Dominican Republic Joins Regional Push for Healthier Startup Ecosystems

My visit to Colombia last week taught me that Brazil and Chile are no longer the sole players in the region intent upon building an entrepreneurial economy. With Latin American startup ecosystem leaders gathering this week around a workshop for ecosystem professionals in Latin America, we take a look at the host of the conference – the Dominican Republic.

The Dominican Republic (DR) is an upper middle income country with one of the fastest growth rates in Latin America and the Caribbean (LAC) region (above 5 percent annually from 2000 to 2011). The country’s efforts to infuse an entrepreneurial mindset in traditional growth drivers like tourism, telecommunications, and manufacturing – as well as in new opportunity sectors – is proving to be a smart recipe for growing the Dominican middle class. According to World Bank data, a massive 60 percent of employees in Latin America work for businesses with five or fewer employees, and this figure grows to almost 70 percent in the Caribbean but companies rising from entrepreneurial endeavors are growing at a much slower rate than in other middle-income regions.

The DR’s challenge is thus overcoming obstacles to growth. For example, a lack of innovation is holding firms back: Caribbean firms develop new products less frequently than their counterparts in other developing regions. A recent World Bank study on the DR suggests that among the major institutional reforms necessary to accelerating poverty reduction and shared prosperity in the country, is one that calls for “improving the investment climate to boost entrepreneurship and jobs creation”. This responds to the fact that growing sectors such as tourism and manufacturing have not generated as many jobs as initially envisaged.

President Danilo Medina of the center-left Dominican Liberation Party launched a national strategy to promote entrepreneurship at the event today, in front of representatives and ecosystem professionals from across the hemisphere including Dane Stangler, vice president for Research and Policy at the Kauffman Foundation. Welcoming them to the national government palace, Medina laid out his nation’s new roadmap to becoming an entrepreneurial economy. The plan results from a yearlong consultancy and collaboration with local stakeholders from the public and private sectors. The strategy also incorporates foreign input from the Colombian Presidential Cooperation Agency, Taiwanese government and the Colombian Ministry of Industry, Trade and Tourism.

A snapshot of the Latin American entrepreneurship ecosystem brings three strong, “major league” players: Chile, Brazil and Colombia. A closer analysis, as provided by the OECD Development Center’s Start-up Latin America report, unveils newcomers of committed startup players in the region, namely Mexico, Argentina and Peru, inspired by the experience of Colombia, a late comer that has managed to catch up with Chile and Brazil, positioning locations like Medellín on the world map of startup investors and entrepreneurs.

President Medina has surrounded himself with those inspired by former, three-term President Leonel Fernández, who believed in the power of entrepreneurship and insisted that the nation must continue to focus on the potential to scale organically grown, innovative businesses, and not just on attract foreign investment. Entrepreneurship-friendly regulatory reforms during his administration included the implementation of a National System for Innovation and Technological Development (SNIDT), a body tasked with identifying the academic, public, private and international entrepreneurship stakeholders, and with articulating public policies to promote applied technological innovation. The Innovation and Development Council (CIDT) currently “oversees” this ecosystem of identified stakeholders: the Ministry for Higher Education, Science and Technology (MESCyT), seven other members from the public sector, four members from the private sector and two academic sector members.

In 2009, the DR offered entrepreneurs for the first time an online platform where they can complete registration formalities. In 2012, the government made starting a business easier by eliminating the requirement for a proof of deposit of capital when establishing a new company. However, excessive administrative bureaucracy is still an obstacle. The World Bank still ranks the country poorly for the ease of starting a business (144th) and the overall ease of doing business (117th), among 189 economies.

Deeper institutional reforms are pending to remove burdensome layers of bureaucracy, to more effectively enforce contracts and intellectual property rights, improve the quality of services, and to put a decisive break on corruption. That is the challenge for the current president, who has the support of multi-lateral organizations. In July 2012, the Multilateral Investment Fund (MIF), the Development Bank of Latin America (CAF), and local tech-based business incubator “Emprende” signed a $1.2 million agreement establishing the first seed capital fund in the country. Most recently, the Inter-American Development Bank, for example, has just approved a loan for $30 million to help the government increase productivity for micro-, small, and medium-sized enterprises (MSMEs). Currently, MSMEs account for 97 percent of Dominican enterprises, for 30 percent of the country’s GDP and more than two million jobs. The IDB loan will finance investment projects, permanent working capital, and technical assistance.

Besides increasing investment in capacity building and seed capital pools, the ecosystem would be smart to plug the nation’s diaspora. Approximately one-tenth of GDP is supported by remittances from the U.S., whose earners might be able to improve key mentorship and other connections for entrepreneurs on the island seeking to grow. The experiences abroad of software entrepreneur Rosa Maria Marte, for example, helped her build a full-fledged business that sells local eco-friendly arts and craft products overseas through her “Green Art Market”. In the United States, a young Dominican entrepreneur by the name of Edrizio De La Cruz is set to disrupt the remittances market with a company called Regalii.

Among the new entrepreneurship policy champions is Mr. Ignacio Mendez, vice-minister of SMEs at the Ministry of Industry and Commerce, who has also been a leader behind the Global Entrepreneurship Week (GEW) movement in the DR led by Emprende founder/ entrepreneur Orlando Perez. Inspired by the bottom-up surge in entrepreneurship interest, the government has recruited Mr. Perez as the Ministry of Education’s director of the National Program of Entrepreneurship. Emprende is a supporter of the ENLACES Business Angel Network, the first of such networks in the country, and CoWorking.do, a new physical space designed for idea collisions to happen.

The DR is thus now part of the trend where governments recruit entrepreneurs in the best interest of the ecosystem. The challenge for this Ministry is perhaps the most daunting: more than 40 percent of third graders lack basic math skills, and students in the Dominican Republic show some of the lowest academic performance in the region. This is an underlying reason for the scarcity in science, technology and engineering graduates, which in turn has a direct effect on innovation.

Entrepreneurship dynamics are not static, nor should their policy frameworks be, so the challenges will always continue to evolve and policy must keep pace as it is happening for example with crowdfunding regulatory innovation. Even the earliest players, Chile and Brazil, who have been experimenting with entrepreneurship policy since the 1990s, are still struggling to move forward through evidence and evaluation of what actually works in promoting startup expansion. The entry of new regional players asking pioneers about results and evidence of what works, pushes the frontier forward for all. 

PDE’s Cristina Fernandez will remain at the conference all week as more details from the designers and implementers of the Dominican Republic’s new entrepreneurship strategy are unveiled. Stay tuned.

Photo credit: Hamlet Reynoso

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