Given the policies and attitudes prevalent in Latin America, one could sum up the situation facing the region’s entrepreneurs by saying that it’s every man for himself. Public institutions and the private sector do not provide the services necessary for dynamic, competitive entrepreneurship to take root and thrive. Multilateral institutions such as the IDB are aware of the need for radical new approaches to supporting prospective entrepreneurs directly while avoiding needless complexity.
Antonio Vives, deputy manager of private enterprise and financial markets in the IDB’s Sustainable Development Department, enthusiastically supports efforts to make these changes a reality. Vives recently spoke to IDBAmérica about what it takes to cultivate entrepreneurs.
IDBAmérica: What kind of business climate inspires and attracts the current generation of Latin American entrepreneurs?
Vives: The situation in the business climate they face is very complicated, much more so than one might have expected a few years ago. Rather than becoming more streamlined, matters have grown more complex for a variety of reasons. An idea that may have seemed brilliant then is no longer considered so today. Increasingly competitive ideas have to be devised every day, but as a rule, such ideas are scarcer and scarcer. Fifty years ago, all you had to say was “I’m going to make shoes”, because there weren’t very many manufacturers active in the sector. Today it would be very difficult to become competitive, since one is competing with much larger companies. Obviously, owing to globalization, any company from another country has competitive advantages.
IDBAmérica: How prepared is Latin America for this challenge?
Vives: The region is rather poorly prepared, because the real value of entrepreneurs and new entrepreneurs still goes unrecognized. It is not a profession that many people aspire to. It is true that immigration from Italy and Spain did attract many people with an entrepreneurial spirit, but the phenomenon is no longer widespread. The public or even the private university system still is not as developed as it is in Europe or Southeast Asia, where the structure of the system fosters enterprise considerably more.
IDBAmérica: What kind of potential for the region does a more dynamic approach to new entrepreneurship hold?
Vives: The potential is very high. Study after study confirm the relationship between economic growth and entrepreneurship, which is also the main answer to poverty. Poverty reduction is one of the IDB’s central objectives. Business growth means opportunities for decent employment. The public sector does generate jobs, but the bulk of employment in every Latin American country lies in the private sector, where the growth potential is greatest. Besides, if Latin America wants to be competitive in the world’s economies, it will do so through the private sector, particularly by creating new companies that can draw on the region’s many comparative advantages.
IDBAmérica: Can you single out an instance in which this approach has been particularly successful?
Vives: Rather than listing countries that have improved their performance in terms of creating businesses, I’d prefer to focus on areas in which real progress is being made. In fact, mindsets are changing and perceptions of the entrepreneur’s role in society are evolving. The younger generations are absorbing new values. In addition, more programs have been made available to facilitate the process of setting up companies. The IDB, particularly through the MIF, has engaged in a number of these activities: business incubators, business plan competitions, investment funds, simplification of procedures, and training. What remains to be done is to integrate all the most relevant factors in each local context.
IDBAmérica: Why does the Bank consider promoting the entrepreneurial mindset too necessary?
Vives: The Bank decided to conduct a study on entrepreneurship to better understand what was going on, and in fact, we have learned some rather surprising things. The IDB is now preparing two documents that I think are very important. The first is the Competitiveness Strategy, which addresses how to promote competitiveness within the countries, an area in which entrepreneurs play a key role. The second study is a document containing guidelines for the preparation of projects that enhance competitiveness. Once we have these documents in hand, the Bank will have a clearer picture of what strategy should be used to promote competitiveness, and particularly the role of public policy and small and medium-size enterprises.
I can tell you that we will be changing our approach considerably. Traditionally, we have supported the public sector since that is the bias of the Bank and, to a lesser extent, of the MIF. The thinking was that by supporting the public sector, entrepreneurs would be strengthened as well. This is not the case. We may well be supporting existing businesses through this approach, but not entrepreneurs. The study showed us that entrepreneurs in Latin America, particularly, have very few universities, public sector institutions, and research centers to draw on. Basically they rely on family, friends and perhaps other companies or entrepreneurs.
The Bank should focus much more on helping them to help themselves—for example, supporting groups at the municipal, city, province or state levels rather than at the national or federal level. Production chains have already been strengthened, but not to the extent necessary.
IDBAmérica: Could you give us an example of a production chain?
Vives: We are currently preparing a project of the Social Entrepreneurship Program in Bolivia where a financial intermediary will onlend the Bank’s funding and invest its own resources as equity in small and medium-size enterprises. They, in turn, will advise their suppliers—which are microenterprises—on issues relating to establishing their businesses and the processes of marketing and development. Through this approach, we contribute to the entire chain. We expect that this will help create more microenterprises which will eventually grow, starting out under the protection of an organized production and marketing system. This example can be extended to larger-scale companies, as well, applying some of the lessons learned from our entrepreneurship study.
IDBAmérica: What type of comprehensive projects is the IDB considering?
Vives: The first projects we tackle should adopt a much more comprehensive approach than before, and be geared more towards the private rather than the public sector. Until now, the Bank Group has not had a comprehensive, long-term vision shared by all its members and has not tapped the full potential of this synergy. Nor have we adopted a comprehensive approach to problems in the countries. We were improving a country’s policies on the one hand, while financing management services for SMEs on the other. The approach in Asia is quite comprehensive, as opposed to the piecemeal situation frequently encountered in Latin America. This does not mean that we have to fix everything at once, which is beyond our means. Rather, we must adopt a long-term strategy for the Bank Group as a whole, and implement it according to our means and the countries’ capacity to absorb it.
IDBAmérica: What are the Latin American policies regarding entrepreneurship?
Vives: It is difficult to generalize because there are countries where more progress has been made than in others. In general, I would say that the policies to support entrepreneurship are practically nonexistent. Policies regarding the development of SMEs are already more advanced, but as a rule they are passive. They offer services more or less predicated on the expectation that companies will come forward and request them. They provide a timid response to demand or assume that demand exists when it may not—at least not for what they are offering. This issue really has to be decentralized to a much greater extent, along the lines of what’s happening in Italy. There, problems are addressed in the regions or in the cities themselves, at a level much closer to the individual who has a far better grasp of his own situation. This approach brings everyone together—the public and private sectors, and large and small companies—to the benefit of all.
IDBAmérica: Any final thoughts?
Vives: Consistency and monitoring of the issue are crucial. With a few exceptions, in Latin America we do something one day because it’s in style, and then we forget about it for a year or two, or even three. Then a new secretary of small and medium-size enterprise comes along and takes up the issue for a while at the start of his term. Our approach is irregular and not comprehensive. We must make it systematic and sustainable one. We have little continuity in economic policy relating to entrepreneurship and SMEs, an activity that needs much more than one government’s term of office. That’s where our problem lies.