Supporting Entrepreneurship as a Source of Employment and Productivity

(Bogotá, October, 2013).-The great challenge facing entrepreneurship in Latin America involves turning subsistence jobs into employment positions that produce lasting economic change by generating new products, markets, income and employment, as determined by the CAF 2013 Economy and Development Report. 

Across Latin America there is an overwhelming number of small firms (mainly micro-businesses) that account for a significant portion of the region's total employment. According to the CAF report, most of these enterprises fail to grow and become medium-sized or even larger businesses that could reach broader markets and eventually become exporters. 

In effect, the majority of these micro-businesses basically serve as refuges for the unemployed. A 2012 CAF survey of 17 cities in 9 Latin American countries found that about 75% of micro-businesses are run by entrepreneurs who work because of necessity and face rather limited growth potential. The vast majority are made up of informal workers, most of whom are less educated and come from less favorable economic backgrounds than their salaried counterparts in the formal economy. 

But within this group of entrepreneurs, the growth potential is significant. The survey results indicate that 25% are poised to grow if it weren't for restrictions such as a shortage of qualified staff, a lack of access to financial, technological and innovative resources, and lack of training tools and networks needed to strengthen entrepreneurial talent. 

Furthermore, current weak dynamics in the formal business sector limit the launch of job-creating activities such as spin-offs, research-based ventures or activities that capitalize on working relationships in previous job posts. According to the CAF study, more than 30% of entrepreneurs in the region's main cities were born as spin-offs and are largely characterized as self-employment ventures that grow into companies of more than five employees. 

To conclude, the CAF study highlights the need to review those policies that promote entrepreneurship, to facilitate the shift of low-potential workers into salaried positions and ensure multidimensional support for current and potential entrepreneurs by integrating all activities that nurture entrepreneurial talent, promote innovation and open up access to funding and training in the labor force.