SME Opportunities in Latin America’s Mining & Agricultural Sectors

Craig Dempsey  |

Small-Medium Enterprises (SMEs) make up more than 90% of businesses in Latin America. While large in numbers, their growth is slower than desired and limited by a lack of innovation and expansion opportunities.

However, as governments aim to support the most important businesses in their economies, the creation of acceleration programs and funding are on the up. SMEs must capitalize on what makes them special - their size - and seize niche business opportunities.

Mining and agriculture make up the two main sectors in Latin America. If you’re exploring new growth areas for SMEs, here are some key opportunities in the Latin American agricultural and mining sectors of which you should be aware.

Mining

There are several exciting opportunities in the mining sector for SMEs in Latin America.

Specific examples include:

  • Lithium extraction for batteries as EVs grow in popularity
  • Health and safety systems as regulation increases
  • Sustainable waste management programs
  • Water management solutions that use less water
  • Software solutions for mining firms
  • Specialised machinery (servicing and leasing)
  • Logistics and transportation.

Rising input costs make it hard for SMEs to compete with large corporations that benefit from substantial financial backing. They need to create stronger links with research organisations and technology transfer hubs to make themselves more competitive and be able to support larger exploration and extraction firms through service and supply business.

Collaboration opportunities also exist between public and private firms. At the beginning it may seem hard to prove the credibility when trying to collaborate with bigger firms, however, governments are increasingly promoting these types of partnerships.

METS (mining equipment, technology and service technologies) businesses can find opportunities, especially supporting public sector firms and larger corporations. It is often cheaper for large firms to outsource these services and focus on their core competencies.

Peru

Peru is a resource-rich country, with large reserves of copper, silver, iron ore and coal, as well as minerals. The Peruvian legal system encourages business and foreign investment which reduces barriers to entry. SMEs can benefit from lower levels of capital necessary to enter the mining sector in Peru and comparatively low energy costs which result in higher profit margins when compared with other mining sectors in Latin America. This is always good news for SMEs that have only have access to a small pool of savings.

The educational system also promotes the mining industry. There are a number of technical schools and courses that develop and stimulate the sector. Subsequently, an educated mining sector workforce is being created in the country. Working with local staff will help foreign SMEs to better connect with the local business environment.

Chile

The Multilateral Investment Fund and Chilean government recently created $4.1 million to a project designed to improve the competitiveness of SMEs in the Chilean mining industry. Given Chile produces over 30% copper worldwide, mining SMEs should be looking to take advantage of this opportunity, either directly or indirectly. Working with other SMEs that have complementary capabilities can result in knowledge transfer and powerful alliances, that can reduce costs. Firms that can facilitate the exportation process will find plenty of opportunities in Chile. The country is also a leading producer of lithium, so as the demand for electric vehicles increase, this will be a very lucrative industry where you definitely want to be first.

Agritech

The agricultural industry is incredibly important to Latin America. SMEs have a chance to solve environmental challenges with innovative technology solutions. How can farmers battle the way climate change is affecting crops? Drier areas are becoming drier, and wet places are becoming wetter. How can food production remain sustainable under such conditions? And, how can profitability margins be retained with the introduction of new technologies? Latin America needs to increase its production substantially to meet increasing world demand for food. There lies a number of opportunities for SMEs to create viable and sustainable solutions for agriculture producers.

As well as the need to produce bigger yields, logistics are challenging. Increasing amounts of agricultural products are wasted post-harvest due to storage and transportation. Solutions to extend the shelf life of fruit and vegetables are being created for end consumers. How can these offerings be extended to the producer? Other opportunities exist in the financing, insurance and data collection for agricultural businesses. Where larger corporations may not find it profitable to engage in business with small, independent farmers, SMEs can take the market for themselves.

Reaching Customers

Often farmers in remote areas in Latin America don’t have access to new technologies and services. In a region where relationships are king, it pays for firms to invest in reaching out to farmers directly. Smaller business may seem more approachable to agricultural businesses in rural areas so SMEs should use their size to their advantage. Customers that can put a face to a firm will make your SME stand out against other multinational corporations. Creating direct relationships will also help connect SMEs with local consumers to find out what problems they are facing.

Entering regional trade shows and creating alliances with local providers can create a direct channel to clients. Shows help introduce new technologies and services to providers and end users. In Argentina, for example,the Agtech conference has been introduced as an event where top business hubs connect people in the Agritech industry. The NXTP Agtech Acceleration Program assists start-ups with little or no funding with a product in the early adoption stage.

SMEs need to take advantage of networking opportunities at trade and create relationships. Word of mouth references are really important in an industry like agriculture. Additionally, opportunities to create alliances with other firms and gain funding can help SMEs grow. Creating alliances with co-operatives can consolidate potential customers into a larger business opportunity.

Uruguay

Uruguay offers an exciting business environment for foreign investment. The government offers plenty of incentives such as free trade zones and tax allowances. Free trade zones are of particular interest for SMEs looking to importing hardware into the country. Importing firms can also take advantage of Uruguay’s numerous free trade agreements with other LatAm countries. Key agricultural sectors are bovine meat and dairy products as well as crops such as rice and soybeans. SMEs with key competencies in these sectors can extend their product and service offerings into Uruguay.

Brazil

Agriculture is key to Brazil’s economic health, making up 30% of the country’s GDP. While productivity is increasing, technologies are necessary to maintain this growth using limited resources. SMEs can test their technologies on a range of agricultural goods in Brazil. The country has key strengths in soybeans, corn, sugarcane, coffee and meat. Such a wide range of sectors creates varied agritech solutions. Environmental issues are a major concern in Brazil. Key areas include deforestation, water pollution resulting in acid rain and waste disposal. Whatsmore, Brazil’s diverse regions require different solutions. SMEs that work directly on the ground and tailor their offerings to each specific region will be welcome by local producers.

Whatever industry or sector you decide to explore with your SME, make sure you do adequate market research first. There is a whole of things you need to consider when entering a foreign country and it's important to stay compliant. It won’t be easy but with a great business plan, knowledgeable staff and solid product offerings you will reap the benefits of doing business in Latin America.

DISCLOSURE: I have no economic interest in any of the companies mentioned here-within


The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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