Entrepreneurial activities must generate sustained employment and productivity increases

(Lima, September 03, 2013). It is necessary for Latin American countries to design public policies that take into account the heterogeneity of entrepreneurial activities and adopt a multi-dimensional approach that integrates entrepreneurial and working talent, innovation, and financing, aiming at strengthening the development of companies that generate sustained employment and productivity increases, as a central factor in the development of Latin America.  

This is one of the main recommendations stated by the ninth edition of the Economy and Development Report (RED, for its acronym in Spanish), called Emprendimientos en América Latina: desde la subsistencia hacia la transformación productiva (Entrepreneurial activities in Latin America: form subsistence toward productive transformation).  This publication was presented in Peru by the Minister of Production, Gladys Triveño; CAF's Diretor in Peru, Eleonora Silva, the President of the Universidad del Pacífico, Felipe Portocarrero, and CAF's principal economist, Fernando Alvarez.  

While noting that CAF should worry about analyzing, measuring, and indicating the level of entrepreneurial activity in the countries of the region, such as Peru, Minister Triveño ensured that her portfolio already started a process to promote and drive entrepreneurial growth, trying to eradicate the stigmas from the small and micro entrepreneurial sectors, in addition to promoting more salaried employment and high impact and transforming dynamic entrepreneurships, that is, those which generate employment and productivity.                      

In this regard, she noted that a study on entrepreneurial activities carried out in Colombia between 2007 and 2012, helped determine that 7 out of 10 entrepreneurships have the characteristics of dynamic entrepreneurships, so the State decided to provide seed capital to that sector to generate quality employments and salaries. 

She stated that Peru does not have these types of measurements, so she proposed CAF's help jointly with the Universidad del Pacifico to carry out a study and identify new entrepreneurships, which are dynamic and have a long lasting impact as, according to her, that will help design better public policies to promote and encourage dynamic entrepreneurships.  

"Our recommendation is for entrepreneurs no to think about local or national markets, but rather on global markers, and to have a permanent innovation vocation. If we manage to have new entrepreneurships in our country complying with these two conditions, we will ensure higher sales volumes and quality salaried employment", she stated.   

At the same time, after noting that Latin America is characterized by a high rate of entrepreneurial activities among its active population, Eleonora Silva said that  75 percent of entrepreneurs in the region are micro-entrepreneurs who employ 40 percent of the salaried workers in the private sector.  

CAF's director stated that there are many micro-enterprises and they employ a large share of the workers in the region, most of them in conditions of informality. She also warned that this situation shows a significant contrast between the more developed nations and Latin America, where companies are smaller, or fewer companies with a high growth potential are created. 

She stated that "the region must build competitive strengths on the basis of comparative advantages, to promote a greater productive transformation accompanied by social equity. In this regard, policies must be adopted that help take advantage of natural resources in a sustainable manner and, from them, promote a process of productive transformation. For this reason, through the RED we seek to contribute to the design of policies that impact on the generation of employment and productivity in the economies of the region."  

Entrepreneurships with a low productive potential 

At the same time, CAF's principal economist Fernando Alvarez, explained that the RED details the abundance of entrepreneurships that the region seems to have, which may be explained by "self-employment" because, while in the United States less than 10 percent of the Economically Active Population is involved in entrepreneurial activities, in Peru that figure jumps to over 40 percent in addition to having 35% of self-employment among the economically active population. He highlighted that "the rate of entrepreneurship is essentially explained by low quality self-employment, with a limited capacity to contribute to the country's productive development. 

He also stated that in the United States, more than 30 percent of employers employ more than 10 workers, while in the countries of the region, among them Peru, less than 5 percent of employers employ 10 workers.  

He added that "the productive characteristics of the region are that they are very small, unproductive companies, so the great challenge is how to make employer companies grow, and how to make individuals who are self-employed move toward quality employment."  

Alvarez stated that the survey on which the RED 2013 was based, evidences the low aggregate productivity in the region through a framework characterized by an overwhelming amount of unipersonal entrepreneurships and micro-enterprises, as well as by a lack of medium and large-sized establishments capable of generating quality employment and productivity increases. 

Alvarez noted that "the report evidences the relationship between the restriction to growth for dynamic enterprises and the abundance of subsistence entrepreneurships. Both phenomena are closely linked, and recognizing this link is crucial when designing public policies in favor of entrepreneurial activities". " 

The study details that this phenomenon does not respond to a lower capacity to engage in entrepreneurial activities of the Latin American population, but rather to the fact that in the region there is a greater flow of new entrepreneurships that emerge as a means of escape from unemployment and, since their creation, they lack productive and growth potential.  

He noted that "Latin America stands out for having a large share of its population involved in some kind of entrepreneurial activity. However, the lack of dynamism of its productivity is notorious, and has been recognized as one of the main reasons to explain the persisting development gaps. Thus, the RED proposes to generate a debate aimed at promoting public policies in favor of productivity that seek to close those gaps in the countries of the region".  

To access the 2013 RED click here. 

To access the summary on the Focus América Latina click here.