The Innovation Paradox in Latin America: Between Timid Growth and Brimming Potential

A bakery is not usually the first place that comes to mind when talking about innovation. While many great ideas start with something sweet, the art of making and selling bread and other treats is often perceived as a traditional industry, limited to the boundaries 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 like Starbucks, it has become a benchmark for growth and modernization.

“Today, in a single day, we make the same as we did 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 turned into something impactful,” he asserts.

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 2.1% in 2025, according to World Bank data, this figure places it among the lowest growth rates in the world, highlighting persistent structural problems that, in turn, raise barriers to innovation.

“We believe that the returns on adopting technologies are extremely high, but countries seem to invest little, implying that this path to productivity growth has not yet been well exploited,” explains William Maloney, Chief Economist for Latin America and the Caribbean at the World Bank. “The region exemplifies the innovation paradox,” he adds.

The numbers confirm it: 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 relative to the investment over time, is around 55% in the United States, but in countries in the region, it could be even higher. However, despite this high return, success stories in Latin America, like that of María Almenara, remain the exception rather than the norm.

An Old Problem

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

This affects not only businesses like bakeries but also industries that were key in the region in the past. “The copper industry in Chile almost went extinct at the beginning of the 20th century, and it was only the introduction of new American technologies that prevented its collapse,” comments Maloney. “However, while the countries in the region did not use the new processes to continue their exports, innovation in Japan led to the birth of Hitachi, Fujitsu, and Sumitomo, three huge high-tech technological giants, while in the US, the foundations of the manufacturing industry were consolidated.”

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

Disruption Around the Corner

Greater competition also affects local firms, requiring them to strengthen their businesses and adopt 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 treats 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 delivery platform operating in more than 250 cities), which can bring innovation from outside the industry and capture customers,” he warns.

However, not all companies choose to adapt quickly to 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 offered consumers more updated technology and performance. Competition is key to stimulating innovation.

Companies need to have the ability to respond to competition—knowing 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 the companies choose to innovate, while in Chile, only 10% do. “The agenda to increase competition must go hand in hand with improving the capabilities of companies 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 recognizing and seizing opportunities, and a financial system that allows for risk diversification, according to World Bank experts. “All three elements are necessary. Without competition, there is no drive to go beyond the region's Ford Falcons,” emphasizes Maloney, although he notes that the challenges also require the support of efficient public policies.

“Humans 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 lies in betting on a digital mindset that allows for problem-solving and iteration until solutions are found.

This concept is applicable to all economic activities, present and future. “The takeoff of Latin America does not depend on a single sector or the creation of new industries, but on improving efficiency in various 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 lies not only in what is produced but in how it is produced. Innovation requires courage, investment, and an ecosystem that rewards transformation. While some sectors still view changes with skepticism, 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 embrace it as a priority.