LATAM Weekly: Brazilian Government Announces $3B in Funding for SMEs and More…

LATAM Business Weekly
LATAM Weekly: Brazilian Government Announces $3B in Funding for SMEs and More…
By dataPlor • Issue #76 • View online

Brazilian Government Announces $3B in Funding for SMEs
The Brazilian Government has announced a $3B USD commitment (R$15.9B) to support small businesses during the COVID-19 pandemic. The credit comes from the National Support Program for Micro and Small Enterprises (Pronampe).
LatamList reports that the credit is expected to reach around 4.5 million SMEs, according to the National Treasury. The amount given to each company will equate to up to 30% of annual gross revenue, based on the 2019 financial year. Interest rates will be equal to Selic: 3% per year, with an eight-month grace period before repayment.
“Our main concern now is to make credit for companies viable,” said Carlos da Costa, Secretary of Productivity, Employment, and Competitiveness. “This is the moment when working capital is the most important.”
Public, private, cooperative, and credit unions can request credit. This includes any institution that is legally part of the Brazilian Payment System, such as fintechs and civil society organizations of public interest.
Colombia Court Overturns Restriction on Uber
A Colombian court has overturned an order which forced ride-hailing app Uber to briefly suspend operations in the country last year and change its service provision model.
As reported by Nasdaq, the Superintendency of Industry and Commerce (SIC)- which regulates fair competition and protects consumers- said in December that Uber had violated competition rules amid a lawsuit from a taxi company. Uber resumed transporting passengers in February with a new service model that allows users to rent cars with drivers.
In a decision dated last Thursday (June 18), the Superior Tribunal of Bogota said the time limit for the taxi company to present its complaint had expired.
SIC has repeatedly fined technology companies like Uber and Rappi amid a lack of regulatory framework for delivery and ride-hailing apps. DiDi and Cabify also operate in the country.
“It must be remembered that the situation of digital platforms in regards to the provision of these types of services is a regulatory issue that must be resolved via laws,” the head of the SIC Andres Barreto told Reuters.
Uber, which has more than 2 million registered users and 88,000 drivers in Colombia, hailed the decision.
“We reiterate the urgency of having clear laws that strengthen the growth of these sectors developed by technology…We will review the decision in detail to define our next steps, especially as relates to the model of service provision available in Colombia since February this year.” the company said in a statement.
Brazil’s BizCapital Raises $12M for its Online Lending Service
BizCapital, an online lender based in Brazil, has raised $12 million from a clutch of investors, including the German development finance institution, the corporate venture capital fund of MercadoLibre and existing investors Quona Capital, Monashees, Chromo INvest, and 42K Investments.
“This latest round reinforces investors’ confidence in BizCapital’s ability to innovate in the Latin American credit market amid challenging circumstances caused by Covid-19,” said Francisco Ferreira, the company’s Chief Executive, in a statement. “We have seen four times as many business credit inquiries on our site year over year, and we are ready to serve them.” 
Founded in 2016, the company pitches itself as a fast and reliable way to access financing for working capital. It already has more than 5,000 customers across 1,200 cities in Brazil, according to a statement.
According to Tech Crunch, the company will utilize their new capital to develop new products for Brazilian small and medium-sized businesses and will expand into new distribution channels.
“With this new round of capital, we will continue to widen our product lineup, helping entrepreneurs during the entire lifecycle of their companies,” said Ferreira, in a statement. “There’s never been a more important time for innovation.” 
Reflecting their American counterparts, Brazil’s venture capital firms had slowed down the pace of their investments, but now it seems like an aggregation of new deals are coming to market.
This investment reflects investors’ long-term confidence in the increasingly central position e-commerce and technology-enabled services will have in the future of the Latin American economy.
Wind Ventures Gears Up to Invest in Startups Looking at Latin America
Last Thursday (June 18), Chilean company Copec announced a corporate venture capital (CVC) fund, dubbed Wind Ventures. Wind Ventures will write checks worth between $1 million and $10 million into Series A, B and C rounds, with an eye on startups that fit into the categories that its parent company works in, namely energy, retail and mobility.
According to Wind Ventures’ head, Brian Walsh, the CVC intends to “balance [its] investments across those three sectors,” including putting money to work in tech that its parent firm Copec works with today, and “technologies that Copec is not currently involved in,” citing hydrogen projects as an example.
