A joint project of the OECD LEED Programme and the OECD DAF Central Asia Competitiveness Initiative
Within the framework of the OECD Eurasia Competitiveness Programme
Objective / Issues / Method / Outputs / Contact
This project examines how policies can support the integration of small and medium-sized enterprises (SMEs) into global value chains through creating and exploiting linkages between SMEs and Foreign Direct Investors (FDI). It involves assessments of current conditions and opportunities in three regions of Kazakhstan and makes recommendations for policy actions at national and local levels. It also supports the government and its partners in developing a monitoring and evaluation strategy for policies and programmes aimed at attracting and embedding FDI.
The work is based on analysis of statistics as well as discussions with key stakeholders and is produced in the context of lessons learned in other countries in analogous situations.
The objectives of linkage strategies at the regional level are:
- To increase the amount of economic activity and employment in the region BECAUSE better linkages will grow the local SME sector.
- To seek to maintain skilled employment in the region BECAUSE skilled jobs will not be related only to imported goods and services.
- To maximise the positive impacts of FDI BECAUSE FDI without linkages will not be anchored and will not necessarily flourish.
- To attract more FDI to the region BECAUSE there is an existing support network of suppliers etc in the region.
Issues to be addressed
The fragmentation of global supply chains is an opportunity for SMEs to integrate and thus capture positive spillovers from the transfer of technology, skills and know-how. FDI-SME linkage programmes are public policies which enable SMEs to make best use of the opportunities. In implementing such programmes it is important that there is coordination with both regional development and FDI promotion strategies. To develop linkages, the region and its institutions need to understand which sectors and types of investment they are looking for. FDI-SME linkages form part of FDI aftercare and therefore any strategy needs to work in cooperation with individuals and institutions involved in this.
Development of linkages requires coherence in three areas, and the analysis and suggestions for action are broken down in this way:
- The institutional capacity of both public institutions and the SME sector itself. For example in organising supply chains and clusters, and in having sufficient collective mass to deal with FDI. The ability to organise supply chains may well in itself attract foreign investment. A key reason for FDI not to engage with local suppliers is the lack of organisation and critical mass and therefore institutional capacity is important.
- The support structure for local SMEs, ensuring that they understand the requirements to deal with FDI and have appropriate support in upgrading their products and processes for this purpose. Local SMEs frequently do not have a clear idea of how to deal with larger foreign companies, lacking information on opportunities and procedures. Upgrading the quality of local products can have a major impact on the degree of linkage.
- The existence of appropriate skills in the workforce and within SMEs. Skills in the workforce in general are often of high importance in FDI making final decisions on location. In addition skills in the workforce will have an impact on the ability of SMEs to compete, and skills within SMEs will affect the degree to which they can exploit the opportunities represented by FDI.
The review was developed in three main stages:
A local diagnostic report - setting out information for three selected regions in Kazakhstan on FDI and SME activities and on existing programmes to support FDI-SME linkages.
A seminar - presenting international experience in developing FDI-SME linkage strategies.
A study visit - organised to each of the three regions with a team including the OECD Secretariat and international experts.
For each of the three regions, draft FDI-SME linkage strategies were produced for discussion with the relevant actors in the region. Available now in english and in russian.
Additional complementary work was undertaken to examine monitoring and evaluation of FDI at both national and local levels. A report on this is available in English and Russian
For further information about the project please contact Jonathan Potter and Stuart Thompson at the OECD Secretariat.