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Latin America 2016: A year of twists and turns ahead

Coming into 2015, one of the biggest issues facing Latin America was the falling price of commodities, as outlined this time last year. Falling oil prices can be detrimental to Venezuela and Colombia while drops in prices for grain, copper, and iron ore can be felt across South and Central America.

Meanwhile GDP in some of South America’s biggest economies has painted a worrying picture. By the end of this year, analysts predict that Brazil’s gross domestic product (GDP) will contract more than 3%. The early November analysis marked the country’s “16th straight downward revision”.

Argentina recently underwent a power shift in its elections with Mauricio Macri, a centre-right conservative, taking the presidency. He has promised to open up the country further to investment, and economic reform will be at the top of his agenda as the IMF has forecast another recession for the country in 2016.

This Argentine election result could possibly be the beginning of a trend across South America too, with growing frustration over current governments, who are struggling on the opinion polls.

Brazilian president Dilma Rousseff’s standing in the polls is at an all-time low and she has faced threats of impeachment. While Venezuela faced its own election on December 6.

Impact on technology

Latin America appears to be in a state of flux both economically and politically, so what kind of effect can this have on the technology sector?

We’ve covered Latin America’s growing smartphone and internet use extensively and this will form the backbone for much of the region’s future. As more and more people get online, begin to use internet services, and browse with their smartphones, it will put a greater strain on infrastructure and force investment in these areas to ensure its future.

According to Statista’s latest report on internet use in LatAm, penetration is tipped to hit 60% by 2019, growing steadily each year.

Ericsson meanwhile published its Mobility Report 2015 in mid-November. It shows that global mobile phone subscriptions are growing 5% year-on-year and as it stands, there are 730 million mobile phone subscriptions in Latin America. It also lists mobile phone penetration in LatAm as over 115%. More phones than people it would seem.

However this isn’t as impressive as it sounds. Many countries and regions boast similar figures (Middle East at 110%, North America at 109%, Western Europe at 129%). The challenge remains in mobile broadband use, which is still a long ways off from reaching similar numbers; although Ericsson’s report does predict growth for smartphone use in LatAm in the coming years.

Economic uncertainty may stifle this market. In February of this year, research group GfK published a study that showed that Latin America was the fastest growing smartphone market in the world, even outpacing China. Almost a year on, things have changed.

“Unfortunately, the picture for LatAm has changed quite a bit, as the demand for smartphones suffered from a heavy impact by the overall downturn of the economy,” a GfK spokesperson tells IDG Connect.

According to the firm’s latest figures, released in late November, there are “significant slowdowns” with smartphone sales down 5% in Q3 2015, compared with Q3 2014.

“Two of the leading smartphone markets in the region, Argentina and Brazil, posted year-on-year unit declines of 16% and 15%, respectively, hindered by the poor economic situation in both countries,” says GfK.

GfK accredits much of this decline to cash-strapped consumers who were buying lower priced devices rather than the premium devices from big name brands but as per usual, where there is a problem, there is an opportunity.

Xiaomi’s rocky start

In August, we reported on China smartphone giant Xiaomi entering the Brazilian market with its range of devices that are on the lower end of the price spectrum. Brazilian-born Hugo Barra, who is Xiaomi’s VP for international, even stated that this is the very audience it is targeting in “stage one” of the company’s wider LatAm mission. “[We’re] starting with larger developing markets where people are very price-sensitive,” he said.

If Xiaomi ventures further out of Brazil in 2016 and into more areas of South America, we could see a turnaround on smartphone sales and usage once again but nothing can be taken for granted either.

“The biggest challenge remains managing supply and expectations as South America shifts from feature phone to smartphones over the next one to three years,” says Curt Prins, a Chicago-based mobile strategist.

“Xiaomi offered a great example. It had a flawed launch in Brazil earlier this summer when they vastly underestimated demand for their Redmi2 and had troubles supporting their new customers.”

The availability of devices is one thing but 2016 will also need to be the year that improvements are made to LTE coverage in rural and suburban areas, says Rodrigo Angel, Latin American Regional Director at global customer care provider for mobile devices, B2X. (Note: the company is a Xiaomi partner.)

Regulatory authorities, he says, need to consider the three main obstacles: The allocation of radio frequency for mobile services; the development of wireline infrastructure to expand wireless broadband networks; and the need to facilitate the entry of terminals enabled with these technologies to ensure adoption.

“From my point of view, the availability of devices that may be connected to these networks is essential. For this reason, it is key for the governments in the region to take steps to facilitate the entry of devices enabled with the new technologies,” says Angel.

“The topic in general can be improved, for example, as the initiative in Colombia to review the VAT exemption on mobile phones to beneficiate the end users,” he adds. “Clearly this would help to expand the portfolio, and to the final consumer benefit, taking into account that the Chinese giants such as Huawei and Xiaomi have in their radar the emerging markets in Latin America.”

Cloud computing

The cloud computing market presents another mixed view. Amazon Web Services launched in South America a number of years ago but it does not command the same kind of power on the continent as it does elsewhere in the world. Instead we have seen a strong market presence by local players, like Mexico’s Kio Networks.

One of the challenges for the cloud in South America continues to the costs associated with building and running data centres. “Brazil is one of the most expensive countries in which to have a datacentre. In Argentina, for instance, the cost of energy is around half that in Brazil,” said one Frost & Sullivan analyst a few years ago, predicting the challenges ahead.

Security and government services have also played a role in the use of cloud services with scepticism abounding. Bolivia has even proposed building its own sovereign cloud to protect sensitive data.

Preparing for the future

This is indicative of the broad problems and opportunities facing LatAm in the coming year and beyond. Industries like ecommerce are itching to take advantage of an increasingly-online economy and sales are projected to rise while Argentina’s online marketplace MercadoLibre recently beat analysts’ projections in its latest earnings call. At the same its operating margins are down from a couple of years ago so its advantageous position right now is not one to be taken too easily.

Things look solid for this industry currently but how is the ecommerce business as well the wider technology sector preparing for the future? With economic uncertainty, a long term strategy will be vital.

A big hurdle for all of this is the digital divide and access to education. We’ve seen a multitude of efforts from several countries to try and bridge that gap and foster interests in tech careers as well as fund programs.

Argentina’s government had been investing in programming courses for students but with the recent change in government, it remains unclear how these kinds of initiatives will be treated in the future.

Chile has attempted a grassroots educational effort by partnering with Acer to deliver notebooks to schoolchildren, which is hoped to be a long term endeavour to get children interested in technology.

Furthermore, Mexico has funded programs like Mexico Connectado with partners like Cisco to bring technology education to poorly connected rural regions but the infrastructure is still needed and heavy monopolies in telcos and ISPs is a cause for concern with high subscription costs.

This lack of internet infrastructure will remain a big challenge across all of Latin America if more people are to get online and use their smartphones but efforts are being made, such as Brazil’s plans to connect remote areas in the Amazon.

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Jonathan Keane

Jonathan Keane is a freelance journalist, living in Ireland, covering business and technology

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