Latin American companies step up where governments fall down

When Carlos Rodríguez-Pastor took control of a large Peruvian bank in 1995 after the death of his father, he could have followed the well-trodden path of the Latin American business scion, enjoying the profits from the family business in refined luxury surrounded by a coterie of fellow plutocrats.

His approach was different. “In a country with as much inequality as ours, you have to do more than look out for shareholders and serve customers,” Mr Rodríguez-Pastor explains. “You have to ask yourself how what you are doing is affecting your country.”

So once he had secured the success of Intercorp, his core business, Mr Rodríguez-Pastor started to examine areas neglected by successive Peruvian governments. The Andean nation of 32m was languishing near the bottom of the international Pisa scores of education quality and he saw an opportunity to offer good-quality private education for as little as $100 a month to the country’s emerging middle class — the same people he served with his banking, retail and property businesses.

Mr Rodríguez-Pastor looked at Singapore, a world leader in education, to learn lessons. With the help of a Silicon Valley design firm, Ideo, he came up with academies featuring innovative “blended learning”, where children are taught in purpose-built schools using a mix of online and classroom methods. 

Ten years later, Mr Rodríguez-Pastor’s Innova schools have won awards, been cited in a Harvard Business Review case study, have expanded into Mexico and are opening in Colombia. He has moved into other areas where Peru’s state has left gaps, starting a health clinic and considering offering rural internet services.

Luis Alberto Moreno, who headed the Inter-American Development Bank from 2005 to 2020, sees Mr Rodríguez-Pastor as an example of a new generation of socially aware Latin American business tycoons.

“Nowadays they are much more conscious that either they attack these social issues or the issues will attack them,” Mr Moreno says. “They realise that you can’t have a successful business in a disastrous society. The previous generation didn’t see that.” 

Haves and have-nots

Fresh business thinking was overdue in Latin America. The world’s most
unequal region, according to the UN Economic Commission for Latin
America and the Caribbean (Eclac), its economies have been dominated since colonial times by businessmen who carved out lucrative niches in mining, farming, banking or agriculture and parlayed their financial clout into political influence.

Julio Mario Santo Domingo, whose $8.5bn fortune made him one of Latin America’s wealthiest men, typified the region’s oligarchs. He inherited a business empire and grew it until at one point he had cornered Colombia’s beer market, ran the national airline, assembled cars and controlled a newspaper and radio station. Yet Santo Domingo lived mainly in a Park Avenue building in New York and by the time he died in 2011 had long sold most of his Colombian assets.

The private sector is being faced with the question of why it is not helping everyone up the ladder

While the Santo Domingo empire was at its zenith in the 1990s, Colombians would grumble privately that Julio Mario had not done enough for his country with his huge wealth, although the family did run charitable foundations and his son Alejandro has a stronger philanthropic streak. Julio Mario’s unauthorised biographer, Gerardo Reyes, even described him as an example of what not to do. 

Yet most Latin American countries still have their local Santo Domingos: there are around 100 billionaires and 14,000 ultra high net worth individuals, with investable assets of at least $30m; the swankier districts of Miami are their unofficial capital. Latin America also has more than 80m people living in extreme poverty, according to Eclac, following a sharp increase during the coronavirus pandemic.

“The private sector is being faced with the question of why it is not helping everyone up the ladder at a time when differences between rich and poor have grown,” says Woods Staton, the Colombian-born executive chairman of Arcos Dorados, the world’s largest McDonalds franchisee, which operates more than 2,200 restaurants in Latin America and the Caribbean. “Unless we businesspeople do something about it, we will find ourselves more and more seen as the culprit.”

One example of Mr Staton’s approach: Arcos Dorados did not fire any of its more than 100,000 staff during the pandemic, even though restaurants had to close in most countries and only takeaways were allowed. “We had some government help but all executives and top brass were on 50 per cent of salary,” Mr Staton says. “Everyone pitched in.”

Arcos Dorados is also looking at how to improve the sustainability of its products and promote social inclusion. “Most countries in Latin America just accepted that you had the rich and the poor and there was nothing you could do about it,” Mr Staton says. “People now are starting to realise that we have a real problem.”

Critical moment

That awareness has arrived at a critical moment. Beyond the toll of human life, Latin America has suffered greater economic damage from coronavirus than any other region of the world, according to the IMF. The World Bank estimates that more than a decade of progress in lifting people out of poverty has been lost.

The pandemic offers the region a choice: it could spur socially aware businesspeople to join policymakers in promoting long-overdue reforms to improve equality and public services, or the region could lapse back into old vices of political populism and crony capitalism.

Carlos Felipe Jaramillo, World Bank vice-president for Latin America and the Caribbean, says corporate social responsibility has been a frequent topic at recent private sector conferences. “During the pandemic people have seen so explicitly these disadvantages of the poor, and the inequality in such a clear way, that I think there’s a rising awareness that this needs to be addressed and the private sector needs to play a role,” he says.

Technology may provide one route. Start-ups all over Latin America are addressing deficiencies in areas such banking, healthcare and education. Mercado Libre, for example, the Amazon rival that is now Latin America’s most valuable company, had to build its own infrastructure as it grew, according to founder and CEO Marcos Galperín.

“Latin America is so fragmented and policies change so dramatically from one administration to the next that it’s very hard to get continuity on the policies that require government investment across many decades,” he told an FT Global Boardroom event last year. “So I think the private sector and the entrepreneurs and investors need to really focus on building this themselves and create an opportunity out of the challenges we have.”

His sentiments are shared by Mr Rodríguez-Pastor, who notes with satisfaction that his Peruvian school chain has performed well enough to attract a recent visit from a foreign nation keen to learn from his model. It was Singapore.