As the world looks towards 2021 with hopes for a COVID-19 vaccine and a return to some sort of normalcy, in Latin America, entrepreneurship promises to be a major force for economic revival.
Over 10 million people have been infected by COVID-19 across Latin America and the Caribbean, according to the World Health Organisation (WHO), a public health situation exacerbated by limited healthcare facilities in some countries.
Beyond health concerns, the region’s economy will take a hard hit from the virus as well. The Economic Commission for Latin America and the Caribbean (ECLAC) estimates that South America’s economy will contract by a staggering 9.1 percent as a result of the pandemic. Central America and Mexico will follow a similar pattern, contracting 8.4 percent.
Yet in Latin America, an entrepreneurial spirit that already made the region standout globally, remains alive and well.
That spirit has been forced to adapt in many cases, as existing entrepreneurs have moved into essential goods, while more “necessity entrepreneurs” driven by a lack of alternative options have been created. However, while such efforts are borne out of adversity, they reflect an important element of the entrepreneurial spirit that promises to give the region a shot in the arm towards recovery.
Before the pandemic struck, Latin America was becoming known as a hot spot for innovation and entrepreneurship, with startups attracting significant funding in the process, including a record $5 billion in 2019.
While entrepreneurialism is strong throughout the region, below three countries showing particular promise in the region — namely Brazil, Colombia, and Ecuador — are given closer consideration.
Brazil, Colombia, and Ecuador: promising hubs of entrepreneurship
Each of these three countries has been being declared some type of new “Silicon Valley.” That includes Colombia’s second-largest city Medellin being anticipated to emerge as “Latin America’s Silicon Valley,” and Ecuador’s Yache City of Knowledge being named among the “other” Silicon Valleys of the world. Meanwhile, in Brazil, the eastern coastal region of Salvador de Bahia has been declared a “black Silicon Valley,” owing to its large Afro-Brazilian population.
Drawing such parallels is clearly more about offering a digestible comparison to laymen readers than a reflection of the likelihood of any of these places to seriously rival California’s gargantuan tech hub. However, what that comparison tells us is that, in each case, startup ecosystems have been given a prominent place in economic development efforts by local authorities, that those ecosystems are drawing new talent, and that each are producing tech innovations capable of having a global footprint.
It also point to the fact that in countries such as Brazil, Colombia, and Ecuador, tech innovation is not only concentrated in the traditional business hubs, with all three “Silicon Valleys” far from their respective capital cities and major business destinations. Yet in each case, those major cities are also major contributors to innovation. In the case of Colombia, the capital Bogota is at least comparable to Medellin in terms of startup culture and tech innovation.
Below is a breakdown of the startup landscape and levels of innovation seen in each country, which can be expected to contribute significantly to their respective post-pandemic recoveries.
Brazil is easily Latin America’s largest entrepreneurial ecosystem. In 2019, the country ranked third behind the US and China for the highest number of tech startups that achieved unicorn status (meaning they are valued at at least $1 billion (USD).
Before the pandemic, many regarded Brazil as having one of the strongest economies in the region as well. However, a high number of cases, decreasing foreign direct investment (FDI), and political unrest and disagreement surrounding the issues lead to four straight quarters of steep decline in the national GDP growth rate. The 2020 Q2 contraction was the worst the country had ever seen, representing a drop of 9.7 percent.
Nonetheless, the South American giant should make a speedy recovery. While experts are predicting the first quarter of 2021 will still show a minor contraction, Brazil is expected to get back into positive numbers come Q2.
Potential in Brazil’s entrepreneurship sector spans multiple industries. One of the strongest and most prominent industries in the startup sphere is financial technology (FinTech), which experts are predicting will be a catalyst for getting Brazil’s economy back on track.
Unique access to real-time data and crucial financial information means that FinTech startups and entrepreneurs have insight into the climate of the economy, and are able to contribute to better predictions for the future.
FinTech aficionados have already started reinvesting in the industry in Brazil. Entrepreneurial and startup role model Nubank helped spark this resurgence in investing and interest. The Brazilian banking startup scored $300 million in investments in June. Many are expecting this will inspire interest and instill confidence in both the country, and the industry for the near future.
Meanwhile, industries such as space exploration, other types of tech, software development, and business services, all present major entrepreneurial opportunities to investors.
Colombia is one of Latin America’s strongest economies and home to one of the strongest and biggest startup ecosystems in all of the region. Thanks to government support, the Andean country has built up a robust incubator and accelerator system for national startups and young entrepreneurs.
Moreover, as highlighted by the Global Entrepreneurship Monitor (GEM) 2019/20 report, entrepreneurial education has become an increasing priority, with many universities offering an extensive array of courses for business-minded individuals. These education and growth systems tend to coalesce around the country’s major cities, with Bogota, Medellin, and Cali seeing the greatest number of startups and entrepreneurial activity.
While a great deal of opportunities can be found in Colombia, once again FinTech is one of the standout opportunities. Yet, the country is home to a great deal of other tech innovation, as well as being the birthplace of one of Latin America’s most prominent app-based enterprises — Rappi. In early 2020, the on-demand delivery company received an injection of $1 billion (USD) from Japanese giant Softbank.
As the 2020 GEM report highlighted, Ecuador stands as a beacon of entrepreneurship, not just in the region, but globally. Because while it also registers high levels of post-school aged entrepreneurial activity, it also counts on strong infrastructure in support of entrepreneurship, and cultural norms that promote innovation and risk taking.
Given that context, it is perhaps not surprising that Ecuador has emerging as an up-and-coming entrepreneurship and startup destination in Latin America. Economic stability and increasingly close trade ties with the United States makes Ecuador a promising investment destination, as does its dollarized economy.
Since adopting the dollar in 2000, the country has seen greater economic stability, provided greater ease for FDI, decreased international transaction costs, and brought about consistently low inflation. All of which are attractive traits for investment and startup ecosystems.
Entrepreneurship in Ecuador is thriving in a handful of different industries already. The strongest sector for startups in the country is tech innovation and development. In 2019 alone, 160 new tech startups emerged. Tech startups are finding opportunities in building partnerships with more traditional industries, such as construction and infrastructure development, as well as with government institutions.
Clearly, all three countries have major challenges ahead in terms of dealing with the social and economic fallout from the devastating COVID-19 pandemic. However, that recovery will benefit from the levels of innovation and development seen in each nation.
While economic predictions for Latin America may still be gloomy amidst the ongoing uncertainty, entrepreneurship in Brazil, Colombia, and Ecuador gives cause for hope among those countries’ citizens and investors alike.