With the fourth-largest IT market in Latin America and a growing fibre-optic network, Colombia continues to add technological prowess to its economic capabilities. Strong political backing for the IT industry has emerged as the sector’s “multiplier effect” and is having a dramatic impact across the economy, with IT revenue in 2012 reaching $5.8bn, according to the Colombian Chamber of Computer Science and Telecommunications. Government support has manifested itself as addition of funds for expanding IT infrastructure, and building research and development capabilities. In the private sector, the growing adoption of technology by citizens and businesses continues to create opportunities for internet providers, software engineering firms and a litany of other related businesses. The inclusion of the great base of small and medium-sized enterprises in the online world is now the major challenge.
BACKGROUND: As in the telecoms sector, the Ministry of Communication and Information Technology ( Ministerio de Tecnologías de la Información y las Comunicaciones, MTIC) is responsible for the development and regulation of the IT market, for which it created a Vice Ministry of Technology and Information Systems in late 2012. The Commission for the Regulation of Communications (Comisión de Regulación de Comunicaciones, CRC) and the National Spectrum Agency have the more defined roles of regulating communication activities and spectrum allocation, respectively.
BY THE NUMBERS: While measures of the value of the IT market vary, the International Data Corporation (IDC) estimated it equalled about $6.12bn in 2011, though the CRC gauged the sector at $7.6bn. From a regional perspective, Colombia’s IT market is equal to some 5.6% of the wider Latin American market of $110.63bn. Domestically, it comprises a hardware market ($3.57bn, 58.3% market share), IT services ($1.85bn, 30.3% market share) and a growing software segment ($698.7m, 11.4% market share). Software will generate approximately 11% of the sector’s growth in 2013, according to the IDC’s “Latin America Predictions 2013” report.
INTERNET USAGE: According to statistics from the International Telecommunications Union, fixed-line broadband connections rose from 8872 in 2000 to 3.9m in 2012, bringing the number of fixed broadband connections per 100 inhabitants to 8.36. The latest data from the MTIC show that in the first quarter of 2013 fixed broadband connections rose by 17.5% over the same quarter in 2012 to 4.11m, which combined with 3.41m mobile internet connections gave the country 7.53m internet connections and an internet subscription penetration rate of 16%. Figures from the CRC and the MTIC show the fixed-line internet market split among four operators. In the first quarter of 2013 the largest share belonged to Claro with nearly 30%. UNE maintained the second-largest market share of 27.2%, followed by Movistar with 18.2%, ETB with 13.5%, while the remaining 11% is split among various operators.
According to a National Administrative Department of Statistics (Departamento Administrativo Nacional de Estadística, DANE) survey, in 2011 the majority of internet users reported connecting to communicate (83.4%), obtain information (80.4%), for entertainment (69.8%) or education (60.2%). Other reported uses include electronic banking transactions (11.9%), shopping (7.1%) and e-government transactions (5.3%).
VIVE DIGITAL: MTIC’s Vive Digital plan for 2014 is a short-term strategy for expanding internet capacity. The initiative is counting on $450m from the MTIC and its primary objective is to quadruple internet connections from 2.2m in 2010 to 8.8m by 2014. It also seeks to ensure coverage reaches all corners by expanding the number of municipalities with fibre-optic connections from 200 to around 700 during the same period. Its final goal is to boost the percentage of homes with internet connections from 27% to 50%, and connections in micro, small and medium-sized enterprises from 7% to 50%. “The government’s Vive Digital plan is ambitious, though achievable. Increasing connectivity will be one of the biggest drivers for Colombia’s development,”
Rolando Martínez, head of Ericsson Colombia, told OBG.
In early 2013 Colombia reached 7.5m internet connections and, as such, should be able to achieve the administration’s goal of 8.8m connections by the end of 2014. In February 2012 Vive Digital received global recognition when it won the Government Leadership Award at the World Mobile Congress in Barcelona. Despite recognition of the Vive Digital plan, public sector investment in the development of the sector is still small. Simbad Ceballos, the general manager of Cisco in Colombia, told OBG, “Only 8% of investment in the IT sector comes from the government and the only remarkable project is Vive Digital. An ideal scenario would be for the public and private sectors to invest 50% each.”
Fabio Pineda Callejas, general manager of Personal Soft, a local software engineering group, told OBG, “The public sector provides more opportunities to local businessmen in Medellín, helping to increase visibility through the association of public authorities with multinationals, which contributes to increased demand for local ICT companies and, long term, provides visibility in neighbouring markets.”