The CVC has invested in several companies while operating in effective stealth over the past few months.
Copec, part of the larger AntarChile conglomerate, is just one member of a family of companies that produce energy and industrial products, among other business lines. The Wind name appears to be an homage to investing in decarbonized energy production.
A Wind Ventures deck viewed by Tech Crunch highlighted the possible impact of Copec helping “accelerate global startups and scaleups growth in LatAm.” 
Wind promoted its investment thesis, highlighting its access to the Latin America market via what it described as 3,500 service stations (of which 630 are in its home country of Chile), amongst other assets. 
Walsh told Tech Crunch that his group can help startups manage the regulatory and cultural environment of Latin America, noting that there are “20 different countries,” each with their own cultures and that “to succeed in the region, a startup must succeed in each country separately.”
 The CVC head highlighted that his parent company Copec may “provide the deployment capital to get [initial pilots] done with the right customers.”
Wind also intends to invest in startups located in the Southwest region of the United States, where Copec also operates; the CVC is based in San Francisco.
Tech Crunch reports that Latin America has seen its startup scene accelerate rapidly in recent years, with deal volume growing from around 190 rounds per year from 2014 to 2016, to around 450 in 2018 and 2019, according to industry data. As venture deal volume has soared, so too has the dollar volume of venture investments in the region, with the same data indicating that $4.6 billion was deployed last year: a figure dramatically larger than 2018’s dollar result of just under $2 billion, the preceding record.
Startups Focused On Human Resources Take Off In Brazil
A new report on HRtechs, technology companies focused on Human Resources (HR), has revealed the segment is the third most active in Brazil, after fintechs and mobility, as well as the main companies in activity and startups to watch.
According to the study produced by innovation center network Distrito, there are 373 startups active in the HR space, which concentrated 11.6% of the capital invested in startups in 2019 - fintechs claimed 35.6% of the total investment last year, while mobility startups attracted 14.4%.
Since 2014, USD 473 million has been invested in HR startups in Brazil and, during that time, more than 90 investment rounds have taken place. 
These firms concentrated 11.6% of all the capital invested in startups in 2019, a year that was particularly interesting when it comes to that kind of startup. According to the study, this is due to the number of deals in that space, the largest being the SoftBank-led USD $300 million investment into corporate fitness platform Gympass exactly a year ago.
According to the study, the top 10 technology startups operating in the HR sector in Brazil, which were chosen based on funding raised and social media visibility, are 99 Jobs, Vagas, Kenoby, Catho, Gupy, Revelo, Xerpa, Ahgora, Sólides and Gympass. The vast majority of these companies (80%) are based in São Paulo, while 10% in Minas Gerais and 10% in Santa Catarina.
The survey also cited a list of 10 Brazilian startups focused on HR to keep an eye on in the coming years: Connekt, Pontomais, Flash, Beedoo, Zenklub, Qulture Rocks, Levee, Convenia, Matchbox and Gama Academy.
As reported by Forbes, of all the startups active in the human resources space, 85.2% were founded less than a decade ago, according to the report. Companies focused on development and talent management represent most of the HR techs (42.9%), followed by recruitment (28.2%); HR core processes (25.5%), office services (1.9%); HR management systems (1.3%) and offboarding, which is the employee exit process (0.3%).
The Covid-19 pandemic has been one of the main agents of change within HR departments in Brazil, the research noted, adding there is an acceleration in the adoption of digital onboarding solutions while social distancing measures are in place. 
“Management of documents and processes that would take one month on average has gained speed and efficiency with HR tech platforms and, certainly, will have even more space from now on”, the research said. 
The numbers reveal a gap in the sector, particularly around offboarding. According to the study, there is a lack of solutions focused on managing the departure of employees from companies - and therefore, an opportunity. 
“At a time when layoffs are on the rise, companies need to look at the [employee] shutdown process and how to make it less painful in a context of social distancing”, the study noted.
HR startups employ more than 11,000 people in Brazil, according to the report. Regarding the business model, most HR techs target other companies: 67.8% of them have a B2B focus and only 6.7% provide services directly to consumers (B2C). Of all the startups focused on HR, 25.5% work with both B2B and B2C audiences.
