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A Rousing Welcome for Startups in Rio

Jonathan Ortmans

I recently returned from Brazil, the world’s sixth largest economy, where President Dilma Rousseff, a former Marxist revolutionary, is using pro-growth incentives such as lower interest rates, proposed tax cuts and infrastructure investment to fuel her nation’s quest for sustained economic growth and help more Brazilians stand on their own two feet. That Rio will host the Global Entrepreneurship Congress in March 2013 is obviously important for Brazilians. It might be more important for the rest of world.

Most are familiar by now with Brazil’s success with winning bids for the soccer World Cup in 2014 and Olympics in 2016. You are probably not aware though of another global gathering earlier on the time horizon – namely that Rio won the bid to host the next Global Entrepreneurship Congress in March 2013 – a 125 nation brainstorm about how to wash away barriers to entrepreneurship and solidify the current wave of vibrant, informal networks of nascent entrepreneurs that are powering a new wave of startups around the world. Why you might ask in the scheme of things would that matter?

The initial mission of my recent trip to Brazil was to review just that and check on advance preparations for the next chapter in the story of this event which started small in Kansas City, went to scale in Dubai only to experience rapid growth these past two years in Shanghai and Liverpool. From a major international event perspective, I was impressed. Unlike when the world met earlier this year for the U.N. Conference on Sustainable Development (Rio+20) to define a global plan of action that will build a greener future, GEC Rio is not being held at a bland convention center miles from the heart of the city. Rather, a global entrepreneurship village is being developed, centered downtown on the Lagoon that will celebrate the world’s most creative entrepreneurial talent with fringe events spread throughout the entire city. Next March, the views from Rio’s iconic Sugarloaf Mountain will be especially inspirational.

But there are more profound reasons this gathering will be important for the world. Action for economic growth. Many were disappointed with the weak outcomes from the Rio+20 conference last June, pointing out that all it achieved was an updated description of the direction we should be heading rather than actually setting us on the path to get there. Global economic growth theory emphasizing the action of individual entrepreneurs is increasingly being tested and supported by governments around the world and by literature emerging from smaller economies like Denmark, Singapore or Israel. The true measure lies though in larger emerging economies as they struggle with political forces often counter to the needs of high impact entrepreneurs. GEC Rio will not just gather the thinkers and doers, policymakers and practitioners, it will examine the meeting point where top down policymakers connect with bottom up startup communities in a powerful testament to new ways individuals and governments are accelerating job creation and economic growth. And all hosted on the soil of a large nation walking the talk. Rio has the potential to empower and fuel action in a wide range of economies around the world – regardless of the roots of their political systems.

There are many reasons the world can be bullish about Brazil’s prospects for success as an entrepreneurial economy. First, beyond simply being more receptive to private investment than neighboring countries like Argentina, Brazil´s recent economic history is filled with entrepreneurial successes, such as Natura, O Boticario, Marco Polo, and more recently Peixe Urbano and other e-commerce successes in the country which have tapped on opportunities in Brazil´s growing internet culture and vigorous expansion of its middle class. Of the BRIC nations, Brazil leads in R&D investment by far, with the equivalent of 0.43 percent of its GDP being invested in higher education R&D, according to the Global Innovation Policy Index. Brazil also leads one of the most successful incubation movements in Latin America and a Brazilian Diaspora turn resonates around the world with its entrepreneurial achievements – including for example Instagram’s Brazilian Mike Krieger.

After pegging the real to the dollar, Brazil also bets on entrepreneurs from a position of strength. With inflation under check, and GDP at $2.5 trillion, Brazil ranks as the sixth economy in the world. The middle class is flourishing with a quarter of the population self employed. Brazil enjoys low rates of unemployment (less than 6%), high rates of business ownership by women, and all with a remarkable respect for democracy and fairness. You cannot talk to anyone in Rio without hearing someone’s plans for the Favelas – Brazil’s usually urban shanty towns.

At the grassroots level, the likes of Brazilian Innovators in São Paulo, for example, run by Brazilian Bedy Yang, a Silicon Valley entrepreneur, are building informal networks and a lasting culture by offering networking events that have been gathering big crowds of current and aspiring entrepreneurs and investors. Other organizations like Startup Weekend and Endeavor are also building an increasingly attractive entrepreneurial ecosystem in Brazil.

Making all this easier is the fact that Brazil has become a center for tech startups and entrepreneurs. Brazilians are the second most active users of social networks like Facebook and Twitter and, despite my experiencing consistently unreliable broadband coverage on my visit, the nation can boast that nearly half of its population are internet users. This brings more ideas to disrupt markets by opening startup teams to new types of thinkers, exemplifying a global trend towards the democratization of entrepreneurship. As a result, startup communities are flourishing propagating a can do innovation culture from the bottom up.

The Rousseff government seems to be trying to fuel these bottom up organic trends towards startups by focusing on things those entrepreneurs cannot do. With the nation’s physical infrastructure ranking in the bottom half of global rankings, billions are slated for roads, railways, broadband and education. And with relatively poor rankings from the World Bank’s Doing Business study, the current government is working on cutting red tape by offering for example a one stop on-line payment system to multiple government authorities.

But Rousseff and the emerging entrepreneurial powerhouses do have challenges before them. Keeping talent is always front and center. Although Rio might seem an appealing place to live, most new ventures are in the more crowded São Paulo which, combined with the fact that payroll taxes total around 70%, makes retaining talent in Brazil as hard as anywhere else in the world.

Brazil also faces the same long term fiscal challenges that come with increased investment in infrastructure while cutting taxes. The hope is that slower economic growth projections do not stimulate pressures from others in government for measures that can result in new barriers for entrepreneurs. In 2010, Brazil grew more than 7%. The IMF however, recently decreased the country´s growth projection for this year from 3.1% to 2.5%. Clearly, Brazil is not isolated from the downturn elsewhere. The hope is that Brazil’s strong tradition of government leadership of the economy considers the proven job generation engine that entrepreneurs represent. In fact, 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 equal 57.4% of the total jobs created during those years.

The story in Brazil will be important to watch and mark your calendars for the GEC from March 18-22, 2013 in Rio a landmark gathering for economists and entrepreneurs alike. With a president dubbed as the “entrepreneur-in-chief”, it might just become the latest startup nation and lead the way for a new set of nations pursuing more robust economies and better lives for their citizens.

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