Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized June, 2023 Colombia Country Diagnostic: DIGITAL ECONOMY FOR LATIN AMERICA AND THE CARIBBEAN Administ r d b Report No: AUS0003147 Digital Economy for Latin America and the Caribbean Country Diagnostic: Colombia June 2023 DDT Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 2 © 2023 The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved This work is a product of the staff of The World Bank. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. 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TABLE OF CONTENTS ACKNOWLEDGEMENTS���������������������������������������������������������������������������������������������������������� 12 ABBREVIATIONS���������������������������������������������������������������������������������������������������������������������� 13 EXECUTIVE SUMMARY����������������������������������������������������������������������������������������������������������� 15 OVERVIEW ������������������������������������������������������������������������������������������������������������������������������� 17 .1. INTRODUCTION ������������������������������������������������������������������������������������������������������������������� 41 2. DIGITAL INFRASTRUCTURE ���������������������������������������������������������������������������������������������� 50 2.1. The importance of digital infrastructure�������������������������������������������������������������������������������������������������������� 51 2.2 Current state of digital infrastructure development��������������������������������������������������������������������������������������� 52 2.3 Recommendations and next steps ��������������������������������������������������������������������������������������������������������������� 68 3..DIGITAL PUBLIC PLATFORMS ������������������������������������������������������������������������������������������� 70 3.1. The importance of digital public platforms �������������������������������������������������������������������������������������������������� 70 3.2. Current state of digital public platforms�������������������������������������������������������������������������������������������������������� 72 3.3. Recommendations and next steps �������������������������������������������������������������������������������������������������������������� 79 4. DIGITAL FINANCIAL SERVICES ����������������������������������������������������������������������������������������� 86 4.1. The importance of digital financial services�������������������������������������������������������������������������������������������������� 87 4.2. Current state of digital financial services ����������������������������������������������������������������������������������������������������� 87 4.3. Recommendations and next steps ������������������������������������������������������������������������������������������������������������ 101 5. DIGITAL BUSINESSES ������������������������������������������������������������������������������������������������������ 105 5.1. The importance of digital businesses��������������������������������������������������������������������������������������������������������� 106 5.2 Current state of digital businesses ������������������������������������������������������������������������������������������������������������� 106 5.3. Recommendations and next steps ������������������������������������������������������������������������������������������������������������ 126 6. DIGITAL SKILLS����������������������������������������������������������������������������������������������������������������� 133 6.1. The importance of digital skills ������������������������������������������������������������������������������������������������������������������ 134 6.2. Current state of digital skills ���������������������������������������������������������������������������������������������������������������������� 135 6.3. Recommendations and next steps ������������������������������������������������������������������������������������������������������������ 144 7..TRUST ENVIRONMENT ������������������������������������������������������������������������������������������������������ 149 7.1. The importance of a trust environment������������������������������������������������������������������������������������������������������ 149 7.2. Data regulation ������������������������������������������������������������������������������������������������������������������������������������������ 150 7.3. Digital ID���������������������������������������������������������������������������������������������������������������������������������������������������� 153 Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 4 7.4. Cybersecurity and cybercrime������������������������������������������������������������������������������������������������������������������� 154 7.5. Recommendations and next steps ������������������������������������������������������������������������������������������������������������ 160 REFERENCES ������������������������������������������������������������������������������������������������������������������������ 165 ANNEXES�������������������������������������������������������������������������������������������������������������������������������� 173 Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 5 LIST OF FIGURES Figure O.1. Digital Transformation in Colombia: Synthesis of a Theory of Change�������������������������������������������������� 19 Figure O.2. The Digital Economy: Shared Prosperity and Reduced Poverty ����������������������������������������������������������� 21 Figure O.3a and b. Percentage of Households with Mobile and Fixed Connection to the Internet, Urban vs. Rural (2022) ��������������������������������������������������������������������������������������������������������������������������������������������� 24 Figure O.4. 4G Subscriptions per 100 inhabitants���������������������������������������������������������������������������������������������������� 25 Figure O.5. Fixed Broadband Household ����������������������������������������������������������������������������������������������������������������� 25 Penetration (%)��������������������������������������������������������������������������������������������������������������������������������������������������������� 25 Figure O.6. Digital Government: Correlation with Government Effectiveness����������������������������������������������������������� 26 Figure O.7. Account Ownership and Use of Transaction Accounts in Colombia, International Comparison, 2021�������������������������������������������������������������������������������������������������������������������������������� 29 Figure O.8. Colombia and Regional Peers. Percentage of Formal Digital Business by Founding Years����������������� 30 Figure O.9. Share of Companies that Used Computer Applications or Programs (left), and Share of Firms that Have a Systems or ICT Department, internal or outsourced (right)����������������������������������������������������� 32 Figure O.10. Digital Literacy Gaps in Colombia (2019–19). Share of Youth and Adults ������������������������������������������ 33 Figure O.11. Occupation of ICT Positions by Males and Females in Six of the Main Regions of Colombia. Share of Total �������������������������������������������������������������������������������������������������������������������������������������� 34 Figure 1.1. Mechanisms of Digital Technologies and Growth����������������������������������������������������������������������������������� 42 Figure 1.2. Digital Technologies: Synthesis of the Theory of Change����������������������������������������������������������������������� 44 Figure 1.3. Pillars of the Digital Economy����������������������������������������������������������������������������������������������������������������� 48 Figure 2.1. The Data Infrastructure Supply Chain����������������������������������������������������������������������������������������������������� 51 Figure 2.2. Used International Bandwidth, Mbps per 100 inhabitants����������������������������������������������������������������������� 52 Figure 2.3. IP Transit Cost 2021 Q2, $/Mbit, 10GigE, weighted median ������������������������������������������������������������������ 52 Figure 2.4. Fiber Backbone in Colombia ������������������������������������������������������������������������������������������������������������������ 53 Figure 2.5. Percentage of 4G Mobile Cells��������������������������������������������������������������������������������������������������������������� 54 Figure 2.6. Number of Mobile Cells per 10,000 Inhabitants�������������������������������������������������������������������������������������� 54 Figure 2.7. Percentage of Population Centers (Centros Poblados) by Department Covered by 3G and 4G����������� 55 Figure Box 1.a. Universal Broadband Emissions over 2020–2030 (CO2)����������������������������������������������������������������� 56 Figure Box 1.b. Assessment of Carbon Emissions for Universal Broadband Options in Colombia�������������������������� 57 Figure 2.8. Mobile Market HHI, 2000–21������������������������������������������������������������������������������������������������������������������ 58 Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 6 Figure 2.9a. 4G Subscriptions per 100 inhabitants �������������������������������������������������������������������������������������������������� 58 Figure 2.9b. Mobile Data Usage per Mobile Broadband Subscription (GB/month) �������������������������������������������������� 58 Figure 2.10. HHI in Fixed Telephone and Fixed Internet Markets����������������������������������������������������������������������������� 59 Figure 2.11. Fixed Broadband Household Penetration (%) �������������������������������������������������������������������������������������� 59 Figure 2.12. Fixed Broadband Penetration by Department �������������������������������������������������������������������������������������� 60 Figure 2.13. Fixed Broadband Penetration by Stratum �������������������������������������������������������������������������������������������� 60 Figure 2.14. Households with Fixed Internet Connection, Urban vs. Rural (%)�������������������������������������������������������� 61 Figure 2.15. Fixed-Broadband Basket (5 GB) price, GNI per capita/month (2021) �������������������������������������������������� 62 Figure 2.16. Households for which Affordability is the Main Reason for not Having Fixed Internet (%)�������������������� 62 Figure 2.17. 2 GB Mobile Data GNI per capita/month����������������������������������������������������������������������������������������������� 63 Figure 2.18. Average Smartphone Price GNI per capita/month�������������������������������������������������������������������������������� 63 Figure 2.19. Average Experienced Download Speed (Mbps) of Fixed Broadband Connections, 2020–21�������������� 64 Figure 2.20. Fixed Internet Download Speed (Mbps) by Stratum����������������������������������������������������������������������������� 64 Figure 2.21. Download Speed Changes for Fixed and Mobile Networks (Median, Mbps, 2019-2020) �������������������� 64 Figure 2.22. ITU Regulatory Tracker Overall Score�������������������������������������������������������������������������������������������������� 65 Figure 2.23. Market Shares by Revenue������������������������������������������������������������������������������������������������������������������ 66 Figure 3.1. A Building Blocks Approach to Digital Public Platforms�������������������������������������������������������������������������� 71 Figure 3.2. Digital Government is Correlated with Government Effectiveness��������������������������������������������������������� 73 Figure 3.3. The Colombian Interoperability Framework�������������������������������������������������������������������������������������������� 75 Figure 4.1. Distribution of Fintech Segments in Colombia, 2010–21 ����������������������������������������������������������������������� 88 Figure 4.2. Target Customer Segments of Colombian Fintech Companies, 2021 ��������������������������������������������������� 89 Figure 4.3. Account Ownership and Use of Transaction Accounts in Colombia, International Comparison, 2021�������������������������������������������������������������������������������������������������������������������������������� 90 Figure 4.4. Remittance Costs 2018–21: Average Cost of Sending US$200, percentage of value sent�������������������� 99 Figure 5.1. Colombia and Regional Comparators: Digital Business by Founding Years ���������������������������������������� 107 Figure 5.2. Top Digital Business Subsectors for Foreign and Domestic Firms (2010–20) ������������������������������������� 108 Figure 5.3. The ICT Sector Contribution to Total Value-Added in OECD Countries (levels, 2019) ������������������������ 109 Figure 5.4. ICT Embodied in Manufacturing Exports, percentage of gross exports������������������������������������������������ 110 Figure 5.5. ICT Embodied in Service Exports, percentage of gross exports ���������������������������������������������������������� 110 Figure 5.6. Digitally Deliverable Services in 2019, percentage of total service exports�������������������������������������������111 Figure 5.7. Evolution of Digitally Deliverable Services, percentage of total service exports 2010–19 ��������������������111 Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 7 Figure 5.8. Share of Companies that Used Computer Applications or Programs according to the Method of Obtaining the Software, by sector (%)������������������������������������������������������������������������������������������ 112 Figure 5.9. Share of Firms that Have a Systems or ICT Department (internal or outsourced)������������������������������� 112 Figure 5.10. Number of Last Deals, by deal type ��������������������������������������������������������������������������������������������������� 113 Figure 5.11. Total Value of Investment by Funding Type (funding from 2010–21)��������������������������������������������������� 113 Figure 5.12. Activities Performed by Microbusinesses through the Internet (%) ���������������������������������������������������� 116 Figure 5.13 Share of Small, Medium, and Large Firms Using the Internet To Carry Out Everyday Business Activities��������������������������������������������������������������������������������������������������������������������������������������������������� 117 Figure 5.14. Main Reasons Small, Medium, and Large Firms Do Not Implement New Software or Technological Solutions��������������������������������������������������������������������������������������������������������������������������������������� 119 Figure 5.15. Microbusinesses’ Main Reasons for Not Using the Internet��������������������������������������������������������������� 119 Figure 5.16. Main Programs Supporting Digital Businesses and the Digitalization of Business Procedures and Services ��������������������������������������������������������������������������������������������������������������������������������������� 122 Figure 5.17. Main Programs Supporting the Formation of Foundational Digital Skills and the Widespread Adoption of Digital Technologies ������������������������������������������������������������������������������������������� 122 Figure 5.18. Main Program Objectives ������������������������������������������������������������������������������������������������������������������� 123 Figure 5.19. Main Intervention Mechanisms����������������������������������������������������������������������������������������������������������� 123 Figure 5.20. Main Mechanisms by Instrument Supporting Digital Business Development and Other Firms’ Adoption/Use of Digital Solutions ������������������������������������������������������������������������������������������������ 124 Figure 6.1. Digital Literacy Gaps in Colombia, Brazil, and Mexico (2019). Share of Youth and Adults ������������������ 136 Figure 6.2. Occupation of ICT Positions by Males and Females in Six of the Main Regions of Colombia. Share of Total ��������������������������������������������������������������������������������������������������������������������������������������������������������� 139 Figures A, B, and C. Digital Infrastructure and Response to NPIs in Colombia������������������������������������������������������ 175 Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 8 LIST OF TABLES Table O.1. Summary of Key Safeguards and Enablers for Colombia and Selected Benchmark Countries�������������� 36 Table O. 2. Key Policy Recommendations to Accelerate the Digital Transformation in Colombia (1 of 3) ��������������� 38 Table 2.1. IXP Characteristics and Distribution �������������������������������������������������������������������������������������������������������� 53 Table 2.2. Cumulative 2008–17 Telecom Investment per capita (US$, % of total)��������������������������������������������������� 61 Table 2.3. Internet Speed in Urban and Rural Areas ������������������������������������������������������������������������������������������������ 65 Table 2.4. Key Digital Infrastructure Challenges and Opportunities�������������������������������������������������������������������������� 68 Table 2.5. Digital Infrastructure: Policy Recommendations �������������������������������������������������������������������������������������� 69 Table 3.1. Key Digital Public Platforms: Challenges and Opportunities�������������������������������������������������������������������� 80 Table 3.2. Digital Public Platforms: Policy Recommendations (1 of 4) ��������������������������������������������������������������������� 82 Table 4.1. Financial Access Points in Colombia: International Comparison (2020)�������������������������������������������������� 97 Table 4.2. Key Challenges and Opportunities for Digital Financial Services ���������������������������������������������������������� 100 Table 4.3. Digital Financial Services: Policy Recommendations (1 of 3)���������������������������������������������������������������� 102 Table 5.1. Number of Microenterprises Investing in ICT������������������������������������������������������������������������������������������ 116 Table 5.2. Digital Businesses: Key Challenges and Opportunities ������������������������������������������������������������������������� 125 Table 5.3. Digital Businesses: Policy Recommendations (1 of 5)��������������������������������������������������������������������������� 128 Table 6.1. Training Programs Needed in the ICT Sector by Educational Level ������������������������������������������������������ 139 Table 6.2. Critical, Most Sought Out, and Difficult-to-Find Profiles in the ICT Sector in Six of the Main Regions in Colombia������������������������������������������������������������������������������������������������������������������������������������������������������������� 140 Table 6.3. Training Deficit for Positions in High Demand in the ICT Sector in Six of the Main Regions in Colombia������������������������������������������������������������������������������������������������������������������������������������������������������������� 140 Table 6.4. Results for Reading, Math, and Science from PISA Tests for Colombia, Chile, Mexico, and Peru ������� 141 Table 6.5. Key Digital Skills: Challenges and Opportunities������������������������������������������������������������������������������������ 143 Table 6.6. Digital Skills: Policy Recommendations (1 of 3)������������������������������������������������������������������������������������� 146 Table 7.1. Summary of Key Safeguards and Enablers for Colombia and Selected Benchmark Countries������������ 152 Table 7.2. Key Trust Environment Challenges and Opportunities��������������������������������������������������������������������������� 159 Table 7.3. Trust Environment: Policy Recommendations (1 of 4)��������������������������������������������������������������������������� 161 Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 9 LIST OF BOXES BOX 1. Environmental Footprint of Mobile Broadband Infrastructure (1 of 3)����������������������������������������������������������� 55 BOX 2. ArCo Methodology and Classification of Policy Instruments ���������������������������������������������������������������������� 121 BOX 3. Summary of Recommendations of the ID4D Diagnostic���������������������������������������������������������������������������� 153 Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 10 ANNEXES Annex 1. Digital Technologies to Help Colombia Address its Persistent Development Challenges. A Theory of Change������������������������������������������������������������������������������������������������������������������������������������������������ 173 Annex 2. Status of Ex Ante Regulation in the Colombian Telecommunications Markets ��������������������������������������� 174 Annex 3. The Impact of Non-Pharmaceutical Interventions during the COVID-19 Pandemic and the Role of Digital Infrastructure in Colombia��������������������������������������������������������������������������������������������������� 174 Annex 4. Top 30 Active Investors in Colombia (by volume of deal) ������������������������������������������������������������������������ 176 Annex 5. Government Policies Related to the Development of Digital Skills in Colombia 2018–21 ��������������������� 177 Annex 6. Government Programs and Strategies Related to the Development of Digital Skills in Colombia 2018–22���������������������������������������������������������������������������������������������������������������������������������������������� 178 Annex 7. Main Laws and Regulations Governing the Data Protection Framework in Colombia ���������������������������� 180 Annex 8. Major Sectoral Cybersecurity Measures ������������������������������������������������������������������������������������������������� 181 Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 11 ACKNOWLEDGEMENTS This report was prepared by a cross-sectoral task team led by Natalija Gelvanovska-Garcia (Co-Task Team Leader) and Douglas Randall (Co-Task Team Leader) and consisting of: Niccolò Comini and Edgardo Sepúlveda (Digital Infrastructure); Henry Forero, Pablo Andrés Guzman, and David Santos Ruano (Digital Public Platforms); Mariana Vijil, Daniel Stagno, and Esteban Ferro (Digital Business); María Teresa Chimi- enti (Digital Financial Services); Alberto Munoz Najar, Inaki Sanchez, and Cristobal Cobo (Digital Skills); Natalija Gelvanovska-Garcia and Óscar Noé Ávila (Trust Environment); Carolina Mejia (Digital Poverty); Axel Rifón Pérez (Counterpart Engagement), Daniel Stagno (report coordination), and Catalina Rodriguez Tapia (coordination). The team would like to thank the World Bank Country Management Unit, including Mark Roland Thomas (Country Director), Peter Siegenthaler (Country Manager), and Taimur Samad and Manuel Luengo (Program Leaders for Infrastructure), for helping facilitate and guide the diagnostic exercise in country. The Latin America & the Caribbean Chief Economist’s office, including Bill Maloney (Chief Economist), Guill- ermo Beylis (Economist), and Global Practice Managers Doyle Gallegos (Digital Development), Yira Mascaro (Finance, Competitiveness, and Innovation), Ximena Del Carpio (Poverty), Adrian Fozzard (Governance), and Emanuela Di Gropello (Education), provided invaluable technical guidance and support. The report benefit- ed from the careful reading and comments by Veronica Truijllo, Donato de Rosa, Charles Hurpy, and Raquel Alejandra Letelier. The team thanks Juni Tingting Zhu and Hangyul Song for providing data and analysis in the Digital Businesses chapter and Gabriel Demombynes and Diana Catalina Contreras Ceballos for provid- ing insights and data for Digital Infrastructure chapter. This report would not be possible without the sustained interest, commitment, and collaboration of the Government of Colombia. The team is particularly grateful to the Departmento Nacional de Planeación for its strategic vision and for coordinating various ministries, departments, and agencies that contributed to this effort. This report was done with the support of the Digital Development Partnership (DDP), administered by the World Bank Group. DDP offers a platform for digital innovation and development financing, bringing public and private sector partners together to advance digital solutions and drive digital transformation in devel- oping countries. Administrative support from Marisol Ruelas is gratefully acknowledged. The report was edited by Patricia Carley under the guidance of Daniel Stagno. The print version of the report was designed by Maria Jimena Vazquez. Dissemination support from Karen Ra is greatly appreciated. Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 12 ABBREVIATIONS ACH Automated Clearinghouse AI Artificial Intelligence AND Agencia Nacional Digital (National Digital Agency) ANE Agencia Nacional del Espectro (National Spectrum Agency) ArCo Articulación para la Competitividad BDO Banca de las Oportunidades (Opportunity Bank) BR Banco de la República (Bank of the Republic) CBJ Circular Básica Jurídica (Basic Legal Circular) CCD Carpeta Ciudadana Digital (Digital Citizen File) CDD Customer Due Diligence CIIEEF Comisión Intersectorial para la Inclusión y Educación Económica y Financiera (Intersectoral Commission on Financial and Economic Inclusion and Education) ColCERT Grupo Interno de Trabajo de Respuesta a Emergencias Cibernéticas de Colombia CONPES (Colombia’s National Computer Emergency Response Team) Consejo Nacional de Política Económica y Social (National Council for Economic and Social Policy) CONPES-3975 National Policy for Digital Transformation and Artificial Intelligence CPE Computadores para Educar (Computers for Education) CRC Comision de Regulacion de Comunicaciones (Communications Regulatory Commission) CSIRT Computer Security Incident Response Team CUD Sistema de Cuentas de Depósito (Deposit Accounts System) DANE Departamento Administrativo Nacional de Estadística (National Administrative Department of Statistics) DFS Digital Financial Services DGD Dirección de Gobierno Digital (Digital Government Directorate) DNP Departamento Nacional de Planeación (National Planning Department) EASPBV Entidades Administradoras de Sistemas de Pago de Bajo Valor (Low-Value Payment System Operators) ECLAC Economic Commission for Latin America and the Caribbean EPA Electronic Payment Acceptance FUTIC Fondo Único de Tecnologías de la Información y las Comunicaciones (Single Fund GDPR for Information and Communications Technologies) General Data Protection Regulation (EU) GMF Gravamen a los Movimientos Financieros (Financial Transaction Tax) GNI Gross National Income GoC Government of Colombia HFPS High Frequency Phone Survey (World Bank) HHI Herfindahl-Hirschman Index ICCN Infraestructuras Cibernéticas Críticas Nacionales (Critical National Cybernetic Infrastructure) ICT Information and Communications Technology IDB Inter-American Development Bank IGD Índice de Gobierno Digital (Digital Government Index) IMC Intermediarios del Mercado Cambiario (Foreign Exchange Intermediaries) Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 13 IoT Internet of Things IP Internet Protocol ISP Internet Service Provider ITU International Telecommunication Union IXP Internet Exchange Point KYC Know Your Customer LAC Latin America and the Caribbean MEN Ministerio de Educación Nacional (Ministry of National Education) MHCP Ministerio de Hacienda y Crédito Público (Ministry of Finance and Public Credit) MinCIT Ministerio de Comercio, Industria y Turismo (Ministry of Commerce, Industry, and Tourism) MinTIC Ministerio de Tecnologías de la Información y las Comunicaciones (Ministry of Information and Communications Technologies) MNO Mobile Network Operator MoD Ministry of National Defense MSME Micro, Small, and Medium-Sized Enterprise MTO Money Transfer Operator MVNO Mobile Virtual Network Operator NGO Nongovernmental Organization NPI Non-pharmaceutical intervention NPC National Payments Council OECD Organisation for Economic Co-operation and Development OPP Operador de Servicios de Pago Postal (Postal Payment Service Operator) PGD Política de Gobierno Digital (Digital Government Policy) PISA Program for International Student Assessment PND Plan Nacional de Desarrollo (National Development Plan) PNID Plan Nacional de Infraestructura de Datos (National Plan for Data Infrastructure) PSE Pagos Seguros en Línea (Safe Online Payments) QR Quick Response RNEC Registraduría Nacional del Estado Civil (National ID and Civil Registry Agency) SDC Servicios Digitales Ciudadanos (Digital Citizen Services) SDG Sustainable Development Goal SEDPEs Sociedades Especializadas en Depósitos y Pagos Electrónicos (Electronic Deposit and Payment Companies) SENA Servicio Nacional de Aprendizaje (National Learning Service) SES Superintendencia de Economía Solidaria (Solidarity Economy Superintendency) SFC Superintendencia Financiera de Colombia (Financial Superintendency) SIC Superintendencia de Industria y Comercio (Superintendency of Industry and Commerce, or National Competition Agency) SME Small and Medium-Sized Enterprise SNCI Systema Nacional de Competitividad e Innovación (National System of Competitiveness and Innovation) SOC Security Operations Center SPBV Sistema de Pago de Bajo Valor (Low-Value Payment System) SPI Sistema de Pagos Inmediatos (Fast Payment System) STI Science, Technology, and Innovation UMIC Upper-Middle-Income Country VET Vocational Education and Training Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 14 EXECUTIVE SUMMARY Colombia’s transition to a digital economy is well communities, including Afro-descendants, indigenous underway. Colombia is among the countries in the Latin people, and Venezuelan migrants. Digital technologies America and Caribbean (LAC) region furthest along on can also play a pivotal role in expanding Colombia’s the path of digitalization. In 2020, more than two-thirds sources of economic growth, in particular away from of the population used the internet by means of either non-extractive sectors, in a manner that is sustainable fixed or mobile. As of 2021, Colombia had hosted ap- and inclusive. Firms’ adoption of technology, alongside proximately 13 percent of the region’s digital solution complementary investments in digital skills and orga- providers. E-commerce, digital financial services, and nizational capacity, can drive innovation, improve the the fintech ecosystem have been growing rapidly, espe- efficiency of productive processes, and open up new cially since the onset of the COVID-19 pandemic. Co- domestic and export markets for their products and lombia also stands among the most advanced countries services. in LAC in terms of digital government. Key enablers and safeguards to support digital transactions and data flows The Government of Colombia (GoC) can build on its have already been established in the country, and a early successes to achieve universal access to the modern digital ID scheme is currently being deployed— internet as the foundation for an inclusive, dynamic, important steps in consolidating a trust environment con- and resilient digital economy. Since the early 2000s, ducive to widespread digitalization. and through several recent national policy documents, the government has prioritized efforts to boost digital Colombia still faces a challenge in achieving univer- technology adoption among businesses, individuals, and sal access to the internet and other digital technol- the public sector. Indeed, the government can play a piv- ogies, which is indicative of the prevalent inequality otal role in the digitalization of the economy as a key user trends in the country. Access to and effective use of of digital technologies to deliver public services; as co- digital technologies across Colombia’s regions, sectors, ordinator and facilitator of initiatives from stakeholders in and income groups are not uniform and are hindered the private sector, civil society, and academia; as a reg- by last-mile digital infrastructure challenges and low ulator of the functions and activities associated with the levels of digital skills. Although overall internet use has digital economy; and as the lead actor in identifying and increased substantially, there are large gaps in access proactively mitigating the downside risks of widespread between rural and urban areas: more than half of urban digitalization. Although Colombians in the public and pri- households have access to fixed internet, compared to vate sectors have advanced on their digitalization path, just 12 percent of rural households. Low levels of digi- digital inequality—the fractured and unequal access to tal skills among the population hinder access: in 2019, critical digital networks and technology between and Colombia ranked 94th out of 141 in the World Economic within countries—remains a critical challenge to the de- Forum’s Digital Skills Index. Limited access to the inter- velopment of an equitable and resilient digital economy. net and low levels of digital capabilities also constrain For digital technologies to benefit everyone everywhere, the private sector’s capacity to generate value-added the remaining digital divide must be closed. Harness- through the adoption of digital technologies. ing the potential of digitalization will require a long-term vision and strategy to guide reforms and investments. Promoting the widespread adoption of the internet Moreover, moving forward, an integral vision for digital and other digital technologies can help Colombia transformation would benefit from placing greater em- address its key development challenges: high in- phasis on the distributional, environmental, and sustain- equality, slow productivity growth, limited economic ability dimensions of widespread digitalization. diversification, and climate change. Improving access to connectivity among remote and vulnerable communi- This report analyzes the current state of, challenges ties can create economic opportunities and improve the to, and opportunities for the development of a dig- delivery and efficiency of public services. For instance, ital economy and proposes six policy priorities for enhancing rural connectivity is a necessary condition the GoC. The report is based on the World Bank’s Digi- to developing a quality hybrid education system and to tal Economy Assessment methodology, which analyzes ensuring equitable access to telehealth services. Digi- the digital economy across six pillars or foundational tal financial services that enable financial inclusion can elements: digital infrastructure, digital platforms, digital play a key role in strengthening the economic resilience financial services, digital businesses, digital skills, and of the poor. Similarly, robust digital ID systems can trust environment. The six policy priorities outlined in the help the public sector to better support vulnerable report are as follows: Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 15 1. Invest in high-quality last-mile digital in- 4. Address barriers to the growth of plat- frastructure to reach unserved and under- form-based business models, cross-border served areas. The current deployment of fixed e-commerce, and trade of digitally delivered and mobile infrastructure represents a challenge services and improve access to finance for to universal access and use of the internet and digital businesses by enabling the develop- is therefore a barrier to an inclusive digital econ- ment of capital markets, designing targeted lines omy. One way to promote private investment in of credit and guarantees, and strengthening the mobile segment is for Colombia to release financial infrastructure. mobile spectrum in the 3.5 GHz band to promote 5G deployment. Where private investment is un- likely, public investment or other public initiatives 5. Define a national strategy to guide the devel- aimed at promoting the development of a more opment of digital skills as well as an official capillary fiber network could be considered. national digital skills framework to foster the development of these competencies through- out the formal educational trajectory. Given 2. Strengthen the interoperability of govern- the lack of a national strategy and framework, ment systems and implement a robust gov- digital skills have not yet been incorporated for- ernance framework for the data value chain mally into the curricula throughout the country, within the public sector to ensure the flow nor are they being systematically developed at a of information, both for decision making foundational level at elementary, middle, or high and service delivery. Colombia has made sig- school or at a more advanced level in technical, nificant progress in the development of a data technological, and higher education. As a first governance framework, particularly with the step in developing a digital strategy and frame- implementation of the National Plan for Data In- work, the GoC should identify the digital compe- frastructure (PNID) and Decree 1389 (2022) on tencies that will be demanded by the private and data governance. However, implementing and public sectors in the coming decade. operationalizing this framework, encouraging proactive data sharing and fostering a culture of data-driven decision making across all public 6. Strengthen the framework for personal data institutions continues to be a challenge. Thus, protection and the protection of critical in- establishing a well-designed data management frastructure assets owned by the private model in Colombia will be key. This will require sector. The data protection framework could ongoing efforts to overcome existing barriers be strengthened by integrating internationally and ensure that the framework is effectively inte- recognized best practices, such as the right to grated into institutional practices and operations. data portability, the reporting of data breaches to the data subjects, expanded legal jurisdic- tion for processing personal data, and a focus 3. Capitalize on recent progress on financial in- on the challenges brought forth by emerging clusion to foster the digital financial services technologies, such as artificial intelligence. ecosystem by implementing key initiatives, Moreover, given the sizable share of important such as fast payments and open finance, estab- digital resources operated by the private sector, lishing comprehensive and well-coordinated le- these assets and essential services should be gal and institutional frameworks for digital finan- included under the country’s Critical National cial services, and ensuring market competition Cybernetic Infrastructure regime. and robust financial consumer protections. Executive Summary 16 OVERVIEW The widespread adoption of digital technologies is approximately 13 percent of the region’s digital solutions transforming how individuals, businesses, and gov- providers.6 Moreover, Colombia currently stands among ernments interact and at the same time creating new the most advanced countries in LAC in terms of digital opportunities to address longstanding development government, performing on par with such countries as challenges. Digital technologies—defined as electron- Mexico, Peru, and Brazil.7 Key enablers and safeguards ic tools, systems, devices, and resources that generate, to support digital transactions and data flows have al- store, or process data—have already begun to transform ready been established in the country, and a modern the way most people around the world, learn, work, shop, digital ID scheme is currently being deployed—important socialize, and access information.1 The impacts of this steps in consolidating a trust environment conducive to transformation are diverse and dynamic, from productivi- widespread digitalization. ty gains across economic sectors to improvements in the efficiency and quality of service delivery and the creation However, access to and effective use of digital tech- of new sources of value. For policy makers in emerging nologies across Colombian’s regions, sectors, and markets, digital technologies also offer new pathways to income groups is not uniform and is hindered by address long-standing development challenges. last-mile digital infrastructure challenges and low levels of digital skills among the population. The un- Rapid and extensive digitalization, alongside in- even access to fixed Internet is also notable between de- creased connectivity, the exponential growth of data partments. The percentage of households with access in and computing power, and deep cultural changes Bogota (66) is above the national average (44 percent), among individuals and organizations, is driving the while in some of the least populated and most isolated development of the digital economy. The concept of departments, such as Guainía and Vaupés, less than 1 the digital economy as discussed in this report refers to of every 100 households have access.8 Low levels of all economic activity resulting from the use of information digital skills among the population could be hindering the technology to create, adapt, market, or consume goods growth of electronic interactions between individuals and and services.2 Data and digital technologies are the cor- government entities: In 2019, Colombia ranked 94th out nerstone of the digital economy, as they enable the grow- of 141 in the World Economic Forum’s Digital Skills In- ing interconnectedness of people, organizations, and dex. Limited access to the internet and low levels of dig- machines through billions of daily online transactions.3 ital capabilities also impacts the private sector’s capacity to generate value-added through the adoption of digital By 2025, the contribution of the digital economy to technologies. global GDP is expected to reach 25 percent, up from 15.5 percent in 2016.4 The impact of digital technolo- Deliberate efforts from the Government of Colombia gies on economic growth is mediated through three main (GoC) are needed to promote the development of an mechanisms: inclusion, efficiency, and innovation. The inclusive, dynamic, and resilient digital economy. Al- widespread adoption and use of digital technologies can though Colombian businesses, individuals, and the pub- facilitate the integration of firms into the world economy lic sector have advanced in their digitalization path, the by enabling more businesses to trade their products and broader development benefits from using digital technol- services. The digitalization of businesses procedures ogies have lagged behind. In order that digital technolo- and systems can raise efficiency by allowing firms to gies benefit everyone everywhere, the remaining digital make better use of their capital and labor. Moreover, dig- divide must be closed, especially in terms of access to ital technology can intensify competition and enhance affordable and reliable internet service and the adoption innovation processes by enabling firms to exploit scale of digital technologies by firms and individuals. However, effects through online platforms.5 greater digital adoption will not be enough. To maximize its digital dividends, is critical that the GoC strengthen Colombia is among the countries in the Latin Amer- its “analog complements” to digitalization by (i) bolster- ica and Caribbean (LAC) region furthest along the ing regulations that ensure greater competition among path of digitalization. In 2020, more than two-thirds internet service providers, financial service providers, of the population used the internet by means of either and businesses in general to develop a legal framework fixed or mobile. E-commerce, digital financial services that builds trust in digital transactions and (ii) supporting (DFS), and the fintech ecosystem have been growing the upscaling and rescaling of workers’ skills to meet the rapidly in the country, especially since the onset of the demands of the rapidly changing economy. COVID-19 pandemic. As of 2021, Colombia had hosted Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 17 Promoting the widespread adoption of digital tech- can play a pivotal role in this transition. Firms’ adoption nologies can help Colombia address many of its per- of technology, alongside complementary investments in sistent development challenges. High and persistent digital skills and organizational capacity, can improve inequality, slow productivity growth, limited economic di- the efficiency of their productive processes and open versification, and the socioeconomic impacts of climate up new markets to their products and services. Digital change pose significant development challenges for technologies can also enable firms—with support from Colombia. With the decline in commodity prices during academia and the public sector—to harness a rapidly the second half of the past decade, Colombia’s growth increasing amount of data in order to effectively access slowed, and gains in poverty reduction and shared pros- new markets and sources of knowledge, streamline the perity stagnated—and then sharply reversed as a con- production of good and services, and drive innovation. sequence of the COVID-19 crisis. Colombia needs to Moreover, DFS can bring down financing costs for micro, expand its sources of economic growth and to do so in small, and medium-sized enterprise (MSMEs) and pro- a manner that is inclusive and sustainable—socially, fis- mote more efficient and convenient payments—a cor- cally, and environmentally. Digital technologies can be nerstone of the e-commerce and platform-based busi- leveraged to improve the delivery and efficiency of public ness models (Figure O.1). services, including programs to empower marginalized communities and reduce Colombia’s high and persistent Furthermore, promoting the digitalization of the inequality. Improving access to connectivity among re- public and private sectors strategically will enable mote and vulnerable communities can create economic Colombia to explore new avenues toward green, re- opportunities for marginalized groups. For instance, en- silient, and inclusive development. Climate change hancing rural connectivity is a necessary condition to de- threatens to increase the risk of conflict and violence, veloping a quality hybrid education system and plays a intensify flooding along the coasts where poorer popu- critical role in ensuring that access to telehealth services lations are concentrated, generate water shortages, and is more equitable across regions, income groups, and drive down productivity and growth. Facing the inter- ethnicities. DFS can play a key role in strengthening the twined challenges of adapting to climate change, pro- economic resilience of the poor, for example, by fostering tecting the country’s biodiversity, and meeting the am- financial inclusion and enhancing the efficiency of social bitious national commitments for reducing greenhouse protection programs. Similarly, robust digital ID systems gas emissions will require rapid and far-reaching transi- and digital public platforms can help the public sector to tions, including the decarbonization of key sectors, such better identify the needs of, and provide support to, vul- as power, agriculture, information and communication nerable communities, including Afro-descendants, indig- technologies (ICTs), and transport. Widespread digi- enous people, and Venezuelan migrants (Figure O.1). talization can promote low-carbon growth in Colombia by increasing the contribution of the ICT sector to GDP Widespread digitalization among businesses has growth, enabling the expansion of climate-smart agricul- the potential to spur productivity growth in Colom- ture, leveraging massive data and artificial intelligence bia and promote export sophistication. Colombia’s (AI) systems to boost resource efficiency across indus- dependence on extractives has risen since the turn of tries, and accelerating a renewable energy transition. the century, and consequently its economy has become Recent estimates by Accenture and the World Economic less diversified and sophisticated. Less than 20 percent Forum suggest that the widespread adoption of digital of Colombian exports include some level of technology. technologies could help drive down global emissions by Promoting productivity and competitiveness in non-ex- up to 20 percent by 2050 (see Figure O.1). tractive sectors is critical to supporting the country’s long- term transition to lower oil prices, and digital technologies Overview 18 Despite its enormous potential, the widespread dig- pose significant risks for the labor force that need to be italization of the economy carries risks that must be addressed by the government, since in the absence of proactively identified and managed. Uneven provi- adequate legal, regulatory, competition, and skill devel- sion of digital infrastructure can exacerbate, rather than opment frameworks, the rise of industrial automation and mitigate, the already high levels of inequality and social platform-based businesses could perpetuate informality exclusion in Colombia. In this regard, ensuring equita- and underemployment. Managing these risks will require ble access to fixed and mobile broadband by targeting strong engagement with service providers and beneficia- efforts at remote and vulnerable communities will be ries to identify and address threats and vulnerabilities. critical. However, the provision of digital infrastructure Furthermore, establishing and updating governance, le- must be carefully planned, as it can lead to a significant gal, and regulatory frameworks will be crucial to creating increase in energy consumption and emissions; for ex- an enabling environment for digital businesses, while ample, data centers are soon set to have a larger carbon also ensuring adequate levels of market competition and footprint than the entire aviation industry. Moreover, the safeguarding labor standards, worker’s protection, and rapidly growing adoption of digital technologies also in- income security. The capabilities of public entities also troduces new risks, including those related to personal need to be strengthened to monitor and defend against data protection, fraud, cybersecurity, and cybercrime. increasing cybersecurity threats. Likewise, disruptive digital technologies, such as AI, Figure O.1. Digital Transformation in Colombia: Synthesis of a Theory of Change Development Digital technologies Intermediate Long-term challenges and solutions outcomes outcomes » Strengthen firm-level productivity through Stagnant innovation. Spur productivity productivity » Lower financing costs and the cost of capital growth and growth and high for MSMEs. Digital Infrastructure promote export dependency » Facilitate entry of new firms and growth of sophistication on extractives viable businesses. Digital Public » Improve access of rural and marginalized Platforms communities to digital infrastructure. Reduce spatial » Boost economic resilience through digital inequality, financial inclusion. improve social » Enhance the targeting and efficiency of mobility High inequality Digital Financial social protection programs. and low levels Services » Strengthen the resilience of education to of social mobility external shocks. Provide equitable » Strengthen the development of digital skills access to quality of students at all levels. education and Digital Businesses » Facilitate lifelong learning and the upskilling trainings and reskilling of the labor force. Digital Skills » Create new possibilities for decarbonization Strengthen climate Natural, social, and adaptation to climate change. change adaptation and economic » Strengthen climate and disaster resilience, and resilience Trust Environment and environmental sustainability. impacts of » Develop key enablers to promote low-carbon Promote climate change low-carbon growth. development Source: Authors, based on priorities identified in World Bank (2022). Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 19 The GoC recognizes the potential of widespread dig- (international links), middle-mile (backbone), and italization to accelerate productivity growth, boost last-mile (access) networks. Digital infrastructure competitiveness, and reduce inequality and has pri- provides the way for people, businesses, and gov- oritized efforts to bolster digital technology adop- ernments to get online and link with local and global tion among businesses, individuals, and the public digital services, thus connecting them to the glob- sector. The public sector can play a pivotal role in the al digital economy. Aside from connectivity, digital digitalization of the economy as a key user of digital infrastructure encompasses the Internet of Things technologies to deliver products and services; as coor- (such as with mobile devices, computers, sensors, dinator and facilitator for initiatives from stakeholders in voice-activated devices, geospatial instruments, and the private sector, civil society, and academia; as a reg- machine-to-machine and vehicle-to-vehicle commu- ulator of the functions and activities associated with the nications) and data repositories (such as data cen- digital economy; and as the lead actor in identifying and ters and clouds). It also includes all the active and proactively mitigating the downside risks of widespread passive infrastructure necessary to develop the digi- digitalization. However, greater digital adoption will not tal economy downstream. be enough. Harnessing the potential of digitalization will require a long-term vision and strategy to guide for- » Digital Public Platforms: Digital public platforms ward-looking reforms, regulation, and investments. Mov- developed for the public sector or as a public good— ing forward, an integral vision for digital transformation either by government agencies, in partnership with would benefit from placing greater emphasis on the dis- private companies, or through a hybrid model—can tributional, environmental, and sustainability dimensions help deliver more and better services to individ- of widespread digitalization. uals. The development of digital public platforms underpins the expansion of e-government services The report is based on the World Bank’s Digital and can support the efficiency of core government Economy Assessment (DEA) methodology, which systems. Digital public platforms can also boost ac- analyzes the current state of, challenges to, and op- countability, including through providing new chan- portunities for the development of six foundational nels for public engagement and feedback and re- elements for a digital economy. By examining the in- ducing opportunities for corruption. Likewise, they ternational experiences of digital businesses and pub- can provide a foundational layer to catalyze private lic sector institutions, the DEA identified a set of foun- sector innovation and new markets. dational elements that play a critical role in the digital transformation of economies. These are: the availability » Digital Financial Services: DFS provide individu- of internet or broadband that brings people online, the als and households with convenient and affordable ability to identify and authenticate people digitally, and channels by which to pay as well as to save and bor- the ability to pay or transact digitally. Digital economies row. Firms can leverage DFS to more easily transact further energize when there is a sizable tech-savvy work- with their customers and suppliers and build digital force and an ecosystem that supports digitally intensive credit histories and seek financing. Governments firms in entering the market or scaling up.9 Once those can use DFS to increase efficiency and account- foundations are in place, a wide array of use cases can ability in various payment streams, including for the emerge. Use cases denote all the ways by which a digital disbursement of social transfers and receipt of tax economy may take shape, serving people, businesses, payments. Digital payments are often the entry point and government in a process typically referred to as dig- for DFS and provide the infrastructure, or “rails,” ital transformation. The private sector is the main driver through which additional products and use cases of use cases, offering major platforms and applications, can be developed, as has been demonstrated by the including e-commerce, ride-sharing, gamification, and evolution of M-PESA in Kenya and Alipay in China. others. The government may also develop new govern- Digital payments and financial services are critical to ment platforms, applications, and services to automate financial inclusion and key enablers of e-commerce its functions, improving its efficiency and effectiveness and digitally empowered business models. (Figure O.2). In line with this methodology, the report provides a comprehensive overview of Colombia’s digital economy development across six pillars or foundational » Digital Businesses: Digital businesses can be di- elements: digital infrastructure, digital platforms, digital vided into two categories, each with their distinct financial services, digital businesses, digital skills, and characteristics: (i) digital start-ups, which refer to trust environment. early-stage ventures that create new digital solutions or business models as part of their core products » Digital Infrastructure: This refers to the facilities or services, and (ii) established digital businesses, that are involved in the effort to collect, exchange, which are the digitally intensive businesses that have store, process, and distribute data across first-mile managed to scale up and consolidate their position Overview 20 in local or international markets and which include skills for building or running a digital start-up or run- medium and large platform-based and data-driv- ning a digitally intensive business. Greater digital lit- en firms. Digital businesses, and the digitalization eracy further enhances the adoption and use of dig- of less technology-intensive businesses, represent ital products and services among governments and a unique opportunity for Colombia to nurture and the larger population. scale up MSMEs, boost entrepreneurship, increase efficiency, generate more and better jobs, foster » Trust Environment: The rapid growth of the digital economic integration, and promote the integration of economy goes hand in hand with a rapid rise in cy- lagging populations and regions. Digital businesses ber threats and increasing concerns about personal thrive when other key enablers, such as digital in- data protection. Therefore, the capacity of both the frastructure, skills, and payments, as well as a trust public and private sectors for cybersecurity and data environment, are set in place. protection needs to evolve quickly to meet current and future threats. This pillar assesses the presence » Digital Skills: Economies require a digitally savvy of a governance framework that balances data en- workforce in order to build robust digital-intensive ablers and safeguards and supports digitalization sectors and competitive markets. Digital skills en- while protecting individuals, businesses, and institu- compass foundational, technology, and business tions from cybersecurity risks. Figure O.2. The Digital Economy: Shared Prosperity and Reduced Poverty Digital Inclusive Citizen Growth Digital Smart Education Energy Poverty Reduction Digital Smart Transport Agriculture Digital Digital Digital Private Government Economy Sector Digital Health eCommerce Jobs Digital Digital Digital Digital Industry Culture Public Finance Business 4.0 Platforms Efficiency Digital Digital Infrastructure Skills Source: World Bank (2020). Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 21 The assessment finds that despite significant prog- existing barriers and ensure that the framework ress, there is scope for Colombia to accelerate its is effectively integrated into institutional practic- transition to the digital economy. Gaps in the pro- es and operations. vision of key enablers of the digital economy (such as infrastructure, skills, and updated legal and regulatory frameworks) impact the private sector’s ability to add 3. Capitalize on recent progress on financial value by going digital. Moreover, digital inequality—the inclusion to foster the DFS ecosystem by fractured and unequal access to critical digital networks implementing key initiatives, such as fast pay- and technology, between and within countries—remains ments and open finance, establishing compre- a critical threat to the development of an equitable and hensive and well-coordinated legal and institu- resilient digital economy in Colombia. To harness the full tional frameworks for DFS, and ensuring market potential of digitalization, Colombia must bridge the sig- competition and robust financial consumer pro- nificant digital divides between urban and rural dwellers, tections. men and women, and those with and without access to meaningful connectivity. 4. Improve access to debt and equity financing for digital businesses by offering lines of credit and guarantees through state-owned financial institutions and the private sector, enabling the Six policy priorities for the development of a development of capital markets, and strengthen- productive, inclusive, and sustainable digital ing financial infrastructure. Additionally, it is criti- economy in Colombia are: cal to address the regulatory and technical con- straints hindering the growth of platform-based business models, cross-border e-commerce, and trade in digitally deliverable services. 1. Invest in high-quality last-mile digital in- frastructure to reach unserved and under- served areas. The current deployment of fixed 5. Define a national strategy to guide the devel- and mobile infrastructure represents a challenge opment of digital skills as well as an official to universal access and use of the internet and national digital skills framework to foster the is therefore a barrier to an inclusive digital econ- development of these competencies through- omy. One way to promote private investment in out the formal educational trajectory. Given the mobile segment is for Colombia to release the lack of a national strategy and framework, mobile spectrum in the 3.5 GHz band to boost digital skills have not yet been incorporated for- 5G deployment. Where private investment is un- mally into the curricula throughout the country, likely, public investment or other public initiatives nor are they being systematically developed at a aimed at promoting the development of a more foundational level at elementary, middle, or high capillary fiber network could be considered. school or at a more advanced level in technical, technological, and higher education. As a first step in developing a digital strategy and frame- 2. Strengthen the interoperability of govern- work, the GoC should identify the digital compe- ment systems and implement a robust gov- tencies that will be demanded by the private and ernance framework for the data value chain public sectors in the coming decade. within the public sector to ensure the flow of information, both for decision making and providing services. Colombia has made sig- 6. Strengthen the framework for personal data nificant progress in the development of a data protection and the protection of critical in- governance framework particularly with the im- frastructure assets owned by the private plementation of the National Plan for Data In- sector. The data protection framework could frastructure (PNID) and Decree 1389 (2022) on be strengthened by integrating internationally data governance. However, successfully imple- recognized best practices, such as the right to menting and operationalizing this framework, en- data portability, the reporting of data breaches couraging proactive data sharing and fostering a to the data subjects, expanded legal jurisdiction culture of data-driven decision making across all for processing personal data, and a focus on the public institutions continues to be a challenge. challenges brought forth by emerging technol- This will require ongoing efforts to overcome ogies, such as AI. Moreover, given the sizable Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 22 share of digital resources operated by the pri- does not have access to this level of connectivity. More- vate sector, these assets and essential services over, Colombia has relatively underdeveloped mobile operated should be included under the country’s infrastructure, with less spectrum assigned, low tower Critical National Cybernetic Infrastructure (In- density, and lagging 4G coverage compared to OECD fraestructuras Cibernéticas Críticas Nacionales countries and some regional peers. Although 3G is prev- [ICCN]) regime. alent in all its departments, the limited development of 4G infrastructure is reflected in a low and unequal cov- erage of the 4G signal—less than a third of the centros The findings of the report are organized in six chap- poblados (population centers) have access to such ters, each dealing with a pillar of the digital economy. technology. Overall, mobile infrastructure is insufficient- ly dense and widespread to ensure universal access to and productive usage of the internet across the territory. 1. DIGITAL INFRASTRUCTURE There is a clear need for further investment to im- prove equitable access across digitally deprived Providing universal and affordable access to high- population segments in Colombia. Additional invest- speed connectivity will help Colombia to address ments are required to bring the backbone infrastructure its high and persistent inequality. Internet access is closer to rural and peri-urban areas, allowing further a crucial driver of productivity growth, and its importance utilization of the international connectivity capacity that will continue to increase as the economy advances on its the country enjoys and resulting in service quality im- digital transformation path. The expansion of digital in- provements and a step change in terms of connection frastructure is needed to close the digital gap and reach speeds for Colombians. Expansion of high-quality last- the unconnected, who are often from among the most mile infrastructure to reach unserved and underserved vulnerable segments of the population. Affordable and areas is key to ensuring that all Colombians participate reliable internet access in rural and peri-urban areas is in the digital economy. Households in rural areas have important to decrease the country’s high socioeconomic low levels of Internet penetration, with only 12 percent inequality and promote the inclusive availability of digital having a fixed connection, 41 percentage points below public services. urban areas. In certain departments such as Amazonas, Guainía, and Vaupés, the percentage of households in Colombia enjoys well-developed international digital rural areas with a fixed Internet connection is 0 percent. infrastructure commensurate with its large popula- Regarding mobile internet connection, only 24 percent tion, income level, and strategic location. Relatively of rural households have a connection, compared to 36 good quality infrastructure has enabled the growth of vi- percent for urban households (a difference of 12 per- brant data centers and cloud markets that are essential centage points). Guaranteeing the provision of the best to the widespread adoption of digital technologies across possible service in terms of reliability and speed is es- the private and public sectors. Despite robust interna- sential. However, telecom investment per capita in Co- tional connectivity, however, utilized international band- lombia, particularly in the fixed segment has been be- width is low, reflecting a limited digital uptake within its low the figures for most of its regional peers in recent borders. years. One useful way to encourage private investment in the mobile segment is for Colombia to make mobile This limited deployment of fixed and mobile infra- spectrum in the 3.5 GHz band available to promote 5G structure represents an obstacle to universal access deployment. Where private investment is unlikely, some to and usage of the internet. The footprint of Colom- form of public investment through the Single Fund for bia’s backbone network grew 25 percent between 2017 Information and Communications Technologies (Fondo and 2020, increasing the share of the population that Único de Tecnologías de la Información y las Comunica- could be more easily reached with good quality connec- ciones) or other public initiatives should be considered. tivity service. However, 60 percent of the population still Overview 23 Figure O.3a and b. Percentage of Households with Mobile and Fixed Connection to the Internet, Urban vs. Rural (2022) Mobile connection Fixed connection National total National total Amazonas Amazonas Antioquia Antioquia Arauca Arauca Atlantico Atlantico Bogota D.C. Bogota D.C. Bolivar Bolivar Boyaca Boyaca Caldas Caldas Caqueta Caqueta Casanare Casanare Cauca Cauca Cesar Cesar Choco Choco Cordoba Cordoba Cundinamarca Cundinamarca Guainia Guainia Guaviare Guaviare Huila Huila La Guajira La Guajira Magdalena Magdalena Meta Meta Nariño Nariño Norte de Santander Norte de Santander Putumayo Putumayo Quindio Quindio Risaralda Risaralda San Andres San Andres Santander Santander Sucre Sucre Tolima Tolima Valle Valle Vaupes Vaupes Vichada Vichada 0% 10% 20% 30% 40% 50% 0% 10% 20% 30% 40% 50% 60% 70% Urban Rural Source: DANE (2022b). In spite of liberalizing entry into the fixed and mobile lower competitive intensity, which may result in higher markets, telecommunications markets remain highly prices and lower service quality. Currently Colombia is concentrated. The fixed and mobile telephony and mo- embracing a “light touch” regulatory approach toward bile internet segments in Colombia are populated by a market power, but it may want to consider doing more to limited number of players with large market shares. The safeguard and promote efficient competition. To do so, in retail mobile market in particular is highly concentrated. addition to relying on additional facilities-based entry to On the other hand, the fixed broadband market is more provide new competitive pressure, Colombia could also competitive compared to mobile, with none of the many ensure that operators are appropriately regulated, in- market players holding more than 40 percent of the mar- cluding with respect to providing access to infrastructure, ket share. Higher market concentration is suggestive of so that service-based competition may also flourish. Overview 24 An inclusive digitization requires more subscribers average. Reducing these digital divides is critical to tack- and higher data consumption. Mobile broadband sub- ling inequality in social and economic development. scribers in Colombia use less data than in peer coun- tries, and the growth of the subscriber base (46 percent Fixed broadband prices in Colombia are a significant between 2015 and 2020) has been comparatively slow- obstacle to getting online. Internet users in Colombia er. According to official statistics, Colombia’s number of pay 4.4 percent of gross national income (GNI) per capi- 4G mobile broadband subscriptions per 100 inhabitants ta per month for 5 GB of fixed internet, an amount higher of 54 is just over half of the OECD average of 87 and than all regional comparators except Argentina. In 2020, below that of Chile (99), Brazil (80), and Argentina (74) out of the 41 percent of unconnected households, more (Figure O.4). The relatively low number of broadband than half identified affordability as a binding constraint to users reflects a combination of supply-side factors (infra- subscribing to fixed broadband. However, the affordabil- structure and market structure) and demand-side factors ity constraint seems to be less binding for mobile broad- broadly related to service affordability and the purchas- band, with Colombians spending on average less than ing power of the population. Regarding the retail fixed 2 percent of GNI per capita to acquire 2 GB of mobile broadband market, according to official statistics, Colom- data, though the affordability of data packages contin- bia has steadily increased its subscriptions in the past ues to be an obstacle to connectivity for households at decade, although it has yet to catch up to its regional and the lower end of the income distribution. Although it is OECD peers (Figure O.5). According to recent house- important to foster competition to decrease prices, the hold survey data, progress may be less substantial. In new government in Colombia may wish to review the eli- either case, the distribution of fixed broadband subscrip- gibility, duration, and scope of the Social Tariffs program tions varies significantly across the territory and across to further promote internet affordability for low-income socioeconomic groups, leaving a substantial percentage households. of the population behind. The departments with the three largest cities—Bogotá, Medellin, and Cali—have fixed The new administration has an opportunity to estab- household subscriptions well above 50 percent. In con- lish a fresh dynamic policy and regulatory agenda trast, some of the less populous, more isolated depart- for the next planning period while building on Colom- ments, such as Amazonas, Vaupes, and Vichada, have bia’s inherent strengths and achievements to date. rates below 5 percent, less than one-tenth the national Figure O.4. 