Using Creativity and Innovation to Bridge the Productivity Gap

The Latin American continent has the highest rate of inequality in the world. According to the World Bank, 80 million people in the region currently live on less than one dollar per day.


 

Micro-, small- and medium-sized enterprises generate 70% of the jobs
in Latin America. Avina and its allies believe it is possible to improve
the quality of life of millions of Latin Americans through the expansion
of inclusive markets.

Part of the solution to this problem is promoting growth in regional productivity to generate concrete employment opportunities for the lower-income population and help improve their quality of life through a market-based approach. Although micro, small and medium enterprises currently generate 70% of the jobs in Latin America, as well as a large portion of income for this population, a high percentage of these enterprises and the jobs they create are informal, what some call “survival entrepreneurship”, which limits the chances for advancement of many hard-working families. It is not enough to generate “economic growth”—the quality of this growth should be examined as well as its capacity to channel economic benefits to those who need them most. How do you create market conditions that favor the inclusion and advancement of the less affluent?

Inclusive businesses are financially profitable enterprises that are environmentally and socially responsible and that use the market to improve the lives of low income families by promoting their participation in different links of the chain of value creation. Inclusive businesses offer a ladder to those at the base of the economic pyramid and represent a viable, efficient and complementary alternative to the traditional government assistance, aid and charity. The large-scale expansion of the inclusive business sector in Latin America provides a unique opportunity to allow low-income families greater access to jobs, products and services that can improve their quality of life. In fact, creating an inclusive and environmentally sustainable market in Latin America could represent a great competitive advantage internationally.

 

Entrepreneurship, Investment Impact and Business Development

Avina and its allies believe it is possible to improve the quality of life of millions of Latin Americans by expanding inclusive markets, demonstrating that it is feasible to generate wealth in an equitable, innovative and sustainable way. Avina seeks to increase the creation and expansion of triple-bottom-line companies, those that deliver economic, social and environmental results, and make inclusive markets an important force in the Latin American economy.

In order to promote inclusive markets in the Latin American continent, Avina focuses on three areas: encouraging a culture of entrepreneurship, creating and strengthening investment tools that connect high potential entrepreneurs with financing opportunities; and creating an environment of success that improves the competitive advantage of promising enterprises.

In each of these areas, Avina acts as a coordinator, co-investor and convener, using its resources, knowledge, local presence and relationships with thousands of allies to develop and invigorate inclusive markets at the national and regional levels.

 

 

Craftswomen of Kiej de los Bosques, one of the nine companies
accelerated by Ágora, design, develop and sell their products
internationally.

Training and Promoting Small Businesses

One of Avina’s allies in this strategy is Ágora Partnerships. Through its program called the Accelerator (La Aceleradora) Ágora boosts business activity in countries with extreme poverty and high-risk environments, and accelerates the growth of small companies though access to capital and improved standards.

At the end of 2011, Ágora finished its first round of growth acceleration with nine companies in Central America, whose management received 150 hours of training from specialized consultants and continuous business advice from KPMG professionals. These companies generate direct jobs for more than 300 people and obtained more than USD 2.5 million in sales in 2011.
During the same year, Ágora worked on identifying the weaknesses of the companies in order to strengthen them and prepare them to receive third-party investment funds. In the first six months of 2011, Ágora held the first Impact Investors Conference in Nicaragua, and within 48 hours, five companies had raised USD 3.5 million in capital investment.

Kiej de los Bosques is one of the nine companies accelerated by Ágora, and its purpose is to design, develop and export products that tell stories about Guatemala through their Wakami brand. The products are manufactured by women from the rural areas of Guatemala, combining ancestral skills with the latest fashion trends. Today the company has 14 permanent employees and 264 suppliers, and it pays 10% above the national minimum wage. After ten months of acceleration services from Ágora, sales in October were 111% above growth projections.

Fundación Avina sits on the investment committee of Ágora’s La Aceleradora program, together with the Central America Leadership Initiative (CALI), Appropriate Infrastructure Development Group (AIDG), and the Unreasonable Institute. Avina donated the seed capital for this program.

 

Promoting an Entrepreneurial Culture

Seeking to promote an entrepreneurial culture, the Chilean government has created new procedures to increase the competitiveness of micro, small and medium enterprises (SMEs).

The promulgation of Law 20.494, promoted by Avina and its allies and sponsored by the Ministry of Economy of Chile, reduces the time taken to form a company from 22 to 7 days and includes a 27% reduction in the costs of starting a company with capital of less than USD 200,000. The law reduces the time requirements and transaction costs by increasing the efficiency of government agencies, for example, municipalities must expedite patent requests for these companies, the Internal Revenue Service (Servicios de Impuestos Internos) must immediately authorize invoice forms, and new micro enterprises and SMEs are published free of charge in the Official Register.

Before this law, the entrepreneur had to wait an estimated 14 business days for the municipality to verify operational conditions and the contributor’s address; the tax service took 16 business days to verify the activities of the establishment before providing an identification number. Additionally, the interested party had to pay USD 150 for its publication in the Official Register, regardless of the size of the company.

Avina, together with the Acción Emprendedora organization, identified the opportunity to push for this law, financed the research that inspired the bill, and accompanied it through the legislative process.

Our main regional allies and co-investors for this opportunity are:
  • ANDE Polo Brasil, with which Avina seeks to identify ways to increase the establishment of new business initiatives.
  • Growing Inclusive Markets – Brasil, is an alliance between Fundacón Avina, Fundação Dom Cabral, the United Nations Development Programme (UNDP) and the Business Council for Sustainable Development of Brazil (Conselho Empresarial Brasileiro para o Desenvolvimento Sustentável, or CEBDS), in order to foster the development of inclusive markets in Brazil.
  • CAF, Latin American Development Bank, with which Avina, together with the UNDP, ICCO and SNV, seeks to formalize the “The Two Way Inclusive” program so as to generate inclusive businesses on both sides of the highway that divides the cities of La Paz and Oruro. The challenge is to mobilize the innovative capacity and manage the public and private sectors in order to develop this initiative.
  • Citibank Brasil, with whom Avina has developed an alliance to encourage innovation and to broaden the influence of the Micro-enterprise Award to benefit micro enterprises in Brazil.