The Case for a Startup Special Economic Zones

I might be way off base here but would like to get the ball rolling on this Idea and capture some feedback.

Lately, I’ve seen, for the first time, politicians and entities like FIESP stating to think objectively about how to support high impact entrepreneurship in Brazil. Finally people are waking up to the fact that fostering survival entrepreneurship might be good politically but won’t prompt us to a relevant position in the global economy,

There are even ambitious conversations about how to set up a Startup Brazil (copying the very successful model of Startup Chile).

Mostly my feedback to the politicians that want to discuss the topic is that the Brazilian problem is much deeper and entrenched in our economic foundations. What stall the growth of startups in Brazil are bureaucracy, taxation, labor laws and regulations.

We Brazilians know that changing those has been on the discussion agenda for decades and are likely to continue for another few.

So I’d like to propose that instead of pushing to change the whole system, we, Brazilian entrepreneurs, should strive to get the government to create Special Economic Zones. Our model should not be Chile, which already had much of the infrastructure in place, but rather China, that managed to transition from communism to capitalism in a stellar way.

This SEZ, should only focus on hi-tech and highly qualified labor, where a patriarch state makes less sense. We can use Venture Funds in order to finance the companies and the Innovation and R&D incentive (already in place through lei do bem), to fund the VCs.

The SEZ should have :

+Joint efforts from all governmental spheres to reduce bureaucracy (imagine having off the shelf company’s instead of having to go through all the bureaucracy of registering, getting a CNPJ and so on)

A Possible idea is to create the role a government concierge for the startups that guides the entrepreneur (and does the bureaucratic part of the job) through all the steps.

The concierge should be responsible for helping the company expedite its process from beginning to end and should interface with all government entities, therefore being the only touch point from the company to with the government. A initial step in this direction is the Rio Investment Agency

We should support foreign ownership, labor and investment in order to bring Brazilian entrepreneurs to global standard. Easing the restrictions and bureaucracy for foreigners will also be key.

+Less revenue related taxes and more profit based ones. Also, the government should be responsible for dealing with bureaucracy that the complex tax system brings, by collect, centrally the ICMS, for example, and than redistributing it to the states as appropriately.

+Special labor arrangements. Considering that SEZ would focus on highly qualified labor, the state should allow for greater labor law flexibility. For example, it should mandate that employees have pension and healthcare plans, but give them the freedom to choose between the INSS and a private one.

+A para-judicial system based on Arbitration with minimal chances of re-discussing the matter in a common court would also make laws and contracts easier to enforce

None of these are requests unheard off but the idea of combining all efforts into one confined area and use them to foster a startup hub, exploit it as a trial lab for policies that could later be expanded to the country, is not a discussion I hear often and would like to propose.

What are your thoughts?

Author: Rodrigo

A VC trying to help build up the industry Principal @ Redpoint eventures doing Seed and Series A investments in Brazil

3 thoughts on “The Case for a Startup Special Economic Zones”

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