Ecuador Has the Highest Early-Stage Entrepreneurial Activity in Latin America

Ecuador has emerged as the leading country in Latin America for early-stage entrepreneurial activity, according to the Global Entrepreneurship Monitor Ecuador 2023/2024. While the creation of new businesses is a growing trend in the country, the report highlights that a significant portion of these ventures arises out of necessity due to the lack of job opportunities.

Entrepreneurship Driven by Necessity

The report emphasizes that Ecuador’s high rate of entrepreneurship does not necessarily reflect a favorable business environment, but rather a response to the scarcity of employment. Diego León, a leading advisory partner at EY in Ecuador, explained that many new entrepreneurs are driven to start their own businesses because they believe job opportunities are limited. In fact, nine out of ten early-stage entrepreneurs surveyed indicated that one of their main motivations was the need "to earn a living because jobs are scarce."

León also pointed out that although the level of entrepreneurship in Ecuador is high, it often involves self-employed individuals or single-person enterprises. However, with the right support, this high level of entrepreneurial activity has the potential to make a significant contribution to the Ecuadorian economy.

Challenges in Accessing Financing

One of the main obstacles for entrepreneurs in Ecuador is access to financing. The study reveals that 21.28% of entrepreneurs who closed their businesses did so due to difficulties in securing funding, with the second most common reason being the lack of profitability.

Natalia Almeida, Deputy Director of the Alliance for Entrepreneurship and Innovation of Ecuador (AEI), noted that in the early days of the network in 2013, there was a significant shortage of funding for entrepreneurs, particularly from the private sector. Although there is now greater access to private equity, venture capital, and angel investment funds, Almeida warned that the path to generating investment funds for startups in Ecuador remains challenging, due to the lack of incentives and the presence of regulatory hurdles.

Regulatory Challenges

Another significant challenge facing Ecuador’s entrepreneurial ecosystem is regulation. According to Diego León, one of the weakest links in the country is the regulatory complexity, particularly regarding labor and tax-related costs, as well as the procedures necessary to start a business.

The AEI has played a crucial role in improving regulation in this sector. In 2020, an entrepreneurship and innovation law was enacted, and the figure of Simplified Stock Corporations (SAS) was created, allowing more than 30,000 businesses to formalize since then. However, the further development of the National Council for Competitiveness, Entrepreneurship, and Innovation, established in 2021, is still pending.

Lack of Human Capital and Education

Finally, human capital and education are areas where Ecuador still has room for significant improvement. Natalia Almeida highlighted that there is still a lack of incentives for innovation, research, and development. The AEI has begun dialogues with the Higher Education Council to promote more applied research, but this is a process that requires time and effort.

Diego León also mentioned the need to develop the necessary education for entrepreneurs to manage their businesses more effectively. Having the right tools and knowledge is essential for businesses to endure over time and contribute to the country's economic development.

The entrepreneurial landscape in Ecuador is complex. Although the country leads in early-stage entrepreneurial activity in Latin America, the majority of these ventures are driven by the necessity caused by the lack of employment. With improvements in access to financing, more favorable regulations, and a stronger focus on human capital development, Ecuador has the potential to transform this entrepreneurial activity into a key driver for its economy.