Where are the opportunities?
- Fintech: Help those who do not have support, increasing access to capital to a larger part of society.
- Blockchain: Decentralization of institutional monopolies in contracts, remittances, ownership and voting, among others.
- Automation and robotics: Industry automation and increased access to better-paid jobs with higher added value.
- Internet of things and Big Data: make the data accessible to everyone.
- Mobile applications: in response to the majority of Latin Americans who access the Internet through their mobile devices.
- Cleantech and mobility: solve pollution and traffic problems that have saturated the main cities.
- Social impact: attempt to close the gap between socioeconomic classes; renewing education.
Despite these advantages and opportunities, there are also great obstacles for everything to happen. Some cultural and some systemic.
Culturally, Latin Americans are very risk-averse, and most only invest in “safe” companies such as real estate. The lack of financial education is a key factor that does not allow potential entrepreneurs to prosper.
On the systemic side, corruption, lack of institutional trust and impunity are probably the biggest obstacles to overcome in the coming years. Companies need to think globally and compete against global competitors; they cannot cheat or take shortcuts. To attract foreign investment, governments will need to create a new system that is more meritocratic and accessible to all.
At present, the regulatory environment suffers from a lack of confidence. Although the legal framework seems to exist, the lack of transparency and the unequal application of the law makes it very difficult for companies to compete in an equitable field.
Another big obstacle is the lack of success stories in the region. With some exceptions, the new companies in Latin America do not seem to have the expectation of growth of their counterparts in Asia, the United States or Europe. Making IPOs in Latin America is almost impossible, mainly because the stock markets are monopolized in these countries and act more as guardians than promoters, regulating admission to the IPO club instead of encouraging companies to reach a final stage of growth by becoming public.
In Mexico, for example, although the regulation requires a mere USD $ 3.5 million in market capital to be quoted, no intermediary will make it public with less than USD $ 500 million in stock market capitalization, and the typical public company averages USD $ 2 billion in capitalization stock market. Fortunately, countries like Brazil and Mexico are taking steps to open new stock exchanges to change this: in Brazil, ATS will be BOVESPA’s first competitor, and in Mexico, BIVA will compete with the BMV.
In addition, the activity of mergers and acquisitions for new companies in the region is remarkably low. This is mainly due to the relative youth of the ecosystems at the beginning of the region. Companies simply have not reached a commercial-stage large enough to become interesting acquisition targets. Exit strategies are the key to continue promoting investment in startups, and success stories are the fuel to continue generating entrepreneurs.
Finally, this is an election year in many countries. Venezuela, in an obviously fraudulent election, re-elected the elected successor of the late former president Hugo Chávez, Nicolás Maduro. In Colombia, a second electoral round decided the winner of the presidential race. In Mexico, a leftist politician came to power for the first time, while Brazil will decide its course in October. Left-wing populism seems to be the new norm in the region, and that can challenge any sustained focus on innovation and entrepreneurship.
Whoever rises to power in these Latin American giants must understand the importance of entrepreneurship and innovation as sources of competitiveness, job creation and economic growth. They should continue to foment them accordingly, taking advantage of the historic economic opportunity that is presented today.