What Colombia’s National Development Plan Means for Tech Sector

The National Development Plan, called the ‘Pact for Colombia, pact for equity’, focuses on a range of areas, but also seeks to build on the growing IT economy. Bogotá, Medellín, Cali, Barranquilla and the Coffee Region house the largest number of investment projects in this sector, but this is set to grow.

National Development Plan

Addressing everything from climate change to tax incentives, Colombia’s recently announced National Development Plan 2018 – 2022 of the Government of President Iván Duque lays out the country’s trajectory for the next 4 years. Significantly for the tech sector, it offers investments of COP $21.2 billion (US $ 6.5 bn) to strengthen the Science, Technology and Innovation (STI) sector, with the purpose of boosting economic growth in the country. The Plan was finally approved in May, amid controversy and protests from unions and opposition lawmakers, who felt it did not provide enough social and workers’ needs funding.

The Plan, called the ‘Pact for Colombia, pact for equity’, focuses on a range of areas, but also seeks to build on the growing IT economy. Colombia is the fourth largest market in the IT sector in Latin America and, according to investment agency ProColombia, the country has a strong and attractive environment for the development of the IT industry, thanks to the support of the National Government and the commitment of the private sector, which has influenced the arrival of global players that find in Colombia an export platform.

One of the most recent examples that reveals the country’s potential is the arrival of Amazon: the online retail giant chose Colombia instead of Chile and Argentina to open its South American Customer Service Center in the capital, Bogotá. In addition, Colombia’s second largest city, Medellín, was chosen by the World Economic Forum to host the first Center for the Fourth Industrial Revolution in Latin America, which will boost research on topics such as blockchain, IoT, drones and precision medicine.

A Growing Sector Across the Country

According to the IDC (International Data Corporation), the Colombian software and IT industry has doubled its sales in the last 7 years and, in 2017, it reached 9,500 million dollars, with 56.5% of hardware sales, a 32,2% of IT services and 11.4% of software. Strong domestic demand is being generated especially by manufacturing, public, financial and agricultural sectors. Additionally, a growing number of foreign companies are choosing Colombia to develop their software services using nearshore / offshore concepts.

International projects related to the IT industry generated investments of more than 1,800 million dollars between 2010 and 2018. In fact, Colombia ranks as fifth for new foreign investment for this sector in Latin America. Bogotá, Medellín, Cali, Barranquilla and the Coffee Region concentrate the largest number of investment projects in this sector, ProColombia says.

Within this context, the National Development Plan is a welcome boost for a growing sector. According to ProColombia, the Plan aims to increase public and private investment in science and technology and innovation to 1.5% of GDP. For this, it opens the door for (STI) public funds to be used for rediscount credit lines, with the purpose of financing projects in companies.

“The Government seeks to create better conditions for the creation of companies in areas of Science, Technology and Innovation, which will lead the country to strengthen the relationship between technical scientific knowledge and private initiatives,” a spokesperson for ProColombia says. The National Development Plan seeks to expand tax benefits to encourage companies to link new PhDs dedicated to research, development and innovation.

Craig Dempsey believes Medellín has become one of the world’s most attractive hubs for innovation.

Craig Dempsey, Co-founder and Managing Director of Biz Latin Hub, believes that, while traditionally known as an agricultural powerhouse with an abundance of natural resources, Colombia has shown strength in its capacity to accommodate technological innovation. “However, local shortages in technology-focussed skillsets means Colombia must reach out to foreign investors and businesses to build its technological capabilities,” he says.

A great example of this, in Dempsey’s view is Medellín; a city that, through careful planning and promotion, has become one of the world’s most attractive hubs for innovation through the establishment of Ruta N  in 2009. Multinationals such as Big Data leader Yuxi Global have since joined over 148 tech-based start-ups in establishing a base in the city.

Australian data innovation agency, 2ThinkNow, now recognizes Medellín as a ‘global innovation hub’ in its 2018 Innovation Cities Index – one of only 6 in Latin America.

Incentives for Growth

Dempsey believes that Colombia’s National Development Plan demonstrates a willingness to build momentum on rapid growth and economic diversification. “The pro-business and foreign ownership government in Colombia is proving a strong enabler for tech-driven companies, small and large,” he says. “Colombia has set its eyes on a number of ambitious development goals, and maintaining the limelight as one of the region’s quickest-advancing economies is a clear driver behind this Plan.”

In ProColombia’s view, in promoting the arrival of more global players to Colombia, the Plan helps in making Colombia a regional technology hub.

Several intersecting programmes on the Colombian government’s agenda are highly conducive to luring innovation technology businesses into the region from Dempsey’s perspective. The National Development Plan outlines tax incentives in force from January 2019 in favour of boosting the country’s ‘orange economy.’

“In other words, the country’s culture, arts and media/software industries are offered covetable tax exemptions (for between 5 and 7 years) and rebates on their investments through ‘zoning’. This paves the way for significant opportunities in information technology and software production, among other ‘creative’ industries,” he says.

Depmsey adds: “And businesses are responding: Endava, a multinational technological innovator, chose Bogotá as its first base for establishing operations in Latin America based on Colombia’s economic performance and investment-friendly policies.”

Micro, small and medium enterprises are also given a boost with incentives and development support. Technological innovators coming in the form of startups seek venture capital funding, and Colombia wants to enable this. Already, the country is top in the region and sixth worldwide for investor protection.

“Many of Colombia’s ruling sectors have much to gain from innovation; agriculture, food, finance, and retail and other service industries are undergoing their own technological revolutions,” Dempsey explains.

“To encourage the private sector and investors to join the Government’s plans and build a true digital revolution, the plan includes the implementation of incentives such as digitalization of the relationship between the State and employers, which will allow measures such as reduction of time in processes, such as those that companies now spend in registering their employees within the social protection system,” ProColombia adds.

The government is promoting the law to modernize the ICT sector that was approved by Congress and now passes to presidential sanction. “This law guarantees greater connectivity in most remote areas of the country, broad spectrum licensing periods and opens the door for the arrival of 5G technologies. This opens new investment opportunities for companies that can develop projects and contribute to the connectivity of rural and secluded Colombia,” ProColombia says.

4IR Challenges are Opportunities, too

ProColombia believes that, while there will be challenges, the opportunities will outweigh these. The sector will still need to grapple with issues such as how to facilitate the connection of people and devices through the internet of things (IoT), and how to address Cloud, given the amount of applications and data consumed, shared and saved daily.

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“Machine learning, artificial intelligence, analytics and Big Data will continue to facilitate the way to manage, analyze and extract intelligence and essence of the data. Likewise, Blockchain, automation, robotics and everything related to mobile devices will continue to be relevant,” ProColombia says.

For Colombia, the implementation and adoption of 5G technology for mobile networks is under way, which will give greater speed of access to data in mobile devices, the increase in speed for fixed broadband accesses, and the definition of the proposed plans in the modernization of ICT Law of the Ministry of Information and Communications Technologies.

These challenges, then, are as much opportunities as they are obstacles and with the nurturing of the tech sector through the National Development Plan, Colombia’s IT sector will look to innovate in these areas.

Dempsey says: “As digital literacy in the country and region increases, so too does the demand for e-commerce, mobile commerce and other online services. IT and other tech startups can find plenty of opportunities in these emerging ‘value-add’ industries. Colombia’s growing middle class (both by population and wealth) drives demand and economic growth, and that growth depends, to a significant extent, on the technological revolution of many of the country’s traditionally labour-intense industries. For this reason, tech businesses can comfortably forecast sustained commercial success in these areas.”

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