Initiatives tackle innovation obstacles for Peru's small businesses

With the signing of a $40m loan on August 22, 2016, the Inter-American Development Bank (IDB) and the government of Peru committed to continue to work towards the promotion of innovation, namely with a focus on addressing the challenges facing micro-, small and medium-sized enterprises (MSMEs). Previous loans have similarly supported the National Innovation Programme for Competitiveness and Productivity (Innóvate Perú), which is gradually revealing its positive impact. While there may be challenges ahead, continued support and a network of international cooperation agreements provide support in facing them.

Third Idb Loan

Spanning an 11-year term, including an 11-year grace period, a LIBOR-based interest rate, and a seven-year disbursement period, the IDB loan is set to fund the Project for the Enhancement of Productive Innovation Levels at the National Level. The purpose of this project is to promote innovation, technological development and strengthen capacities in MSMEs. The Ministry of Production will manage the initiative through Innóvate Perú, with a total budget of $100m, $60m of which will be provided by the government.

Entrepreneurial Environment

The IDB’s loan will undoubtedly provide a welcome boost to an already bustling entrepreneurial environment. In 2017 Peru ranked 67th out of 137 countries in the Global Entrepreneurship Index (GEDI) and seventh of 24 nations in South and Central America and the Caribbean. It scored highest on a range of 0 to 1 in networking (0.47) and lowest in technology absorption and in process innovation (both at 0.12), with improvement also needed in product innovation (0.16). By comparison, the Global Entrepreneurship Monitor (GEM) ranked Peru sixth of 64 countries in total early-stage entrepreneurial activity (TEA) in 2016, 3 positions up from its 2015 result.

Only 14.9% of companies were deemed innovative by GEM in 2016, meaning companies providing a product that is new to all or some customers, with only a few to no businesses offering a similar product on the market. Peru ranked 59th of 65 economies in TEA innovation, on a par with El Salvador. In this regard, Peru lagged behind the Latin American and Caribbean average of 25.5% of TEA innovation.

Financing Challenges

The IDB loan focuses, among other things, on the implementation of new measures to tackle the challenges hampering the ability of MSMEs to innovate. These include a lack of financing or qualified personnel, insufficient access to technological or market information, and difficulty in finding investment partners. The benefits of supporting entrepreneurship in Peru seem substantial. According to GEDI, improving the conditions for entrepreneurship in Peru by 10% could add $82bn to the economy.

Despite these challenges, the situation is improving. Government efforts, combined with international support through programmes like Innóvate Perú, are having a positive impact. Of the 50 projects the programme concluded by 2012, 22 are being marketed in Peru, while 14 are deployed internationally.

“Of the companies supported by Innóvate Perú, 61% indicated that they would have not undertaken their project without the programme’s support,” Alejandro Afuso, executive coordinator at Innóvate Perú, told OBG. “Moreover, 72% signalled that the project developed as a result of Innóvate Perú support had a very high impact on productivity.” The economy as a whole also benefits. Afuso estimates that for every $1 invested, the state gets back $7.10 through direct taxes on product sales over a period of five years.

International Outreach

Peru will be able to rely on a variety of cooperation agreements, as well as regional and international platforms, to further advance its support of innovation in MSMEs. Continued involvement with a variety of bilateral and multilateral agreements on innovation issues with organisations such as the 21-member APEC and the four-member Pacific Alliance will prove valuable in the country’s continued trend toward innovation.