2021 Entrepreneurial Activity Review

Chile has experienced a high rate of early-stage entrepreneurial activity for over a decade. In 2021, its TEA rate was 29.9%, highest among GEM Level B economies. This entrepreneurial activity has corresponded with a strong perception of entrepreneurial capabilities among the Chilean population, with variations in annual TEA rate moving in sync with increases and decreases in the rate of Chilean respondents saying they have the skills, knowledge and experience necessary to start a business. This indicates that, for many Chileans, the perception of their capabilities is a strong factor in guiding their decision to become an entrepreneur. In 2021, this rate was 70.7%, highest among GEM Level B economies. Yet, like many other Level B economies, this does not translate to a high rate of sustained business activity. In 2021, Chile’s EBO rate was 7.1% — a significant gap from the rate of early-stage entrepreneurship occurring in the country. In addition to the high rate of Chilean’s perceived entrepreneurial capabilities, many respondents also felt there were good opportunities to start a business where they lived — 59.8% in 2021, second among GEM Level B economies. Taken together, it is easy to understand why Chileans start businesses at such high rates. This enthusiasm is present in the plans of these early-stage entrepreneurs as well. Chile has the highest rate of adults planning to hire six or more employees (10.1%) for their new business among GEM Level B economies in 2021. Furthermore, 77% of TEA respondents said they planned to use more digital technologies to grow their business in the next six months. This projects confidence in the future growth of their business, supported by a strong sense of capability and opportunity.

Yet, in recent years at least, this confidence has not enabled more businesses to reach maturity in the form of EBO. Part of the explanation lies in a level of necessity-driven entrepreneurship occurring in the country, which results in many short-lived businesses as Chileans move to the next best available opportunity for them rather than trying to build something long-term. Many early-stage entrepreneurs in Chile clearly have longer-term plans for their business, but continue to hit a variety of barriers to their survival and eventual growth.

2021 Framework Conditions Review

An examination of Chile’s scores on framework conditions can provide insight on some of the barriers to sustained entrepreneurship. One significant area is finance. On the Entrepreneurial Finance condition, Chile’s score of 4.0 was 13th among GEM Level B economies, while Ease of Access to Finance received a 3.6, 17th among Level B economies. Lack of access to credit and finance is one clear constraint on the ability to grow a new business into the established phase. Other sources have also identified the difficulties in getting credit in Chile. In the most recent Doing Business rankings, Chile was rated 94th in the area of getting credit, despite the country having a fairly strong set of financial institutions. Policy guidance will be needed to incentivize these institutions to lend more to promising new businesses.

Internal market burden is another area in need of improvement. In particular, the condition Ease of Entry: Market Dynamics, Chile’s 4.4 score was 16th among GEM Level B economies. This means there are unpredictable domestic market conditions, related to price and consumer demand, that distort entrepreneurs’ ability to plan for future products and services. Smoothing these variations will take time, and will self-correct if the political and economic environment can stabilize.