Brazil’s Entrepreneurship Boom
Jonathan Ortmans, President, Public Forum Institute
Brazil is more than just the popular future host of the 2014 World Cup and 2016 Olympics. It is a very promising economy and the country of origin of many global challenger companies, such as Embraer, Marcopolo, and Natura. Economic analysts group the country with the most promising emerging markets, Russia, India and China, which together form the “BRIC countries.” Is entrepreneurship responsible for part of Brazil’s economic development? A look at some of the trends in entrepreneurship in Brazil suggests so, and the country’s efforts to boost its culture of innovation and entrepreneurship promise to sustain its growth in the coming years.
According to data gathered by Endeavor Brazil, an organization working to promote high-growth entrepreneurship in the country that I visited with in Rio recently for their Selection Panel, young businesses play a crucial role in Brazil’s economic and social future. Currently, small and medium size-enterprises (SMEs) are responsible for 96% of the jobs in Brazil and comprise 98% of all companies in the country. According to the technical director of the Brazilian Micro-Enterprise and Small Business Support Service (SEBRAE), Luiz Carlos Barboza, the increase of new companies in Brazil is directly related to Brazilians’ growing entrepreneurial spirit. Despite these conditions, an entrepreneurial mindset is flourishing among Brazilians. Judging by the wide interest among Brazils in activities during Global Entrepreneurship Week, Barboza is not exaggerating. The number of participants in Brazil’s Global Entrepreneurship Week increased from 1.5 million people in 2008 to 5.3 million in 2009. An even more optimistic statistic is that a lot of Brazil’s entrepreneurial dynamism is geared toward high-growth ventures, as opposed to companies that form and then remain small. According to the OECD, Brazil reported a large number of high-growth enterprises in 2006.
A greater entrepreneurial spirit is crucial for a country where young people between the ages of 18 and 24 comprise 36% of the unemployed workforce. Brazil has recognized this and has been taking determined steps to encourage entrepreneurs. Brazil seems quite aware of the impact of new, growing businesses not only on employment but also on innovation, and this is reflected its efforts to support start-ups. As the Christian Science Monitor recently reported, “Brazil symbolizes the way continents of the South are ramping up efforts to nurture new businesses.” For example, the government's Financing Agency for Projects & Studies (FINEP) has launched a significant project to support start-ups, PRIME, which will disburse around $65,000 to start-ups focused on innovation. FINEP expects to help 10,000 innovative companies over four years, and thereby generate 10 new jobs per each one directly generated by a new company.
This interest in an entrepreneurial strategy for growth could translate into pro-entrepreneurship policies in the future. The country has taken active steps to promote entrepreneurship, and innovative startups. For example, the country has tapped into the Brazilian Diaspora. In 2005, the Inter-American Development Bank and SEBRAE engaged in a $1.5 million technical cooperation program to help Brazilians returning home from Japan with the goal of starting new businesses. Brazilians constitute Japan’s third largest immigrant community, and most Brazilians report having moved to Japan to save money and open their own businesses upon returning to Brazil after 1-5 years. Under this program, SEBRAE selected and trained potential entrepreneurs. There are also several economic policies in Brazil focusing on technological innovation. In 2004, for instance, the government passed a law that allows federal university professors temporary leave to create a start-up.
However, there is a lot of room for improvement in the policy realm. Brazil’s Ease of Doing Business rank in the World Bank’s Doing Business project is 129 out of 183 economies. Starting a business there takes 120 days, double the average for Latin American and Caribbean countries and far worse than the average 13 days for OECD countries. Brazilian entrepreneurs also face a complex tax system and difficulties in access to finance. Moreover, entrepreneurship education is lacking, according to Endeavor Brazil. They point to statistics suggesting that less than 10% of Brazilians aged 18–64 received any type of entrepreneurship education.
Luckily, universities there are assuming an important and necessary role in the country’s entrepreneurial and innovation ecosphere. University-based incubator programs are flourishing. In its series on the future of the Brazilian economy, the Christian Science Monitor wrote about startups that were born under these programs, such as business school graduate Andre Averbug’s company that provides software for mass-transit services, PV Inova. The company is one of 47 companies that “graduated” from the Genesis Institute at the Pontifícia Universidade Católica in Rio de Janeiro. Together, they have created 887 jobs so far and are likely to create many more. According to the World Bank’s sponsored Infodev partnership of aid agencies, 75 percent of companies that supported by incubators are still operating three years later.
Take into account the fact that Brazil’s incubator network has developed from 136 in 2000 to 400 today, and you will surely see the power of Brazil’s entrepreneurship boom. A Networks Financial Institute working paper argues that Brazil leads one of the most successful incubation movements in Latin America, with incubator models that are bottom up or suited to indigenous needs.
Clearly, interesting things are happening in Brazil and we should look there for best practices and analysis of how new ventures are becoming powerful engine moving Brazil up the global economic ladder.
Jonathan Ortmans is president of the Public Forum Institute, a non-partisan organization dedicated to fostering dialogue on important policy issues. In this capacity, he leads the Policy Dialogue on Entrepreneurship, focused on public policies to promote entrepreneurship in the U.S. and around the world. In addition, he serves as a senior fellow at the Kauffman Foundation.