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The technology sector in Colombia: An increasingly important industry for economic growth

by | Nov 5, 2023

The technology sector in Colombia has been growing in recent years, so much so that this sector currently occupies an integral part of the gross domestic product (GDP) and the country’s labor market.

According to Colombia’s Software and IT Federation (Fedesoft), since 2010, companies belonging to the technology sector in Colombia have grown progressively. For that year, the sector’s sales as a percentage of GDP was 0.40%, while in 2015, it increased to 1.19%.

After five years and driven by the pandemic, the country’s technology industry grew 7.3 times its value and generated over 150 thousand jobs, reaching 2.94% of GDP, a figure maintained in 2021 and 2022.

The above statistics have led to the country being positioned as the fourth largest country in Latin America for the technology market, surpassed only by Brazil, Mexico, and Chile.

Global innovation index

As is customary, every year, the World Intellectual Property Organization (WIPO) publishes its report on innovation. In the 2022 edition, the technology sector in Colombia registered an improvement compared to the 2021 edition.

What is the Global Innovation Index? This is a report carried out by WIPO that provides results parameters and classifies 132 economies based on their technological innovation ecosystems.

To rate each country, WIPO measures innovation by considering approximately 80 indicators grouped into innovation inputs and results.

Some of the indicators that are taken into account are:

  • Institutions
  • Human capital and research
  • Infrastructure
  • Credit
  • Investment
  • Bonding
  • Creation
  • Absorption and dissemination of knowledge

In that order of ideas, the results in 2022 that the technology sector in Colombia obtained were quite positive, as it rose in the rating by occupying position 63, compared to 2021, when it was ranked 67.

Additionally, the country ranked 15th among the 36 upper-middle-income countries and fourth among the 18 economies of Latin America and the Caribbean.

The above is because Colombia performed above the average of upper-middle-income countries in three of the seven pillars analyzed: infrastructure, business sophistication, and institutions.

Another relevant fact from the 2022 Global Innovation Index report was that the technology sector in Colombia performs better in innovation inputs than in production.

This means that innovative products are different from the investment made in technology. In other words, the investment is good, but its benefit is limited.

The banking sector is the most innovative

Despite this imbalance between investment and production, the country stands out in areas such as fintech, health, gas, oil, energy, logistics, telecommunications, marketing, and big data.

Fintech technology applied to the banking sector has become a benchmark in the region due to the maturation and modernization of systems, among many other activities that have facilitated access to financial services.

In fact, according to Asobancaria, in the last five years, these entities have invested just over 700,000 million in technological innovation in digital services. An example is some figures that Asobancaria, in its Sustainability Report, has revealed. In 2021 alone, 32% of the transactions that consumers made were carried out in physical channels, while 48% moved through digital channels.

Consequently, physical offices decreased by 3.1% annually, going from 7,238 in December 2020 to 7,014 in 2021. This reduction was more noticeable in cities such as Bogotá, Medellín, Cali, Bucaramanga, and Barranquilla.

Likewise, the report highlighted that as of December 2021, there were 394,728 correspondents, of which 957 were mobile and 161 digital.

Correspondents are understood as those devices with which a third party makes available to a user a web or mobile application that connects to the bank’s network to use its services.

For its part, Colombia Fintech has demonstrated that the country is the third economy in Latin America in the digital banking segment, with a growth of 39%.

Export quality software in the technology sector in Colombia

In this boom of the technology sector in Colombia, it is worth highlighting the role that the software and information technology industry is playing. In 4 years, the country went from having 8,800 to 10,000 companies dedicated to software development activities.

The emergence of these new companies has also promoted the export of their technological solutions to countries such as the United States, Ecuador, and Mexico, whose participation is 33%, 14.1%, and 8.3%, respectively.

Technology challenges in Colombia

Although the indices show that the country has made serious progress, there are still several challenges for technology in Colombia to benefit all population sectors and some industries that have yet to be left behind.

To achieve this, the existing digital divide in rural areas must be reduced, women should be included more in this sector (offer them financial products and services in accordance with their reality), and MSMEs should be trained in the use of these digital tools since many of these Small businesses view the use of technology for their operations with suspicion.

Another challenge is to work and deepen the regulation of all these applications since there are still specific gaps that can generate problems in the future.

Despite challenges, investing in the technology sector in Colombia presents a multitude of compelling benefits. Firstly, Colombia boasts a rapidly growing tech ecosystem characterized by a pool of highly skilled and talented professionals, many of whom are educated in top-notch institutions. This ensures access to a dynamic and innovative workforce, crucial for the success of any tech-driven enterprise. Additionally, the Colombian government has demonstrated a strong commitment to fostering the sector’s growth through various incentives and policies, including tax breaks and grants, encouraging local and foreign investors to participate in this burgeoning industry. Furthermore, the country’s strategic geographic location in Latin America is a gateway to a vast and expanding market, offering ample opportunities for market expansion and regional collaboration. With a steadily increasing internet penetration rate and a tech-savvy population, the demand for digital solutions and services in Colombia is poised for sustained growth. Ultimately, investing in the technology sector in Colombia not only offers the potential for lucrative returns but also contributes to the advancement of a dynamic and forward-thinking economy in the region.

Contact LATAM FDI to discuss your foreign direct investment plans in Latin America.

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