HARDWARE MARKET: The $3.57bn hardware market is the largest segment of the wider IT sector, with 58.3% of total revenues, as per data from the IDC. Sales in the hardware sector grew by 67.4% from 2010 to 2011, expanding by $1.44bn in a single year and tripling over the past five years. The sector’s recent success is owed to wider economic growth driving per capita income and consumer spending. IT spending by household, much of which goes to the hardware segment, was last measured at 4.4% of total income by the CRC in 2012.
Nonetheless, much of the population remains excluded from joining the ranks of computer or smartphone ownership due to their prohibitive cost, suggesting that there remains plenty of room for growth. DANE statistics showed that 38.4% of all homes possessed a computer, laptop or tablet in 2012, with the primary reason for non-ownership of a computer being the high cost (57%), while 27.7% reported having no interest and 11.8% reported not purchasing a computer for lack of operational knowledge. PC sales have been low despite tax reform that excluded laptop purchases from value-added tax (VAT). In 2012 this was expanded to included tablets priced at less than COP1.15m ($695.40). The private sector has been trying to extend this exemption to smartphones. However, Juan Ricardo Ortega, the head of the Directorate of National Taxes and Customs of Colombia, told local press in July 2013 that smartphones would not be exempt. As in the wider global market, the introduction of mobile devices such as tablets and smartphones is having a noteworthy impact on computer sales in Colombia. A study conducted by local consulting firm Ipsos Napoleón Franco found that 20.6% of all Colombians would like to own a tablet, while 12.8% would like to have a smartphone.
IT SERVICES: IT services encompass four primary subsectors: business process outsourcing (BPO), IT consulting, IT deployment and support, and IT integration and development. IT deployment and support services account for 26% ($481.5m) of the overall total, while IT integration and development and IT consulting make up 20% ($370.4m) and 11% ($203.7m), respectively, according to the IDC. Education and training contributes only 2%. However, it is the BPO sector that is the largest contributor, as it is responsible for $759.3m (41%) of total sales. It is also a rapidly expanding industry, having nearly tripled its revenues since 2006. “Colombia is a strategic country for the outsourcing industry, not only because of its geographical location and neutral Spanish accent, but also because it has a growing cadre of high-quality domestic BPO companies,” Carlos Augusto Castro, the general manager of domestic BPO outfit Enlace Operativo, told OBG.
SOFTWARE MARKET: The software segment of the IT market is the smallest of the three subsectors, though it is rapidly growing and the Ministry of Commerce, Industry and Tourism (Ministerio de Comercio, Industria y Turismo, MCIT) has identified it, alongside the BPO sector, as one of 16 strategic subsectors, referred to in its Productive Transformation Programme (Programa de Transformación Productiva, PTP). According to the latest figures from the IDC, the software market is spread across several sub-segments: software applications, with 43% of total revenues; software development and deployment, with 31%; and software infrastructure, with 26%. Over the course of the past five years the software market has expanded three times over from earning $211m worth of revenues in 2007 to $698m in 2011, of which only an estimated $40m worth of content was exported, according to figures from the IDC and Colombian Federation of the Software and IT Industry (Fedesoft). Fedesoft projections see software exports expanding to $75m in 2013. Juan David Escobar Soto, the CEO of IT consulting firm Direktio, told OBG, “Colombia is in the midst of a technological revolution and there are big opportunities for software solutions that help manage large amounts of data in some of the largest sectors, such as health care and public administration.”
E-GOVERNANCE: The government is also upgrading the IT services it offers. In fact, traditionally, Colombia has fared well in comparison to regional neighbours in the use of e-government services. The country was ranked first in Latin America in the UN’s 2010 e-government survey with a global rank of 31, though its standing slipped 12 places in the 2012 edition, ceding the top regional position to Chile (39).
More recently, during the Latin American edition of the World Economic Forum (WEF) held in Lima in April 2013, the supranational institution ranked Colombia as 16th in e-government. “Increased institutionalism by the Colombian government is a positive thing that the WEF has recognised, giving Colombia a deserved 16th position in government online services. The creation of the IT vice-ministry has much to do with this progress,”
Ceballos told OBG.
Under Vive Digital, the MTIC plans to increase the availability of e-government services to the extent that 100% of federal and 50% of local government agencies provide online services by 2014.
PTP & INCENTIVES: The MCIT’s PTP is co-funded by the Inter-American Development Bank and is intended to launch training programmes within the software and IT service markets, both of which have been identified as strategic subsectors by the MTIC. “If a Colombian company wants to be competitive offshore, it needs to partner with a foreign and experienced BPO services provider, at least until local businesses are financially stronger and the staff acquire the soughtafter languages,” Carlos Mejía, general manager at Avanza Colombia, a leading outsourcing firm, told OBG.
