country Director : Laura Frigenti Sector Director : Marcelo Giugale Sector Manager : Lily L. Chu Task Manager : Thomas Haven Co-Task Manager : Jose Luis Guasch This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization. TABLE OF CONTENTS Chapter 1. Introduction and Diagnostic...............................................................................8 1.1. Country Context ..........................................................................................................8 1.2. Recent Developments and Outlook ..............................................................................8 1.3. Small and Medium Enterprise Performance .................................................................9 1.4. Growth and Competitiveness Diagnostics .................................................................. 10 Chapter 2. Electricity ......................................................................................................... 28 2.1. Background............................................................................................................... 28 2.2. Supply ...................................................................................................................... 28 2.3. Demand .................................................................................................................... 31 2.4. Recommendations ..................................................................................................... 35 Chapter 3. Transportation and Logistics ........................................................................... 36 3.1. Motivation and Organization ..................................................................................... 36 3.2. Guatemala Trade Flows ............................................................................................ 37 3.3. Logistics Performance: Problems and Challenges ...................................................... 41 3.4. Trade Logistics Policy Priorities for SMEs ................................................................ 48 Chapter 4. Human Capital ................................................................................................. 53 4.1. Introduction .............................................................................................................. 53 4.2. The Educational System in Guatemala ....................................................................... 53 4.3. Performance Indicators .............................................................................................. 55 4.4. Human Capital and the Needs of SMEs ..................................................................... 59 4.5. Policy Recommendations .......................................................................................... 62 Chapter 5. Innovation ........................................................................................................ 65 5.1. Introduction .............................................................................................................. 65 5.2. How Guatemala Performs.......................................................................................... 65 5.3. What Might be Creating Obstacles to Innovation? ...................................................... 71 5.4. Policies to Address Lack of Innovation ...................................................................... 75 Chapter 6. Access to Finance.............................................................................................. 79 6.1. Introduction .............................................................................................................. 79 6.2. Evolution of the Supply of MSME finance and the Global Financial Crisis................. 79 6.3. Demand for financial services.................................................................................... 86 6.4. Doing Business and Financial Infrastructure .............................................................. 89 6.5. Proposals for strengthening financial access ............................................................... 91 Chapter 7. Business Regulations and