Can Colombia become a regional hub for technology entrepreneurship?

Like many markets in Latin America, Colombia’s economy has begun to slow as global energy prices have fallen sharply. Indeed, FSG’s own forecasts for Colombia’s GDP growth in 2015 have fallen from 4.5 percent last July, when the spot price for Brent crude was $110 per barrel, to 3.6 percent today with oil at $59 per barrel. However, while Colombia’s economy has proven vulnerable to the slackening of global tailwinds that drove growth across much of Latin America during the past decade, Colombia’s government has been actively seeking to mitigate its exposure to future shifts in the external environment by encouraging internal economic diversification.

Some of the more interesting efforts in this regard have been government programs aimed at stimulating technology entrepreneurship. Over the past few years, government-sponsored professional training programs and tax incentives have attracted a $6.8 billion technology industry to Colombia, with 1,800 software development and IT service companies registered in the country.

Meanwhile, various accelerators have emerged in Colombia’s major cities, particularly Bogotá and Medellin, aimed at spurring entrepreneurial activity and innovation in the technology sector. Furthermore, investor appetite is growing in Colombia in general; 37 private equity and venture capital funds are active in the country with more than US$ 4.3 billion in investment commitments and closed funds and close to US$ 2.4 billion in the process of fundraising.

ColombiaTechHub2

The combination of favorable government policy and a strong investment community has the potential to jump-start a vibrant tech ecosystem, and the government is keen to build upon its early progress, particularly in a time of slowing economic growth in other sectors.

To this end, in mid-2014 the Colombian government announced Phase II of the Vive Digital Program, a $10 billion nationwide effort that aims to make Colombia a world leader in the development of applications for lower income citizens in order to lift them out of poverty and improve their quality of life. The program also seeks to make Colombia’s government the most transparent and efficient in Latin America through the use of information and communication technologies.

ColombiaTechHub1

Phase II will build upon the success of Phase I, and aims to: (1) triple Internet connections from 8.8 million in 2014 to 27 million in 2018, which would give Colombia similar levels of Internet penetration to those in Belgium or Italy; (2) boost Internet penetration in households and small businesses from 45 percent to 63 percent, and 60 percent to 70 percent, respectively; (3) double the number of companies in the IT sector to 3,600; (4) triple IT sector revenues to $10.4 billion and the number of IT employees to 117,000 by 2018; and (5) continue subsidizing low-income family purchases of PCs or tablets, and maintain the lowest price for PCs throughout the region.

It remains to be seen whether Colombia will be successful in meeting the ambitious goals laid out in the Vive Digital Program, however it is clear that its government is thinking about the future of its economy in a way that is sure to create opportunities for multinationals that are hungry for expansion in the market.


For more on Colombia’s outlook, FSG clients can access our Colombia Quarterly Market Review on the client portal. Not a client? Contact us to learn more.

Leave a Reply

Your email address will not be published. Required fields are marked *