The information technology (IT) market in Peru, like that of telecoms, has grown considerably over the past decade thanks to a fairly developed IT services and hardware market. Peru also has a budding software market and a growing reputation as an outsourcing destination. Moreover, whereas government policy with respect to the development of the IT sector was previously regarded as ineffective and limited in scope, in recent years a more coherent national strategy has begun to emerge. The deployment of IT within ministries, agencies and civic services has also picked up.
Peru’s technological readiness lags behind many of its regional peers, partially as a consequence of its late start given the social and economic instability of the 1980s and 1990s. According to the World Economic Forum’s “Global Competitiveness Report 2013-14”, Peru ranked 86th out of 148 countries in terms of technological readiness, slipping three places from the last year.
Though relatively small overall, in the context of the wider economy the IT sector punches well above its weight in terms of its ability to stimulate economic growth. Estimates of the market’s size vary. The National Society of Industries estimated it expanded 13% in 2012, closing the year at $850m, and anticipates a continued increase of around 6% in 2013, which would bring its value to $900m. Meanwhile, the Lima Chamber of Commerce had estimated a substantially higher value of $1.86bn at the close of 2011. Global consultancy International Data Corporation (IDC) also pegged it at $1.25bn at the close of 2011.
Background
Internet access first became available in the mid-1990s, after a group of universities, private sector professionals and non-governmental organisations established the Peruvian Scientific Network (Red Científica Peruana, RCP) to create a nationwide academic network in 1990. However, support for the RCP was limited as the government, via the state-owned Compañía Peruana de Teléfonos, was concurrently laying out its own network. In 1994 Peru received its first TCP/IP connection, and in 1995 the RCP established a national network, a task that is still in progress today. Since the mid-1990s, internet penetration and the deployment of technology have grown at double- and triple-digit rates, as the government, private sector and the population all increasingly adopt technology.
The impact of technological development goes far beyond the IT industry by improving efficiency, communication and productivity across the economy. Until recently, the impact of technology on economies had not been systematically quantified. However, a 2009 World Bank study indicated that every 10% increase in internet penetration in emerging market economies corresponds to a 1.12% increase in GDP, with that figure rising to 1.38% if the connection is broadband.
Internet Penetration
At the end of 2012 the internet penetration rate, measured by the number of individuals using the internet, reached 38.2%, according to the latest available figures from the International Telecommunications Union. This figure is more than five times higher than the 7.6% recorded in 2001. However, it does not reflect teledensity, or the number of actual connections. Indeed, the majority of internet users access the web via internet cafes, often referred to as cabinas. As of March 2013, OSIPTEL figures show a total of 1.47m fixed internet connections, split between Telefónica (1.3m) and Claro (141.490), equivalent to a fixed-line teledensity of 4.58%.
Like the mobile segment, the internet segment, both fixed and mobile, is dominated by two main players, America Movil and Telefónica. Figures from the state regulator, the Supervising Organisation for Private Investment in Telecommunications (Organismo Supervisor de Inversión Privada en Telecomunicaciones, OSIPTEL), from March 2013 show Telefónica as having the majority of the fixed-line internet market with 1.3m ADSL connections, followed by America Movil with 141,490 and numerous smaller providers. In terms of mobile broadband internet, Telefónica, thanks to its larger share of the national mobile market, also held the lion’s share of subscriptions with 75.3% (2.08m) of the national total of 2.77m mobile broadband subscriptions. America Movil is the second-largest mobile broadband provider with 23.1% market share (639,365 subscribers), followed by Nextel with 1.6% (44,853 subscribers).
Meanwhile, government involvement in promoting access to internet and financing the expansion of the national fibre-optic backbone has become more prominent, particularly in the past two to three years. “This administration’s agenda undoubtedly revolves around the concept of social inclusion, and access to internet is a major step in promoting this as it entails access to information, access to the outside world and the support to move up the value chain in industry,” Gonzalo Martín Ruiz Díaz, president of OSIPTEL, told OBG.