4G Subscriptions per 100 Figure O.5. Fixed Broadband Household inhabitants Penetration (%) 100 100 Chile OECD OECD 80 Argentina 80 Brazil Argentina Mexico Chile 60 UMIC 60 Colombia Colombia Brazil Peru 40 40 UMIC Peru Mexico 20 20 '10 '12 '14 '16 '18 '20 '12 '14 '16 '18 '20 Source: GSMA (2021); World Bank, 2012-2020. Source: TeleGeography (2023b). Overview 25 Its core objective could be to promote equitable access providing timely information for the design and imple- to digital development for all Colombians by reducing all mentation of public policies. forms of digital divides based on socioeconomic status and geography. This objective could be achieved by (a) The GoC has made substantial progress in its digital maximizing private and, as needed, public investments transformation and development of the underlying in backbone, internet exchange points), and access in- institutional framework. Colombia has a consolidat- frastructure, (b) strengthening the competitive environ- ed digital government strategy and is implementing a ment and safeguarding it through more rigorous ex ante building blocks approach to the delivery of digital public regulation and effective enforcement, and (c) ensuring services and the construction of digital public platforms. the efficient distribution of spectrum resources, such as Nevertheless, further coordination efforts between key the 3.5 GHz band, with the objective of maximizing cov- stakeholders are needed. The nature of digital govern- erage and investment. ment implies the integration and collaboration of all the stakeholders in a whole-of-government approach. Ex- ploring a federated coordination scheme and strength- ening the role of the sector chief information officers 2. DIGITAL PUBLIC PLATFORMS could help to bolster the alignment of efforts. The government of Colombia is implementing an Digital platforms are electronic tools designed to interoperability platform and developing digital au- exchange goods, services, or information between thentication services, which are critical building producers and users. In a nutshell, they facilitate the blocks for the advancement of digital services. Co- flow of information and transactions to enable producers lombia has made progress on developing the Digital and users to create value by interacting with each other. Citizen File as a centralized hub to access government Digital platforms can be public or private, such as, for services, but its rollout remains a critical challenge for example, social networks and online marketplaces. The the immediate future. Also, some of the digital services development of digital platforms is an important lever currently available reproduce analog processes. This for the widespread digitalization of the economy. Digital poses a challenge in terms of efficiency, as the workflow platforms can transform the way governments interact of services could potentially contain redundant steps with citizens and businesses and optimize public value that could be redesigned or simplified to save both time by reducing costs and improving productivity (Figure and resources. Achieving the ambitious deadlines set O.6). They also enable new service delivery models and by the normative framework to fully digitalize services improve the management of public resources while would also require strengthening the capacity of both the Figure O.6. Digital Government: Correlation with Government Effectiveness 100 2020 WGI Government Effectiveness 80 KNA CHL (Rank Percentile) BRB 60 LCA VCT CRI PAN GRD COL LAC Av DMA 40 SLV GUY ECU BRA SUR PRY 20 BOL 0 HTI VEN 0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 UN Online Service Index (2020) Source: Authors’ elaboration based on data from the World Bank (2023e); and the UN Online Service Index. Overview 26 National Digital Agency [Agencia Nacional Digital [AND]) Significant disparities remain in the scope and com- and sectors involved in the provision of services. prehensiveness of core government systems across regions. Although major urban centers have deployed Strengthening the interoperability of government robust systems to manage internal operations, small systems is essential to ensuring the flow of informa- rural municipalities are still in the process of digitaliz- tion, both for decision making and service delivery. ing core functions, such as budgeting, accounting, and Interoperability, together with digital authentication and human resource management. The government could the availability of digital services, is foundational to the define strategies to address regional disparities by, for development of digital public platforms. The GoC has example, (i) creating working groups in each region with made considerable progress in setting up the regulatory representatives of the main stakeholders, the AND, local framework and supplying the technologies to facilitate government, the Ministry of Information and Communi- interoperability between government institutions. Colom- cations Technologies (Ministerio de Tecnologías de la bia has adopted X-Road as the government interopera- Información y las Comunicaciones [MinTIC]), and the bility platform, which provides the versatility needed to National Planning Department (Departamento Nacional adapt to existing technological solutions, but its uptake de Planeación [DNP]), to identify the specific needs of has been limited for a variety of reasons, including tech- subnational governments; (ii) expanding the approach nical factors and the steep learning curve needed. Out of of initiatives, such as the DNP’s Territorial Management 171 government entities, only 64 use X-Road, and only Model, to enable the provision of solutions and technical 27 processes are interoperating. To further promote in- assistance to municipalities in a cost-effective way; (iii) teroperability, it is critical to ensure the harmonization of expanding support in priority areas, such as ICT com- functional concepts in new system designs so that the missioning, digital services, and digital skills develop- systems are interoperable from the start. ment; and (iv) providing shared technology infrastructure through cloud technologies for core back-office systems, Colombia has made notable progress on advancing such as financial, human resource, investment, and rev- toward a data-driven public sector, but implement- enue management systems. ing its new framework could be a challenge. Imple- menting a governance framework of the data value chain The adoption of shared technology infrastructure (from collection to processing, sharing, and re-using) could contribute to reducing the costs and improv- within the public sector is crucial for capitalizing on data ing the performance of both ICT infrastructure and as a strategic asset and thus promoting a data-driven service provision, as it would enable a cost-efficient public sector that transforms the design, delivery, and expansion and greater interoperability between gov- monitoring of policies and public services. Significant ernment systems using tools compliant with the data progress has already been made in the development of standards. A whole-of-government approach to the man- a data governance framework in Colombia, particular- agement and purchase of ICT presents a strategic area ly with the implementation of the PNID and the Decree where intensifying the use of shared technology could 1389 (2022) on data governance. The GoC has also es- yield considerable benefits. Although Colombia has the tablished an IT management enterprise architecture and regulatory framework in place to aggregate demand for an interoperability framework for the public sector and hardware and software and achieve savings through data reuse guidelines for public entities. However, chal- framework agreements developed by the public pro- lenges in the establishment of a data management mod- curement agency (Colombia Compra Eficiente), the use el and implementation of the PNID framework remain. of these tools is not widespread. Also, although the ab- Although PNID includes provisions on sharing and using sence of a government-wide ICT procurement strategy data, these as well as data analytics are not yet wide- offers great flexibility for line ministries, it weakens their spread practices. It is particularly important that the GoC bargaining power in relation to suppliers, which dispro- purposefully shift away from managing siloed datasets portionally affects smaller ministries. and enables data sharing between different digital gov- ernment services. Successfully implementing and oper- Colombia has made free, facilitated access to gov- ationalizing the PNID framework, encouraging proactive ernment data part of its policy priorities. The country data sharing and fostering a culture of data-driven deci- operates under the principle of openness by default, and sion making across all public institutions are challenges most government entities publish datasets in the open Colombia will face in upcoming years. This will require data platform. However, data management processes ongoing efforts to overcome existing barriers and ensure are not necessarily designed to facilitate data sharing, that the framework is effectively integrated into institu- especially between government institutions. The govern- tional practices and operations. ment has made progress leveraging ICT technologies Overview 27 to promote citizen engagement, and government insti- the active usage of digital payments, and enabling the tutions are required to develop citizen participation in the digitalization of a broader range of financial services. De- same way—an example of this is the Cristal Urn plat- spite recent growth in mobile wallets, most Colombians form. Citizen engagement could be further promoted to still rely on cash for daily transactions and the majority of generate public value. Key actions in this regard include MSMEs have not yet reaped the benefits of DFS to reach (i) intensifying collaboration with the private sector, ac- new customer segments and improve their productivity. ademia, and civil society organizations to increase the re-use of open data and to help build solutions for vul- Policy, legal, and regulatory reforms have contrib- nerable groups; (ii) strengthening the measurement and uted to development of Colombia’s DFS and fintech evaluation of digital citizen engagement; and (iii) working ecosystem. Efforts by financial sector authorities over with academia and civil society to foster the co-creation the past decade, including the program Banca de las of digital solutions. Oportunidades and the 2014 Financial Inclusion Law, have been instrumental in helping to achieve near uni- versal coverage of access points and to expand the up- take of DFS. The current regulatory framework facilitates 3. DIGITAL FINANCIAL SERVICES the market entry of several types of innovative providers (e.g., electronic deposit and payment companies) and the use of new technologies (e.g., cloud computing) for DFS are a critical enabler of the digital economy and the provision of DFS and sets rules for the management can help to overcome the cost, accessibility, and of the associated risks. Colombia’s regulatory sandbox product design barriers that have historically driv- provides supervised financial entities and unsupervised en financial exclusion. The G20 High-Level Principles providers with a tool to test innovative technologies and for Digital Financial Inclusion define DFS as: “…financial business models. Authorities have also taken measures products and services, including payments, transfers, to address vertical integration, concentration, and high savings, credit, insurance, securities, financial planning costs in Colombia’s credit cards market and respective and account statements. They are delivered via digital/ infrastructure. Colombia now has the third largest fintech electronic technology such as e-money (initiated either ecosystem in the region by number of companies, be- online or on a mobile phone), payment cards and regu- hind Brazil and Mexico. lar bank accounts.” Digital payments often serve as the entry point and “rails” for a DFS ecosystem and enable Further reforms can build on recent progress and consumers to easily make and receive payments with foster a more mature stage of development for Co- friends, family, retailers, service providers, and gov- lombia’s DFS and fintech ecosystem. The recent Open ernment authorities. Greater uptake and usage of DFS Finance Decree is a key milestone in this regard, yet en- helps foster the growth of digital businesses by ensuring suring its effective implementation will require a mix of convenient, fast, safe, and transparent payments. Uni- regulatory measures and market convening to ensure a versal access to DFS can also facilitate greater use of common technical and commercial baseline for the de- digital public platforms, including the rapid and efficient velopment of a multilateral framework. Moreover, author- delivery of social transfer payments via digital channels. ities should continue to adapt oversight and supervision frameworks to digital payments and DFS, particularly in Colombia has made notable progress in expanding light of outsourcing and new technologies and assets, access to DFS over the past decade. Ownership of in line with international standards and guidance. DFS a transaction account among Colombian adults (ages users should be adequately and consistently protected, 15+) has doubled from 30 percent in 2011 to 60 percent regardless of the regulatory perimeter. Indeed, there is in 2021. More than half of adults in Colombia now re- scope to enact a more comprehensive legal and regu- port making or receiving at least some digital payments. latory framework for payment services and digital credit This places Colombia above several country peers (e.g., that could serve to promote innovation and competition Peru, Indonesia) in terms of access and usage of ba- as well as coordinate authorities’ regulatory and super- sic DFS, but still below the average for upper-middle-in- visory responsibilities. Authorities should also consider come countries (UMICs) as well as country peers that how to further leverage crowdfunding to address access have seen greater progress in recent years (e.g., Brazil, to finance constraints, given that just one platform is op- Turkey) (Figure O.7). In Colombia, challenges remain in erating under the current regulatory framework. closing the gaps with still-excluded segments, promoting Overview 28 Figure O.7. Account Ownership and Use of Transaction Accounts in Colombia, International Comparison, 2021 32% Mexico* 37% 37% Indonesia 52% 49% Peru 57% 52% Colombia 60% 61% Upper middle income 72% 68% Turkey 74% 77% Brazil 84% 81% South Africa 85% 92% Thailand 96% Made or received a digital payment in the last year (% age 15+) Account ownership (% age 15+) Source: Demirgüç-Kunt et al. (2022). Note: Figures are for 2021, with the exception of Mexico (2017). The figure shows the percentage of respondents (adults) who report having an account (by themselves or together with someone else) at a bank or another type of financial institution or report personally using a mobile money service in the past 12 months. Colombia’s national payment system largely sup- Significant opportunities remain for authorities to ports the provision of digital payments, but financial drive digitization efforts through government-to-per- infrastructure barriers, uneven coverage, and limit- son transfers and remittances. Following the progress ed interoperability may constrain uptake and active made on the digitalization of government salaries and usage. Electronic payment acceptance infrastructure pensions, social benefit programs could be shifted to di- has been expanding as a result of new business models rect automated clearinghouse (ACH) payments to ben- and low-cost technologies (e.g., mini POS and quick re- eficiaries’ preferred transaction accounts. Lessons from sponse [QR] codes). Microbusinesses appear to be be- the large-scale digital disbursement of the Ingreso Sol- ginning to avail themselves of these opportunities amid idario emergency financial support program during the consumer preference for cash. To the extent that many COVID-19 pandemic should be considered. Likewise, DFS models still require the use of financial institutions’ the digitalization of remittances, which could be facilitat- access points for cash-in and cash-out transactions, ed by new entrants, represents a large opportunity for uneven coverage across urban and rural areas may af- increasing financial inclusion and the uptake of digital fect DFS adoption by underserved segments. Further- payments. To this end, the conditions to operate as a more, the lack of full interoperability and access barriers foreign exchange intermediary and the exclusivity agree- to key financial infrastructure constrain the potential of ments between international money transfer operators new business models to drive down acceptance costs/ and their agents could be reviewed and, if necessary, barriers. Authorities should continue to monitor the ef- addressed. fectiveness of the retail payment system’s governance arrangements and induce change as necessary. Timely progress in the area of fast payments would benefit from the central bank (Banco de la República [BR]) articulat- ing its role consistent with its mandate and in coordina- tion with the industry. Overview 29 Looking ahead, Colombia should continue to imple- ment ambitious reforms with strong public sector 4. DIGITAL BUSINESSES leadership and effective mechanisms for coordina- tion with the private sector. The consolidation of var- The widespread adoption of digital technologies by ious coordination bodies under the single Intersectoral businesses in Colombia represents a great opportu- Commission on Financial and Economic Inclusion and nity to reignite the engines of economic growth but Education (Comisión Intersectorial para la Inclusión y also poses a multidimensional challenge. In addition Educación Económica y Financiera [CIIEEF]) is expect- to their own contributions to productivity growth and ed to streamline policy execution in the area of financial competitiveness, both start-up and established digital inclusion. Once the CIIEEF has been fully operational- enterprises are key enablers of growth through the digital ized; future efforts could focus on better aligning financial transformation of traditionally offline businesses. Digital inclusion targets and indicators to the ambitious policy businesses supply new or improved digital technologies agenda, reflecting a shift from access to effective usage and services, facilitate access to larger and more dynam- and the changing ecosystem. The BR initiative to de- ic markets for local firms, and generate strong network velop a fast payment system is also consistent with this and demonstration effects that promote the adoption of direction. If well implemented, this initiative can help cat- innovative business models and digital technologies by alyze private sector commitment to interoperability and offline companies. other public policy objectives. Colombian firms in the digital subsectors face low barriers to entry but encounter significant challeng- es to scaling up. Colombia has a large pool of digital start-ups relative to regional peers. As of 2021, Colom- bia was home to approximately 13 percent of the formal digital businesses in the LAC region.10 When compared to aspirational peers, such as Romania and Estonia, Co- lombia showed a spike in new digital businesses in 2013 and then some fluctuations afterwards, while Romania and Estonia have shown a steady increase of new busi- nesses over the past decade (Figure O.8). However, for every six digital start-ups in Colombia, there is only one Figure O.8. Colombia and Regional Peers. Percentage of Formal Digital Business by Founding Years 30% 25% 20% 15% 10% 5% 0% Colombia Argentina Brazil Chile Mexico Peru LAC Average Upper (excl. Colombia) Middle Income Countries 1971-2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: Authors’ elaboration with data from Pitchbook and CB Insights. Overview 30 established digital business.11 The proportion of Colom- Yet, the cross-border e-commerce of goods remains bian digital start-ups to established digital businesses is constrained by the low automation of border control similar to the UMIC average and aspirational compara- agencies, inefficient customs and tax revenue collection tors such as Romania and Estonia, but below the share techniques, and limits imposed by the Customs Code on observed in the LAC region and OECD countries. These imports and exports by postal services. Implementing figures suggest that there is a vibrant ecosystem in Co- advanced border management solutions, such as updat- lombia but that few digital start-ups manage to scale and ed approaches to revenue collection and dedicated au- mature. There is an opportunity to strengthen the com- tomated systems for postal and expedited shipment data petitiveness and innovation policy mix with instruments processing, could help ease these constraints. that target the key drivers of success, such as improv- ing managerial capacity and providing more diverse and Most MSMEs in Colombia have adopted basic dig- scalable sources of financing. ital tools, but the use of these tools for productive purposes remains limited, particularly among mi- The top four digital subsectors in Colombia are fin- crobusinesses. Multiple factors constrain the capacity tech, business management tech, e-commerce, and of Colombian firms to adopt digital technologies, from logistics tech, and healthtech also plays a leading basic to advanced, including: (i) a limited understanding role relative to regional peers. Fintech is the top digital of available digital technologies; (ii) inadequate mana- subsector across medium-sized firms in Colombia and gerial capabilities; (iii) affordability constraints; and (iv) other regional peers. E-commerce and related subsec- and the limited digital skills of the workforce. The GoC’s tors, business-to-business subsectors, and technolo- menu of policy instruments for digital transformation gy-focused services (big data, software, AI) also make could be strengthened to better support firms’ digital up- up a large share of medium-sized digital firms in Co- take through a mix of interventions focused on: raising lombia. The country shows a comparative advantage in awareness among MSMEs about the availability of digi- terms of healthtech, as the share of medium-sized and tal solutions; strengthening the organizational, technical, large businesses in this subsector doubles that of re- and managerial capabilities of firms; and supporting the gional peers. Moreover, about 20 percent of digital busi- formation of high potential platform-based and data-in- nesses in the country are built around platform-based tensive businesses. or data-driven business models, above levels observed in country peers. However, most data-intensive services, Only a small fraction of Colombian MSMEs current- such as big data analytics and provision of AI systems, ly have the capacity to develop and implement the are provided primarily by foreign firms. Digital business- technological solutions they require to operate in a es tend to be more concentrated around the largest eco- digital environment. Despite such low internal capaci- nomic centers (Bogotá and Medellín) compared to firms ty, relatively few firms outsource ICT services—between in other sectors, suggesting that they are more depen- 56 and 68 percent of firms across sectors pay for pe- dent on network interactions with buyers and suppliers. riodic services related to software and computer pro- In addition, gender gaps regarding firm ownership are grams, and only one-third outsourced their systems or more pronounced in some digital business subsectors ICT functions (Figure O.9). The limited externalization relative to the rest of the economy, suggesting that gen- of ICT services by MSMEs could hinder the capacity of der-specific bottlenecks and biases might be impeding digital businesses to mature and scale up. Intervention women entrepreneurs from entering and succeeding in mechanisms that provide technical or financial support the provision of some digital goods and services. for MSMEs to outsource or externalize key processes intensive in the use of digital technologies (e.g., advisory E-commerce has been growing steadily since the services, networking events, vouchers) could help firms onset of the COVID-19 pandemic, mostly driven to circumvent infrastructure deficiencies and skills gaps by a boom in domestic trade and contributing 3.6 constraining their technology uptake. percent of GDP in 2021, up from 1.9 percent in 2018.12 Overview 31 Figure O.9. Share of Companies that Used Computer Applications or Programs (left), and Share of Firms that Have a Systems or ICT Department, internal or outsourced (right) 38 35 25 74 75 73 68 57 17 56 56 53 34 47 33 58 41 28 27 29 31 22 13 8 Commerce Industry Services Commerce Industry Services Developed by the firm Firms that have an internal ‘Systems’ or ‘ICT’ area Bought Firms that lack a ‘Systems’ or ‘ICT’ area (internal or outsourced) Paid for periodic services Firms that outsource ‘Systems’ or ‘ICT’ functions Outsourced development Downloaded (open source) Source: DANE (2021d). Digitally intensive businesses point to the limited formation and growth of digital businesses; six contrib- access to external sources of financing as a key ute to the progressive digitalization of businesses across constraint to innovation and growth. Debt financing multiple sectors, for instance, by supporting improved through private banks accounts for less than 2 percent digital capabilities among small and medium-sized en- of ICT businesses’ investments in scientific, technologi- terprises (SMEs); and 31 support the formation of foun- cal, and innovation activities.13 Access to risk capital in dational digital skills and the widespread adoption of the early stages of development for digital start-ups has digital technologies by government, nongovernmental increased during the past decade, but its role remains organizations, and society at large, thus contributing to limited, and private equity financing for later-stage digital the creation of an enabling environment for digital firms businesses is still underdeveloped. Regulatory reforms to thrive. that improve certainty for investors, passive support for early-stage financing, and measures to strengthen the However, significant overlapping program objec- financial infrastructure related to intangible capital could tives, inadequate targeting of beneficiaries, and a enhance digital businesses’ access to diversified financ- lack of intervention mechanisms to address access ing instruments suitable to their specific needs and de- to finance constraints (among other key barriers velopment stages. to business digitalization) point to opportunities to improve the efficiency of public spending. Most pro- The GoC has implemented multiple programs to pro- grams assessed do not adapt their offer of support instru- mote business digitalization and support the forma- ments to account for subnational or cultural differences, tion and growth of Colombian digital start-ups. About and they also show a low segmentation of beneficiaries, $1 out of every US$25 that the GoC budgeted to support which could lead to a significant duplication of effort. In the National System of Competitiveness and Innovation this context, strengthening the articulation between poli- in 2022 was directed at policy instruments that seek to cy instruments and improving selectivity criteria, as well boost digital transformation. Currently, 70 government as refocusing intervention mechanisms through sound entities implement 376 policy instruments aimed at logical frameworks and improving monitoring and evalu- boosting competitiveness and innovation in Colombia, ation capabilities, could play an instrumental role in min- with a combined budget of US$1,891 million, as reported imizing duplications of effort while increasing the reach by the Articulación para la Competitividad initiative. From and impact of support programs and enhancing the effi- these, three policy instruments specifically support the cacy of public spending. Overview 32 advanced or specialized digital skills that are increas- 5. DIGITAL SKILLS ingly necessary for an ever-growing number of jobs are fundamentally acquired in formal higher education (tech- The widespread adoption of digital technologies nical or university) and in formal and informal training around the world is changing the nature of jobs offered by a growing ecosystem of providers and by the and requiring new skillsets. Colombia is no exception technology industries themselves. to this trend, as the country needs to foster better ac- quisition of digital skills through education and training. Multiple barriers currently compromise the equitable Digital skills encompass both technical skills—basic and acquisition of digital skills among the population and advanced—as well as transversal skills. For instance, fuel the digital divide. Chief among these challenges effective collaborative work through digital technologies are the high number of young people who neither study clearly implies technical competencies, such as knowing nor work, the poor performance of the education system how to use certain digital tools, but also requires trans- in foundational skills, the marked disparities in school life versal skills such as communication, cooperation, and expectancy by socioeconomic groups, and the unequal empathy. As Colombia advances in its digital transfor- access to digital infrastructure and equipment across the mation path, there are basic or fundamental digital skills territory. Although the gap in digital skills among Colom- that all citizens need to master for their jobs and profes- bian regions is significant, these skills appear to be sim- sions and for their everyday lives. For young people, the ilarly distributed between women and men. UN data for main way to acquire these skills is through the compul- 2018–19 suggest that there is little difference between sory formal education system, and for adults through a genders as regards basic computer skills in Colombia workplace training system. At the same time, the more (Figure O.10). Figure O.10. Digital Literacy Gaps in Colombia (2019–19). Share of Youth and Adults 36 36 Female Male 28 27 26 26 25 25 COLOM BIA 19 16 7 5 Connecting and Creating electronic Finding, Using basic Using copy and Writing a computer installing new presentations with downloading, arithmetic paste tools to program using a devices presentation installing and formula in a duplicate or move specialized software configuring spreadsheet information within programming software a document language Source: UNESCO, Sustainable Development Goal 4.4.1. Overview 33 Demand for digital skills in Colombia outpaces sup- During the past decade, the GoC has launched im- ply, and the gap is likely to widen as the economy portant plans and programs to promote the use of continues on its digitalization path. Demand for basic technology and strengthen the development of dig- digital skills is near universal among employers, while ital skills. The main agents related to digital skills are demand for advanced digital skills is high and increas- MinTIC, the Ministry of National Education (Ministerio de ing. Over half of formal firms across all sectors surveyed Educación Nacional [MEN]), the Ministry of Labor, the in 2014 reported difficulties in finding the right human tal- Ministry of Commerce, Industry and Tourism (Ministerio ent.14 The main reasons behind this mismatch were the de Comercio, Industria y Turismo [MinCIT]), the Agen- absence of foundational and sector-specific skills and cy for Entrepreneurship and Innovation of the National the lack of required knowledge and certifications. A 2020 Government, and the National Learning Service (Servi- study by the United Nations Development Programme, cio Nacional de Aprendizaje [SENA]). Likewise, univer- in collaboration with the Bogota Chamber of Commerce sities, both public and private, stand out in the provision and focused on the financial services cluster, identified of formal education and training in digital skills. The main challenges related to quantity gaps (i.e., an insufficient strategy for the development of basic digital skills among number of professionals) and quality gaps (i.e., the lack students and teachers has been the Computers for Ed- of solid technical knowledge) in several profiles, such as ucation Program (Computadores para Educar [CPE]), software and application developers, data science spe- which has been widely successful in providing access to cialists, user experience designers, and digital market- equipment and has more recently shifted its focus to pro- ing, as well as a relevance gap in the training offered mote digital appropriation by teachers and students. In (i.e., a disconnect between the productive sector and the 2020, the GoC launched the Technologies for Learning academy). Likewise, digitally intensive businesses are National Policy, aimed at promoting innovation in educa- struggling to attract and retain employees with advanced tional practices. Additionally, MinTIC provides a wide va- digital skills, which are in high demand in the formal sec- riety of short training programs accessible to all Colom- tor, hard to find, and show significant gender gaps, like- bians, including the Jugando y Kreando, Programación ly related to barriers to accessing formal education and para Niños y Niñas, Ruta STEM, and TutoTIC programs. training (Figure O.11). Developers, data scientists, cloud In spite of this, large numbers of young people are leav- service administrators, and IT architects are consistently ing school without rudimentary digital skills and without identified as the most critical ICT profiles and the most the capacity to continue their digital education. Technical difficult human resource to obtain.15 and higher education does offer advanced training, but Figure O.11. Occupation of ICT Positions by Males and Females in Six of the Main Regions of Colombia. Share of Total 19 14 28 21 21 8 92 86 81 79 79 72 Antioquia Atlantico Bogota Eje Cafetero Santander Valle del Cauca Women Men Source: Authors’ elaboration based on Alianza TIC (2020). Note: This figure considers only the surveyed people who answered the question. Between 1 and 5 percent of the surveyed population (depending on the region) did not answer. Overview 34 the number of people enrolled remains low, and in many plays a major role in addressing skills needs, preventing cases the offer trails behind the changing demands of skills mismatches, and supporting youth employment. At the productive sector. the same time, it is essential to develop policies and pro- grams that promote digital skills among the adult popula- Numerous education institutions are increasingly tion through workplace training. This could occur both in playing an important role in the formation of digital the workplace or by supporting the processes of reskill- skills in Colombia. However, newer formats of educa- ing and upskilling centered on digital abilities. Likewise, tion, such as virtual courses and bootcamps, have not implementing recognition systems for the skills acquired yet been properly evaluated and regulated, which im- through workplace training or other modalities could fa- pacts the acceptance of these modalities by employers cilitate labor insertion and increase the options for the and makes it difficult for these formats to coexist with the later development of advanced digital skills. established education system. Colombia lacks a national strategy to guide the de- 6. TRUST ENVIRONMENT velopment of digital skills, as well as an official na- tional digital skills framework to foster the develop- ment of digital competencies throughout the formal The regulation of data exchanges is indispensable to educational trajectory. As noted, digital skills have not enabling the kind of interactions and data flows nec- yet been incorporated formally into the curricula through- essary to sustain a growing digital economy while out the country, nor are they being systematically de- at the same time ensuring that personal data are veloped at a foundational level at elementary, middle, collected, processed, and stored fairly and lawfully. or high school or at a more advanced level in technical, As Colombia’s digital economy becomes more inclusive, technological, and higher education. In the absence of it is paramount to continue to strengthen data enablers a national framework, not all the actors involved in the and safeguards in order to provide a trusted environment process of digital transformation have the same under- for the growth of electronic transactions and data flows. standing of digital skills. This makes it difficult to assess The World Bank’s 2021 World Development Report cat- the current situation, measure the gaps between the sup- egorizes data policies and regulations as enablers and ply of and demand for digital skills, and design policies safeguards. Enablers are policies and regulations that and interventions to develop the required capacity. In this facilitate the use of data as a necessary condition for the sense, Colombia can benefit from adopting international digital economy, such as through data-sharing models frameworks, such as the Digital Competence Framework that underpin e-commerce transactions and public and for Citizens (DigComp 2.1) of the European Commission private intent data. On the other hand, safeguards en- or UNESCO’s Digital Literacy Global Framework. As a compass policies and regulations that protect personal first step in developing a digital strategy and framework, and non-personal data and prevent data abuse, cyber- the GoC could implement a cross-sector diagnostic to crime, and other misuse. Despite many advances, Co- identify the digital competencies that will be demanded lombia still faces barriers to establishing a reliable en- by the private and public sectors in the coming decade vironment for strengthening international and domestic and assess them against the current supply of digital electronic transactions with a fair balance of data en- skills to identify the critical gaps. ablers and safeguards (Table O.1). Increasing the number of students in vocational ed- ucation and training (VET) should be an objective for the technical and higher education system. VET Overview 35 Table O.1. Summary of Key Safeguards and Enablers for Colombia and Selected Benchmark Countries Enablers Safeguards Dimension Personal data protection National cybersecurity Data portability rights online authentication Open data act/policy Digital ID system for e-transaction law government data of non-personal E-commerce/ strategy/plan Regulation Country law El Salvador Yes NO Yes NO NO Yes NO Costa Rica Yes Yes Yes NO Yes Yes Yes Colombia Yes NO Yes Yes Yes Yes Yes Mexico Yes NO Yes Yes Yes Yes NO Dominican Republic Yes Yes Yes NO Yes Yes NO Source: Framework from World Bank (2021). For Colombia, Mexico, and the Dominican Republic, data from World Bank (2021); for El Salvador and Costa Rica, data are based on original analysis. Note: recientemente se ha introducido un nuevo sistema de identificación digital, pero en el momento de redactar este informe su aceptación era escasa. Colombia has a comprehensive data protection number, date and place of birth, gender, signature, pic- framework that addresses critical aspects of data ture, and fingerprints. The new digital ID card is provided regulation and supports important major rights, in two formats: (i) the physical format, which is widely such as right of access, rectification, and opposi- used to access offline services, and (ii) the digital format, tion. Although key enablers and safeguards to support which can be accessed from any electronic device (e.g., digital transactions and data flows are already estab- mobile phone) through an encrypted QR code that con- lished, there is room to strengthen the data protection tains personal data, including biometric data, of the card- framework further by integrating internationally recog- holder. The card streamlines the digital authentication nized best practices, such as the right to data portability, process, enabling a series of benefits, such as allowing the reporting of data breaches to the data subjects, and citizens to carry out internet-based transactions; helping expanded legal jurisdiction for processing personal data. to prevent and mitigate payment fraud and identity du- Some of these issues are currently being dealt with ac- plication; and allowing the portability of the ID card on cording to guidelines of the Superintendency of Industry mobile devices. In February–November 2022, the World and Commerce (Superintendencia de Industria y Comer- Bank conducted a national ID4D Diagnostic of the new cio), but those guidelines are not codified in the legal ID system with recommendations for its effective deploy- framework and thus not mandatory. Moving forward, ment. The latter included: (i) ensuring the inclusion of all, Colombia’s data protection framework could go further especially the indigenous population, remote communi- in addressing the challenges brought forth by emerging ties (particularly those affected by the conflict in Colom- technologies, such as AI, blockchain, cloud computing, bia), and migrants; (ii) gaining societal trust before and and others. during its deployment, for instance, by deploying com- munication campaigns, a citizen engagement process, In 2020, the National ID and Civil Registry Agency and qualitative studies to increase uptake, to show the (Registraduría Nacional del Estado Civil) launched a benefits of the new ID system; (iii) developing a sound novel digital ID system that enables access to digi- digital service ecosystem based on smooth coordination tal services, and ensuring its inclusiveness, building among institutions; and (iv) strengthening the authenti- public trust, and strengthening coordination will be cation platform within the ID agency and ensuring that essential to its success. The digital ID card collects fees charged to the private sector are not an obstacle to biographic and biometric data, such as full name, ID delivering digital services. Overview 36 In the past decade, Colombia has made consistent inventory every two years. However, the decree does not efforts to build its cybersecurity capabilities, but fur- include private sector ICCN assets and services in this ther strengthening is needed to match ever-growing national stocktaking. Given that many ICCN resources challenges in the cybersecurity domain. The country are operated by the private sector, it is important that operates in an environment that is prone to significant those are integrated under the new ICCN regime. cyberattacks and is not adequately prepared to face these threats, as identified by the 2020 National Trust The development of human capital is the main stra- and Digital Security Policy (CONPES 3995). Although tegic medium- to long-term challenge for Colombia there have been notable advances in the cybersecurity as regards cybersecurity. If not addressed, it could de- policy and strategy domain, establishing a national cy- lay the progress of the cybersecurity domain for years to bersecurity governance structure had remained a pend- come. Dealing with this challenge will require consistent ing issue until recently. Through Decree 338 of 2022 the national efforts to strategically build human capital in cy- GoC defined a governance model with relevant man- bersecurity by, for instance, offering academic careers dates to strengthen digital security, network protection, in cybersecurity, including cybersecurity courses in pri- critical infrastructures, essential services, and informa- mary and secondary education, and strengthening the tion systems in cyberspace. Ensuring the allocation of cybersecurity or information security courses in the tech- sufficient resources to the recently adopted cybersecu- nology-based degree programs. There is a similar need rity governance structure will be instrumental to imple- to create better training opportunities—at the specializa- menting the strategic objectives of CONPES 3995 and tion level—for officials from law enforcement agencies, Decree 338 of 2022. the Prosecutor’s Office, and the judiciary in the field of cybercrime and digital evidence. It is also vital that the Under the new governance structure, the ICCN re- competent authorities work closely with domestic cham- gime seems to exclude resources for the private sec- bers of commerce and other actors from the private sec- tor. Decree No. 338 of 2022 clearly defines what are crit- tor, academia, and industry to coordinate in organizing ical cybernetic infrastructures and essential services and regular awareness-raising activities for the private sec- establishes that MinTIC is responsible for taking stock of tor, including MSMEs, and society-wide. the public ICCN and essential services and updating that Overview 37 Table O. 2. Key Policy Recommendations to Accelerate the Digital Transformation in Colombia (1 of 3) Medium-Term Priorities Pillar Short-Term Priorities and Structural Reforms » Undertake regular relevant market » Release spectrum in the 3.5 GHz band to assessments to identify the dominant foster 5G development. operators and impose appropriate ex ante obligations to promote and safeguard competition. Digital » Review the eligibility, duration, and scope of Infrastructure the Social Tariffs program to further promote internet affordability for low-income house- holds. » Improve mobile and fixed infrastructure coverage in unserved areas. » Strengthen coordination mechanisms. The » Increase interoperability between core government should establish coordination government systems. Adoption of the mechanisms within two levels, strategic and X-Road platform has been slow. To further operational, to ensure the appropriate level promote interoperability, one key issue is of performance and consistent use of digital defining a government-wide data governance technologies across government. framework and ensuring the harmonization of functional concepts in new systems by » Develop an aggressive digitalization design. strategy and support tools, especially Digital at the subnational level. This entails » Strengthen the delivery model for the Public providing hands-on support in the digitalization of public services. Consider Platforms simplification of processes and procedures, scaling up the DNP’s approach to providing using new technologies, and enabling key public management modules for data sharing to set up services around life beneficiary municipalities as a cloud-based events. services coupled with hands-on technical assistance. » Successfully implementing the PNID framework and establishing a proper data management model within the public sector (from collection to processing, sharing, and re-using). » Develop a mandate and work program for the » Enact a legal framework for payment payment system forum (Foro Sistema de services. Pagos). » Evaluate the impact of regulatory reforms » Develop uniform fast payment scheme rules on lowering access barriers to low-value (including requirements for the underlying payment systems (sistemas de pago de clearing and settlement mechanisms), taking bajo valor [SPBVs]) and reducing costs. into consideration the rules’ enforceability Depending on this evaluation, consider and the potential role of the BR in setting fast potential additional measures to strengthen Digital payment standards, in line with its mandate public interest considerations, e.g., by Financial and functions. The design of a fast payment prescribing changes to system rules and Services system (Sistema de Pagos Inmediatos governance arrangements as appropriate. [SPI-BR]) should emphasize low-cost access and connectivity of smaller participants and » Expand plans to migrate social benefit other third parties (e.g., payment initiation payments from the current system based on service providers), as well as support for new public tendering to ACH payments. Any legal use cases/access channels. barriers to discontinuing the current model should be removed. Integrate the use of digital ID for beneficiary authentication. Overview 38 Table O. 2. Key Policy Recommendations to Accelerate the Digital Transformation in Colombia (2 of 3) Medium-Term Priorities Pillar Short-Term Priorities and Structural Reforms » Understand constraints and raise » Review the regulations introduced in the awareness among MSMEs about the context of the post-COVID-19 economic potential value of using the internet and recovery plan following best practices integrating digital solutions into their to see if they can have a more permanent business models and internal processes. impact in the disintermediation market. Consider implementing awareness-raising These include: (i) authorization for simplified campaigns targeted at women-owned, equity companies to issue debt; micro-, and rural businesses. ii) subsidized guarantees offered by the National Guarantee Fund (Fondo » Assess the potential duplication of effort Nacional de Garantías) on SME among public programs supporting digital corporate debt issued by simplified businesses and the digital transformation equity companies and others; iii) portfolio of MSMEs, particularly in terms of the guarantees by the National Guarantee overlap of their objectives, beneficiaries, Fund for private debt fund lending to SMEs Digital and intervention mechanisms. Based on to help establish these funds as a new asset the results of this assessment, strengthen class; and iv) revised investment regulations Businesses the articulation across programs by for pension funds and insurance companies, minimizing redundancies and improving enabling them to invest in corporate debt the exchange of information. funds. » Continue to work on the development of alternative collateral options to expand lending opportunities for entrepreneurs (e.g., track record of repayment performance, moveable assets); and improve credit information systems that better reflect the risks associated with financing digital start-ups. » Elaborate and regularly update » Define a national digital skills strategy a cross-sector diagnostic to identify the that recognizes the existing gaps (gender, digital skills and competencies required educational level, regional, urban-rural). to prepare the labor force to take advantage This national strategy could establish how of the opportunities set forth by digitalization. digital skills should be developed on a International examples of cross-sector continuum from a basic level (primary and diagnostic frameworks include Chile´s secondary education) to a more advanced Brechas de Inclusión Digital and the one (technical, technological, higher European Union’s Digital Economy and education, workplace learning). Society Index (DESI). The ITU Digital Skills Assessment Guidebook also contains Digital Skills valuable guidance in this regard. » Create a national digital skills framework that clearly defines digital skills and competencies in Colombia. Relevant examples include the Digital Competence Framework for Citizens (Digcomp 2.1), for Educators (DigCompEdu), and for Educational Institutions (DigCompORg). Overview 39 Table O. 2. Key Policy Recommendations to Accelerate the Digital Transformation in Colombia (3 of 3) Medium-Term Priorities Pillar Short-Term Priorities and Structural Reforms » Ensure that Colombia’s National Computer » Refine the data protection framework. Areas Emergency Response Team (Grupo Interno to strengthen are the right to data portability, de Trabajo de Respuesta a Emergencias the reporting of data breaches to the data Cibernéticas de Colombia [ColCERT]) is subjects, and expanded legal jurisdiction re-established to manage the national-level for processing personal data, as well as incident response management cycle. mandatory appointment of a Data Protection Strengthen its human, technical, Officer within the public and private sectors, and financial resources to meet its mandate. among others. » Ensure that the new cybersecurity » Enhance the cybersecurity education governance structure becomes operational offering at the tertiary level and create and functions in an inclusive and coordinated more affordable cybersecurity professional manner. Establishing various identified layers training. Also, consider creating more of the governance structure is vital to affordable professional training opportunities Trust adequately implementing cybersecurity and industry certifications and developing a strategies and policies. robust cadre of cybersecurity professionals Environment and academics. » Include private ICCN assets and essential services under the ICCN regime. » Expedite the integration of cybersecurity-related courses into » Ensure that the competent authorities, primary and secondary school curricula, with support from the private sector and which is essential to improving the skills academia, provide technical assistance and knowledge of future generations. and resources to enhance the cybersecurity capabilities of the private sector, including MSMEs. » Enhance the knowledge and capabilities of officials and professionals within law enforcement, prosecutor’s offices, and the judiciary. As a starting point, it is vital to assess existing capabilities to ascertain subsequent capacity-building actions Overview 40 1. INTRODUCTION The widespread adoption of digital technologies is labor.22 Moreover, digital technology can enhance inno- transforming how individuals, businesses, and gov- vation by enabling firms to exploit scale effects through ernments interact and at the same time creating new online platforms and services that compete with conven- opportunities to address long-standing development tional business models in retail, transport, and banking, challenges. Digital technologies—defined as electronic among others. Together, these mechanisms contribute to tools, systems, devices, and resources that generate, economic growth by expanding trade, increasing capital store, or process data—have already begun to transform and labor utilization, and intensifying competition (see the way most people around the world learn, work, shop, Figure 1.1).23 socialize, and access information.16 These technologies are disrupting business models and economic structures Colombia is among the countries in the Latin Ameri- and in many cases driving significant productivity gains.17 ca and Caribbean (LAC) region farthest along on the For policy makers in emerging markets, digital technol- digitalization path. In 2020, about 70 percent of the pop- ogies also offer new pathways to address long-standing ulation used the internet by means of either fixed or mo- development challenges and can support better access bile devices at least once in the previous three months.24 to public services for citizens. Digital financial services (DFS) and e-commerce have been growing steadily in the country, especially since the By 2025, the contribution of the digital economy to onset of the COVID-19 pandemic: as of 2021, 52 per- global GDP is expected to reach roughly 25 percent, cent of the population aged 15+ had made or received up from 15.5 percent in 2016.18 The concept of the dig- a digital payment, and an estimated 25 million people ital economy as discussed in this report refers to all eco- had shopped online. Colombia’s fintech ecosystem is nomic activity resulting from the use of information tech- growing rapidly and currently stands as the third larg- nology to create, adapt, market, or consume goods and est in the region (after Brazil and Mexico), as measured services.19 Data and digital technologies are the corner- by the number of fintech firms operating in the market. stone of the digital economy, as they enable the growing Similarly, Colombia ranks third in the number of digital interconnectedness of people, organizations, and ma- businesses in LAC, hosting approximately 12.8 percent chines through billions of daily online transactions.20 of the region’s digital firms.25 Digital government has also emerged as a key policy priority, and the Ministry of In- The impact of digital technologies on economic formation and Communications Technology (Ministerio growth is mediated through the three main mech- de Tecnologías de la Información y las Comunicaciones anisms of inclusion, efficiency, and innovation. As [MinTIC]) is leading multiple initiatives to improve inter- argued in the World Bank’s World Development Report net connectivity and access to online services. Colombia 2016: Digital Dividends, the widespread adoption and currently stands among the most advanced countries in use of digital technologies can facilitate the integration terms of digital government in Latin America, performing of firms into the world economy by enabling more busi- on par with such countries as Mexico, Peru, and Brazil.26 nesses to trade new products and services to new des- Moreover, key enablers and safeguards to support digital tinations. For instance, firms selling their goods online transactions and data flows have already been estab- through e-commerce platforms tend to be smaller and lished in the country, and a modern digital ID scheme younger, and to export more products to different destina- is currently being deployed—important steps in consol- tions, than firms selling exclusively offline.21 Digitalization idating a trust environment conducive to widespread of business processes and systems can raise efficiency digitalization. by allowing firms to make better use of their capital and Introduction 41 However, access to and effective use of digital tech- economy. Although digital technologies have spread nologies across Colombia’s regions, sectors, and in- rapidly in much of the world, the broader development come groups is not uniform and is hindered by last- benefits from using them (i.e., the digital dividends) mile digital infrastructure challenges and low levels have lagged behind. In many instances, digital technolo- of digital skills among the population. Although over- gies have fulfilled their promise of boosting productivity, Figure 1.1. Mechanisms of Digital Technologies and Growth Digital Technologies Overcome Augment Generate information existing economies barriers factors of scale Inclusion Efficiency Innovation International Capital Competition trade utilization Source: Adapted from World Bank (2016). all internet use has increased substantially, there are expanding opportunities, and improving service deliv- large gaps in access between rural and urban areas: half ery, yet their aggregate impact is unevenly distributed.31 of urban households have access to fixed internet, com- In order that digital technologies benefit everyone ev- pared to just 12 percent of rural households.27 Unequal erywhere, the remaining digital divide must be closed, access is also seen across departments with the three especially in terms of access to affordable and reliable largest cities—Bogota, Medellin, and Cali—having fixed internet service and the adoption of digital technologies household subscriptions well above the average while, by firms and individuals. In Colombia, the public sector some of the less populous, more isolated departments, can play a pivotal role in the digitalization of the economy such as Amazonas, Vaupes, and Vichada, having rates as a key user of digital technologies to deliver products below 1 percent.28 Low levels of digital skills among the and services; as a coordinator and facilitator of initiatives population and could be hindering the growth of elec- from stakeholders in the private sector, civil society, and tronic interactions between individuals and government academia; as a regulator of the functions and activities entities.29 In 2019, Colombia ranked 94th out of 141 in associated with the digital economy; and as a lead ac- the World Economic Forum’s Digital Skills subindex.30 tor in identifying and proactively mitigating the downside Limited access to the internet and low levels of digital risks of widespread digitalization. However, greater dig- capabilities also impact the private sector’s capacity to ital adoption will not be enough. To maximize its digital generate value-added through the adoption of digital dividends, Colombia also needs to work on the “analog technologies. complements” to digitalization by (i) strengthening regu- lations that ensure greater competition among internet To take full advantage of the potential of digital tech- service providers and among businesses in general to nologies, deliberate efforts from the Government of build a legal framework that builds trust in digital trans- Colombia (GoC) are needed to promote the develop- actions and (ii) adapting workers’ skills to the demands ment of an inclusive, dynamic, and resilient digital of the rapidly changing economy. Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 42 in Mexico.34 Promoting productivity and competitiveness Promoting the widespread adoption of digital in the non-extractive sectors is critical to supporting the technologies can help Colombia address many country’s long-term transition to lower oil prices, and dig- of its persistent development challenges. ital technologies can play an important role in this tran- sition. Firms’ adoption of technology, alongside comple- mentary investments in digital skills and organizational capacity, can improve the efficiency of their productive Slow productivity growth, lack of economic diversifi- processes and open up new markets to their products cation, persistent inequality, and the socioeconomic and services.35 Digital technologies can also enable impacts of climate change pose significant devel- firms—with support from academia and the public sec- opment challenges for Colombia. Between 2000 and tor—to harness a rapidly increasing amount of data in 2019, Colombia’s economy grew at an average annual order to effectively access new markets and sources of rate of 3.8 percent.32 Modest but sustained growth, un- knowledge, streamline the production of good and ser- derpinned by sound macroeconomic policies and high oil vices, and drive innovation. DFS can bring down financ- prices, allowed the country to make significant progress ing costs for micro, small, and medium-sized enterprise in reducing poverty and promoting shared prosperity. (MSMEs) and promote more efficient and convenient With the decline in commodity prices during the second payments—a cornerstone of the e-commerce and plat- half of the later decade, however, Colombia’s growth form-based business models (see Figure 1.2). slowed, and gains in poverty reduction and shared pros- perity stagnated—and then sharply reversed as a con- Digital technologies can be leveraged to improve the sequence of the COVID-19 crisis.33 Three interlocking delivery and efficiency of public services, including development challenges have held the Colombian econ- programs to empower marginalized communities omy back and could further constrain growth and shared and reduce Colombia’s high and persistent inequal- prosperity in the future: (i) declining productivity growth ity. Colombia faces extreme intergenerational income and a high dependence on extractives; (ii) substantial persistence, a consequence of both very high inequal- and persistent inequality; and (iii) the social and econom- ity and one of the lowest levels of social mobility in the ic impacts of climate change. Colombia needs to expand world.36 Uneven territorial development and provision of its sources of economic growth and to do so in a manner basic infrastructure, including digital infrastructure, and that is inclusive and sustainable—socially, fiscally, and a limited state presence in much of rural Colombia have environmentally. Annex 1 provides a detailed theory of reinforced historical inequalities across the country’s ter- change linking the provision of digital infrastructure, the ritory. At the same time, low levels of learning in the pub- adoption of digital technologies by the government and lic education system fuel an intergenerational cycle of the private sector, and the configuration of a trusted en- poverty along the public-private divide, which has been vironment for digital transactions to the achievement of augmented by deep learning losses among the poorest key economic and social development outcomes in Co- due to the COVID-19 pandemic. Improving the provision lombia. Figure 1.2 presents a synthesis of this theory of of digital infrastructure, particularly in rural areas, can change. boost the access of marginalized communities to digital- ly delivered services. For instance, enhancing rural con- Widespread digitalization among businesses has nectivity is a necessary condition to developing a quality the potential to spur productivity growth in Colom- hybrid education system and plays a critical role in en- bia and promote export sophistication. Total fac- suring that access to telehealth services is more equita- tor productivity growth in Colombia has been negative ble across regions, income groups, and ethnicities. DFS during the past three decades, and growth has been pre- can play a key role in strengthening the economic resil- dominantly driven by capital and labor expansions. The ience of the poor, for example, by fostering financial in- employment structure is dominated by low-productivity clusion and enhancing the efficiency of social protection sectors, and exports are driven by natural resources. programs. Similarly, robust digital ID systems and pub- Colombia’s dependence on extractives has risen since lic digital platforms can help the public sector to better the turn of the century, and consequently its economy identify the needs of, and provide support to, vulnerable has become less diversified and sophisticated. Less communities, including Afro-descendants, indigenous than 20 percent of Colombian exports include some level people, and Venezuelan migrants. (see Figure 1.2). of technology compared to about 80 percent of exports Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 43 Figure 1.2. Digital Technologies: Synthesis of the Theory of Change Development Digital technologies Intermediate Long-term challenges and solutions outcomes outcomes » Strengthen firm-level productivity through Stagnant innovation. Spur productivity productivity » Lower financing costs and the cost of capital growth and growth and high for MSMEs. Digital Infrastructure promote export dependency » Facilitate entry of new firms and growth of sophistication on extractives viable businesses. Digital Public » Improve access of rural and marginalized Platforms communities to digital infrastructure. Reduce spatial » Boost economic resilience through digital inequality, financial inclusion. improve social » Enhance the targeting and efficiency of mobility High inequality Digital Financial social protection programs. and low levels Services » Strengthen the resilience of education to of social mobility external shocks. Provide equitable » Strengthen the development of digital skills access to quality of students at all levels. education and Digital Businesses » Facilitate lifelong learning and the upskilling trainings and reskilling of the labor force. Digital Skills » Create new possibilities for decarbonization Strengthen climate Natural, social, and adaptation to climate change. change adaptation and economic » Strengthen climate and disaster resilience, and resilience Trust Environment and environmental sustainability. impacts of » Develop key enablers to promote low-carbon Promote climate change low-carbon growth. development Source: Authors, based on priorities identified in World Bank (2022). Promoting the digitalization of the public and private the decarbonization of key sectors, such as power, ag- sectors strategically will enable Colombia to explore riculture, information and communication technologies new avenues toward green, resilient, and inclusive (ICTs), and transport. Widespread digitalization can pro- development. Climate change threatens to increase mote low-carbon growth in Colombia by increasing the the risk of conflict and violence, intensify flooding along contribution of the ICT sector to GDP growth, enabling the coasts where poorer populations are concentrated, the expansion of climate-smart agriculture, leveraging generate water shortages, and drive down productivity massive data and artificial intelligence (AI) systems to and growth. In a 2019 poll, 76 percent of Colombians boost resource efficiency across industries, and acceler- identified climate change as a very serious threat to the ating a renewable energy transition. Recent estimates by country in the next 20 years.37 Facing the intertwined Accenture and the World Economic Forum suggest that challenges of adapting to climate change, protecting the the widespread adoption of digital technologies could country’s biodiversity, and meeting the ambitious nation- help drive down global emissions by up to 20 percent by al commitments for reducing greenhouse gas emissions 2050.38 (see Figure 1.2). will require rapid and far-reaching transitions, including Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 44 Despite the opportunities, digital transformation carries risks that must be proactively identified and The government of Colombia recognizes the managed. Uneven access to digital technologies can potential of widespread digitalization and has exacerbate, rather than mitigate, inequality and social prioritized efforts to boost digital technology exclusion. The adoption of digital technologies also in- adoption among businesses, individuals, and troduces new risks, including those related to personal the public sector. data protection, fraud, cybersecurity, and cybercrime. On top of that, expanding digital infrastructure can lead to a significant increase in energy consumption; for example, Since the early 2000s, the GoC has recognized the data centers are soon set to have a larger carbon foot- potential of widespread digitalization to accelerate print than the entire aviation industry.39 Broadband-en- productivity growth, boost competitiveness, and re- abled devices contribute to electrical and electronic duce inequality. Early efforts and policy guidelines to equipment waste (e-waste), which is one the fastest promote the adoption of digital technologies focused on growing waste streams in developed countries.40 More- accelerating the digitalization of government services over, in the absence of adequate legal, regulatory, and and processes and improving access to the internet. competition frameworks, the growth of platform-enabled Starting in 2008, the government’s vision of digital trans- businesses could perpetuate informality and precarious formation—the GoC’s preferred term to describe the work.41 widespread and progressive adoption of digital technol- ogies and analog enablers for digital transactions—ex- These risks underscore the need for carefully de- panded to other dimensions of the digital economy, with signed digitalization policies. Managing the risks of the policy documents of the National Planning Depart- digital technology adoption will require strong engage- ment (Departamento Nacional de Planeación [DNP]) ment with service providers and beneficiaries to identify highlighting the role of digital technologies and solu- and address threats and vulnerabilities. Furthermore, tions as a complement to other public policy instruments establishing and updating institutional and legal frame- aimed at fostering productive development and the sci- works will be crucial to ensuring transparency and ac- ence, technology, and innovation (STI) system. Over the countability while also providing safeguards against the past decade, MinTIC has developed multiple support misuse of systems and data. Capabilities also need to programs to increase digital adoption among individuals be developed to monitor and defend against cybersecu- and businesses, focusing on human capital formation, rity threats, especially for key infrastructure. Prioritizing technology uptake, and the development of productive technology and vendor neutrality (e.g., by adopting open capacities.43 standards and careful procurement procedures) will be critical to promoting full country ownership of systems Harnessing the potential of digitalization will re- and data.42 quire a long-term vision and strategy to guide for- ward-looking reforms, regulation, and investments. The government’s National Development Plan (Plan Nacional de Desarrollo [PND]) 2018–2022 established four main objectives related to widespread digitaliza- tion: (i) promoting the digital transformation of society and closing the digital divide; (ii) fostering productivity through advanced digital technologies; (iii) fostering in- vestments and skills development in Industry 4.0, and (iv) supporting entrepreneurship in technology-intensive and creative industries.44 Following these efforts, a new PND for 2022-2026 was approved by the President in May 2023.45 Additionally, in 2019 the government formu- lated the National Policy for Digital Transformation and Artificial Intelligence (known as CONPES 3975), which provides a comprehensive vision and strategy to guide the design of public policy instruments to accelerate the digital transformation of the public and private sectors.46 The policy identifies critical constraints that need to be addressed in order to promote the widespread adoption of AI systems and foundational digital technologies and provides a roadmap to do so. It also establishes the stra- tegic lines to foster the development of AI solutions in Colombia. In parallel, CONPES 3975 provides critical Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 45 guidelines and specific actions to prepare the Colombian workforce to face the disruptions in the labor market that The report highlights challenges and opportu- could potentially occur due to the increasing automation nities to accelerate Colombia’s transition to a of productive processes. Although biased toward the digital economy. adoption of advanced technologies, PND 2022-2026, PND 2018–2022, and CONPES 3975 present important steps forward in the development of the digital agenda in Colombia. This report provides a cross-cutting diagnostic of Colombia’s digital economy and offers policy rec- The GoC has made substantial progress on its own ommendations to help the country address its digital digital transformation, though mixed comparative divide and accelerate the pace of digital transforma- results call for a review of the effectiveness and pace tion. The analyses that follow are based on quantitative of the digital government strategy. Colombia current- and qualitative assessments carried out during the sec- ly stands among the most advanced countries in digital ond half of 2021, as well as extensive consultations with government in the LAC region.47 However, although the key public and private sector stakeholders in the country. perceived quality of e-government has not decreased, The report is based on the World Bank’s Digital Econ- the country has recently started trailing behind its in- omy Assessment (DEA) methodology, which analyzes come peers in terms of e-government effectiveness and the current state of, challenges to, and opportunities for the growth of e-participation.48 These trends suggest that the development of six key foundational elements for a beyond adopting good international practices, it is criti- digital economy. By examining international experiences cal that the government keep working on increasing the of digital businesses and public sector institutions, the quantity, quality, and efficiency of its digital interactions DEA identified a set of foundational elements that play with individuals and businesses, particularly in rural and a critical role in the digital transformation of economies: remote areas. the availability of internet or broadband that brings peo- ple online, the ability to identify and authenticate peo- The Colombian government is working on multi- ple digitally, and the ability to pay or transact digitally. ple fronts to promote the widespread adoption and Digital economies further energize when there is a siz- effective use of digital technologies by the private able tech-savvy workforce and an ecosystem that sup- sector, but significant challenges remain. In 2022, ports digitally intensive firms in entering the market or there were 376 policy instruments supporting the Na- scaling up. Once those foundations are in place, a wide tional System of Competitiveness and Innovation (Siste- array of use cases can emerge. Use cases denote all ma Nacional de Competitividad e Innovación [SNCI]).49 the ways by which a digital economy may take shape, From these, three specifically support the formation and serving people, businesses, and government in a pro- growth of start-ups intensive in the use of digital technol- cess typically referred to as digital transformation. The ogies and six contribute to the digitalization of business private sector is the main driver of use cases, offering processes across diverse sectors, for instance, by sup- major platforms and applications, including e-commerce, porting the development of the foundational digital capa- ride-sharing, gamification, and others. The government bilities of small and medium-sized enterprises (SMEs). may also develop new government platforms, applica- More than 30 policy instruments facilitate the formation tions, and services to automate its functions, improving of foundational digital skills and the widespread adoption its efficiency and effectiveness. The diagnostic, which is of digital technologies by government, nongovernmental broadly aligned with the PND 2018–2022 and CONPES organizations (NGOs), and society at large. Most policy 3975, provides a comprehensive overview of Colom- instruments that support the digitalization of the private bia’s digital economy development across six pillars or sector in Colombia focus on generating specific capa- foundational elements: digital infrastructure, digital plat- bilities and building an enabling environment for busi- forms, DFS, digital businesses, digital skills, and trust nesses to progressively adopt and use digital solutions. environment. However, some critical barriers to business digitalization and digital business growth, such as a relatively weak cybersecurity environment and limited access to infor- mation and financing, remain largely unaddressed by the policy instrument mix. Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 46 » Digital Infrastructure: This refers to the facilities Digital payments and financial services are critical to that are involved in the effort to collect, exchange, financial inclusion and key enablers of e-commerce store, process, and distribute data across first-mile and digitally enabled business models. (international links), middle-mile (backbone), and last-mile (access) networks. Digital infrastructure » Digital Businesses: Digital businesses can be di- provides the way for people, businesses, and gov- vided into two categories, each with their distinct ernments to get online and link with local and global characteristics: (i) digital start-ups, which refer to digital services, thus connecting them to the glob- early-stage ventures that create new digital solu- al digital economy. Aside from connectivity, digital tions or business models as part of their core prod- infrastructure encompasses the Internet of Things ucts or services, and (ii) established digital business- (IoT) (such as mobile devices, computers, sensors, es, which are the digitally intensive businesses that voice-activated devices, geospatial instruments, and have managed to scale up and consolidate their po- machine-to-machine and vehicle-to-vehicle commu- sition in local or international markets and include nications) and data repositories (such as data cen- medium and large platform-based and data-driven ters and clouds). It also includes all the active and firms. Digital businesses, and the digitalization of passive infrastructure necessary to develop the digi- less technology-intensive businesses, represent a tal economy downstream. unique opportunity for Colombia to nurture and scale MSMEs, boost entrepreneurship, increase efficien- » Digital Public Platforms: Digital public platforms cy, generate more and better jobs, foster economic developed for the public sector or as a public good— integration, and promote the integration of lagging either by government agencies, in partnership with populations and regions. Digital businesses thrive private companies, or through a hybrid model—can when other key enablers, such as digital infrastruc- help deliver more and better services to individ- ture, skills, payments, and a trust environment, are uals. The development of digital public platforms set in place. underpins the expansion of e-government services and can support the efficiency of core government » Digital Skills: Economies require a digitally savvy systems. Digital public platforms can also boost ac- workforce in order to build robust digital-intensive countability, including through providing new chan- sectors and competitive markets. Digital skills en- nels for public engagement and feedback and re- compass foundational, technology, and business ducing opportunities for corruption. Likewise, they skills for building or running a digital start-up or run- can provide a foundational layer to catalyze private ning a digitally intensive business. Greater digital lit- sector innovation and new markets. eracy further enhances the adoption and use of dig- ital products and services among governments and » Digital Financial Services: DFS provide individu- the larger population. als and households with convenient and affordable channels by which to pay as well as to save and bor- » Trust Environment: The rapid growth of the digital row. Firms can leverage DFS to more easily transact economy goes hand in hand with a rapid rise in cy- with their customers and suppliers and to build digi- ber threats and increasing concerns about personal tal credit histories and seek financing. Governments data protection. Therefore, the capacity of both the can use DFS to increase efficiency and account- public and private sectors for cybersecurity and data ability in various payment streams, including for the protection needs to evolve quickly to meet current disbursement of social transfers and receipt of tax and future threats. This pillar assesses the presence payments. Digital payments are often the entry point of a governance framework that balances data en- for DFS and provide the infrastructure, or “rails,” ablers and safeguards and supports digitalization through which additional products and use cases while protecting individuals, businesses, and institu- can be developed, as has been demonstrated by the tions from cybersecurity risks. evolution of M-PESA in Kenya and Alipay in China. Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 47 Multiple cross-cutting themes impact these founda- The diagnostic includes practical and actionable tional elements, affecting the country’s capacity to recommendations in the form of a sequenced action create an enabling institutional and policy environ- plan that can inform relevant government efforts to ment. The Digital Economy Framework addresses three promote widespread digitalization within govern- cross-cutting themes: developing regulatory frameworks ment, businesses, and society at large. The report to foster competition and contribute to the Maximizing takes stock of existing digital transformation initiatives Finance for Development (MFD) agenda; managing the in Colombia and identifies key constraints and priority risks of the widespread adoption of digital technologies; areas, proposing a mix of possible policy reforms, invest- and generating opportunities to empower women. En- ments, and capacity-building interventions to harness vironmental considerations, including internet pollution the economic and social benefits of widespread digital and the role that digital technologies can play in imple- technology adoption and to effectively mitigate the as- menting the green agenda, are also discussed through- sociated risks, particularly in the critical areas of a digital out the report. The diagnostic emphasizes inclusive, eq- economy. uitable, and sustainable access to digital opportunities as a means to improve household welfare, particularly for poor and vulnerable populations. Figure 1.3. Pillars of the Digital Economy Digital Economy Foundations / Pillars Applications likely to develop once the foundational elements are in place » GOVTECH applications » ECOMMERCE adoption » OPEN BANKING: non-banks offer tailored services Digital Infrastructure Digital Businesses Public Digital Platforms Digital Skills Digital Financial Services Trust Environment » Strong legal and regulatory frameworks to foster competition and manage risks » Social and economic exclusion (digital poverty) CROSSCUTTING » Gender gaps and opportunities to empower women ISSUES » Rural - urban gaps » Climate change Source: Original infographic based on World Bank, 2020a. Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 48 The remainder of the report is organized as follows. for, as well as the attainment and coverage of, digital Chapter 2 discusses the accessibility, quality, and resil- skills in Colombia—a key enabler of the uptake of digital ience of digital infrastructure in Colombia, as well as the services and the application of digitally enabled solutions. availability and affordability of connectivity, which is es- Chapter 7 looks at the legal and regulatory framework for sential to bringing more people online. Chapter 3 looks cybersecurity and data protection, describing the chal- at the presence and use of public sector digital platforms lenges and opportunities in creating a trust environment that can support better digital exchanges and transac- conducive to further digitalization. Cross-cutting issues, tions, enhance the access to and transparency of public including gender-based and urban-rural digital divides, services, and improve public service efficiency. Chapter digital poverty, and opportunities to promote green, re- 4 examines the current state of DFS in the country, while silient, and inclusive development through digitalization, Chapter 5 assesses digital entrepreneurship and estab- are addressed in all chapters. lished digital businesses. Chapter 6 examines demand Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 49 2. DIGITAL INFRASTRUCTURE KEY MESSAGES » A dynamic data infrastructure and cloud market will drive Colombia’s digital transformation in the next decade. Given its robust international interconnectivity, Colombia has a strong oppor- tunity to emerge as a regional hub and to leverage all the potential deriving from this industry. To achieve that, the country will need to further improve its infrastructure (data and telecom) and reg- ulatory framework for data. » Backbone and internet exchange point infrastructure need to be strengthened to provide potential for the growth of mobile and fixed access networks. » Mobile infrastructure is insufficiently dense and widespread to ensure universal access to and productive usage of the internet. As a primary means to bridge the digital divide in Colombia, its development requires fostering investment to reach unserved and underserved areas. Its tech- nology upgrade (from 4G to 5G) will provide benefits in terms of the environmental footprint. » Almost half of all households do not use fixed internet. Colombians would benefit from being able to access fast, affordable, and reliable fixed connectivity. Efforts should be devoted to promot- ing further expansion of the last-mile infrastructure footprint while establishing supply and demand policies to promote affordability. » In spite of liberalized entry, many markets remain highly concentrated. To increase the inten- sity of competition, Colombia should consider a focus on addressing competitive bottlenecks by imposing access and other obligations on dominant operators. » The affordability of data packages is an obstacle to connectivity for low-income households. Policies to support the poor’s demand for connectivity may help to close the socioeconomic digital gap and promote inclusive growth. » Limited connectivity is an obstacle to an inclusive digital economy. Most Colombian MSMEs face low internet speeds, which is a constraint to the adoption of data-intensive technologies. At the same time, inadequate connectivity in rural areas prevents users from leveraging online applications such as DFS. Policies to promote the development of a more capillary fiber network may help unlock the benefits of the digital economy for all. Digital Infrastructure 50 2.1. The importance by limiting its dependency on extractives and creating of digital infrastructure new business opportunities within and beyond borders while strengthening the local job market. The expansion of digital infrastructure is needed to close the digital gap Digital infrastructure consists of all the facilities and reach the unconnected, who are often from among that are involved in the effort to collect, exchange, the most vulnerable segments of the population. Afford- store, process, and distribute data.50 It is formed by able and reliable internet access in rural and peri-urban cross-border (international links), middle-mile (backbone areas is important to decrease the country’s high socio- and backhaul), and last-mile (access) networks.51 These economic inequality and promote the inclusive availabil- segments are interconnected, creating a data supply ity of digital public services. Finally, a well-developed chain where public and private actors operate (Figure infrastructure supporting universal internet availability is 2.1). An appropriate legal and regulatory framework an essential part of digital solutions that can strengthen for data management that ensures a smooth data flow climate change adaptation, monitoring, and resilience. is a key element of a flourishing digital ecosystem, as data can be fully and safely leveraged only if users trust This chapter assesses the current state of Colom- the system and sensitive information is adequately bia’s digital infrastructure. The analysis discusses the protected. first, middle, and last miles of connectivity, adopting both demand and supply perspectives. The chapter highlights Universal and affordable access to connectivi- the strengths and weaknesses of local digital infrastruc- ty will help Colombia to address key development ture and provides policy recommendations to support challenges. Internet access is a crucial driver of pro- this key enabler for a dynamic digital economy. ductivity growth and can support Colombia’s economy Figure 2.1. The Data Infrastructure Supply Chain Cross-border network Middle-mile network Last mile www (international links) (distribution) (access) Distributing internet from Connecting the service Conecting bigger cities the middle mile in the Purpose centers to the worlwide together and routing data community to individual internet to the service centers homes and businesses Fiber-optic Fiber IXP Fiber backbone DSL Coaxial Terrestrial fiber Fiber or microwave Fiber backbone Wireless Technologies Cellular Wi-Fi, LTE, towers TV white space Sybsea cable Satellite link Satellite link (DTH) Fiber Earth station Wireless Colocation Balloons data center and drones Typical >1,000 km 10 - 1,000 km <1 - 5 km distances Source: Adapted from World Bank (2021). Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 51 2.2 Current state of digital Yet, despite its robust international interconnectivi- infrastructure development ty, Colombia still has ample space to further develop its internet exchange point (IXP) infrastructure. To date, only two IXPs have been established in Colom- Colombia enjoys well-developed international digital bia, which is well below some regional peers, especially infrastructure commensurate with its large popula- considering the country’s population (Table 2.1). Colom- tion, income level, and strategic bicoastal location. bia’s relatively low number of IXPs and IXP participants Access to the Pacific Ocean to its west and the Carib- means that it is not fully taking advantage of some of bean Sea on its north has enabled Colombia to have the IXP benefits, including reduced IP transit costs and access to 10 submarine cable systems52 that serve the lower latency, likely resulting in more expensive and low- Atlantic and Pacific coasts of South America, as well as er-quality broadband. Well-developed IXPs are an es- those serving the Caribbean. However, utilized interna- sential input into the growth of broadband markets. tional bandwidth is low, reflecting a limited digital uptake within its borders despite a contained internet protocol The footprint of Colombia’s backbone network grew (IP) transit tariff price compared to peers and the multi- 25 percent between 2017 and 2020, increasing the ple internet submarine cables landing in the country (see portion of the population that could be more easily Figure 2.2 and Figure 2.3). reached with good quality connectivity service to 40 Figure 2.2. Used International Figure 2.3. IP Transit Cost 2021 Q2, $/Mbit, Bandwidth, Mbps per 100 inhabitants 10GigE, weighted median 89 4.4 2.6 2.6 2.2 32 1.5 27 19 19 1.0 14 15 Colombia Mexico Peru Brazil Argentina Chile UMIC Colombia Mexico Peru Brazil Argentina Chile Source: “Submarine Cable Map,” TeleGeography, Source: “Submarine Cable Map,” TeleGeography, https://www.submarinecablemap.com/. https:www.submarinecablemap.com/. As a result of the relatively good quality infrastruc- percent. Yet, the backbone footprint needs to be further ture, Colombia has witnessed the growth of vibrant expanded to support the growth of mobile and fixed ac- data centers and cloud markets that are essential to cess networks. The country currently relies on almost its own digital transformation and create an oppor- 60,000 kilometers of transmission network, and when tunity for the country to emerge as a regional hub that network was expanded, there was a surge of people for this type of industry. The surge in data-intensive living within 10 kilometers of backbone network nodes— applications and services requires specific hardware from 25 percent of population in 2019 to 40 percent in and software infrastructure that can be provided only by 202153 (see Figure 2.4). Nevertheless, there is a need for modern data centers and cloud platforms. In this regard, additional investments to bring the infrastructure closer Colombia has experienced significant growth in recent to the remaining 60 percent of the population, allowing years of hyper scalers (IBM, AWS) and other actors further utilization of the international connectivity capaci- (telco operators, colocation providers) offering coloca- ty that the country enjoys and resulting in service quality tion services, Infrastructure as a Service (IaaS), and oth- improvements and a step change in terms of connection er IoT and cloud products. speeds for Colombians. Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 52 Table 2.1. IXP Characteristics and Distribution Participants IXPs Participants IXPs (per 10 million inhabitants) Country Median Mean Median Mean Argentina 28 10 15 6.2 2.1 3.4 Brazil 34 47 157 1.6 2.2 7.4 Chile 6 16 34 3.1 8.4 17.6 Mexico 2 10 10 0.2 0.8 0.8 Peru 2 33 33 0.6 10 10 Colombia 2 18 18 0.4 3.4 3.4 Source: Packet Clearing House (2022). Note: All IXPs with 0>participants. Figure 2.4. Fiber Backbone in Colombia Colombia has relatively underdeveloped mobile in- frastructure, with less spectrum assigned, lower tower density, and lagging 4G coverage compared to OECD countries and the five LAC comparator coun- tries,54 leaving 3G prevalent in all its departments.55 The GSMA estimated that Colombia had assigned about 470 MHz of spectrum for mobile use across five bands. This was above the regional average of 400 MHz but well below Chile (almost 700), Brazil (above 600), Mex- ico (almost 600), and Argentina (almost 500). Colombia has 50 mobile cells per 10,000 inhabitants, one-fourth of the OECD average (201 mobile cells per 10,000 in- habitants) but also behind some of its regional peers.57 A low number of cells results in a lower overall quality of mobile service to Colombians, in the form of either lower coverage or lower speeds. Focusing on the latest widely available mobile technology, Colombia has only six 4G mobile towers per 10,000 inhabitants, less than 10 per- cent of OECD countries (79 4G mobile towers per 10,000 inhabitants). Likewise, the percentage of 4G mobile cells is lower in Colombia (12 percent) than the OECD aver- age (38 percent) and regional benchmarks (see Figure 2.5). There may be a number of reasons for this rela- tively low number of towers, from spectrum allocation to fiber backbone extension. The limited development of 4G infrastructure is reflected in the low percentage of the population covered by a 4G signal (79 percent), the low- est among regional benchmarks and OECD countries.58 Source: ITU interactive broadband maps, 2022, Moreover, as Figure 2.7 shows, the distribution of 4G https://bbmaps.itu.int/bbmaps/. coverage in the country is unequal, with more than a third of the centros poblados (population centers)59 not having access to such mobile technology. All the departments are widely covered by a 3G signal, pointing to the impor- tance of strengthening mobile broadband infrastructure to ensure that Colombians can leverage a wider range of services and applications on their internet-enabled Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 53 devices. Moreover, since mobile is the prevalent tech- (10–20 Mbps per user) (see Box 1). Yet, commercial 5G nology in many rural areas, it is important to provide the services are still to be launched in Colombia. Claro and best possible service in terms of reliability and speed. Movistar conducted the first 5G trials in 2018.60 MinT- IC, with technical support from the National Spectrum Advances in introducing 5G mobile technology Agency (Agencia Nacional del Espectro [ANE]), initiated would help Colombia to provide better mobile ser- a public consultation on the 5G spectrum in April 2019 vices to its people and also to improve the environ- and in early 2020, awarding temporary 3.5 GHz licenses mental footprint of its telecommunications sector. to major mobile network operators (MNOs). In December 5G technology is characterized by substantially low- 2022, MinTIC published the action plan for a 5G auction, er CO2 emissions compared to 4G, as emissions are planned for the third quarter of 2023.61 significantly lower with the provision high-speed services Figure 2.5. Percentage of 4G Mobile Cells Figure 2.6. Number of Mobile Cells per 10,000 Inhabitants 38 201 22 20 19 102 15 87 14 14 12 67 57 55 50 43 Argentina Brazil Chile Mexico Peru UMIC OECD Colombia Argentina Brazil Chile Mexico Peru UMIC OECD Colombia mean mean mean mean Source: World Bank (2020 data); OpenCellID (2022). Source: World Bank (2020 data); OpenCellID (2022). Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 54 Figure 2.7. Percentage of Population Centers (Centros Poblados) by Department Covered by 3G and 4G 4G 3G 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% m a Su .C. Sa ioq er di oya s Pu Ca e tá ira Bo nas ui a a a de C lda ua e N are da ar Bo G ca m á n as és ór a lle as tá Va inía G ada tlá có C er Ar cre Am u a ve ta To var o is ío M Ce o nt uia o tu uc az la Vi ima un B dré l r Q arc C len G rag na c C auc b t d ay de ana iñ ic Va C que ag s d e ,D R nd go uaj i La au Sa ald up ho do An tan a vi nt an lA M o lí ar ua ch An H ar l C n A Sa na io C te at or N N Source: DANE BOX 1. Environmental Footprint of Mobile Broadband Infrastructure (1 of 3) Digital technologies play a critical role in the climate Enhanced broadband is linked to increased CO2 agenda, resulting in both positive and negative ef- emissions, as more energy-consuming assets are fects on greenhouse gas emissions. On the one needed to deliver new network capacity. Figure Box hand, digital technologies enable a wide range of 1.a. visualizes the corresponding carbon emissions services and applications that can reduce the car- produced for different technology and capacity bon footprint. On the other hand, expanding digi- strategies in Colombia (for fixed [F] and wireless tal infrastructure can have a direct negative effect [W] backhaul), based on (i) the power source by on the environment, as broadband assets require mobile site and (ii) a forecast for the energy gen- electricity to function, and the traditional production eration mix in operation between 2020 and 2030. of this energy releases carbon and other atmo- For example, in the 25 GB per user target, approx- spheric emissions. Indeed, in Colombia alone it is imately 3.5 megatons of CO2 would be released for estimated that approximately 19 percent of cellular 5G with a wireless backhaul, compared to 4 mega- sites with off-grid power utilize diesel generators, tons for 50 GB per user or 5 megatons for 100 GB leading to the release of large quantities of atmo- per user. Moreover, 5G-related emissions increase spheric emissions. less significantly than 4G when extra capacity per user is considered, thanks to the spectral efficiency improvements between these generations. Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 55 Box 1. Environmental Footprint of Mobile Broadband Infrastructure (2 of 3) Although broadband is generally considered to be research should consider including energy con- an enabler of lower carbon emissions strategies, sumption by consumer devices, fixed broadband, the deployment and operation of cellular sites uses data centers, and other cloud processing infra- energy and therefore has an environmental impact. structure. To deliver a 50 GB/month per user target, the to- tal CO2 emissions quantity over the next decade Implementing renewable power generation for off- in Colombia is estimated to be approximately 6.0 grid cellular sites leads to CO2 emissions savings megatons of CO2 for 4G with a wireless backhaul, of up to 38 percent when deploying 4G universal compared to 4.0 megatons for 5G. To put this into coverage. With one-fifth of sites in Colombia esti- perspective, production-based annual emissions mated to be using off-grid power via diesel genera- for Colombia are estimated to be 89.1 megatons of tors, this raises questions about the environmental CO2 in 2020. Thus, the cumulative operating emis- sustainability of this existing strategy. Given the sions for broadband infrastructure over the time pe- current commitment in Colombia regarding renew- riod assessed here mean that cellular sites would able energy sources, this analysis explores the contribute less than 0.01 percent of emissions over sustainability benefits from shifting cellular sites the next decade, far below other sectors such as from diesel generators to renewable sources, such transportation. One caveat to these results, how- as photovoltaic and wind power systems. Figure ever, is that this assessment considered only the Box 1.b. shows that by implementing a renewable Mobile Radio Access Network sites, and future energy strategy for cellular sites with 4G, up to a 38 Figure Box 1.a. Universal Broadband Emissions over 2020–2030 (CO2) Cumulative Cell Site Emissions over 2020-2030 (CO2) Interval bars reflect estimates for low and high adaption scenarios for Colombia 25 GB/Month 50 GB/Month 100 GB/Month 10 7.5 Megatones of CO2 5 2.5 0 1.4 5.0 1.1 3.5 1.9 6.0 1.3 4.0 2.8 8.2 1.8 5.0 4G (F) 4G (W) 5G (F) 5G (W) 4G (F) 4G (W) 5G (F) 5G (W) 4G (F) 4G (W) 5G (F) 5G (W) Source: Oughton and Comini (2022). Note: Interval bars reflect estimates for low and high adoption scenarios. Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 56 Box 1. Environmental Footprint of Mobile Broadband Infrastructure (3 of 3) percent net carbon saving is estimated to be pos- nitrogen oxides (NOx), sulfur oxides (SOx), and sible (when using a wireless backhaul), together particulate matter (PM10). with a reduction of other polluting gases, such as Figure Box 1.b. Assessment of Carbon Emissions for Universal Broadband Options in Colombia Impact of Shifting Off-Grid Diesel Generators to Renewable Site Power For 50 GB/Month per user with interval bars reflecting low and high adoption scenarios for Colombia Megatonnes of CO2 Kilotonnes of NOx 6 3 4 2 2 1 0 0 4G (F) 4G (W) 5G (F) 5G (W) 4G (F) 4G (W) 5G(F) 5G (W) Kilotonnes of SOx Kilotonnes of PM10 80 250 200 60 150 40 100 20 5 0 0 4G(F) 4G (W) 5G (F) 5G (W) 4G(F) 4G(W) 5G(F) 5G (W) Baseline Renewables Source: Oughton and Comini (2022). Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 57 In terms of retail mobile market development, the mar- Figure 2.9a. 4G Subscriptions ket in Colombia is more concentrated, its subscrib- per 100 inhabitants ers use less data, and the growth of the subscriber base is slower than in benchmark countries. Colom- 100 Chile bia has traditionally had a higher Herfindahl-Hirschman Index (HHI) than the OECD average and regional bench- OECD marks (except Mexico) over the past two decades (Fig- 80 Brazil ure 2.8).62 Although market concentration declined in Argentina the period from 2010 to 2017 as in most other regional peers, it has increased since 2018 in stark contrast to its 60 comparator countries, where it has continued to decline Colombia or has stabilized. Peru 40 UMIC Figure 2.8. Mobile Market HHI, 2000–21 Mexico 7000 20 6000 5000 '12 '14 '16 '18 '20 Mexico 4000 Colombia Source: GSMA (2021); World Bank, 2012-2020. Argentina OECD 3000 Chile Brazil Figure 2.9b. Mobile Data Usage per Mobile 2000 Peru Broadband Subscription (GB/month) 100 Chile 1000 OECD 80 Brazil '00 '03 '06 '09 '12 '15 '18 '21 Argentina 60 Source: GSMA (2021). Colombia Peru Higher market concentration is suggestive of low- 40 UMIC er competitive intensity, which will likely result in Mexico higher prices and lower quality.63 Although slower than in some benchmark countries, according to official statistics, Colombia’s mobile broadband subscriptions 20 increased 46 percent in the 2015–20 period. As Figure 2.9a shows, Colombia’s number of 4G mobile broad- band subscriptions per 100 inhabitants of 54 is just over half the OECD average of 87 and below that of Chile '12 '14 '16 '18 '20 (99), Brazil (80), and Argentina (74). This lower number of broadband users reflects a combination of supply-side Source: OECD (2021). factors discussed above (infrastructure and market struc- https://www.oecd.org/sti/broadband/broadband-statistics/ ture) and demand-side factors broadly related to service affordability and the purchasing power of the population. Lower coverage and uptake of 4G resulted in the av- erage Colombian mobile broadband subscriber in 2020 using less data per month (2.8 GB) than Mexicans (4.5 GB) and Chileans (12.8 GB). OECD mobile users use 7.5 GB/month, almost three times that of Colombia (see Figure 2.9b). Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 58 Although its retail fixed broadband market is less Figure 2.11. Fixed Broadband Household concentrated, Colombia has increased its fixed Penetration (%) broadband subscriptions significantly, though it has yet to catch up to its regional and OECD peers. The 100 market for fixed broadband in Colombia is more compet- itive compared to mobile, with none of the many market OECD players holding more than 40 percent of the market share 80 Argentina (Figure 2.10). Between 2011 and 2021, fixed broadband household penetration doubled, meaning that more than Mexico half of Colombian households currently have access to Chile fixed internet. However, the country still lags in com- 60 UMIC parison to some regional benchmarks, such as Mexico, Colombia Argentina, and Chile, and is very far from OECD levels Brazil (Figure 2.11). Colombia relies on 20 percent fiber-based 40 fixed broadband subscriptions and 60 percent cable.64 Peru The limited uptake of the fixed technologies that deliver the fastest internet may affect the quality of Colombian 20 fixed broadband services, with an impact on the final user experience. Improving access to fixed internet is critical to performing certain activities, such as remote working and learning, and enabling data-intensive industries. '10 '12 '14 '16 '18 '20 Figure 2.10. HHI in Fixed Telephone and Fixed Source: TeleGeography (2023b). Internet Markets TIGO In Colombia, distribution of fixed broadband sub- TELEFONICA scriptions is uneven geographically and across so- OTHERS cioeconomic groups, leaving a substantial percent- ETB age of the population behind, and reducing these DIRECTV digital divides is important to tackling inequality in CLARO social and economic development. Fixed broadband penetration varies significantly across Colombia’s 33 de- partments. The departments with the three largest cit- ies—Bogotá, Medellin, and Cali—have fixed household subscriptions well above the average (Bogotá D.C., 75 percent; Antioquia, 62 percent; and Valle del Cauca, 53 percent) (Figure 2.12). In contrast, some of the less populous, more isolated departments, such as Amazo- nas, Vaupes, and Vichada, have rates below 5 percent, less than one-tenth the national average. Data from the Fixed Internet Fixed Telephone recent households’ survey provides deeper insight into inequality between rural and urban areas, with almost Souce: MinTIC (2020c). three-fifths of urban households having access to fixed Note: This calculation considers other providers as a unique firm, an approach internet, compared to just 13 percent of rural households that minimally impacts the final output. (Fig. 2.14). This unequal geographic distribution of fixed digital infrastructure correlates with the distribution of purchasing power and network deployment costs, which Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 59 are lower in urban areas compared to suburban and ru- Figure 2.13. Fixed Broadband Penetration ral areas. In 2012, the fixed broadband subscription of by Stratum households in stratum 6 (78 percent) was seven times greater than that of stratum 1 (11 percent).65 By 2017, 11 stratum 6 had almost reached 100 percent, while stratum Stratum 1 22 1 had increased to only 22 percent.66 It could be argued, however, that Colombia’s strata correlate only weakly to 24 household income, as many wealthier households live in Stratum 2 37 lower strata and the reverse is also true. Either way, the socioeconomic digital divide is obvious and means that 36 a significant segment of the population does not have Stratum 3 47 access to some of the development opportunities relat- ed to fixed broadband, potentially increasing the already 62 Stratum 4 high inequality in the country. Tackling the digital divide 71 requires a comprehensive strategy and a well-tailored set of policy and regulatory instruments. 73 Stratum 5 86 78 Stratum 6 100 2012 2017 Source: MinTIC (2019a). Figure 2.12. Fixed Broadband Penetration by Department 60 40 20 tio as Ar uia la a Bo tico Bo ta C ca a s as ta C re C ca di rd o m a G arca La Hu e M Gu la da ira M a Sa Nar a Pu tan o Q ayo Sa en a nt cia D To re C a Va ca l A cha s ve da C C ho r tu der Su er ua ia Pr a o ya r ge C a Bo liva C da na Vi pe At uc un o c na ob ar n et n iñ id ld el lim y Ris ndi i go C que G ain a c es d An zon au au ag aj le q ov ra ra an vi an n a al m u ui u a Am de lle io Va es te at or dr N N An n Sa Source: MinTIC (2022a). Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 60 There is a clear need for further investment to im- Figure 2.14. Households with Fixed Internet prove equitable access across digitally deprived Connection, Urban vs. Rural (%) population groups in Colombia. Table 2.2 shows 10- National total year per capita investments in the telecommunications National Amazonastotal Amazonas Antioquia sector in LAC based on a recently available analysis of Antioquia Arauca selected countries performed by the Inter-American De- Arauca velopment Bank (IDB).67 Colombia has had lower overall Atlantico Atlantico investment than some of its regional peers. For example, Bogota D.C. Bogota D.C. Colombia has invested less per capita on the fixed seg- Bolivar Bolivar ment than Argentina, Chile, and Mexico, among others. Boyaca Boyaca This result is consistent with the findings reporting that Caldas Caldas Colombia has comparatively less fixed digital infrastruc- Caqueta Caqueta ture than its peers and it is of lower quality. Colombia Casanare Casanare scores somewhat better in the mobile segment, still lag- Cauca Cauca ging behind its peers but suggesting that mobile invest- Cesar Cesar ments have been favored. In terms of source of invest- Choco Choco ment, on the one hand, Colombia’s public contribution is Cordoba Cordoba comparable to regional peers Argentina, Chile, Mexico, Cundinamarca Cundinamarca and Peru. On the other hand, private investments have Guainia Guainia been lower than in other countries, which seem to have Guaviare Guaviare taken a private sector–driven approach in their telecom- Huila Huila munications space. LaGuajira La Guajira Magdalena Magdalena Meta Meta Nariño Nariño Nortede Norte deSantander Santander Putumayo Putumayo Quindio Quindio Risaralda Risaralda SanAndres San Andres Santander Santander Sucre Sucre Tolima Tolima Valle Valle Vaupes Vaupes Vichada Vichada 10% 20% 0% 10% 0% 30% 40% 20% 30% 50% 60% 40% 50% 60% 70% 70% Urban Urban Rural Rural Table 2.2. Cumulative 2008–17 Telecom Investment per capita (US$, % of total) Source: DANE (2022b). Source: DANE (2022b). Fixed Mobile Public Private Total Colombia 180 (42%) 248 (58%) 80 (19%) 348 (81%) 428 Argentina 425 (63%) 247 (37%) 129 (19%) 543 (81%) 671 Bolivia 66 (28%) 172 (72%) 115 (48%) 123 (52%) 238 Chile 256 (30%) 605 (70%) 9 (1%) 853 (99%) 861 Ecuador 254 (52%) 237 (48%) 93 (19%) 398 (81%) 491 Mexico 252 (64%) 143 (36%) 75 (19%) 320 (81%) 395 Peru 83 (21%) 309 (79%) 8 (2%) 384 (98%) 392 Source: World Bank analysis based on García et al. (2019). Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 61 country (UMIC) poverty headcount ratio of US$5.50 a Data and device affordability, day compared to Argentina (14.4 percent), Brazil (19.6 service quality percent), Chile (3.6 percent), Mexico (22.7 percent), and Peru (20.6 percent).69 Fixed broadband prices in Colombia are a significant obstacle to getting online. Internet users in Colombia Figure 2.15. Fixed-Broadband Basket (5 GB) pay 4.4 percent of gross national income (GNI) per capi- price, GNI per capita/month (2021) ta per month for 5 GB of fixed internet, an amount higher than all regional comparators except Argentina (Figure 4.8 2.15). In 2020, out of the 41 percent of unconnected 4.7 4.4 households, more than half said they did not subscribe to fixed broadband because of lack of affordability (see 3.6 Figure 2.16).68 Likewise, only one-seventh of the house- 3.5 holds with no broadband (6 percent of all households) mentioned the unavailability of service at their residence 2.4 2.5 as the reason for not having fixed broadband. This re- sult is consistent with the World Bank’s Latin America High Frequency Phone Survey (HFPS) that found that 1.4 Colombia had the highest percentage of respondents who were not connected to the internet because it was not affordable (50.6 percent). This affordability challenge is exacerbated by the high share of people living in pov- Colombia Mexico Peru Brazil Argentina Chile Media Media PIMA OCDE erty in Colombia. For example, 29.4 percent of Colom- bians are below the World Bank’s upper-middle-income Source: UIT (2021). Figure 2.16. Households for which Affordability is the Main Reason for not Having Fixed Internet (%) 40 30 20 10 tio as Ar uia la a Bo ico Bo ota C ca a s an a C re C a un o co m ba G rca La H e M ua a da a M a Sa Na ta Pu tan o Q ayo Sa den a nt cia D Tol e C a Va uca na Vi pes ve ada C C ho r tu der Su er ua ia Pr a o Bo var ge C a C lda At auc as t c ar G il ag jir n n riñ i d cr el im y Ris ndi C que G in e a es d u An zon ya au na o le ov ral nt q g a ra vi li an ua m a u di rd lA h a ui c a Am de lle io Va es te at or dr N N An n Sa Source: DANE (2020a). Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 62 The price of 2 GB mobile broadband in Colombia is frame. Colombia’s inequality is reflected not only in the higher than regional comparators and the OECD av- level of digital uptake among income segments of the erage. Colombians pay a higher share of their GNI (1.86 population but also in the quality of service. Based on percent) for 2 GB of mobile data compared to region- MinTIC data from December 2021, both strata 5 and 6 al peers and the OECD average (Figure 2.17). Even if had subscribed to fixed broadband service with average this figure is below the 2 percent affordability threshold,70 speeds of about 120 Mbps; in contrast, average broad- the share of GNI per capita per month necessary to buy band speed for stratum 1 connections was 24.4 Mbps, mobile data can be much higher for the bottom income or one-fifth of the average speed achieved by the upper segments. However, for other mobile packages, such as strata (Figure 2.20). Deficiencies and inequality in the 5 GB and 10 GB, prices are below some international quality of broadband connections prevent Colombians benchmarks. The high concentration affecting the mar- from having equal access and from using data-intensive ket of mobile broadband may be contributing to this trend digital economy apps and software that could help them and deserves further analysis to better understand the leverage the gains from a digital transformation. potential impact on tariffs and therefore on the digital up- take. Figure 2.17. 2 GB Mobile Data GNI per capita/month Smartphone penetration is above 85 percent, with 2.7 forecasts for 2022 indicating that almost 100 per- cent of connected Colombians have access to such devices. The average price of a smartphone in Colom- bia relative to monthly GNI per capita is higher than in 1.9 1.7 Mexico, Brazil, Chile, and OECD countries, but cheap- er than in Peru, Argentina, and the average UMIC. The 1.4 1.4 World Bank’s Latin America HFPS reports that the price of devices is an obstacle to connectivity for only 7 per- cent of the unconnected. However, this figure may be significantly higher among potential users belonging to 0.6 0.5 0.6 the lower-income segments. Colombia Mexico Peru Brazil Argentina Chile UMIC OECD Fixed broadband speeds in Colombia lag behind its OECD peers and some regional comparators like Mexico and Chile and vary significantly by geogra- Source: A4AI (2021). phy and socioeconomic strata. This finding is con- sistent with the data highlighting the low penetration of Figure 2.18. Average Smartphone Price GNI fiber-based fixed broadband infrastructure. Based on per capita/month OECD data, Colombia’s average actual experienced 27.9 download speed (25.0 Mbps) is lower than that of Mexi- 24.8 co (28.5) and Chile (69.7) and the OECD average (73.0) (see Figure 2.19). In the same way that there are marked differences across departments in Colombia on fixed broadband uptake, there are also very significant differ- ences in the available quality of the connectivity. Actual 13.9 experienced average download speeds for residential 11.8 subscribers during the second quarter of 2020 and 2021 vary widely across regions. The departments of Bogota 7.2 D.C., Valle del Cauca, and Antioquia increased the most 6.7 5.6 over the year, generally from the range of 25–35 Mbps 4.7 to double that figure. In contrast, the departments with the lowest availability and uptake, including Amazonas, Colombia Mexico Peru Brazil Argentina Chile UMIC OECD Vaupes, and Vichada, report the slowest speeds (all well below 5 Mbps), with no progress in the analyzed time Source: A4AI (2021). Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 63 Figure 2.19. Average Experienced Download Figure 2.20. Fixed Internet Download Speed Speed (Mbps) of Fixed Broadband (Mbps) by Stratum Connections, 2020–21 73 122 122 69 98 84 28 44 25 24 OECD Chile Mexico Colombia Stratum 1 Stratum 2 Stratum 3 Stratum 4 Stratum 5 Stratum 6 Average Source: OCDE (2021a). Source: MinTIC (2021a). Note: Averages from Speedtest, M-Lab, and Steam data. Speedtest (Ookla) data are for January 2021; M-Lab (Worldwide Broadband Speed League) speeds were measured from July 1, 2019, to June 30, 2020; and Steam data are for March 2021. Between 2019 and 2020, fixed connection speeds Figure 2.21. Download Speed Changes for Fixed showed an upward trend relative to mobile, which and Mobile Networks (Median, Mbps, 2019-2020) did not record any improvement. Fixed download speed tests on average were higher than mobile (Figure 25 2.21) but showed a gap between urban and rural areas.71 As Table 2.3 shows, this difference is less evident for 20 mobile, most likely because of the limited 4G uptake. It is also important to note that the network was only tem- porarily affected by the surge in data traffic due to the 15 COVID-19 pandemic. The sudden shift to online activi- ties due to the lockdown measures implemented by the 10 government of Colombia affected service provision only temporarily, and both networks recovered promptly, thus 5 confirming the existing trends (upwards for fixed, steady for mobile). 0 05'2019 11'2019 05'2020 11'2020 Fixed Mobile Source: World Bank analysis, based on Ookla® Speedtest Intelligence® data from January 2019 to January 2021. Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 64 Table 2.3. Internet Speed in Urban and Rural Areas Fixed Mobile Urban Rural Urban Rural Nº of test 58 601 118 7 210 692 3 373 389 453 706 Mean, Mbps72 28.79 24.54 16.86 12.51 Median, Mbps 14.91 8.95 9.35 6.17 Source: Ookla 2019–20. Citizens with better connectivity moved less than areas that require the most improvement. With regard to average during the lockdown, suggesting that fast- the regulatory regime, it would be useful to enforce the er internet enhances resiliency during a health cri- regulatory measures already in place (such as infrastruc- sis. Internet speed played a role in the adherence of ture sharing) and promote pro-competitive policies (e.g., Colombians to movement restrictions imposed by the number portability, unbundled access, and spectrum government to contain the spread of COVID-19. A study trading). In the area of the regulatory mandate, there is a conducted by the World Bank and the University of need to strengthen enforcement.75 Greenwich for the purposes of this report found that us- ers with a faster internet connection moved location less Figure 2.22. ITU Regulatory Tracker Overall during the lockdown compared to the rest of the popula- tion, after controlling for income factors.73 Better internet Score connectivity is therefore linked to higher compliance with Brazil restriction measures that were key to limiting exposure 100 Mexico to COVID-19 and consequently the number of infections OECD and deaths (see Annex 3 for details). Chile 80 Peru Colombia Regulatory environment, sector governance, Argentina and policy 60 In 2007, Colombia emerged as a regional and global 40 regulatory framework leader, but currently, the coun- try’s regulatory mandate and regulatory regime are two areas identified by the International Telecommu- nication Union (ITU) as lagging most. In 2007 when 20 the ITU first introduced its regulatory tracker,74 Colombia scored well above regional benchmarks and was very close to the OECD average. Starting in 2009, howev- er, Colombia’s score stabilized while other countries, '07 '10 '13 '16 '19 such as Chile and Mexico, continued to make advances (Figure 2.22). The result of this divergence was that by Source: Authors elaboration based on data from ITU’s “ICT Regulatory 2016, Colombia was well below both the OECD average Tracker,” https://app.gen5.digital/tracker/metrics and some of the regional benchmarks. Today, the ITU recognizes the regulatory mandate and regime as two Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 65 Many telecommunications markets in Colombia re- that to promote and safeguard efficient competition, tar- main highly concentrated. The fixed telephone, mobile geted ex ante obligations in justified circumstances may telephony, and mobile internet segments in Colombia are prove to be efficient.79 Annex 2 provides more detail on populated by a limited number of players with large mar- the status of ex ante regulation in the Colombian tele- ket shares (Figure 2.23) with Claro the largest in every communications markets. segment (e.g., revenue market shares of 36.5 percent in fixed telephony, 28.7 percent in fixed broadband, 62 Colombia has well-established sector governance percent in mobile broadband, and 53.8 percent in mobile involving a full spectrum of public institutions to set telephony). Some of these figures are at or are well be- and execute sectoral policies, with MinTIC80 playing yond the 40 percent threshold above which firms may be a key role and having a broad mandate to oversee considered to be dominant.76 the implementation of policies on ICTs. The legis- lative framework in the telecommunications sector is based on Presidential Decree 1900 of 199081 and Law Figure 2.23. Market Shares by Revenue 142 of 1994, which created the Telecommunications Regulation Commission (Comisión de Regulación de TIGO 18 14 las Telecomunicaciones [CRT]), which is currently the TELEFONICA 24 26 Communications Regulatory Commission (Comisión de OTHERS Regulacion de Comunicaciones [CRC]). The legislative 20 ETB framework was subsequently overhauled by Law 1341 14 21 DIRECTV of 2009, which revised responsibilities between the Min- 13 CLARO istry and the CRC,82 and most recently by Law 1978 of 7 6 2019, which further revised institutional arrangements and the distribution of competencies.83 Law 2108 of 22 2021 has also generated normative and legal changes 20 with sectoral impact, as it establishes the internet as an 8 essential public telecommunications service. The flag- 62 ship MinTIC policy document is the national four-year 54 ICT plan. The current “El Futuro Digital es de Todos”84 expired in August 2022 (at the end of the past presiden- 37 29 tial administration). Likewise, given the expiration of the PND 2018-2022, the new PND 2022-2026 was approved by the President in May 2023. The National Directorate Fixed Fixed Mobile Mobile of Taxes and Customs (DIAN) is responsible for coor- Telephone Internet Telephone Internet dinating specific and broader fiscal policies applied to Source: MinTIC (2020c). the digital sector. For example, the telecommunications sector is subject to the general value added tax (VAT) of 19 percent, as well as an extra 4 percent applied to mo- Colombia is embracing a “light touch” regulatory bile data and voice services. An import duty of 5 percent approach toward market power but may consider in addition to the VAT is applied to phones with a value doing more to safeguard and promote efficient com- higher than COP 753,720 (USD 190.90),85 creating an petition. Although the presence of dominance by itself extra burden on mobile consumers. On the other hand, does not imply anticompetitive behavior, over time it often MinTIC leads all the compensation revenue that come leads to worsening market outcomes, especially for end from the ISP and mobile operators as well as the pay- users, that manifest in lower quality and less affordable ment for spectrum. Other specific sector fees include the services, both of which have been observed in Colom- financing of the Single Fund for Information and Com- bia. Despite concentrated markets for many years, Co- munications Technologies (Fondo Único de Tecnologías lombia has adopted a “light touch” regulatory approach de la Información y las Comunicaciones [FUTIC]) and that imposes relatively few obligations on all operators, CRC, as well as other discretionary municipal fees. The including with respect to certain forms of support infra- relatively high fiscal burden on the telecommunications structure sharing, like ducts and poles.77 Its regulation sector may negatively impact the country’s digital devel- of the mobile market did not yield results either as mar- opment, and its revision could potentially unlock some kets continue to be concentrated (see endnote for more private infrastructure investment. information).78 The experience of OECD countries shows Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 66 Competition matters in the digital economy sec- FUTIC has had annual revenues in excess of US$300 tors are under the jurisdiction of the CRC and the million at least since 201688 and is expecting expendi- national competition authority, the Superintenden- tures of US$365 million for 2022.89 Hogares Conectados cy of Industry and Commerce (Superintendencia de (Connected Homes) is a high-profile FUTIC program that Industria y Comercio [SIC]),86 while the ANE is an finances internet service providers (ISPs) to provide sub- independent spectrum management authority. The sidized “social tariffs” for a basic fixed broadband service independence of the CRC and of spectrum fees is an plan for unconnected strata 1 and 2 households for a lim- area that calls for some improvement. The CRC main- ited duration of time.90 By the end of 2021, this program tains responsibility for identifying the relevant markets, had connected about 346,000 households, with a medi- designating those that warrant ex ante obligations, and um-term total goal of 500,00092 households. Colombia imposing such obligations on designated dominant oper- may wish to consider reviewing the eligibility criteria to ators. Under the current CRC governance structure, its include all strata 1 and 2 households (rather than just the decision-making process is executed by five designat- unconnected) and extending the duration of the subsidy ed Commission members, one of which is the Minister beyond the current 30–42 months to prevent low-income of TIC, which weakens the CRC’s regulatory indepen- households from disconnecting after being required to dence from the policy maker. The SIC was established pay the higher market price. as a competition agency in 1976. Law 1341 of 2009 sets out the distribution of competition responsibilities in the The incoming administration has an opportunity digital sector. The SIC is responsible for traditional ex to establish a fresh dynamic policy and regulatory post competition analysis and enforcement (e.g., abuse agenda for the next planning period while building of dominance, etc.), as well as merger control. The ANE on Colombia’s inherent strengths and achievements was created in 2009 as an independent spectrum man- to date. Its core objective could be to promote equita- agement authority whose mandate is to assist MinTIC in ble access to digital development for all Colombians the design of policies and plans related to spectrum.87 by reducing all forms of digital divides based on socio- According to GSMA, spectrum prices in Colombia are economic status and geography. This objective could above the average, potentially representing an obsta- be achieved by (a) maximizing private and, as needed, cle to private sector investment in the sector. In this re- public investments in backbone, IXP, and access infra- gard, there is space to improve spectrum management structure, (b) strengthening the competitive environment through spectrum assignments that are tied to coverage and safeguarding it through more dynamic ex ante reg- and investment requirements, rather than maximizing ulation and effective enforcement, and (c) ensuring the spectrum fees (one time or annual). efficient distribution of spectrum resources, such as the 3.5 GHz band, with the objective of maximizing coverage FUTIC, Colombia’s universal service/development and investment. While seeking those objectives, Colom- fund, is one of the largest in the world and could bia could build on its strong sector governance and reg- strengthen its assistance to improve affordability ulatory capacity, favorable geographic location with ex- for all low-income households. FUTIC revenues are tensive international interconnectivity, and growing data mainly based on an annual sector contribution that has and cloud infrastructure market, which can significantly varied over the past two years between 1.9 and 2.2 per- increase demand for high-speed broadband services cent of gross revenues and annual spectrum-related through the opportunity to access cloud and data infra- fees. It is appointed to MinTIC but has a separate legal structure services to all segments of the market: govern- status, and its revenues are earmarked and hence ad- ment, businesses, and citizens (see Table 2.4). ministered separately from general government funds. Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 67 Table 2.4. Key Digital Infrastructure Challenges and Opportunities Strengths Areas for Improvement » Developed regulatory framework » Expanding the reach of the Universal Service Fund to improve affordability » Developed sector governance » Decreasing the fiscal burden of the telecom sector » Growing cloud and data infrastructure market » Improving the independence of the CRC » Strategic geographic location and access to robust and enforcement of regulatory decisions international interconnectivity » Strengthening ex ante regulation to improve the competitive environment in some market segments such as mobile » Expanding broadband and IXP infrastructure » Expanding the density of mobile towers and footprint of the fixed broadband access network » Assigning 5G spectrum Opportunities Threats » Becoming a regional hub for cloud and data » Large territorial inequality in the provision of and infrastructure services access to infrastructure and services (including digital) impacts the digital uptake of remote and » Achieving equitable access to high-speed broadband vulnerable communities. infrastructure » Affordability of mobile and fixed connectivity limits » Developing DFS and data-intensive business models the digital uptake of the lowest income segments. » Increasing the small but growing contribution » There are limited private sector investments of the ICT sector to GDP compared to peers. 2.3 Recommendations and next steps and underserved areas is key to ensuring that all Colom- bians are fully able to access all the benefits of the digital economy. One way to promote private investment in the Colombia has a very solid base on which to build mobile segment is for Colombia to release mobile spec- a world class digital infrastructure consistent with trum in the 3.5 GHz band to promote 5G deployment. OECD countries. Indeed, such fixed and mobile infra- Where private investment is unlikely, some form of public structure is already available to middle- and high-income investment via FUTIC or other public initiatives should be households in urban areas at regionally comparable considered. prices. The challenge is to design and implement poli- cies that will promote investment to expand the benefits In spite of liberalizing entry into fixed and mobile of high-quality and affordable digital infrastructure to as markets, including via mobile virtual network op- many Colombians as possible, including those that re- erators (MVNOs), telecommunications markets re- side in rural areas, while ensuring that there are suffi- main highly concentrated. To increase the intensity cient public resources to provide ongoing affordability to of competition, in addition to relying on additional facil- Colombia’s many low-income households. ities-based entry to provide new competitive pressure, Colombia should also ensure that dominant operators The current deployment of fixed and mobile infra- are appropriately regulated, including with respect to structure represents an obstacle to universal ac- competitive bottlenecks, so that new service-based com- cess to and usage of the internet. Further expansion petition may also flourish. of high-quality last-mile infrastructure to reach unserved Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 68 Affordability of data packages continues to be an to provide ongoing financing to ISPs so that they can obstacle to connectivity for low-income house- offer basic internet packages to designated low-income holds. Colombia should consider expanding the eligi- households at below-market prices. bility, scope, and duration of its Social Tariffs program Table 2.5. Digital Infrastructure: Policy Recommendations Responsible Legal Change Reform Area Recommendation Timing Required? Entity Regulatory actions Undertake regular relevant market assessments to identify the dominant operators and Short impose appropriate ex ante CRC No term obligations to promote and safeguard competition. PRIORITY. Release spectrum in the 3.5 GHz Short/ band to foster 5G development. ANE Medium Yes PRIORITY. term Short/ Foster private investments MinTIC, CRC Medium No through tailored policies. term Revise the tax on the import National Short Decree of smartphones based on a Tax and term Number- cost-benefit analysis. Customs 2153/2016 Directorate Review spectrum fees Short to incentivize a more efficient ANE No term allocation. Review the eligibility, duration, and scope of the Social Tariffs program to further promote Short internet affordability for FUTIC term No low-income households. PRIORITY. Domestic infrastructure Promote the establishment of Short well-functioning internet exchange MinTIC, CRC No term points (IXPs). Improve mobile and fixed MinTIC, CRC, Short infrastructure coverage in No FUTIC term unserved areas. PRIORITY. Convert diesel generators into renewable options Short/ for the off-grid mobile MinTIC, CRC Medium No towers. Term Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 69 3. DIGITAL PUBLIC PLATFORMS KEY MESSAGES » The GoC has made substantial progress on its digital transformation and the development of the underlying institutional framework. Colombia has a consolidated digital government strategy and is implementing a building blocks approach to the delivery of digital public services and the construction of digital public platforms. » Currently, the government is implementing multiple key initiatives for the development and efficient provision of digital services. Among these initiatives are the strengthening of govern- ment back-office systems, the implementation of an interoperability platform, and the development of digital authentication services. » Further coordination efforts between key stakeholders are needed. The nature of digital gov- ernment implies the integration and collaboration of all the stakeholders in a whole-of-government approach. Exploring a federated coordination scheme and strengthening the role of the sector chief information officers could help to bolster the alignment of efforts. » The development of the Digital Citizen File as a centralized hub to access government ser- vices shows substantial progress, but its rollout remains a critical challenge for the imme- diate future. » Although Colombia has made substantial efforts to strengthen core government manage- ment systems, further efforts are required to develop capacity at the subnational level. » Achieving the ambitious deadlines set by the normative framework to fully digitalize services will require strengthening the capacity of both the National Digital Agency and the sectors involved in the provision of services. 3.1. The importance of digital public example, social networks and online marketplaces. This platforms chapter is focused on digital public platforms. Digital public platforms can increase operational and Digital platforms are electronic tools designed to economic efficiency, improve service delivery, and exchange goods, services, or information between facilitate innovation and economic development. The producers and users. In a nutshell, they facilitate the development of digital platforms is an important lever for flow of information and transactions to enable producers the digital transformation of the whole economy. They and users to create value by interacting with each other. have the power to transform the way governments inter- Digital platforms can be public or private, such as, for act with citizens and businesses and to optimize public Digital Public Platforms 70 value by reducing costs and improving productivity. They Governments can boost digital public platforms by also enable new service delivery models and improve digitalizing their own operations and procedures. the management of public resources while providing Digital public platforms entail the operation of a set of timely information for the design and implementation of foundational elements, including shared ICT infrastruc- public policies. Governments operate digital public plat- ture, such as a government cloud, an interoperability forms to offer a diverse range of services, such as is- framework, application programming interface (API), suing birth certificates, renewing a driver’s license, and digital ID, and a regulatory framework for data protec- paying taxes online, among others. In a nutshell, digital tion. A second layer is comprised of core cross-cutting platforms connect people and public institutions virtually back-office government management systems, such and have the power to improve lives by enhancing the as public financial management information systems, operational efficiency and service delivery of govern- human resource management e-procurement systems, ment institutions. and others. These systems produce information that can be used to generate public value and improve strategic Digital public platforms help governments to fulfill decision making within the government through open their core functions and deliver effective services, data. An additional third layer is focused on the deliv- which has become even more important in the con- ery of services leveraging the automation and informa- text of recent global shocks. Digital public platforms tion processes generated by cross-cutting systems and proved to be critical during the COVID-19 pandemic, as foundational elements. This layer consists of such key they enabled governments to quickly coordinate health features as the development of single citizen records, care and emergency responses. They also enabled a single digital services portal, and the development of governments to ensure continuity and retain a minimum ID authentication services for public and private sector functioning level of key management systems, reduce institutions. disruptions to schools and universities, and provide a channel for safe social interaction by allowing citizens to access resources, information, and services without leaving their homes. Figure 3.1. A Building Blocks Approach to Digital Public Platforms Single End-to-end digital ID sing-on G2C, G2G, and Efficiency and authentication Service G2B services transparency delivery in public Single Transparency Sigle citizen administration government and citizen records Open data and data as an asset Core Shared and government interoperable Tax and Subnational management systems Financial Performance E-Procurement Customs management management Management systems tools Administration Digital ID Interoperability Shared and civil registry framework services Organized, Foundational reliable, elements and secure Electronic Data protection Centralized ICT information document and privacy infrastructure Source: World Bank (2021). Note: G2C = government to citizen; G2G = government to government; and G2B = government to business. Digital Public Platforms 71 Digital public platforms are key to Colombia’s na- » Digital Citizen File (Carpeta Ciudadana Digital tional digital strategy. Colombia has an extensive reg- [CCD]): a way to offer unique digital access to con- ulatory framework93 covering digital public platforms, in- sult and update the information stored in the public cluding CONPES 3975,94 which provides MinTIC with a administration. mandate to develop a digital platform to ensure interop- erability and enable the provision of digital government The World Bank team assessed the maturity of Co- services, both within government agencies and for the 46 lombia’s digital public platforms using a customized entities of the executive branch. However, this requires approach. The diagnostic was informed primarily by the development of key foundational elements, such as data collected through desk research, deep dive inter- digital ID and digital ID authentication. In this context, the views with stakeholders, and existing analytical work. Digital Government Policy (Política de Gobierno Digital The analysis was focused on key enablers and con- [PGD]),95 regulated by Decree 767 from 2022, provides straints to the development of digital public platforms on strategic guidelines and standards to operationalize the six dimensions: (i) governance and institutions; (ii) iden- digital transformation with an objective that seeks to tification and trust services; (iii) government back-office “Positively impact the quality of life of citizens, and in systems; (iv) government service delivery platform; (v) general the inhabitants of the national territory and the transparency and public engagement; and (vi) data as competitiveness of the country, promoting the generation an asset. of public value through the digital transformation of the State, in a proactive, reliable, articulated and collabora- tive manner between interest groups and allow the fulfill- 3.2. Current state of digital public platforms ment of the rights of users of cyberspace.”96 To achieve these goals, the PGD identifies four cross-cutting foun- The Colombian government has made substantial dational enablers: (i) security and privacy, (ii) govern- progress on its digital transformation and is among ment architecture, (iii) citizen services, and (iv) culture the most advanced countries in digital government and appropriation. All four are closely related to the de- in the region. Colombia is in Group A98 of the 2020 velopment of digital public platforms and make possible GovTech Maturity Index (GTMI) developed by the World the development of digital authentication services as Bank Group.99 Colombia has also made progress as well as the rollout of an interoperability framework as key measured by the 2020 UN e-Government Development foundational elements. These elements would enable Index. However, although the country is well above the persons to validate their identity in relation to govern- regional average, it lags behind other OECD countries.100 ment and private sector institutions and allow the secure exchange of data with the person’s consent. Digital transformation is a complex and multidimen- sional process that often requires legal, institutional, One of the main initiatives led by MinTIC that illus- technological, and cultural changes across govern- trates the vision of the Colombian government re- ment and across the wider digital ecosystems. Mak- garding digital public platforms is the conceptualiza- ing the necessary reforms and implementing concrete tion of Digital Citizen Services (Servicios Digitales actions to drive digital transformation in a timely and ef- Ciudadanos [SDC]), with a “building blocks” ap- fective manner entails high-level political commitment, a proach. Although SDC were envisioned by the Vive Dig- clear transversal mandate, and the development of tech- ital II plan in 2014, the National Digital Agency (Agencia nical capabilities and human resources to support di- Nacional Digital [AND]) was established in 2017 to oper- verse, multidisciplinary digital teams. The successful im- ationalize them. Overall, the SDC approach is based on plementation of digital transformation policy begins with three main pillars or services: clear leadership and a vision of the desired outcomes and the potential policy pathways to achieve them. » Interoperability: a secure, controlled, and govern- able information exchange tool. » Digital Authentication: a single authentication ser- vice for citizens and companies that allows them to access state services and procedures in a safe and reliable way. Digital Public Platforms 72 Figure 3.2. Digital Government is Correlated with Government Effectiveness 100 2020 WGI Government Effectiveness 80 KNA CHL (Rank Percentile) BRB 60 LCA VCT CRI PAN GRD COL LAC Av DMA 40 SLV GUY ECU BRA SUR PRY 20 BOL 0 HTI VEN 0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 UN Online Service Index (2020) Source: Authors’ elaboration based on data from the World Bank (2023e); and the UN Online Service Index. » Formulating policies, guidelines, and strategies for online government that promote efficient service de- Governance and institutions livery » Promoting cooperation with local governments The governance and institutional framework for dig- The AND, on the other hand, is a decentralized entity ital public platforms in Colombia is comprised of under MinTIC whose main role is to operationalize several agencies. MinTIC is leading Colombia’s digital the strategic approach provided by the national PGD transformation journey.101 The Digital Government Di- and AND guidelines. To achieve this, the AND promotes rectorate (Dirección de Gobierno Digital [DGD]) under and articulates the development and delivery of digital MinTIC is responsible for developing the government’s services, including the rollout of the interoperability plat- digital strategy and providing strategic guidance. Some form, single citizen file, and digital ID authentication. In of the DGD’s core functions include: this context, the AND provides support to government agencies in developing digital services on a case-by- » Analyzing and proposing IT guidelines for the secure case basis following the guidelines from MinTIC. To management of public information this end, the AND has developed an SDC model102 that provides flexible hands-on support in digitalizing public » Establishing and coordinating the implementation of services. Overall, the AND seeks to: (i) articulate SDC; IT procurement strategies that are effective and take (ii) develop STI initiatives aimed at creating an STI eco- advantage of economies of scale system; and (iii) develop plans and identify solutions for public sector challenges, leveraging open software and » Defining technical standards for the management of data analytics whenever possible. shared infrastructure and services that ensure the interoperability of government systems FUTIC is mapped under MinTIC, but with administra- tive and financial autonomy and its own assets. Its representation, management, and administration are the » Formulating and recommending standards and ar- responsibility of the Minister of TIC, who is its director chitecture frameworks for government that promote and is empowered to delegate its functions. FUTIC is fi- the interoperability of systems nanced by telecom operators, and the funds are used to Digital Public Platforms 73 increase connectivity and finance ICT projects, primarily in rural and underserved areas. Identification Although the current institutional framework led by MinTIC through the DGD has been effective in im- plementing the digital government strategy, there is a need to strengthen the AND. The DGD has made The RNEC is the government agency tasked with the efforts to issue policy guidelines and standards and to identification of persons. Although it has made ef- directly implement the PGD instead of coordinating its forts to digitalize the notary registry process, many deployment with other public institutions. This poses a registration procedures are still carried out in paper challenge in terms of resources available at the DGD, format. The registry is based on the issuance of birth as it requires a substantial degree of coordination and certificates by the network of RNEC offices and notaries collaborative effort between the various institutions at nationwide in coordination with health centers. Currently both the central and subnational levels. Currently, un- the RNEC is working to provide digital services to obtain der the guidance of MinTIC, the AND provides support copies of life event certificates. Approximately 180 nota- to digitize public services through a team of experts ry offices operate with the Digital Notary system, which in the field assigned to specific projects; however, the requires the biometric enrollment of the person to be agency lacks the resources to fulfill its purpose in terms able to access remote notary services. The shift to the of implementing SDC and expanding its coverage na- Digital Notary also requires that the notary have a digital tionwide. Projects that will allow access to SDC, such signature granted by a certifying agency. With regard to as the digital ID developed by the National ID and Civil the registry of births at health centers, approximately 94 Registry Agency (Registraduría Nacional del Estado Civ- percent operate online with the Civil Registry Informa- il [RNEC]) focused on developing a digital ID authentica- tion System (Sistema de Información del Registro Civil tion mechanism for persons, could also benefit from the [SIRC]), which is a web-based application that enables strengthening of organizations such as the AND, as the the capture of information and the authentication of the widespread use of digital ID would be promoted through parents’ IDs with the main RNEC database at the Nation- the mass use of SDC. al ID Archive. If the registry is performed through SIRC, the data are automatically stored in the RNEC database. The PGD has been a fundamental tool for the digital transformation in Colombia. It provides the govern- The RNEC is taking steps to develop a digital ID and ment with standards and guidelines to move forward and undertaking a process to strengthen both the ID and steer the modernization and digitization processes. The civil registry systems. All persons over seven years old last update of this policy from May 2022 set as a key ob- are required to obtain an ID card, followed by a citizen- jective the improvement of interaction between the state ship card when reaching 18. The latter is a prerequisite and citizens. Its structure includes two transversal ele- to accessing most public and private services, such as ments, 12 principles, four enablers, two lines of action, opening a bank account or obtaining a SIM card. The and guidelines, guides, and standards (extensive doc- current process to acquire a citizenship card involves a umentation). However, all of these elements result in a mix of manual and digital procedures. Out of the 1,176 scheme that is complex for organizations to implement, registry offices, only 574 have integrated service stations particularly for subnational governments that often need that enable the capture of both biometric and biograph- strong support, given the disparities with the central gov- ic data. In the remaining offices, the registry process of ernment in terms of budget and human resource skills fingerprinting is carried out manually with ink, and per- in the digital realm. The implementation of this policy sons need to provide a photo that is compliant with the is measured through an annual evaluation mechanism International Civil Aviation Organization standards. The carried out by the Administrative Department of the Civil RNEC procured an automated fingerprint identification Service, which includes another 15 government policies, system in 2005 and shifted to an automated biometric but the periodicity of the evaluation and its lack of stra- identification system in 2018 to strengthen the authenti- tegic focus make the measurement insufficient for timely cation infrastructure. decision making. The digital citizenship ID card was introduced in 2017 as part of a wider government movement to- ward digital services. As per Decree No. 1413 of 2017, the digital citizenship ID card is to have the same legal validity as the physical citizenship card issued by the RNEC. The digital citizenship card is also being devel- oped by the RNEC, which is working to advance digi- tal ID authentication mechanisms. However, the digital Digital Public Platforms 74 citizenship card’s rollout and uptake have been limited. Since 2020, the RNEC has been working to strengthen Interoperability framework the existing platform to issue a digital citizenship card through a mobile application with a defined set of scal- ability, integration, communication, and security require- ments. A key feature is the control that individuals would The interoperability framework is critical to ensuring have to manage the use of their digital citizenship card the flow of information between government sys- data. In parallel, the RNEC is looking to broaden a fa- tems, both for decision making and service delivery. cial ID authentication service for nongovernmental insti- In Colombia, the interoperability platform is provided as tutions. The digital citizenship card can be downloaded a service by the AND, and government institutions that and stored in a mobile phone with the RNEC application. provide services can connect to this platform provided Despite the announcement that the old citizenship card they comply with the requirements and standards issued will no longer be issued, a key challenge for the new by MinTIC. digital citizenship card is the implementation of commu- nication campaigns to ensure that people know about Colombia has adopted X-Road as the government it, its characteristics, and its potential uses, such as for interoperability platform, which provides the versa- accessing the CCD and opening a bank account. The tility needed to adapt to existing technological solu- CCD is a key mass use case for the digital citizenship tions, but its uptake has been limited. X-Road is an card, and delays in the addition of entities to the CCD open software interoperability platform developed by the may also limit the use of the digital citizenship card. Estonian government that has been implemented in Co- lombia since 2020. The decentralized X-Road architec- ture provides the versatility to adapt to the different tech- nological solutions used by government institutions as it does not require a specific technology to operate and requires only the use of a security server to consult or transfer data between government institutions in an en- crypted way. From a security point of view, it ensures that both the data provider and data consumer are always precisely known. This allows the person to know which Figure 3.3. The Colombian Interoperability Framework Articulator Certification authority Timestamp (OCSP) Main authority server Security server Government agency Government agency Data messages Security Security server server SOAP/ SOAP/ REST REST Applications Applications server server Source: MinTIC (2022a). Digital Public Platforms 75 entities have and can access his or her information. The management. Although line ministries at the national use of a digital signature and timestamps has further in- level have made efforts to provide subnational entities creased security. However, currently only 64 share infor- with solutions for managing and reporting to the central mation on X-Road.104 government, their reach and uptake have not been wide- spread due to a combination of high staff turnover and limited coordination. Nevertheless, there are ongoing initiatives to streamline the support provided to subna- Core government systems tional governments, such as the DNP’s portfolio of man- agement applications to facilitate smaller governments’ reporting and decision making. The DNP’s approach consists of the development of management tools and Government back-office systems are a key element the provision of key public management modules, such of digital public platforms. Back-office systems are as financial and revenue management, for beneficiary used to manage government operations, and although municipalities as a cloud-based service to subnational they are not directly seen by citizens, they ensure the governments. This