2021 Entrepreneurial Activity Review

Entrepreneurial activity in Colombia declined significantly from the previous year, though some of this decline may appear less dire given proper context. In 2021, Colombia’s TEA rate was 15.7%, nearly half of its 31.1% TEA rate in 2020. However, that 31.1% TEA in 2020 was itself much higher than expected; Colombia’s usual TEA rate over the previous several years averaged closer to 20%. Additionally, the reduction in 2021’s TEA rate may also be attributed to a lag in the impact of COVID-19 on Colombia’s large informal labour sector, about 60% of the entire workforce. Many people in the informal labour market are themselves early-stage entrepreneurs, starting businesses that are not officially registered. Because COVID-19 hit informal workers particularly hard, many of these early-stage entrepreneurs reduced and eventually stopped their entrepreneurial activity between 2020 and 2021. This may help explain the dip in Colombia’s EBO rate as well, which decreased to 1.8% in 2021, from 5.5% in 2020. Making it easier to register and pay fair taxes on a new business would help address some of Colombia’s issues with the informal sector. Only about 29% of surveyed Colombian adults stated it was easy to start a business, second lowest among GEM Level C economies.

Despite the decrease in Colombia’s overall entrepreneurial activity in 2021, some indicators suggest entrepreneurs are more confident about their future. The rate of TEA respondents who stated it was more difficult to start a business now than a year ago was 58.4%, one of the lowest among GEM Level C economies, and an improvement from 2020 when it was 64.5%. Furthermore, 80.2% of TEA respondents stated they planned to use more digital technologies to sell goods and services over the next six months, second highest among GEM Level C economies, and a strong indicator that most early-stage entrepreneurs are responding to the new business realities caused by COVID-19 and investing in more efficient ways to reach more customers. 

2021 Framework Conditions Review

One of the reasons someone might choose to keep their entrepreneurial venture informal is because of the lack of available finance. In Colombia, this constraint was identified by experts in their 2021 NES survey. On the Entrepreneurial Finance framework condition, Colombia received a score of 3.4, placing it third lowest among GEM Level C economies, while Ease of Access to Finance received 3.5, which was about average. Experts also identified issues with the condition Government Policy: Taxes and Bureaucracy, which received a score of 3.9, seventh among GEM Level C economies, even if it was an improvement over 2020. Difficulty dealing with taxes and bureaucracy is a constraint on expanding entrepreneurial ventures.

However, there did appear to favourable opinions among experts on the other government-related framework conditions. On the condition Government Policy: Support and Relevance, Colombia received a score of 5.1, second among GEM Level C economies, and up from 4.4 in 2020; and on Government Entrepreneurial Programmes experts scored a 5.1, first among GEM Level C economies and up from 4.6 in 2020. This suggests that the government is providing some support to entrepreneurs through some directed programs. However, to stabilize the sector, more work will be needed on making it easier to formalize new businesses.