UPDATES IN PROGRESS

Colombia 2018 | TELECOMS & IT | REVIEW

Colombia has seen internet adaptation growth that has put it on par with Latin American averages, but an improved regulatory structure is needed to help the IT sector meet its full potential.

Colombia's IT industry has become a larger part of the country's economy as mobile and broadband penetration rates have increased steadily over the past decade. Though it still lags behind Latin American and OECD leaders, Colombian leaders are confident that the growing IT sector can become key a source of jobs, foreign investment, and innovation. The establishment of tech clusters in Bogotá and Medellín and a corresponding push to teach tech literacy skills in schools has given the country reason to believe that the technology industry can add value in a range of ways. In the long run, industry leaders foresee the tech industry providing solutions across a range of industries: helping increase healthcare access in rural regions, giving the government new tools to combat smuggling, and linking manufacturers with new markets.

The increase in Latin American internet connectivity rates has been fueled by mobile phones, and Colombia is no different. According to mobile research firm GSMA, Colombia had a mobile penetration rate of 66% in 2016, slightly below the regional average of 70%. Just under half of the country used mobile internet services, and smartphone adoption rates were at 44% as of 2016. After a few years of stagnation, network investments and improving economic conditions have led to improved growth, and analysts expect coverage and adaptation rates to increase significantly over the next few years. GSMA projects mobile subscriber rates to increase to 79% by 2020, with smartphone adoption rising to 67%. This has come on the back of improved network infrastructure, long one of Colombia's largest barriers to growth due to its difficult geography. Thanks to more than USD9 billion in network investment since 2010, more than 92% of Colombia's population has access to 3G networks as of mid 2017, with 65% of the population able to use the latest 4G networks. An additional USD5 billion in investment planned from 2017 through 2020 should bring Latin America's fourth-largest mobile market on par with the best in the region.
The economic benefits of such internet expansion have been significant. GSMA estimates that mobile technologies and services contributed more than USD10 million to Colombia's GDP in 2016, and forecasts that figure to increase to USD13 billion by 2020. The government's contributions to the ICT sector have primarily taken the form of building infrastructure and developing an environment conducive to tech investment and knowledge clusters by being aggressive in distributing funding. Although Colombia's population and improving mobile access rates give it significant potential for tech industry growth, the lack of an established venture capital network has served as a barrier to growth. In response to this, the Colombian government founded iNNpulsa in 2012. iNNpulsa focuses on small businesses and entrepreneurs, offering grants to promising tech firms with innovative models. It has also worked in coordination with the World Bank and other international development organizations to form additional funding agreements and bring best practices to the country.
While these programs have been largely successful in building up a national tech industry, industry and government leaders recognize that private investment will ultimately be the key factor in determining how impactful Colombia's IT sector can become. The number of private investment firms has been steadily growing, and major international firms such as Google and Facebook have opened up permanent offices in the country. Currently, tech industry investment is concentrated in Bogotá and Medellín; the latter has gained international prominence for its smart city initiatives and financial commitments to technology incubation centers. However, the sector's regulatory structure has also posed problems for some private investors, and industry leaders believe that changes will be needed to better position the sector for success. Colombia's system of sector-specific taxes places one of the highest burdens on telecom providers in the region, and an overly complicated digital regulatory oversight structure has reduced competition and served as an obstacle for outside investment. Change on this front appears likely to come soon, as the OECD has recommended changes as part of its review of Colombia's ability to join. Improvements in this regard will be one of the easiest ways to increase competition and expand access to key technologies for consumers and businesses.