Money to invest in tech? Check out Colombia

By Jeremy Wilson on June 13th, 2012

A drive down Colombia’s Transverse Route 40, the highway connecting the capital city Bogotá with the country’s heartlands, should be an indispensable undertaking for anyone wanting to understand the astonishing infrastructural developments taking place in a nation still synonymous with the drug trade. The twisting descent through an endless cascade of plummeting precipices that characterise this part of the Andes might at first distract from the monumental changes afoot.

Take the shiny new metal barriers, just a decade ago the only defence against a plummet into oblivion were shrines where motorists lit candles, the effectiveness of which the masses of crosses that littered the road edge did not attest to. Now the only things littering the road are construction crews sculpting new gravity-defying bridges and signs detailing ambitious plans to conjure new dual carriageway sections along this already extraordinary ribbon of tarmac.

Pass through the huge tunnel that bypasses a particularly treacherous twelve-mile stretch of mountain pass and you finally come to what may be the closest experience available today to a Wild West town in the midst of a Gold Rush: Villavicencio.

The transformation of Colombia’s rural towns into shopping centre-flanked metropolises is a story in itself, but those on the trail of further-reaching transformation should leave town and continue along Route 40 as it heads east into the vast Los Llanos, a tropical grassland plain that stretches into Venezuela.

As you pass the sprawling palm oil plantations springing from the virgin earth, take the time to appreciate that barely a decade ago, the road you’re sharing with an endless convoy of consumer goods laden American-style trucks thundering in the opposite direction was only partly paved. In the rainy season, the only way for intrepid travellers to negotiate the flooding was to strap their 4x4s to canoes provided by entrepreneurial locals.

After 100 miles, travellers should pull off down a dirt tack towards the village of Humapo, home to the few remaining Achagua Indians, one of the indigenous groups that once colonised these plains. Continue past the mud huts thatched with palm and you will discover a recently-built village school, smartly painted in mint green and emblematic of the extent of the Colombian Government’s investment into technology infrastructure. Only five years ago, civil war raged around the village school in Humapo. Now, it has computers and satellite broadband.

Extreme connectivity and the expeditious nature with which online infrastructure is spreading across the country is the result of a recent government initiative called Vive Digital. It’s a four year project that aims to double the households connected to to the internet (to 50 per cent) and increase SME web access from seven per cent to 50 per cent, as well as connecting and equipping 6,800 schools. More than $2 billion is being invested in a push to close the computer and internet penetration gap with nearby countries such as Chile, Mexico and Brazil.

The level of spending is as impressive as the speed with which results are manifesting: according to the Government, in just two years, the total number of internet connections has increased from 2.2 million to 5.2 million.

Investing in infrastructure and education is Colombia’s Get Out Of Jail Free card to meet the demands of a growing young population. Let’s be clear: the freshly painted, internet-connected schools are often jewels gleaming in the shanty towns that sprawl from the cities; 37 per cent of the population subsist below the poverty line, a proportion that’s decreasing, but still indicative of staggering wealth inequality.

It is hardly news that Colombia has vast untapped natural resources and hardly a surprise therefore that local investors are ploughing their money into oil, gas, minerals and agriculture. It’s a no-brainer to buy your way into traditional investment classes when risk levels are known and the opportunities are so tempting. Remember those palm oil plantations?

The Colombian Government plans to expand land use for exportable cash crops by 6 million hectares by 2020, an increase of 600 per cent. Colombia is producing so much coal that China is considering funding, to the tune of $7.6 billion, a “dry canal” railway to rival the Panama Canal. It would, in essence, serve as China’s personal delivery service, expediting coal direct from the mines to the awaiting ships on the Pacific coast.

This preoccupation with a natural resources gold rush is leaving an untapped technology sector wide open to outside investment. One former venture capitalist based in Colombia told me they believed the top ten most promising tech companies in the country are headed by non-natives. For people who understand the market and want to invest in a nascent information economy, the opportunities on offer are breathtaking.

Despite being conservative when in comes to investing in technology start-ups, Colombians are extremely proficient early adopters. In Mark Zuckerberg’s infamous interview with Sarah Lacy at SXSW in 2008, he cited the astonishing growth of Facebook in Colombia during first month of the site being available in Spanish.

It’s a paradox of which Alan Colmenares, a 15 year veteran of the Latin American tech scene tries to make young start-ups aware of in his current role as facilitator for the Founder Institute program in Colombia. “Colombians are excellent consumers. Entrepreneurs are only just waking up to the opportunities their country has to offer.”

The potential for e-commerce should be enough to make London-based entrepreneurs look up from their restaurant recommendation apps and salivate with excitement in a manner not seen since the heady days of web 1.0. Despite a quarter of Colombian households being connected to the internet, only 5 per cent of Colombians shop online. The slow uptake is a combination of a conservative attitude towards change with little perceived benefit and fear of paying online, engendered by a culture of corruption, of which more in a moment.

Perceptions are beginning to change among the burgeoning middle class as online enterprises launch into a market ripe for exploitation. You might still be able to buy a three-course meal for less than $5 (provided you don’t look like a gringo) in the capital, but electronic items are more expensive than in the US and fashion merchandise can have mark-ups of 100 per cent over other countries.

Flash sale and daily deal sites are entering the market and lighting the e-commerce fuse. If Colombians were to warm to online shopping in the way they did to social networking, there’s no reason that the increase in e-spending couldn’t outperform Brazil’s year on year increase of 80 per cent between 2007 and 2009.

Rocket Internet has just entered Colombia and are probably cloning every sales platform under the sun for the local market. Don’t be surprised when, in a couple of years, they sell their products for millions amid the inevitable wailing and gnashing of teeth from some quarters of the tech blogosphere.

Corruption does still cast a shadow over life in Colombia and is a major factor in the discomfort some feel when making online transactions. The problem is exacerbated by the fact that, as is common in the region, most people don’t have a credit card. Less then 10 per cent of Latin Americans have one and such is Colombia’s reputation, some international processors won’t even accept a card registered in Colombia. While this is clearly a hindrance to the uptake of online commerce, it is providing opportunities to those getting their snout into the trough first.

One of the first continent-wide success stories to come out of Colombia is payment system Latin American Payments. By focusing on fraud prevention and alternative payment methods such as customers paying for their purchases in cash at a bank, they are holding off the likes of PayPal by inventing, not reinventing, online payments.

In April of this year, Colombia hosted the Summit of the Americas. Chances are the only reason you’ve heard of it is because a US Secret Service agent had a transactional disagreement with a local purveyor of felicity. It was an incident the international press took much delight in and the image of drugs and pneumatic beauty queens may take some time to shake off – not least because, and there’s no way of getting around this, Colombia still produces loads of drugs and is still obsessed with beauty pageants.

But as much as we may chortle at headlines such as “Excessive use of porno and dating websites is the reason the internet connection of Colombia’s congress is slow and frequently collapses”, los Colombianos are on their way to becoming a significant economic force in the global online marketplace.

Entrepreneurial spirit is engrained in Colombian culture, as evidenced by the 1.5 million micro-enterprises; 96 per cent of the country’s total businesses. According to a survey, aside from accessibility, the main reason only 7 per cent of those micro-enterprises didn’t have an internet connection in 2010 is such businesses still struggle to see the benefit in having one. But when the benefits of the online world start to reveal themselves to the average Colombian, all that will change. Fast.