Brazil and the Global Entrepreneurship Congress in 2013

Jonathan Ortmans, President, Public Forum Institute

With stadiums rising across the country for the 2014 World Cup soccer tournament and in Rio de Janeiro for the 2016 Olympics, it is clear Brazil itself is rising on the world stage. The country’s economic growth has led it to overtake the UK as the world's sixth-largest economy while the announcement last week that it won the bid to host the next Global Entrepreneurship Congress (GEC) will spotlight the role that entrepreneurs have played in the country’s newfound economic prowess and international standing.

Entrepreneurs in Brazil have a vast market to tap—195 million people with growing purchasing power. Take the vigorous expansion of its middle class, for example. According to a study by Fundação Getulio Vargas, a prestigious local university, the Brazilian middle class (Class C) just gained 30 million people, lifted from classes D and E since 2003. The projection for the richer classes (A and B) is also making the country a hotbed of opportunities for entrepreneurs. By 2014, this richer section of the population will include 31 million people, 50% more than today. These statistics of surging wealth bode well, not just for business opportunities, but for the capital needed to translate them into high-growth enterprises.

What is most encouraging is that a lot of Brazil’s entrepreneurial dynamism is already geared toward high-growth ventures. Many recent Brazilian entrepreneurial success stories have made it to the world stage, including the “global challenger companies” Embraer, Marcopolo, and Natura. Brazil’s Instituto Brasileiro de Geografia e Estatística (IBGE) estimates, based on its Central Register of Enterprises and the OECD’s entrepreneurship indicators, that Brazilian high-growth companies generated 2.9 million new formal jobs between 2005 and 2008. Job creation at these enterprises grew 173.7% over that period, equaling 57.4% of the total jobs created during those years.

The estimated 30,954 high-growth companies in Brazil in 2008 represented 8.3% of enterprises with 10 or more salaried people. This share is high for international standards. According to the OECD’s entrepreneurship indicators, high-growth companies account for 3.0% to 6.0% of companies with 10 or more salaried people. In the United States, for instance, this figure would be close to 6.0% for 2002-2005. There is no doubt; entrepreneurs are responsible for a large chunk of the country´s growth.

Many actors are contributing to Brazil´s entrepreneurship boom. Brazil’s incubator network, for instance, has developed from 136 in 2000 to over 400 today. A 2007 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, service-oriented, suited to indigenous needs and have universities as their facilitators (e.g., the Genesis Institute at the Pontifícia Universidade Católica in Rio de Janeiro). Organizations like Endeavor and Brazil Innovators, in turn, have been building networks of entrepreneurs and mentors. And the government has also helped. The Financing Agency for Projects & Studies (FINEP), for example, launched last year a project to support startups offering $65,000 for those startups focused on releasing new innovations. This builds on other programs over the past few years that focus on technological innovation, such as the government’s efforts to recognize the importance of universities in the entrepreneurial ecosystem by passing a law that grants federal university professors temporary leave to create a startup.

Yet while the Brazilian economy seems to be booming with entrepreneurship, there are some barriers that remain—notably high and complicated taxes, weak infrastructure and corruption. Today´s Brazilian economy has benefited from the work of previous administrations to free the market from overly burdensome regulation, but remnants are still felt, particularly the extremely complicated tax system encompassing over 50 different types of taxes.

Then there is the problem of saturated infrastructure, notable at the airports already. Businesses experience delays and related costs in cities like Rio and Sao Paulo, where traffic jams take up a large portion of people´s productive hours. Thankfully, Brazil is now working hard (despite the serious corruption hurdles) to improve infrastructure and the public transport network ahead of the 2014 World Cup and 2016 summer Olympics. Rio, for example, is implementing an Operations Center designed by the IBM Smarter Cities unit where video streams in from subway stations and major intersections and a map shows the locations of car accidents, power failures and other problems. The system integrates data from some 30 agencies in one spot. According to a recent New York Times report, there is nothing quite like it in the world’s other major cities.

Government should also take a look at Internet connectivity to make sure it is keeping pace with Brazil´s growing internet culture, which is already strong by international standards. Many Brazilian startups are in electronic commerce, one of the most promising segments in Brazil (See Forbes´s “Even Without Amazon, Brazil’s E-Commerce Is Booming: Record-Breaking Figures In 2011”). One only has to look at local entrepreneur rock star Julio Vasconcellos, who founded Peixe Urbano in Rio in 2010 after returning with university degrees from the U.S. as an example. His company is a collective shopping site, which employs 750 people and has raised $8 million. United States venture capital firms are taking notice of the many promising internet startups here, such as Apontador, Vostu, Bucaspé, Compra3, Fashion.me, to name a few (see a list of the top 10 Brazilian internet startups, here). Dave McClure of 500 Startups, for example, has partnered with Brazil Innovators in order to invest in Brazilian startups, and was observing local entrepreneurs during Startup Weekend Sao Paulo last November during Global Entrepreneurship Week. So far 500 Startups has invested in four Brazilian companies and is looking to aggressively expand that number. Google too noticed the digital startup talent available in Brazil back in 2000, when it purchased Akwan Information Technologies from Brazilian professors. Akwan has since become the Internet giant’s R&D center in Latin America.

A year of planning leading up to the Global Entrepreneurship Congress next March will offer plenty of opportunity to identify and invite the best and brightest to Brazil to help find creative solutions to unclog bottlenecks—in Brazil and around the world. It seems there is a will, plenty of optimism and a country with entrepreneurial drive that promises to sustain the growth of this waking giant in the coming years. See you in Rio.

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