approach enables small local govern- upstream delivery of public services. Such systems ments to access a robust and comprehensive IT platform comprise processes in key cross-cutting areas, includ- without the need for substantial investments in hardware ing budget management, accounting, customs, revenue or software, thus generating savings and efficiency gains administration, asset management, procurement, and while at the same time facilitating the flow of information payroll management, among others. The digitalization of for monitoring and decision-making purposes. government systems has played a key role in the ini- tial stages of the digital transformation journey of many countries. Government service delivery platform The GoC has made substantial investments in the development of cross-cutting management systems, but there is room to strengthen the interoperability between back-office systems to increase efficiency. Service delivery platforms (SDPs) provide a stan- After going through several iterations, the different gov- dardized technology framework upon which to de- ernment entities at the national level have built a robust ploy digital public services. An SDP is a set of com- and comprehensive public management ecosystem that ponents that provides a service(s) delivery architecture includes government-wide applications, such as the fi- (such as service creation, session control, and protocols) nancial management system (SIIF-Nación), the human for a type of service delivered to the consumer—wheth- resource system (SIGEP), the procurement manage- er a customer or other system. SDPs often require the ment platform (SECOP), the revenue management plat- integration of IT capabilities and the creation of services form (MUISCA), and an investment management suite that cross technology and network boundaries. They typ- of applications operated by the DNP. At the sector level, ically provide environments for service control, creation, most of the line ministries own and operate back-office orchestration, and execution and monitoring. systems that help them automate their day-to-day op- erations and record administrative data. However, the The government has made considerable progress dissemination of tools has led to fragmentation and lim- in the provision of shared technology infrastructure ited system interoperability to facilitate the flow of data. and government to government services. MinTIC has Data generated by these systems often reside in silos on set up a government-wide enterprise architecture refer- ministerial databases with limited interoperation, which ence framework as well as an interoperability framework. contributes to the data’s underutilization. Similarly, it has also issued guidelines for the adoption of cloud computing and the creation of a CCD. In parallel, There are also regional disparities in the scope and the government has developed several data-driven ini- comprehensiveness of core government systems tiatives, including the free data and software initiative, at the subnational level. For example, major urban which provides public entities with cloud infrastructure centers, such as the cities of Bogotá or Medellín, have where they can pilot big data projects and promote the deployed robust commercial off-the-shelf systems to use of open-source software throughout the public sec- manage internal operations and support decision mak- tor. These and other initiatives point to the adoption of a ing. However, small rural municipalities and departments whole-of-government approach that the government is are still in the process of digitalizing such core functions trying to expand to all sectors and levels. as budgeting, accounting systems, and human resource Digital Public Platforms 76 The CCD, launched in June 2021 and managed by resulted in a solid catalog of services and clear regula- the AND, is a centralized hub where citizens can tions and procedures to identify, modify, and create new access government services. It is not a document re- services. Nevertheless, according to a 2022 report107 pository but rather a space that enables persons to au- from the Administrative Department of the Civil Service thenticate themselves and access digital public services (Departamento Administrativo de la Función Pública and government agencies to access the personal data [DAFP]), 1,952 out of 2,900 trámites must undergo a ra- required to initiate administrative procedures (trámites) tionalization. Although since 2000 this rationalization has and deliver public services through interoperability. A key been accompanied by the digitization of procedures, De- benefit of the CCD is the provision of a single user ID cree No. 088 of 2022 set a deadline of 2026 for central and password to access processes and services from government public institutions to digitalize their trámites the government. The responsibility for service delivery and 2037 at the subnational level. This requires develop- lies with each respective agency, but the users can ac- ing an aggressive digitalization strategy, especially at the cess the service entirely from the CCD. Currently, 50 subnational level. processes and services from 33 government institutions are available through the CCD. Some of these services are fully integrated into it, such as the copy of the Sin- gle Tax Registry certificate, which allows citizens to car- Transparency and public engagement ry out their trámite from their account without having to go to the institution’s website. In other cases, once the person has authenticated him or herself, the CCD plat- form provides links to direct the user to the website of Colombia has made free, facilitated access to govern- the institution providing the desired service. However, ment data part of its policy, albeit with some restric- both the information provided in the CCD platform and tions. Decree No. 1712 issued in 2014 establishes that the processing of each service, including its digitaliza- public or private entities that use public funds must make tion, are the responsibility of the government institution data available to citizens free and without restrictions. in charge of providing said service rather than the AND. The released data must be timely, complete at a detailed Between February and March 2022 there was a sub- level, obtained at source, machine readable, and free of stantial increase in the uptake of the CCD according to any license requirements. In addition, the government AND data, which showed an increase from 180,000 to has created an open data platform (datosabiertos.gov. 980,000 users. co) as a central hub for publishing data from all public entities. Although most government entities publish data- The data are exchanged through the interoperabil- sets in the open data platform, and Colombia operates ity framework. The CCD also allows the user to view under the principle of openness by default, this does not the result of the requested service and to browse his/her mean that data management processes are designed to “service history,” making it possible, for example, to view facilitate data sharing, especially between government the accessed services and download the certificates.105 institutions. Many still work in silos, and interoperation However, some of the digital services currently available between systems is at a very early stage. reproduce analog processes. This poses a challenge in terms of efficiency, as the workflow of services could The Colombian government has established a Trans- potentially contain redundant steps that could be rede- parency and Anti-Corruption Observatory. The Ob- signed or simplified to save both time and resources. In servatory108 was originally designed and launched by this context, it is key to strengthen the AND and imple- the Office of the Inspector General of Colombia in 2012. ment a strategy to rapidly spread the use of the CCD. The Observatory is a tool for promoting integrity in gov- As per Decree No. 2106 from 2019,106 no additional ernment and society, to include citizens and the private inter-administrative agreements between the AND and sector. Currently, the Observatory is organized as a task service providing agencies are required. In this context, force of the Transparency Secretariat of the Office of the rolling out the CCD on high-impact services is a funda- President to promote integrity in public administration mental challenge. and tasked with the design of tools to measure and ana- lyze corruption, working closely with citizens, academia, Although the CCD as a centralized hub to access and the public and private sectors. The Observatory has government services is an important milestone, fur- four broad action areas: 1) measure corruption, which ther efforts are required to meet the deadlines set includes the gathering, analysis, and visualization of in- by the regulatory framework to fully digitalize public dicators on transparency and corruption; 2) educate the services. The government has been working on the de- public by developing tools to promote transparency; 3) livery of services through digital channels since 1995, innovate with the use of technology, data science, and with a strategy on the rationalization of trámites that interoperability to strengthen analytical capacity and Digital Public Platforms 77 provide early warnings; and 4) facilitate a dialogue space The GoC already meets several of the requirements between citizens, academia, and the public and private to create a data-driven public sector but faces chal- sectors on anticorruption. lenges in terms of the implementation of the gover- nance framework and capacity for the use of data The government has made progress leveraging ICT within that sector. PNID and Decree 1389 (2022) are technologies to promote citizen engagement, and key governance frameworks for data infrastructure. government institutions are required to develop citi- PNID aims to promote data culture in the country, ad- zen participation in the same way. An example of this is ministrative records management, and the master data’s the Cristal Urn platform (urnadecristal.gov.co) launched and reference data’s definition. Decree 1389 (2022) is in 2010, which integrates different digital media and pro- also an essential step, as it strengthens the country’s motes citizen participation. Citizens without access to data infrastructure governance by allowing the articula- the internet can also participate through SMS and a call tion of actors, instances, regulations, among others, to center. Citizens can post questions and influence pub- implement, and manage data infrastructure. In addition, lic policy directly through opinions and comments about the government has also established an IT management programs. This initiative devotes a section to showing enterprise architecture and an interoperability framework the results of all citizen participation exercises carried for the public sector and data reuse guidelines for public out on the platform. entities. Most initiatives, albeit promising, remain limited and do not transcend sectoral barriers. This is related to limitations in the institutional culture and capacity to deliver digital services at the scale required by Decree Data as an asset 620 issued in 2020.110 Establishing an adequate data management model by implementing and operational- izing the PNID framework, encouraging proactive data sharing, and fostering a culture of data-driven decision Data should be treated as a key strategic asset to making across all public institutions will be a key chal- generate public value. When governments approach lenge in upcoming years. This will require ongoing efforts data as a strategic asset, it can open the door to gen- to overcome existing barriers and ensure that the frame- erating value by leveraging new technologies. Reaching work is effectively integrated into institutional practices the point of maturity, where enterprise strategy and op- and operations. erations are data driven, can require a combination of phased actions. In the case of Colombia, the country’s Advanced data analytics would require greater data Digital Government Index (IGD)109 shows an evolution in sharing between government entities. New data shar- the use of data for decision-making, with an index in- ing models are being developed with the PNID, like data crease from 54.8 in 2019 to 73.3 in 2021. The PNID is commons, data trust and data marketplaces. Howev- an important step in the right direction to improve data er, past efforts to use data to improve operations and governance and management in Colombia, but working support decision making have followed a piecemeal ap- to overcome challenges and advance towards a more proach by the line ministries. Although MinTIC has at- mature data management culture focused on generating tempted to address this challenge by providing govern- public value is key. It is particularly important that the ment entities with technology infrastructure to deploy big government purposefully shift away from managing si- data and AI pilots through a data SandBox111 scaling up loed datasets and reach a point where data become a this initiative and ensuring its sustainability require stron- driver for innovation and growth by improving strategic ger data governance, identified key use cases empow- decision-making capabilities and enabling data sharing ered by AI using voice commands, machine learning, between different digital government services—orches- flexible microservice architecture, and more developed trated as per life events. How fast the government can capacity in some line ministries. start reaping the benefits depends on key supporting ele- ments, such as a strong technical foundation, a strength- ened data governance framework, and the prioritization of life events and the data sharing associated with the user journey in each event, as well as privacy and data protection settings. Digital Public Platforms 78 3.3. Recommendations and next steps Strengthen the monitoring of the Digital Government Policy (PGD). Given the importance of knowing the prog- ress of the government’s implementation efforts, it is ad- The GoC can further strengthen its digital public visable to have strategic measurement mechanisms to platforms through targeted investments in key ar- monitor key initiatives and related investments. Although eas and institutional capacity building. Colombia has there are tools, such as the Single Management Prog- made important progress in terms of digital government. ress Report Form (Formulario Único Reporte de Avanc- The digital strategy under implementation and the PDG es de la Gestión [FURAG]), to measure the implementa- provide a solid overarching mandate to advance with the tion of public policy, they could be strengthened through government’s digital transformation. Nevertheless, the indicators focused on results. Systematically monitoring government could strengthen the foundations of digital the results could also provide insights into adjusting the public platforms through the implementation of targeted PGD to facilitate understanding from public entities and measures such as the streamlining of digital services. to develop tailored support tools. The recommendations outlined below could be Design strategies to address regional disparities. As implemented in a progressive manner with an im- mentioned earlier, there are significant regional differ- mediate focus on strengthening governance and ences in Colombia, including wide variations in the lev- coordination mechanisms between the different els of resources and capacities for digital government. stakeholders. ICT technologies are a necessary but not These disparities present a challenge to formulating and a sufficient condition for the digital transformation. This implementing a national digital government strategy. The also requires addressing the analog elements to enable government should define strategies to address regional the government to improve operating efficiency and pro- disparities, for example, by: duce value for citizens. In this context, the government should continue to refine the conducive legal and regula- » Creating working groups in each region with repre- tory framework regarding data protection and privacy for sentatives of the main stakeholders, including for ex- public sector institutions. ample, the AND, local government, MinTIC, and the DNP, to identify their specific needs and priorities. Strengthen coordination mechanisms. The digital transformation of the government should not be the sole » Expanding the support provided to subnational gov- responsibility of MinTIC or DNP. The nature of digital gov- ernments in certain areas, such as ICT procurement, ernment implies the integration and collaboration of all knowledge and resource sharing, and digital skills stakeholders in a whole-of-government approach. The development. government should establish coordination mechanisms within two levels, strategic and operational, to ensure » Having MinTIC complement its support mechanisms the appropriate level of performance and consistent use with incentives to ensure consistency in the ap- of digital technologies across government. Countrywide proach and pace of the digital transformation across strategic decisions should continue to be led by MinTIC different regions, such as securing funding to devel- and their implementation by the AND. However, at the op local digital services in partnership with the DNP operational level, the government needs to address im- and AND, coupled with signing inter-administrative plementation challenges and bottlenecks and engage agreements to boost the uptake of the CCD. all relevant stakeholders for specific ICT initiatives, for example, through a federated coordination scheme, strengthening the role of the sector chief information of- ficer. By granting a leading role to the leaders of the dif- ferent economic sectors, they can help align the entities with MinTIC’s strategy as well mobilize the necessary operational resources to achieve the strategic goals. Digital Public Platforms 79 Table 3.1. Key Digital Public Platforms: Challenges and Opportunities Strengths Areas for Improvement » The PGD has established important guidelines and » Coordination and collaboration between the standards, and the current institutional framework has various institutions at both the central and been effective in implementing the digital government subnational levels are hindered by the lack of strategy. efficient mechanisms. » There is an interoperability framework in place that » Although there has been progress in the allows fluid interaction between the different actors, introduction of the digital ID card, deliberate actions with proper security levels. must be taken for its effective deployment. Specifically, the tool should be inclusive, be socially » The government has invested heavily in developing trusted for widespread use, and have proper cross-cutting management systems, while subnational infrastructure in place (including a sound digital governments have turned to off-the-shelf systems to service ecosystem and authentication platform). manage internal operations and support decision making. » Poor interoperability between cross-cutting management systems makes the flow of data » Data access is embedded in the government’s digital difficult. policy, and the PGD provides a framework for data management with a whole-of-government approach. » Disparities in the availability of management tools at the subnational level and the capacity to use these tools effectively may reinforce the digital divide. » Lack of communication between efforts to increase the use of service delivery platforms provided by the government has hindered their impact. » The inadequate data governance framework and limited capacity have reinforced data silos and restricted the effective use of data within the public sector. Opportunities Threats » Review the role of the AND and strengthen its » It is critical to align the actors involved in the PGD. capacities accordingly. » The technology and skills necessary for data » Expand the CCD as a mass use case of the digital management by public entities are lacking. citizenship ID card. » A whole-of-government data use model is currently » Shift from traditional to digital notary services. absent. » Use the growing need for data exchange » It is necessary to boost inter-institutional dynamics to in the provision of digital services to accelerate articulate back-office systems to increase efficiency. the enrollment of entities in the interoperability platform. » The limited technical capacities of subnational entities hold back their digital transformation. » Expand the scope of initiatives, such as the DNP’s Territorial Management Model. » The significant data silos across government entities could be limiting the potential social benefits of the » Roll out the CCD on high-impact services. digital government. » Develop a digitalization strategy at the subnational » Most individuals and businesses do not engage level. with and take advantage of the data provided by the government. This limits the potential of data to drive » Improve strategic decision-making capabilities, innovation and productivity growth. enabling data sharing between different digital government services. » Foster pilot projects through initiatives like the data SandBox from MinTIC to achieve a wider demonstration effect. Digital Public Platforms 80 Increase the use of shared technology infrastruc- visualizations, analysis of data, and capacity build- ture. Shared technology infrastructure covers both hard- ing in the use of disruptive technologies. A potential ware and software. The adoption of shared technology solution that could be leveraged is the approach tak- infrastructure, ideally using cloud technologies, would en by the DNP to provide management tools to small contribute to reducing the costs of both ICT infrastruc- municipalities through the implementation of a terri- ture and service provision and improving performance, torial management model. That model includes the as it would enable a cost-efficient expansion and great- development of financial and revenue management er interoperability between government systems using modules as a cloud-based service, complemented tools compliant with the data standards. Strategic areas by hands-on technical support to operate the tools where increasing the use of shared technology could and use the DNP’s toolkits, which contain guidance, yield considerable benefits are: for example, on how to formulate land-use plans or link the development plans to the budget. » A whole-of-government approach to the manage- ment and purchase of ICT resources could be Increase interoperability between core government strengthened. Although Colombia has the regulatory systems. Interoperability, together with digital authen- framework in place to aggregate demand for hard- tication and the availability of digital services, is foun- ware and software and achieve savings through dational to the development of digital public platforms. framework agreements developed by the public pro- The GoC has made considerable progress in setting up curement agency (Colombia Compra Eficiente), the the regulatory framework and supplying the technologies use of these tools is not widespread. Also, although to facilitate interoperability between government institu- the absence of a government-wide ICT procurement tions. However, adoption has been slow due to varied strategy offers great flexibility for line ministries, it reasons, including technical factors and a learning curve weakens their bargaining power in relation to sup- in the uptake of the selected technology (X-Road). To pliers, which disproportionally affects smaller minis- further promote interoperability, successfully implement- tries with low capacity. ing and operationalizing the PNID will be key. » The management systems of subnational govern- Strengthen mechanisms for citizen collaboration ments, as mentioned above, have considerable through a citizen-driven approach. Citizen engage- differences in terms of scope and quality. The na- ment should be further promoted to strengthen account- tional government could help reduce the capacity ability and generate public value. Some key initiatives gap among subnational governments by providing could include: shared technology infrastructure for core back-office systems, such as financial, human resource, invest- » Intensifying collaboration with the private sector, ac- ment, and revenue management systems. Ideally ademia, and civil society organizations to increase this should be done by leveraging cloud technolo- the re-use of open data and to help build solutions gies in collaboration with the private sector so that for vulnerable groups regional ICT ecosystems can emerge. » Strengthening the measurement and evaluation of » The use of disruptive technologies should be pro- digital citizen engagement moted. Disruptive technologies, such as AI, machine learning, blockchain, and big data, among others, can » Working with academia and civil society to foster the greatly improve core government operations and on- co-creation of digital solutions line service delivery. However, for medium and small government entities, the cost and capacity challeng- es in adopting them are high. Efforts to foster data sharing could go hand in hand with the promotion of the use of data on the part of institutions through Digital Public Platforms 81 The government should develop a data architecture collection to processing, sharing, and re-using) within framework that defines the decision rights and ac- the public sector is crucial for capitalizing on data as a countabilities needed to manage data as a strategic strategic asset and thus promoting a data-driven public government asset. The framework should specify the sector that transforms the design, delivery, and monitor- roles, processes, and information technologies required ing of policies and public services. to create a consistent and proper handling of data across the whole of government. Colombian public institutions Develop a comprehensive strategy for the digitiza- do not share data in a proactive fashion, and current tion of services. The success of key initiatives, such data governance arrangements do not encourage them as the SDC and the CCD, require an effective service to do so, meaning that opportunities to create value re- digitalization strategy in addition to the strengthening of main low, and most institutions report that they exchange the institutions responsible for its implementation. Con- data based on individual requests. Establishing inter-in- sidering the deadlines set by the regulatory framework, it stitutional data exchange agreements (government to is critical to formulate comprehensive actions that speed government) is complicated; furthermore, inefficiencies up the process. Although digitalization in Colombia was emerge on implementing said agreements because the accelerated by the COVID-19 pandemic, it continues to same data can be requested twice if not up to date at the be modest and has not been able to keep up with tech- moment of use by the requesting institution. Developing nological advances and citizen demands. a governance framework of the data value chain (from Table 3.2. Digital Public Platforms: Policy Recommendations (1 of 4) Responsible Legal Change Area Recommendation Entity Timing Required? Governance Strengthen coordination and institutions mechanisms. The government should establish coordination mechanisms within two levels, strategic and operational, to ensure the appropriate level of performance and consistent use of digital technologies across government. At the operational level, the government needs MinTIC / AND Short to address implementation term No / DNP challenges and bottlenecks and engage all relevant stakeholders for specific ICT initiatives, for example, through a federated coordination scheme, strengthening the role of the sector chief information officer. PRIORITY. Design strategies to address regional disparities. Heteroge- nous capacity at the local level presents a challenge to formula- ting and operationalizing the digital government strategy. The government should define MinTIC/ strategies to address regional territorial Medium disparities, for example, by: (i) term No entities/DNP creating working groups in each region with representatives of the main stakeholders, including, for example, the AND, local govern- ment, MinTIC, and the DNP, to identify their specific needs and priorities; and (ii) expanding the Digital Public Platforms 82 Table 3.2. Digital Public Platforms: Policy Recommendations (2 of 4) Responsible Legal Change ess Area Recommendation Entity Timing Required? oge- evel mula- support provided to subnational e digital governments in certain areas, such as knowledge and resource sharing and digital skills develop- nal ment, while securing funding as an (i) incentive to develop local digital each services in partnership with the of the DNP and the AND. g, for vern- P, to and g the Strengthen the monitoring of the PGD. Develop measurement tools to monitor key initiatives and related investments. Systematically monitoring the results could also Medium provide insights into adjusting the MinTIC / DNP term No PGD to facilitate understanding from public entities and to develop tailored support tools. Core government Increase interoperability systems between core government systems. Adoption of the X-Road platform has been slow. To further Sectoral promote interoperability, one key ministries/ Medium issue is defining a government- subnational No term wide data governance framework governments/ and ensuring the harmonization MinTIC of functional concepts in new systems by design. PRIORITY. Increase the use of shared technology infrastructure. The adoption of shared technology infrastructure, ideally using cloud technologies, would contribute to reducing the costs of both ICT MinTIC/ Long infrastructure and service sectoral term No provision and improving perfor- ministries mance, as it would enable a cost-efficient expansion and greater interoperability. Identification Ensure an inclusive deployment of the digital citizenship ID card, including the development of outreach campaigns. A key challenge for the new digital NIRC / Medium term No citizenship card is the implementa- MinTIC tion of communication campaigns to ensure that people know about it, its characteristics, and its potential uses, such as for Digital Public Platforms 83 Table 3.2. Digital Public Platforms: Policy Recommendations (3 of 4) Responsible Legal Change Area Recommendation Entity Timing Required? ent rd, accessing the CCD and opening a bank account. The CCD is a key mass use case for the digital ta- citizenship card, and delays in the ns addition of entities to the CCD may ut also limit the use of the digital citizenship card. Government service Strengthen the delivery model delivery platform for the digitalization of public services. The DNP has developed a way to provide key public management modules, such as financial and revenue management, to beneficiary municipalities as a cloud-based service coupled with hands-on technical assistance. Scaling up Short/ this approach could enable small MinTIC / AND Medium No local governments to access a Term robust and comprehensive IT platform without the need for substantial investments in hardware or software, thus generating savings and efficiency gains while at the same time facilitating the flow of information for monitoring and decision- making purposes. PRIORITY. Develop an aggressive digitalization strategy and support tools, especially at the subnational level. Expanding the scope of the CCD is a critical challenge. Adding new government entities and trámites to the file would require an aggressive service digitalization Short/ strategy and capacity building MinTIC / AND Medium No in the institutions responsible Term for its digitalization. This entails hands-on support in simplifying processes and procedures, using the new technologies, and enabling data sharing to set up services around life events. PRIORITY. Transparency Strengthen mechanisms for and anticorruption citizen collaboration. Efforts should be made to intensify collaboration with the private sector, academia, and civil society MinTIC Medium organizations to increase the term No / DNP re-use of open data and to help build solutions for vulnerable groups. Digital Public Platforms 84 Table 3.2. Digital Public Platforms: Policy Recommendations (4 of 4) Responsible Legal Change Area Recommendation Entity Timing Required? Data as an asset Develop a well-established data management model. Despite PNID being established, it is yet to be implemented. Colombian public institutions do not share data in a proactive fashion, and current data governance arrangements do not encourage them to do so, meaning that opportunities to create value remain low, and most institutions report that they exchange data based on individual requests. Successfully implementing the PNID framework and establishing Short a proper data management model MinTIC term Yes (from collection to processing, sharing, and re-using) within the public sector will be crucial for capitalizing on data as a strategic asset and thus promoting a data-driven public sector that transforms the design, delivery, and monitoring of policies and public services. PRIORITY. Digital Public Platforms 85 4. DIGITAL FINANCIAL SERVICES KEY MESSAGES » Colombia has implemented ambitious regulatory reforms and financial inclusion programs to foster the development of its digital financial services (DFS) and fintech ecosystem. These efforts, including through the program “Banca de las Oportunidades” and the 2014 Financial Inclu- sion Law, have been instrumental in helping to achieve near universal coverage of access points and to expand the uptake of DFS. » Increasing active usage of digital payments and enabling digitalization of a broader range of financial services remain key challenges. Although mobile wallets have been gaining traction, cash still dominates retail payment transactions (at the point of sale and in domestic remittances). Most MSMEs have not yet reaped the benefits of DFS, given lagging digitalization in the microcredit sector and the nascent stage of crowdfunding. » Further legal and regulatory reforms can build on recent progress and foster a more mature stage of development for Colombia’s DFS and fintech ecosystem. The recent Open Finance Decree is a key milestone whose implementation should provide appropriate incentives for partic- ipation and ensure rigorous risk management. A comprehensive legal framework for payment ser- vices is yet to be enacted, and fintech companies that provide digital credit operate in a regulatory void. DFS users are not consistently protected and may experience service-level discrepancies. » The lack of full interoperability and access barriers to key financial infrastructure constrain the potential of new business models (e.g., fast payments) to drive down acceptance costs/ barriers. Recent regulatory reforms have sought to address these issues by enhancing the gover- nance of the retail payment system. The central bank began leveraging its operational and catalyst role to ensure an open and interoperable fast payment ecosystem. » Following the progress made on the digitalization of government salaries and pensions, social benefit programs should also be shifted to direct payments to beneficiaries’ preferred transaction accounts. Ongoing efforts should be accompanied by measures to ensure broad participation in the automated clearinghouse infrastructure and adequate design of transaction accounts. » Strengthening Colombia’s institutional framework will require careful articulation of multiple authorities’ powers and effective mechanisms for DFS policy coordination. Digital Financial Services 86 4.1. The importance of digital need to transport cash or ensuring that business trans- financial services actions clear instantly (checks are still very common in the country). The role of DFS in promoting transparency and efficiency is also important; since Colombia’s fiscal DFS are a critical enabler of the digital economy and space is already limited, digital payments ensure that can mitigate the cost, accessibility, and product de- payments reach real and intended beneficiaries. sign barriers that have historically led to financial exclusion. The G20 High-Level Principles for Digital Financial Inclusion define DFS as: “…financial products 4.2. Current state of digital and services, including payments, transfers, savings, financial services credit, insurance, securities, financial planning and ac- count statements. They are delivered via digital/electron- ic technology such as e-money (initiated either online or on a mobile phone), payment cards and regular bank Financial sector structure and supervision accounts.”112 Digital payments often serve as the entry point and “rails” for a DFS ecosystem. Digital payments are more efficient and convenient than cash payments as they can be made on an instant or near-instant ba- Colombia’s financial system is characterized by sis, without the need for an in-person transaction, and complex financial conglomerates and the role of are also more effective since the payment is guaran- banks as the main source of financing for house- teed. With greater uptake and usage of digital payments, holds and nonfinancial corporations. Financial con- consumers can make purchases online, receive digital glomerates are at the center of Colombia’s interconnect- government payments, and have remittances deposited ed financial system, with the five largest controlling 80 directly into their accounts.113 With more and more data percent of banking sector assets. In turn, banks account generated from such transactions, credit scores can be for 93 percent of the total assets of financial intermediar- generated to help offer credit, and consumers can be ies. The banking sector is moderately concentrated, with introduced to new products and services, such as insur- the combined market share of the top three banks stand- ance or the purchase of treasury bills, among others. ing at 56.7 percent of banking sector assets.114 Commer- DFS can also promote the reach of financial services cial banks are the main providers of DFS in Colombia. into areas without brick-and-mortar financial institutions, State-owned financial institutions (SOFIs) also play a rel- thus promoting financial inclusion. evant role: the largest SOFI, holding a third of total SOFI assets, is a commercial bank (Banco Agrario) focused The development of DFS is critical to Colombia’s on the agriculture sector and the provision of financial digital transformation. DFS’s promotion of more effi- services in rural areas. Grupo Bicentenario was recently cient and effective payments helps foster the growth of created as a holding for SOFIs and is expected to be- digital businesses by ensuring convenient, fast, safe, come the third-largest financial holding in Colombia. and transparent payments (see Chapter 5). Universal access to DFS can also facilitate greater use of digital The non-bank financial sector is characterized by the public platforms, including the rapid and efficient delivery increasing role of electronic deposit and payment of social transfer payments via digital channels. companies (sociedades especializadas en depósitos y pagos electrónicos [SEDPEs]). SEDPEs, of which Colombia’s experience shows that DFS have played there were six as of March 2022, were created through a critical role in the COVID-19 era by decreasing the the Financial Inclusion Law, with the explicit objective need for in-person transactions, speeding up pay- to broaden access to transactional financial services.115 ments, and improving payment efficacy. Given the Like credit institutions, SEDPEs are deposit-taking finan- need for increased social distancing and remote trans- cial institutions but cannot engage in lending. Although actions, DFS are positioned to keep payments flowing SEDPEs currently account for a small percentage of to- when physical interactions must be limited. Data from tal electronic deposits (less than 10 percent), they oper- Colombia’s central bank, the Bank of the Republic (Ban- ate some of the fastest-growing non-bank digital wallets co de la República [BR]), show a drastic growth in the on the market (e.g., Movii). volume of transactions initiated via quick response (QR) codes—which exceeded 5 million in 2020 from fewer Regulated entities of the solidarity economy sector than 500,000 in 2019—and an 11 percent yearly in- also accept deposits and issue credit. There are 177 crease in the share of international remittances paid to (member-only) savings and credit cooperatives under transaction accounts. DFS can also ensure timely pay- the purview of the Solidarity Economy Superintenden- ments, such as to rural beneficiaries, thus obviating the cy (Superintendencia de Economía Solidaria [SES]), Digital Financial Services 87 whose aim is to “satisfy the needs of their members and financial management, regtech, crypto and blockchain, contribute to the development of works of service to the crowdfunding, and insurtech (Figure 4.1).120 According community in general.”116 Despite the high number of in- to Colombia’s fintech association, the main target seg- stitutions, 23 percent of members are concentrated in ments are large enterprises and unbanked individuals the top four entities. In general, savings and credit co- (see Figure 4.2). operatives are small entities with low penetration in rural and underserved segments, characterized by limitations The Financial Superintendency (Superintendencia in relation to the supply of DFS.117 Financiera de Colombia [SFC]) is an integrated su- pervisor, with a purview that includes banks, finance Postal payment service operators (operadores de companies, insurance, securities, and other finan- servicios de pago postal [OPPs]) engage in cash- cial intermediaries. Additionally, the SFC is also the based domestic and international money transfers bank resolution authority. The SFC is a technical body (though the latter are the prerogative of the public under the Ministry of Finance and Public Credit (Ministe- postal service provider). OPPs operate under the rio de Hacienda y Crédito Público [MHCP]) with delegat- Postal Service Law and are currently subject to the su- ed responsibility from the Presidency as specified in the pervision of MinTIC.118 Constitution to oversee all financial institutions except for non-deposit-taking cooperatives. It has separate legal Colombia’s heterogeneous fintech ecosystem is the personality, administrative and financial autonomy, and third largest in the region after Mexico’s and is most independent authority to regulate, supervise, and take active in the area of digital credit, though digital resolution actions. The mandate of the SFC is to pre- payments represent the largest segment in terms of serve the stability, safety, and confidence of the financial revenues.118 Colombia’s fintech ecosystem comprises system; organize and develop the domestic capital mar- both regulated and non-regulated entities as well as joint kets; protect investors, depositors, and insurance policy ventures across eight lines of business: digital credit, holders; and assure protection for consumers of financial digital payments, business financing solutions, personal services.121 Figure 4.1. Distribution of Fintech Segments in Colombia, 2010–21 38% 33% 26% 23% 17% 10% 11% 9% 8% 5% 4% 1% 3% 4% 2% 3% 2% Digital Digital Business PFM & Regtech Crypto & Crowfunding Insuretech Neobanks credit payments finance Wealthtech Blockchain 2010 2021 Source: Adapted from Colombia Fintech (2022). Based on data from CVN and Finnovista (2021). Note: PFM = public financial management. Digital Financial Services 88 Figure 4.2. Target Customer Segments of Colombian Fintech Companies, 2021 Unbanked population 28% Large business 28% Banked population 21% Banked SMEs 18% Unbanked SMEs 6% Source: Adapted from Colombia Fintech (2022). Based on data from CVN and Finnovista (2021). Both the BR and the MHCP have regulatory and oversight/supervision responsibilities over payment DFS uptake and ecosystem systems. The Central Bank Law grants the BR the pow- er to regulate the domestic and external payments of the economy.122 The BR exercises this faculty with respect to high-value payment systems. The regulation of pay- Based on Findex 2021, 60 percent of Colombian ment systems and related activities that do not pertain adults (age 15+) had an account at a financial insti- to the BR falls within the purview of the national gov- tution, up from 46 percent in 2017, and 52 percent ernment.123 On this basis, the Financial Regulation Unit had made or received digital payments, up from 37 (Unidad de Regulación Financiera) and the SFC (within percent. Notwithstanding these improvements, Colom- the MHCP) have jointly developed the regulatory frame- bia ranks below structural and income-level averages, work for low-value payment systems (sistemas de pago though it performs better than most regional peers. On de bajo valor [SPBVs]). The BR is also entrusted with the other hand, the most recent Findex data show that the monitoring of high-value payment systems, including though the gender gap in account ownership has nar- the system operator, participants, and interdependent rowed to 4 percentage points (from 7 percentage points systems, while the SFC is responsible for licensing and in 2017), it is still below both global and regional averag- supervising payment system operators. es. It is worth noting that official financial inclusion sta- tistics based on supply-side data suggest higher rates A new bill on “Access and Financing for Building Eq- of account ownership. According to Opportunity Bank uity” grants the SFC and the SES supervisory pow- (Banca de las Oportunidades [BDO]) and the SFC, as of ers in relation to entities that provide payment ser- March 2021, 89 percent of Colombian adults aged 18+ vices.124 The bill envisages that entities currently under had at least one financial product.126 the respective remits of these two institutions may con- tinue to provide payment services under their separate Electronic and simplified deposit products help to licenses. With regard to new payment service providers, broaden access to transactional services. According the bill establishes that these may be subject to either to SFC-BDO, as of March 2021, 31.2 million Colombians authority’s supervision, depending on how these provid- (representing about 88 percent of the adult population) ers may be regulated in the future. Furthermore, the draft had at least one deposit account. Most individuals (28.4 law derogates the regulatory and supervisory powers of million) had savings accounts, followed by electronic MinTIC with respect to operators of OPPs. deposits (12.7 million), simplified savings accounts (9.2 Digital Financial Services 89 million), and other types of accounts.127 In recent years, Mexico there were 23 debit card and nine credit card electronic transaction accounts have experienced the transactions per capita, and in Brazil the figures were strongest growth, boosted by a few large banks and to 52 and 48, respectively.129 However, the COVID-19 pan- some extent by the emergence of fintech companies. demic may have contributed to the creation of a wave of In 2020 alone, the percentage of adults with electronic new digital merchant payment users. The BR calculates deposits grew by 15 percentage points. These account that electronic payment acceptance has reached 50 per- types also tend to have lower inactivity rates than tradi- cent of merchants, breaking the informality barrier in that tional deposit accounts. one out of every two informal businesses now accepts electronic payments.130 World Bank data show that 12 However, the use of transaction accounts to con- percent of Colombians used a digital merchant payment duct day-to-day digital payment transactions is still for the first time in 2020, doubling the previous rate of lagging as a result of underdeveloped digital pay- adoption.131 ment acceptance networks, which has led to a cash- heavy economy. The BR estimates that 78.4 percent of According to SFC-BDO, as of March 2021 a third store purchases (by number of transactions) are paid in of the adult population (35.2 percent) had a cred- cash.128 The number of card transactions grew on aver- it product from a regulated financial sector entity. age by 16 percent every year between 2018 and 2020, The reported percentage of adults with a credit product but it remains moderate by international levels. In 2019, has been declining (from 36.6 percent in 2019 to 35.2 every Colombian made on average nine debit card and percent in the first quarter of 2021).132 Credit cards and seven credit card transactions. In the same period, in consumer credit are the two most popular credit product Figure 4.3. Account Ownership and Use of Transaction Accounts in Colombia, International Comparison, 2021 32% Mexico* 37% 37% Indonesia 52% 49% Peru 57% 52% Colombia 60% 61% Upper middle income 72% 68% Turkey 74% 77% Brazil 84% 81% South Africa 85% 92% Thailand 96% Made or received a digital payment in the last year (% age 15+) Account ownership (% age 15+) Source: Demirgüç-Kunt et al. (2022). Note: Figures are for 2021, with the exception of Mexico (2017). The figure shows the percentage of respondents (adults) who report having an account (by themselves or together with someone else) at a bank or another type of financial institution or report personally using a mobile money service in the past 12 months. Digital Financial Services 90 categories, with 8.1 million and 6.9 million adults with an firms uses supplier or consumer credit to finance work- active credit card and consumer credit product, respec- ing capital (63 percent), much higher than the regional tively. About 2.4 million adults have a microcredit prod- and global averages (48 and 25 percent, respectively). uct. In the aftermath of the COVID-19 crisis, microcredit Forty-six percent of loans to small firms in Colombia re- shrank as the number of loans decreased by 34 percent quired collateral, lower than the regional and global av- in 2020, even though total value slightly increased (+17 erages (57 and 73 percent, respectively). percent). Official statistics do not make it possible to dis- aggregate digital credit products nor do they include all Microenterprises are affected by a financing gap (es- fintech companies, which are reportedly active in this timated in 2018 at US$3.9 billion).135 9 percent of mi- segment (targeting both individuals and SMEs). croenterprises reported a lack of financial service provi- sions, and 18.7 percent reported a reduction in cash flow The current status of individual access to financial during the third trimester of 2022.136 Only 17 percent of services reveals stark inequalities. Although in ur- micro entrepreneurs can effectively access microcredit, ban areas the percentages of adults who have at least and even fewer benefit from digital channels in this con- one financial and one deposit product reach 96 and 94 text. n 2019, less than 20 percent of micro entrepreneurs percent, respectively, in rural and remote areas these requested credit, with no significant differences between percentages drop to 57 and 55 percent, respectively.133 rural and urban areas. Funds were mostly used for the Adults over 65 years old and young adults (between 18 purchase of raw materials, inputs, inventory, and other and 25 years old) have recently experienced significant operating expenses. About 72 percent of the credit re- gains in access to and usage of financial products, but quests were made to regulated financial institutions, 6 gaps remain between these age groups and adults of percent to microfinance institutions, 8 percent to family other ages: only 61 percent of adults over 65 and 70 and friends, and 14 percent to predatory lenders (presta- percent of those between 18 and 25 had a financial prod- mistas gota a gota). Among the main reasons for not re- uct that was active or in effect compared to 76 percent questing credit are the perception137 Moreover, there is a of adults between 26 and 40 and 80 percent of those perception that credit has high costs138 Digitalization has between 41 and 65. Despite recent improvements, wom- made small inroads into microcredit139 with 33 percent en’s access to and usage of financial products remain of institutions making use of remote systems to process below men’s: 85 percent of women have a financial the data of prospective clients and 28 percent utilizing product (against 93 percent of men), and 72 percent of mobile banking, though no entity at all reported the use women have a financial product that is active or in effect of biometric information for the identification of clients. (against 76 percent of men). Growth of crowdfunding borrowing has been lim- Small firms in Colombia have high levels of access ited. Just one platform, sponsored by the Colombian to basic financial products, although a quarter of Stock Exchange, has been launched to date, with only these firms identify access to finance as a major 82 projects financed since 2018. According to Colom- constraint. As of 2017, about 99 percent of small firms bia Fintech, the crowdfunding segment has a 4 per- in Colombia reported having a checking or savings ac- cent participation rate in the fintech ecosystem. There- count, and 55 percent a bank loan or line of credit, above fore, crowdfunding thus far has not alleviated access to the regional and global averages. A high share of small finance constraints. Digital Financial Services 91 actions stemming from the 2020 CONPES document are co-owned/co-implemented by the private sector. In Enabling environment for DFS the area of payments, the BR launched a payment sys- tem forum (Foro Sistema de Pagos) in August 2022, The Foro is expected to be consulted on a BR-led national Colombia’s financial inclusion policy emanates from payment system development agenda. This agenda re- the National Council for Economic and Social Policy volves around: (i) the BR decision to develop a fast pay- (Consejo Nacional de Política Económica y Social ment system, (ii) an analysis to enhance cross-border [CONPES])140 and the quadrennial PNDs, which have payments, and at a later stage, (iii) the exploration of a the force of law. Established in 2006, the BDO financial central bank digital currency. inclusion program is aimed at promoting access to finan- cial services by the unserved and underserved, particu- larly poor households and MSMEs. To this end, BDO (i) provides public subsidies and incentives for the devel- Legal, regulatory, and supervisory framework opment of new access channels/products and pilot proj- ects to increase financial inclusion, (ii) performs techni- cal assistance and financial education activities, and (iii) collects and analyzes financial inclusion data. The Inter- Colombia does not currently have a consolidated sectoral Commission for Financial Inclusion was created legal and regulatory framework for the provision of in 2015 and the Intersectoral Commission for Economic payment services. The relevant rules and requirements and Financial Education followed in 2016. In 2021, these are found in the laws and regulations that govern the ac- bodies were consolidated into a single Intersectoral tivities of supervised institutions (i.e., credit institutions, Commission on Financial and Economic Inclusion and SEDPEs). “Unsupervised acquirers” (i.e., acquirers oth- Education (Comisión Intersectorial para la Inclusión y er than supervised entities) are governed by specific Educación Económica y Financiera [CIIEEF]): the BDO rules, including registration before the SFC, subject to program.141 The CIIEEF is in charge of coordinating the meeting capital and funds-safeguarding requirements, formulation and monitoring the implementation of the among others.143 Processing entities for the issuer and financial inclusion and education policy as well as the the acquirer, aggregators (which collect merchants’ activities to be financed through the BDO.142 CIIEEF’s funds on behalf of acquirers), and providers of accep- membership is limited to the public sector; although pri- tance technologies (collectively referred to as payment vate sector representatives may be invited on a case-by- service providers) operate under the responsibility of case basis, currently there is no standing mechanism to the issuer/acquirer.144 Non-financial entities that provide facilitate coordination with the private sector. transaction accounts and/or perform payment activities (e.g., savings and credit cooperatives supervised by the PND 2018–2022 as well as PND 2022-2026 pave the SES, OPPs) are governed by their respective frame- way for greater financial inclusion by setting goals works. In the absence of a consolidated framework, and actionable steps. The PND 2018-2022 envisaged (i) it is not clear what constitutes a payment activity or that by 2022, 85 percent of adults should have at least the conditions that need to be fulfilled to undertake this one financial product and 77 percent at least one active activity (as a business); (ii) payment service innovation financial product. To this end, it proposed strengthening could be constrained insofar as service providers must the retail payment ecosystem and competition and fos- conform to existing licenses; (iii) regulatory and technical tering the adoption of new payment technologies. CON- standards governing payment activities may vary con- PES document No. 4005 of 2020 articulates the financial siderably, leading to inconsistent consumer protections inclusion policy for the 2020–25 period. It identifies four and service levels; (iv) there is no regulatory framework strategic directions, from increasing the reach and suit- that protects free competition or allows protection of con- ability of financial services to enhancing financial literacy sumers in these markets directly. A new bill on access and trust in the financial system, strengthening financial and financing for building equity proposes that payment and digital infrastructure, and instituting a governing service regulation be consolidated under the purview of framework (see above), articulated into eight actions and the MHCP and looking ahead may provide a basis for ap- two additional results indicators. PND 2022-2026, ap- plying an activity-based approach, where appropriate.145 proved by the President in 2023, can continue paving the way as it sets goals and targets for financial inclusion. The Open Finance Decree enhances legal certainty around consent-based use of consumer data by su- In the area of payments, the BR launched a payment pervised institutions and creates payment initiation system forum in August 2022. Although the authori- services, among other provisions.146 Although the cur- ties leverage the inputs of industry associations to help rent regulatory framework does not inhibit licensed in- guide the formulation of financial inclusion policies, no stitutions from using customer data, the Open Finance Digital Financial Services 92 Decree clarifies that they may process and commer- the pilot, would trigger a transition process to a licensed cialize consumer data only subject to prior consumer financial institution (or, in the case of licensed institutions, consent and compliance with habeas data and data a change in their activities). The regulatory sandbox is protection. The Decree does not prescribe rules to grant therefore not intended as a tool to broaden the perimeter and gain access to consumer data but entrusts the SFC of regulation or fill any regulatory gaps. with developing standards for open finance. The Decree provides that information access requests by payment The authorities regulate interest rates and have es- initiation service providers should be processed through tablished mandatory investment requirements to SPBVs and defers to the operators of those systems fund the agriculture sector, thereby inadvertently to establish technical standards and rules for the pay- causing distortions. In Colombia, all credit is subject to ment providers; it also prescribes certain minimum rules interest rate ceilings and caps. Banks are also obligated to ensure those providers’ non-discriminatory access to fund agricultural loans at the regulated rate or invest to SPBV services and the mitigation of potential con- in special securities (Agricultural Development Titles, flicts of interest. It is worth noting that Colombia’s legal or Títulos de Desarrollo Agropecuario [TDAs]), which framework for data privacy and protection is generally are remunerated at below market rates. FINAGRO, a supportive of core consumer rights (e.g., to access, rec- wholesale agricultural development bank, lends funds tification, and opposition) and has recently presented a from TDAs mostly to Banco Agrario to on-lend to small project to Congress that includes propositions on recog- rural producers. These measures may be hindering the nition of data portability (Articles 71 and 75).147 Chapter 7 emergence of alternative credit providers that focus on discusses the current state of, as well as the challenges riskier segments and may thus be introducing significant to and opportunities for, Colombia’s legal and regulato- distortions. ry frameworks on data protection. Finally, the Open Fi- nance Decree regulates the “digital ecosystem,” includ- Extant regulation is silent on crypto-assets, though ing: (i) third-party service provision through the channels the SFC has been granting authorization to some of supervised institutions; (ii) supervised entities’ service banks and SEDPEs to offer services in relation to provision through third-party channels; and (iii) commer- crypto-asset wallets under a controlled pilot re- cialization of supervised entities’ technology and infra- gime.150 In these pilots, which may not exceed a one- structure to third parties. year duration, financial institutions essentially provide the fiat on/off-ramps of crypto-asset exchanges, subject Fintech companies active in the digital credit seg- to certain limits to cash-in transactions, depending on ment operate in a regulatory void. There are extensive the type of account. Crypto-asset service providers are laws and regulations that address the issue of financial currently unsupervised and are not subject to require- inclusion and consumer protection (see footnote for spe- ments for anti-money laundering. The BR and SFC have cific laws).148 However, there are still regulatory gaps that issued warnings to the public and financial institutions on must be addressed. This may generate both an unlevel the risks involved. The BR does not consider crypto-as- playing field and legal uncertainty for these companies. sets to be currency or money. Anecdotal evidence suggests that fintech companies that engage in digital credit specialize both in personal The SFC sets comprehensive risk management re- and consumer credit, catering also to unbanked individ- quirements for licensed institutions and has adopted uals and business credit, including credit for microenter- a risk-based supervision methodology that it applies prises. In the absence of official data, it is unclear if this consistently across all types of entities within its gap in the legal and regulatory framework may generate purview. The provisions relating to the management of serious risk to the financial system. risks by supervised entities are prescribed in the SFC’s Basic Accounting and Financial Circular (Circular Básica The regulatory sandbox launched in 2020 provides Contable y Financiera [CBCF]). The CBCF encompass- a tool to grant fintech companies temporary authori- es credit, liquidity, market, and operational risks. The zation.149 The sandbox is defined as a set of rules, pro- SFC sets out rules on information and cyber security cedures, plans, conditions, and prudential requirements that require supervised institutions to create a dedicated for the testing of innovative technologies and business function for managing these risks (including the roles of models in the context of regulated activities. Both su- the board and senior management) and to report infor- pervised financial institutions (wanting to provide new mation and cyber incidents based on a standard taxon- services) and new or unsupervised providers may apply omy and communication protocol.151 Outside the SFC’s for authorization under the regulatory sandbox. The exit perimeter, the SES is in the process of modernizing and from the regulatory sandbox, after a maximum period of strengthening its supervisory process. two years and subject to the successful completion of Digital Financial Services 93 Pursuant to 2020 regulatory reforms, low-value pay- consumer protection framework overseen by the ment system operators (entidades administradoras de SIC, a duality that may generate inconsistencies in sistemas de pago de bajo valor [EASPBVs]) are re- service levels and safeguards between different pro- quired to develop risk management systems, includ- viders of similar services. The framework for financial ing contingency plans and IT security measures, to consumer protection establishes the principle of trans- ensure business continuity and the mitigation of le- parency and accurate, sufficient, and pertinent informa- gal, credit, liquidity, operational, and systemic risks. tion and prescribes the minimum information content to EASPBVs must adopt high operational, technical, and financial consumers.156 Supervised entities must put in security standards and require the same of their partici- place a customer service system that includes a pro- pants. The regulation prescribes the minimum content of cess for addressing consumer queries and complaints. EASPBV rules, including the risk management models In practice, this process represents the main channel for and procedures, and stipulates that EASPBV rules must consumer recourse and dispute resolution and consti- be approved by the SFC. As of 2023, EASPBVs must tuted 88 percent of total financial consumer complaints also have a comprehensive risk management framework in 2020. The financial consumer advocate (defensor in place. del consumidor financiero), appointed by the financial institution before the SFC, represents an additional, al- The use of agents is permitted on an equal footing though underutilized, channel for consumer recourse with credit institutions, SEDPEs, and savings and and dispute resolution. Financial consumers may also credit cooperatives supervised by the SES.152 Any submit complaints against supervised institutions before natural or legal person may serve as an agent, provided the SFC at any time; in this capacity, the SFC supports they comply with the relevant fit and proper and techni- financial consumers by intermediating their relationship cal-operational requirements pursuant to SFC’s instruc- with financial service providers. tions.153 Recent regulatory reforms enabled the provision of agent services outside a permanent physical facility The regulatory framework supports remote by creating mobile and digital agents154 and offer the ba- know-your-customer (KYC) and simplified custom- sis for the provision, on an exceptional basis, of limited er due diligence (CDD), which, if more widely and agent services in an offline environment.155 consistently adopted across institutions, may lower compliance costs and enable financial service pro- The regulatory framework supports the use of new viders to pass on these savings to their customers. technologies, such as cloud computing, for the pro- SFC rules stipulate that financial institutions may adopt vision of DFS and sets rules for the management of in-person or remote KYC procedures and allow the use of the attendant risks. The SFC laid out obligations in re- data held in public, third-party, or proprietary databases lation to the use of cloud computing services in the con- as long as the source is trustworthy and independent.158 text of core business operations, the minimum content Regarding identity verification, the new rules allow finan- of contracts/service-level agreements with cloud service cial institutions to verify a new client’s identity through providers, business continuity measures, and SFC re- digital signature certificates, biometrics, strong customer porting requirements.156 Furthermore, supervised enti- authentication mechanisms, information stored in credit ties must develop plans for migrating to a new service/ bureaus, and any other technologies that ensure the ef- platform in the event of service interruption/suspension fective verification of identity. There are some incipient or any other issues. The framework allows for the pro- cooperation initiatives in this area (e.g., SoyYo). Under cessing of information abroad, as long as the entity en- simplified CDD, clients are identified through their name sures that the foreign jurisdiction in which the information and ID type, number, and date of issuance, and although is processed has equivalent or higher data privacy and identity verification is not required at the time of opening protection standards. the account, it must be completed within three business days. Eligible products/circumstances for simplified CDD The financial consumer protection regime applies include accounts issued to the beneficiaries of certain only to the entities supervised by the SFC, where- government assistance programs, salary accounts, and as all other entities are subject to the general low-value accounts (depósitos de bajo monto). Digital Financial Services 94 Participation in ACH-Cenit is subject to the entity’s ability to open an account at BR and meet its stringent techni- Financial infrastructure cal-operational requirements.159 To date, no SEDPE has joined ACH-Cenit despite the eligibility decision by the Administrative Council of the BR (the largest SEDPE, Movii, is currently in the process of joining). Both ACHs offer credit transfers and direct debits and have adopted Colombia’s payment system largely supports the multi-batch settlement (four batches), thereby enabling provision of digital payments. The Deposit Accounts same-day crediting of transactions submitted by 3:00 System (Sistema de Cuentas de Depósito [CUD]), the PM. Both ACHs use similar messaging standards (based BR-operated real-time gross settlement system, enables on the National Automated Clearinghouse Association final settlement in central bank money of interbank pay- [NACHA]) but do not interoperate. Their roles differ in ments; money market, foreign exchange market, and that a great majority of transactions currently processed securities and derivatives market transactions; and the by ACH-Cenit are government-to-government and gov- net balances resulting from the main retail payment ernment-to-person payments, whereas ACH-Colombia systems. As of December 2020, there were 131 partici- handles mostly business-to-person (e.g., payroll) pay- pants in the CUD, including 25 banks, 10 financing com- ments, person-to-government and person-to-business panies, five EASPBVs, and two SEDPEs. The SPBV is payments, and person-to-person payments (in smaller comprised of: (i) one check clearinghouse; (ii) two larger percentage). automated clearinghouses (ACHs) and two other sys- tems that process electronic fund transfers for specific A BR-led project under the umbrella of the Foro de groups of financial institutions; and (iii) six systems that Sistemas de Pago seeks to ensure the interoperabil- process card payments and cash withdrawals. The two ity of, and broad access to, Colombia’s fast payment main ACHs are ACH-Colombia, owned by the banks, infrastructure. Notwithstanding the relevant market ini- and ACH-Cenit, owned and operated by the BR. In terms tiative, such as ACH-Colombia’s “Transfiya,” the uptake of transaction volumes, ACH-Colombia processed 255.8 of fast payments appears to be impaired by several fac- million payments in 2020 as compared to 10 million by tors, including limited (non-bank) participation, few use ACH-Cenit. Credibanco and Redeban manage the larg- cases, detrimental market practices (e.g., interchange est point-of-service (POS) networks, together account- fees), and the absence of a common QR code standard ing for 74 percent and 68 percent of credit and debit card (see below). Furthermore, the absence of a mechanism transaction volumes, respectively (based on September to manage liquidity outside of the real-time gross settle- 2021 data). Redeban is also the largest ATM switch, ment system’s operating hours in the event that prefund- serving 11 banks. The BR-operated check clearing- ed resources are depleted may constrain the growth and house (Cedec) has experienced a gradual decline in the reliability of the service. In this context, the BR proposes number and value of checks processed, a trend that has to develop a fast payment system (Sistema de Pagos accelerated since the health emergency declaration due Inmediatos [SPI-BR]), interconnected with the private to the COVID-19 pandemic. Colombia’s retail payment sector clearinghouses, as part of a broader ecosystem systems are generally characterized by local ownership/ consisting of a (i) a common settlement service (in CUD governance and do not use international communication balances), (ii) a central alias directory, and (iii) uniform standards. operational, communication, and security standards, in- cluding QR code specifications and a common brand. The number intrabank transactions outpace the SPI-BR is conceptualized as a real-time gross settlement number of interbank transactions processed via the system based on prefunding via the CUD; to this end, it two ACHs, indicating a large opportunity for increas- is envisaged that SPI-BR participants that are not (direct) ing the reach, use, and interoperability of these in- CUD participants may be granted indirect access via a frastructures. ACH-Colombia is owned by 15 banks. (or sub-account held by a) CUD participant for the pur- Although in the past its statute did not admit non-share- poses of prefunding in the context of SPI-BR. Although holders/non-banks as participants, in 2018 it developed the BR, in consultation with the Foro, has defined the access rules that are based on the fulfillment of legal, broad contours of Colombia’s fast payment architecture financial, and technical-operational requirements as well and operating model, several elements remain to be ar- as a positive evaluation by an ad hoc access committee. ticulated, including with regard to liquidity management Overall, ACH-Colombia has approximately 45 participat- and participation arrangements, as well as other aspects ing entities across services, of which only one SEDPE that may require regulatory interventions (e.g., to issue uses ACH transfers (transferencias interbancarias). binding scheme rules). Digital Financial Services 95 Colombia’s credit card market and respective infra- low-cost acceptance technologies and the entrance of structure have been traditionally characterized by aggregators, regulatory (e.g., CDD) and tax compliance vertical integration, concentration, and high costs. (particularly the withholding tax and the financial trans- Against this backdrop, the MHCP has sought to prompt action tax [Gravamen a los Movimientos Financieros, changes in the business model to increase competition or GMF]), as well as high merchant discount rates, may and foster innovation. Credibanco and Redeban process represent obstacles to expanding electronic payment ac- most of the domestic card transactions of a variety of ceptance among small merchants.162 In Colombia, banks international brands, including Maestro, Visa Debit, Visa, act as withholding agents with respect to card payments. Mastercard, and other international schemes. The largest Qualifying businesses may opt for a simplified tax regime banks have ownership stakes in both companies. In fact, (Régimen Simple de Tributación) which, in addition to these companies operate several business lines across easing the burden of compliance, lets businesses recu- the payments value chain, from merchant affiliation on perate 0.5 percent of the value of purchases by debit/ behalf of member banks to acceptance devices/tech- credit cards and other electronic means of payment.163 nologies, authorization, clearing, crediting of merchant accounts, settlement of fees, and issuer processing. Despite authorities’ efforts to promote QR code in- The emergence of roughly 100 payment gateways and teroperability through regulation, the most popular aggregators (together known as “pasarelas”) brought to mobile wallets use proprietary QR codes. The SFC the surface conflict-of-interest and access issues asso- requires financial institutions that offer QR code payment ciated with the card payment systems. In response to solutions to comply with EMVCo QR (merchant-present- this situation, the regulator prohibited the operators of ed) standards and also requires EASPBVs to agree on SPBVs from arbitrarily restricting access by new entities certain common specifications to enable interoperability. and imposing exclusivity conditions, among other mea- However, it refrains from mandating the use of interop- sures.160 The provision of services in addition to clearing erable QR codes.164 In practice, three card switches and settlement—except for acquiring and issuing, which (Credibanco, Redeban, and ATH) developed EMV-com- are forbidden to system operators—is subject to certain pliant and interoperable QR codes that enable more than restrictions and the management of conflict-of-interest 200,000 terminals (dynamic QR) and 10,000 merchants issues. A long-standing practice that allowed banks to (static QR) to accept mobile-initiated card payments (in- set interchange fees and had raised competition and ef- ternational brands) regardless of the user’s wallet and is- ficiency concerns was also phased out. suing institution.165 Meanwhile, the most popular mobile wallets in the market (that together would account for a Electronic payment acceptance infrastructure has larger number of merchants than the three EASPBVs) been expanding as a result of new business mod- operate as closed-loop solutions, and only a few are ac- els (e.g., pasarelas) and low-cost technologies (e.g., cepted through interoperable QR.166 mini POS and QR codes). Microbusinesses appear to be beginning to avail themselves of these opportunities To the extent that DFS may occasionally require the amid some disincentives and consumer preferences for use of financial institutions’ access points, uneven cash. Although Colombia compares unfavorably to peers coverage across urban and rural areas may affect in terms of access points per 100,000 adults (see table DFS adoption by underserved segments. Overall, 4.1.), it has ensured near-universal coverage of mu- Colombia compares unfavorably to international peers, nicipalities via agents, and POS terminals are the sec- except with regard to retail agent outlets (see table 4.1). ond-fastest-growing access points after agents. A 2020 BDO/SFC data suggest that there are at least four times BR survey revealed that payment cards are accepted by as many access points (per 10,000 adults) in urban areas 40 percent of micro merchants as compared to 79 percent compared to rural areas. Cooperatives only partly fill this of small merchants and 92 percent of medium and large gap, but although they cover a small number of rural mu- merchants. Credit transfers have become more preva- nicipalities (22 out of 1,103) that would otherwise have lent in recent years; in fact, the share of micro merchants no branch coverage, their access points mostly overlap accepting credit transfers (49 percent) is greater than with those of banks. Currently, Banco Agrario has the card acceptance. That said, cash continues to dominate largest penetration in rural and remote areas and is the merchant sales, mainly due to both perceived consumer sole financial institution in 309 municipalities. Mobile and preference and business operating expenses. Notably, digital agent regulation aims at decreasing the costs of one out of three merchants considers card payments to serving underserved areas, though these models are still be more costly than cash.161 Despite the availability of in the early stages of implementation.167 Digital Financial Services 96 However, transaction data remain largely untapped for credit decisions, and access to alternative data Credit infrastructure from government entities and utility companies is somewhat limited. Telecommunications and utility com- panies mainly report demographic data and information on default payments. Credit bureaus do not currently The flow of credit information through Colombia’s manage information related to recurrent outgoing or in- credit infrastructure appears to be both complete coming payments (e.g., utility payments, remittances) and efficient. In Colombia there are two (foreign-owned) owing to the complexities surrounding the management private credit bureaus in operation that receive informa- of these data. Furthermore, credit bureaus currently do tion from virtually all sectors of the economy on debtors not have access to information from the immigration de- who are both natural persons and legal persons, man- partment (e.g., to facilitate access to credit by Venezu- aging negative and positive information alike. Entities elan migrants in Colombia) or to information on govern- reporting information to the credit bureaus include both ment assistance programs administered by Prosperidad regulated and unregulated lenders/providers, from finan- Social (Social Prosperity).168 They also lack consistent cial institutions (supervised by the SFC) to the entities access to gender data from the RNEC. More broadly, of the solidarity sector (under the purview of the SES), stakeholder interviews suggest that there are inefficien- retailers, unsupervised fintech companies, and utility cies in the way RNEC data can be accessed by credit companies, among others. The scope of credit products bureaus that would make it difficult to regularly update covered encompasses consumer and commercial credit, information, and there are also concerns about the da- mortgage loans, microcredit, and overdrafts. Quality of ta’s associated costs. Finally, it is worth noting that al- information is reportedly high; nevertheless, one cred- though insufficient information does not seem to be a it bureau reports undertaking further work to enhance major limiting factor in providing credit to new clients, its available information to better cater to fintech and this problem becomes more acute with respect to the microcredit segments in order to, for instance, include agriculture sector and is perceived to be a greater barri- information on obligations with a weekly or bi-monthly er by cooperatives as compared to banks and financing repayment schedule and increase coverage of fintech companies.169 firms. Credit bureaus also offer a variety of credit-scoring products. Table 4.1. Financial Access Points in Colombia: International Comparison (2020) Non-Branch Retail Agent Automated Point of Sale Branches Outlets of Teller Machines Terminals Commercial Banks Colombia 15 398 41 1,595 Brazil 23 119 97 6,720 Indonesia 19 298 52 536 Mexico 17 48 62 1,354 Peru 20 318 124 1,461 South Africa 14 … 59 1,229 Thailand 18 … 112 1,513 Turkey 25 … 82 3,831 Source: IMF (2023); BIS (2023). Note: For every 100,000 adults. Digital Financial Services 97 An increasing share of government collections and Leveraging recurrent payments utility payments are made via digital channels, par- to increase the usage of DFS ticularly PSE. Looking ahead, new payment services (e.g., payment initiation services) may further support this trend and reduce costs. In the wake of the COVID-19 pandemic, the Colombian tax authority enabled all tax- Digitalization has made significant inroads in gov- payers to electronically file and pay taxes. There are now ernment disbursements, with the exception of social two ways to pay taxes: (i) online through the PSE button, assistance payments, which still rely extensively on credit card (when filing electronically, see below), or a cash. In 2020, the MHCP Treasury Department began digital credit product, and (ii) in person, at the premises enabling bulk payments of government salaries and of banks authorized as tax collecting entities (Entidaes pensions directly to recipients’ accounts via ACH-Cenit, Autorizadas para Recaudar [EARs]) through a variety of and today, this channel accounts for the near totality of electronic and paper-based payment instruments (with these payments. The majority of vendor/supplier pay- or without an electronic tax declaration). Although in the ments are also paid directly to these firms’ accounts. The past, EARs/in-person payments represented the main most significant social assistance program managed by mechanism for paying taxes in Colombia, the National Prosperidad Social, a conditional program for families Directorate of Taxes and Customs (Dirección de Im- in situations of poverty and extreme poverty called Fa- puestos y Aduanas Nacionales) calculates that in 2020, milias en Acción, relies on a public tendering process about 54 percent of the income tax payments of legal repeated every year, as well as a combination of credit persons and 40 percent of those of natural persons were transfers to accounts opened at the awarded institution initiated online, with PSE by far the most important on- and cash. This generates inefficiencies and limits bene- line payment method. According to a 2018 IDB report, ficiaries’ choice (to the extent that they need to have an 77 percent of social security contributions (estimated at account at the awarded financial institution to receive a 136 million payments and US$21,000 million a year) are digital payment). During the COVID-19 pandemic, Pros- paid via PSE. The pandemic reportedly resulted in an peridad Social piloted a new delivery mechanism for In- increase in the share of utility payments effected through greso Solidario (Solidarity Income), an emergency relief digital means. One telecommunications company report- program targeting 3 million poor and vulnerable house- ed that electronic payments increased to 42 percent of holds not covered by any other cash transfer program. total collections in 2020 from much lower levels in previ- This mechanism prompted beneficiaries without a trans- ous years that hovered at 10 percent.171 action account via SMS or other communication chan- nels to (remotely) open a low-value account among four different mobile wallets. Beneficiaries with a transaction account, on the other hand, received the funds through their banks, which the Treasury credited via the CUD in accounts at the BR. It is estimated that 37 percent of beneficiaries opened their first account through Ingreso Solidario.170 Digital Financial Services 98 corridor or impose very stringent requirements, pushing Venezuelan migrants to use unregulated channels and Remittances crypto-asset service providers such as Valiu. Colombia’s market for international remittances is considered competitive in spite of situations of ex- The share of international remittances paid to trans- clusivity. Banks and financing companies are the main action accounts increased to 43 percent in 2020, players, in partnership with a wide range of MTOs. Cen- an 11-percentage point increase from 2019. Colom- tral bank regulations on the foreign exchange market es- bia is a net remittance-receiving country from the Unit- tablish the type of entities that may operate as foreign ed States (accounting for approximately 50 percent of exchange intermediaries (intermediarios del mercado the inflows), Spain, Chile, and the United Kingdom. Ac- cambiario [IMCs]) and the activities they may perform, cording to the BR, the share of remittances channeled including sending and receiving international remittanc- through transaction accounts had been relatively stable es. In addition to banks and financing companies, autho- in the four years preceding the pandemic, oscillating be- rized IMCs include financial cooperatives, Financiera de tween 27 percent (2017) and 32 percent (2019). Banks Desarrollo Nacional (FDN) and Bancoldex (development generally promote the crediting of international remit- banks), broker-dealers, foreign exchange houses (So- tances to transaction accounts and report cross-selling ciedades de Intermediación Cambiaria y de Servicios Fi- relevant products to recipients (e.g., microcredit, using nancieros Especiales [SICSFEs]), and SEDPEs, among incoming flows to assess repayment capacity). Market others. SICSFEs and SEDPEs may undertake the busi- participants report that digital-only models (e.g., Remitly, ness of international remittances subject to holding eq- Xoom) have been gaining market share in the past few uity greater than or equivalent to the minimum capital years. The average cost of sending money to Colombia required of financing companies. One financing compa- hovers around the regional average but is yet to drop ny, Giros&Finanzas, operates as the exclusive agent of below the 5 percent target of the United Nations Sus- Western Union in the country and has a 24 percent mar- tainable Development Goals (SDGs) (see figure 4.4).172 ket share. In turn, Efecty, the OPP with the largest net- Anecdotal evidence suggests that Venezuelans living in work of access points, operates as an agent of Giros&Fi- Colombia are sending money back home; however, the nanzas exclusively for Western Union. Western Union’s main money transfer operators (MTOs) hardly serve this exclusivity does not seem to inhibit the local agents Figure 4.4. Remittance Costs 2018–21: Average Cost of Sending US$200, percentage of value sent 7 7 7 6 6 6 6 6 6 6 6 5 Q4 2018 Q4 2019 Q4 2020 Q4 2021 Colombia Global Regional G20 5x5 target (corridor-level) SDG target (global average) Source: World Bank (2023d). Notes: Remittance costs for Colombia represent the cost of sending US$200 from the United States to Colombia. Dotted lines represent global commitments in the context of international efforts to reduce remittance costs. The G8 (L’Aquila, 2010) and the G20 (Cannes, 2011 and Brisbane, 2014) committed to reducing the Global Average Total Cost to 5 percent. The UN SDGs have indicated a target of 3 percent for the Global Average to be reached by 2030. At the same time, the UN SDGs have also committed to ensuring that in all corridors, remittances can be transferred for 5 percent or less. Digital Financial Services 99 from partnering with international card scheme solutions financial institution.173 Postal service providers operate a (e.g., Visa Direct and Money Send) and fintech compa- cash-based domestic money transfer service with a nies. By law, OPPs (e.g., SuperGIROS, Efecty) can only physical presence in 99 percent of the national territory. participate in the market through authorized IMCs (e.g., MinTIC data show that the number of domestic remittanc- banks), 4-72 being the only OPP participating in its own es channeled through the postal sector increased from right (see also the section above on the legal, regulatory, 81.3 million in 2015 to 134.7 million in 2019. Although the and supervisory framework.) postal sector’s branch network is somewhat integrated into the financial institutions’ network of access points, The size of Colombia’s domestic remittance mar- thereby providing some access to financial services and ket is significant and represents a large opportu- digital payments, this link could be further strengthened nity for increasing financial inclusion and digital through partnerships and by enabling OPPs to provide payments. One-fifth of the population receives domes- a broader range of payment services, subject to fulfilling tic remittances, of which 41 percent do so through a the respective requirements. Table 4.2. Key Challenges and Opportunities for Digital Financial Services Strengths Areas for Improvement » Remarkable progress in access to financial services » The institutional framework for financial inclusion did (14-percentage point increase from 2017 to 2021 not achieve effective coordination and lacks a based on Global Findex) standing mechanism for private sector engagement. » Demonstrated public sector commitment » The lack of a bespoke legal and regulatory framework to strengthening financial and digital infrastructure for payment services may stall innovation and to enhance access to financial services exacerbate market fragmentation. » Enabling regulatory framework for the provision of » The open finance legal framework does not provide electronic deposits, basic/simplified products, and strong incentives to share customer data within a remote onboarding multilateral setting, while the model for payment initiation rests on retail payment system operators. » Moderately developed payments infrastructure; central bank–led initiative to develop an interoperable » Outstanding legal and technical barriers prevent the fast payment infrastructure GoC from completely phasing out suboptimal delivery mechanisms for social assistance programs, to the detriment of beneficiaries’ choice and financial inclusion. Opportunities Threats » Exponential growth of digital wallets and QR codes » High propensity to cash out/high cash usage for electronic payment acceptance and low acceptance of digital payments (also linked to informality and taxation) » Lessons learned from COVID-19 emergency assistance programs to guide efforts to digitize social » Cost-related barriers to access to SPBVs and low protection transfers interoperability » Increase in the share of incoming remittances paid to » Low connectivity in rural and remote areas transaction accounts and high costs preventing inhabitants from accessing and using DFS, leading to large urban-rural gap » Limited financial literacy and awareness Digital Financial Services 100 4.3. Recommendations and next steps Open Finance Decree of 2022 is a key milestone: implementation should focus on establishing a com- mon baseline (technical, commercial) for the devel- Based on the analysis of the current state of digital opment of a multilateral framework on data aggre- financial services, Table 4.3 provides recommenda- gation and portability, rather than the continuation tions on ways to capitalize on identified strengths of limited-scope partnerships. Regarding payment and opportunities while addressing areas of im- initiation, the critical role of SPBVs is likely to em- provement. The recommendations are organized into phasize the effective governance and coverage of four main themes: (i) governance; (ii) law, regulations, the retail payment infrastructure in Colombia. A com- and supervision; (iii) payment system and ancillary in- prehensive legal framework for payment services is frastructure; and, (iv) digitization of large reoccurring a pre-condition to improving market structure and payment streams. The indication on timing takes into competition as well as coordinating authorities’ re- consideration the expected level of effort and/or antic- sponsibilities. Digital credit requires legal certainty ipated time to implement the suggested actions; sep- and consumer safeguards; platform-based models arately from the timing, some recommendations have (enabled by the Open Finance Decree) and banking- been marked as high priority based on either the critical as-a-service could be explored. Authorities should nature of the constraint they address (e.g., regulatory continue adapting oversight and supervision frame- gaps or inconsistencies) or the opportunity to leverage works to digital payments and DFS, particularly in momentum for existing and future initiatives (e.g., fast light of outsourcing and new technologies and as- payments). sets. DFS users should be adequately and consis- tently protected, regardless of the supervisory remit. » Governance. Colombia has implemented ambitious financial inclusion programs under strong public » Payment system and ancillary infrastructure. sector leadership. Looking ahead, institutional ar- The lack of full interoperability as well as access rangements to coordinate the DFS agenda should barriers to critical financial infrastructure constrain strive to carefully articulate multiple authorities’ pow- the potential of new business models (e.g., fast pay- ers and the effective mechanisms for coordination ments) to drive down acceptance costs/barriers and with the private sector. The BR initiative to create expand the use of digital payments in key areas (see a payment system forum is consistent with this di- below). Against this backdrop, regulatory reforms rection. The forum should have a clear mandate, have sought to enhance the governance of the retail strike a balance between broad representation and payment system. Looking ahead, authorities (the BR effectiveness, and develop a work program as well and SFC, each according to its respective mandates) as the necessary organizational structures to deliver should continue to monitor the effectiveness of the on it. If well implemented, this body can help cat- retail payment system’s governance arrangements alyze private sector commitment to interoperability and induce change as necessary. More recently, the and other public policy objectives, including financial central bank began leveraging its operational and inclusion, through concrete actions. The consolida- catalyst role to ensure an open and interoperable tion of multiple entities under the CIIEEF is expected fast payment ecosystem. The BR is well-positioned to streamline coordination in the area of financial in- to develop uniform fast payment scheme rules (in- clusion; once the CIIEEF has been fully operational- cluding requirements for the underlying clearing ized, consideration could be given to establishing a and settlement mechanisms), though consideration standing mechanism for private sector engagement should be given to their enforceability and the poten- in the development and implementation of financial tial role of the BR in setting fast payment standards, inclusion policies and strategies. in line with its mandate and functions. The design of the SPI-BR should emphasize low-cost access and » Laws, regulations, and supervision. Over the the connectivity of smaller participants and other past several years, Colombia has passed ambitious third parties (e.g., payment initiation service provid- regulatory reforms to underpin financial inclusion ers), as well as support for new use cases/access by fostering sound risk management and protect- channels. ing financial service users, while at the same time encouraging innovation and enabling new entrants. » Digitization of large reoccurring payment Further regulatory reforms can build on this and fos- streams. Following the progress made on the digita- ter a more mature stage of development for Colom- lization of government salaries and pensions, social bia’s DFS and fintech ecosystem. In this respect, the benefit programs could be shifted to direct payments Digital Financial Services 101 to beneficiaries’ preferred transaction accounts in a adequate design of transaction accounts. The dig- timely fashion. This might entail a change from the itization of remittances could be facilitated via new current system based on public tendering to ACH entrants; to this end, the conditions to operate as an payments; any legal barriers to discontinuing the IMC and the implications on market contestability current model should be removed. The GoC could could be reviewed. Similarly, exclusivity agreements consider integrating the use of digital ID in forth- between international MTOs and their agents, while coming pilots/implementations to enable e-KYC and not being prevalent in the Colombian market, persist beneficiary authentication. Ongoing efforts should be in some cases and might have to be addressed. accompanied by measures to ensure broad partici- pation in the ACH infrastructure (see above) and the Table 4.3. Digital Financial Services: Policy Recommendations (1 of 3) Responsible Legal Change Reform Area Recommendation Entity Timing Required? Governance Operationalize the revised financial inclusion coordination framework and develop a standing mechanism for private sector Short engagement in the development MHCP term No and implementation of financial inclusion policies and strategies. Ensure the continuity of the Foro Sistema de Pagos as a formal coordination mechanism and strategic body by developing a mandate and operating procedures. The Foro should Short support the objective of BR No term promoting financial inclusion from a payments perspective in keeping with the country’s financial inclusion policy and institutional arrangements. PRIORITY. Laws, regulations, Enact a legal framework for Congress, Medium payment services. PRIORITY. term Yes and supervision MHCP Enhance legal certainty and consumer safeguards for users of digital credit by requiring authori- Medium MHCP, SFC Yes zation and imposing proportionate term prudential rules with a view to ensuring a level-playing field. Digital Financial Services 102 Table 4.3. Digital Financial Services: Policy Recommendations (2 of 3) Responsible Legal Change Reform Area Recommendation Entity Timing Required? Seguir adaptando los marcos de vigilancia y supervisión para pagos digitales y SFD a la luz de las nuevas tecnologías y modelos On an de negocio. Formular una política BR, SFC ongoing No integral y un enfoque regulatorio basis para los criptoactivos e implemen- tar estándares internacionales. Strengthen regulation and supervision of savings and credit Medium Not cooperatives and build capacity to SES term necessarily provide DFS with a focus on underserved segments. Ensure consistent financial consumer protection across providers of equivalent Short SFC Possibly services and the availability term and effectiveness of alternative dispute-resolution schemes. Establish minimum standards for payment initiation service provider access interfaces provided by retail payment systems; access requirements and operating rules should be approved by the SFC. Regarding account information/aggregation Short SFC No services, the SFC should develop term regulations to help steer the market toward a multilateral framework through common technical standards and a single registration mechanism for third-party providers. PRIORITY. Payment systems Evaluate the impact and ancillary of regulatory reforms on lowering infrastructure access barriers to SPBVs and reducing costs. Depending on this evaluation, consider potential SFC in additional measures to strengthen Medium coordination No public interest considerations, term with BR e.g., by prescribing changes to system rules and governance arrangements as appropriate. PRIORITY. Digital Financial Services 103 Table 4.3. Digital Financial Services: Policy Recommendations (3 of 3) Responsible Legal Change Reform Area Recommendation Entity Timing Required? Develop uniform fast payment scheme rules (including requirements for the underlying clearing and settlement mechanisms), taking into consideration their enforceability and the potential role of the BR in setting fast payment standards, in line with its mandate and Short BR No functions. The design of the term SPI-BR should emphasize low-cost access and the connectivity of smaller participants and other third parties (e.g., payment initiation service providers), as well as support for new use cases/access channels. PRIORITY. Enable regulated non-bank entities to open accounts at the Medium BR while ensuring appropriate BR No term risk mitigation. Ensure the interoperability of SPBVs with a view to enabling payment service providers BR, Medium participating in any platform operators term No (and their customers) to reach of SPBVs each other. Digitization of large Expand plans to migrate social reoccurring payment benefit payments from the current streams system based on public tendering to ACH payments. Any legal Prosperidad Social, Medium Possibly barriers to discontinuing the MHCP, BR term current model should be removed. Integrate the use of digital ID for beneficiary authentication. PRIORITY. Evaluate the impact of (i) the current legal and regulatory framework for IMCs on the contestability of the market for international remittances and Medium ensure that they continue to reflect BR term No risk-based considerations; (ii) exclusivity agreements between international MTOs and the local agents. Further leverage the role of OPPs to digitize domestic remittances, including by enabling OPPs to Medium MHCP Possibly broaden their range of services/ term activities, subject to meeting the relevant requirements. Digital Financial Services 104 5. DIGITAL BUSINESSES KEY MESSAGES » Colombia has a large pool of digital start-ups relative to regional peers, but few manage to scale and reach maturity. As of 2021, Colombia was home to approximately 13 percent of the for- mal digital businesses in the LAC region, with a strong presence in fintech, business management tech, e-commerce, and logistics tech, and a dominant position in health-tech. However, for every six digital start-ups in Colombia, there is only one established digital business. » The country’s ICT sector, the backbone of the digital economy, remains relatively small. It is contributing relatively little to total value-added, employment growth, and exports relative to the OECD average. Colombia is specializing in medium digital-intensive industries, contrary to peers, such as Costa Rica and Mexico, which are moving toward industries with high digital intensiveness. » E-commerce has been growing steadily, driven mostly by a boom in domestic trade, but the proportion of online sales remains limited. The cross-border e-commerce of goods is con- strained by: (i) low automation of border control agencies, (ii) outmoded customs and tax revenue collection techniques, (iii) a partial de minimis regime for imported low-value shipments, and (iv) limits imposed by the Customs Code on imports and exports by postal services. » Insufficient access to debt and equity finance could limit the growth potential of digital busi- nesses. Although there has been growth in early-stage financing for digital companies, particularly venture capital, low levels of private equity and debt financing could hinder the growth of mature and later-stage digital firms. Constraints to capital market development could hinder the capacity of Colombian digital businesses to attract more diverse and scalable private investments. » Firms’ declining use of and investment in digital technologies as COVID-19 mobility restric- tions were lifted, and the limited externalization of related services, constrain digital busi- nesses from gaining scale. Advanced digital technologies for data processing and automation, such as AI, show enormous potential, but their adoption and use by firms—particularly MSMEs— remain limited, due to inadequate managerial capabilities, lack of knowledge, cultural factors, and affordability constraints. » Less than 5 percent of the resources allocated to the National System of Competitiveness and Innovation in 2022 were directed at promoting the digital transformation of the private sector, and public expenditure inefficiencies remain. Resources are heavily oriented toward im- proving workforce digital skills and strengthening firm capacity to adopt and use digital technologies productively. Limited public resources are allocated to improving access to finance. Digital Businesses 105 5.1. The importance of digital businesses This chapter discusses the current state of these busi- nesses; the performance of the ICT sector, the backbone of the digital economy; the digital uptake among firms in The widespread adoption of digital technologies by other sectors; and the current mix of public policy instru- businesses in Colombia represents a great opportu- ments supporting the digital transformation of business- nity to reignite the engines of economic growth but es in Colombia. also poses a multidimensional challenge. In addition to their own contributions to productivity growth and competitiveness, both start-up and established digital 5.2 Current state of digital businesses enterprises are key enablers of growth through the digital transformation of traditionally offline businesses. Digital businesses supply new or improved digital technologies and services, facilitate access to larger and more dynam- Contribution of the digital economy to private ic markets for local firms, and generate strong network sector development: the supply side and demonstration effects that promote the adoption of innovative business models and digital technologies by offline companies. As discussed in Chapter 2, the avail- Colombia ranks third in the number of digital busi- ability of adequate digital infrastructure plays a critical nesses in the LAC region, and such firms tend to be role in business digitalization, as it bolsters access to relatively young.175 As of September 2021, Colombia digital products and services, the dependable use of was home to approximately 12.8 percent of the digital digital platforms, and the rate of technology adoption. businesses in LAC. In fact, Colombia had more digital Digital transformation requires innovative and efficient firms per GDP, after Brazil and Mexico, than the rest of payment systems and financial services that allow busi- the region. Digital businesses in Colombia are younger nesses to seamlessly transact with customers and oth- than in Argentina, Brazil, Chile, and most regional and er firms (see Chapter 4); it also requires human capital income group comparators (i.e., they have a younger with the adequate skillset to adopt and use technologies founding year distribution), with over 80 percent having and create local digital solutions to meet the challenges emerged in the past decade (Figure 5.1). Colombian facing Colombian companies (see Chapter 6). To sup- digital businesses are also on average younger than port the growth and proliferation of digital businesses, it global frontier comparators with mature markets, such is critical that the government provide an enabling reg- as OECD and high-income countries. When compared ulatory framework that promotes trust, innovation, and to aspirational peers, such as Romania and Estonia, Co- risk taking while also anticipating and preparing for the lombia showed a spike in new digital businesses in 2013 distortions that may arise as technology adoption accel- and then some fluctuations afterwards, while Romania erates. and Estonia have shown a steady increase of new busi- nesses over the past decade. An innovation-oriented ecosystem is critical to help- ing digital entrepreneurs achieve their full growth For every six digital start-ups in Colombia, there is potential. Value creation often requires interaction and only one established digital business, suggesting collaboration between entrepreneurs, the government, that there is a vibrant ecosystem but that few digital academia, and other key actors. Digital entrepreneur- start-ups manage to scale and mature. The propor- ship ecosystems flourish when nurtured through net- tion of Colombian digital start-ups to established digital works of investors and entrepreneurs; targeted financial businesses is similar to some of the country’s regional instruments; and access to knowledge and technology. comparators (Argentina, Chile, Mexico, Peru), the UMIC Moreover, a healthy competitive market is crucial both to average, and aspirational comparators such as Romania level the playing field so that the best performing digital and Estonia, but below the LAC region.176 However, glob- businesses can have a fair chance to enter, compete, al frontier countries (OECD and high-income countries) and scale and also to ensure consumer and supplier and Brazil show a larger ratio of about two established welfare. digital businesses for every five digital start-ups. It is worth noting that Colombia’s digital start-ups start larger This chapter assesses the provision of digital goods in size (number of employees), and both digital start-ups and services by digital businesses (the supply side), and established digital businesses are larger relative to their adoption and use by other firms in the manu- regional peers. Moreover, 23 percent of Colombian digi- facturing, commerce, and “other services” sectors tal start-ups reach the exit stage, mostly through merger (the demand side), policy instruments supporting and acquisitions (slightly above most regional and as- the public sector’s digital transformation, and relat- pirational peers and close to OECD and high-income ed challenges and opportunities. Digital businesses countries). Finally, the mortality rate of start-ups in 2019 can be divided into two categories: digital start-ups and was 18% with a relatively high churning rate (i.e., the established digital firms (see endnote for definitions). frequency with which firms are created and existing ones Digital Businesses 106 close down) for ICT software developers and providers Digital businesses tend to be more concentrated of related services.177 These findings suggest low entry around the largest economic centers compared to barriers in the digital subsectors and a healthy “creative other firms, suggesting that they are more depen- destruction” mechanism favorable to productivity growth. dent on network interactions with buyers and sup- However, the findings could also indicate entry mistakes pliers. Bogotá hosts 60 percent of digital start-ups and as entrepreneurs lack managerial capabilities and also 18 percent of established digital businesses, and there challenges for the scaling-up of digital businesses in Co- is a nascent digital cluster in Medellín (concentrating lombia. There is therefore opportunity to strengthen the 8.7 percent of digital businesses, mostly start-ups). Cali, competitiveness and innovation policy mix with instru- Manizales, and Barranquilla host roughly 5 percent of ments that target the key drivers of success, such as im- the remaining digital businesses. Twenty-five other cities proving managerial capacity and providing more diverse have at least one digital business but no more than five. and scalable sources of financing, as discussed below. Figure 5.1. Colombia and Regional Comparators: Digital Business by Founding Years 30% 25% 20% 15% 10% 5% 0% Colombia Argentina Brazil Chile Mexico Peru LAC Average Upper (excl. Colombia) Middle Income Countries 1971-2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: Authors’ elaboration with data from Pitchbook and CB Insights. Roughly one-third of digital businesses operating in Gender gaps regarding firm ownership are more pro- Colombia are headquartered outside the country, as nounced in some digital business subsectors rela- foreign firms tend to be relatively more present in tive to the rest of the economy. At 24 percent, women data-intensive tasks, such as big data analytics and entrepreneurs are relatively less present than men in ICT services related to AI. The United States is the top or- software development and the provision of related ser- igin country of foreign digital businesses (35 percent of vices compared to an average of 40 percent in the rest such companies), and another 38 percent are headquar- of the economy (DANE 2019 structural surveys).178 This tered in Spain and other LAC countries (such as Chile, suggests that gender-specific bottlenecks and biases Brazil, and Mexico), suggesting that regional proximity might be impeding women entrepreneurs from entering and language compatibility may be critical factors for and succeeding in the provision of some digital goods overseas digital businesses in operating in Colombia. Al- and services. though foreign and domestic firms offer services in sim- ilar sectors, the former tend to be relatively more con- The top four digital subsectors in Colombia are fin- centrated in data-intensive tasks that rely on big data, AI, tech, business management tech, e-commerce, and and other emerging technologies (Figure 5.2). logistics tech, and healthtech also plays a leading Digital Businesses 107 Figure 5.2. Top Digital Business Subsectors for Foreign and Domestic Firms (2010–20) Local Foreign digital digital business businesses Fintech E-Commerce Logistics Tech Business Big Data EdTech Management Tech & Analytics Food Tech Marketing Tech AI/ML Security Tech Software & SaaS Health Tech Source: Authors’ elaboration based on data from Pitchbook and CB Insights. Note: ML = machine learning; SaaS = software as a service. role relative to regional peers. Recent data on regis- averages and relative to aspirational peers, although be- tered digital businesses from Pitchbook and CB Insights low some regional peers. Platform-based and data-in- show that fintech is the top subsector across medi- tensive businesses help to build a digital ecosystem, um-sized firms in Colombia and other regional peers.179 provide strong network effects that reinforce digitaliza- E-commerce and related subsectors (such as logistics tion, and strengthen the technology backbone support- tech), business-to-business subsectors (business man- ing other digital businesses and thus play a critical role in agement and marketing tech), and technology-focused the digital transformation of other firms. Platform-based services (big data, software, AI) also make up a large businesses in Colombia tend to be small to medium share of medium-sized digital firms in Colombia. More- sized (in terms of number of employees), and almost half over, the share of medium-sized and large healthtech are foreign firms. Moreover, few platform-based and da- businesses is double that of regional peers. Although ta-driven businesses in Colombia achieve a successful the marketing tech subsector trails behind the regional exit compared to other types of digital business models. average, it is one of the three subsectors in which a sub- Only 7.1 percent of platform-based businesses and 12.6 stantial number of companies have been created in Co- percent of data-driven businesses in Colombia reach lombia in the past 20 years. Other emerging subsectors a successful exit in terms of mergers and acquisitions, include digital media, AI, foodtech, educationtech, and IPOs, majority buyouts, stock distribution, asset sale, propertytech. On the other hand, relatively fewer firms and dividend recapitalization, among others, in contrast have entered the web services, insurtech, telecommu- to 25.8 percent for other digital business models. nications, security tech, and software subsectors in that time frame. The ICT sector in Colombia, the backbone of the digital economy, contributes relatively little to total Twenty percent of digital businesses in Colombia value-added (or manufacturing value-added) or to have platform-based or data-driven business mod- employment growth. The ICT sector is a driving force els, above levels observed in country peers.180 These in the development of the digital economy. In addition to firms are less likely to have a successful exit in terms of its own contribution to growth, productivity, employment, merger and acquisitions or initial public offerings (IPOs), and innovation, the sector provides multiple enablers suggesting low entry barriers relative to constraints to (such as software, hardware, networks, services, and consolidating their market proposal and gaining scale. contents) for the formation and growth of digital busi- Colombia has a higher proportion of platform-based or nesses and the widespread adoption of digital technolo- data-driven business models than the OECD and UMIC gies by businesses, government, and society at large.183 Digital Businesses 108 However, in Colombia, the ICT sector remains relatively Colombia is specializing in medium digital-intensive small, contributing only 2.8 percent to total value-added industries, contrary to such peers as Costa Rica and in 2019 compared to 4.8 percent on average in OECD Mexico that are moving toward industries with high countries (see Figure 5.3).184 ICT services capital con- digital intensiveness.187 Colombia registered a slight tributed 0.10 percent to total value-added growth in Co- transformation away from low toward medium digital-in- lombia in 2016, below the 0.16 percent in Costa Rica and tensive industries between 2014 and 2018. During that Chile but above the 0.02 percent in Mexico.185 However, period, the value-added generated in both medium-low its contribution to total value-added almost doubled over and medium-high intensive industries increased as a the next five years, reaching 0.19 percent in 2020 (al- share of the total value-added in the economy. Howev- though still one-fifth the contribution of non-ICT services er, while regional comparators, such as Costa Rica and capital). At the sectoral level, ICT services capital con- Mexico, have had further progress in high digital-inten- tributes substantially less to manufacturing value-added sive industries, Colombia has seen a reduction of this growth in Colombia relative to peer countries.186 In finan- type of industry as a share of total value-added in the cial services, insurance, and real estate, it experienced economy. In addition to strong demand from local and the fastest growing contribution to sectoral value-added international markets, high digital-intensive industries growth, in line with the expansion of DFS in the coun- require several inputs to grow, including connectivity try. Nevertheless, Colombia is the only OECD country through ICT infrastructure, specific financial products with a negative employment growth rate of 4.4 percent in that cater to digital services, a qualified labor force, and the ICT sector between 2014 and 2019, well below the regulation that allows digital businesses to innovate and OECD average employment growth rate of 3.7 percent other businesses to swiftly adapt and absorb new knowl- and that of regional peers, such as Costa Rica (9.2 per- edge and technologies (see Chapters 2, 4, 6, and 7, cent) and Mexico (5.18 percent). respectively). Figure 5.3. The ICT Sector Contribution to Total Value-Added in OECD Countries (levels, 2019) 12% 10% 8% 6% 4% 2% 0% I ea Es lic H nia Sw es en Ki and G dom rla y s ep a Fr c en ce k Be d Au um Sl ria Po ia nd N ly ay M n G o ol ce Tu a Ze y nd R nd St y he an Sl Co nd li ar ew ke c n ai ic bi te gar Ita en ub ub at i an w e r ed la st la la ch rela ac a R ex to Sp m i Ko om r N rm lg re l or te Fin Is ov ng un ep e ov st d R D C et k d ni N ze U ni C U Source: Authors’ calculations, based on OECD (2020). Notes: The ICT sector includes electronic and optical products, telecommunications, computer programing, consultancy and related activities, and information service activities (data processing, hosting, websites). The orange horizontal line at 4.8 percent represents the OECD average. Digital Businesses 109 The contribution of the ICT sector to exports in Co- 2020 and 2021. Computer service exports in particular, lombia lags behind regional peers and is one-sixth the fastest growing service sector over the past 10 years of the OECD average. Between 2015 and 2018, the globally, grew by 17 percent in Colombia (among the contribution of the ICT sector to total export value in Co- highest rates in the region after Uruguay and Panama), lombia stagnated at 1.5 percent, below the OECD av- boosted by a shift toward remote working and increased erage of 9.2 percent and below such regional peers as digitalization.190 Mexico (8.3 percent) and Costa Rica (6.5 percent) during the same period. As Figure 5.4 shows, ICT embodied in However, during the past decade, exports of digitally de- manufacturing exports represented 1.2 percent of gross liverable services as a percentage of total service ex- export value, almost one-tenth of the OECD average ports have stagnated at a low level relative to regional and below countries integrated into global value chains peers and to the OECD average. In 2019, digitally de- such as Mexico (11 percent).188 ICT embodied in service liverable service exports remained low at 20.7 percent exports are also lagging in Colombia (3.3 percent) rel- of total export services, well below regional and OECD ative to the OECD average (7.4 percent) and countries comparators (Figure 5.6).191 Their growth has stagnat- such as Costa Rica (10.4 percent) (see Figure 5.5). ed for a decade, while other countries have registered a substantial expansion, such as Brazil (from 54 to 62 The category of “other service exports” (which in- percent) and Costa Rica (from 37 to 50 percent) (Figu- clude ICT and other business services) has been re 5.7). Quantitative analysis suggests that developing gaining momentum and recovered faster from the countries will gain an increasing share of global trade, post-COVID-19 crisis than the rest of the service ex- but the extent of that share will depend on their ability to ports. Between 2010 and 2019, Colombian service ex- catch up on the adoption of digital technologies.192 ports increased by a factor of 1.75. However, due to the pandemic, service exports in 2020 returned to their 2010 E-commerce has been growing steadily, especially levels, although they recovered substantially in 2021 to since the onset of the COVID-19 pandemic. E-com- reach a factor of 1.25 relative to 2010.189 Transport ser- merce as a share of GDP grew from 1.9 percent in 2018 vices have been losing relevance through the decade, to 3.6 percent in 2021. The number of parcels in Colom- while “other services” have been gaining momentum. bia for both the domestic and international markets grew The latter were able to recover faster from the pandemic, 14.6 percentage points between 2010 and 2019, above even surpassing the value of personal travel exports in the trend observed in Mexico (2.3 percentage points) Figure 5.4. ICT Embodied in Manufacturing Figure 5.5. ICT Embodied in Service Exports, Exports, percentage of gross exports percentage of gross exports 11.2% 11.0% 10.4% 7.4% 3.3% 3.3% 2.9% 1.2% 1.2% 1.3% OECD Chile Colombia Costa Rica Mexico OECD Chile Colombia Costa Rica Mexico Source: OECD (2021). Source: OECD (2021), Note: Data correspond to 2018. Note: Data correspond to 2018. Digital Businesses 110 and Brazil (4.6 percentage points) but below Costa Rica Except for microenterprises, the COVID-19 pan- (17.4 percentage points). Sales made through e-com- demic boosted firms supply through e-commerce, merce in 2020 were 30.6 percent higher than in 2019, although its use declined as mobility barriers were and transactions grew 86.2 percent in the same period. lifted, possibly due to a preference for cash-based In 2021, e-commerce sales grew further by 40 percent, payment transactions. In 2019, 6 percent of firms in with 50 percent of Colombians making purchases online commerce, 25 percent in manufacturing, and 51 percent (though this was only 5.4 percent of their purchases) and in “other services” performed an online product delivery spending on average over US$200.193 in digitized form.195 As the pandemic began to impose hurdles to physical transactions, many firms moved to Most of the growth in e-commerce in Colombia has digital channels to survive. By October 2020, about half been driven by a boom in domestic trade. The num- of the registered SMEs and large companies reported ber of parcels delivered through the domestic postal ser- using the internet as an adjustment mechanism to sell vice—a proxy of domestic e-commerce—grew 16 times their products. However, by February 2022, this figure between 2010 and 2019. Yet, in the 2010–20 period ex- had dropped to 30 percent.196 It is worth noting that even ported parcels increased by a factor of three, whereas in a scenario of restricted mobility, the use of the internet imported parcels did not grow substantially relative to re- by microenterprises for selling and buying inputs and de- gional comparators.194 However, sales via e-commerce livering products has been declining over the past three are minimal across all sectors, with exports representing years, from 10–12 percent in 2019 to 5 percent in De- less than 1 percent of sales from SMEs and large firms cember 2021.197 The most frequently cited reason for not on average in 2019, and e-commerce sales to the do- making use of e-commerce is people’s distrust of online mestic market representing less than 8 percent of total payments (64 percent). It is estimated that more than sales, according to data from the 2019 Enterprise Sur- 90 percent of all retail payment transactions are carried vey on Information and Communications Technologies out in cash.198 Although the share of the adult popula- (Encuesta de Tecnologías de la Información y las Comu- tion that has made a digital payment leaped from 29 to nicaciones [ENTIC Empresas]). 42 percent between 2019 and 2021, Colombia still lags Figure 5.6. Digitally Deliverable Services Figure 5.7. Evolution of Digitally Deliverable in 2019, percentage of total service Services, percentage of total service exports exports 2010–19 70 70 60 60 50 40 50 30 40 20 30 10 0 20 ile ico e ca a a C ru il D m in bi az LA EC Ch Pe Ri ex nt m co Br ge lo a O M in st Co e- Ar Co 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 dl id r-m Brazil Colombia Costa Rica Mexico OECD pe Up Source: UNCTAD (2021). Source: UNCTAD (2021). Digital Businesses 111 regional peers such as Argentina (59 percent), Brazil (71 Figure 5.8. Share of Companies that Used percent), and Costa Rica (53 percent), and the OECD Computer Applications or Programs according average (94 percent) in this dimension.199 In a 2017 study to the Method of Obtaining the Software, by by the CRC, only 2.9 percent of adults used PayPal to sector (%) complete e-commerce transactions in 2015.200 (Chapter 4 discusses the current state of and opportunities for the 74 75 73 development of digital payments in Colombia.) 68 56 57 56 53 Drivers of digital business performance: 47 inadequate infrastructure provision, 41 burdensome regulations, and limited demand scale and access to finance 28 27 22 13 8 The limited use of third parties in firms’ development Commerce Industry Services and application of ICT and related services presents an obstacle to the ability of digital businesses to gain Developed by the firm scale. Less than one out of every six small, medium, Bought and large businesses in commerce and manufacturing Paid for periodic services have the capacity to develop the computer applications, Outsourced development programs, and other digital solutions they require to op- erate, although the share is slightly larger in the service Downloaded (open source) sector (27 percent). Most firms that used software and Source: DANE (2021d). computer programs in 2019 bought or downloaded them from an open source, and only a few of them, especially in the commerce and manufacturing sectors, outsourced Figure 5.9. Share of Firms that Have a Systems the development of digital solutions to a third party. Be- or ICT Department (internal or outsourced) tween 56 and 68 percent of firms across sectors paid for periodic services related to software and computer pro- grams, and only one-third outsourced their systems or 38 35 25 ICT functions (Figure 5.9). Likewise for digital platforms, as 31 percent of firms in manufacturing, 39 percent in 17 commerce, and 46 percent in “other services” reported using such platforms to order or buy supplies, and less 34 33 58 than a third used them to receive orders. Big data and other advanced analytics have an even lower use, as less than 5 percent of firms in the commerce and man- ufacturing sectors implemented such technologies.201 29 31 Overall, these findings at the firm level corroborate ag- gregate results on the limited contribution of the ICT sec- tor to total value-added, due in part to the limited firm ca- Commerce Industry Services pacity to adopt and use digital technologies productively, whether in house or via third parties. Firms that have an internal ‘Systems’ or ‘ICT’ area Firms that lack a ‘Systems’ or ‘ICT’ area (internal or outsourced) Firms that outsource ‘Systems’ or ‘ICT’ functions Source: DANE (2021d). Digital Businesses 112 Constraints to capital market development also lim- Figure 5.10. Number of Last Deals, by deal type it Colombia’s capacity to attract more diverse and scalable private investments that cater to later-stage 70 digital businesses. The number of formal investment 60 deals for Colombian digital firms have increased over the past decade, particularly early-stage financing (i.e., 50 pre-seed/seed, such as grants, seed funds and angel investing, and early-stage venture capital), raising over 40 US$1.2 billion between 2010 and 2021 (Figure 5.10).202 30 Close to one-third of digital business funding deals are venture capital, above regional and aspirational peers 20 as well as the LAC average and similar to OECD and UMICs, indicating a growing early-stage start-up pipeline 10 and subsequent investor interest. 0 2000-2014 2015 2016 2017 2018 2019 2020 2021 Private equity, debt financing, and other types of capitalization deals remain limited in number among Pre-seed/Seed VC (later stage) digital businesses headquartered in Colombia rela- VC (early stage) Private Equity tive to regional, income, and aspirational compara- Debt Financing tors. Nevertheless, they represented the largest share of formal investment value, partly illustrating that these Source: Authors’ calculations based on data from Pitchbook and DB Insights. deals are key to enabling the growth of scalable busi- nesses, even though few digital firms are ready for such investment. Less than 20 percent of digital businesses’ Figure 5.11. Total Value of Investment financing deals in Colombia during the past decade have by Funding Type (funding from 2010–21) been equity and debt financing. Other forms of capital- ization, such as bonds, corporate asset purchases, or joint ventures, are also available, but relatively few Co- Pre-seed/Seed 39 (n=2) lombian digital firms have access to them. However, equity, debt financing, and other types of capitalization Early Stage VC 236 (n=69) represented 70 percent of the formal investment funds raised (Figure 5.11). U.S investors are the most prev- Later Stage VC 81 (n=32) alent among well-funded Colombian digital businesses, and they are investing in large deals, along with Colom- Private Equity 4 (n=16) bian and other international investors.203 Exits through initial public offerings are very rare, indicating room for improvement in capital market development for digital Mezzanine 6 (n=1) businesses that have matured and also the need to keep nurturing digital start-ups to mature stages. Debt Financing 374 (n=2) Access to financing is a particularly important chal- Other Capitalization 507 (n=6) lenge to the innovation and growth of digital busi- nesses. More than half of innovative ICT firms in 2019– 0 100 200 300 400 500 20 pointed to difficulties in accessing external financing as a constraint to innovation.204 About 97 percent of in- Source: Authors’ calculations based on data from Pitchbook and DB Insights. novative ICT businesses finance their STI activities with their own resources (in contrast to 84 and 78 percent of non-ICT firms in manufacturing and services, respec- tively).205 Debt and equity financing play a minor role in supporting the STI investments of ICT firms, accounting for less than 2 percent of total funding for these types of activities. Digital Businesses 113 Fintech, logistics tech, and e-commerce are the sub- Remaining gaps in horizontal digital platform regu- sectors with the most formal investment deals over lation in Colombia regarding rules on intermediary the past six years, while firms in miningtech, health- liability could also be constraining the scalability tech, and utilities tech have received the highest av- of digital platform businesses.208 Colombia does not erage deal sizes. Investors have consistently invested have a framework that explicitly addresses online inter- in fintech and logistics tech over the years, while the mediary liability regulating the relationship between plat- number of investments in e-commerce increased sig- form intermediaries (websites and apps) and the firms nificantly from 2017 onwards, taking its spot among the or individuals offering their own products or services, subsectors with the most formal investment deals from something that is essential to the functioning of those healthtech. Businesses in mobilitytech, foodtech, fin- digital transactions.209 The lack of this kind of regulatory tech, and e-commerce are raising funds faster than firms framework can disincentivize firms to offer their goods in other business-to-business and business-to-consum- and services in digital platforms due to a lack of trans- er subsectors in Colombia. Miningtech, healthtech, and parency and predictability regarding the violation of in- utilities tech have achieved the highest average formal tellectual property rules (typically trademark protection). investment value per firm, reaching US$589 million, US$317 million, and US$168 million in the 2015–20 In terms of sector-specific regulation, the crowd- period, respectively.206 Healthtech, in particular, has re- funding framework enacted in 2018 fails to foster ceived by far the largest average deal size, reaching the growth of borrowing through these platforms. US$573 million, while for other sectors such figures are As highlighted in the Bank’s Financial Sector Assess- between US$1 and $6 million. Contrary to regional and ment Program for Colombia, “just one platform, spon- structural comparators, fintech is not among the top five sored by the Colombian Stock Exchange (BVC), has subsectors by number of private equity deals in Colom- been launched to date, with only 82 projects financed bia, suggesting that on average, local businesses in this since 2018. The low participation by the MSMEs in this subsector may not have achieved a large enough scale new financing platform can be attributed to two reasons. for private equity rounds. First, only entities with a securities market license called ‘Collaborative Financing Companies’ can offer crowd- Investors in Colombia are betting big on the value funding services. Second, regulation limits crowdfunding of data and the network effect of platform business platforms to issue tradable debt and equity. Peer-to-peer models, but delays in raising funds for these firms lending is explicitly excluded from Decree 1235 of 2020, could be impacting their scalability and internation- which, following experience from advanced and other al competitiveness. Within Colombia, 94.6 percent emerging economies, is where the largest share of digi- of platform-based and 84 percent of data-driven busi- tal lending takes place for MSMEs.”210 nesses have received formal funding compared to 70.5 percent for other digital business models. However, al- Moreover, e-commerce is affected by inadequate fis- though platform-based and data-driven businesses in cal policies and by low risk/fraud management stan- Colombia are on average younger than similar firms in dards that may be contributing to a perception of in- global frontier countries (OECD and high-income coun- creased risk levels as well as to a general wariness tries), they tend to be older and take longer to raise funds of electronic payments and channels on the part of than firms in most regional comparators and aspirational customers and merchants. Based on the use of an- peers (e.g., Romania and Estonia). ti-fraud technology and innovation by online payment service providers in Colombia, users’ mistrust should not Poor infrastructure and connectivity are among the be solely ascribed to sociocultural factors. Moreover, in biggest restrictions to the expansion of digitally en- Colombia, payments by means other than cash are also abled services in Colombia. Colombia faces several subject to a tax on financial transactions (the GMF). Ac- restrictions to the expansion of digitally enabled services, cording to a recent World Bank survey of formal busi- including poor infrastructure and connectivity as well as nesses in Colombia, 84 percent perceive the GMF as a low internet quality and speed (for a more expanded dis- serious impediment to the use of electronic payments, cussion on these factors, review Chapter 2). All OECD even to pay taxes. countries have a lower digital trade restrictiveness index than Colombia, except for Poland.207 Poor infrastructure International e-commerce of goods is also limited by and connectivity make up over 93 percent of Colombia’s the lack of automation among border control agen- weak score, and the remainder is related to restrictions cies, outmoded customs and tax revenue collection on electronic transactions. Import tariffs do not seem to procedures for processing postal and expedited be an obstacle to the development of the ICT sector, shipments, a partial de minimis regime for imported which has among the lowest effective protection rates in low-value shipments, and import and export limits Colombia (0.26 percent). on postal services imposed by the Customs Code. Digital Businesses 114 Colombia performs better than the OECD average in connections becomes critical to boosting the compet- terms of service trade restrictiveness for postal services. itiveness of the Colombian private sector. (Chapter 2 However, measures that affect the regulatory transpar- delves into the key challenges to and opportunities for ency of customs procedures, among other obstacles, improving the availability and quality of fixed broadband are constraining the development of international e-com- in Colombia.) merce for goods.211 Despite initial modernization initia- tives to improve postal and express consignment proce- Most microbusinesses have adopted basic digital dures, such as the advance reception of cargo manifest tools, but they make limited use of these tools for data, Colombia’s customs and border controls remain productive purposes beyond customer services. By largely based on sorting parcels and shipments by phys- 2020, more than 90 percent of microbusinesses had a ical and non-intrusive inspections, instead of more ad- desktop or laptop and internet connection, yet 85 percent vanced solutions for revenue collection and dedicated of them did not use their computers for commercial pur- automated systems for postal and expedited shipment poses (e.g., digital delivery of products, purchases from processing. Also, a 10 percent import duty is applied to suppliers, or online sales). Moreover, among microbusi- the imported value (including transport costs and insur- nesses with access to the internet, only 5 percent have ance), or the import duty corresponding to the customs their own website. Close to 80 percent of microbusiness- product category, to imports through postal and expe- es also connect to the internet through mobile phones, dited shipments. Although a de minimis regime exists and about 26 percent of those with access to the inter- exempting imports below US$200, it exempts only mer- net have some presence on social networks. As Figure chandise from countries with which Colombia has signed 5.12 shows, microbusinesses use the internet mostly for a free trade agreement from import duties, and only im- customer services (44.3 percent), market research (29.8 ports from the United States from VAT.212 The Customs percent), and digital banking and other financial services Code also limits the value of imports to US$2,000 per (22.5 percent). shipment and the value of exports by postal services to US$1,000 (except for the beneficiary MSMEs of the Ex- Although microenterprises that invested in ICT porta Fácil Program, which can export up to US$5,000). equipment performed relatively better (both in rev- These measures make border control procedures un- enue and value-added) during the COVID-19 pan- necessarily complex and constrain the development of demic, few firms invested, and their number has not e-commerce at scale, especially for larger firms. recovered to pre-pandemic levels. ICT equipment (smartphones, tablets, computers, internet connection, etc.) provide an advantage to businesses, but it also im- plies periodic investments to keep software and hardware The demand side: adoption and use of digital up to date. In 2019, only 6 percent of microbusinesses technologies and solutions that declared that they had invested in the previous year actually invested in digital technology and connectivity. The sectors with the highest number of microenterprises that had invested in ICT equipment and connectivity are: More than half of SMEs and large firms in commerce real estate; professional and administrative services; re- and manufacturing access the internet through low tail, accommodation, and food services; transportation bandwidth connections, which constrains their ca- and storage; and education, health, and social services pacity to perform everyday digital transactions and (Table 5.1). The drop in sales and temporary closure of adopt more data-intensive technologies. According to microenterprises during the height of the COVID-19 pan- the U.S. Federal Communications Commission’s current demic probably affected their capacity to invest in ICT. In standards, a broadband connection must offer at least a 2020, the number of microenterprises making these in- 25 Mbps download speed and a 3 Mbps upload speed to vestments had decreased significantly in almost all sec- allow for everyday tasks, such as exchanging files, using tors, except for agriculture. Sales and value-added from cloud-based software, and videoconferencing.213 Yet, in microenterprises in the agriculture sector have been 2019, roughly 60 percent of firms in commerce and man- relatively less affected by the impacts of COVID-19,215 ufacturing in Colombia accessed the internet at speeds and these firms were thus better positioned to invest in below 30 Mbps. Although the average bandwidth in the ICT equipment to offer and sell their products. By 2021, “other services” sector is higher, one in three businesses as economic activities returned to normal, the number of in this sector operates near or below the 25 Mbps thresh- microbusinesses investing in ICT equipment grew by 10 old.214 As business procedures and service delivery be- percent relative to 2020 but did not reach 2019 levels. come more intensive in their use of digital technologies, ensuring the adequate speed and reliability of internet Digital Businesses 115 Figure 5.12. Activities Performed by Microbusinesses through the Internet (%) Customer services 44.3 Market research on goods and services 29.8 Digital banking and other financial services 22.5 Phone calls, videocalls or videoconferences 14.8 Staff training 12.1 Search for information from official agencies and authorities 11.5 Delivery of products through digital means 6.9 Transactions with public institutions 3.9 0 10 20 30 40 50 Source: Authors’ elaboration with data from DANE (2022c). Table 5.1. Number of Microenterprises Investing in ICT In the previous year in your business or activity you invested in the purchase or acquisition of: ICT equipment ICT equipment 2019 2020 % change 2020 2021 % change Agriculture. Livestock. Hunting. 