Colombia’s IT sector is becoming interlinked with its macroeconomic growth, especially as it plays an increasingly important role among businesses and in the country’s social and educational development. Years of investment by private and public sector operators has enabled rapid deployment of telecoms infrastructure throughout the country. Furthermore, governmental implementation of IT policies under the Vive Digital plan has helped broaden the use of IT across all levels of society.
Equally important has been the emphasis on the role IT can have on economic growth. A series of support programmes, which channel both public and private investment, are bringing Colombian businesses into the digital world. A transformation has been visible since the implementation of the first Vive Digital programme in 2010. Colombia’s IT companies remain small and fragmented, but the expansion of IT use is helping to reduce the economic gap between rural and urban Colombians.
According to Colombian think-tank Fedesarrollo, as of mid-2015 the ICT sector accounted for 7.5% of GDP and had been expanding by an average of 9.9% per year for the past decade. A study by the Ministry of Information Technologies and Communications (Ministerio de Tecnologías de la Información y las Comunicaciones, MINTIC) released in March 2015 shows that every Colombian peso invested in the ICT industry in 2013 generated a 160% return in the national economy.
Much of the sector’s growth has come from government plans to expand internet access across the country and improve access to technology and IT training. This has helped to connect people, especially those living far from the main urban areas. More importantly, it has allowed authorities to better channel services such as education, health and security. Telecoms authorities have placed such a high importance on internet infrastructure that the government announced that by end 2015, the country will have achieved 100% internet coverage (see analysis).
This will mark a threshold in the sector’s expansion, and this upwards trend is expected to persist as the country’s macroeconomic stability continues to attract investment and Colombia integrates more deeply into international markets. Despite a loss in oil revenues, the economy is expected to remain resilient. December 2015 figures from the Ministry of Finance estimate that full-year growth was 3.2%. Coupled with the efforts to develop IT infrastructure, this is likely to spur the sector.
The first Vive Digital plan, which began implementation in 2010 and had 193 specific goals in terms of IT dissemination, was the catalyst for development in Colombia’s IT sector. It has garnered international recognition as a leading governmental plan, earning several prizes and distinctions abroad. Several significant goals have been achieved. The authorities more than quadrupled internet connections in the country, as well as generally improving connectivity by expanding internet coverage. Colombia’s 1102 municipalities were all set to have internet coverage by the end of 2015, compared with only 200 in 2010.
The plan has improved connectivity in the regions through the deployment of the national fibre-optic network, which saw 20,000 km of cable installed for a total investment of COP1.2trn ($441.6m). The project was financed by the government, and the Colombian subsidiary of Mexican firm Azteca Telecomunicaciones will operate the network. The Vive Digital plan also focused on improving IT usage in small and medium-sized enterprises (SMEs), and improving IT education.
In 2014 the authorities introduced a second strategy, Plan Vive Digital 2. The overarching goals for 2014-18 are still to push the sector’s development further by capitalising on the infrastructure deployed over the first plan, but additional specific measures have been included. One target of the new plan is to improve human capital capabilities to develop IT applications, especially those aimed at addressing social problems.
Focus areas of the applications development drive will be poverty, education, agriculture, health and justice. MINTIC has also announced that it will continue to use IT and e-government development in an attempt to improve transparency.
One goal is to invest COP100bn ($36.8m) to create free Wi-Fi zones in public spaces across Colombian cities and towns. Authorities are also pushing for a digital rights law, which will allow every Colombian to have a personal platform on the cloud which includes all of their information related to government affairs, including fiscal information, property titles and medical history. The government also wants to increase the importance of IT education at school, in order to accelerate the development of new human resources for the sector. This has already started through a pilot programme in 350 schools, which have added programming and computer algorithms to their curricula. The new Vive Digital plan also adds a more regional focus to IT development.
Increasing the number of Colombians using the internet on a regular basis has been a key component of the government’s IT drive. Figures have climbed consistently, reaching 10.7m internet subscriptions in the first quarter of 2015, up from 3.3m in the same period of 2010, according to MINTIC. The rapid growth in internet connections has been driven by a mix of government efforts to increase access points across the country, especially within rural areas, as well as an increase in competition among telecoms providers. This has led to a rise in the number of mobile plans offering internet connections. The number of internet users in Colombia was expected to reach 28.6m by the end of 2015, and jump further to 31.3m by 2018, according to figures from eMarketer, a research consultancy (see analysis).
Due to their important role in the economy, improving IT usage by SMEs has been a priority for the government. Some success has been achieved through government projects, especially ones focused on increasing internet availability for SMEs (see analysis). However, challenges remain to increase integration of technologies into production and marketing. “SMEs in Colombia are showing a slower adaptation to new technologies than in other countries of the region. For the moment, multinationals are leading the adoption and modernisation of IT structures in the corporate sector,” Alvaro Merino, general manager at IBM Colombia, told OBG.