The PTP also aims to improve the sectors’ legislative and regulatory frameworks. As such, the MCIT pushed for the development of legislation regulating data protection. The Habeas Data Law – which encompasses Law 1581 and decree 1377 – passed the Congress and was enacted during the third quarter of 2013. It guarantees the protection of online privacy for individuals.
Labour incentives have been put in place, offering new tax breaks. Companies are eligible to receive tax exemptions on income taxes and other payroll contributions for a period of two years for hiring new employees under the age of 28, low-income employees and female employees over 40 who have been unemployed for longer than one year – the exception being for positions created by mergers or replacements. A threeyear tax break is available for hiring employees who can certify that they have been displaced or are disabled. Other incentives include exemption from VAT on exports under certain conditions. Moves to boost employment include Legislative Decree 884 of 2012, which regulates and establishes incentives for employees and employers for telecommuting.
INNOVATION, R&D: One major change expected to increase spending on R&D is the restructuring of royalties from the mining and hydrocarbons sectors. Under the new royalty system 10% of funds will be diverted to promote R&D through the Science, Technology and Innovation Fund. According to the government, this single change could increase government spending on R&D by as much as 40%. The Administrative Department of Science, Technology and Innovation estimated that the contribution made by royalties to R&D will reach roughly $500m per year.
Robinson Ruíz, general manager of Xerox Colombia, told OBG, “Business process solutions are much sought after in Colombia, and in this very demanding market innovation and leading-edge technology are as important as the solutions themselves.”
EXPANDING INFRASTRUCTURE: To meet the ambitious goals laid out under the Vive Digital plan in 2011, the government tendered an auction for the development of the National Fibre Optics Project, won by Colombian firm Azteca Communications, which will carry out the work in conjunction with Alcatel Lucent. The $300m project will see the fibre-optic network expanded by a total of around 15,000 km. It will also increase the number of municipalities with fibre-optic networks so that by the end of 2014 96% of the 1122 municipalities will have such connections. Efraín Ossa, the general manager of integrated solutions firms Grupo Unión, told OBG, “The growth of the oil and gas sector is contributing to increased demand for optical fibre and a shortage of copper in the country leaves optical fibre as the best alternative to develop.”
Carlos Peña Pérez, Alcatel Lucent’s senior officer for Colombia, Ecuador and Venezuela, told OBG, “ICT infrastructure is more or less on par with other nations in the region and projects that the government has implemented over the past few years in the sector are all oriented towards increasing internet access.”
Internet costs are similar to others in the region. According to data from Proexport, a 1-MB-per-second data connection costs $45 per month in Colombia, compared to $42 in Brazil, $47 in Venezuela and $60 in Chile. So while expanding infrastructure remains a challenge, other hindrances are being addressed to increase technological and innovative capacity.
HURDLES: Remaining difficulties include spreading the use of internet and IT among lower-income strata and sectors. A DANE survey found that technological innovation in the industrial manufacturing sector, for example, to be low, with 0.6% of companies considered technological innovators, while 33.8% are categorised as innovators in a more open sense, 5.1% were found to be potential innovators and the majority (60.6%) were categorised as non-innovators in 2010.
The government has chosen to prioritise the use of IT in the national education system – a prudent strategy considering 88.4% of the population with tertiary degrees report using computers, as well as 94% of those who attended but failed to complete tertiary education programmes.
The Ministry of Education, together with the MTIC, runs the Educa Digital and Computers for Education programmes as part of the government’s Vive Digital plan with the aim of having internet connectivity in 100% of public schools and an average student-to-computer ratio of 12:1 by 2014.
The 2012 goal of delivering 139,000 computers to regional education centres to reduce regional and social IT gaps was achieved, as the MTIC reported having delivered 146,067 computers in 2012, equivalent to 27% of the total over 12 years. In 2014 the number of computers delivered is expected to increase to 266,000 across 12,100 schools, with at least 4500 of those schools receiving a computer for the very first time. Increasing teachers’ IT capacities through training programmes is another aim as well, with the target of certifying a total of 4500 teachers.
Natalia Arias Echeverry, the general manager of the National Fund for Project Development, told OBG, “One of the most ambitious plans within the MTIC is the establishment of Vive Digital centres, to ensure that remote municipalities receive digital education. In phase 0, 60 centres were built, and phase 1 starts with an investment of COP80bn ($48m).”
OUTLOOK: As new technology continues to expand on both the personal and corporate level at quickening rates thanks to government education programmes, broad economic growth and more affordable technological hardware and services, the IT market will surely follow suit. The industry will continue to be an attractive destination for investment not least for the domestic market and regulatory framework. The Vive Digital plan should ensure a total of $12.5bn worth of investments will have been poured into the sector from 2011 to 2014, with $2.25bn coming from the central government.