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The Brazilian entrepreneurial landscape according to Ernst & Young
As the case with South Africa, Brazil is said to be a country of contradictions. The recent Ernst & Young G20 Entrepreneurship Barometer of 2013 report found that although Brazil has had strong economic growth in the last few decades as well as an overall increase in investments, a complex tax system as well as a high business mortality rate are only some of the obstacles currently hampering entrepreneurial growth.
1 500 entrepreneurs in countries such as South Africa, Brazil, India, Russia and China as well as the US, Japan and the UK have been surveyed to bring about the G20 Entrepreneurship Barometer of 2013 report. Of the five so-called pillars of growth, Brazil topped the G20 average score with the exception of its tax and regulation.
The other pillars of growth where Brazil got an above average “score” include access to funding, entrepreneurship culture, education and training, and coordinated support. The report found that while these stats are indicators of success, there are still a couple of wary statistics to take note of and a lot of room for improvement. For instance, while the cost of starting your own business in Brazil has steadily declined over the past decade, it still takes an average of 119 days to do so — six times more than the G20 average.
As you’ll see below, simplification of starting (and running) a business and access to funding continue to be the most challenging of all other factors contributing deterring the long-term growth of Brazil’s entrepreneurial landscape.
Access to funding
For businesses getting access to funding, Brazil is not doing too bad comparatively and is ranked 9th out of the G20 members. While this is suggested to be true, IPO deals remain at an all time low. Only four businesses were registered in 2012 against an average of 32 for the G20.
Interestingly, nearly 80% of the local entrepreneurs surveyed for this report describe having access to funding in Brazil as being difficult.
Ernst & Young suggests that greater tax incentives for investments into small business stand outs as the leading area where government support could make the greatest impact on funding.
Similar to what the survey found to be the case with South Africa, while there is a lot of media attention to entrepreneurs and a general culture of above-average level of self-employment, the lack of the institutional and organizational support for innovation is lacking. There has been some improvement over the years however.
63% of entrepreneurs think focused programs on education, funding and profile-raising would help to encourage an entrepreneurial culture.
One interesting found was that half of all new businesses are owned by women. The government has furthermore dedicated an online portal for ethnic, social and black entrepreneurship, due to obstacles faced by other so-called “underprivileged” groups.
Tax and regulation
As mentioned above, the greatest hurdles Brazilian have are setting up a business as well as the complex methods used to regulate it. The report notes that while government is showing numerous attempts to resolve the issue, they are just complicated further.
To give you an idea, the average time spent on tax issues in Brazil is said to be a massive 2,600 hours. This is seven times greater than the G20 average of 347 hours. This regulatory burden may help explain the high mortality rate for micro and small businesses where a massive 49% fail in their first year.
Education and training
Brazil’s strong public spending on education will likely be one of its main drivers for entrepreneurship and economic growth. Brazil spends an average of 5.51% of its GDP on education, which is above the G20 average of 4.77%.
Having said that, tertiary enrollment remains extremely low with 27.5% compared to the G20 average of 53.5% between 2008 and 2010. We have seen numerous education startups trying to root out this specific problem.
According to the local entrepreneurs surveyed, 80% reported improvements in having access to supportive clubs and associations over the past five years compared to the poor G20 average of 53%.
That being said, business incubators are still lacking with a clear distinction between government and private support. It’s interesting to note that only 6% of the respondents claimed to have used incubators, the report notes that there is substantial room for growth in this area.