Seeking a silver lining from the unimaginable horror of a global pandemic that had already claimed almost 1.9 million lives worldwide at the time of writing feels like searching for a needle in a field of burned haystacks. Yet one glimmer of hope among the fallout can be seen in how some Latin American entrepreneurs have responded to the crisis, adapting to a “new normal” of increased digitization — and in many cases facilitating that shift.
It is impossible to overstate the economic and social distress caused by the novel coronavirus in Latin America — a region with some of the highest COVID-19 death rates in the world, and where a drive against corruption seen in recent years has stalled in the face of the crisis.
While outlooks for growth in the region are generally poor in the face of the prolonged influence of the pandemic, a recent special report from the Global Entrepreneurship Monitor (GEM) highlighted a noteworthy trend seen in Latin America as a result of the crisis — namely a massive uptake in the adoption of digitization, the rapid development of new technology assisting that shift, and a refocusing of entrepreneurial activity towards more “essential” products and services.
This has seen some already growing sectors experience a boost, such as health technology (health tech), educational technology (EdTech), financial technology (FinTech) and its offshoot regulation technology (RegTech), and remote electronic administration (E-administration).
While those changes may not appear distinct to Latin America, to put them into context it is important to first understand the state of the region’s entrepreneurial ecosystem before the pandemic struck.
As GEM’s 2019/20 report on global entrepreneurship highlighted before lockdowns swept the globe in March and April, the top six nations for “Total early-stage Entrepreneurial Activity” (TEA) — one of two key markers for entrepreneurship considered by GEM — were located in Latin America.
Defined as the proportion of working-age adults (aged 18 to 64) “who are either a nascent entrepreneur or are owner-manager of a new business,” TEA effectively measures the proportion of the population who are setting up a business, or are in the first three and a half years of running a venture.
The other key marker is “Established Business Ownership” (EBO), which is effectively the proportion of people who have been running their own business for over three and a half years.
As the GEM study highlights, Latin American and Caribbean countries tend to display low or average EBO rates compared to the other participants. Yet there is a clear trend for higher TEA than is seen in most other countries, with Chile and Ecuador displaying exceptionally high levels of early-stage entrepreneurial activity.
That points to environments that demonstrate the likes of embedded cultural and social norms in favor of entrepreneurship, physical infrastructure in support of entrepreneurship, and entrepreneurial education — three markers in which Latin America’s TEA trailblazers tend to score well.
Nevertheless, while the strong performance in TEA points to a dynamic start-up culture, when considered in combination with the more average EBO scores, it also points to an environment in which turning a new business into an established one could be difficult.
In many cases, as the report highlights, people turn to entrepreneurship out of necessity rather than choice — meaning that in some instances the rate of entrepreneurship points to a lack of alternative options.
Nevertheless, in other regions of the developing world where people face similar social and professional hurdles, TEA is nowhere near as high. Suggesting that necessity alone cannot explain Latin America’s strong performance.
As GEM highlights, the novel coronavirus pandemic represents a “black swan” event of epic proportions “that is dramatically changing the face of business and industry” in a way comparable to the likes of the 1918 Spanish flu pandemic, the two world wars, and the 2008 to 2009 global financial crisis.
Without doubt, the situation has rocked key business sectors in Latin America, such as the aviation industry, tourism and hospitality, arts and entertainment, and construction, among others.
In March 2020, 86 percent of young entrepreneurs reported being negatively affected by the pandemic, with one quarter having closed down entirely, according to the GEM special report.
Yet for many others, a move towards digitization that was already underway prior to COVID-19, “accelerated significantly” during the first six months of the pandemic, according to the special report, with new tech providers seeing particular growth.
Health tech experienced a development jump as people opted for teleconsultations, EdTech was bolstered by schools and universities moving online, and FinTech profited from the increased use of online payment systems. Meanwhile, E-administration took a “great leap forward,” according to the special report, “as public institutions moved online with the mammoth task of holding whole nations together during the pandemic.”
In considering these changes, GEM states that “remote working and online education are likely to become a permanent feature of our lives — again presenting opportunities for entrepreneurs.”
Entrepreneurs in Latin America have made significant moves to adapt to the new reality, with GEM reporting an uptick in digital marketing, delivery services, and joint venture entrepreneurial networks in the likes of Colombia.
In Guatemala, as in other parts of the region, entrepreneurs have responded to the crisis by shifting production to health-related products. In Peru, meanwhile, the shift online has been so rapid that existing logistics capabilities have been unable to keep up — a less-than-ideal effect of a positive commercial development.
Many Latin American governments and private actors have also gone to significant efforts to support business and entrepreneurial ecosystems, with extended lines of credit, liquidity grace periods, deferred debt burdens, and other such mechanisms to cushion the financial blow.
However, that support has been provided inconsistently around the region. Both Argentina and Mexico come in for some criticism from GEM for not providing enough support to entrepreneurs.
Meanwhile, the likes of Ecuador and Brazil come in for significant praise for their efforts, such as the Andean nation’s “Reactivate Ecuador” program, aimed at supporting small- and medium-sized enterprises (SMEs) hit by the pandemic, as well as moves to revise labor regulations to reduce fixed labor costs.
As the GEM special report highlights, in many instances, the shift towards digitization has been facilitated by budding and innovative enterprises.
In Ecuador, for example, “technology sector startups and more dynamic young companies are providing new services to other SMEs to help them develop their digital channel distribution,” according to the report.
The technological advances and shift in “normal” business practices seen in Latin America have led to it being held up as a digitization model for the rest of the world.
Meanwhile, the pandemic and resulting shift of commercial activity online has cast light on a longstanding problem faced by Latin America — that of limited connectivity.
While connectivity rates in the region have increased significantly in recent years — with the estimated 36 percent internet penetration rate recorded in 2011 rising to around 59 percent by 2018 — a significant proportion of people remain without internet access or with very limited connectivity.
Such limited internet access has become a key political issue, with the Economic Commission for Latin America and the Caribbean releasing a report in August emphasizing the need to universalize access in the face of the pandemic.
Meanwhile, Latin America’s “stubbornly high” unbanked population — remaining at around 70 percent in 2018 — also limits the wider benefits experienced from the likes of FinTech innovations.
Nevertheless, even before the pandemic, Latin American populations were finding novel technology-based solutions to such problems, with a significant rise in the use of e-wallets previously noted to be allowing unbanked people to engage in e-commerce.
In 2017 alone, despite the proportion of people without access to credit or debit cards, non-cash financial sales in Latin America were estimated to be around $43.1 billion (USD) — with the likes of Argentina, Brazil, and Mexico matching or beating the United States and European Union in terms of mobile wallet usage.
In the face of the COVID-19 situation, such trends are only set to increase.