Brazilian Authorities Suspend WhatsApp Payments
Brazil’s Central Bank and antitrust regulator suspended Facebook Inc.’s WhatsApp messenger payment features in the country, the app’s second-biggest market with more than 120 million users.
The bank’s decision aims to “preserve an adequate competitive environment, that ensures the functioning of a payment system that’s interchangeable, fast, secure, transparent, open and cheap,” the monetary authority said in a statement on its website.
Bank authorities requested that Mastercard Inc. and Visa Inc. stop payment and money transfer activities through the app. 
Meanwhile, Brazil’s antitrust regulator- known as Cade- said on Wednesday it is suspending WhatsApp’s partnership with electronic payment company Cielo preemptively. According to an statement on the regulator’s website, the vast WhatsApp user database coupled with Cielo’s high market share in payments could prove too high a barrier for any new competitors. Since the deal wasn’t presented for evaluation, regulators needed to act fast to avoid competition concerns, the statement read.
A suspension without presenting further arguments is “an unusual, extraordinary move by the central bank, especially in payments arrangements and technology market,” said Tiago Severo Gomes, a partner at Caputo, Bastos and Serra and a specialist in fintechs and banking regulation.
Bloomberg reports that these decisions are a setback for Facebook, which introduced WhatsApp’s payments system in Brazil earlier this month after testing it over the past two years in a handful of markets, including India and Mexico. Payments are a key element of WhatsApp’s long-term plan to offer commerce within the app. Over 5 million merchants around the world use a business version of the messenger app, and in countries like India and Brazil, WhatsApp serves as the main or only online presence for many mom-and-pop retailers.
“Our goal is to provide digital payments to all WhatsApp users in Brazil using an open model and we will continue to work with local partners and the Central Bank to make this possible…In addition, we support the Central Bank’s PIX project on digital payments and together with our partners are committed to work with the Central Bank to integrate our systems when PIX becomes available,” a spokesperson for WhatsApp said, referring to Brazil’s proposed instant-payment system.
The company was surprised by the Central Bank’s decision, and the two sides were in regular contact in the run-up to the payments launch, said a person familiar with the talks who asked not to be named discussing private deliberations.
Brazil’s Central Bank said the suspension will let it evaluate any possible risk to the country’s system of payments and to determine whether the payments system meets the necessary rules. 
Starting the service without the regulator’s green light could generate “irreparable damage to the system, especially what concerns competition, efficiency and data privacy,” the banks said, adding that Mastercard and Visa could face fines if they don’t comply (Bloomberg). 
In a regulatory filing, Cielo said they suspended the services, and will keep the shareholders informed of developments.
7.4-Magnitude Quake Hits Southern Mexico
A 7.4 magnitude earthquake that hit Mexico’s southern coastline on Tuesday, collapsing buildings and prompting evacuations, has left at least five people dead, officials said. The earthquake occurred at 10:29 a.m. local time (11:29 a.m. ET), with an epicenter 6.8 miles southwest of Santa María Zapotitlán in Oaxaca state, near El Coyul.
As reported by CNN, at least five people were killed, according to the coordinator for Mexico’s National Civil Protection Service.
The Oaxacan Health Services also reported damages from the quake to general hospitals in Pochutla, Puerto Escondido and Pinotepa Nacional and a few community hospitals in other areas. According to Murat, two of the hospitals with damages have been dealing with coronavirus patients.
“We are verifying [damages] because this hospital is also tending Covid cases on the Oaxacan coast,” he said on a radio interview with Radio Fórmula. 
The severity of the damages are not specified.  Authorities also reported a power outage throughout the state’s capital and damages to the exterior of a hospital in Oaxaca. The earthquake could be felt as far as Guatemala, Honduras and El Salvador. In capital Mexico City, approximately 190 miles north of the epicenter, tremors were felt and sirens were heard wailing.
The damage in Oaxaca state is considered light to moderate, according to the US Geological Survey (USGS) ShakeMap. Estimates modeled by the USGS suggest that localized casualties and damage are possible but there are likely to be fewer than 100 fatalities and less than $100 million in damage. However, the model only includes earthquake shaking, and not any impacts from potential tsunamis on the coastline.
Photo Courtesy of CNN
Photo Courtesy of CNN
The USGS said that recent earthquakes in the area have caused secondary hazards such as tsunamis and landslides. Earlier estimates put the magnitude of the earthquake at 7.7, but that has been revised down to 7.4 (and additional revisions are possible).
