Tech trends 2020: LatAm poised for growth despite political turmoil

Tumultuous political climate does little to dampen tech optimism across the region.

It's been another tumultuous year for Latin America - a year of violent protests, coups, the rise of the far-right, environmental crisis, and more. Yet the region's tech sector has seen some of the most significant investment of its history in the last 12 months and experts are increasingly heralding Latin America as one of the global tech hot spots to watch.

The region has grappled with political, social and economic uncertainty across countries for some time and 2019 has certainly seen its share. Yet, the continued growth of its middle class, coupled with a relatively stable economic outlook for the big players on the continent, have meant that its digital credentials continue to grow.

Poised for growth

Digital transformation could hold the key to really leveraging the power of the middle class.

Jaana Remes, Partner at McKinsey Global Institute, and Homi Kharas, Interim Vice President and Director - Global Economy and Development at Brookings Institution, wrote in an article for the World Economic Forum: "Digital entrepreneurship is on the rise, with new platforms and applications in e-commerce and digital finance emerging across the region. And several Latin American digital startups have already achieved valuations of over $1 billion, while creating new, more productive jobs. Decades of weak growth in Latin America have left large parts of the population economically vulnerable. But by taking advantage of digital disruption, the region has a golden opportunity to nurture faster growth that benefits everyone."

Polymath Ventures notes that Latin America surpasses long-touted emerging regions in many metrics - from its 57% Internet penetration which puts it ahead of Southeast Asia, South Asia or Africa to the amount of time Latin Americans spend online, which is much higher than their global peers at around 3.5 hours for Brazil, Mexico, and Argentina.

Two of Everest Group's analyses, the Market Vista Annual Report 2019 and Predictions for Global Services Delivery Locations 2019, point to Latin America as a growing, competitive destination for the delivery of IT services, spurred on by its cultural affinity for and proximity to the US, the region's skilled tech talent, language proficiency, and an ecosystem increasingly geared towards tech start-ups. Mexico, Argentina, Brazil, Colombia, and Chile are ranked as the top five countries for such services.

The U.S outsourcing market has seen some disruption as companies faced pressure to bring jobs back home, but this has also meant that nearshoring has become more attractive as companies realise they can benefit from some cost savings in LatAm and recruit staff who better understand American culture, while still offering high quality skills.

Start-up strengths

Perhaps most significantly SoftBank launched its $5 billion SoftBank Innovation Fund to invest in Latin American tech start-ups in March this year. At the time chairman and CEO of SoftBank, Masayoshi Son, said: "Latin America is on the cusp of becoming one of the most important economic regions in the world, and we anticipate significant growth in the decades ahead."

In terms of country winners, LatAm List puts Brazil firmly on top for the region in the context of start-up ecosystems. "Brazil receives two-thirds of the total investment in the region, has more than 11 unicorns, and hosts at least three of the top venture capital firms in the region with more than $1B under management collectively. Almost all of Softbank's newest investments in Latin America through their Innovation Fund have been in Brazil, boosting Brazil's investment to over $1.8B+ in 2019 alone," Sophia Wood wrote in LatAm List's Alternative Ranking of Latin America's Startup Ecosystems.

Her alternative list was inspired in response to Start-up Blink's Startup Ecosystem Rankings Report 2019, which placed Chile at 30th in the world rankings and top for Latin America, above Wood's highest-ranked four of Brazil, Mexico, Colombia and Argentina.

It seems that Chile has been a bone of contention in the tech space this year. It still leads the pack in terms of telecommunications infrastructure and, as a result has been described as being at the forefront of the region's digital revolution, despite a year of protests and political instability. Tech success stories from the country include The NotCo, which attracted Amazon investment to help it scale, and online grocery delivery service Cornershop, which Walmart recently try to buy for $225 million and which was then acquired by Uber, after Mexican regulators blocked the Walmart deal.

SaaS stars

But start-ups aren't the only ones benefitting from growth in the region. Software-as-a-Service (SaaS) is one of the growth areas for Latin America, across public, private and hybrid cloud. In fact, a recent report from Kenneth Research found that the market was expected to grow at a compound annual growth rate (CAGR) of 24.79% up to 2023. IDC's Latin America Cloud Computing Environment and Impact Report noted that "spending on cloud services continues to grow at strong double-digit growth rates in Latin America as a combination of private and public cloud solutions are being considered and implemented across small, medium-sized, and large enterprises in the region."

Countries like Brazil, with its well-primed small to medium businesses, are looking to SaaS to serve its growing digital customer base, while Mexico, which already in 2016 was said to have as much as 84% of its companies using some form of cloud services, is ideally positioned to grow its SaaS market.

Tumultuous tech talent trends

While things are hotting up in a number of sectors, it is not all rosy as pundits point to the need to grow and expand the skilled talent base to meet the growing needs while also encouraging greater diversity and fostering inclusion.

Mariana Costa Checa, co-founder of Laboratoria, an organisation aimed at increasing the involvement of women in the tech sector in Latin America, wrote in Fortune magazine that, although the region has a growing tech scene, more needs to be done to develop skills and address the issues with education across the countries of the region.

She pointed out that all the countries in the region, except Chile, score in the bottom quartile of the OECD Program for International Student Assessment (PISA), which tests 15-year-old students worldwide in reading, mathematics, and science.

Like last year, Latin America is decrying its detractors, despite ongoing instability, increasing unrest, and environmental concerns - at least when it comes to the tech sector. There is still work to be done and it is unclear what the impact of the socio-political events of the last year will have on the sector in the medium-term, but for now, Latin America's tech status is on the rise.