Starting a successful business isn’t just for the privileged few anymore, and nowhere is this more obvious than Latin America. Entrepreneurship is on the rise in all Latin American countries, thanks in part to their growing economies and desirable situations for new business owners. Global Network Perspectives found that Latin America was the second most enterprising region in the world in 2017, and this doesn’t look set to change any time soon.
Leading Latin American business specialists, Biz Latin Hub, have seen great improvements in a number of Latin American economies that make them the perfect place for starting a new business. The reasons vary depending on the country, but this is to improved government funding and investment into industrial sectors that largely promotes growth of new businesses. To understand the rise in entrepreneurship more fully, here are some of the main reasons for its rise in Latin America.
1. Labor Costs are Lower
Many Latin American countries suffered with difficult economic situations in the mid and late 20th century, but more recently have seen growth. While this has led to higher wages for workers, they’re still considerably cheaper than wages in somewhere like the USA. People living under the poverty line (less than US$4 a day) has decreased over the last decade, mainly thanks to increased investment in industrial sectors, in which many people work.
Latin America, and countries such as El Salvador in particular, have seen a boom in the garment manufacturing industry. This is an appealing alternative to Asia for North American businesses because of the close proximity and free trade agreements that exist between the two areas. Products can be exported to the North American market at a much faster rate if they’re only travelling a few thousand miles, rather than halfway across the globe.
2. Free trade
The Latin American Free Trade Association (LAFTA) was created in 1960 and currently has 13 members in the area. All of these countries benefit from importing and exporting goods tax-free, which has a massive impact on the economy. It means business can work together to produce goods at a much lower cost. For example, raw materials can be shipped from countries such as Brazil to high production countries for a very small fee. This increases the profit margins for smart business owners largely in part.
Not only that, but many Latin American countries have free trade agreements with the rest of the world. For example, Ecuador and Colombia have free trade agreements with the European Union, saving them billions of dollars in tax a year. Other countries have agreements with the USA, making them prime locations for North American companies to set up shop.
3. Low Tax Jurisdiction’s
Several countries in Latin America, namely Panama and Costa Rica, have specific tax laws that make them desirable places to set up a business. If you’re smart enough about the way you construct your business in Panama, you can get away with paying next to no tax at all. Panama allows entrepreneurs to set up either on-shore or offshore companies, and the rules surrounding them lean towards non-Panamanian companies. For example, if your company is registered to Panama, you don’t actually have to conduct your board of directors meetings there.
Costa Rica, on the other hand, isn’t considered a tax haven, but there are plenty of incentives in place that have attracted a number of big businesses. This includes no local taxes imposed on the company, and a 20-year tax exemption for many companies. The key is to be clever about how, where, and when you decide to open up a business.
4. Variety of sectors for investment
During the early and mid 20th century, many Latin American countries relied heavily on agriculture as their main source of income. This was largely a leftover from their days as colonies, in which they were used as crop production for the large Western empires. However, once they gained their independence and were able to level themselves out, many governments diversified their industries in order to improve the quality of life for their residents.
El Salvador now has quite a diverse economy, and focuses on areas such as manufacturing and call center services. Costa Rica has a massive highly skilled workforce, mainly in part to their universal education schemes. This makes it n inviting place for those looking to launch technology and development businesses, as many of the workers already have the skills needed.
5. Convenience for North American investors
Latin America offers a number of desirable points for North American investors. First, there is the close proximity to the USA, making it easy to travel between the two areas. Secondly, many Central American countries adopted the US dollar as their currency nearly two decades ago in an attempt to balance their economies. This worked, and means there’s significantly less risk from currency conversion.
There’s also the time difference. Many Latin American countries operate only an hour or two ahead of Central time, making it much easier for North American companies. In our modern world, it’s very rare for a business to switch off, meaning staff meetings can take place at any hour of the day. Having a second site working within an hour or two of your headquarters makes it much easier to liaise with staff and work out effective business plans, and you won’t have to catch them as they’re just leaving the office.
Latin American countries are fast becoming desirable sites of investment, both for domestic and foreign countries. There are a wide range of economical sectors to invest in, and many opportunities for a successful business to make a name for themselves. Which country you decide to open in will depend on your specific business needs, but it’s nothing a quick bit of research won’t solve.