Government financing initiatives have established an important base to promote IT usage among Colombian SMEs. However, sector support has targeted a broader set of issues, such as funding innovative IT projects, developing human resources and creating entrepreneurship opportunities for IT start-ups. These financing schemes are generally grants that require both companies and individuals applying to match the public investment with private funds.
A key priority under the current Vive Digital programme is to help develop stronger IT clusters and firms. To support this goal, the Programme for the Strengthening of the Information Technology Industry (Programa de Fortalecimiento de la Industria de Tecnologías de la Información, FITI) was established to push for specialisation within the Colombian IT sector, in order to create specific value-added market segments.
Different support mechanisms have been launched under the FITI programme. A total of COP25.3bn ($9.3m) in financial support was made available to Colombian IT firms to strengthen product development and allow the industry to compete better internationally. A large part of this – COP21bn ($7.7m) – was channelled to support IT companies aiming to achieve international IT-specific quality certifications in software and application development. The goal is to encourage more domestic firms to adopt internationally recognised IT protocols to better align domestic businesses with global markets. For 2015 the goal was to support 120 Colombian firms, but sector authorities aim to increase this to 360 by 2018. Under the scheme, the state will fund 85% of the required cost for the certification process, while the beneficiary firms will pay the remaining 15%.
The other COP4.3bn ($1.6m) in state funding is targeted to improve the competitiveness of health-specific IT products, with the maximum allocation to each company to be COP400m ($147,000). Again, the financing scheme prioritised cooperation between IT firms and health providers, rather than allocating financing to a firm for a stand-alone project. To adapt the financial support to the size of most market operators, MINTIC established a co-financing scale depending on the size of the IT firm: medium-sized companies were required to participate with 15% of the total project cost, small ones with 10% and micro firms in the programme needed to allocate 5% of the cost.
Strengthening the structure of IT firms is a stated priority for the government. Under the second phase of Plan Vive Digital, the aim is to triple sales of domestic IT companies to COP$17.7trn ($6.5bn) by 2018, according to MINTIC.
Public support is also being directed towards Colombia’s regions. In November 2015 MINTIC launched a grant support programme worth COP7bn ($2.6m) to encourage the development of market-oriented IT innovations in seven regions. The grant scheme is also managed under the FITI. The programme will allocate up to COP1bn ($368,000) to each winning project, but requests participants match the government’s investment with 50% of the requested amount. As opposed to focusing grant allocation on individual organisations, this scheme will channel financing towards clusters involving universities, private firms and technology development centres.
More importantly for the development of specific IT clusters, the grant programme will support IT development in each of the region’s specific capabilities. In the Bogotá Cundinamarca region, for example, support will go to the development of projects in financial and banking services. In the Pacific region, financing will support IT development for the agro-industrial sector, while in the Santander region it will support IT innovations for the mining and hydrocarbons sectors.
Making domestic IT product development more robust has been especially important for local software manufacturers. They also have to compete with international firms that have expanded in Colombia, as economic growth in recent years has made the market more attractive. While internationally renowned brands can have an advantage for specific software solutions, domestic companies are finding a comparative advantage in terms of developing custom-made solutions. In this regard, government support programmes are expected to strengthen the segment in the long term. According to MINTIC figures reported in local media, software sales in Colombia grew from COP2.6trn ($956.8m) in 2010 to COP7.5trn ($2.8bn) in 2014. An improvement in IT adoption by SMEs will also help to expand the business of local developers.
“SMEs still have a long way to introduce technology in their daily activity. This is one of the main challenges of the sector, as it will improve their efficiency and productivity. Moreover, it will have a direct impact on the economy and its formalisation,” Alberto Samuel Yohai, president of the Colombian Chamber of Information Technology and Telecommunications, told OBG. Several state programmes have helped finance IT equipment acquisition by companies. This has had a very positive effect on IT adoption, especially in micro firms.
According to a study by consultancy Telecom Advisory Services, Colombia has some of the most affordable personal computers in Latin America, with the cheapest costing $334, and the most affordable smartphone, at around $59. The study compared prices in nine Latin American countries: Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Peru and Uruguay.
The positive results achieved in terms of expanding IT usage among Colombians can also be traced back to a series of regulatory measures implemented by the government. This long-term policy planning has had an impact. Value-added tax (VAT) for personal computers was eliminated in 2007, leading to a 110% rise in PC acquisition by Colombians over the following two years, according to the Global Information Technology Report 2015, published by the World Economic Forum. Combined with lowering the cost of technology acquisition, government programmes also worked to make internet connections cheaper for economically vulnerable citizens.
