The state of entrepreneurship in Central America
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A number of studies have been conducted in recent times to measure the extent of development of ecosystems for entrepreneurship in Central America. The Project to Support Entrepreneurship and Local Development in Central America, funded by the Andean Development Corporation of the Development Bank of Latin America is one which is among the best known. Another formidable study was conducted by The Central American Bank for Economic Integration (BCIE) and the Government of Germany – through the country’s Development Bank.
Central America has historically been a thriving region for entrepreneurs. The above-referenced studies have sought to analyze the ecosystem in order to measure entrepreneurial culture, the generation and the consolidation of new businesses, as well as to seek to identify and solve any problems that may exist. It is widely believed that, through the promotion of entrepreneurship in Central America, the region will increase its competitiveness and foster the innovation that is required to drive its economic and social development.
According to a global expert on the topic, the Global Entrepreneurship Monitor (GEM), “entrepreneurship is a dynamic process, which includes not only ideas that are transformed into businesses, or new companies, but also the process of improving goods and services that already exist in the marketplace.” In short, it is comprised of the activity of setting up a business or businesses, while taking on financial risks in the hope of turning a profit.
Central American entrepreneurship indicators
According to the latest GEM statistics, the following countries have the indicators listed below that correspond to the level of entrepreneurship in Central America that they display:
• El Salvador with an entrepreneurship activity rate of 15.3%. The business environment is characterized by a large number of people who are considering starting a business (40%, compared to an average of 34% in the Latin American and Caribbean region as a whole); however, there is, because of the ongoing coronavirus pandemic, negative perception. and a lack of available market opportunities.
• Costa Rica has an entrepreneurship activity rate of 11.3%. The intentionality of entrepreneurship among those taking part in the recent studies is lower than the Latin American and Caribbean average at 29%. The rate of those opting not to engage as entrepreneurs in Central America because of fear of failure is 37%.
• Guatemala has a high entrepreneurship activity rate of 20.4% but demonstrates few expectations for near to medium-term growth. This is clearly reflected in the fact that few Guatemalan businesspersons that are involved in entrepreneurship in Central America anticipate doing any considerable hiring due to the current global health challenges.
• Honduras and Nicaragua have yet to be studied in-depth but share many of the general characteristics of their Central American neighbors.
Central America: a region of entrepreneurs
Due to the youthful demographic of the countries in the region, there are groups of high-potential innovators that will most definitely have an impact on future job creation. Governments in the region have also concentrated their efforts on reducing the number of processes involved in formally registering businesses and electronically supporting their administration and operation.
However, there are challenges to be met in terms of increasing the number, quality, and size of companies, improving security, and developing the skill and knowledge base of new entrepreneurs. It is also important to take measures to strengthen other actors that interact directly with entrepreneurs, (e.g. incubators and accelerators of companies, business chambers, networks, diasporas, universities, and others) who play a critical role in the creation of Central American enterprise. In addition to the points already mentioned, it is critical to review the regulatory environment and related policy framework (e.g. intellectual property, entrepreneurship policies, and others) that impact the operation of a business.
In order to optimize the environment for entrepreneurship in Central America, more activities should be promoted among key economic players in the countries of the isthmus that better coordinate and support businesses with financial tools such as seed capital, angel and venture investors, among others. This will enable entrepreneurs to have the choice of a number of different alternatives for access to capital at different stages of enterprise creation and growth.
In short, the entrepreneurial culture in Central America is becoming more and more important to the region’s economic growth and well-being. The construction of recent entrepreneurial ecosystem matrices by researchers demonstrate this. The creation of new ventures and their consolidation is of critical importance to the furtherance of entrepreneurship in Central America.
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