Startup scenes will be key to Latin America’s recovery from the Covid crisis

Throughout Latin America, growing tech and startup scenes will be important sources of skilled employment and innovation for promoting economic and social recovery in the aftermath of the catastrophic coronavirus pandemic. In Colombia, those benefits will be amplified by government efforts to bolster entrepreneurship in the country.

While the global pandemic is still raging on, with many countries entering renewed lockdowns to deal with a second spike in Covid-19 infections, the coming widespread distribution of vaccines gives cause for hope in 2021.

‘Business as usual’ will likely never be what it once was, with many companies maintaining greater levels of remote working, implementing further digitization, and otherwise preparing themselves to meet similar disruptions to their operations in the future.

However, recovery is expected for much of Latin America during 2021 and economies will get back on track – albeit slowly – after the disruption of the past year. At Biz Latin Hub, we have seen demand for company formation services pick up significantly throughout the region over the course of Q4 in 2020 and continuing into the new year.

To that end, the growing tech and startup scenes, which have seen a number of countries in Latin America emerge as innovation hotspots, can be expected to make major contributions to the recovery effort, not only in terms of generating skilled employment and investment, but also in relation to developing novel tech solutions to day-to-day problems encountered by both businesses and consumers.

One such hotspot of innovation is Colombia, where the financial technology (fintech) sector alone was estimated to have grown 45% percent between mid-2018 and the end of 2019. Such innovation has complemented the work of more traditional financial institutions, while also providing solutions to the large unbanked population.

In Colombia, over 50% of the working-aged population did not have a bank account at the time of the World Bank’s Global Findex Database 2017. While that rate is continually falling, it still represents a large number of potential customers to companies offering non-traditional banking solutions. It also means that the country’s financial sector has a great deal of growing to do as more and more people are drawn into the mainstream banking system.

The combination of readily available skilled workers and ample opportunities for market development could explain why Colombia has given notable backing to its tech and startup scenes, and why official efforts to cut red tape associated with launching a business had already been lauded internationally before an “Entrepreneurship Law” was passed in late 2020 to further formalize streamlining efforts.

Entrepreneurial Education

While entrepreneurship has been given a prominent place in the current government’s development programme, it is notable that long before it took office in 2018, Colombia was recognized for the level of entrepreneurial education it provided.

According to the 2016 edition of the Global Entrepreneurship Monitor (GEM), Colombia performed better than average in terms of government policy in support of entrepreneurship, as well as in terms of post-school aged education related to entrepreneurship, while it was listed as having cultural and societal norms very encouraging of entrepreneurship.

Those results were echoed in the 2020 edition of GEM, highlighting how Colombia’s inclination towards and support for entrepreneurship are not new things, but rather that the current government’s efforts build upon a firm cultural and educational base.

Those efforts have included strengthening a number of related institutions involved in encouraging new business and providing relevant education, such as iNNpulsa, the official government agency for promoting entrepreneurship and innovation; the National Training Service, known as SENA; and government seed capital provider Fondo Emprender.

Cutting Red Tape

A major development in favour of entrepreneurship in Colombia since current President Ivan Duque took office is the significant elimination of red tape – which GEM has previously highlighted as a barrier to entrepreneurship in the country.

One flagship effort to that end has been Estado Simple, Colombia Ágil (Simple State, Agile Colombia), a programme that encourages individuals and businesses to report inefficiencies and excessive requirements for official administrative tasks. To date, the programme has resulted in almost 3,000 adjustments to bureaucratic operations, many of which have streamlined processes for businesses and entrepreneurs.

Such moves have complemented efforts that began under the administration of Duque’s predecessor Juan Manuel Santos, which oversaw the establishment of Connect Bogota, an “innovation accelerator” that brings together businesses, entrepreneurs, universities and elements of the state to promote new business.

Notably, when Colombia was lauded by the Financial Times for significantly outperforming larger economies in the region in the 2020 edition of the FT Americas ranking of 500 fast-growing companies, half of the Colombian companies that made the list had been established during Santos’ first term.

Entrepreneurship Law

The current government’s push for eliminating red tape culminated in the passing of an “Entrepreneurship Law” in November 2020, which was designed to further institutionalize the streamlining of business formation, and contribute to reactivating the economy.

Promoted by the Ministry of Commerce and iNNpulsa, and passed by an overwhelming majority, the law lays out five pillars upon which entrepreneurship will be promoted. Those include “support measures for entrepreneurs,” “access to the public procurement market,” “measures for financing,” “reform of the regulatory framework,” and “education and development of skills for entrepreneurs.”

The law explicitly highlights and seeks to address one of the biggest obstacles to business creation – namely access to financing – while also formalizing efforts to streamline administration, and was partly inspired by recommendations put forward in the 2020 GEM report, according to a statement published by iNNpulsa.

While the law will likely not be a ‘silver bullet’ for entrepreneurship, with much work still to do to encourage the development of new ideas and the availability of private capital.

Colombia – like the rest of Latin America – has a great deal to do before it can talk about “recovery” from the ructions of the global pandemic. Beyond the almost 50,000 deaths caused by Covid-19, the public health crisis has resulted in deep economic and social distress for swathes of the population.

However, Colombia’s decision to back entrepreneurship and innovation over the past decade, and the current government’s moves to ramp up that effort, will undoubtedly benefit the country as it seeks to make its way back.

Because entrepreneurship will be key to creating jobs and opportunities, while the innovation and tech-based solutions that many of them offer will be critical to helping people come to terms with a professional life that will likely never be the same again.

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