State Involvement
Traditionally, the lack of state support for the IT industry has been one of the main criticisms from the private sector. And while the government still lacks a strong framework to support the industry, state policy toward the development of IT and innovation has become more defined over the past decade, thanks to establishment of several agencies, councils and funding mechanisms to aid in the transition toward a knowledge-based economy. In 2005 the National Council of Science, Technology and Innovation was formed to administer government activities in the sector, while also overseeing the National System of Science, Technology and Innovation, a multilateral body that was designed to create synergies between private, academic and public sector organisations. The Multi-Sector Committee for the Development of an Information Society was established to create a strategic framework to guide technological readiness. The result was the “Peruvian Digital Agenda 2.0”, a broad strategic document seeking to not only drive growth within the IT industry, but also promote technology within social sectors like health and education.
Major public sector spending on IT development began in 2007, when the government signed a loan with the Inter-American Development Bank for $25m to establish one of the first major funding instruments. The Science, Technology and Innovation Fund ( Programa de Ciencia y Tecnología, FINCyT) has since evolved to become FINCyT II and seen its budget increase to $100m to fund research projects, equipment purchases, as well as training for private and academic groups. The government now has several dedicated instruments, including the Fund for Competitive Research and Development ($80m); the Framework Fund for Science, Technology and Innovation ($115m); and the Telecommunications Investment Fund (Fondo de Inversión en Telecomunicaciones, FITEL).
Infrastructure Development
FITEL falls under the purview of the Ministry of Transport and Communications and ensures telecommunications access throughout the country. In July 2012 Congress passed Law 29904, otherwise known as the Law for the Promotion of the National Broadband and Fibre-Optic Network, to advance their development, particularly in the countryside where it mandates and supports the expansion of the national fibre-optic network to all provincial capitals first, and eventually to all districts as well.
As the private sector has already established internet and mobile phone services in the majority of coastal areas, FITEL has sought to bring infrastructure development to rural mountainous and jungle areas to the east through public-private partnerships. In recent years, the expansion of the national fibre-optic network has been the focus of FITEL’s digital agenda.
A multipronged approach has been adopted to establish an expansive fibre-optic network set out in the National Broadband Plan (NBP). The NBP, which was published in 2011, aims to increase broadband connections to 4m by 2016, while ensuring all community and government centres, including public schools and hospitals, are connected to the national network. The high costs of infrastructure in rural areas prompted legislation that required the construction of access ducts specifically designed to hold fibre-optic cable in all new highways. The same initiative is also being applied to new rail and electric lines. By law, 1% of taxes collected from telecommunications companies go directly to fund infrastructure development.
State investment promotion agency ProInversión will be auctioning $267m worth of concessions in December 2013 to expand the backbone of the national fibre-optic network to all 180 provincial capitals. Twenty bidders have expressed interest thus far. The project will consist of installing an additional 13,400 km of fibre-optic cable and will be co-financed by the federal government. “In addition to the upcoming concession, which will be partially funded by the government, there are a total of 23 regional projects worth roughly $1.5bn,” Germán Pérez Benítez, technical secretary at FITEL, told OBG. He added that spending on infrastructure, particularly with regards to the development of the national fibre-optic network, would likely outpace that of private sector operators in 2013 and 2014.
E-Governance
The government is not only supporting the IT industry through funding and policy, it has actively sought to increase its own online presence. Providing integrated IT services to government agencies and ministries has itself become a key driver of the segment. Though the push for e-government began in 2001 with the creation of the state web portal www.gob.pe, the use of IT for government services has become significant only in the past five years. The National Office of Electronic Government and Information (Oficina Nacional de Gobierno Electronico e Informática, ONGEI), set up in 2004, oversees e-governance. According to ONGEI’s Master Plan for E-Governance, by 2009 all state ministries had web portals, of which 41.2% were transactional enabled, 35.5% interactional enabled, and 23.5% only informatively functional.
Hardware
Within the private sector, it is the hardware market that continues to drive the IT industry, thanks to increased consumer purchases of phones, laptops, PCs and other equipment. In 2009, the Peruvian Association of Software Producers (Asociación Peruana de Productores de Software , APESOFT) and local consulting firm Dominio Consultores estimated the value of the hardware market would be $1.35bn in 2010, with a forecast value of $2.07bn by end-2012.
