The paradox of innovation in Latin America: between timid growth and overwhelming potential

A bakery is not usually the first place that comes to mind when talking about innovation. While many great ideas begin with a sweet treat, the art of making and selling bread and other delicacies is often perceived as a traditional industry, limited to the borders of each neighborhood. But María Almenara, a bakery founded in 2007 in Lima, challenges that idea: with 22 stores across the country, more than 500 employees and a client portfolio that includes international giants such as Starbucks, it has become a benchmark for growth and modernization.

“Today, in a single day, we invoice the same as in our first year of operations,” says Carlos Armando de la Flor, co-founder of María Almenara. “We are a beacon of innovation in a traditional industry. With a different mindset, transformation processes and good practices, a small business can be transformed into something of impact,” he says.

The rapid growth of companies like María Almenara is what the economies of Latin America and the Caribbean need to leave behind the “ resilient mediocrity ” of recent decades. Although the region is expected to grow by 2.6% in 2025 , according to data from the World Bank, this figure places it among the lowest rates in the world, highlighting the persistent structural problems that, in turn, raise barriers to innovation.

“The returns to technology adoption are thought to be extremely high, but countries appear to be investing little, implying that this avenue for productivity growth has not yet been fully exploited,” explains William Maloney, chief economist at the World Bank for Latin America and the Caribbean. “The region exemplifies the innovation paradox ,” he adds.

The data confirm this: investment in R&D (research and development) in the region is only 0.62% of GDP, four times less than the global average. The rate of return, that is, the gain over time, is around 55% in the United States, but in countries in the region it could be much higher. However, despite this high return, success stories in Latin America, such as that of María Almenara, remain the exception rather than the rule.

A problem that is nothing new

“The problem has much deeper historical foundations,” explains Maloney, who is currently working on the final details of a report on the subject. Simulations carried out by the World Bank team suggest that 83% of the divergence between countries in the region and advanced economies such as Japan, Sweden or Spain can be explained by the slow and partial adoption of new technologies. “In 1860, countries in the region were in the same situation as Spain, Sweden or Japan. However, the subsequent stagnation lasted for more than a century,” says Maloney.

This affects not only businesses such as bakeries, but also industries that were once key to the region. “The copper industry in Chile almost died out at the beginning of the 20th century, and it was only the introduction of new North American technologies that prevented its collapse,” says Maloney. “However, while countries in the region used new processes to continue their exports, innovation gave rise to technological giants in Japan, while in the US the foundations of the manufacturing industry were consolidated.”

The lesson, the upcoming report highlights, is that a nation's growth depends not so much on what it produces, but on how it produces it.

Disruption just around the corner

Increased competition also affects local firms, which requires strengthening companies and adopting a new vision to gain market share.

“We see ourselves as an intersection between mental health, entertainment and convenience. That leads us to constantly challenge ourselves,” says De la Flor regarding the sweets and delicacies they produce. This entrepreneur is clear that disruption will not necessarily come from other traditional players. “I am not afraid of another bakery, but, for example, of Rappi (a home delivery platform that operates in more than 250 cities), which can bring innovation from outside the industry and keep the customers,” he warns.

However, not all companies choose to adapt quickly in the face of competition. For example, the American automaker Ford began producing its iconic Falcon sedan in Argentina in the early 1960s. Sales of this model reached their highest level in 1980, ten years after the model was discontinued in the United States. Production finally stopped in 1992, when increased competition finally offered consumers more up-to-date technology and performance.

Companies need to be able to respond to competition – to know how to identify, adopt, and implement new technologies. In countries like the United Kingdom and France, where firms face a more competitive market, half of companies choose to innovate, while in Chile only 10% do so. “The agenda to increase competition must go hand in hand with improving companies’ capabilities to respond,” the research highlights.

Public policies

Being prepared to make innovation a pillar of growth will require an open attitude towards the global economy, entrepreneurs capable of recognising opportunities and taking advantage of them, and a financial system that allows for diversifying risk, say the World Bank experts. “All three elements are necessary. Without competition, there is no impetus to go beyond the region’s Ford Falcons,” Maloney stresses, although he points out that the challenges also require the support of efficient public policies.

“Human beings need incentives,” confirms De la Flor, whose company processes more than 150,000 digital and in-store transactions each month. For this entrepreneur, the key is to bet on a digital mentality that allows solving problems and iterating until solutions are found.

This concept can be extrapolated to all economic activities, present and future. “Latin America’s takeoff does not depend on a single sector or the creation of new industries, but on improving efficiency in different dimensions. This requires increasing the demand for innovation, strengthening human capital and improving the quality of support that companies receive,” concludes Marcela Meléndez, deputy chief economist for the region at the World Bank.

From a bakery in Lima to the adoption of electric vehicles, the key to Latin America's growth is not just in what is produced, but in how it is produced. Innovation requires courage, investment and an ecosystem that rewards transformation. While some sectors are still skeptical of the changes, others are already demonstrating that it is possible to create globally competitive companies. Perhaps the question is not whether the region can innovate, but how long it will take to make it a priority.