491 2,793 469.00% 2,793 113 -96.00% Forestry and fishing. Mining Manufacturing 2,782 1,341 -51.80% 1,341 760 -43.30% Construction 1,776 1,520 -14.40% 1,520 357 -76.50% Retail; Accommodation and 14,131 13,777 -2.50% 13,777 16,323 18.50% food services Transportation and warehousing; IC; Education; 12,823 8,996 -29.80% 8,996 13,822 53.70% Human health care and social work activities Real estate. Professional and administrative services 15,313 13,005 -15.10% 13,005 16,103 23.80% Arts. Entretainment. Recreation. Leisure and other 4,962 4,767 -3.90% 4,767 3,346 -29.80% service activities Total 12,823 46,200 -11.60% 46,200 50,824 10.00% Source: DANE (2022c) and World Bank (forthcoming, a). Digital Businesses 116 SMEs and large companies could have a more pro- of 2022. This upward trend can be observed across all ductive application of their basic digital tools in core sectors, although more prominently among business- business functions. In 2019, 99.6 percent of small, me- es in the commerce and construction sectors. Howev- dium, and large manufacturing companies used a com- er, online input purchases for medium-sized and large puter and internet in their operations. About 78 percent businesses are still below the levels observed in Octo- of service firms had their own website, and 74 percent ber 2020.218 Although the use of cross-border trade de- had a presence on social networks, while for manufac- creased as a result of the pandemic, within Colombia turing firms the rate was lower at 53 percent and 56 per- online purchases increased by 40 percent due to new cent, respectively.216 As Figure 5.13 shows, the internet buyers and increases in the number of sales caused by is used mostly to provide customer service (more than the days without VAT.219 85 percent of firms), place or receive orders through the internet (more than 70 percent), and train person- Small, medium, and large enterprises prefer to use nel (more than 66 percent). Online product delivery in digital platforms over their own websites for buying digitized form is relatively rare, including for firms in the supplies or selling products. Before the COVID-19 commerce and “other services” sectors where business pandemic, 31 percent of firms in manufacturing and 39 models are more likely to be compatible with digital de- percent in commerce reported using digital platforms to livery modalities. Internal or external contracting through order or buy supplies, and about a third reported receiv- the internet is also relatively low across all sectors. Ser- ing requests or orders through this means.220 Only about vice firms as well as larger companies tend to have more one in every three firms with their own websites across digitalized procedures. all sectors had integrated online shopping and reser- vation functionalities into their websites. Data from the The use of e-commerce to purchase inputs declined DANE’s Business Pulse Survey (Encuesta de Pulso Em- in all type of firms as the mobility barriers placed in presarial) for the third quarter of 2022 show that although response to COVID-19 were lifted, and smaller firms the use of internet or digital platforms among firms to sell had a lower tendency to use such technology. The products or services has remained fairly stable (around use of the internet by microbusinesses to purchase in- one-third of firms), the share of online sales through own puts followed a declining trend during the pandemic, websites or other digital platforms increased for firms from 10–15 percent in 2019 to 5 percent in December across all sectors during the past year. In July 2022, 2021.217 Medium-sized and large enterprises followed 15 percent of firms reported having sold more through a similar trend, with a decrease in the share of these digital platforms than in the same period of the previous businesses purchasing inputs online between 2020 and year, and firms in the “other services” sector reported an the third quarter of 2021 and then a subsequent stabi- increase of 19.6 percent. Still, online sales represent a lization, and even a slight rebound in the first months relatively low share of firms’ income: as of July 2022, Figure 5.13 Share of Small, Medium, and Large Firms Using the Internet To Carry Out Everyday Business Activities 85 Customer service 90 94 Internal or external contracting 44 42 through the Internet 64 Online product delivery 6 25 in digitalized form 51 Order placement 84 82 via the Internet 79 Receive orders 82 76 through the Internet 70 69 Training of personnel 66 81 Commerce Industry Other service Source: Authors’ elaboration with data from DANE (2021d). Digital Businesses 117 on average only 16.2 percent of firms reported generat- having implemented data analytics during 2019, while ing more than 10 percent of their income through online real estate, lodging, and private health were among the sales.221 less data intensive in the “other services” sector, with 12–17 percent of these firms using data analytics.224 In Although the majority of e-commerce transactions contrast, less than 10 percent of firms in commerce and in Colombia are completed using a mobile device, manufacturing reported the use of data analytics in the about half of SMEs and large businesses across all same period, and among those, the use of big data was sectors have yet to adopt mobile friendly websites. still incipient (less than 5 percent implemented this type According to data from VTEX Colombia, in 2021 about of analytics in 2019).225 72 percent of online shoppers in the country preferred to shop with their mobile devices. Moreover, eMarketer es- AI shows enormous potential to boost productivity timations suggest that mobile commerce accounted for and accelerate economic growth in Colombia in the 73 percent of all online sales in 2021.222 Despite the im- medium to long term, but it also involves significant portance of mobile commerce, a large proportion of firms public policy challenges. According to recent IDB pro- of every size have yet to adapt to this trend. The most jections, widespread adoption of AI could lead to a boost recent available data (for 2019) show that only about 59 of up to 0.8 percentage points (from 3.7 to 4.5 percent) percent of firms in the “other services” sector with ac- to the annual GDP growth rate by 2035.226 Aware of this cess to the internet had mobile friendly websites, and transformative potential, the Colombian government for- this share was lower for firms in commerce and manu- mulated CONPES 3975 in 2019.227 The policy identifies facturing at 44 and 45 percent, respectively.223 critical challenges that need to be addressed in order to promote the widespread adoption of AI (and other digi- Telework was one of the least used solutions by tal technologies) among Colombian businesses and to SMEs and large companies during the pandemic, as prepare the workforce to face the disruptions in the labor few firms had the capacity to enable this modality for market likely to occur due to the increasing automation at least half of their workforce, partly due to the lack of productive processes. CONPES 3975 also establish- of ICT equipment. In October 2020, only 2.5 percent of es 20 specific actions to create an enabling environment SMEs and 5 percent of large businesses had implement- for the development of AI solutions in Colombia.228 ed telework measures for at least half of their payroll. By February 2022, these figures had dropped to practi- Although Colombia stands as one of the LAC coun- cally zero for small businesses and to 1 percent for me- tries with the most progress among digital start-ups dium-sized and big firms. This finding might be partially in harnessing AI, the adoption and use of this tech- explained by the fact that before the pandemic, most nology by established businesses is still incipient.229 enterprises (except for small service ones) had more The diffusion and use of AI technologies is still at an early than two workers per available computer, suggesting stage of maturity across most countries, including fron- that firms did not have enough equipment to ensure tele- tier economies such as OECD countries, as businesses work for every employee. Thus, among businesses that implement more foundational digital technologies before did implement telework measures, only a limited share progressing to sophisticated AI applications. In Colom- of their employees were able to telecommute. However, bia, only 9 percent of the small, medium, and large busi- the need to telework decreased as measures to restrict nesses surveyed between May and July 2022 report- mobility were lifted. ed having used any AI solutions in their operations.231 Among the businesses that did employ AI, the most DFS (including digital banking) had the best uptake common uses were in administrative procedures (36.5 across the full business span, even as the pandemic percent), marketing or sales (32.5 percent), and cyber- started to wane (albeit to a lesser extent). This tool security (23.3 percent). Businesses cite three main rea- had a significant uptake among microbusinesses, rising sons behind the low uptake of AI: the technologies are from 15 percent in January 2019 to almost 40 percent not useful for the firm (41.4 percent), the costs of adop- in December 2021. The percentage of SMEs and large tion are too high (32.9 percent), and firms do not have businesses making payments online was 80 percent in the necessary experience to use them (32.5 percent). October 2020 but dropped to 65 percent in February 2022 (see Chapter 4 for further discussion). As for government-to-business services, most SMEs and large firms with access to the internet in Colom- The use of advanced digital technologies and tools bia reported knowing the website of the municipal for data analytics, such as big data analytics, remains or regional government where their businesses op- limited. More than 30 percent of firms in data-intensive erate, though other important government portals industries, such as business development services, pri- (such as those for open data) are not as well-known, vate education, and software development, reported including by firms that perform data analytics. Digital Businesses 118 For instance, less than one-third of SMEs and large firms Figure 5.14. Main Reasons Small, Medium, and reported knowing the “Portal Único del Estado Colombi- Large Firms Do Not Implement New Software ano,” the digital government website. Few firms reported or Technological Solutions knowledge of the government’s open data portals, such as the data portal (datos.gov.co) or the transparency por- Does not need it 62 tal “Urna de Cristal.” Out of the firms that performed data analytics in 2019, only 18 percent of those in the “other services” sector and 16 percent in commerce and man- Cannot afford it 52 ufacturing reported using open data from the Colombian public sector. Does not know about 50 it or understand it Drivers of and constraints to the adoption Does not have and use of digital tools the infrastructure 50 to implement it Not relevant 47 Inadequate managerial capacity is one of the main reasons behind the low uptake of digital technolo- Personnel does gies among MSMEs and large firms in Colombia. De- not have the skills 44 spite evidence in Colombia and internationally that the use of digital technologies is associated with improved firm performance,232 a large share of Colombian enter- Source: DANE (2021d). prises of all sizes consider them unnecessary. As Figure 5.14 shows, the main reason cited in 2019 for not im- Figure 5.15. Microbusinesses’ Main Reasons plementing more advanced technology is that the firm: believes it does not need it (62 percent); does not know for Not Using the Internet about or understand the technology (50 percent); does not have the infrastructure to implement it (50 percent); Bad quality 3% or found it not relevant (47 percent). Moreover, rough- service 1% ly 44 percent of these firms reported that their employ- ees did not have the skills to implement and use digital Employees do not 8% solutions. The case of microbusinesses is similar, as 84 know how to use it 4% percent that do not use the internet in urban areas and 74 percent in rural areas consider it unnecessary, in con- No access in 6% the locality 0% trast to less than 10 percent that consider it too costly or cannot access it (Figure 5.15). These figures suggest No digital tool 2% that managers have limited understanding of the poten- to connect 3% tial benefits of adopting digital technologies and exter- nalizing ICT services for productive purposes to circum- 74% vent infrastructure deficiencies or employee skills gaps. Not needed 84% In fact, the 2019 Digital Transformation Survey of the National Business Association of Colombia (Asociación 6% Too costly Nacional de Empresarios de Colombia [ANDI]) finds that 9% among the main six challenges for their digital transfor- mation, firms identify four related to managerial capa- Rural Urban bilities and business culture. These are: lack of culture promoting the exploration of new technologies (57 per- Source: DANE (2022c). cent); lack of knowledge on available technologies (55 percent); inadequate mindset of leadership (42 percent); and lack of leadership (26 percent).233 As for using gov- ernment-to-business services, SMEs and large firms still report a preference for human interactions, and roughly half of these surveyed firms mention a lack of knowledge of the services and procedures that are available online. Digital Businesses 119 The affordability constraint is also an important rea- digital business ecosystem. The interaction between son for not implementing technological solutions entrepreneurs that supply and demand digital solutions among SMEs and large firms. More than half of these and support programs run by governments, the private firms mention that they do not implement new software sector, or other ecosystem enablers is a critical compo- or technological solutions because they cannot afford it nent of a vibrant business ecosystem. Support instru- (Figure 5.14). Although affordability seems to be less of ments vary in nature and may target different elements a constraint for microenterprises, digital-related expen- of an ecosystem, ranging from infrastructure, financing, ditures still represent the third largest expense item for and regulations to human capital development, among these businesses, after transport and shipping (21 per- others. Additionally, the different institutions participat- cent of total expenditure) and leasing of movable and ing in the policy mix often have different objectives and immovable assets (17.4 percent). Paying for internet, may compete for resources and beneficiaries. Poorly de- data, TV, and telephone represented 15.2 percent of to- signed public programs can be ineffective and even dis- tal monthly expenses for the average microbusiness in place or inhibit private initiative and innovation. This sec- Colombia in 2019.234 tion looks at the menu of policy instruments and support programs in Colombia’s competitiveness and innovation Employee skills might be an additional constraint to system, the SNCI, particularly those aimed at promoting digital technology adoption, although this could be business digitalization and digital business growth, in or- partially addressed by externalizing ICT services to der to identify their key strengths and potential areas for third parties. More than one-third of SMEs and large improvement.237 firms in commerce and manufacturing did not have an ICT or systems department (either internal or out- About $1 out of every US$25 that the government sourced), suggesting that they did not have the human budgeted to support the SNCI in 2022 was directed resources to make the best use of services rendered by to policy instruments that seek to boost digital trans- ICT tools.235 Most firms also lack in-house capacity to formation. Currently, 70 government entities implement operate and manage ICT systems.236 Less than half of 376 policy instruments aimed at boosting competitive- the firms in the commerce and manufacturing sectors ness and innovation in Colombia, with a combined have a department, a position, or personnel in charge of budget of US$1,891 million,238 as reported by the Artic- data protection (44 and 45 percent, respectively), a criti- ulación para la Competitividad (ArCo) initiative. From cal function for the adoption and productive and safe use these, three policy instruments specifically support the of digital solutions, particularly those involved in transac- formation and growth of digital businesses; six contrib- tions that require sensible personal data. It is worth not- ute to the progressive digitalization of businesses across ing that firms in the “other services” sector display more multiple sectors, for instance, by supporting improved robust ICT capabilities. In 2019, 70 percent of these digital capabilities among SMEs; and 31 support the for- firms performed ICT functions in house, and 63 percent mation of foundational digital skills and the widespread mentioned having a department, a position, or person- adoption of digital technologies by government, NGOs, nel in charge of data protection. (Chapter 6 discusses and society at large, thus contributing to the creation of the challenges to and opportunities for strengthening an enabling environment for digital firms to thrive. MinT- digital skills in Colombia, and Chapter 7 examines the IC, iNNpulsa (the government’s agency for innovation enablers and safeguards necessary to promote a safer and entrepreneurship), and the National Learning Ser- environment for personal data as the economy becomes vice (Servicio Nacional de Aprendizaje [SENA]) are the increasingly digital.) government entities in charge of administering most of the policy instruments that support digital businesses and promote business digitalization, and they play a significant role in the implementation of instruments for Policy instruments supporting digital digital transformation. The 40 instruments have a com- businesses and business digitalization bined budget for 2022 of approximately US$83 million, or about 4.4 percent of the budget assigned to policy instruments for the SNCI. Box 2 presents further details Policies, institutions, and public programs that pro- on the ArCo methodology and the classification of policy vide support to firms at different stages of devel- instruments developed for the purpose of this analysis. opment can play a crucial role in strengthening the Digital Businesses 120 BOX 2. ArCo Methodology and Classification of Policy Instruments In 2020, the Colombian government started imple- services through diverse channels (e.g., menting the “Articulación para la Competitividad” enhancing digital capabilities of firms, pro- (ArCo) methodology, a tool that seeks to raise the viding technology extension services, etc.) quality of public spending in matters of competi- iii. those that support the formation of foun- tiveness, productivity, entrepreneurship, and STI dational digital skills and the widespread through the articulation and coordination of policy adoption of digital technologies by gov- instruments, based on the needs of entrepreneurs, ernment, NGOs, and society at large (e.g., researchers, and citizens in general. Specifically, through public platforms and Massive Open ArCo seeks to (i) improve the efficiency of public Online Courses to boost foundational to ad- spending; (ii) integrate ex ante evaluation tools to vanced digital skills) help optimize the offer of policy instruments before iv. all other policy instruments of the SNCI that their implementation; (iii) promote the articulation are not directly related to the progressive of policy instruments through a user-centered ap- digitalization of businesses and society proach; and (iv) adopt a results-oriented budget approach to minimize the atomization of spending on instruments that do not reach a minimum scale Words used included digital, software, smart, or- of impact to achieve their policy goals. The meth- ange, technology, electronic, and communications, odology contemplates three articulation mecha- among others. Afterwards, a manual search was nisms: the mapping of policy instruments as well as performed to validate the groupings. Although most functionality tests and budget flowcharts for each instruments aimed at promoting business digitali- instrument. zation and digital entrepreneurship are adminis- tered by MinTIC and can be easily identified, many Based on ArCo’s instrument mapping for 2022, a instruments of the SNCI can potentially impact the word search was applied to the policy instrument’s digital transformation of businesses, the govern- objective statements and short descriptions to iden- ment, and individuals through indirect channels. tify and classify policy instruments in four groups: Thus, the resulting list of instruments supporting the formation of foundational digital skills and the i. those that specifically support the formation widespread adoption of digital technologies by di- and growth of established digital business- verse stakeholders must be understood as a rough es and digital start-ups (e.g., incubators for approximation. digital businesses) ii. those that seek to boost the digitaliza- tion of business processes, products, and Source: DNP and Swisscontact (2021). Digital Businesses 121 Resources aimed at supporting the growth of dig- Figure 5.16. Main Programs Supporting Digital ital businesses and the digital capabilities of firms Businesses and the Digitalization of Business are concentrated in a few policy instruments. Two Procedures and Services programs administered by MinTIC (Vende Digital and Talento Digital) account for more than 50 percent of the resources allocated in 2022. The three policy in- struments that specifically target digital businesses and Vende Digital 34.9% support their development and growth—Especialización 4RI, Crea Digital, and APPS.CO—make up an additional 24.7 percent (Figure 5.16). Among the group of 31 policy Especialización instruments that support the formation and upgrading of 4RI 7.7% digital skills and the adoption of digital technologies by government, NGOs, and individuals, resources are like- wise fairly concentrated in a few programs and entities Crea Digital (Figure 5.17).239 8.2% Although a concentration of scarce resources in a APPS.CO 8.8% Talento Digital few instruments could reduce fragmentation risks, 19.3% it could also create support gaps in key policy areas for the digital transformation of the private sector. Source: Authors’ calculations with DNP (2020) Note: Share of total budget to support the SNCI. Critical drivers of business digitalization and digital busi- ness growth are being addressed by the largest support programs, such as the formation of intermediate and ad- Figure 5.17. Main Programs Supporting vanced digital skills among the youth (Misión TIC) and the Formation of Foundational Digital Skills the adoption and use of e-commerce, digital platforms, and the Widespread Adoption of Digital and digital payments by MSMEs (Vende Digital). Howev- Technologies er, other instruments with complementary ¬¬approaches to the digital transformation of the private sector, for ex- ample, those that address affordability constraints or the Misión TIC cultural factors that limit trust in digital technologies, may 35% face budgetary caps that could prevent them from meet- ing their objectives and generating an impact.240 Prog. niños y niñas 4% Most policy instruments supporting the digitaliza- Llegamos con TIC 4% tion of the private sector in Colombia focus on build- VUCE ing specific capacity and an enabling environment 4% for businesses to progressively adopt and use dig- ital solutions. Improving the digital skills of the work- Red Tecnoparque 8% force, strengthening firms’ technological, managerial, AND Tecnoacademias and organizational capacity, accelerating the adoption 9% 15% of e-commerce, and promoting innovations based on the use of digital technologies figure prominently among Source: Authors’ calculations with DNP (2020) policy objectives, in line with the key challenges identi- Note: Share of total budget to support the SNCI. fied by CONPES 3975. However, beyond boosting firms’ adoption of digital solutions, few instruments address barriers to digital entrepreneurship and digital business- es, particularly those affecting the growth and formaliza- tion of early-stage digital firms (APPS.CO being a clear exception).241 Moreover, no program from this group con- templates improving firms’ access to finance as a main objective, which translates into only rarely using financ- ing as an instrument and instead mostly targeting the adoption and use of digital solutions (Figure 5.18). Digital Businesses 122 Training and the provision of educational resourc- Figure 5.19. Main Intervention Mechanisms es are the dominant intervention mechanisms in the digital transformation policy mix, both in the num- 35% ber of instruments and the dedicated budget. Ad- Advisory services 33% visory services and networking tools, such as events, 100% platforms, and business databases, are also prevalent among programs that support the growth of digital busi- 45% nesses and business digitalization (Figure 5.19). Again, Education & training 67% the provision of public finance is used sparingly as a tool 33% to drive business digitalization, and only a few programs currently employ grants, vouchers, or public procure- ment to this end (for instance, the Crea Digital program, 10% which provides grants to digital content creators).242 Financing 11% 33% Overlapping program objectives, inadequate target- ing of beneficiaries, and a lack of intervention mecha- 26% nisms to address access to finance constraints point Networking & events 11% to opportunities to improve the efficiency of public 66% spending. Most programs assessed do not adapt their offer of support instruments to account for subnational or 29% cultural differences, and they also show a low segmen- Studies, databases, 11% tation of beneficiaries, which could lead to a significant knowledge platforms duplication of effort.243 In this context, strengthening the articulation between policy instruments and improving Programs promoting digitalization and digital selectivity criteria could play an instrumental role in in- skills formation (general) creasing the reach and impact of support programs and Programs supporting business digitalization in enhancing the efficacy of public spending. Programs supporting digital businesses Source: Authors’ calculations with data from DNP (2020). Figure 5.18. Main Program Objectives 3% Moreover, some critical barriers to business digita- Clusters 22% lization and digital business growth remain unad- dressed by the mix policy instruments.244 Multiple 23% Commercialization 11% instruments seek to strengthen the intermediate-level digital skills of the workforce (e.g., programing and cy- 26% bersecurity awareness), business networks, and firms’ E-commerce 44% digital capabilities (e.g., use of digital marketing and e-commerce or the adoption of business plans for invest- 16% Entrepreneurship ing in digital services). However, efforts to address oth- 33% er critical barriers affecting digitalization remain limited. 6% For instance, although lack of knowledge about available Formalization 11% digital solutions, technological skepticism, and affordabil- ity concerns limit the adoption of digital solutions among 42% MSMEs, few programs facilitate access to digital infra- Innovation 33% structure and equipment through partially subsidized fi- nancing mechanisms or engage in technology transfers 48% Skills formation 78% through advisory services (Figure 5.19). 33% Tech and 52% Access to financing is a particularly important chal- 56% lenge to the innovation and growth of digital busi- knowledge transfer 100% nesses that the current mix of policy instruments Programs promoting digitalization and digital skills seems ill-equipped to address. This suggests an op- formation (general) portunity to strengthen the policy mix with instruments Programs supporting business digitalization that can facilitate and promote both debt and private Programs supporting digital businesses equity financing for high-potential digital innovators. Likewise, the public sector currently plays a negligible Source: Authors’ calculations with data from DNP (2020). role in the financing of innovative ICT businesses, even Digital Businesses 123 though public resources account for up to 14 percent of point to important areas for improvement.245 Regarding financing of STI activities in non-ICT service firms. Firms design, relatively few instruments have been developed identify the scarcity of information on public support in- based on robust logical frameworks, and differences in struments, as well as their conditions and requirements, needs at the subnational level are usually not accounted as a potential barrier to financing STI activities through for. During the implementation phase, information man- public funds. agement still presents a challenge for many programs, and relatively few instruments adequately collect and Programs supporting digital businesses and the use leverage data to iterate and improve their design. More- of digital solutions suffer from relatively weak logical over, there is room for improvement in the articulation frameworks, difficulties in generating and levering and communication between instruments, although on data, and limited articulation with other programs average, programs aimed at promoting digital transfor- and stakeholders. Functionality tests applied to the pol- mation score on par with other instruments of SNCI in icy instruments mapped following the ArCo methodology this dimension. Figure 5.20. Main Mechanisms by Instrument Supporting Digital Business Development and Other Firms’ Adoption/Use of Digital Solutions Supply Allocation Demand side side factors barriers factors Access to information, and cultural factors Business networks Access to physical and internalization knowledge capital Access to finance Objective Firm capabilities technology and Skills formation Program/ Market access characteristics Entreprenurial of support Entity Regulations tool instrument capital APPS.CO Support Crea Digital digital MinTIC businesses Especializa- ción 4RI Vende Digital Talento MinTIC digital Teletrabajo Promote business Inpulsa CTDE digitalization Herramien- tas digitales Procolombia para interna- cionalización MiPyme Se SENA Transforma Source: Authors’ elaboration based on data from DNP (2022). Framework adapted from Cruz and Zhu (forthcoming); and Cusolito and Maloney (2018). Note: The key entrepreneurial pillars are grouped into the following sections: 1. Resource endowment factors (physical, human, and knowledge capital) that shape the demand of firms for digital technologies and solutions (demand-side). 2. Factors that drive the formation and growth of digital businesses, such as market access and firm capabilities, entrepreneur characteristics, such as appetite for risk and opportunity vs necessity entrepreneurship, or multinational experience (supply-side). 3. Barriers to resource allocation, such as access to finance, regulations, business networks, and cultural factors (e.g., social perception or status of entrepreneurs, gender biases in entrepreneurship and management, etc.). Digital Businesses 124 Table 5.2. Digital Businesses: Key Challenges and Opportunities Strengths Areas for Improvement » The national policy for digital transformation » More than half of SMEs and large firms in the (CONPES 3975) provides strategic guidelines to commerce and manufacturing sectors access the create digital capabilities and boost digital uptake internet through low bandwidth connections, which among government, firms, and individuals. constrains their capacity to adopt data-intensive technologies. » A set of policy instruments to promote the digital transformation of businesses and the formation » Low automation of border control agencies, outmoded and growth of digital start-ups is already in place. customs and tax revenue collection techniques, and a partial de minimis regime for imported low-value » Early-stage funding for digital businesses, while still shipments, among other factors, constrain cross- nascent, has increased consistently over the past border e-commerce of goods. decade. Inadequate organizational capabilities and lack » Significant advances in the digitization of government » of knowledge about digital technologies hold back services, high mobile phone penetration, and a the pace of the digital transformation of Colombian data-rich environment (relative to regional peers) businesses. provide key enablers for the development of data- intensive and platform-based businesses. Programs supporting digital businesses and the use » of digital solutions suffer from relatively weak logical frameworks, difficulties in generating and levering data, and limited articulation with other programs and stakeholders. Opportunities Threats » Colombia has a vibrant digital start-up ecosystem, » The ICT sector, the backbone of the digital economy, particularly in the areas of logistics tech, foodtech, remains relatively small in Colombia, contributing little and healthtech. to total value-added, employment growth, and exports. » Domestic e-commerce has been growing steadily, especially since the onset of the COVID-19 pandemic. » Firms’ investment in digital technologies declined as mobility restrictions to control the spread of » Advanced digital technologies, such as AI, show COVID-19 were lifted. enormous potential to boost productivity and accelerate economic growth in Colombia. However, » Limited externalization of the development and their adoption and use by local firms remain limited. application of ICT and related services by firms prevents digital businesses from gaining scale. » The overlapping efforts of public programs supporting firms’ adoption of digital solutions point to significant » Constraints to capital market development could limit opportunities to increase the efficiency of public the capacity of Colombian digital businesses to attract spending through improved articulation between more diverse and scalable private investments. programs. Digital Businesses 125 5.3. Recommendations and next steps Multiple regulatory and infrastructure-related factors con- strain the scalability of digital platforms, the cross-border e-commerce of goods, and the export of digitally deliv- The digital business diagnostic identified five key erable services. In terms of horizontal regulations, the challenges that need to be addressed in the short absence of a regulatory framework explicitly addressing and medium term to promote the widespread adoption online intermediary liability in Colombia is likely to lead of digital technologies by firms and create an enabling to court decisions to fill the gaps, creating costs for firms environment where digital start-ups and established that offer their goods and services through these plat- businesses thrive. Based on these challenges, this sec- forms due to a lack of transparency and predictability as tion presents a set of broad policy recommendations and well as potentially to odd or suboptimal results as courts examples of international good practices. are bound to apply other rules and principles not tailored to the digital context.246 In terms of sector-specific reg- Low digital uptake among firms. Most MSMEs in ulations, Colombia could align the crowdfunding regu- Colombia have adopted basic digital tools, but the use latory framework enacted in 2018 to good practices to of these tools for productive purposes remains limited, enable the scalability of crowdfunding platforms, which particularly among microbusinesses. Moreover, the up- is expected to expand in particular digital lending to take of more advanced digital technologies (such as MSMEs. Moreover, the country still needs to implement cloud computing, big data analytics, or AI systems) is more advanced border management solutions, such as still nascent and biased toward foreign and large firms. new approaches to revenue collection and dedicated au- Likewise, only a small share of firms have adopted plat- tomated systems to receive and process data on postal form-based or data-driven business models. Thus, a and expedited shipments.247 Reviewing the de minimis strategy to promote the local demand for new technol- regime and lifting value ceilings for trade through postal ogies to ensure greater uptake will be key. The Colom- services are a priority to scale international e-commerce, bian government’s menu of policy instruments for digital especially for MSMEs. As discussed by Chimienti and transformation could be strengthened to better support Valencia, raising the bar in fraud prevention and man- firms’ digital uptake through a calibrated mix of interven- agement, together with financial literacy activities to ed- tion mechanisms focused on: raising awareness among ucate consumers and businesses on the risks and bene- MSMEs about the availability of digital solutions and fits alike of electronic payment products, is also key.248 In their benefits to improving firm performance; strength- addition, it is critical that the market invests in advanced ening the organizational, technical, and managerial ca- analytics (e.g., fraud scoring) and fraud reporting ser- pabilities of firms; doubling down on efforts to support vices. Finally, tax incentives that decrease the cost of the interaction between the demand for and supply of accepting card/electronic payments by merchants may digital solutions; encouraging the use of advanced digital stimulate the growth of acceptance terminal networks.249 technologies among firms with the necessary capabili- ties; and supporting the formation of platform-based and Limited access to debt and equity financing for dig- data-intensive businesses. ital businesses. Digital businesses point to the limited access to external sources of financing as a key con- Limited externalization of ICT services. Only a small straint to innovation and growth. Debt financing through fraction of Colombian MSMEs have the capacity to de- private bank accounts for less than 2 percent of ICT velop and implement the technological solutions they re- firms’ investments in STI activities. Additionally, con- quire to operate in a digital environment. Despite such straints to capital market development hinder the ca- low internal capacity, relatively few firms outsource ICT pacity of Colombian digital businesses to attract more services. Low demand of ICT services by MSMEs could diverse and scalable private investments. Although ac- hinder the capacity of digital businesses to mature and cess to risk capital in the early stages of development for scale up. Intervention mechanisms that provide techni- digital start-ups has increased during the past decade, cal or financial support for MSMEs to outsource or exter- the role of pre-seed/seed capital, angel investing, and nalize key processes intensive in the use of digital tech- venture capital remains limited. Moreover, private equity nologies (e.g., advisory services, supplier directories, financing for later-stage digital businesses is underde- networking events, grants, or vouchers) could help firms veloped compared to country peers. The GoC, in coordi- to circumvent infrastructure deficiencies and skills gaps, nation with financial institutions, could play a greater role allowing them to uptake digital solutions for productive in supporting measures to enhance the access of digital purposes. businesses to diversified financing instruments suitable to their specific needs and development stages, for ex- Regulatory and technical constraints to plat- ample, through regulatory reforms that improve certainty form-based business models, cross-border e-com- for investors, tax incentives, and regulations, building on merce, and trade of digitally deliverable services. those introduced by Colombia in response to COVID-19, Digital Businesses 126 to foster the development of capital markets that have SNCI instruments—shows little adaptation to social, cul- the potential to have a more permanent impact. For in- tural, and territorial differences at the subnational level. stance, as highlighted by the Financial Sector Assess- Enhancing the coordination between policy instruments, ment Program, Bancóldex could develop a direct lending refocusing their intervention mechanisms through sound pilot program targeting viable riskier firms and auction logical frameworks, and improving their monitoring and their credit lines to institutions offering lower rates on evaluation capabilities could help minimize duplications a portfolio basis. FINAGRO and Bancoldex could also of effort and allow the government to focus scarce re- actively support fintech developments targeting under- sources on other key enablers of digital transformation, served segments to create markets and increase their contributing to more efficient public spending. reach.250 Finally, measures to strengthen the financial infrastructure related to intangible capital could also be The policy recommendations included in Table 5.3 needed. are intended to be broad guidelines to support the current efforts of the GoC and other key players in Overlaps and gaps in policy instruments for the dig- the digital ecosystem to accelerate and deepen the ital transformation of businesses. MinTIC, among digital transformation of Colombian businesses. other public entities, has implemented multiple programs The implementation timeline and prioritization for these to promote business digitalization and the formation recommendations is based on four criteria: (i) the antic- and growth of Colombian digital start-ups. However, ipated time to advance the reforms; (ii) the capacity of there are significant overlaps between program objec- reforms to trigger demand for and supply of digital solu- tives, beneficiaries, territorial coverage, and intervention tions and enable a dynamic digital entrepreneurship eco- mechanisms, while key constraints to digital transfor- system (e.g., addressing business scale-up challenges); mation (e.g., low externalization of ICT services, inad- (iii) the potential of reforms to provide key analog en- equate managerial and organizational capabilities, lim- ablers for digital transformation, such as improved ac- ited access to finance) remain unaddressed. Moreover, cess to finance for digital start-ups with growth potential; among public programs supporting digital transforma- and (iv) the potential of reforms to address underlying tion, relatively few base their intervention approach on factors limiting the adoption of digital technologies by robust logical frameworks, and most report challenges MSMEs, such as e-commerce regulation. to information management and monitoring and evalua- tion. The offer of these support programs—as most other Digital Businesses 127 Table 5.3. Digital Businesses: Policy Recommendations (1 of 5) Responsible Legal Change Reform Area Recommendation Entity Timing Required? Adoption and use Understand constraints of digital technologies and raise awareness among by MSMEs MSMEs about the potential value of using the internet and integrating digital solutions into their business models and internal Short MinTIC term No processes. Consider implementing awareness-raising campaigns targeted at women-owned, micro-, and rural businesses. PRIORITY. Strengthen the links between technical/ technological training programs and firms demanding ICT specialists and digitally competent workers. Develop Short a continuous dialogue channel SENA, MinTIC No term to identify key technical skills demanded by firms. Align incentives for firms to implement on-the-job training for digital skills. Develop a mechanism for public-private dialogue MinTIC, to identify the key constraints, Ministry enablers, needs, and priorities of Science, for SMEs and large firms in the Technology adoption of AI and other and Innovation (Minciencias), Short advanced digital technologies. No Ministry of term This mechanism could also serve to engage with the Colombian Commerce, diaspora and facilitate the Industry and mobilization of their know-how Tourism and capital. (MinCIT) Encourage and facilitate the adoption of advanced digital technologies among businesses with more mature digital capabilities. » Creating a data rich environ- ment is critical for firms to harness the potential of MinTIC, advanced digital technologies. iNNpulsa, Medium Align incentives for the private national term Potentially sector to contribute indus- development try-level data to public open banks data trusts, and create public-private repositories of data that can be used by all firms. Likewise, consider funding commercially relevant research, on the condition that the data generated are made publicly available. Digital Businesses 128 Table 5.3. Digital Businesses: Policy Recommendations (2 of 5) Responsible Legal Change Reform Area Recommendation Entity Timing Required? » Consider providing funding to eligible firms to cover the costs of training on, and testing and implementation of, AI systems, big data analytics tools, and cloud services, among other digital solutions. Cross-border Invest in the automation of border e-commerce and control agencies, update customs digitally deliverable and tax revenue collection techniques to specificities of Directorate services cross-border e-commerce, and Short to of National review/remove the de minimis Medium Yes Taxes and regime for imported low-value term Customs shipments and the limits imposed by the Customs Code on imports and exports by postal services. Conduct a quantitative cost-benefit analysis of the consequences for government Ministry revenue and network expansion of Finance, Short of introducing tax incentives that National Tax Yes term decrease the cost of accepting and Customs card/electronic payments by Directorate merchants. Leverage the Colombian National Economic and Financial Education Strategy to enhance awareness of and trust in transaction accounts and electronic payment instruments Short and channels (e.g., delivery SFC No term awareness and educational activities that address the risks, costs, and benefits of transaction accounts and electronic payment instruments and channels.). Raise the bar in fraud prevention and management within the industry, and incentivize the Short market to invest in advanced SFC No term analytics (e.g., fraud scoring) and fraud reporting services. Digital Businesses 129 Table 5.3. Digital Businesses: Policy Recommendations (3 of 5) Responsible Legal Change Reform Area Recommendation Entity Timing Required? Fintech Align the crowdfunding regulatory framework to good practices in order to (i) enable more entities to offer such services, (ii) allow such Short SFC Yes platforms to issue tradable debt term and equity; and (iii) enable peer-to-peer lending (by revising Decree 1235 of 2020). As per the Financial Sector Assessment Program, state-owned financial institutions could have dedicated units to engage with the buoyant State-owned Colombian fintech industry to Medium financial No explore financial solutions and term institutions encourage the development of such solutions through the provision of credit lines and equity investments. Growth Promote the externalization of digital of ICT services by considering businesses the implementation of an “ICT innovation vouchers” program. Vouchers can be used by MSMEs to acquire ICT services from pre-approved service providers, allowing firms with limited digital capabilities and innovation experience to adopt digital Medium MinTIC No solutions tailored to their needs. term Likewise, by partially subsidizing ICT innovation for eligible firms and services, the program would support the demand for ICT services while the digital ecosystem matures. The region of Murcia, Spain, provides an interesting case study of ICT innovation vouchers. Strengthen access to finance for digital businesses and support a more diversified financial offer in coordination with the private sector. MHCP, National Medium » As identified in the Financial Yes Guarantee term Sector Assessment Program, Fund review the regulations introduced in the context of the post-COVID-19 economic recovery plan following best practices to see if they can have a more permanent Digital Businesses 130 Table 5.3. Digital Businesses: Policy Recommendations (4 of 5) Responsible Legal Change Reform Area Recommendation Entity Timing Required? impact on the disintermedia- tion market: (i) authorization for simplified equity compa- nies (SAS) to issue debt; ii) subsidized guarantees offered by the National Guarantee port Fund (FNG) on SME corpora- er te debt issued by SAS and e others; iii) FNG portfolio guarantees for private debt fund lending to SMEs, helping cial establish these funds as a am, new asset class; and iv) revised investment regulations of for pension funds and omic insurance companies, est enabling them to invest in n corporate debt funds. Continue to work on the develop- ment of alternative collateral options to expand lending opportunities for entrepreneurs (e.g., track record of repayment performance, movable assets); and improve credit information systems that better reflect the risks associated with financing digital start-ups, young entrepreneurs, and SMEs in general. PRIORITY. Assess the constraints limiting digital businesses’ access to risk capital and private equity throughout their life cycles. Based on the specific challenges identified, consider providing digital businesses with financial and non-financial support, for iNNpulsa/ instance, through an invest- MinCIT, ment-matching program251 or Minciencias, through the provision of pre-seed SENA Medium term Potentially and seed financing for digital Emprende, start-ups that show high growth national and innovation potential.252 In development particular, as highlighted in the banks Financial Sector Assessment Program, Bancoldex could launch a pilot lending program targeting viable riskier firms (typically younger, technologically savvy firms) by leveraging its MSME training and consulting programs, and a recent pilot program implemented with IDB support that generated three new credit analysis methodologies for early-stage companies to be used by financial intermediaries.253 Digital Businesses 131 Table 5.3. Digital Businesses: Policy Recommendations (5 of 5) Responsible Legal Change Reform Area Recommendation Entity Timing Required? Assess if and how the lack of provisions on online intermediary liability is being MinTIC, managed by courts and its impact Medium Ministry Yes on platform-based digital business term of Justice growth in order to design a roadmap for platform regulation. Public policy Map the digital business instruments for the landscape in Colombia and digital transformation periodically collect data on digital start-ups, established digital of businesses businesses, and digital uptake among MSMEs. Present key findings in a clear dashboard DANE, Short that can be followed by all No MinTIC term stakeholders. Leverage the data in the design of logical frameworks and the monitoring and evaluation system of public support programs targeting the digital transformation of the private sector. Assess the potential duplication of effort among public programs supporting digital businesses and the digital transformation of MSMEs, particularly in terms of the overlap of their objectives, MinTIC, Short beneficiaries, and intervention No iNNpulsa term mechanisms. Based on the results of this assessment, strengthen the articulation across programs by minimizing redundancies and improving the exchange of information. PRIORITY. Assess the key factors constrai- ning the growth of the digital business ecosystem in Colombia and assess the suitability of the DNP, MinTIC, current offer of public support SENA, Short programs to overcoming these iNNpulsa, No term constraints. Identify significant Minciencias, policy gaps and strengthen the MinCIT offer of support programs accordingly. Fine tune the current offer of public support programs DNP, to account for subnational MinTIC, differences in firms’ composition, SENA, Medium digital capabilities, connectivity No iNNpulsa, term and access to digital infrastructure, Minciencias, access to business networks, and MinCIT sociocultural factors. Digital Businesses 132 6. DIGITAL SKILLS KEY MESSAGES » Deep geographic, socioeconomic, and ethnic inequities in the access to and quality of edu- cation and in school life expectancy could bias the potential gains from a digital transforma- tion, fueling the digital divide. In this sense, it is critical to ensure the equitable provision of digital, foundational, and socio-emotional skills so that all groups can participate and be productive in an increasingly digitalized economy. » Colombia has made significant efforts over the past decade to develop digital skills among its citizens. However, the country must overcome multiple critical challenges to advance this pro- cess, chief among them: the low level of basic skills among children and youth; the education sys- tem’s inadequacies as assessed by the Program for International Student Assessment; the uneven provision of and access to key enablers such as learning technologies; the low enrollment in mid- dle-level vocational training; and weak reskilling and upskilling systems. » Limited connectivity and unequal access to digital infrastructure present a barrier to the ac- quisition of digital skills, especially in rural areas. To improve computer usage and proficiency, it is important to improve technological infrastructure and increase public schools’ quality of and access to internet connectivity. » The country lacks a national strategy to guide the development of digital skills and coordi- nate public and private sector support programs. Colombia has conducted diagnostic exercises that focuses on supply of and demand for digital competencies, such as the “Brechas de Capital Humano del sector TIC” programs. However, to design and implement a proper digital skills strat- egy, the country needs a cross-sector integrated analysis to articulate all public and private efforts and the respective evaluation program. » Colombia would benefit from a national digital skills framework with a clear governance structure to guide the design of training programs at the levels of both compulsory education and technical and higher education training. This framework could be leveraged to help design and implement a national digital skills strategy, including guidelines to train teachers in the pedagogical use of ICT. By including clear provisions for governance structure, this framework can also help assign responsibilities to the country’s different stakeholders. » Developing an inter-agency and cross-sectoral monitoring and evaluation framework is crit- ical to ensuring the effective implementation of a national digital skills strategy, as well as to assessing the impact of national training programs on closing the existing skills gaps. A robust framework for monitoring and evaluation will help Colombian policy makers and institutions to iter- ate and refine their efforts to provide the digital skills needed to sustain the digital transformation process over the long term. Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 133 6.1. The importance of digital skills Improving the education level and strengthening the digital skills of the labor force could help boost Colombia’s labor productivity and contribute to per Digitalization is reshaping every aspect of daily life, capita GDP growth. Colombia’s productivity gap with redefining relationships, disrupting economic sys- respect to the OECD average in 2018 was larger than in tems, and restructuring service delivery. Keeping up most other LAC countries with the exception of Peru.256 with these changes requires that Colombians know and Low labor productivity in Colombia is partially related manage a set of key digital skills. A 2021 study by the to the level of education and worker skills.257 Nearly 30 Economic Commission for Latin America and the Carib- percent of people aged 25–34 have no upper secondary bean (ECLAC) suggests that most of the jobs that will re- education, twice the OECD average, and almost two- main in high and medium productivity sectors will be sub- thirds of students lack basic literacy and numeracy skills ject to changes that will require at least basic digital skills compared to the OECD average of one-fifth.258 Recent to perform rudimentary hardware, software, and online research suggests that increases in digital capabilities operations, and many will demand intermediate or high- as measured by CAF’s Digitization Index are significantly er-level digital skills and knowledge, such as program- associated with increases in GDP per capita. In Colom- ming, network management, AI, big data, cybersecurity, bia, an increase of 10 points in CAF’s Digitization Index or IoT.254 It is therefore paramount to develop strong and (which ranges from 0 to 80 points) would be associat- impactful digital skills policies for the population in order ed with a 0.14 percent increase in GDP. Colombia ranks to close the gaps and to catch up to the most advanced 56th out of 64 countries in the 2021 edition of the World economies. It is equally urgent to improve equity and in- Ranking of Digital Competitiveness of the International clusion by supporting those who are outside the digital Institute for Management Development (IMD). Wiley’s economy and offering transformative human capital op- 2021 Digital Skills Gap Index ranks Colombia 85th out of portunities to allow the Colombian people to play a more 134 countries; in regional terms, Colombia ranks above active role in an increasingly digitized economy. Mexico (92nd), Brazil (96th), Chile (98th), but below Peru (61st). Colombia’s ranking primarily reflects the country’s The concept of digital skills encompasses both tech- large digital skills divide, the gap between the demand nical skills—basic and advanced—as well as trans- for digital skills and the capacity to respond to the talent versal skills.255 For instance, effective collaborative deficit. Increasing the number of ICT specialists, closing work through digital technologies clearly implies techni- the existing skills gaps, and revamping the professional cal competencies, such as knowing how to use certain skills of the labor force are all critical steps for Colombia digital tools, but also requires transversal skills such as to harness the full potential of its digital economy. communication, cooperation, and empathy. As Colombia advances in its digital transformation, there are basic or Digital technologies have the potential to improve fundamental digital skills that all citizens need to master development outcomes and lift millions out of pov- for their jobs and professions and for their everyday lives. erty, but they can also heighten political divisions For young people, the main way to acquire these skills and exacerbate inequality.262 Gaps in access to digi- is through the compulsory formal education system, and tal technologies can be compounded by social and ter- for adults, through a workplace training system. At the ritorial disparities in the accumulation of digital skills, same time, the more advanced or specialized digital leading to significant differences in the ability of diverse skills that are increasingly necessary for an ever-grow- segments of the population to use available digital tech- ing number of jobs are fundamentally acquired in formal nologies productively. Without equitable access to these higher education (technical or university) and in formal fundamental skills across the country, widespread digita- and informal training offered by a growing ecosystem of lization could amplify the challenges Colombia currently providers and by the technology industries themselves. faces in its pursuit of inclusive development. It is also critical to understand that digital skills are not static but constantly evolving; many of the skills consid- By fostering a digitally competent society, Colom- ered advanced a few years ago are now looked at as bia can also mitigate the impact of COVID-19. In elementary and essential for many jobs. Colombia, the COVID-19 crisis caused the economy to Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 134 contract and exacerbated labor market weaknesses, 6.2. Current state of digital skills leading to an estimated loss of 2.4 million jobs in 2020.263 During this period, the unemployment rate increased by 50 percent, reaching 15.9 percent, with large increases In recent years, the GoC has launched important in urban areas. Women, youth, the self-employed, and plans and programs related to the development of workers in rural, remote, or dispersed areas—who often digital skills. The main actors related to digital skills face barriers to connectivity and access to technologi- are MinTIC, MEN, the Ministry of Labor, the Ministry of cal infrastructure and devices—were disproportionately Commerce, Industry and Tourism; the Agency for Entre- affected. The pandemic has also had a substantial im- preneurship and Innovation of the National Government; pact on the education sector, as school closures affect- and SENA. In addition, universities, both public and pri- ed an estimated 10 million students.264 Between March vate, stand out in the provision of formal education and 2020 and March 2021, Colombia completely closed its training in digital skills. The 2018–2022 PND, the 2018– schools for 23 weeks and then partially for more than 52 2022 ICT Plan: Digital Future for All, and the 2016–2026 weeks after that. Although the number of weeks with fully National Decennial Education Plan (PNDE)268 recognize closed schools is lower than in other countries in the re- the importance of developing digital skills among the Co- gion (e.g., Brazil, Mexico, and Peru), if the weeks of com- lombian population and establish a series of goals and plete and partial closure are combined, the immediate programs that directly contribute to this end.269 The PNDE impact was spread over two school years. As a response sets specific goals to increase the number of school sites to the pandemic, the Colombian government supported with access to the internet and basic ICT infrastructure students, teachers, and parents using a multi-channel to support the implementation of the Institutional Edu- approach. The Ministry of National Education (Ministe- cation Program (Programa de Educación Institucional) rio de Educación Nacional [MEN]) provided a wide va- and to increase the percentage of 5–24-year-olds who riety of educational resources for free and in diverse use the internet for educational and learning activities. formats to the educational community through its plat- These long-term goals are developed and complement- form Aprender Digital (Digital Learning). MEN also cre- ed in the medium term in the 2018–2022 PND, which ated the teacher platform “Contacto Maestro,” focused has the ambitious objective of providing 500,000 train- on supporting teachers and school leaders. In order to ings for the development of digital competencies. Finally, make these resources available online to learners and the 2018–2022 ICT Plan focuses on bridging the digital to guarantee access, MEN, in coordination with MinTIC, gap and preparing Colombians for the Fourth Industrial published a decree determining that mobile operators Revolution, setting in motion massive training programs should provide zero-rating conditions for the education for all citizens to accomplish the goals established in the community.265 Additionally, other initiatives complement- PND. ed this multi-channel approach, with examples such as “A prender la Onda (ALO),” a program to develop and Although there is a significant gap in digital skills distribute audio learning podcasts through WhatsApp, among regions, these skills appear to be similarly local radio stations, and other streaming platforms,266 or distributed between women and men.270 UN data for the strategy of educational continuity, “Aprende en Casa 2018–19 suggest that there is little difference between - AeC” (Learn At Home), which included educational tele- genders as regards to basic computer skills in Colom- vision and radio programs that were broadcast twice a bia, especially when compared to regional peers such day on national TV channels and radio stations with con- as Mexico and Brazil (figure 6.1).271 On the other hand, tent for different ages and subjects.267 there is a large gender gap in ICT careers in Colombia, with only 17 percent of ICT roles occupied by women, even though 61 percent of Colombia’s female population have expressed an interest in being trained in ICT.272 Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 135 Figure 6.1. Digital Literacy Gaps in Colombia, Brazil, and Mexico (2019). Share of Youth and Adults 36 36 Female Male 28 27 26 26 25 25 C OLOM BIA 19 16 7 5 Connecting Creating Finding, Using basic Using copy and Writing a computer and installing electronic downloading, arithmetic paste tools to program using a new devices presentations installing and formula in duplicate or move specialized with presentation configuring a spreadsheet information within programming software software a document language 28 20 19 16 BRAZIL 12 12 10 9 8 5 4 2 Connecting Creating Finding, Using basic Using copy and Writing a computer and installing electronic downloading, arithmetic paste tools to program using a new devices presentations installing and formula in duplicate or move specialized with presentation configuring a spreadsheet information within programming software software a document language 34 31 30 28 26 27 24 21 19 M EX IC O 16 9 6 Connecting Creating Finding, Using basic Using copy and Writing a computer and installing electronic downloading, arithmetic paste tools to program using a new devices presentations installing and formula in duplicate or move specialized with presentation configuring a spreadsheet information within programming software software a document language Source: UNESCO, SDG 4.4.1. Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 136 Colombia lacks a digital skills framework. Not all the country’s public and private universities, there are the actors involved in the process of digital transforma- numerous education institutions playing an increasingly tion have the same understanding of digital skills. This important role in the formation of digital skills in Colom- makes it difficult to assess the current situation, measure bia but whose training or certifications have not yet been the gaps between the supply of and demand for digital regulated by the national government.278 These include skills, and design policies and interventions to develop companies and multinationals, such as Amazon, CIS- the required skills. In this sense, Colombia can benefit CO, Globant, Google, IBM, Microsoft, ORACLE, Ruta N, from adopting international frameworks, such as the Dig- SAP, Siemens, and Huawei, and such organizations as ital Competence Framework for Citizens (DigComp 2.1) CoSchool, Sumanti, ProTalento, Fundación Saldarriaga, of the European Commission or UNESCO’s Digital Liter- Fundación Corona, and Fundación Luker. Other actors acy Global Framework (DLGF).273 The latter defines digi- providing training in digital skills include the different tal literacy as “the ability to access, manage, understand, chambers of commerce of the country’s larger cities. integrate, communicate, evaluate, and create informa- tion safely and appropriately through digital technologies The main strategy for the development of basic dig- for employment, decent work and entrepreneurship. ital skills among students (pre-school, primary, and It includes skills that are called computer literacy, ICT secondary education) and teachers has been the literacy, information literacy and media literacy.”274 The Computers to Educate (Computadores para Educar recent definition of a qualifications framework in the ICT [CPE]) program.279 Initially focused on providing techno- sector, under the guidelines of the National Qualifica- logical infrastructure, CPE is transforming to become the tions Framework, constitutes an opportunity to support foremost teacher and student training program for tech- the identified needs of the sector, such as the high de- nological appropriation. The program has been extreme- mand for the specialization and training of technical and/ ly successful in providing access to such technological or professional personnel.275 devices as laptops, desktops, and tablets with preloaded content for schools, reducing the national ratio of stu- dents per computer terminal from 24 in 2010 to three in 2020. As of 2020, CPE had reached all the munici- palities in the country, distributed more than 2.4 million Supply side devices (computers and tablets), and impacted 45,830 school sites, over 9.4 million students, 1,103,988 family members and caregivers, and 321,125 teachers. An im- pact evaluation of the CPE program carried out between Despite government efforts in the past 20 years to 2014 and 2018 showed that during the four years of the provide technological infrastructure and train teach- observation window, the average annual rate of repeti- ers and students in the use of technology for edu- tion in participating schools went from 3.1 to 2.7 percent cational purposes, capacity remains limited. Unequal and the inter-annual dropout rate from 13 to below 12 access to the internet has turned into unequal access percent.282 to school and learning—and thus skills development—at a time when new knowledge and skills are most need- In 2020, the government launched the Technologies ed. A representative survey of households with children for Learning National Policy aimed at promoting in- in public schools shows that between March 2020 and novation in educational practices. The Policy trans- June 2021, only 49 percent of students had access to formed the CPE program and set its focus primarily on educational platforms, with a major gap between rural four aspects: (i) increasing the access to digital tech- (32 percent) and urban (54 percent) areas. The main me- nologies, (ii) improving connectivity, (iii) promoting the dia used to connect with students and carry out educa- appropriation of digital technologies by the education tional activities were WhatsApp (82 percent) and printed community, and (iv) strengthening monitoring and evalu- guides (77 percent in rural areas compared to 65 percent ation practices for the use, access, and impact of digital in urban areas).276 Lack of access to suitable technolog- technologies in the education sector.283 ical devices and connectivity, as well as the inability of teachers and students to adequately handle technolo- MinTIC provides a wide variety of short training pro- gy for educational purposes (lack of digital skills), were grams accessible to all Colombians. MinTIC´s 2018– among the main reasons for the difficulties in maintain- 2022 ICT Plan established massive training programs to ing educational services during the pandemic.277 contribute to the 2018–2022 PND goal of training 500,000 Colombians in digital competencies. The ministry’s strat- Multiple actors, both from the public and private egy focuses on three main age groups: (a) basic training sectors, formal and informal, are actively involved for children, (b) strengthened skills for youth, and (c) ad- in the development of digital skills in Colombia. In vanced qualifications for adults. The implementation of addition to the government agencies outlined above and this strategy has led to training programs for more than Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 137 150,000 children (ages four–eight) and 5,000 educators Although the Colombian government is working to to foster the development of computational thinking (Ju- provide basic digital skills in primary and second- gando y Kreando Program), trainings for 8,500 teach- ary education, a large number of young people are ers in programming basics (Programación para Niños leaving school without rudimentary digital skills y Niñas), and STEM [science, technology, engineering, and without the capacity to continue their digital and math] trainings for 10,000 teachers (Ruta STEM).284 education. Technical and higher education does offer Furthermore, in order to bridge the gap in the software advanced training, but the number of people enrolled development sector, the government set an ambitious remains low, and in many cases the offer is not flexi- goal to train 100,000 youth and adults in basic program- ble enough to adapt to the changing demands of the ming. Recently, MinTIC has increased its focus on re- productive sector. inforcing basic competences in science, mathematics, reading comprehension, and English to ensure individu- als can successfully complete this training. In 2021, Tu- toTIC was created, a free program for students of any public or private school that provides tutoring in these Demand for digital skills four subjects. MinTIC also offers more advanced training courses on a much more modest scale, focusing on data science skills for undergraduate students, C-Level train- ing for managers, and more specialized training in AI and Over half of the firms in Colombia surveyed by Man- cybersecurity for those interested.285 power Group in 2014 reported difficulties in find- ing the right human talent.291 The reported reasons Numerous education institutions are increasingly behind this mismatch are the absence of generic and playing an important role in the formation of digital sector-specific skills (40 percent of companies), lack of skills in Colombia, and some have become public required knowledge and certifications (30 percent), and sector allies in the implementation of various initia- lack of experience (25 percent). In a major study con- tives. For example, the government launched a call in ducted by the ICT Alliance (Alianza TIC) in 2020 to iden- 2020 to train 50,000 unemployed individuals in digital tify the human capital gaps for the ICT sector in Colom- and business skills through 3,800 courses by means of bia, a total of 595 relevant programs were identified in its agency iNNpulsa, in alliance with the Coursera plat- the five regions analyzed, out of which 37 percent were form.286 By December 2020, in the city of Medellin, of the technical or technological, 30 percent higher education, 26,700 people registered, 7,927 had already completed and 33 percent post-graduate.292 Of the total programs the courses and 15,510 were in the training process.287 available, 42 percent were being offered in Bogotá. The There are numerous schools and platforms that offer greatest deficits were found in specialized telecommu- training in digital skills, especially in bootcamp format.288 nications training programs (-42 percent); analysis and Bootcamps seem to be quite effective at identifying the development of information systems (-30 percent); and needs of the industry, quickly adjusting their teaching database development (-23 percent).293 A report by the modalities to its requirements and the latest trends. United Nations Development Programme, in collabora- There are private organizations that claim to certify the tion with the Bogota Chamber of Commerce and focused quality of bootcamp training such as Switch Up.290 How- on the financial services cluster, identified challenges re- ever, bootcamp programs can be difficult to implement lated to quantity gaps (i.e., an insufficient number of pro- and require links with potential employers, and while fessionals) and quality gaps (i.e., the lack of solid techni- they can be catalyzed through policy interventions, they cal knowledge) in several profiles, such as software and must be regulated to ensure certifications are compara- application developers, data science specialists, user ble in quality. experience designers, and digital marketing, as well as a relevance gap in the training offered (i.e., a discon- nect between the productive sector and the academy).294 Table 6.1 identifies critical areas where there is a deficit of training programs, by educational levels. Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 138 Table 6.1. Training Programs Needed in the ICT Sector by Educational Level Apprenticeships Technical and Higher Postgraduate Technological Education 1. Administrative support 1. Systems technician 1. Systems engineer 1. Software development 2. System assistant 2. Software development 2. Electronic engineer 2. Project management 3. Software development 3. Information systems 3. Software engineer 3. Cybersecurity 4. Graphic design 4. Web development 4. Information engineer 4. Specialized 5. Administration 5. Physics telecommunications of information systems 5. Innovation management Source: Alianza TIC (2020). Companies in the digital sector are struggling to The study identified a total of 274,386 people and 51,842 attract and retain employees with advanced digital companies (3.6 percent of the total number of formal skills. Advanced digital skills are in high demand in the businesses) working in the country’s ICT sector. Most of formal sector and hard to find, and the significant gen- them were located in Bogotá (32.9 percent) and Medellín der gaps are likely related to barriers to accessing for- (12.1 percent). The study also found a disproportionate mal education and training. A 2020 government study participation of men (56.6 percent) in the sector in all six analyzed human capital gaps in the ICT sector in six regions (see figure 6.2). Developers were consistently of the main regions of the country: Antioquia, Atlántico, identified as the most critical ICT profile for companies, Bogotá, Santander, Valle del Cauca, and Eje Cafetero. the most difficult human resource to obtain, the profile Figure 6.2. Occupation of ICT Positions by Males and Females in Six of the Main Regions of Colombia. Share of Total 19 14 28 21 21 8 92 86 81 79 79 72 Antioquia Atlantico Bogota Eje Cafetero Santander Valle del Cauca Women Men Source: Authors’ elaboration based on Alianza TIC (2020). Note: This figure considers only the surveyed people who answered the question. Between 1 and 5 percent of the surveyed population (depending on the region) did not answer. Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 139 with the highest turnover, and the most demanded profile sector is just one among many sectors participating in by businesses in the sector (see table 6.2). The same the digital economy, this kind of analysis helps to clar- study showed that the positions identified as the most ify the strengths and key gaps in terms of intermediate relevant for the coming years were data scientists, cloud and advanced digital skills. Table 6.3 summarizes some service administrators, and IT architects and analyzed of the main training gaps in each region by identifying the ability of the higher education institutions in each programs that do not exist or are offered by few higher region to provide individuals with the skills required by education institutions despite being in wide demand by the labor market. It is worth noting that while the ICT the labor market. Table 6.2. Critical, Most Sought Out, and Difficult-to-Find Profiles in the ICT Sector in Six of the Main Regions in Colombia Top 5 Top 5 Top 5 Most Critical Top 5 Positions Most Difficult Positions Highest in Highest Profiles to for Rotation Demand by Find as per Companies Positions Companies Headhunters 1. Developer 1. Developer 1. Developer 1. Developer 2. Consultant 2. Manager 2. Support analyst 2. Consultant 3. Data analyst 3. Expert engineer 3. Consultant 3. Architect 4. Architect 4. Specialized positions 4. Designer 4. Support analyst 5. Support analyst 5. Junior or support 5. Tester 5. Database positions administrator Source: MinTIC (2020d). Table 6.3. Training Deficit for Positions in High Demand in the ICT Sector in Six of the Main Regions in Colombia Position Type of Training in High Deficit295 Regions Data scientist Statistics, data analytics Antioquia, Coffee Axis Innovation and development, front end specialization, Developers mechatronic engineering Bogotá IT Directors Big data, blockchain, and artificial intelligence Santander, Coffee Axis IT Directors Computer management Bogotá, Coffee Axis Database administrator Development of cloud applications Coffee Axis Developer Software engineering Atlantic Developer Mechatronic engineering Valle del Cauca Source: Authors’ own elaboration based on MinTIC (2020d). Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 140 important challenge for the future development of new competencies, especially those related to STEM, includ- Assessing constraints ing digital and technical skills. A marked disparity in school life expectancy by so- cioeconomic groups skews the acquisition of both The future of work demands continuous upgrading basic and advanced digital skills in Colombia toward and retraining, but the capacity of people to train the richest segments of the population. Colombia throughout life and update their skills is highly ranks among the countries with the highest school seg- linked to the acquisition of key abilities during the regation by socioeconomic level in the world.299 Inequal- initial years of schooling. In the past two decades, ities begin early on, causing marked differences in the the Colombian education system has undergone an im- acquisition of key skills. Many children from economi- portant transformation in terms of access to education, cally and socially disadvantaged backgrounds do not go school life expectancy, participation in early childhood to school, do not start their schooling on time, or attend education, and tertiary education. Despite these im- low-quality schools. The school life expectancy of stu- provements, early dropout, low school life expectancy, dents from the poorest backgrounds (Stratum 1) is only and low academic results hinder educational trajectories. six years compared to 12 years for the richest, and only Moreover, Colombia faces complex challenges in terms 9 percent enroll in higher education compared to 53 per- of educational quality and equity. Many of the goals set cent of the richest families (Stratum 6).300 Although en- by the government in recent years to improve education rollment in school is almost universal, it drops off rapidly are still outstanding, from implementing the full school after age 16 for rural students and those from poor fam- day to expanding early childhood education and care, ilies.301 In 2019, three quarters of students in rural areas closing the rural educational gap, and boosting the inclu- were still enrolled in formal education at age 16, but that sion of students with special needs.296 Efforts to improve percentage dropped to 38 percent at age 18. In terms of the quality of education are weighed down by serious completion rates, 45 percent of rural youth finished their problems of inequity: schools in Colombia rank among studies without completing upper secondary education the most segregated in Latin America.297 compared to only 27 percent in urban areas, 45 percent Table 6.4. Results for Reading, Math, and Science from PISA Tests for Colombia, Chile, Mexico, and Peru Minimum level of proficiency attained Chile Colombia Mexico Peru (Level 2) Reading 68% 50% 55% 46% Math 48% 35% 44% 40% Science 65% 50% 53% 46% Source: OCDE (2019a). The Colombian educational system has a low and of indigenous youth, and 35 percent of Afro-descendant uneven performance measured in terms of compe- youth. This means that a disproportionate number of tencies assessed by the Program for International young people, particularly from the most vulnerable sec- Student Assessment (PISA). Only 35 percent of the tors of society, are not completing their educational tra- 15-year-old population achieved at least the minimum jectories. Moreover, there is a significant divide in terms level of proficiency in mathematics in the 2018 PISA test, of access to and quality of education between urban and substantially below the OECD average of 76 percent, rural departments.302 Rural students in Colombia scored and almost 40 percent performed poorly in all three sub- an average of 38 points below those in urban areas of the jects tested (math, reading, and science, see table 6.4). country in the 2015 PISA test—a differential equivalent Moreover, boys outperformed girls in mathematics by to more than one year of schooling. Early dropout and 20 points, a gender gap larger than the average gap in low academic results also hinder educational trajectories mathematics across all OECD countries.298 The low per- and weaken the acquisition of key skills, including digital formance in mathematics and the marked gender gap skills, particularly among disadvantaged students.304 just before leaving compulsory education represent an Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 141 The high number of young people who neither study of a comprehensive baseline or unified evaluation of dig- nor work, added to the poor performance of the edu- ital skills programs. cational system and disparities in educational life ex- pectancy, compromises the equitable acquisition of Colombia also lacks an official national digital skills digital skills among the population. According to data framework to foster the development of digital com- from the National Administrative Department of Statistics petencies throughout the formal educational trajec- (Departamento Administrativo Nacional de Estadística tory and later, during an individual’s professional [DANE]), between November 2021 and January 2022, development. Colombia has no national curriculum; more than 3 million people of working age in the country schools and higher education institutions are responsi- were neither working nor studying (around one in three ble for designing their own curricula using MEN’s guide- young people of working age). This indicator suggests line documents, the national standards, and the Basic that workplace learning is at risk and could limit the abil- Learning Rights for each grade level document.305 MEN ity of the government and private sector organizations to has provided a conceptual framework and general develop or update digital skills for a large portion of the guidelines to train teachers in the pedagogical use of ICT population. and students in technology, but it has not yet provided a digital skills framework that requires students to develop Colombia does not yet have a cross-sector diagnos- related competencies at each grade level.306 As a result, tic that clearly identifies the digital competencies digital skills have not yet been incorporated formally into that will be necessary in the coming decade to en- the curricula throughout the country, nor are they being able both the private and public sectors to progress systematically developed at a foundational level at ele- in their digital transformation paths. Although there mentary, middle, or high school or at a more advanced are various studies identifying the human capital gap for level in technical, technological, and higher education. specific sectors or regions of the national economy, Co- Not having a national framework implies the lack of cor- lombia does not have a cross-sector diagnostic of the responding monitoring and evaluation mechanisms to skills required for the country’s digital transformation. assess the development of digital skills in a standardized The most recent characterization of the human capital manner.307 gap in the ICT sector was carried out under the Nation- al Qualifications Framework and is based on partial and Limited connectivity and unequal access to digital somewhat outdated surveys by Manpower Group in infrastructure and equipment (see Chapter 2) com- 2014, FEDESOFT in 2015, the Software and Information pound the challenges to strengthening digital litera- Technology Cluster of Bogotá in 2017, GAN Colombia, cy and developing a digitally competent workforce. ITACA Project in 2020, and MinTrabajo in 2020. Digital Regarding technological infrastructure in schools, in skill gaps in other sectors critical to the development of a 2011, MinTIC and MEN created the Total Connection dynamic digital economy are yet to be analyzed. Program (Conexión Total), which provides guidelines and technical assistance to guarantee high-level con- The lack of a cross-sector diagnostic of the supply nectivity for all official school sites. The ratio of students of and demand for digital competencies has delayed to computers in the country is 3:1—one of the lowest the design and implementation of a national strategy among Latin America’s PISA countries and lower than for digital skills development. Such a strategy is es- the average for OECD countries.308 Furthermore, a sur- sential to coordinating public and private sector efforts to vey carried out by the Conexión Total program in 2020 help Colombians develop critical digital competencies. and 2021 shows that 91 percent of rural school sites still Despite the multiplicity of alliances and partnerships that do not have access to a LAN network compared to 58 have been created to provide the relevant training pro- percent of urban school sites, and only 22 and 49 per- grams, these are not necessarily linked to the human cent, respectively, of the sites that do have networks reg- capital gaps across the economy. There is no single ularly maintain them. In terms of other ICT infrastructure, mechanism to map and articulate the actions of all the only 39 percent of rural school sites report having ICT stakeholders in the digital skills sphere that could ensure classrooms compared to 89 percent of urban sites. The that efforts are not duplicated and that all key areas are median for laptops in rural school sites is four compared covered. Moreover, there currently is no mechanism in to 30 for urban schools, while the average number of place to monitor activities related to digital skills develop- tablets and desktops in rural areas is 10 and two respec- ment or to evaluate their impact, hindering the creation tively, compared to 82 and 16 in urban centers.309 Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 142 Deficiencies in teacher training, decontextualized Moreover, newer forms of education, such as virtual learning practices, and an unfavorable perception courses and bootcamps, have not yet been properly of ICTs by many teachers, administrators, and par- regulated, nor do they have robust and standardized ents also hamper the development of digital skills. evaluation mechanisms, which affects the accep- National programs have focused heavily on the provision tance of these certificates by employers and makes of technological infrastructure and, more recently, on the it difficult for these formats to coexist with the for- appropriation of that technology for educational innova- mal education system.312 Large international compa- tion. Although teachers have received training on edu- nies, such as Amazon and Google, have developed their cational innovation, the share of meaningful classroom own mechanisms to bypass this constraint, implement- practices that involve the use of ICT in 2016 was only 8.3 ing their own tools to assess the digital qualifications of for every 10,000 teachers, a decline from 13.7 in 2015.310 potential employees. Furthermore, CPE’s impact evaluation for the 2014–18 period showed no statistically significant impact on ICT appropriation by trained teachers or administrators, nor on the students of trained teachers.311 Table 6.5. Key Digital Skills: Challenges and Opportunities Strengths Areas for Improvement » The government has prioritized the digital » The lack of a cross-sector, countrywide diagnostic that transformation agenda, placing significant emphasis clearly identifies digital competencies presents a key on the development of digital skills. barrier to the creation of a national digital skills strategy. » The GoC is strengthening the legal and regulatory framework to enable the development of the digital » There is no framework that defines digital skills economy, including digital skills. or competencies and guides the design of indicators to monitor the development of digital skills among » Government agencies and private sector actors are Colombians. increasingly collaborating to provide training programs to boost digital skills. » The current offering of support programs for the development of digital skills has not been designed » Existing initiatives, such as the CPE program, have according to a cohesive vision and strategy, and proven to be successful in providing technological consequently, it currently consists of a complex, infrastructure and training to students, teachers, dispersed, and inefficient network of programs. parents, and caregivers. Opportunities Threats » Demand for advanced digital skills is high and » Internet connectivity and supporting ICT infrastructure increasing in Colombia, while demand for basic digital are still limited at many school sites and households skills is near-universal among employers. across the country, with great rural-urban disparities in access. » There is a wide range NGOs and other private sector actors offering training services or programs to foster » A very high percentage of 15-year-old students the development of digital competencies beyond initial do not reach a minimum proficiency level according education. to PISA tests, the rates of both early childhood and upper secondary education are low, and there is a » Widespread digitalization of government high educational dropout rate, with many young and businesses may create further incentives for people not continuing their studies beyond lower individuals to acquire digital skills. secondary education. Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 143 6.3. Recommendations and next steps It is important that the government implements a rec- ognition system for the skills acquired for work. This recognition could facilitate labor insertion and increase Demand for basic digital skills is near-universal the options for later development of advanced digital among employers, while demand for advanced dig- skills. Investing in higher-level technical ecosystems that ital skills is high and increasing.313 The educational can provide skills alternatives to a university degree is system (basic, non-compulsory secondary, and higher also critical.314 education) is a key piece to ensuring the development of basic and advanced digital skills among young people Efforts toward these objectives should be monitored who enter the labor market. In terms of digital skills, the and—when feasible—evaluated. Designing an agile main challenge for basic education has less to do with monitoring system would help to identify, measure, and requiring students to learn robotics or programming than quantify the need for digital qualifications in the produc- with ensuring that everyone, regardless of socioeconom- tive sector. Colombia would also benefit from designing ic context, territory, gender, or cultural tradition, acquires and implementing a system for monitoring achievement the key skills needed to support learning, and ensuring in the acquisition of basic digital skills during initial train- that young people remain in the system beyond compul- ing, as this would facilitate the fine tuning of the school sory education, thus increasing school life expectancy curricula to integrate key digital competencies. and reducing early school dropout. An effective national human capital diagnostic Increasing the number of students in vocational ed- should identify skills gaps in all sectors of the econ- ucation and training (VET) and in science and en- omy so that it can be compared against existing for- gineering careers should be a critical objective for mal and informal training strategies, allowing poli- the technical and higher education system. Being cy makers to identify where existing programs are competitive in today’s digital and globalized economy failing to impart the skills required by the market. To involves more than just expanding higher education. At- the extent possible, this diagnostic should identify gaps tention also needs to be paid to technical and vocational among the different population groups, such as wom- education. VET plays a major role in promoting innova- en, rural and indigenous communities, the elderly, and tion and productivity, addressing skills needs, preventing people with disabilities. The current diagnostic prepared skills mismatches, and supporting youth employment. by the Ministry of Labor has a sound methodology and This will require a greater commitment from the produc- provides a good basis for a cross-sector review that cov- tive sector in the definition and implementation of a vo- ers the whole of the formal economy, but a cross-sector cational training system that promotes the development analysis focused on human capital gaps for digital trans- and certification of competencies, among both young formation that goes beyond the country’s main economic people and the working-age population. regions is also needed. The ITU Digital Skills Assess- ment Guidebook contains valuable guidance in this re- At the same time, it is essential to develop policies gard.315 and programs that promote digital skills among the adult population (active or unemployed) through It is important to deploy a clear and stable legal and workplace training. This could occur both in the work- governance framework to guide and support the dif- place or by the supporting processes (formal and infor- ferent public and private agents involved in the de- mal) of reskilling and upskilling centered on digital skills, velopment of digital skills. Also important is a national providing continuous and specific training opportunities training system that begins with initial training and fol- in concrete digital skills to complement the formal train- lows people’s learning paths in successive stages: inter- ing of students and workers. mediate, technical, higher, continuous (post education), and workplace training. Widespread access to digital skills is key if the ben- efits of digitalization are to be spread throughout the Colombia would benefit from implementing a nation- country. Given the great differences between rural and al common framework to clearly identify the digital urban populations and among Colombian regions, it is competencies and skills that industry demands and crucial that special emphasis be placed on lower-income that education should develop. Not all the actors in- groups and remote areas. volved in the process of digital transformation have the Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 144 same understanding of digital skills. This can make it dif- of multiple stakeholders from different sectors in the de- ficult to accurately assess the current situation, measure sign and implementation of the recommended actions, the gaps between supply and demand, and design the as a collaborative approach would better reflect the sup- policies and interventions needed to address the prob- ply of and demand for digital skills and thus contribute lem areas. Moreover, improving coordination among the to more robust and sustainable policies and reforms. different government actors (national, regional, and local) Providing the appropriate skills to promote and sustain and between them and the relevant economic and social a long-term process of digital transformation requires agents in order to design pertinent and complementary strong foundations during schooling and an adequate training measures requires a shared national digital skills workplace learning system that ensures the constant up- framework and strategy agreed upon by all parties. skilling and reskilling of the workforce, as well as agile regulations and government support programs to create The public policy recommendations outlined below an enabling environment that spurs the participation of were selected and prioritized based on three main the private sector. The recommendations emphasize criteria: (i) gaps in the implementation or performance three groups in particular that offer a strategic opportuni- of current programs to develop digital skills in Colom- ty to boost digital transformation in the short and medium bia and guiding principles or international practices, with terms: (i) early leavers from education and training sys- suggestions on areas for improvement; (ii) the technical tems; (ii) people who are neither employed nor in educa- and political feasibility of the recommended actions: rec- tion or training; and (iii) adults without qualifications and ommendations that require no or few legislative changes the unemployed. have been given greater weight; and (iii) the involvement Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 145 Table 6.6. Digital Skills: Policy Recommendations (1 of 3) Responsible Legal Change Reform Area Recommendation Entity Timing Required? Diagnostic, Elaborate and regularly update national framework, a cross-sector diagnostic to and national strategy identify the digital skills and competencies required to prepare the labor force to take advantage of the opportunities set forth by digitalization. International examples of MinTIC cross-sector diagnostic framewor- Short and Ministry None ks include Chile´s Brechas de term of Labor Inclusión Digital (Martínez, Mata, and Vega 2021) and the European Union’s Digital Economy and Society Index (DESI). The ITU Digital Skills Assessment Guide- book also contains valuable guidance in this regard (ITU 2020). PRIORITY. Create a national digital skills framework that clearly defines digital skills and competencies in Colombia. Relevant examples MinTIC, include the Digital Competence Short MEN, None Framework for Citizens (Digcomp term and SENA 2.1), for Educators (DigCompEdu), and for Educational Institutions (DigCompORg). PRIORITY. Define a national digital skills strategy that recognizes the existing gaps (gender, educational level, regional, urban-rural). This Government, national strategy could establish Chambers how digital skills (based on the of Commerce, Short skills framework) should be Yes Industry term developed on a continuum from a associations, basic level (primary and secondary Employers education) to a more advanced one (technical, technological, higher education, workplace learning). PRIORITY. Monitoring and evaluation Develop an inter-agency, cross-sector monitoring and evaluation framework that MinTIC, allows the government to track in collaboration the progress made on the with MEN, indicators set in the national SENA, digital skills strategy and to Ministry Medium assess the impact of the of Labor, None term national training programs on and other closing existing gaps. Measure- relevant ments should be carried out government regularly to assess the impact of agencies training programs and how they are advancing the indicators Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 146 Table 6.6. Digital Skills: Policy Recommendations (2 of 3) Responsible Legal Change Reform Area Recommendation Entity Timing Required? established in the digital skills framework, as well as the national strategies contemplated in the ck PND and other sector (ICT, education, etc.) plans. Secondary and higher Elaborate a national vocational n education system training plan to help identify and MEN, re- respond to the training needs of Secretarías, the productive sector. This plan SENA, of should be linked to the vocational Chambers y training and vocational training of Commerce, Medium for employment subsectors None Industry term and based on the National associations, Qualifications Framework. Ideally, Employers, the plan should be updated MinCIT, periodically, based on continuous Academia public-private collaboration. Adult education, Develop a national digital skills workplace learning, second-chance plan. Develop and professional a specific second-chance plan to address the needs of young development people who are not in employ- ment, education, or training SENA, (NEET), offering opportunities Secretarías, to develop, enrich, and improve Chambers their digital skills and acquire of Commerce, Short None qualifications. Both the VET Toolkit Industry term for Tackling Early Leaving317 and associations, the VET Toolkit for Empowering Employers NEETs318 from the European Center for the Development of Vocational Training (CEDEFOP) provide relevant references in this respect. Define a national plan for reskilling in digital skills for adults who need this training (with SENA, different skill packages, levels, and Ministry duration) to re-enter the productive of Labor, Short system, update their portfolio of Chambers None term skills, progress in their professio- of Commerce, nal career, and launch business Industry initiatives in the digital economy associations sector. Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 147 Table 6.6. Digital Skills: Policy Recommendations (3 of 3) Responsible Legal Change Reform Area Recommendation Entity Timing Required? Public basic Develop a “support and and medium reinforcement plan” for secon- education dary education to reduce absenteeism and early school leaving, especially in centers that serve the most disadvantaged MEN, populations, with the aim of MHCP, Short None increasing the number of young Education term people with a better skills base Secretariats (including digital skills) and the percentage of young people who continue their studies with technical and higher education training. Regulatory Link the vocational training subsystems of the education system and vocational training for employment into a single system. It is also important to facilitate the recognition of skills Short acquired outside the formal and system. To that end, ensure that Government Yes medium the national catalog of qualifica- terms tions guides this process and allows workers to progress in training itineraries that lead to accreditations, certificates, and degrees with recognition. Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 148 7. TRUST ENVIRONMENT KEY MESSAGES » Key enablers and safeguards to support digital transactions and data flows are established in Colombia. However, the country’s comprehensive data protection framework does not govern some core aspects of personal data protection. Areas to strengthen are the right to data portability, the reporting of data breaches to the data subjects, and expanded legal jurisdiction for processing personal data. » As Colombia is starting to deploy a new digital ID scheme, three factors are vital to its suc- cess: (1) ensuring its inclusiveness, (2) gaining societal trust as the new ID system is implemented, and (3) developing a sound digital service ecosystem based on smooth coordination among insti- tutions. » Under the newly adopted cybersecurity governance structure, new instructions were tasked with overseeing the assets and essential services of critical national cybernetic infrastruc- ture (infraestructuras cibernéticas críticas nacionales [ICCN]). However, the current ICCN regime excludes private ICCN assets and services. It is crucial to extend the ICCN regime to include the sizable private share of national ICCN. » Dedicating further resources to combating cybercrime needs to remain a priority as the num- ber of cases continues to grow. Colombia faces important challenges in terms of insufficient qualified staff and a deficit of financial and technical resources. The training of the judicial branch in cybercrime is not systematic in Colombia, and the country may wish to address this as a priority in order to ensure formation of a consistent case law through the courts. » The development of human capital is the main strategic medium- to long-term challenge for Colombia as regards cybersecurity. If not addressed, it could delay the progress of the cyber- security domain for years to come. Consistent political will, accompanied by support from industry, academia, and the public sector, will be essential to deal with this challenge. 7.1. The importance of a trust environment major national security concerns and challenges, to which a country’s failure to respond could end up sacri- ficing its potential economic value. Yet, security concerns Previous chapters of this report have demonstrat- are slowing the adoption of some technologies, especial- ed how the digital economy and its various aspects ly cloud-based services, which is in turn preventing many hold tremendous developmental promise. However, countries from making the most of innovation to boost building a digital economy in a weak trust environment economic efficiency. For developing countries that seek will inevitably jeopardize this promise. There is a grow- a hyper-connected future, priority must be given to build- ing understanding across the world that digital technol- ing a trust environment around digital technologies and ogies will evolve into essential parts of the supply chain their associated assets that today are often thought to be for many critical services, including social services. The the most important infrastructure of this century. integrity and availability of those services have become Trust Environment 149 As Colombia’s digital economy becomes more in- agencies that collect, process, and store personal data clusive, it is paramount to continue to strengthen related to data subjects in Colombia, regardless of data enablers and safeguards in order to provide whether the data processing is carried out on Colom- a trusted environment for the growth of electronic bian territory or abroad.321 In case of cross-border data transactions and data flows. The World Bank’s 2021 flows, Colombia, along with some other LAC countries, World Development Report categorizes data policies adopts a conditional transfer model aligned with the EU’s and regulations as enablers and safeguards. Enablers General Data Protection Regulation322 (GDPR). This ap- are policies and regulations that facilitate the use of data proach provides space for regional harmonization.323 as a necessary condition for the digital economy, such as through data-sharing models that underpin e-commerce The country’s data protection framework could be transactions and public and private intent data. Safe- strengthened with some currently missing core ele- guards encompass policies and regulations that protect ments, such as recognition of the right to data porta- personal and non-personal data and prevent data abuse, bility, the obligation to report data security breaches, cybercrime, and other misuse.319 The regulation of data and an additional legal basis for lawful data process- exchanges is indispensable to enabling the kind of in- ing. At the time of this writing, the data portability right teractions and data flows typical of an advanced digital was not part of the data protection framework in Colom- economy and at the same time ensuring that personal bia, and there was no obligation to report data security data are collected, processed, and stored fairly and law- breaches to the data subjects. The principle of account- fully, that is, for a specific purpose only, in a manner that ability (Principio de Responsabilidad Demostrada) could is not excessive in relation to that purpose, and for no be further strengthened through an obligation to appoint longer than necessary. a Data Protection Officer within public and private orga- nizations. Apart from that, Colombia would need to con- sider broadening the legal jurisdiction for processing per- 7.2. Data regulation sonal data, which currently includes only one legal basis compared to six listed under the EU’s GDPR.324 These issues are partially governed by Decree No. 1377 of Despite many advances, Colombia still faces bar- 2013, Decree No. 620 of 2020, and the SIC Accountabil- riers to establishing a reliable environment for ity Guidelines, the latter of which are not mandatory.325 strengthening international and domestic electronic In a recent breakthrough, the Andean Community (Co- transactions with a fair balance of data enablers and munidad Andina [CAN]) in July 2022 adopted Resolution safeguards. No. 897,326 which, in article 4, explicitly recognizes the principle of accountability (Principio de Responsabilidad Colombia’s data protection framework is compre- Demostrada) and the right to data portability (Derecho hensive and supports important major rights, such a la Portabilidad de los Datos). This resolution provides as right of access, rectification, and opposition. a term of two years to integrate its provisions into the The data protection framework consists of two primary domestic telecom regulations and will be mandatory for statutory laws and several complementary regulations, telecom operators, users, and member states. Further- decrees, and sectoral directives. Existing constitutional more, enhancing the existing data protection framework safeguards, laws, secondary regulations, and decrees could help Colombia to fulfill critical conditions needed address critical aspects of data regulation and personal to join internationally recognized data protection con- data protection (see Annex 7). In December 2008, the ventions, such as the Council of Europe’s Convention Congress of Colombia enacted Statutory Law No. 1266 108+.327 In 2019, Colombia started discussions with the (later amended by Law No. 2157 of 2021), which gov- Council about the possibility of joining this Convention as erns habeas data in the finance sector. This law regu- an observer.328 lates the processing of information contained in personal databases related mainly to financial data, credit records, Through the Data Protection Delegation’s office, the and commercial and service information. The law also SIC operates as Colombia’s data protection author- establishes general principles governing the processing ity329 for the private sector and is active in raising of personal data, namely, accuracy and quality, (legiti- public awareness of personal data protection.330 The mate) purpose, limited circulation, obsolescence, the SIC has trained administrative and professional staff safeguarding of constitutional rights, security, and con- to supervise and enforce the domestic data protection fidentiality.320 Moreover, Statutory Law No. 1581, enact- framework, including Law 1266 of 2008 and Law 1581 ed by the Congress of the Republic in October 2012, of 2012. The SIC regularly provides online courses and establishes general provisions for protecting personal training concerning Law No. 1581 and Decree 1377 of data based on constitutional rights stated in article 15 2013 to domestic companies and individuals and rou- of the Political Constitution of 1991. This law applies to tinely conducts awareness-raising campaigns, including individuals, private and public entities, and government on social media outlets, targeting the general public. Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 150 The SIC also plays a proactive and rigorous role in Moving forward, Colombia’s data protection frame- overseeing compliance with personal data protec- work should go further in addressing the challenges tion provisions. For instance, the administrative fines brought forth by emerging technologies, such as AI, imposed by the SIC increased by 127 percent in 2021. blockchain, cloud computing, and others. It should In that year, the SIC received more than 28,610 com- also ensure that the accountability of data processing, plaints (75 percent more than in 2020) and issued 2,457 privacy-by-default, and security breaches, among other administrative decision orders for non-compliance. Most concerns, are currently being dealt with according to SIC complaints (90 percent) were related to violations of Law guidelines, which are not codified in the legal framework 1266 of 2008 (involving habeas data in the finance sec- and thus not mandatory. Also, the current data protec- tor), and the other 10 percent to violations of Law No. tion framework does not expressly address the chal- 1581 of 2012.331 To increase efficiency in the resolution of lenges resulting from the evolving digital environment, disputed cases, the SIC recently implemented an online such as the protection of personal data before using AI alternative dispute resolution system in which affected technologies. data subjects and data controllers can settle the dispute more quickly (https://sicfacilita.sic.gov.co). On average, Colombia’s performance on key data flow enablers 81 percent of the requests submitted through this system identified in the 2021 World Development Report is were satisfactorily resolved in 20 days or fewer.332 on par with other middle-income countries. Overall, most LAC countries score higher on enablers than on Despite being one of the leading data protection safeguards for data transactions, with a high variance agencies in the LAC region, the SIC does not fully within the region. However, Colombia is an exception to avoid typical challenges, such as contending with this trend (see Table 7.1). limited resources, maintaining institutional indepen- dence, and building a broader societal commitment » Enablers for e-commerce transactions. Colombia to personal data protection. Although the SIC almost has a range of enablers in place to facilitate e-com- tripled its staff between 2018 and 2021 (from 48 to 120), merce transactions, including e-commerce legisla- the high volume of complaints means that internal capa- tion (Law No. 527 of 1999), a digital ID system (De- bilities need to be progressively improved, for instance, cree No. 1413 of 2017 and Law No. 1955 of 2019), through the adoption and effective use of adequate digi- and legal recognition of electronic signatures (Law tal solutions. Moreover, maintaining the SIC’s institution- No. 527 of 1999). al independence, including through avoiding potential influence from other government authorities and big tech » Enablers for public intent data. Colombia has a companies (e.g., lobbyists, lawyers) that operate in Co- robust open data framework that includes articles lombia, is paramount in sustaining societal trust in the 20 and 74 of the Constitution (access to informa- national data protection system. It is also critical that the tion as a constitutional right), Law No. 1712 of 2014, SIC double down on its efforts to boost the ethical com- National Data Usage Policy - BIG DATA (CONPES mitment in regulated organizations and spread nation- 3920 of 2018), MinTIC Resolution No. 1519 of 2020, wide the idea that data protection is a shared responsi- and several open data guidelines that cover quality bility. and interoperability standards, an open data road- map, a business architecture framework, a common Processing personal data in the public sector pres- language standard, and anonymization, among ents a challenge.333 The entity in charge of monitor- others.334 ing public institutions is the Attorney General’s Office (Procuraduría General de la Nación), but compared to » Enablers for private intent data. Colombia’s data the relatively more active SIC, this agency has the ca- protection framework does not explicitly regulate pacity to become more visible in supervising and en- mandatory data portability, and data owners do not forcing the personal data provisions. The transparency, have the right to data portability unless the particular accountability, and enforcement mechanisms in the pub- domestic organization’s internal privacy policies rec- lic sector are central to maintaining a high level of trust ognize this right. in the national institutions that are processing personal data. Society should be well aware that there is diligent oversight ensuring that public servants comply with the » Safeguards for cross-border data flows. personal data protection provisions and that adequate Cross-border data flow is governed by Law No. sanctions are applied to those who breach the law. 1581 of 2012. In principle, cross-border data flow is prohibited unless the data destination is within those countries with adequate data protection levels (SIC Circular Unica, article 3.2. Title V). Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 151 » Safeguards for personal data. Colombia has an probative material within judicial investigation pro- overall robust personal data protection framework, cesses. Other procedural cybercrime provisions are though it could be further strengthened (see Annex contemplated in the General Procedure Code (Law 7). No. 1564 of 2012), Penal Procedure Code (Law No. 904 of 2004), and Law No. 270 of 1996 and in sever- » Safeguards against cybercrime. Law No. 1273 of al resolutions of the Prosecutor’s Office that address 2009 integrates various cybercrime offenses into the relevant topics such as chain of custody procedures. Colombian Penal Code and is considered the prima- Since 2020, Colombia has been a signatory party ry substantive cybercrime legislation in the country. to the Convention on Cybercrime of the Council of Law No. 527 of 1999 recognizes digital evidence as Europe, known as the Budapest Convention.335 Table 7.1. Summary of Key Safeguards and Enablers for Colombia and Selected Benchmark Countries Enablers Safeguards Dimension Personal data protection National cybersecurity Data portability rights online authentication Open data act/policy Digital ID system for e-transaction law government data of non-personal E-commerce/ strategy/plan Regulation Country law El Salvador Yes NO Yes NO NO Yes NO Costa Rica Yes Yes Yes NO Yes Yes Yes Colombia Yes NO Yes Yes Yes Yes Yes Mexico Yes NO Yes Yes Yes Yes NO Dominican Republic Yes Yes Yes NO Yes Yes NO Source: Framework from World Bank (2021). For Colombia, Mexico, and the Dominican Republic, data from World Bank (2021); for El Salvador and Costa Rica, data are based on original analysis. Note: recientemente se ha introducido un nuevo sistema de identificación digital, pero en el momento de redactar este informe su aceptación era escasa. Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 152 7.3. Digital ID card streamlines the digital authentication process, en- abling a series of benefits, such as: (i) allowing citizens to carry out internet-based transactions, (ii) helping to In 2020, the RNEC, the main government agency prevent and mitigate payment fraud and identity duplica- tasked with the identification of persons, launched tion, and (iii) allowing the portability of the ID card on mo- a novel digital ID system enabling access to digital bile devices. Moreover, the digital ID can also be used services. The current digital ID card (Cedula Digital), as an official ID for traveling within the countries of the which is not yet mandatory, was authorized according to Andean community. Decree No. 1413 of 2017 and Law No. 1955 of 2019.336 The digital ID card collects biographic and biometric As Colombia is starting to deploy a new digital ID data, such as full name, ID number, date and place of scheme, three factors are vital to its success: (1) en- birth, gender, signature, picture, and fingerprints. The suring its inclusiveness, (2) gaining societal trust before new digital ID card has two formats: (i) the physical for- and during its deployment, and (3) developing a sound mat, which is old and widely used to access offline ser- digital service ecosystem based on smooth coordination vices, and (ii) the digital format, which can be accessed among institutions. Between February and November from any electronic device (e.g., mobile phone) through 2022, the World Bank conducted a national ID4D Diag- an encrypted QR code that contains personal data, in- nostic of the new ID system that proposed recommenda- cluding biometric data, of the cardholder.337 The new ID tions for its successful deployment (see Box 3). BOX 3. Summary of Recommendations of the ID4D Diagnostic In February–November 2022, the World Bank con- v. Deploy communication campaigns, a citi- ducted a national ID4D Diagnostic of the new ID zen engagement process, and qualitative system with recommendations for its effective de- studies to increase uptake, showing the ployment. These include: benefits of the new ID system. These cam- paigns and interactive processes should be i. Ensure the inclusion of all, especially the in- focused on increasing public trust. digenous population, remote communities vi. Ensure that the enrollment campaigns for (particularly those affected by the conflict in the new ID card are carefully designed and Colombia), and migrants (who are mostly promote inclusion by reaching vulnerable Venezuelans). and remote populations. ii. Enhance coordination with MinTIC to facil- vii. Design a risk-based approach for authen- itate the uptake of the new ID system, se- tication by implementing various levels of lecting key services to be provided digitally. assurance.338 iii. Ensure that the Carpeta Ciudadana (Citi- viii. Increase cybersecurity awareness and ca- zen File) and the new ID system are aligned pabilities within the ID agency to manage with the country’s digital priorities and that the increasing flow of data. both tools are interoperable. ix. Conduct a data privacy assessment (a pri- iv. Continue strengthening the authentication vacy impact assessment [PIA]) to identify platform within the ID agency and ensure risks in the deployment of the new ID sys- that fees charged to the private sector are tem and ways to mitigate them and imple- not an obstacle to delivering digital ser- ment a privacy-by-design approach. vices. Source: World Bank, “ID4D Country Diagnostic: Colombia” (Washington, DC: World Bank, 2022). Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 153 7.4. Cybersecurity and cybercrime Despite a notable advance in the cybersecurity poli- cy and strategy domain, Colombia only recently es- tablished a national cybersecurity structure.347 Since COVID-19 has accelerated the digitalization process 2011, Colombia has adopted several national cyberse- worldwide, leading to business innovation and rapid curity strategies. The new PND 2022-2026 proposes technological change, but it has also revealed vul- several public policy measures so that the country has nerabilities and brought about new cybersecurity the necessary capabilities to ensure adequate and time- threats and risks. Cyberattack vectors, such as ran- ly management of digital threats, and that interactions in somware, phishing, and distributed denial of service, are digital environments can take place safely and reliably. causing severe harm to critical infrastructure operations, One measure corresponds to the design and implemen- economic value, and livelihoods.339 Even when there is tation of a strategy to safeguard the country’s critical no tangible damage, concerns among citizens and con- cyber infrastructure and the definition of measures to sumers regarding potential cyber risks undermine trust in protect the information of government entities and indi- the adoption and usage of digital products and services. viduals from possible cyberattacks and cybercrimes. In As the world is increasingly interconnected and digital addition, CONPES 3995, has a Monitoring and Action technologies underpin personal lives and business ac- Plan detailing several strategic activities for 2020–22 tivities across many sectors, cybersecurity must become and the following three strategic objectives (i) strength- an integral and instrumental component of the overall ening the digital security of citizens and the public and digital ecosystem. private sectors, (ii) updating the national cybersecurity governance framework, and (iii) reviewing the adoption In the past decade, Colombia has made consistent of cutting-edge digital security models, standards, and efforts to build its cybersecurity capabilities, but fur- frameworks, with an emphasis on new technologies to ther strengthening is needed to match ever-growing prepare the country for the challenges and opportunities challenges in the cybersecurity domain. The country brought forth by the Fourth Industrial Revolution.348 The operates in an environment that is prone to significant national cybersecurity governance structure had been cyberattacks. The current National Trust and Digital Se- an unsolved issue for decades and was resolved only re- curity Policy adopted in 2020 (CONPES 3995) highlights cently. Decree No. 338 of 2022349 defines a governance the relatively low level of cyber preparedness in Colom- model with relevant mandates to strengthen digital secu- bia.340 Indeed, Password Managers’ 2020 Cybersecurity rity, network protection, critical infrastructures, essential Exposure Index ranks Colombia 54th out of 108 coun- services, and information systems in cyberspace. The tries in its global ranking and the 5th most exposed coun- newly adopted governance model establishes the follow- try in South America—the region with the second-highest ing decision-making layers: (i) National Digital Security average country exposure to cyber threats.341 In 2021, Coordination Body, (ii) National Digital Security Com- there were approximately 623 million ransomware at- mittee, (iii) Digital Security Working Groups, (iv) Digital tacks worldwide, nearly 20 ransomware attempts every Security Working Tables, and (v) Digital Security Unified second, according to the 2022 SonicWall Cyber Threat Command Posts. Report—a doubling of ransomware attempts year over year. The report ranked Colombia 5th in the top 10 coun- The strengthening of the cybersecurity legal frame- tries with the highest number of ransomware attacks, works is a priority for the country. In this regard, the with 11.3 million attacks during 2021.342 Likewise, a 2021 PND 2022-2026 proposes the creation of a roadmap that Citrix report found that at least 53 percent of domes- integrates inter-institutional efforts in regulatory matters tic companies have been attacked in Colombia.343 The to adopt national legislative measures and internation- Colombian Prosecutor’s Office reported 20,000 cyber- al cooperation aimed at combating cybercrime, such as crimes in 2021, representing a 35 percent increase over those dealt with in the Budapest Convention. Further- the reported incidents in 2020.344 Furthermore, the ITU’s more, CONPES-3995 has tasked the Ministry of Justice, 2020 Global Cybersecurity Index (GCI) ranked Colombia MinTIC, Prosecutor’s Office, and Ministry of National De- 81st out of 182 countries and 9th in the Americas re- fense (MoD) with conducting a diagnostic of the existing gion, suggesting a moderate cybersecurity commitment cybersecurity legal framework and ascertaining how it is in technical measures, capacity development, and co- affecting (i) the free and peaceful exercise of digital citi- operative actions, but a lag in legal and organizational zenship, (ii) the country’s defense and national security, measures.345 Likewise, the E-Governance Academy’s and (iii) the criminalization, investigation, and prosecu- National Cybersecurity Index gives Colombia a score tion of the punishable conduct committed through the of 46.75 out of 100 in cybersecurity preparedness and use of ICTs. At the time of this writing, that work was on- ranks the country 74th out of 160.346 going and intended to result in a roadmap with proposed Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 154 amendments. It is envisioned that those amendments Transition from the MoD to MinTIC has been a major will seek alignment with the relevant regulatory direc- challenge for ColCERT, which had to start its oper- tives adopted by the sectoral regulators and address the ations from zero in the new institution. Reporting in- challenges brought forth by new and emerging technol- cidents by private sector organizations and developing ogies, such as IoT, operational technologies, big data, a trust environment within the community present other cloud computing, and AI, among others. key challenges. The transitioning of ColCERT to MinTIC did not include the transition of staff and equipment; in 2022, MinTIC therefore was addressing the major chal- lenge of ensuring ColCERT’s uninterrupted operation. Since March 2022, Gov CSIRT has been backing Col- Incident response CERT up with national-level incident response manage- ment while MinTIC bridges the gaps in terms of qualified staff and technical resources. There is no formal incident reporting framework in place to obligate private sector The Cybersecurity Emergency Response Group organizations to report their cyber incidents, which there- (Grupo Interno de Trabajo de Respuesta a Emergen- fore remain underreported. Among other challenges for cias Cibernéticas de Colombia [ColCERT]) is rec- ColCERT in protecting the country’s cybersecurity was ognized as the national-level computer emergency the identification and protection of the assets of the pub- response team. Together with the Government Com- lic sector’s critical national cybernetic infrastructure (in- puter Security Incident Response Team (Gov CSIRT), fraestructuras cibernéticas críticas nacionales [ICCN]). the Defense CSIRT, the Intelligence CSIRT, and sectoral CSIRTs, ColCERT forms the national cybersecurity in- Two other major CSIRTs in Colombia are the Gov cident response effort. Establishment of ColCERT was and Defense CSIRTs. The former was formally estab- mandated in 2011 through the first national cybersecu- lished in 2018 through the CONPES 3701 and CONPES rity strategy (CONPES 3701) under the administration 3854 strategies and after the National Police and MinTIC of the MoD. In 2013, MoD Directive No. 3933 legally reached a collaborative agreement to set it up.353 This established ColCERT and defined its roles and respon- CSIRT is managed by MinTIC and is located in the tech- sibilities.350 CONPES 3995-2020 further developed the nological complex led by the National Police (Command, area of incident response by establishing CSIRTs with- Control, Communications, and Computing Center [C4]) in the intelligence and social security sectors and cre- in Bogotá. The Gov CSIRT has reached an operational ating a central registry of national-level cyber incidents level and provides technical support to public institutions as a coordinated effort and a national incident response with their incident response management cycle. The Gov management system.351 Decree No. 338 of 2022 brought CSIRT also assists MinTIC in implementing the Securi- other incident response teams, such as the Gov CSIRT, ty and Privacy of the Information Framework (MSPI) to the Defense CSIRT, the Intelligence CSIRT, and sec- strengthen public institutions’ ICT infrastructure and infor- toral CSIRTs, as part of the incident response effort and mation systems.354 With regard to military concerns, the transferred from the MoD to MinTIC the functions relat- former staff and equipment used by the MoD to operate ed to defining the national incident response model, the ColCERT are now part of the Defense CSIRT protecting functions and responsibilities of ColCERT,352 and imple- the ICT infrastructure of the armed forces and the group mentation of the corresponding incident reporting and in- of companies linked to the defense sector (GSED). formation-sharing platforms, among others. Transition of the incident response function oversight from defense to Large organizations within Colombia’s telecommu- a civil institution was motivated by the objective to facili- nications, financial, and energy sectors have devel- tate a trusted environment for information exchange and oped their own incident response management ca- communication with all members of the community and pacities, either on-premise or through headquarters ecosystem at large. ColCERT remains a focal point of or satellite support or outsourced services, though contact at the national and international levels concern- SMEs and MSMEs have very little or no capacity to ing incident response matters. handle cyber incidents. According to the Forum of In- cident Response Security Team’s portal, there are 20 CSIRTs and security operations centers (SOCs) duly Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 155 registered.355 There are also dedicated incident response address and an online platform called Adenunciar and capabilities within the critical sectors of finance, energy, also via popular social network outlets, such as Twitter, and telecommunications (see Annex 8). All the existing Facebook, and Instagram.361 Within the CAI Virtual por- public and private sector CSIRTs in Colombia have good tal, citizens can find information about cybercrime ac- channels of communication and information sharing with tivities, best practices for preventing them (e.g., guide- ColCERT and even among themselves. Despite the lines, flyers, videos), and applications for safe internet progress, Colombia’s incident response capacity in the browsing.362 SME and MSME community, which are vital components of the Colombian economy, remains nascent.356 At the height of the COVID-19 pandemic, the Colom- bian authorities recorded a 45 percent increase in reported cybercrime cases. In 2019, the general public reported 30,410 cybercrimes to the National Police, while in 2021, 48,000 cases were reported, many of which Cybercrime have been prosecuted and had sentences imposed. As a result of the social distancing restrictions and the in- crease in cybercrime cases, the National Police have been promoting the application Adenunciar for victims to Colombia has adopted a comprehensive package report traditional and cybercrime offenses—currently 62 of cybercrime legislation, and it joined the Buda- percent of crimes can be reported virtually. pest Convention in 2020, albeit with some reserva- tions.357 Law No. 1273 is considered the primary sub- The investigation and prosecution of cybercrime stantive cybercrime legislation in the country, which is cases in the country is the responsibility of the Of- supplemented by the following legal acts: Penal Code fice of the Attorney General (Fiscalía General de la (Law No. 599 of 2000), adoption of the Budapest Con- República), which is not immune to the near uni- vention (Law No. 1928 of 2018), and child pornography versal challenge of a deficit of qualified staff (most- and sexual exploitation laws (Law No. 300 of 1996, Law ly lawyers specializing in cybercrime and digital No. 679 of 2001, and Law No. 1336 of 2009). The ad- evidence) as well as of financial and technical re- missibility of digital evidence as probative material within sources. For the investigation of cybercrime cases, this judicial investigation procedures is expressly recognized office can rely on the Criminal Investigation Directorate by Law No. 527 of 1999 – Law on E-Commerce, Digital of the National Police363 and the Judiciary Police under Signature. Other procedural cybercrime provisions are the Technical Agency for Criminal and Judiciary Inves- contemplated in the General Procedure Code (Law No. tigations (CTI). Following the implementation of Law 1564 of 2012), the Penal Procedure Code (Law No. 904 No. 2197, a specialized unit in cybercrime was created of 2004), Law No. 270 of 1996, and several resolutions within the Attorney General’s Office in 2022 that brought of the Prosecutor’s Office, which address relevant topics together 137 staff, including administrative staff, prose- such as chain of custody procedures. Though Colombia cutors, and investigators.364 It is planned that this spe- joined the Budapest Convention,358 it was with reserva- cialized unit will reach an operative level by the second tions concerning the application of Article 20 (collection half of 2022, though at the time of this writing, the unit of real-time transit data) and Article 21 (interception of was still recruiting trained staff and procuring equipment. content data) due to domestic regulations on personal Given the sharp increase in the number of cybercrime data and protection of the right to privacy.359 activities and victim complaints, it is likely that the exist- ing staff may be insufficient to handle all investigations In 2010, the National Police established a special- and prosecutions. ized cybercrime unit, the Police Cybernetic Center, under the Directorate of Criminal Investigation and The Attorney General’s Office regularly trains its Interpol, with robust forensic investigation capabili- staff on cybercrime and digital evidence matters in ties and cutting-edge facilities (known as C4).360 The the academic and training center (Escuela de Es- Police Cybernetic Center has a portal called the Virtual tudios e Investigaciones Criminalisticas y Ciencias Immediate Attention Center to interact with citizens on Forenses). Each annual one-week training session in- cybercrime activities and other cyber incidents in the volves 50–100 public servants and covers basic knowl- country. Cybercrime victims can report incidents—24/7 edge of cybercrime and digital evidence. However, the and free of charge—to law enforcement authorities and training offered needs to be strengthened to keep up also receive guidance on what type of legal actions the with the required specialization level. Expanded training victims can take. CAI Virtual has multiple reporting chan- and capacity-building opportunities for staff from other nels available to the general public, including an email domestic law enforcement organizations (e.g., National Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 156 Police) or international partners (e.g., Council of Europe, identified this issue in the past and carried out various as part of the GLACY+Project) would be a valuable addi- activities to promote and enhance the cyberculture of tion to the annual training program. primary and secondary students, in some cases with the support of the private sector and civil society organiza- The judiciary system is responsible for adjudicating tions. For instance, in 2004, MEN launched a program cybercrime cases. However, judges and magistrates called Colombia Aprende (colombiaaprende.edu.co) need formal and systemic training at the specialization that offers interactive and well-structured courses and level to deepen their understanding of cybercrime of- material addressing relevant topics, such as safe inter- fenses and digital evidence collection and of handling net browsing and other cybersecurity-related concerns. work according to domestic cybercrime legislation and Within this virtual campus, there is also a program target- internationally recognized standards and best practices. ing teachers, tutors, and directors of schools to enable There is no specialized cybercrime unit within the judicia- them to better support the students’ learning process. ry system. Even though there is a training center (Escue- In 2021, MEN, in partnership with CISCO, started offer- la Judicial) within the judiciary and cybercrime training is ing three courses—in its first phase—targeting primary delivered occasionally,365 most judges and magistrates and secondary students, teachers, and parents. These still have limited knowledge of cybercrime and digital courses, which are available in the Colombia Aprende evidence matters. portal, address the following basic topics: introduction to cybersecurity, cybersecurity essentials, and security in the cloud.367 The Colombian Chamber of Informatics and Tele- Cybersecurity awareness raising and skills communications (CCIT) revealed that the demand development for cybersecurity services increased on average by 40 percent in 2020 as more public and private sec- tor organizations are allocating additional budget CONPES 3995-2020 establishes the strengthening for cybersecurity activities to protect their ICT infra- of cybersecurity education as a national priority and structures from cyberattacks. This growth also rep- defines activities to enhance this education as well resents an increase in the demand for qualified security as digital culture capacities in the public and pri- professionals and cybersecurity products and services, vate sectors. The 2022 Cybersecurity Skills Gap Global incentivizing the domestic marketplace.368 The Colombi- Research Report published by Fortinet reveals five key an authorities consistently identify this high demand for findings: (i) cybersecurity affects every organization, (ii) qualified security professionals in the CONPES. Acting recruitment and retention of talent is a problem, (iii) orga- on this demand, SENA, in collaboration with the private nizations are looking for individuals with certified skills, sector, has reached two significant agreements to train (iv) organizations are looking for more diversity, and (v) students in cybersecurity. The first involves training for raising cybersecurity awareness remains a key chal- more than 23,000 students by 2024,369 and the sec- lenge.366 CONPES 3995 establishes a coordinated strat- ond, with the support of Los Andes University, for more egy for capacity building in digital security that unifies than 68,000 students, of which at least 20,000 must be initiatives to raise awareness and develop skills among women.370 Colombian citizens with the goal of mitigating duplication of isolated efforts and strengthening the digital security CONPES 3995 notes that the academic offering of capabilities of citizens. Although multiple ongoing aware- cybersecurity education at the tertiary level is still in- ness-raising campaigns are organized by the Colombian sufficient to supply the country’s current demands. government, the private sector, and civil society, they are Until 2020, MEN reported 41 academic programs in dig- not conducted or deployed in a coordinated manner. De- ital security, of which 36 were postgraduate degrees, spite this, the impact of the awareness-raising programs including three master’s and five undergraduate degree and campaigns seems to be high. programs. CONPES 3995 also states that in Colombia, there is a very limited academic offering of cybersecuri- Although the curricula of primary and secondary ty-related content even in ICT education. For instance, schools usually cover some basic training in infor- in engineering degrees, such as informatics, systems, matics, it does not yet include cybersecurity-related software development, telecommunications, and so on, courses. CONPES 3995 contemplates the design and there is only one cybersecurity or information securi- implementation of a strategy to promote the development ty–related course within the entire academic program. of cybersecurity capabilities and digital trust in the differ- As digitalization becomes more present in daily life, ent levels of formal education. However, implementing technology-based careers would greatly benefit from this will require planning and resources. Authorities have a robust offering of cybersecurity courses. (Chapter 6 Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 157 discusses the role of the education system in the forma- adopted sectoral and organizational plans, due to the tion and upgrading of digital skills in Colombia, to include lack of follow-up mechanisms there is no evidence to cybersecurity-related knowledge and competencies.) suggest that those were fully implemented or audited. CONPES 3995 and its Action Plan do not set out specific Research and development projects in cybersecuri- activities to monitor, protect, and regulate the ICCN. ty are at an incipient stage. Several universities are developing research projects addressing a number of Under the new governance structure,372 other in- relevant topics, such as the security of software, block- structions laid out tasks for overseeing the public chain, and cryptography, as well as security in smart ICCN assets and essential services, though it would and sustainable cities and AI, among others. Various appear that the current ICCN regime excludes pri- universities and other academic entities created the Co- vate ICCN resources. Decree No. 338 of 2022 clear- lombian Cybersecurity Research Network Foundation ly defines what critical cybernetic infrastructures and (Red Colombiana de Investigacion en Ciberseguridad essential services are and establishes that MinTIC is [RedCIC]), a non-profit academic organization focused responsible for taking stock of the public ICCN and es- on cybersecurity research and development. There is a sential services and updating that inventory every two cadre of specialists in academic cybersecurity programs years.373 However, the decree does not include private but not yet enough to meet the domestic demand. No sector ICCN assets and services in this national stock- national scholarship program focuses on cybersecurity taking. Given that many ICCN resources are operated by careers, though MinTIC, in collaboration with internation- the private sector, it is important that those are integrated al partners, has awarded scholarships to public servants under the new ICCN regime. in cybersecurity and cyber defense. Decree No. 338 of 2022 establishes certain obliga- tions for the identified ICCN operators and essential service providers, such as adopting plans related to digital security, network protection, critical cy- Protection of Critical Infrastructure bernetic infrastructures, essential services, and in- formation systems in cyberspace. Moreover, ICCN operators and essential service providers must regularly conduct security digital risk assessments and adopt the Between 2016 and 2017, Colombia officially identi- necessary policies, procedures, and technological, ad- fied the national strategic sectors and critical nation- ministrative, and human resources to manage the risks al cybernetic infrastructure (ICCN). In 2016, the Joint adequately. Decree No. 338 also defines the parame- Cyber Command (Comando Conjunto Cibernético), in ters and procedures that MinTIC should follow while es- collaboration with ColCERT, identified 13 national es- tablishing the thresholds for significant damage to the sential services371 and also made an inventory of the ICCN. It is worth noting that though Decree No. 338 ICCN in 2016 that was updated in 2017. In 2018, the set out the foundation guidelines for MinTIC to devel- Colombian government adopted a National Plan for the op a public sector ICCN and essential service protection Protection and Defense of Critical Information Infrastruc- framework, this work did not start from scratch. The Joint tures (a classified document), after which each strategic Cyber Command and ColCERT had already taken some sector was required to adopt a similar sectoral plan as actions in this area, as had many sectoral regulators by well as plans for ICCN operators. Although some sec- formulating mandatory cybersecurity requirements in tors and ICCN operators followed the national plan and their respective sectors (Annex 8). Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 158 Table 7.2. Key Trust Environment Challenges and Opportunities Strengths Areas for Improvement » Decade-long national cybersecurity policy making » National-level incident response capacity is stretched and implementation experience while ColCERT is being re-established within MinTIC. » Leading agency (MinTIC) with a clear mandate » There is inadequate cybercrime investigation, and strong motivation prosecution, and judiciary capacity; more resources and capacity-building opportunities are required. » Recently adopted new national cybersecurity governance structure with clarified mandates » There is a deficit of cybersecurity professionals and academics to satisfy national demand in the public » Well-structured cybersecurity policies and action plans and private sectors. in place » Public support to MSMEs to enhance their » Comprehensive cybersecurity, cybercrime, and data cybersecurity capacities is limited. protection legal and regulatory frameworks in place, though could be further refined » Capacity to oversee adherence to data protection measures within public sector institutions is » New digital ID system being implemented insufficient. Opportunities Threats » Rapid digitalization of businesses and the public » Limited human capital in cybersecurity could delay sector in Colombia is pushing up the demand for development of the cybersecurity domain for years to cybersecurity specialists, products, and services, come. Improving human capital will require consistent enhancing the domestic cybersecurity marketplace. political will and significant resources from the government, academia, and industry. » International development partners (e.g., World Bank, OECD, Council of Europe, Organization of American » The current framework for the protection of the ICCN States [OAS], among others) are interested and does not take into consideration the significant share willing to support the strengthening of cybersecurity. of essential services and infrastructure operated by private sector organizations. » Successful implementation of a digital ID scheme can help strengthen the trust environment by mitigating » Limited cybersecurity academic offerings mean that payment fraud and identity duplication. technology-based degree programs should integrate more cybersecurity courses into the curricula. » Local governments are not thoroughly integrated into national cybersecurity policies and plans, which constrains the country’s ability to strengthen its cybersecurity resilience. Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 159 7.5. Recommendations and next steps of cyber incidents to the competent authorities (e.g., ColCERT, Gov CSIRT?). This chapter identifies three main areas where con- » Capacity building and skills and knowledge de- siderable effort should be undertaken to improve velopment. There needs to be a consistent national Colombia’s trust environment: effort to strategically build human capital in cyber- security by, for instance, offering academic careers » Cybersecurity strategy and governance struc- in cybersecurity, including cybersecurity courses in ture. The formal establishment and allocation of primary and secondary education, and strengthen- sufficient resources to the recently adopted cyberse- ing the cybersecurity or information security courses curity governance structure is instrumental to imple- in the technology-based degree programs. There menting the strategic objectives of CONPES 3995 is a similar need to create better training opportu- and Decree No. 338 of 2022. Among those objec- nities—at the specialization level—for officials from tives is the establishment of the National Coordinator law enforcement agencies, the Prosecutor’s Office, of Digital Security and the operation of ColCERT as and the judiciary in the field of cybercrime and digital the National CERT, but newly under the administra- evidence. It is also vital that the competent author- tion of MinTIC. The latter assumes more leadership ities work closely with domestic chambers of com- functions and responsibilities delegated by Decree merce and other partners from the private sector, No. 338, among them, the identification and invento- academia, and industry to coordinate in organizing ry of critical cybernetic infrastructures and essential regular awareness-raising activities for the private services within the public sector. sector, including MSMEs, and society-wide. » Legal and regulatory framework. The current com- The primary stakeholders of the entire digital eco- prehensive cybersecurity and data protection frame- system, mainly Colombia’s citizens, stand to benefit work has room to be refined to integrate internation- from implementing reforms and policies and making ally recognized best practices, such as the right to investments to strengthen these three key areas. By data portability, the reporting of data breaches to the creating a more trustworthy digital environment, Colom- data subjects, and expanded legal jurisdiction for bia will enhance its level of cyber resilience and become processing personal data. Moving forward, Colom- a more attractive destination for both national and foreign bia’s data protection framework should go farther in private investment in the technology industry from finan- addressing the challenges brought forth by emerg- cial sources that care about doing business in a country ing technologies. The protection of critical infrastruc- where there is highly qualified human capital and a high ture could be strengthened by including the sizable level of commitment to promoting reliable digital security. critical infrastructure assets and essential services Table 7.3. offers recommendations along the priorities operated by the private sector under the ICCN re- identified above. gime. At the same time, the incident response frame- work could be improved by mandating the reporting Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 160 Table 7.3. Trust Environment: Policy Recommendations (1 of 4) Responsible Legal Change Reform Area Recommendation Entity Timing Required? Cybersecurity strategy Efficiently implement CONPES and governance 3995and its action plans, structure including regular monitoring, reporting, and evaluations based on collected metrics during the Short MinTIC No implementation stage, in order to term enhance key stakeholder perfor- mance, avoid duplication of effort, and maximize resources. Ensure that ColCERT is re-established to manage the national-level incident response management cycle. Due to recent administrative changes, Short MinTIC term No ColCERT is in need of robust human, technical, and financial resources to meet its mandate. PRIORITY. Ensure that the new cybersecu- rity governance structure becomes operational and functions in an inclusive and coordinated manner. Establi- Short shing various identified layers of MinTIC term No the governance structure is vital to adequately implementing cybersecurity strategies and policies. PRIORITY. Integrate municipalities into cybersecurity strategies and policies to enhance national cybersecurity capacities. Municipalities are not part of the MinTIC current national cybersecurity and the Medium Colombian term No effort. Integrating subnational institutions into this effort will Federation of enable it to be more inclusive Municipalities and bring it closer to the people. Legal and regulatory Refine the data protection framework framework. Areas to strengthen are the right to data portability, the reporting of data breaches to the data subjects, and expanded legal jurisdiction for processing personal Yes data, as well as mandatory MinTIC Medium Statutory Law appointment of a Data Protection and SIC term No. 1581 Officer within the public and private sectors, among others. Consider enhancing oversight and enforcement of the data protection measures within the public sector. PRIORITY. Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 161 Table 7.3. Trust Environment: Policy Recommendations (2 of 4) Responsible Legal Change Reform Area Recommendation Entity Timing Required? Regularly review and update the substantive and procedural cybercrime framework to ensure MinTIC, Mid Ministry Yes that it is harmonized with interna- term tionally recognized standards and of Justice best practices. Include private ICCN assets and essential services under the MinTIC, ICCN regime to ensure that Yes ColCERT, Short national critical infrastructure and Decree sectoral term services are protected fully (not No. 338 of 2022 regulators just those of the public sector). PRIORITY. Establish a mandatory incident response and information-sha- MinTIC, ring framework to strengthen ColCERT, Short sectoral Yes collaboration among stakeholders term and strengthen incident response regulators effectiveness. Capacity building Establish a nationally coordina- and skills and ted cybersecurity aware- knowledge development ness-raising effort, with support from the private sector and civil MinTIC, society organizations, covering a ColCERT, wide range of issues and demo- Chambers Short No graphics, including vulnerable of Commerce term groups, such as the elderly, and industry children, and female heads of households, as well as MSMEs, among others. Ensure that the competent authorities, with support from MinTIC, the private sector and acade- ColCERT, mia, provide technical assistan- Short Chambers No ce and resources to enhance term of Commerce the cybersecurity posture of the and industry private sector, including MSMEs. PRIORITY. Establish a skills and knowled- ge development program for public servants. It is recommen- ded that systematic capacity-buil- MinTIC, Short ding activities be carried out, MHCP, No term followed by skills tests, to streng- ColCERT then cybersecurity capabilities in Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 162 Table 7.3. Trust Environment: Policy Recommendations (3 of 4) Responsible Legal Change Reform Area Recommendation Entity Timing Required? the public sector and thus mitigate the negative impact of cyberattacks. owled- m for Build the knowledge and mmen- capabilities of ColCERT staff. ty-buil- Since ColCERT recently started a ut, new management period, it is streng- highly important that its staff are ties in regularly trained to meet the MinTIC challenges related to the incident and ColCERT, Short response management cycle. It is No Ministry of term also highly recommended that an Foreign Affairs internal training policy be defined that has sufficient resources and cooperative training arrangements with international partners (ITU, World Bank, OAS, FIRST,374 Cyber4Dev, etc.). Enhance the knowledge and capabilities of officials and professionals within law enforcement, prosecutor’s MinTIC, offices, and the judiciary. Due Ministry to increasing cybercrime activities of Justice, in the country, the competent Law authorities should consider Short Enforcement, No joining efforts to provide sufficient term Prosecutor’s resources for systematic training Office, and at the specialization level. As a judicial starting point, it is vital to assess branches existing capabilities to ascertain subsequent capacity-building actions. PRIORITY. Enhance the cybersecurity education offering at the tertiary level and create more affordable cybersecurity professional training opportunities. Competent authorities should consider reviewing and expanding the academic offerings related to cybersecurity in the different degree plans and integrate more cybersecurity-related courses into the technology-based degree MinTIC, Mid curricula. Also, consider creating MEN, No term more affordable professional SENA training opportunities and industry certifications and developing a robust cadre of cybersecurity professionals and academics. It is recommended that a working group be established (composed of government, industry, and academia) to identify current national priorities and needs in the education field. Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 163 Table 7.3. Trust Environment: Policy Recommendations (4 of 4) Responsible Legal Change Reform Area Recommendation Entity Timing Required? Expediting the integration of cybersecurity-related courses into primary and secondary school curricula is also essential to improve the skills and knowledge of future generations. PRIORITY. Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 164 REFERENCES A4AI (Alliance for Affordable Internet). 2021. “Redefining BDO and SFC (2021). 