As in the rest of the world, purchases of tablets in Peru are expected to continue to grow rapidly, having reached sales of 356,000 units in 2012. Dominio recently released a study forecasting tablet sales to expand nearly 192% in 2013 to over 1m units. The same study indicated that sales of increasingly popular smartphones would grow 85%, from 1.5m units sold in 2012 to 2.85m units in 2013. Dominio’s study showed an 8% growth in laptop sales between 2012 and 2013, from 703,500 units to 758,500, respectively.
IT Services
Behind the hardware segment, the IT services sector is the second-largest contributor to overall industry revenues. APESOFT and Dominio’s forecasts show an IT services industry of $606m in 2012, up from $442m in 2010. Demand for IT services has grown tremendously over the past decade, thanks to economic expansion, and has attracted the likes of IBM, Dell and HP. The market has also begun to expand outside of Lima. “While the primary growth market is still with mid-market firms in Lima, we have seen increased interest in the larger provincial markets, such as Trujillo and Arequipa,” Ricardo Fernández, IBM general manager for Peru and Bolivia, told OBG. Integrated business solutions services have also become more technologically advanced as companies seek cloud and high-level security services on a more regular basis SOFTWARE: While developing rapidly, the software industry is still fairly small, especially compared to the region’s giants Uruguay and Costa Rica. There are more than 300 formal, registered software firms, though many are micro and small enterprise start-ups. Accurately tracking the revenue derived from the IT industry can be difficult. Software sales may or may not end up passing through Customs, and some software companies have offices outside Peru where projects that are worked on entirely or in part are sold outside of the country. Rolando Liendo, former president of APESOFT and CEO of software company Lolimsa, told OBG, “More than $300m worth of software sales passed through Customs in 2012. However, the actual figure is probably even slightly higher.”
For the most part, companies have found niches in areas like health, finance and anti-virus software. Despite relatively strong growth rates in these segments, there are several constraints, particularly in the form of lack of private sector investment and government support. Unlike sectors like mining, communications and construction, which are the recipients of heavy investment, software firms have received relatively little interest from investors due to their perception as a high-risk/ high-reward venture. Lastly, while the use of Spanish provides software firms with access to the Latin American market, where they sell the majority of software exports, it simultaneously restricts growth in major markets such as Brazil, the US and Europe (excluding Spain).
E-Commerce
Peru accounts for 1.4% of e-commerce in Latin America, according to figures from business publication América Economía, and is one of the fastest-growing segments in the industry. Having grown from $145.5m in 2006 to $611m in 2011, initial estimates from 2012 indicate the market could have grown by as much as 40%, bringing the total to more than $800m. This means sales through e-commerce are likely to reach $1bn in 2014. The rapid growth of e-commerce has been driven in part by the expansion of business-to-business (B2B), where companies like e-biz Latin America have experienced tremendous growth. In fact, the quick fire success of e-business has attracted Alibaba.com, the world’s largest B2B e-commerce site, to open its first Latin American platform in Peru.
Human Resources
The development and retention of qualified professionals is a top priority for fast-growing companies, particularly within the IT services and software industries. Peru used to produce a sufficient number of general software engineers and IT professionals. However, over the past five years the turnout of IT professionals from universities and training institutes has not been able to keep up with the growth of the IT industry, resulting in a shortage. Companies at times seek specialised personnel for higher level tasks from places like Colombia, Uruguay and the EU.
Research & Development
The shortage of human resources has also hindered the development of research and development (R&D ) programmes, though the main problem has been a lack of funding. Government funding for R&D remains low, averaging just 0.15% of GDP. This is well below the Latin American average of around 1%. In January 2013 Galdys Triveño, the minister of production, announced that the federal government planned to increase spending on innovation and R&D to 0.7% of GDP by 2016, with the ultimate goal of boosting expenditure to 1.5% of GDP. This will be achieved by increasing the budgets of several of the state instruments that target scientific and technological development and innovation.
Outlook
While IT infrastructure, services and business remain at a slight competitive disadvantage locally when comparing Peru to regional peers, the rapid growth across virtually all sub-segments of the industry is encouraging. The IT market is expected to continue expanding, with IDC predicting growth of 8% through 2015. Renewed government interest in supporting the development of the industry is indicative of the rising status the sector has enjoyed in recent years.
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