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The Start-Up Region Of Latin America

It is said that a reporter once asked famous Argentinean writer, Jorge Luis Borges, ‘who is Borges?’ to which his answer of ‘a forgotten man, from a forgotten time, from a forgotten continent’ typified the economic sentiment within Latin America from 2011 to 2013. The previous period of economic growth which was enjoyed throughout the region began to slow from 4.6% in 2011, to 2.9% in 2012, to 2.7% in 2013 with regional and international commentators calling the rapid growth as a commodity-driven fluke. With South America’s second largest economy, Argentina, registering the widest current account deficit since 2000 with debt payments and energy imports draining reserves by $12 billion to a seven-year low; the region seems to be on a path of self-destruction.


Entrepreneurial Lifeline

However, before the region and commentators begin sounding the alarms similar to the scenes witnessed across Europe, there is perhaps one saving feature for Latin America’s future. The role of entrepreneurship and business productivity growth can be considered to bolster total productivity of a region. There is no denying that Latin America has a strong entrepreneurial flair within its borders, boasting the highest rate of business creation above any other region in the world.

The issue with putting all their eggs into this one basket is that the businesses simply have not grown enough. When comparing businesses in Eastern Europe that have for example been operating for more than 26 years with a similar business in Latin America, the business in Eastern Europe has 12 times more workers than from its conception whereas a Latin American company only employs 7 times more workers than at birth. This has resulted in a vast number of small businesses and while 68% of US companies employ up to 10 people, in Latin America, this figure is astonishingly high at 91%. The statistics continue to amaze with only 15% of the US workforce working in companies with up to 10 employees whilst in Latin America almost 50% of workforce are in companies with up to 10 employees. It is obvious to see that there are too many people working in companies that are too small in Latin America.

The Bad News Continues

The number of companies with small numbers of workers not uncommonly with just 1 or 2 people in a Latin American company is bad news for the region as small companies are on average less productive. This is particularly true with people working in companies with 5 or more people making more than 25% more on average than people working in smaller ones. The simple question to ask then is why has this not translated into growth for Latin America businesses as seen elsewhere in the world? According to a 2012 CAF-development bank of Latin America survey about the psychological features typically associated with successful entrepreneurship in 17 Latin American cities, the Latin American workforce scored virtually the same as the US benchmark. It can therefore be deduced that there is no lack of entrepreneurial talent within the region. The differences found were found when looking at the entrepreneurial talent of the entrepreneurs themselves. It was discovered that a lot of them particularly, those not employing others, had as many or fewer entrepreneurial traits than people with salaried jobs all except for the matter of risk tolerance.

Latin America’s ‘Entrepreneurs’

Many of Latin America’s so-called ‘entrepreneurs’ are in reality just self-employed and have formed an over-represented labour market in Latin America as they account for 28% of the total workforce. In the US, the self-employed account for just 6.1% and it can be seen that the larger the share of the self-employed national labour workforce, the poorer the country. The main reason for many of these ‘entrepreneurs’ to start their own one-man band is as they have been forced into self-employment by a lack of better employment alternatives. With such low company growth statistics as seen earlier in the article, the truth of the matter is than many of these ‘entrepreneurs’ unfortunately fail.

Investing In The Right People

These fairly depressing figures surrounding start-ups and the so-called ‘entrepreneurs’ of Latin America does not mean that entrepreneurship support initiatives and policies should be abandoned. Instead it is important to make the distinction between those entrepreneurs that have the socio-economic and psychological attributes similar to those of big employers and therefore recognising their genuine ability to grow. The rest who have almost been forced into becoming entrepreneurs would be better as targets of social policies rather than entrepreneurial ones. These social policies should target their whole family units and provide the suitable education and training opportunities that will help them to transition to more formal, productive, better-paid jobs and decreasing the number of self-employed workers. Entrepreneurship policies such as relaxing financial restrictions, improving the business climate and fostering innovation should be targeted towards those entrepreneurs that have the potential to grow. By introducing this distinction between the different entrepreneurs of Latin America, only then will Latin America unleash its true potential and become a real start-up continent putting to bed once and for all Borges’s rather gloomy outlook.

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