By Marinés Aponte, Marta Álvarez and Manuel Lobato
September 2017 was probably the most difficult month ever faced for the majority of the Puerto Rican population. Hurricanes Irma and Maria had serious consequences on economic activity in late 2017 and early 2018. It also brought about new opportunities for entrepreneurs, as we discovered in the just launched 2018 GEM Puerto Rican Report.
GEM surveys conducted in the summer of 2018 (and which have been carried out continuously since 2013 in Puerto Rico) allow us to better understand the transformations.
Breakdown of the Growth
There was growth in the number of new enterprises in Puerto Rico: 2.6% surveyed indicated that they have a new enterprise (firms for which salaries or wages have been paid at least for three months and began three and a half years ago or less, prior to the survey). Although the figure is still low when compared to other countries, it is higher than in 2017 (1.4%).
The recovery process that began after the hurricanes has created opportunities to do business. The 35.2% of respondents perceive that there are now good opportunities to undertake entrepreneurial activity, while in previous years the figure did not exceed 28%. In fact, 22.9% of respondents who currently are not involved with entrepreneurial activity say they intend to start a new business in the next three years. This is again a figure far higher than in previous years (18.3% in 2017) and relatively high in the international context.
Interestingly, the number of nascent entrepreneurs (those who are actively involved in starting a new venture, but still haven’t received salaries or wages for at least 3 months) has not experienced the same change: 9.1%, compared to 9.5% in 2017.
Another positive aspect is that three out of four new and nascent entrepreneurs expect to create jobs in the upcoming years. Almost half — 49.4% — plan to generate between 1 and 5 jobs, while 24.2% believe they will generate more than 5. These proportions are higher than in the United States and Latin America countries.
GEM introduced the National Entrepreneurship Context Index (NECI) to rank economies based on 12 indicators of the external context that can influence entrepreneurship. The NECI of Puerto Rico in 2018 was 4.1 out of a maximum of 10 points. This rank is 51st among the 54 participating countries, far from the United States (6.0) and Latin America (4.6).
The NECI reflects a conclusion that repeats year after year: the context of Puerto Rico does not favor the development of entrepreneurial activity. The main factors are bureaucracy, government taxes and regulations, and entrepreneurship education at the primary and secondary levels. Although the experts surveyed change every year, this has been a consistent result since 2013.
While the recovery phase from the hurricanes generated areas of opportunity for new business, it also led to the closure of businesses as 3.1% of respondents indicated that they had discontinued some entrepreneurial activity in the months previous to the survey, up from 2.7% who indicated the same in 2017. Over a quarter (27.3%) of those who closed operations in 2018 indicate that it was “a direct consequence of an incident”, which we can infer is the impact of the hurricanes.
Profile of Puerto Rican Entrepreneurs and Attitudes Toward Them
As in previous years, the role of young people stands out: 19% of people between the ages of 25 and 34 indicate that they are participating in a new or nascent business. In terms of gender, both male and female entrepreneurs have increased, but the increase has been more pronounced among men: 15.2% of men and 8.4% of women have nascent or new entrepreneurial initiatives in 2018, compared to 13.2 and 8.3% in 2017.
The GEM 2018 report includes for the first time information on family participation. In Puerto Rico, 28.4% have started their new ventures in collaboration with a family member, a higher number than in the United States (22.9%) and the average in Latin America (23.9%).
Entrepreneurs in Puerto Rico aren’t always viewed favorably. Just20.7% answered that society considers being an entrepreneur a good career choice. This is the lowest percentage among all participating countries, despite that 80.9% think that the media pays attention to entrepreneurs.