Jorge Arbache
Vicepresidente de Sector Privado, CAF -banco de desarrollo de América Latina y el Caribe-
All South American economies are classified as commodity dependent, i.e., they predominantly export commodities. This past decade’s price boom has accentuated this condition and attracted major companies and investments to the sector, which helped increase the region’s per capita income.
However, the expansion of the primary sector did not escape criticism. One complaint was that the sector’s growth accentuated a phenomenon already quite characteristic and problematic for the region – the strong polarization between companies. One side would hold large and modern companies focused on commodities exports. On the other, small companies mainly focused on domestic consumption and characterized by low dynamism and low productivity. There would be a near void of companies between these two almost isolated sets.
Since the region’s vocation for commodities is undeniable, the challenge would then be to reconcile the interests of large and small companies and thus promote a more harmonious and sustainable development. This reconciliation is, in fact, possible. This is because primary activities are increasingly offering many business opportunities for small businesses.
Consider what is happening in mining. The sector is facing major challenges in areas such as more rational water use, waste management, reducing pollutant emissions, energy efficiency, use of clean energy and sustainable fuels, increased job security, increased productivity, community relations, among many others.
These challenges need to be addressed not only to meet increasingly stringent social and regulatory requirements, but also to serve customers concerned about sustainability.
Agribusiness also has new challenges requiring new solutions, including water recovery and more rational use, increased productivity, optimized land use, forest preservation, sustainable production, logistical improvements, market access, management and planning, community relations and a growing number of services.
Due to the nature of these problems, many of which are locally specific, major primary sector companies have neither the organizational structure nor the skills, knowledge and granularity needed to address these multiple challenges. It is in this context that agile, innovative, flexible and knowledgeable partners can make the difference.
In fact, a promising market is emerging in the region for small technology companies (startups) focused on providing customized and extremely knowledgeable solutions. Data analysis, big data, artificial intelligence, drones, imaging services, robots, automation, remote operation, nanotechnology, biotechnology, advanced and functional materials are already part of the daily life of many of those businesses.
The regional market is large enough to provide opportunities for small businesses to test and validate solutions, refine business models, achieve commercial scale, and gain market experience. Small businesses also benefit from the externalities of their contractors, often already established companies with international entry and access to markets and contact networks that create opportunities for small businesses to market their products and services in other markets, eventually becoming small multinational companies.
Many innovative initiatives are already underway in countries in the region, including Argentina, Brazil and Chile. Agtech Valley in rural São Paulo, for example, is akin to Silicon Valley for the subcontinent’s agribusiness.
The primary sector is therefore contributing to the strengthening of the region’s innovation ecosystem, which in turn is enriching and enhancing commodity production chains with many solutions “embedded” in a ton of copper or soy.
The evidence that many of these innovations are being adapted and used in manufacturing and services is even more encouraging, fostering a broader virtuous circle of productivity, competitiveness and value creation and paving the way for growth of midsize companies.
The region’s venture capital market is booming and attracting major international investors that have already identified the value proposition of many small businesses and their potential to take their solutions elsewhere.
This movement is also creating opportunities for universities and innovation centers to engage in mission-oriented innovation agendas, stimulating a rich process of knowledge and idea generation and attracting young talent.
The positive phase of the region’s innovation agenda allows us to be optimistic and perhaps more ambitious about making this sector a driving force for sustained and sustainable growth. Several actions will be required to realize the full potential: further development of integrated networks for startups, accelerators and investment funds will be required, strengthening and regulatory modernization of capital markets to attract more resources and encourage the establishment of new venture capital funds; laws favoring the connection between universities and companies; access to experimental testing stations and a collaborative environment between large and small companies, including support during the internationalization phase.
Advancing this agenda will consolidate knowledge hubs and generate externalities that will help foster prosperity and fight poverty in the region.