Mexico is one of the world’s most seismically active regions and has a long history of devastating earthquakes, due to its location on top of three large tectonic plates and their movement causes regular quakes and occasional volcanic eruptions.
In 2017, two powerful earthquakes hit the country in two weeks, toppling buildings, cracking highways and killing hundreds of people. One had a magnitude of 7.1 and the other a magnitude of 8.1.
Mexico City is particularly vulnerable to earthquakes because its very soft and wet ground amplifies shaking and is prone to liquefaction, in which dirt transforms into a dense liquid when sufficiently churned.
Iconic Restaurants Adapt to Lockdowns in Latin America
Before the pandemic began, the Leo restaurant in Colombia prided itself on taking customers on a culinary journey through Colombia.
Washington Post reports that dining at Leo’s has been banned since mid-March, when Colombia started to enforce social distancing measures. Chef Leonor Espinosa now uses her restaurant’s kitchen to make takeout dishes like pork-belly tacos that are cheaper to make and easier to carry in cardboard boxes.
“We had to find some way to mitigate the impact of this crisis,” said Espinosa, who has been forced to lay off about half of her staff. “So we’ve created a take-away brand that is more suited to the current needs of the market.”
The virus has punished the industry severely as sales plummet and restaurant owners are stuck with fixed costs like rent, prompting some restaurants to reinvent themselves in order to stay afloat.
Similarly in Argentina, the Don Julio steakhouse- ranked 34th on San Pellegrino’s list of the world’s top restaurants last year- has now become a butcher’s shop that delivers cuts of organic beef to customers around Buenos Aires. Chef Pablo Rivero says he prefers to sell raw cuts of his prized beef to stuffing his dishes into takeout boxes and compromising their quality. The butcher’s business has helped him to avoid laying off staff. 
“This helps us to stretch our funds” he said.
In Chile, where dining in at restaurants has been banned since March, prize-winning El Europeo has suspended its tasting menu and now runs a delivery service that features pizza, sushi and beef tartare.
“It’s time to lay egos aside and fight for our survival” said Max Raide, one of the restaurant’s owners.
Some famous restaurants have had to pause operations altogether while they ride out the storm. In Colombia’s capital, La Puerta Falsa has been serving hot chocolate and tamales since 1816, surviving the nation’s independence war, a guerrilla attack against a nearby Supreme Court building and a riot in 1948 that burned down most of Bogota’s center.
The coronavirus lockdown has forced the historic restaurant to lay off its staff of 14 and close its colonial-era building until social distancing measures are lifted.
“We don’t know how to do takeout,” said Carlos Sabogal, 84, whose family has owned the restaurant for six generations. “I also worry that if we did that, the taste of our products would just not be the same as what our clients are used to.”
In Cuba, the restaurant business, which depended largely on tourism, has ground to a halt. But the state-run economy ensures the survival of traditional places like La Bodeguita del Medio.
The bar, which helped to popularize the mojito cocktail and was once a favorite haunt of Ernest Hemmingway, has been state-owned since the early sixties, when it was nationalized by Fidel Castro. Its employees have been sent home and are still paid a portion of their $30 a month state wage. But they are missing out on tips from tourists that normally triple their salaries.
Elsewhere in Latin America, where the market economy prevails, many restaurants are going under.
Guillermo Gomez, the director of Colombia’s restaurant association, says that by the end of May, 27,000 of the country’s 90,000 restaurants had shut down for good as they struggled to pay rent, salaries and public services with little income. Gomez said that sales from takeout have failed to make up for revenue lost from in-person service. Restaurants have also struggled to secure loans as the government provides little clarity on when they will be able to host customers again, or under which rules. 
“Banks now see us as a high risk business,” Gomez said.
Those with some savings continue to soldier on with smaller staff, while elite eateries prepare for a more austere future.
Colombian chef Leonor Espinosa says that she might be “less rigid” when her restaurant can once again resume in-person service, and may offer a la carte options along with her elaborate tasting menu.
But she says she will continue to make experimental dishes with exotic ingredients from remote corners of Colombia. 
“We are not going to give up on our philosophy” Espinosa said. “We will continue to connect people with territories.”
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By dataPlor

A collection of the week's best articles about doing business in Latin America

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