Fostering entrepreneurship and job creation in Latin America Emilio Zevallos V.

1. 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

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

3. 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 2007 83.9% for people with 15 years old or more, in 1997 was 78% • Latin America adult alphabethism rate was in 2007 91.2%, 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, HumanDevelopmentReport2013, 2009, 2005 and 1999

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

5. Laboring population in Central America Population of 12 years old or more by activity condition 2008 In Central America and DR Source: OIT (2010). Panorama Laboral en América Latina. Pag.63

6. ¿Workerorentrepreneur? Latin America 2011: Occupiedpopulationby 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

7. SMEs in LatinAmerica(%) Features of enterprises… • 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%) • Lessthan 7% are SMEs (in Central America lessthan 5%) • Averageworkersbyenterprise: Lessthan 2 workers • Lessthan 5% of SMEsexportdirectly Source: Zevallos(2007). Restricciones del Entorno a la Competitividad Empresarial en A.L. y actualización

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

9. Medium and big enterprises Integrated vertically Big enterprises Tailormade Specializedgoods Standarizedgoods A fewSMEsproducingfor Specialized / tailormade Markets Most of SMEscompeting in standarizedgoods A fewSMEs as providers Latin America SMEstoday Source: Altenburg, T. Hacia una Política para la Empresa Media, FUNDES México, 1999

10. Otherproblems • 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

11. 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”

12. LatinAmericacompetitiveness 2011-12 Increasingcompetitiveness Fuente: WorldEconomicForum, 2011-2012

13. Fosteringentrepreneurshipin LatinAmerica

14. The challenge is fosterentrepreneurshipincreasingincome

15. Entrepreneursin 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

16. Characteristics of theEntrepreneurs Source: Obando , Rojas, Zevallos (2008). Características de los Microempresarios y sus necesidades de formación en Centroamérica y República Dominicana. OIT AECID • 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 • Being independent • complement the family income • Entrepreneurs previously were workers and leave it

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

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

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

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

21. Source: http://www.edgegrowth.com

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

23. 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”

24. Thank you! For more information contact with Emilio Zevallos: ezevallos@pymescopio.org