In the time since the Mauricio Macri government took office, Argentina’s leaders have been on a mission to support entrepreneurial endeavors, stemming from its belief that innovation can drive significant growth for the country’s economy.
With alterations to education policy, investments into start-up accelerators, and the development of IT clusters around the country, Argentina seems to be committed to its vision of becoming a regional hub for entrepreneurial innovation.
Speaking with Mariano Mayer, National Secretary of Entrepreneurs and Small and Medium Enterprises (SMEs) at the Ministry of Production, that vision has now become much clearer, as he details the strategies and hurdles behind the country’s ambitious goals.
Nearshore Americas: Argentina is gaining a reputation as an entrepreneurial and start-up hub in the region. In your opinion, what is driving this ecosystem, and where do you see Argentina’s growth heading?
Mariano Mayer: Argentina is a very entrepreneurial country, we are very highly ranked in that respect. But, regarding the doing business, ecosystems, and other things, we were in a very bad situation, so we decided to work on them. This included regulation, training, the development of ecosystems across the country, and financing. For the last 20 months we have been working on those things with the introduction of new entrepreneur and SME law.
Other new regulations are tax incentives for venture capital and the regulation of crown funding of equity, which has been in a public hearing for regulation from the commission. We have also created a fund for the development of entrepreneurship, with financing for entrepreneur’s programs. This includes grants and matching funds for early stage startups and venture capitals, similar to that in Israel.
In the last month, we’ve been working on the development of ecosystems around the country with a large network of more than 400 incubators and institutions, because local development is important for us. Federal initiates were not sustainable, so we now have a large territorial presence with a decentralized network. We’ve been working closely with state and city government to train public officers and help them design and develop their own plans for evolving their ecosystems on a local level.
In terms of talent, we have introduced a training program with the entrepreneurial academy, where we train people in soft skills, lean methodologies, design thinking, and canvass. So far we have trained 70,000 people, but 100,000 is our goal for 2017. We are also launching the online version of this training course.
We’ve been working on regulations, human capital, financing, federal and regional development, combined with the work from Carlos Pallotti, Undersecretary in the Production Ministry, regarding specific verticals.
Even with no national public policy over the past years, we have four unicorns and a new batch of start-ups that could be unicorns. We think that now, with all these changes, we could start to become a very important hub, more so than we are now. Even so, with this ambition we could have a bottleneck regarding human capital, which is why it’s so important for the academy of entrepreneurship and for Carlos, with his plan to create 100,000 coders, to focus on this – I actually think we should expand that.
We have the full support of the president, as he sees that entrepreneurs are the key to bringing Argentina into the 21st century, especially with the challenge of the future of work that every country has.
Nearshore Americas: How many entrepreneurs and SMEs are currently operating in Argentina, and what vertical industries are they showing the most promise in?
Mariano Mayer: We have around 850,000 SMEs, which are 99% of the companies in the country. While there are between 50,000 and 60,000 SMEs created each year, the decline is almost the same amount, so there has been almost no net creation of companies in the past 2-3 years, which is something we need to change, because it’s directly related to job creation. From that universe, around 10% are dynamic start-ups, while the rest are SMEs. Around 10% of those dynamic start-ups are high-impact entrepreneurs.
Regarding the verticals, we have good development of digital start-ups, like the style of the unicorns, so especially ICT start-ups. The challenge is how to exploit other verticals that are great for Argentina but have almost no start-ups. I’m talking about agro, creative industries, and the scientific system – these are the verticals that we’re very interested in, because we think that if we can transfer this more professional entrepreneurial style there, we will have a lot of good start-ups.
Fintech is also a solid niche, especially because of Bitcoin and blockchain. We are trying to help with regulation, which was very old, so together we are working with the central bank on that. The other niche is industry. We have a solid industrial conglomerate, but the country has been closed off for years, so the challenge is to help the industry to incorporate more technology to start working with Industry 4.0, or the future of manufacturing. With IoT and the digitalization of manufacturing processes, we think that combining modern software with traditional industry would be very interesting, but we are just starting with that.
Nearshore Americas: What are the specific procedures for entrepreneurs to found new start-ups in Argentina? What stepping stones or concessions have the government introduced to improve this process?
Mariano Mayer: Up until now, the process of incorporating a company, registering with the tax agency, and opening a bank account took from 2-3 months up to a year or more, depending on the province. Our goal was to reduce that time to 24 hours, so we approved it as law and created a new type of company called SAS, which can be incorporated in 15 minutes. We have implemented a new online system for this, which we opened on Friday September 1, 2017.
For a SAS company, we have a template of the bylaws and articles of incorporation, you just need a digital signature and can do it on your own or get a notary – we are providing the tokens for that for free. You just complete 17 fields on the form and sign, and in a few minutes you have access to the bylaws. After that, you can register with the tax agency for national and local taxes, before registering to have electronic invoices. Finally, you can open a bank account online, ensuring you are ready to go as a services company. All the companies are digital and we are using blockchain to make the book of records.
This is local regulation, so Buenos Aires City is the only place you can do that right now, but we are helping other provinces to introduce this. With our assistance and training they will be able to implement it across the country.
Nearshore Americas: What other hurdles does the start-up/entrepreneurial ecosystem currently have to overcome?
Mariano Mayer: This is just the beginning as we are still working on the doing business procedures. Taxes are still very high, but there is a tax reform now in process. There is an advantage for SMEs because we approved an SME and entrepreneur law last year, allowing them to pay VAT and finance in 90 days, compensating some of the taxes, which was an important change, but not enough.
Also, we have approved a law that is lowering the rates of risk insurance for labor accidents, which we have implemented in Buenos Aires City, but not yet the rest of the country. We are also working on agreements with different verticals to adapt the labor law and taxes to the new way of working.
Financing is still a challenge, as the financing system in Argentina is less than 15 points of GDP, making it one of the smallest in the world. In fact, in the World Bank ranking for this we are between Burundi and Botswana, so we are working on both regulations and the development of fintech to change that.
And then, the mother of all battles is bureaucracy. We need to work on simplifying regulation and lowering the time that SMEs and entrepreneurs spend on that, because it’s incredible how much time is wasted. This is why the digital company is the first step towards digitizing all the proceedings between companies and government, to give them time to produce and create, not spend time dealing with an inefficient government.
The challenge is to develop ecosystems all over the country, but inspiration is the basic starting point. Many talented people want to work in government, not start their own business, so we understand the importance of fostering private initiatives.
Nearshore Americas: Now that Argentina’s economy is growing, what level of importance do entrepreneurs and start-ups play in the country’s economic future?
Mariano Mayer: A lot. The night we won the election, the president explained that entrepreneurship is the future. We have almost 14 million people in poverty, so we need to create jobs, meaning we need many more companies. Entrepreneurs are the drivers on innovation, even if you don’t pay attention to hype from Silicon Valley, and they are the only option we have to prevail against automation.
Almost 60% of jobs in Argentina will be replaced by automation in the next few years, so the development of high-impact entrepreneurs and SMEs is vital. The entrepreneurial spirit of believing that you can be the owner of your destiny is what we believe in, and we will do everything we can to support them.