How the tech sector is encouraged to become a driving force in the Colombian economy

Key Findings

— Innovation is seen as an important policy goal
— Royalties from mineral exploitation boost the tech scene
— The development of innovative apps has a high priority
— Founding a startup is nonetheless still quite complicated

Tech-center Ruta N in Medellín

In a rundown neighborhood in Colombia’s second city, Medellín, lies what political leaders hope is the key to the future. From the outside, it resembles an enormous, crumpled shipping container burnt red by the sun. Inside are the offices of one of the biggest tech incubators in Latin America. Founded in 2009,Ruta N aims to bring together expertise from academia, the public sector, and the private sector. Their ambition, explains communications director Sergio Naranjo, is to build innovative companies.

The sprawling campus offers a co-working area, conference facilities, and permanent office space. Not only do they try to motivate and train local university graduates to start their own tech business, they also want to attract large companies from abroad, to set up base here. As of February 2019, more than 150 companies from two dozen countries operate from the Ruta N complex.

Inside tech-center Ruta N

Calling Ruta N "Colombia's Silicon Valley," might be an exaggeration, but it nonetheless points to the significance and hope invested in it. "By 2021, innovation will be the driving force of the economy and welfare of the city, based on a world-class [tech] ecosystem," is how the innovation center describes its vision.

Innovation as a path toward the future

"Innovation is essential to tackling the challenges Colombia faces," according to anOECD Review of Innovation Policy report from 2014. It argues that, "the potential significance of innovation for Colombia’s socioeconomic transition has been acknowledged and given prominence in the National Development Plan 2010-14" and mentions "a noteworthy increase" in resources for science, technology and innovation after the distribution regime for mineral exploitation royalties was restructured. The government has made significant investments in tech, including through tax incentives. President Iván Duque, in office since 2018, has promised a five-year income tax exemption for new entrepreneurs in the creative sector – the so-called "orange economy."

There are other signs that Colombia is making progress. In the Global Innovation Index 2018 report the country was ranked 63rd and was classified, for the first time, as an "innovation achiever," meaning a country that "performed at least 10 percent above peers in their income group."

Apps for everything and everyone

For the Colombian economy, startups are of growing importance. Many of them use co-working spaces, which have emerged not only in Medellín, but also in the capital Bogotá and other major cities. "The co-working community has grown quite a lot," says Juan Morales from HubBOG, a "Campus for Startups, located in the north of the capital. "About 5 years ago we had less than ten co-working spaces in the whole city, now there are several in every barrio." They vary in size and organizational structure, from small living rooms to the offshoots of international companies such as WeWork.

HubBOG works with the Ministry of Communication's Apps.co initiative, which aims to "help transform ideas into sustainable businesses." According to their figures, Apps.co has helped 2,175 teams and companies since its creation in 2012, and claims to have created the "largest digital entrepreneurship community in Colombia and a benchmark in Latin America." In "boot camps," participants collaborate to find digital solutions for problems in their regions. By the end of the initiative, the hope is that they will have some kind of ICt business, ideally using mobile applications.

Food delivery driver for "Rappi", Larry Salas

Successful apps are invited to join the "Team Startup Colombia" initiative and receive further support. The most famous example is "Rappi," a startup that delivers food or other goods —even cash —  using freelance bike messengers, who connected through the app. Since its founding in 2015, the company has grown rapidly, first in Bogotá and other Colombian cities, and then abroad. Having reached a $1 billion valuation in its 2018 investment round, it became Colombia's first unicorn company.

Not only has the app significantly changed consumer behavior, it’s also created employment opportunities for people, often migrants, who previously struggled to find regular work. Tappsi, a taxi service, is another widely used app, which owes much of its success to changing social habits. By incorporating several safety features, they are better able to respond to the needs of Colombian customers. Tappsi, which has been supported by from incubators and accelerators, has since merged with the Easy Taxi app from Brazil, which claims to be the most downloaded taxi app in the world.

Still a difficult environment

On the one hand, Colombia has become a very attractive market for global tech firms to introduce new products. For example, it is the first country in which Facebook rolled out its new dating feature to test out how it would be received. On the other hand, there are strong headwinds facing traditional companies that fear for their bottom lines. Due to a recent fiscal reform, platforms like Uber, Netflix or Spotify, have to pay 19% VAT. As a consequence, Uber – which operates in a legal grey zone in Colombia – has raised its prices by 7%.

As far as national start-ups are concerned, local conditions are geared more toward traditional companies. Economist Camila Perez from Fedesarrollo, a thinktank, believes that it is therefore not that easy to launch a start-up in Colombia. Founding a company requires navigating a complex bureaucratic process and there are few angel investors to help with financing. Until recently, crowdfunding was not an option since collecting money from a large number of people was illegal— to clamp down on pyramid schemes.

"Now [crowdfunding] is possible, but the environment is still not optimal for startups," Perez says. It is also very difficult to find the right staff – including skilled app developers. "People coming from the universities don't really have the capabilities that start-ups need."

What experts say

Camila Perez, economist and deputy director of Fedesarrollo, a think-tank in Bogotá

For Camila Perez, who worked for the IMF in Washington, DC, before joining the Bogotá-based thinktank Fedesarrollo, there is too much regulation, which stifles innovation. "Regulation is slowing down the development of the digital economy," she says. Regulatory rules, she says, were designed at a time when a small number of large companies dominated, long before a fragmented vibrant, start-up scene emerged.

Ginna Morelo, co-founder of Consejo de Redacción and data journalism editor at "El Tiempo"
Morelo sees a huge potential for innovation in the media landscape. "The new digital media are more innovative than the much larger traditional outlets," she says. "But the newsrooms of the national newspapers are also becoming more and more digital." For her, it's important that journalists work in interdisciplinary teams, together with developers and graphic designers. 
 

Carlos Gonzalez, director of Makaia, an NGO in Medellín

Makaia recently launched a project to measure air quality. "In doing so, we want to sensitize the community to the problem," Carlos Gonzalez says. "We train people to use low-cost measuring devices that are installed in several places." Later, the data is uploaded to a global platform where you can get an accurate picture of the situation. According to Gonzalez, this project demonstrates how "the internet of things" can be easily used to analyze and hopefully improve living conditions.

Recommendations

— More cooperation between actors
It is important for the development of the Colombian tech sector that the various actors — government, universities, companies —  deepen their cooperation. In particular, university education in the software programming must be improved to meet current requirements.. 

— More open source approaches
When it comes to technological development, especially in the app sector, open source approaches must be further encouraged. On the one hand, this will enable the participation of less resource-rich actors; on the other hand it will guarantee high data protection and data security standards.

— More sustainability in citizen participation

In terms of open data and citizen participation, positive approaches exist in Colombia. For example, "MiMedellín", a platform for open innovation and citizen collaboration, was set up in 2013 and won the Inter-American Award for Innovation for Effective Public Management by the Organization of American States (OAS). But today, the site lies dormant. Such initiatives should be made permanent in order for them to have a lasting impact.

The #speakup barometer is a DW Akademie project that examines the connection between digital participation, freedom of expression and access to information. Learn more at www.dw.com/barometer