A scheme established by MINTIC with the Ministry of Housing established government subsidies to help low-income families set up domestic internet links. Further measures targeted at lowering the cost of IT hardware might encourage Colombians to access new technology and improve their connectivity. In December 2015 David Luna, the minister of ICT, sent a request to the country’s Expert Commission for Fiscal Equity and Competitiveness for the advisory body to eliminate VAT on smartphones. The authorities argue that because of the rapid increase in smartphone sales in recent years, and a change in consumption patterns which show a rise in data usage and a reduction in the voice segment, smartphones cannot be considered a luxury item. Sales of smartphones in Colombia have recently focused on lower-cost models. According to a report by the Commission for the Regulation of Communications, sales of smartphones priced below COP400,000 ($147) accounted for 71.5% of the market over the second quarter of 2015. This may show that they have become a necessary item. If implemented, the measure would certainly boost the number of Colombians able to access smartphone technology and become mobile internet users.
Improved availability of technology to access online services will also help promote digital transactions. Despite a culture of mistrust regarding e-commerce, the growth of internet connections and use of smartphones are allowing for a larger amount of online transactions.
E-commerce sales in the country reached $3.5bn in 2014, according to the Colombian Chamber of Electronic Commerce (Cámara Colombiana de Comercio Electrónico, CCCE), a 40% increase on 2013. The CCCE expects online transactions to reach $5bn by the end of 2015. Part of this change is also driven by rising living standards, with the majority of online transactions used to book flights and hotel stays, as well as buy clothing and technology products. Equally important has been the work done on the supply side. In 2014 the CCCE organised 115 hours of e-commerce training seminars for 2500 business operators.
Recent regulatory changes will also support the growth of e-commerce, especially in rural areas with limited access to banks. A financial inclusion law passed by Congress in October 2014 has opened the door for the establishment of specialised electronic deposit and payment institutions, which can be created by postal services, telecoms operators and other non-banking firms.
The new law allows for electronic deposit funds to be covered by deposit insurance as well as the remote opening of electronic deposit accounts with national identity cards. This will enable companies to establish electronic payment networks in remote areas of the country through the use of agents, which will help expand e-commerce in rural areas. The non-banking financial operators will be placed under the supervision and regulation of the Financial Superintendence of Colombia.
Government plans and private sector expectations for the industry’s growth will be contingent on the availability of adequate human resources. The government has anticipated that the IT sector will require 93,000 professionals to eliminate the human resources deficit by 2018.
Under the Talento Digital initiative set up in 2012, the authorities are financing matriculation for students wanting to do post-graduate or technical-level studies in IT-related disciplines. By April 2015 the programme had allocated COP53.9bn ($19.8m), allowing for over 6000 Colombians to gain specialisations in a range of disciplines. The fund to support the programme was established by a partnership between MINTIC and ICETEX, which finances student credits. Another scheme announced in 2015 will encourage public sector workers to enrol in graduate and post-graduate programmes related to e-government.
Improving the way citizens and the state interact has become a fundamental goal of the state’s strategy to deploy broadband internet connections across the country. The UN E-Government Survey, which evaluates countries’ advancements in terms of e-government implementation on a bi-yearly basis, ranked Colombia 50th of 193 nations in its latest report, published in 2014. The position represents a seven-place drop from the country’s 2012 ranking of 43rd. However, Colombia’s overall strategy for online government has been advancing steadily, with around 50% of the population having at least one interaction with the state online in 2012, according to UN data. On top of the need to deploy government services to the more isolated areas, the development of the e-government strategy has also been driven by governance transparency objectives. One example of this is the Urna de Cristal (Fishbowl) platform, which allows citizens to keep track of governance and management procedures, and encourages Colombians to participate in decisions related to national policy.
A major effort has also been made to ensure the availability of government and state data to citizens. Colombia ranked fourth of 122 countries in the Global Open Data Index 2015, after Taiwan, the UK and Denmark. The ranking, organised by nonprofit organisation Open Knowledge, looks at how nations make data like national statistics, budget, public tenders or election results available to citizens. Despite the high ranking, the index does point out some areas where the government can make information more accessible, such as data related to state spending and land ownership.
Colombia’s IT sector is expected to continue to grow as an increasing number of Colombians integrate IT usage into their daily lives. Also important has been the government’s focus on improving IT usage among the nation’s businesses, especially smaller companies. This has allowed SMEs to access a number of internet-based tools which have wide-ranging benefits.
The development of the IT industry has enabled Colombia to gradually bridge the economic, educational and social gaps between citizens living in urban centres and those in the regions. Additional government investment in human resources training underlines one of the sector’s main challenges over the coming years. As long as the Colombian economy continues to expand in 2016 and beyond, the IT industry is set to continue to be an important component of the country’s development.