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NE24.pdf Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 172 ANNEXES Annex 1. Digital Technologies to Help Colombia Address its Persistent Development Challenges. A Theory of Change Development Digital technologies Intermediate Long-term challenges and solutions outcomes outcomes » Strengthen firm-level productivity through innovation, adoption of digital technologies and effective use of data. » Lower financing costs and the cost of capital Spur productivity for MSMEs and large businesses through growth and promote increased information exchange and export sophistication Stagnant cost-effective digital financial services. through widespread productivity » Facilitate entry of new firms and growth technology adoption growth and high of viable businesses, including in digital and greater dependency services and e-commerce, by reducing participation of ICT on extractives search, replication, operational and and other digital compliance costs of firms. intensive » Improve efficiency and effectiveness industries. of policy instruments to support the formation and growth of digital businesses through more effective use of data and more agile delivery mechanisms. Digital Infrastructure » Improve access of rural and marginalized communities to digital infrastructure and Reduce spatial Digital Public digitally delivered services. inequality, Platforms » Boost economic resilience of poor through improve social digital financial inclusion. mobility and » Enhance the targeting and efficiency of strengthen social protection programs by leveraging resilience of rural digital payments. and underserved Digital Financial » Boost access to education across regions, Services communities. High inequality income groups, and ethnicities through and low levels improved digital infrastructure. Ensure equitable of social mobility » Strengthen the resilience of education access to quality to external shocks through quality hybrid education Digital Businesses learning systems leveraging digital and trainings, technologies. and through it » Develop the technical and technological enhance access capabilities to strengthen the development to labor market Digital Skills of digital skills of students at all levels. opportunities for all Enhance and create new tools that facilitate job seekers. lifelong learning as well as the upskilling and reskilling of the labor force. Trust Environment » Create new possibilities for decarbonization and adaptation to climate change via application of digital technologies in power, agriculture, and transport, among other sectors. Strengthen » Strengthen climate and disaster resilience, climate change Natural, social, and environmental sustainability through adaptation and economic the adoption of digital solutions (e.g., for and resilience, impacts of remote monitoring, management and while fostering climate change adaptation). low-carbon » Develop key enablers to promote low-carbon development. growth by increasing the contribution of the ICT sector to GDP growth, and by leveraging digital technologies to improve energy efficiency and reduce emissions of other sectors. Source: Prepared by the authors, based on priorities identified in the World Bank (2022). Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 173 Annex 2. Status of Ex Ante Regulation Annex 3. The Impact of Non-Pharmaceutical in the Colombian Telecommunications Markets Interventions during the COVID-19 Pandemic and the Role of Digital Infrastructure in Colombia In the context of a series of reform initiatives, Presidential Decree 2870 of 2007 required that the regulatory agency Non-pharmaceutical interventions (NPIs) put in place in (CRT/CRC) undertake a relevant market analysis pro- Colombia during the COVID-19 pandemic forced many cess to designate any dominant operators and to impose economic, educational, and social activities to move on- the obligation of a wholesale reference interconnection line and thus encouraged the use of virtual platforms for or access offer on any designated dominant operators.375 education and teleworking. The quality of digital infra- structure influences the ability, together with other fac- By means of Resolution 2058 of 2009, the CRT identi- tors, to carry out activities remotely and thus adherence fied 16 relevant markets, 10 retail and six wholesale.376 to NPIs. A recent study by the World Bank investigates Based on adoption of the European Union’s “three cri- the link between these factors by analyzing several teria test,” it designated six markets that warranted ex large-scale datasets, such as Movement Range Maps ante regulation. Both the former and latter lists were re- (mobility) and Relative Wealth Index (income), from Me- vised and expanded, most recently in Resolution 5108 of ta’s Data for Good program and Ookla’s geo-localized 2017, to include two additional markets that called for ex speed tests (internet speed). ante regulation, for a total of eight.377 In Colombia in March 2020, mobility dropped sharply, By Resolution 5110 of 2017, the CRC initiated a pro- reaching a median reduction of 53 percent [37 percent, ceeding to determine whether Claro is dominant in any 68 percent] in early April (see Figure A). Afterward, the of these eight markets, and if so, whether to impose any trend was inverted and approached the pre-pandemic of the proposed ex ante regulatory measures.378 This baseline by late 2020. However, the reduction was not proceeding was concluded nearly four years later via homogeneous across regions, as mobility declined more Resolution 6146 of 2021 that designated Claro as domi- in municipalities with more reliable digital infrastructure. nant in one of the markets warranting ex ante regulation, Indeed, Figure B shows a significant correlation between “mobile services.”379 However, the CRC decided not to the decrease in movement following NPIs and internet impose any of the specific ex ante measures it had origi- speed in different municipalities. Figure B also shows the nally proposed in Resolution 5110 or any others, instead Stringency Index, a measure of the strictness of policies committing to undertake further study of the “mobile ser- implemented to curb COVID-19. Interestingly, the cor- vices” market within two years (January 2023). relation between mobility reduction and digital infrastruc- ture quality is stronger when stricter countermeasures In parallel, the CRC has also analyzed fixed relevant to fight COVID-19 are in place. Adherence to NPIs and markets but determined that there is a one-way substi- digital infrastructure quality is known to correlate with tution from mobile to fixed markets, based on which it wealth. Hence, the analysis focused also on its partial did not designate any significant market player (SMP)/ correlation using the Relative Wealth Index as a con- dominant operator in any fixed relevant market.380 Cor- trol. The partial correlation computed during the period respondingly, it did not impose any specific ex ante reg- of maximum movement reduction remains significant ulatory measures on fixed segment operators, including (Pearson partial ρ=0.32, 95 percent CI [0.23, 0.42]). any of the wholesale access ex ante obligations that are common in most OECD countries.381 Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 174 The study also assessed to what extent municipalities second most important regressor, as higher download reduced mobility according to a set of features, including speed is associated with higher mobility reduction. socioeconomic status (i.e., Relative Wealth Index, GDP per capita), fixed download speeds from Ookla, number To conclude, the study found evidence that access to of COVID-19 cases reported, and demographic indica- a better digital infrastructure was linked to higher ad- tors (population, density, and fraction of the population herence to NPIs in Colombia during the first COVID-19 aged 60+). To further investigate the link between re- wave. Additionally, these effects remained visible after sponse to NPIs and its drivers, Figure C reports the im- controlling for other socioeconomic factors. The findings portance of different regressors for the prediction of the suggest that better connectivity can mitigate vulnerability independent variable (i.e., maximum mobility reduction). in the face of health shocks. The average download speed of the municipality is the Figures A, B, and C. Digital Infrastructure and Response to NPIs in Colombia A C 75 100 Movement Reduction (%) RWI Stringency Index 50 75 25 50 Mbps 0 Movement Reduction (median, 90% CI) 25 Stringency Index 60+ 0 Apr, 20 May, 20 Jun, 20 Jul, 20 Aug, 20 Sep, 20 Oct, 20 Nov, 20 Dec, 20 density B 100 0.6 GDP Stringency Index 0.4 75 Correlation 0.2 50 cases 0.0 Pearson correlation (median, 95% CI) 25 population -0.2 Stringency Index 0 Apr, 20 May, 20 Jun, 20 Jul, 20 Aug, 20 Sep, 20 Oct, 20 Nov, 20 Dec, 20 -0.2 0.0 0.2 0.4 0.6 β Source: Gozzi, Comini, and Perra (2022). Notes: A) Percentage reduction of movement in Colombia throughout 2020 from Meta Movement Range Maps (median and 90 percent confidence intervals computed on movement changes in different municipalities). The orange dashed line is the Stringency Index capturing the strictness of policies put in place to control COVID-19. B) Correlation between percentage movement reduction following NPIs and Ookla fixed download speed in different municipalities across 2020. C) Distribution of standardized regression coefficients (median and 95 percent confidence intervals) with maximum mobility reduction as an independent variable. Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 175 Annex 4. Top 30 Active Investors in Colombia (by volume of deal) Top 30 Active Investors HQ Country (by volume of deal) of the Top Investor Darby Overseas Investments USA Ecopetrol Colombia I Squared Capital USA Petrominerales Colombia Protección Pensiones Colombia Andreessen Horowitz USA BoomStartup USA Burch Creative Capital USA CSC UpShot Ventures USA Delivery Hero Germany DST Global Hong Kong Erik Torenberg USA FJ Labs USA Floodgate Fund USA Foundation Capital USA FundersClub USA Grupo Bolivar Colombia Innogest Capital Italy Investo Mexico INVX Colombia Monashees Brazil Palm Drive Capital USA Plug and Play Tech Center USA Redpoint eventures USA Sequoia Capital USA SoftBank Group Japan SoftBank Investment Advisers Japan Soma Capital USA ONEVC USA Omega Venture Partners USA Source: Authors’ elaboration with data from Pitchbook and CB Insights. Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 176 Annex 5. Government Policies Related to The description of each of these policies purposely fo- the Development of Digital Skills in Colombia cuses on those aspects relevant to the development of 2018–21 digital skills, though these are not the only topics ad- dressed by the policy documents. Year Legal or Policy Document Description 2018 Decree 1008 Online Provides a unified vision of digital transformation for the Government Strategy country based on innovation, competitiveness, and security of information. 2018 CONPES 3920 Big Data Focuses on identifying human capital gaps related to competencies for data analysis and developing actions to bridge those gaps, including by incorporating the prescribed actions into the design and development of the National Qualifications Framework for said competencies. 2018-2022 NDP Pact for Equity, Sets two avenues for the digital transformation of Colombia: Pact for Colombia (1) massification of broadband internet and the digital inclusion of all Colombians and (2) implementation of advanced technologies, such as blockchain, the Internet of Things, and artificial intelligence, among others. It also establishes a goal to provide 500,000 trainings that contribute to the development of digital skills. 2018-2022 ICT Plan 2018–2022 The Digital Focuses on bridging the digital gap and preparing Future for All Colombians for the Fourth Industrial Revolution. This will be achieved through four axes: ICT environment for digital development; digital social inclusion; citizens and households empowered by the digital environment; and digital and sectoral transformation. 2019 CONPES 3975 Digital Transformation Focuses on the digital transformation of Colombia to take and Artificial Intelligence advantage of the opportunities and challenges presented by the Fourth Industrial Revolution: reducing the barriers that prevent the use and adoption of digital technologies, both in the business sphere and by state entities; creating the enabling conditions for digital, private, and public innovation; and strengthening the skills of human capital. 2020 CONPES 3988 Technologies Promotes innovation in educational practices based for Learning on digital technologies by increasing access to digital technologies for the creation of innovative learning spaces; improving internet connectivity within official educational institutions; promoting the appropriation of digital technologies in the educational community; and strengthening the monitoring and evaluation of the use, access, and impact of digital technologies in education. 2021 CONPES 4001 Declaration of Proposes a strategy to provide internet access to rural Strategic Importance of the National areas in 32 departments of the country for eight years, the Project for Universal Access to ICTs installation of high-quality internet access at rural educational in Rural and Remote Areas sites, and the optimization of public investment to promote universal access in rural areas. Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 177 Annex 6. Government Programs and Strategies Related to the Development of Digital Skills in Colombia 2018–22 Program Focus Area Offering Institution Beneficiaries Teacher Basic competencies 200 episodes MEN NA at Home382 and citizenship available online (Profe en tu Casa) and via RTVCPlay focused on basic competencies and citizenship STEM Route383 Science, Teacher training MEN-MinTIC 36,738 teachers (Ruta STEM) technology, in critical and engineering, computational and mathematics thinking, problem solving through the use and appropriation of science and technology Programming for Science, technology, Computational MEN, in alliance 20,129 teachers Girls and Boys engineering, and thinking with the British and 516,892 students mathematics Council (Programación para Niños y Niñas) TutoTIC384 Ciencia, tecnología, Clase magistral MEN 59,967 alumnos ingeniería y y tutoría en línea matemáticas TutoTIC385 Science, Additional training MinTIC, in alliance 59,995 individuals, mathematics, reading in leadership, with IBM, Oracle, out of which 45,382 comprehension, teamwork, assertive and Microsoft gained certification and English communication, and English A Ticket for ICT skills Scholarships and MinTIC NA the Future386 financial assistance (Un Ticket para to pay for (up to 90%) el Futuro) tuition fees for ICT-related international training Playing ICT skills Training in problem MinTIC 5,000 teachers and Creating solving, innovation, and 153,879 students (Jugando y Kreando) and adaptation to (1st and 2nd grade) change Arriving387 Digital skills Free online courses MinTIC 450,887 certificates (Llegamos con TIC) and content aimed at fostering digital skills, literacy, culture, and activism Certificates are available upon completion of minimum requirements and can be obtained within a day. Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 178 Program Focus Area Offering Institution Beneficiaries Chronicles Digital journalism Training for parents, MinTIC, in alliance 5,730 individuals with Gabo388 teachers, and students with Fundación Gabo on digital narratives (Cronicando con Gabo) and online journalism, inspired by the stories and legacies of Gabriel García Marquez 1, 2, 3 X TIC Safety Training to utilize ICTs MinTIC 4,464,526 individuals (previously and security and safely address the En Tic Confio+)389 risks associated with their use and the use of the internet STEAM Girls Science, technology, Virtual training MinTIC 6,567 girls (Chicas STEAM) engineering, arts, aimed at fostering and young women and mathematics the interest of young girls in STEAM curricula Be the 1 English language App created to MEN 282,000 students Challenge390 assist 6th to 11th graders in learning English Strengthening Educational Technical assistance MEN, in alliance 96 Departments Territories innovation to the 96 certified with EAFIT University of Education Departments of Education to create educational innovation plans Co-Lab Educational Generate enabling MEN, in alliance 126 higher (Laboratories innovation conditions in the with EAFIT University education institutions for Educational and digital context of the 4th and 20,000 higher transformation Industrial Revolution education teachers Innovation to create future and Digital perspectives for Transformation education through in Higher research and project Education development Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 179 Annex 7. Main Laws and Regulations Governing » Decree No. 1074 of 2015 partially regulates Law No. the Data Protection Framework in Colombia 1581 of 2012. » Decree No. 90 of 2018 establishes the criteria for In addition to the two primary statutory Laws No. 1266 of the mandatory registry of databases on the National 2008 and No. 1581 of 2012, the Colombian legal system Database Registry. covers the following data protection provisions: » Circular Unica of the SIC contains all the general ad- » The Constitution of the Republic of Colombia (1991), ministrative decisions issued by the SIC’s data pro- in article 15, safeguards the right to privacy (derecho tection delegation office. Those decisions that are a la intimidad personal) and demands data collec- not included in the Circular Unica are understood to tion, processing, and transfer to respect the liber- have been repealed. ties and other guarantees enshrined in the Consti- tution.391 Furthermore, article 20 of the Constitution recognizes the right to data rectification as a funda- » External Circular No. 002 of 2015 requires, among other responsibilities, that all entities that are incor- mental right.392 porated in Colombia and registered with the local Chamber of Commerce acting as data controllers » Law No. 527 of 1999 regulates data messages, elec- must record certain aspects of how they process tronic commerce, and digital signature. personal data in each of the databases they control in the National Database Registry managed by the » Law No. 1273 of 2009 establishes unlawful and un- SIC. Circular No. 002 lists all the countries that, ac- authorized personal data processing as a crime and cording to the SIC, meet the standards guaranteeing incorporates it into the Criminal Code (article 269F). an adequate level of personal data protection.394 » Law No. 1480 of 2011 regulates consumer data » External Circular No. 005 of 2017. rights in traditional and electronic transactions.393 » External Circular No. 007 of 2018. » Law No. 2015 of 2020 regulates interoperable elec- tronic medical records. » External Circular No. 004 of 2019 regulates data processing in interoperable information systems. » Law No. 1712 of 2014, the Law on Transparency and the Right of Access to National Public Information. » External Circular No. 002 of 2020 regulates the pro- tection of “physical or electronic fingerprints” to col- » Decree No. 1727 of 2009 determines how operators lect biometric information (sensitive data) to prevent of data banks with financial, credit, and commercial the spread of COVID-19 through indirect contact. information and data from third countries must pres- ent the information on the data subjects. » External Circular No. 001 of 2020 regulates the pro- vision of information to the National Planning De- » Decree No. 2952 of 2010 partially regulates Law No. partment and other government entities that require 1266 of 2008. such information to prevent, treat, or control the spread of COVID-19. » Decree No. 1377 of 2013 partially regulates Law No. 1581 of 2012, including the appointment of either The following judicial cases are also significant to the a specific person or a designated group within the data protection framework in Colombia: company to be in charge of data processing matters, accountability, specific requirements for processing » From 1991 (the year of the adoption of the current personal data from minors (individuals under 18 Constitution) to 2012 (the year of the adoption of years old), and the obligation to develop privacy pol- Statutory Law No. 1581) the legal basis for personal icies and the minimum requirements involved. data protection in Colombia was extensively devel- oped through constitutional rulings due to the lack of » Decree No. 886 of 2014 partially regulates Law No. a general regulation on the issue. 1581 of 2012, particularly the obligation that data controllers have to register in the National Database » A Constitutional Court ruling (C-748/2011) states Registry the specific information in their databases that the right to be forgotten is part of the rights relat- that contains personal data and whose processing is ed to habeas data; therefore, the right to be forgotten subject to Colombian legislation. is jurisprudential. Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 180 Annex 8. Major Sectoral Cybersecurity Measures disclosure of the security measures adopted to contain cyber incidents, and the need to establish or outsource SOC services and adopt a business continuity plan, In the electricity sector, the National Council of Op- among others. Also in 2018, the SFC adopted Circular erations (Consejo Nacional de Operaciones [CNO]), a Externa No. 008, which established the security stan- private body established by Law No. 143 of 1994, creat- dards for e-payment platforms to protect consumer infor- ed a supervision and cybersecurity committee that has mation. In 2019, the SFC adopted Circular Externa No. developed several cybersecurity guidelines (Resolutions 005 concerning security in the use of cloud computing. In 701, 788, 1004, 1043, 1241, 1347) for electricity sector 2020, the SFC adopted Circular Externa No. 033, which operators (National Interconnected System [Sistema defined, among other items, the adoption of the Traffic Interconectado Nacional [SIN]) addressing the identifi- Light Protocol for information sharing, the format of the cation of critical assets, continuity and recovery plans, metrics report for information security, and the taxonomy and incident response plans, among other cybersecu- of cyber incidents. rity requirements. Also, the Energy and Gas Regulator (GREG) adopted the Integral Digital Security Strategy There is a membership-based CSIRT managed by Aso- for the Electric Sector (Document No. 65 of 2019). bancaria. CSIRT Financiero is the focal point for infor- mation sharing and fosters collaboration and informa- The CNO also developed certain mandatory cyberse- tion-sharing practices among the different members of curity guidelines and standards based on the Critical the community. Infrastructure Protection (CIP) standards of the North American Electric Reliability Corporation (NERC) used In the telecommunications sector, the Communica- in the United States and Canada and NIST 800-53, ISO tions Regulatory Commission (CRC) recognizes the 27.001, and COBIT 5. The CNO organizes trainings and importance of integrating cybersecurity measures into awareness-raising activities. There are sectoral CSIRTs the regulatory framework to ensure the quality and un- and SOCs, both managed by XM, the operator of the interrupted delivery of communications services in Co- Colombian electric system. There is also an informa- lombia. Although not as rigorous as the SFC, the CRC tion-sharing mechanism called CoI-ISAC to exchange has adopted Resolution No. 5050 of 2016 (modified by information on cyber threats, risks, and vulnerabilities. Resolution No. 5569 of 2018) concerning the security of the network. In the financial sector, the Financial Superintenden- cy (SFC) is rigorous in supervising the deployment of There is a sectoral CSIRT (CSIRT-CCIT) that was estab- emerging technologies, including how operational risks lished in 2009 by the Colombian Chamber of Informatics are contained and managed, which incorporates cyber- and Telecommunications (CCIT). CSIRT-CCIT has been security risks. In 2018, the SFC issued Circular Externa a member of FIRST since 2013. Its constituents are the 007, which outlined the minimum requirements for man- companies in the ICT sectors. CSIRT-CCIT manages the aging cybersecurity risks, including the establishment Colombian Internet Exchange Point (NAP Colombia2). of security controls, incident reporting obligations, Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 181 Notes 1. See Fan and Ouppara (2022). . 45. DNP (2022b). 2. Adapted from Santander (2022). 46. CONPES (2019). 3. WEF and Deloitte (2022). 47. UN (2022b). 4. Knickrehm et al. (2016). 48. Between 2010 and 2022, Colombia lost 39 positions in the UN 5. See World Bank (2016). E-Government Index ranking. It is well positioned in terms of elec- 6. Based on data from Pitchbook and CB Insights. tronic interaction with the government (ranking 26 out of 63) but 7. Based on UN (2022a). has lost three positions since 2017. 8. DANE (2022b) 49. As reported by the Articulación para la Competitividad (ArCo) ini- 9. World Bank (2020). tiative. 10. This is a conservative estimate with data from a new World Bank 50. This report uses “digital infrastructure” and “data infrastructure” global digital business database that leverages data from two pro- as synonyms. viders: Pitchbook and CB Insights. 51. World Bank (2021). 11. The term “digital business” as used in this report refers to digital 52. Two submarine cables are currently under construction. See solution providers that develop and manufacture digital technol- “Submarine Cable Map,” TeleGeography, https://www.submarine- ogy products or provide services enabled through digital means. cablemap.com/. The term “digitally intensive businesses” refers to both digital 53. “Transmission network” refers to the physical length of fiber op- businesses and other companies that leverage digital technolo- tic cable in a network irrespective of the number of optical fibers gies to provide (non-digital) goods and services. Chapter 5 dis- contained within the constituent cables of that network (see ITU cusses the degree of digital intensiveness of industries based on 2020). Nodes are one of the ways of access to the main domes- the classification by Calvino et al. (2018). tic internet network; hence, a low percentage of population living 12. Based on data from Sava (2021) and the Colombian Chamber of close to them highlights the need to strengthen the middle and E-Commerce. last-mile infrastructure in the country. 13. Based on data from the 2020 EDIT for digitally intensive manufac- 54. The five LAC comparator countries are Argentina, Brazil, Chile, turing and service firms. Mexico, and Peru. 14. Based on data from Manpower Group (2023). 55. Departments are first-tier administrative geographic areas. 15. Alianza TIC (2020). See “Internet Dedicado,” https://colombiatic.mintic.gov.co/679/ 16. See Fan and Ouppara (2022). w3-propertyvalue-47271.html. 17. See, for instance, OECD, “Digitalisation and Productivity: A Sto- 56. GSMA (2021). ry of Complementarities,” OECD Economic Outlook 2019, no. 1 57. OpenCellID (2022) (2019): 55–83. 58. GSMA (2021). 18. Knickrehm et al. (2016). 59. Centro Poblado, a concept created by the National Administrative 19. Adapted from Santander (2022). Department of Statistics (Departamento Administrativo Nacional 20. WEF and Deloitte (2022). de Estadística [DANE]) for statistical purposes, defines a con- 21. See World Bank (2016, 50). centration of at least 20 adjoining, neighboring, or semi-detached 22. For instance, real-time data can help manufacturers forecast op- dwellings located in the rural area of a municipality. These areas timal stock levels, improve order management, and speed up in- present urban characteristics, such as the delimitation of vehicu- ventory turnover. See Grainger (2020). lar and pedestrian routes. 23. See World Bank (2016). 60. See https://www.mintic.gov.co/portal/inicio/Sala-de-prensa/MinT- 24. World Bank (2023b). IC-en-los-medios/145864:MinTIC-le-asigno-espectro-a-Claro-pa- 25. Based on World Bank (forthcoming, a), with data from Pitchbook ra-desarrollar-pruebas-5G-durante-seis-meses and CB Insights. 61. MinTIC (2022b) 26. UN (2022a). 62. The HHI is a measure of market concentration and is obtained by 27. DANE (2022b) squaring the market share of each firm competing in the same rel- 28. DANE (2021b). evant market and then summing the resulting numbers. A higher 29. UN (2022b). HHI indicates larger market concentration. 30. World Bank (2022). 63. OECD (2018b). 31. World Bank (2016). 64. OECD (2021a). 32. World Bank (2022). 65. Pursuant to Law 142 of 1994, Colombia established a national 33. World Bank (2022). system of designating all residences in the nation from stratum 1 34. IFC (unpublished). (lowest socioeconomic level) to stratum 6 (highest). The designa- 35. See, for instance, Cusolito et al. (2020), y Brynjolfsson and Pet- tion was based on buildings, streets, and neighborhood charac- ropoulos (2021). teristics but not on the income of the particular household at any 36. World Bank (2022). particular time. 37. Lloyd’s Register Foundation (2022). 66. MinTIC (2019a) 38. George et al. (2022). 67. García et al. (2019). 39. Pearce (2018). 68. DANE (2022c). 40. According to the European Commission, some 9 million tons were 69. World Bank (2023c). generated in the European Union in 2005, which grew to more 70. A4A1 (2021). than 12 million tons by 2020. 71. The speed test provider recorded a total of 69.6 million tests: 65.8 41. ECLAC (2020) and Chui et al. (2018). million for fixed and 3.8 million for mobile. An analysis of Ookla’s 42. See World Bank (2022). SpeedTest data performed on fixed and mobile connections in 43. Decrees 704/18 and 1651/19 cemented MinTIC as the public en- Colombia between January 2019 and January 2021 was conduct- tity in charge of coordinating and articulating the activities, func- ed for the purposes of this report. tions, and policy instruments related to the digital economy. 72. Outliers in the data can be due to several factors, such as tem- 44. OECD (2018b). porary network issues or tests performed by network operators. Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 182 73. Gozzi et al. (2022). ment, and GovTech enablers. Countries in group A are those that 74. The ITU Regulatory Tracker Index assesses the following macro have demonstrated advanced solutions and good practices in all categories: (i) Regulatory Authority: detailed assessment of ac- four dimensions. For additional details on the GTMI, see World countability, enforcement power, and autonomy in decision mak- Bank, “GovTech: Putting People First,” https://www.worldbank. ing of the separate regulator; (ii) Regulatory Mandate: assess- org/en/programs/govtech/gtmi. ment of regulatory bodies in different fields of digital infrastructure, 99. Dener et al. (2021). that is, service quality monitoring, licensing, radio frequency al- 100. UN (2022a). location, etc.; (iii) Regulatory Regime: what regulation exists in 101. https://www.mintic.gov.co/portal/715/articles-149186_recurso_1. major areas, such as the requirement for different types of licens- pdf es and mandated infrastructure sharing, as well as the adoption 102. MinTIC (2020a). of a national plan that involves broadband; and (iv) Competition 103. RNEC (2022) Framework: level of competition in the main market segments: 104. See https://www.convergencialatina.com/Seccion-Analisis/33871 international mobile telecommunications, fixed line services, and 5-3-50-Unas_64_entidades_de_Colombia_ya_comparten_infor- international gateways. Also, this last category includes an as- macion_sobre_XRoad sessment of restrictions on foreign participation/ownership. See 105. This service allows the user to consult, among others: 1) social “ICT Regulatory Tracker,” https://app.gen5.digital/tracker/metrics. workers’ backgrounds, 2) driver’s license records, and 3) parafis- 75. Colombia’s disaggregated score in ITU’S 2020 ICT Regulato- cal contributions. Similarly, it allows the user to obtain certificates ry Tracker is available at https://app.gen5.digital/tracker/coun- from the National Cadaster Registry and Professional Affiliation try-cards/Colombia. Registry, as well as payroll and pension retentions and employ- 76. EC (2018). ment verification certificates for public sector employees. 77. Martínez et al. (2020). 106. Función Pública (2019a). 78. Since 2010, MinTIC has encouraged the entry of MVNOs, which 107. Función Pública (2022b). have now reached 7 percent of the market share (see TeleGe- 108. See http://anticorrupcion.gov.co/Paginas/observatorio.aspx. ography, 2023b). In spite of this, however, markets continue to 109. See https://colombiatic.mintic.gov.co/679/w3-propertyvalue-3667 remain concentrated, partly because the MVNO policy is not man- 5.html datory, and hence most of the terms and conditions are left to 110. Decree No. 620 establishes guidelines for the use and operation commercial negotiations, rather than regulation. Indeed, most of of SDC and requires government institutions to set up electronic the MVNOs have entered into agreements with the second and offices that allow persons to digitally complete procedures and third largest MNOs, rather than with the largest. See “List of Mo- access public services. bile Network Operators of the Americas,” https://en.wikipedia.org/ 111. See https://gobiernodigital.mintic.gov.co/portal/Iniciativas/Espaci wiki/List_of_mobile_network_operators_of_the_Americas. o-colaborativo-Data-Sandbox#!/terminosCondiciones. 79. These could take the form of cost orientation, publication of refer- 112. GPFI (2016). ence offers, non-discrimination, mandatory access to infrastruc- 113. For many, this might be their first formal account, and thus a con- ture, economic replicability tests, and other measures. nection to the formal financial sector. 80. Función Pública (1990). 114. IMF (2022b). 81. Función Pública (1990). 115. Función Pública (2014). 82. Función Pública (2009). 116. Función Pública (1998). 83. Función Pública (2019b). 117. For instance, 76 percent of customers of savings and credit co- 84. MinTIC (2019b). operatives live in urban areas. Limitations faced by cooperatives 85. Currency exchange as of April 26, 2022. include: (i) the lack of economies of scale and limited integration 86. https://www.sic.gov.co/. into the country’s financial infrastructure; (ii) technological and op- 87. Relevant laws applying to the ANE are Law 1341/2009, Decree erational constraints due to outdated software and the lack of dig- 4169/2011, Law 1753/2015, and Law 1978/2019. ital transactional channels; and (iii) strong competition from banks 88. García Zaballos et al. (2021). and other market players that are more cost-efficient or can offer 89. MinTIC (2021b). more competitive rates (often leveraging the discount facilities of 90. MinTIC (2020d). FINAGRO, a second-tier development bank). 91. MinTIC (2021a). 118. At the time of writing, there were five postal payment service pro- 92. MinTIC (2021c). viders operating in Colombia. 93. The National Policy on Digital Transformation and Artificial Intel- 119. Finnovista et al. (2022). ligence (Política Nacional para la Transformación Digital e Inteli- 120. Colombia’s fintech association (Colombia Fintech) has adopted gencia Artificial) was set up by the National Council for Economic a definition of a fintech firm as any undertaking that leverages and Social Policy (Consejo Nacional de Política Económica y technical developments to provide innovative financial services. Social [CONPES]) through CONPES policy document No. 3975. Based on this definition, Colombia Fintech estimates that there 94. See CONPES (2019). CONPES-3975 seeks to boost the gen- are 299 fintech companies, the majority of which are registered at eration of social and economic value by leveraging digital gov- the Chamber of Commerce. ernment and developing an enabling environment. The policy 121. To enhance saving and credit cooperatives’ risk management and outlines 13 action areas, and action 7 is focused on digitalizing value proposition, the SES embarked on a project to implement government services and streamlining the delivery of digital public risk-based supervision, which is yet to be completed. This project services in a single government portal. aims at strengthening the institution’s capacity to supervise and 95. MinTIC (2022c). inspect savings and credit cooperatives, while also increasing its 96. MinTIC (2022b). effectiveness—among other objectives. 97. The AND is tasked with the rollout of digital government services, 122. Función Pública (1992). as per Decree No. 620 issued in 2020. This Decree also provides 123. Función Pública (2003). an overarching framework for the use of digital ID authentication 124. Senado (2022). See art. 33 of Proyecto de Ley No. 337 of 2022 mechanisms and establishes a governance framework. “Por la cual se dictan normas relacionadas con el acceso y fi- 98. The GTMI seeks to capture the maturity of GovTech across coun- nanciamiento para la construcción de equidad, y se dictan otras tries based on a survey with 48 key indicators in four dimensions: disposiciones.” core government systems, public service delivery, citizen engage- 125. The scope of payment services entailed in the draft bill is broad Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 183 and open, including the execution of funds transfers, acquiring of Decree 222 of 2020 Financial products and mobile and digital cor- payment transactions, issuing of payment instruments, payment respondents initiation services, clearing and settlement, and national and inter- Decree 1692 of 2020 Low value payment systems national remittance services, as well as any other services autho- 149. Función Pública (2020). rized by the regulator. 150. The list of approved pilots can be consulted at https://www.super- 126. BDO and SFC (2021). Note that the large discrepancy (between financiera.gov.co/jsp/10099575#piloto. demand-side and supply-side data) may be partly explained by 151. See SFC External Circulars No. 007 of 2018 and No. 033 of the lack of awareness and infrequent use of accounts. When look- 2020 amending the Basic Legal Circular (Circular Básica Jurídica ing at active deposits in isolation, as of the fourth quarter of 2020, [CBJ]). 68.4 percent of adults had an active deposit, hovering closer to 152. Decree 2555 of 2010 (Parte 2, Libro 36, Título 9, as recently Findex estimates of account ownership. amended by Decree 222 of 2020) and the SFC CBJ (CE 029 127. Ibid. Individuals may have more than one account. of 2014, Parte I, Título II, capítulo I, as amended), regulate the 128. Arango-Arango et al. (2021). use of agents by credit institutions, securities broker-dealers, 129. BR (2021). The year 2020 was an exception to the continuous pension funds, trust companies, and insurance companies. Art. growth in card transactions, with the number of transactions de- 2.36.9.1.20 of Decree 2555 applies the same regime to SEDPEs, creasing from 2019 because of the shock to economic activity based on Law 1735 of 2014 (art. 1 par. 4) authorizing SEDPEs created by the COVID-19 pandemic. to operate through agents to perform their activities. Similarly, 130. Arango-Arango et al. (2021). Decree 1068 of 2015 authorizes savings and credit cooperatives 131. Demirgüç-Kunt et al. (2022). and multi-active cooperatives with a savings and credit section to 132. BDO and SFC (2021). It is worth noting that since 2019, the num- engage agents and also subjects the cooperatives to the same ber of adults with a credit product no longer includes adults whose provisions contained in Decree 2555. loans have been written off. This change in measurement may 153. See SFC External Circular No. 002 of 2021. contribute to explaining the decline to some extent. 154. See Decree No. 222 of 2020. 133. BDO and SFC (2021). 155. Provided operations are registered and reflected in the systems 134. World Bank (2023a). Small firms are classified as those with five of the financial institution by the end of the day on the same day to 19 employees. The survey does not collect data that allow for in which customer funds are received. comparison between countries regarding the levels of access to 156. Through SFC External Circular No. 005 of 2019. These provisions finance of micro enterprises (fewer than five employees). contemplate the need to ensure (i) the observance of information 135. Based on SME Finance Forum’s MSME Finance Gap Database security standards (e.g., through the relevant certifications); (ii) (updated October 2018). See https://www.smefinanceforum.org/ the backup of the information processed in the cloud; and (iii) the data-sites/msme-finance-gap. continuous availability of services (99.95 percent at a minimum), 136. DANE (2022c). among other measures. 137. BDO (2021). 157. The framework is made up of the Estatuto Orgánico del Sistema 138. Estrada and Hernández (2019). Financiero (art. 97), Law No. 1328 of 2009 (as amended), Decree 139. Due to the absence of a univocal definition of microcredit as a 2555 of 2010 (Title 4), and the CBJ. basis for data collection and analysis, it is difficult to obtain an 158. As well as data from Prestadores de Servicios Ciudadanos Digi- accurate picture of this market. tales, which are public or private entities that provide SDC, name- 140. The CONPES was created by Law No. 19 of 1958. The CONPES ly, digital authentication, the CCD, and interoperability under the is the highest national planning authority and acts as an advisory rules established by MinTIC. body to the government in all aspects related to the economic 159. Current participants include all the banks, four financial coopera- and social development of the country. The DNP performs the tives, two financial corporations, the National Treasury, the central functions of executive secretariat of the CONPES and is the entity securities depository, and all the operators of social security pay- in charge of coordinating and presenting all the documents to be ments (Operadores de Información), as well as the BR. discussed in session. 160. Through Decree 1692 of 2020. Furthermore, in the case of sys- 141. Función Pública (2021). tems whose participants are also shareholders, one-fourth of the 142. BDO’s objectives are: (i) promoting access to credit and other board of directors must include independent members and can financial services by low-income households and MSMEs, and have no influence on interchange fees and participation fees, (ii) supporting the development and implementation of financial which must be established by the management of the entity op- inclusion and education public policy, with a focus on the educa- erating the payment system. This is provided that the respective tional community and the general public. It is still unclear how the payment instruments are not branded, or only the scheme can CIIEEF’s mandate compares to the role of CONPES. impose interchange fees. 143. Through Decree No. 1692 of 2020. 161. Arango-Arango et al. (2021). 144. See Decree No. 1692 of 2020, see art. 2.17.1.1.1 par. 20. 162. Based on a few observations, it is estimated that a small mer- 145. See art. 33 of Proyecto de Ley No. 337 of 2022. chant may pay between 2.99 and 3.49 percent in merchant dis- 146. Función Pública (2022a). count rates. 147. DNP (2022b) 163. Only small grocery/food shops and hairdressers opting for the 148. Regulations that address the issue of financial inclusion and con- simplified tax regime are exempted from VAT; under no circum- sumer protection include: stances would merchants be exempted from the GMF, although Laws 527 of 1999 E-Commerce Law the amount paid can be deducted from the income tax payment Law 1266 of 2008 Habeas financial data law and management of (where that applies). information in personal databases 164. Through External Circular No. 003 of 2019. Law 1328 of 2009 Financial Consumer Protection Law 165. The use of QRs on e-commerce websites is incipient. In 2020, Law 1273 of 2009 Law on Cyber Crimes Credibanco reported having deployed its QR at 28 online mer- Law 1581 of 2012 Personal Data Protection Law chants. Law 1735 of 2014 Financial Inclusion Law 166. For instance, Nequi and Daviplata are accepted at Nequi QR and CONPES 4005, 4011, and 4012 Qué Rápido QR, respectively, as well as Redeban’s QR. Decree 1074 of 2015 Unmonitored credit 167. See Decree No. 222 of 2020. Decree 2443 of 2018 Investments in Fintech by entities super- 168. Prosperidad Social is an agency of the national government cre- vised by the SFC ated through Decree No. 4155 of 2011. Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 184 169. Gómez et al. (2021). 187. The sectors where ICT services capital contributed above the av- 170. Partly inspired by this achievement, two government assistance erage to sectoral value-added in 2020 include, in decreasing or- programs (Devolución de IVA, Jóvenes en Acción) are currently der, transport, warehousing, and communications services; min- undergoing a limited-scale pilot through ACH-Cenit. ing and other extractive activities; financial services, insurance, 171. Large billers generally rely on own and third-party distribution net- and real estate; and commerce, hospitality, and restaurants. works and apps/websites with a payment button (PSE again the The digital intensiveness of industries as used in this chapter most used). is based on the taxonomy by Calvino et al. (2018), which clas- 172. See World Bank (2023d). sifies sectors according to their digital capabilities and their in- 173. See Demirgüç-Kunt et al. (2022). vestments in and adoption of digital technologies. The indicators 174. Digital start-ups refer to early-stage ventures that create new dig- used to classify 36 ISIC (the UN International Standard Industrial ital solutions or business models as part of their core products or Classification of All Economic Activities) revision 4 sectors over services. Established digital businesses are mainly mid-sized and the 2001–15 period according to their digital intensiveness are: large platform-based and data-driven firms that have passed the share of ICT tangible and intangible (i.e., software) investment; initial start-up stage, having rapidly acquired suppliers, contrac- share of purchases of intermediate ICT goods and services; stock tors, and consumers. of robots per hundreds of employees; share of ICT specialists in 175. According to CIIU, the following may be classified as digital firms. total employment; and the share of turnover from online sales. Code 6201: computer systems development activities, planning, High digital-intensive sectors include ISIC Rev.4 Divisions 29–30, analysis, design, programming, testing; Code 6202: computer 61–66, 69–82, and 94–96. Medium-high digital-intensive sectors consulting activities and management activities of computer fa- include divisions 16–18, 26–28, 31–33, 45–47, 58–60, 84, and cilities; Code 6209: Other information technology activities and 90–93. Medium-low digital-intensive sectors include divisions 13– computer service activities; Code 6311: Data processing, accom- 15, 19–23, 24–25, and 85–88, and low digital-intensive sectors in- modation (hosting) and related activities. clude divisions 01–03, 05–12, 35–39, 41–43, 49–53, 55–56, and 176. This section is based on a conservative estimate with data from 68. See Calvino et al. (2018). a new World Bank global digital business database that leverag- 188. Indeed, oil, coal, gold, and other primary goods with limited trans- es data from three providers: Pitchbook, CB Insights, and Briter formation represented more than 70 percent of Colombia’s total Bridges (the LAC region is covered only by Pitchbook and CB goods export value in 2019. The services export basket is also Insights). The database defines digital businesses as digital solu- concentrated at 96 percent in personal travel, transportation, and tion providers that develop and manufacture digital technology other business services; personal travel includes tourism, which products or provide services enabled through digital means. To has a low digital intensity as it requires face-to-face interaction differentiate digital businesses from digitalized “traditional” com- and accounts for more than half of service exports. However, in panies, the database uses a list of digital solution–related key- line with the increasing digitalization of the transport industry glob- words in company descriptions as a filter. These include: soft- ally, Colombia has significantly improved the digitalization of its ware, automate, cloud, application, AI, data, and so on. Applying transport industry, as illustrated by the improvement of its tracking these keyword filters results in at least 90 percent of the sample and tracing performance as per the Logistics Performance Indi- being digital solution firms, as compared to manual checks of a cator for 2018. random subsample. 189. Based on data from the United Nations Conference on Trade and 177. Following the firm life cycle, digital start-ups are early-stage digital Development (UNCTADSTAT) – Services (BPM6). Regional com- businesses, while established digital businesses consist of estab- parators, such as Costa Rica and Mexico, have shown greater re- lished platform and data-driven firms that have achieved econo- siliency, as they were able to almost return to their pre-pandemic mies of scale and scope. export service level in 2021. 178. Based on data from DANE, “Encuestas Económicas Estructura- 190. WTO (2021). les Anuales,” 2017–2020. 191. Authors’ calculations based on data from UNCTAD (2021). 179. DANE (2019). 192. Aguiar et al. (2019); Acemoglu and Restrepo (2018); y Aghion et 180. For instance, PayU Latam is a Colombia-based online payment al. (2019). provider among the leaders in Latin America (together with Payp- 193. Based on 2020 data from the Colombian E-Commerce Chamber al and MercadoPago) that has been successfully expanding in six (CCCE), https://www.ccce.org.co/conocimiento-confianza/. other markets in the region. 194. UPU (2021). 181. Platform-based firms facilitate interactions across many partici- 195. Ibid. pants. Platform businesses do not own the means of production 196. DANE (2022e). but rather create and facilitate the means of connection. The role 197. DANE (2022c). of the platform business is to provide a governance structure and 198. Banco de la República (2017) a set of standards and protocols that facilitate interactions at scale 199. Demirgüç-Kunt et al. (2022). so that network effects can be unleashed. Data-driven firms sys- 200. Moreover, since 2015, PayPal has suspended the possibility of tematically and methodically collect or aggregate large datasets utilizing online payments for domestic local currency transactions and use advanced analytics (such as AI, big data, and blockchain) in Colombia. to create value, leveraging data as a key element of their busi- 201. Among the few firms that have implemented an AI solution, most ness model. Data-driven businesses can also help traditional outsourced its development and rollout (68 percent of firms in industries upgrade through servicification to optimize production commerce and 72 percent in manufacturing). In the service sec- processes, increase sales, streamline decision making, and even tor the picture is more heterogeneous, with industries, such as re-think revenue models. software development and telecom, developing their own AI solu- 182. Blumberg et al. (2020). tions, while less knowledge-intensive industries (e.g., lodging, 183. Authors’ calculations based on data from Pitchbook and CB In- restaurants, and travel) outsourcing most of these functions. See sights. DANE (2021d). 184. Deloitte (2013). 202. As the database does not distinguish the funding information of 185. The ICT sector includes computer, electronic, and optical prod- multinational firms by their operating location, the analysis only ucts, telecommunications services, and IT and other information uses firms headquartered in the country to avoid overcounting services. the funding raised by multilateral companies in the international 186. IDB (2021) benchmarking. The database records the latest funding for each Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 185 firm, so this captures at most one most recent funding per firm 225. The following activities from the “other services” sector show rather than multiple deals per firm across the years. Formal in- greater adoption of big data: ICT and software development (29.5 vestment information comes from the latest investment reported percent); administrative and business support services (24.2 per- by the firms or through web scrapping, indicating that informal cent); and private higher education (19.5 percent). investments (e.g., friends and families) are likely underreported. 226. Ovanessoff y Plastino (2018). 203. See Chapter 4 for a list of the top 30 investors in digital business- 227. CONPES (2019). es headquartered in Colombia by volume. 228. See the action lines 13 “Generate enabling conditions to promote 204. Based on data from DANE (2020). ICT firms, as defined in this the development of AI in Colombia” and 14 “Promote the devel- chapter, include ICT-intensive manufacturing firms and ICT ser- opment of digital technologies for the 4IR in Colombia” of CON- vice providers. The former is composed of divisions 26 and 27 of PES-3975 (CONPES 2019). the CIIU Revision 4 A.C. (“manufacture of computer, electronic 229. Gómez Mont et al. (2020). and optical products” and “manufacture of electrical equipment,” 230. For instance, in the case of the United States, new data from the respectively), and the latter by divisions 61 and 62/63 of the CIIU National Science Foundation show that in 2018 (the most recent Revision 4 A.C. (“telecommunications” and “development of com- year available), about 90 percent of businesses in both manufac- puter systems and data processing,” respectively). See DANE, turing and services did not use AI as a production technology for “Clasificación Industrial Internacional Uniforme de Todas las Ac- their goods or services. See National Science Foundation, “Annu- tividades Económicas Revisión 4 Adaptada para Colombia” (Bo- al Business Survey: 2019,” https://ncses.nsf.gov/pubs/nsf22315. gotá: DANE, 2020), 231. DANE (2022e). https://www.dane.gov.co/files/acerca/Normatividad/resolucio- 232. Heredia et al. (2022); Martínez-Caro et al. (2020). nes/2020/CIIU_Rev_4_AC.pdf. 233. ANDI (2019) 205. DANE (2021c). 234. Based on data from DANE (2022c). Calculations are made on the 206. World Bank’s calculations based on data from Pitchbook and CB basis of the previous year’s expenditures. Insights. 235. DANE (2021d). 207. The OECD Digital Trade Restrictiveness Index collects informa- 236. However, among firms with ICT or systems departments, only tion on de jure barriers that affect trade in digitally enabled ser- about 10 percent reported having trouble filling vacancies. vices. Data are collected from publicly available laws and regu- 237. This section discusses policy instruments and support programs. lations. The framework covers measures in five policy areas: 1) Policy instruments refer to the set of interventions used by the infrastructure and connectivity, 2) electronic transactions, 3) mea- government to promote certain policies and achieve predefined sures affecting payment systems, 4) intellectual property rights, goals (e.g., promote widespread adoption of digital technologies and 5) a cluster of other cross-cutting barriers. by the private sector). These include regulations and government 208. Intermediary liability rules are the set of provisions that distribute programs, systems, and services, among others. The term “public the liability between intermediaries (website and apps) and actual support program” refers to a group of specific actions implement- vendors or content developers when things go wrong. ed by a government entity in order to realize one or various spe- 209. World Bank (forthcoming, a). cific objectives (e.g., improve access to finance for ICT-intensive 210. IMF (2022a) businesses) and contribute to the achievement of a policy goal. 211. Customs procedures are particularly important to trade in courier 238. Equivalent to COP 7,535,990 million, using an exchange rate of services. As the provision of such services is often time sensitive, USD/COP 0.00025, average for the period January–July 2022. reduction and elimination (where possible) of complex, time-con- See Banco de la República, “Serie Histórica de Periodicidad Men- suming customs procedures are desirable. Thus, in addition to sual.” the time required for customs clearance, three other measures 239. Misión TIC, the Tecnoacademias, and the Tecnoparques network, capturing general “simplification principles” are included in the as well as the diverse support modalities provided by the AND, OECD Services Trade Restrictiveness Index for courier services: account for over two-thirds of the budget of this group of policy pre-arrival processing, a de minimis regime, and the release of instruments, while 27 other programs account for the remaining goods before determination and payment of duties. These three third. streamlined release procedures are especially important for ex- 240. This constitutes a challenge that permeates to other areas of the pedited shipments. SNCI, as discussed in DNP and Swisscontact (2021). Note that 212. Amendment of Art. 261 of Customs Code (Decree 1165/19) by some programs mentioned here might be altered or cleared with Decree 1090/20, and Decree 2155/ 21. the new administration. 213. Velazco (2022). 241. APPS.CO is a MinTIC program that aims to promote and enhance 214. Based on data from DANE (2021d). the generation, creation, and consolidation of digital businesses. 215. World Bank (unpublished, b). The program seeks to strengthen the skills and competencies of 216. DANE (2021d); and DANE (2022c) Colombian digital entrepreneurs by means of mentors and advi- 217. Based on data from DANE (2022c). sors, adjusting to the needs of digital entrepreneurs and the matu- 218. Specifically, between October 2020 and February 2022, the rity of their ideas or digital businesses. See https://apps.co/portal/. share of medium-sized businesses that purchased inputs online 242. Public funding can sometimes have a distortionary effect on pri- dropped from 50 to 40 percent, while in the case of large busi- vate markets. However, given the overall stage of development nesses the decline was much lower, from 35 to 32 percent. of the digital business and entrepreneurship ecosystem in Co- 219. See https://www.larepublica.co/empresas/las-ventas-de- lombia, distortionary effects are likely to be small. Further, there ecommerce-en-colombia-crecieron-40-y-llegaron-a-40-bil- are sound economic reasons why it could be appropriate to use lones-3305200 grants or other public funding instruments to incentivize specific 220. Firms in “other services” reported a higher usage of digital plat- activities with the potential to provide positive externalities to the forms for both buying inputs (46 percent) and receiving orders (32 ecosystem (such as research and development). See Cruz et al. percent), according to data from DANE (2021d). 2022. 221. Based on data from DANE (2022e). 243. In 2020, most instruments of the SNCI targeted three or more 222. Forbes (2021). types of beneficiaries. Although user segmentation for the aver- 223. DANE (2021d). age SNCI instrument has improved due to the implementation 224. Ibid. of ArCo’s recommendations, more than 80 percent of programs Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 186 have no subnational differentiation, and programs that support the 261. Wiley (2021). digital transformation of the private sector still had on average 262. Ingram (2021). more than three target beneficiaries in 2022. See the analysis 263. Becerra et al (2021). carried out by the DNP as discussed in DNP and Swisscontact 264. García et al. (2021). (2021). 265. Sánchez Ciarrusta (2020). 244. Among the broader group of policy instruments that support the 266. Saenz et al. (2020). formation of foundational digital skills and the widespread adop- 267. Sanz de Santamaria and Reimers (2020). tion of digital technologies by government, NGOs, and society at 268. In addition, policy documents like CONPES 3975, CONPES 3988 large, the assessment finds a more diversified set of objectives and CONPES 402 have also complemented these initiatives. and intervention mechanisms. For instance, some of these in- 269. The PND is the executive administrative agency of Colombia in struments seek to promote cultural shifts among businesses and charge of defining, recommending, and promoting public and entrepreneurs, others support market access and the internation- economic policy. It led to the development of important policy alization of digital services, and others fund the creation and dis- documents on big data (2018), digital transformation and artificial semination of knowledge capital to facilitate the adoption of digital intelligence (2019), and technologies for learning (2020), and a technologies. Yet, challenges related to beneficiary segmentation draft policy on science, technology and innovation that is currently and overlapping objectives in programs geared toward business under revision. digitalization are also observed across this broader group of pol- 270. MinTic (2021c). icy instruments. 271. UNESCO (2022). 245. In addition to the instrument mapping exercise, program manag- 272. Perficient (2019). ers must carry out ex ante functionality tests to assess the design, 273. Carretero et al. (2018). implementation, and governance of their instruments. Instrument 274. Law et al. (2018). managers must self-assess 24 results-based management indi- 275. Colsubsidio (2019) cators, ranging from the selection of target populations and the 276. The survey found WhatsApp to be used equally in rural and urban implementation of logical frameworks (design) to information areas. management, monitoring and evaluation (implementation), and 277. This was repeatedly mentioned in the interviews undertaken instrument articulation and external barriers (governance). Each for this report (note the interviews with Maribel Velasco, Andres indicator is then assigned a grade on a scale of 5 points (where Muñoz, Diana Silva, and Marta Laverde). 5 is the best practice). Further details are available in DNP and 278. GAN Colombia (2020). Swisscontact (2021). 279. A national government program that integrates the three main 246. World Bank (forthcoming, a). national agents involved with training and technologies: MinTIC, 247. Checcucci and Saslavsky (2021). MEN, and SENA. See https://www.computadoresparaeducar.gov. 248. In particular, making strong(er) customer authentication (e.g., co/. two-factor authentication, PIN number) mandatory when a payer 280. CONPES (2020). initiates a payment transaction online should be considered. 281. Computadores para Educar (2020). As of 2020, Colombia had 8 249. Colombia has been taking steps in this direction (see Monotributo million students, 53,484 school sites, and 434,500 teachers and tax category exempts electronic payments from tax withholdings). administrators. DANE (2021a). 250. Innovative fintech solutions are being implemented in many coun- 282. See Universidad Nacional de Colombia (2017). tries, providing, for example, credit to taxi/Uber drivers with re- 283. CONPES (2020). payment profiles tailored to income data generated or creating a 284. Information shared by Denis Palacios, subdirector of Digital Com- marketplace and logistic platform for small agricultural producers pentencies at MinTiC. to sell directly. For additional information, see Arvai et al. (2022). 285. Ibid. 251. See, for instance, the Industry Matching Fund created in 2019 286. iNNpulsa Colombia (2020). by the Technology Innovation Agency in South Africa, based on 287. See Ruta N (2021). a blended finance model and a risk-sharing mechanism as an 288. Bootcamps are short-term intensive programs, lasting between instrument to attract co-investments. three and six months. Teaching takes place in a hands-on learn- 252. See, for instance, the “Seedfinancing Deep Tech Program” imple- ing environment in which real work situations are introduced. mented by the Austrian Promotional Bank (Austria Wirtschafts- 289. Cathles and Navarro (2019). service), which aims to bridge the financing gap in innovative 290. https://www.switchup.org/. start-ups’ ability to develop deep-tech products while also provid- 291. Manpower (2023). ing coaching and advisory services to help them reach additional 292. Talent gap studies focus their analysis on three types: quantity sources of financing. See https://www.aws.at/en/aws-seedfinanc- gaps (differences between the supply of and demand for train- ing-deep-tech/. ing programs); relevance gaps (between the skills taught in these 253. Given the structural features of Bancoldex, the Business Devel- programs and those required by the productive sector); and qual- opment Bank of Canada (BDC) can be relevant. BDC offers loans ity gaps (quality of these skills as perceived by the productive at higher rates than competitors to riskier, typically younger, and sector). technologically savvy firms. Consulting services are offered for a 293. See Alianza TIC (2020). Alianza TIC Colombia is made up of the fee with the loan, though the firm may decline them. Ministry of Labor, MinTIC, MEN, and SENA, among others. 254. See ECLAC (2021). 294. UNDP (2019). 255. See GAN Colombia (2020). 295. The deficit occurs if 10 percent or more of educational institutions 256. See OECD (2019b). (higher, technical, and technological) of the region do not offer 257. See MinTIC (2019). the training program. A high deficit is considered when 75–100 258. See OECD (2019b). percent of these institutions do not offer it. 259. See Katz, Callorda, and Lef (2016). The index is built on six equal- 296. Radiger et al. (2018). ly weighted components that constitute a development path to a 297. Murillo and Carrillo-Luna (2021). digital society: affordability, infrastructure reliability, network ac- 298. See OECD (2019a). cess, capacity, usage, and human capital. 299. Murillo and Carrillo-Luna (2021). 260. See IMD (2021). The World Ranking of Digital Competitiveness 300. Colombia uses a socioeconomic stratification system that clas- of the IMD evaluates three factors: knowledge, technology, and sifies the population by strata with similar economic levels. Stra- readiness for digital transformation. ta are defined by observable characteristics of the dwelling and Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 187 urban environment in which households live. The system is or- de Protección de Datos Personales,” https://escueladeprivacidad. ganized in six levels: stratum 1 is the poorest; strata 2, 3, and co/2021/05/05/guia-comparativa-del-reglamento-general-de-pro- 4 include the population with low to medium income; and strata teccion-de-datos-europeo-y-el-regimen-colombiano-de-protecci- 5 and 6 include the households in the upper tail of the income on-de-datos-personales/. distribution. 326. See https://www.comunidadandina.org/DocOficialesFiles/decisio 301. See ICFES (2020). nes/DECISION897.docx 302. Colombian departments are a subnational administrative divi- 327. Once the data protection law is adopted and the Data Protec- sion and correspond to? groupings of municipalities. Colombia is tion Authority is established, the latter, with the support of oth- made up of 32 departments and a Capital District. er stakeholders, could begin the process of joining Convention 303. See MEN (2020). 108+. See https://www.coe.int/en/web/data-protection/conven- 304. See Granvik et al. (2018). tion108-and-protocol. 305. The Derechos Básicos de Aprendizaje (Basic Learning Rights) 328. Council of Europe, “Colombia: A First Step towards Convention are a tool designed for all members of an educational institution 108+,” August 30, 2019, https://www.coe.int/en/web/data-protec- (parents, caregivers, teachers, and students) that allows them to tion/-/Colombia-a-first-step-towards-convention-108-. identify the basic knowledge that must be acquired at each grade 329. As per Decree No. 4886 of 2011. level for mathematics and language. See Law 115 of February 330. See https://www.sic.gov.co/historia. 1994 at https://www.mineducacion.gov.co/1621/articles-85906_ 331. SIC (2022). archivo_pdf.pdf. 332. SIC (2021). 306. See MEN (2013) and (2008), respectively. 333. Interview with Dr. Nelson Remolina Angarita, former Data Protec- 307. Furthermore, businesses have also determined that educational tion Delegate from the SIC (October–March 2022). The interview programs, such as those concerning information systems anal- took place on May 18, 2022. ysis, client orientation, cooperation, resilience, SQL, PHP, man- 334. See https://www.datos.gov.co/. agement skills, and angular language are misaligned to the cur- 335. Council of Europe (2023). rent and future needs of the productive sector and are therefore 336. Colombia Ágil, “Cédula de Ciudadanía Digital,” https://www. not producing individuals with the needed competencies (MinTIC colombiaagil.gov.co/tramites/intervenciones/cedula-de-ciudada- 2020d). nia-digital. 308. CONPES (2020). 337. “La Cédula Digital Colombiana,” https://www.registraduria.gov. 309. MEN (2021). co/?page=cedula-digital. 310. CONPES (2020). 338. ID4D (2023). 311. Universidad Nacional de Colombia (2017). 339. Nabe (2023). 312. GAN Colombia (2020). 340. CONPES, “Confianza y Seguridad Digital. Documento CONPES 313. WorldSkills (2021). 3995,” https://www.fundacionmicrofinanzasbbva.org/revistapro- 314. DfE (2021). greso/confianza-seguridad-digital-documento-conpes-3995/. 315. ITU (2020). 341. Frisby (2020). 316. See https://digital-strategy.ec.europa.eu/en/policies/desi. 342. SonicWall (2022). 317. CEDEFOP (2017). 343. “Más de la Mitad de las Empresas Colombianas Sufrieron Cibera- 318. CEDEFOP (2023). taques el Último Año,” La República, March 1, 2022, https://www. 319. Following the conceptual framework presented in World Bank larepublica.co/empresas/mas-de-la-mitad-de-las-empresas-co- (2021). lombianas-sufrieron-ciberataques-el-ultimo-ano-3295151. 320. This law requires data controllers to grant access to information 344. CCIT (2021) only to authorized persons, adopt internal policies and processes 345. The number of rankings is higher than the number of countries as to ensure compliance with the law, abide by high-security stan- some countries are assigned the same rank. ITU (2023a). dards to guarantee the integrity of the information, and attend to 346. See https://ncsi.ega.ee/country/co/. the queries and complaints of data subjects, among others. Ac- 347. CONPES 3701-2011, CONPES 3854-2016, and CONPES 3995- cording to a decision of the Constitutional Court (C-1011/2008), 2020. Law No. 1266 did not correspond to a general data protection law; 348. h t t p s : / / w w w. c s i r t a s o b a n c a r i a . c o m / p u b l i c a c i o n e s / c o n - instead, it contains sectoral data protection provisions focused on pes-3995-politica-nacional-de-confianza-y-seguridad-digital. financial and credit services. 349. Decreto-338-de-2022-Gestor-Normativo (funcionpublica.gov.co). 321. Its scope of application excludes, among others, the data under 350. See Resolución MinDEFENSA 3933 2013 - Colpensiones - Ad- the scope of Law No. 1266 of 2008. According to a Constitutional ministradora Colombiana de Pensiones. Court decision (C-748/2011), Law No. 1581 contains comprehen- 351. This includes incident reporting, vulnerability disclosures, and in- sive personal data protection provisions. See “Colombia – Data formation-sharing mechanisms, among other relevant activities. Protection Overview,” https://www.dataguidance.com/notes/co- 352. ColCERT has 10 staff members, including administrative staff and lombia-data-protection-overview. highly qualified specialists with technical and legal backgrounds, 322. “Regulation (EU) 2016/679 of the European Parliament and of but more technical staff will be required. ColCERT will continue the Council of 27 April 2016 on the Protection of Natural Per- supporting the same community and operating under the exist- sons with Regard to the Processing of Personal Data and on the ing website, communication channels, and incident management Free Movement of Such Data, and Repealing Directive 95/46/EC protocols and procedures, and with previously agreed collabora- (General Data Protection Regulation),” Official Journal of the Eu- tion arrangements with domestic and international partners (e.g., ropean Union, L 119, May 4, 2016, p. 1, https://eur-lex.europa.eu/ INTERPOL, EUROPOL, CSIRT Americas Network, etc.). legal-content/EN/TXT/PDF/?uri=CELEX:32016R0679. 353. “Entra en Operación el CSIRT de Gobierno,” August 6, 2018, 323. World Bank (2021). https://gobiernodigital.mintic.gov.co/portal/Noticias/77743:En- 324. Article 6 of “Regulation 2016/679 of the European Parliament and tra-en-operacion-el-CSIRT-de-Gobierno. of the Council of 27 April 2016 on the Protection of Natural Per- 354. The new function is per Decree No. 338 of 2022. sons with Regard to the Processing of Personal Data.” 355. See https://csirtasobancaria.com/. 325. Escuela de Privacidad, “Guía Comparativa del Reglamento Gen- 356. According to the latest data provided by DANE, 78 percent of jobs eral de Protección de Datos Europeo y el Régimen Colombiano in the country are generated by MSMEs. The figures show that Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 188 there are currently 5.8 million formal and informal micro-business- 371. These are: government; security and defense; information and es that employed 21.4 million people and generated 54.9 billion communications technologies; electricity; finance; education; en- pesos in added value in 2021. See “DANE: El 78 % del Empleo ergy and mining; industry, commerce and tourism; environment; en Colombia es Generado por las MIPYMES,” June 27, 2022, health and social protection; water; transport; and agriculture and https://www.infobae.com/america/colombia/2022/06/27/dane-el- food. 78-del-empleo-en-colombia-es-generado-por-las-mipymes/. 372. Following Decree No. 338, MinTIC must identify, based on three 357. CE (2023). requirements, the sectors and subsectors that have critical cy- 358. Ibid. bernetic infrastructures and render essential services to maintain 359. In May 2022, Colombia signed the second additional protocol, social and economic activities. Also, MinTIC must define the iden- which aimed at enhancing cooperation and disclosing electronic tification methodology used to carry out this stocktaking process evidence, such as direct cooperation with service providers and in the ensuing 12 months after the official adoption of the Decree. registrars, effective means of obtaining subscriber information The latter also instructs that the identified ICCN and essential ser- and traffic data, and immediate cooperation in emergencies or vice providers work closely with MinTIC and ColCERT and that joint investigations, that is subject to a system of human rights MinTIC should establish operational guidelines and standards and the rule of law, including data protection safeguards. This based on Title 9 (IT Guidelines and Policy) of Decree No. 1078 second additional protocol will enter into force once ratified by five of 2015. state members. See Council of Europe (2022). 373. Decreto-338-de-2022-Gestor-Normativo (funcionpublica.gov.co). 360. See https://www.policia.gov.co/direccion/investigacion-criminal/ 374. Forum of Incident Response and Security Teams. See organigrama. www.first.org. 361. For information on Adenuciar, see https://adenunciar.policia.gov. 375. Función Pública (2007). co. 376. CRC, Resolución 2058/09. 362. https://www.policia.gov.co/files/%C3%AD-trabajamos-con- 377. CRC, Resolución 5223/17. tra-el-cibercrimen-en-el-centro-cibern%C3%A9tico-policial-poli- 378. CRC, Resolución 5225/17. ciadecolombia. 379. CRC (2021). 363. https://jurinfo.jep.gov.co/normograma/compilacion/docs/resolu- 380. OECD (2016a). cion_fiscalia_0694_2021.htm. 381. OECD (2021b). 364. https://www.suin-juriscol.gov.co/viewDocument.asp?ruta=L- 382. https://www.rtvcplay.co/competencias-basicas-ciudadanas-y-so- eyes/30043812#:~:text=LEY%202197%20DE%202022&tex - cioemocionales/profe-en-tu-casa. t=NORMA%20QUE%20MODIFICA%20EL%20DECRE- 383. https://especiales.colombiaaprende.edu.co/rutastem/. TO,FISCAL%C3%8DA%20GENERAL%20DE%20LA%20 384. https://tutotic.gov.co/761/w3-channel.html. NACI%C3%93N. 385. https://www.misiontic2022.gov.co/portal/. 365. https://escuelajudicial.ramajudicial.gov.co/noticia/decimo-cic- 386. https://www.mintic.gov.co/micrositios/unticketparaelfuturo/799/ lo-de-capacitacion-en-tic-cibercrimen. w3-channel.html. 366. S. Wheatley, “Top 5 Findings from the Global 2022 Cybersecu- 387. https://www.llegamoscontic.gov.co/portal/. rity Skills Gap Report,” Fortinet, April 27, 2022, https://www.for- 388. Gabo refers to Colombian writer Gabriel García Marquez. tinet.com/blog/industry-trends/global-cybersecurity-skills-gap-re- 389. https://123portic.com port-findings. 390. https://play.google.com/store/apps/details?id=com.gov.minedu- 367. MEN, “El Ministerio de Educación y CISCO Lanzan la Estrategia cacion.bthe1challenge&hl=en_US&gl=US. de CiberEducación Enfocada en Ciberseguridad para Toda la Co- 391. https://www.alcaldiabogota.gov.co/sisjur/normas/Norma1. munidad Educativa,” October 30, 2021, jsp?i=4125#15. https://www.mineducacion.gov.co/portal/salaprensa/Comunica- 392. See CMS, “Data Protection and Cybersecurity Laws in Colombia,” dos/407506:El-Ministerio-de-Educacion-y-CISCO-lanzan-la-es- https://cms.law/en/int/expert-guides/cms-expert-guide-to-data- trategia-de-CiberEducacion-enfocada-en-Ciberseguridad-pa- protection-and-cyber-security-laws/colombia; DLA Piper, “Data ra-toda-la-comunidad-educativa. Protection Laws of the World: Colombia,” https://www.dlapiper- 368. “La Demanda de Servicios de Ciberseguridad Creció 40%,” Feb- dataprotection.com/index.html?t=authority&c=CO; and Carolina ruary 8, 2022, https://www.portafolio.co/innovacion/la-deman- Pardo, “Colombia: Data Protection Overview,” Data Guidance, da-de-servicios-de-ciberseguridad-crecio-40-561523. December 2021, https://www.dataguidance.com/notes/colom- 369. SENA, “El SENA y MNEMO Preparan a los Colombianos para bia-data-protection-overview. Suplir la Creciente Demanda en Ciberseguridad,” October 20, 393. OECD (2020a). 2020, 394. Pardo, “Colombia: Data Protection Overview,” https://www. https://www.sena.edu.co/es-co/Noticias/Paginas/noticia.aspx?Id- dataguidance.com/notes/colombia-data-protection-overview. Noticia=4475. 370. Segurilatam, “Microsoft Capacitará a más de 68.000 Colombia- nos en Ciberseguridad,” March 29, 2022, https://www.segurilatam.com/actualidad/microsoft-capacita- ra-a-mas-de-68-000-colombianos-en-ciberseguridad_20220329. html. Digital Economy for Latin America and the Caribbean - Country Diagnostic: Colombia 189 Administ r d b