Fostering entrepreneurship and job creation in Latin America Emilio Zevallos V. The challenge of Developing Countries from the Bottom-up Institute for the Study of International Development (ISID) McGill University, Montreal March 21-22,2013 1

Index Latin and Central American context Employment situation Worker or entrepreneur Why be an entrepreneur? Entrepreneurship features (in Central America) Entrepreneurship and innovation Conclusions 2

Latin American context The world has about 7,025 billion inhabitants – Latin America contributes to that number with approximately 600 millions (less than 9%) The World´s average life expectancy of birth in 2011 was 69.8 years old, in 1997 was 66.7 years old – In 2011, in Latin America´s life expectancy was 74.4 years old, and in 1997 it was 69.5 World adult alphabethism rate was in % for people with 15 years old or more, in 1997 was 78% – Latin America adult alphabethism rate was in %, in 1997 was 87.2% Between 1997 and 2003 World per-cápita real GDP growth was 29.9% – Between 1997 and 2003 Latin America per-cápita real GDP growth was only 12.2% Source: UNDP, Human Development Report 2013, 2009, 2005 and

Central America 2010: almost 50 million inhabitants (including DR) Source: ECLAC 4

Laboring population in Central America Population in age of labor: 36.3 million Labor force : 20.7 million Employed: 19.9 mililon Informal workers: 11.7 mililon Formal workers 8.2 million Unemployed: 0.8 million Inactive: 16.8 million Source: OIT (2010). Panorama Laboral en América Latina. Pag.63 Population of 12 years old or more by activity condition 2008 In Central America and DR 5

¿Worker or entrepreneur? Latin America 2011: Occupied population by labor category (%) Paid workers represent 65% of the total Non-salaried: – Owner : 4% – Independent: 22% No existence of an “entrepreneurship culture” Majority of the population think in a “salary” Source: OIT (2012) Panorama Laboral 2012, América Latina y el Caribe. Lima. pág. 82 6

SMEs in Latin America (%)  Several criteria to define SME such as: labor, sales, assets, etc.,  LABOR is the most commonly used variable to describe the SME Micro : 5 or less workers Small: between 5 to 50 Medium: 50 to 100  Exist around 20 millions of enterprises with a certain degree of formality (In Central America around 2 millions)  93% are micro (in Central America near 95%)  Less than 7% are SMEs (in Central America less than 5%)  Average workers by enterprise: Less than 2 workers  Less than 5% of SMEs export directly 7 Source: Zevallos (2007). Restricciones del Entorno a la Competitividad Empresarial en A.L. y actualización Features of enterprises…

An Example: The informal sector throughout Central America (1) Owners: 332,650 (2) Independents: 3,998,473 Informal Enterprises TOTAL: (1)+(2) 4,331,123 Formal Enterprises: 2 millions Source: OLACD, based in House surveys in all Central America countries 8

Tailor madeSpecialized goodsStandarized goods Big enterprises A few SMEs producing for Specialized / tailor made Markets Medium and big enterprises Integrated vertically Most of SMEs competing in standarized goods A few SMEs as providers Source: Altenburg, T. Hacia una Política para la Empresa Media, FUNDES México, 1999 Latin America SMEs today 9

Other problems Competition oriented by price Lack of equivalent relations between big and small business Lack of access to the financial and non- financial services (business development services) Informality: – Low quality inputs and non-skilled labor – Lack of social rights for workers 10

Diagnosis The problem is not only the informal economic activity as well as the informal labor Low wages, labor instability Low productivity and competitiveness Bad quality jobs Entrepreneurs “by necessity” 11

Latin America competitiveness Fuente: World Economic Forum, Increasing competitiveness 12

Fostering entrepreneurship in Latin America 13

The challenge is foster entrepreneurship increasing income 14

Entrepreneurs in Latin America Entrepreneur “by necessity” Poverty, lack of opportunities for new business Business in traditional sectors (retail, services) Low productivity Low added value Low innovation Entrepreneur “by opportunity” Improve the business enabling conditions Promoting a new vision about innovation in this (or other) sectors Increasing productivity, added value 15

Characteristics of the Entrepreneurs More than 40 years old Women in smallest business, not in bigger ones, or more sophisticated – 25% of entrepreneurs are women Why be an entrepreneur 1.Being independent 2.complement the family income Entrepreneurs previously were workers and leave it Source: Obando, Rojas, Zevallos (2008). Características de los Microempresarios y sus necesidades de formación en Centroamérica y República Dominicana. OIT AECID 16

Profile of a Small business in C.A. Workers by business in C.A. (%)Economic Sectors (%) Source: Obando, Rojas, Zevallos (2008). 17

You introduce entrepreneurial innovations in C.A.? (%) Source: Obando, Rojas, Zevallos (2008). 18

Kind of entrepreneurial innovation in C.A. (%) Source: Obando, Rojas, Zevallos (2008). 19

Innovation in Small business (%) Source: Obando, Rojas, Zevallos (2008).. 20

Source: 21

Tailor madeSpecialized goodsStandarized goods A lot of SMEs producing specializing goods / tailor made markets Medium and big enterprises Oriented to “outsourcing” A few SMEs competing in standarized goods A lot of SMEs as providers Source: Altenburg, T. Hacia una Política para la Empresa Media, FUNDES México, 1999 Latin America SMEs in the future 22

Conclusions  Fostering entrepreneurship as an alternative to salaried way  SMEs will be competing in relevant markets (specialized goods and tailor made)  Innovation in Latin America small business are oriented to a business models and process  Improve distribution channels  Changing relations with providers  Promoting “other kind of innovations” is possible increase income and improve labor conditions for a “decent work” 23

Thank you! For more information contact with Emilio Zevallos: 24