Peru isn’t exactly a hotbed of innovation. But a new start-ups programme could just be the answer.
The country spends barely 0.15% of gross domestic product (GDP) on research and development (R&D) – miniscule compared to even its lack lustre neighbours (Chile spends 0.38% of GDP on R&D).
Yet since 2013 the government has committed 20 million soles ($6.1m) to backing 287 tech start-ups through StartUp Peru (drawn from over 3,000 applications in five rounds of the programme), Peru’s economic minster Pedro Olaechea (pictured above) said on Thursday.
Of this 11 million soles has been disbursed so far. A further 3.3 million soles has been committed by the start-ups themselves.
Those firms backed so far include a communication app, an online artist network, a supplier of renewable energy to buildings, an online platform for reporting and handling emergencies, an online clothing store and a household cleaning detergents manufacturer.
Olaechae said every year the number of applications increases at an average rate of 35%. In the current cohort 106 start-ups have been selected.
The programme at times runs various themed challenges. Currently it is running at 7m soles challenge aimed at dealing with disasters in Peru. The present call closes on Tuesday (June 20).
The programme was launched in December 2013 initially as a $20-million programme aimed at financing and supporting 200 high-impact entrepreneurs over five years. Subsequently the ministry was able to secure a further 52 million soles, which could enable the initiative to run a total of 10 calls.
Inspired by Start-Up Chile
Peruvian government officials were inspired by the early impact that neighbour Chile made with Start-Up Chile after launching in 2010. In putting together the programmme, Peru’s Ministry of Production also drew on input from entrepreneurs, incubators, accelerators, investors, universities and consultants from several international organisations.
Entrepreneurs that qualify for seed funding are eligible for support from local business incubators (also backed by government funding) for up to 18 months.
There are two funding channels. One funds offers grants up to 137,000 soles to fund high-impact and dynamic enterprises that are no older than five years to develop innovative products or services. Another provides grants of up to 50,000 soles for the development and validation of business models, developed by innovative entrepreneurs.
Foreign entrepreneurs can also apply for support, but are required to open a branch of their business in Peru before are can receive funding.
Seven times return
The programme is expected to produce significant returns for the government, as for each sole that the state invests in an innovative firm, it will be able to get a seven soles return in taxes, estimates StartUp Peru’s head Alejandro Bernaola.
If these come off, Peru would be in for a bonus. Olaechea seems confident it will. In October last year he estimated that the number of start-ups in Peru would rise by 50% in 2017 over 2016.
In the current economic climate it's much needed - the economy is expected to grow at a moderate 2.8% this year before accelerating to 4.2% next year, its central bank said this month.
Yet while Peru remains one of the most entrepreneurial countries in the world (ranked sixth out of 65 economies by the Global Entrepreneurship Monitor in 2016), too much of this is accounted for by unsophisticated micro enterprises, which in 2015 made up 95% of the country's 1.7 million registered businesses, according to a report.
Indeed while the World Economic Forum's (WEF) 2016/17 Competitiveness Report ranks Peru at a favourable 67 place overall, it put it at 119 for innovation.
What the country now needs is more entrepreneurs developing innovative and novel ideas or adapting innovations from other countries to work in local conditions. Betting on tech start-ups might just be the right thing to do.
Timm is a South African who writes on small business. He has not visited Peru yet. Click here to sign up for the monthly Small Business Insight newsletter.
Stephen Timm is a