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The govtech Latin America needs

Mar 12,2019 - Last updated at Mar 12,2019

By Carlos Santiso

BOGOTÁ — As the digital revolution continues to hurtle forward in the advanced economies, Latin America is increasingly at risk of being left behind. To avoid this outcome, the region must find ways to seize the opportunities that new technologies create for business, research and, perhaps most urgent, public administration.

It is no accident that the world’s most competitive economies, from the United States and the United Kingdom to South Korea, Singapore and Israel, have the most modern, innovative and efficient systems of public administration. Recognising the profound far-reaching benefits they have reaped from their strong institutional arrangements, these countries have worked actively to ensure the continued upgrading of their public sectors.

In particular, these countries have promoted entrepreneurship in so-called govtech, nurturing innovations by small and medium-size enterprises (SMEs) and tech-based, data-driven start-ups that are focused on boosting the efficiency of public administration. These entrepreneurs create scalable business models that respond to the demand for the development and application of new technologies and innovative solutions for the public sector.

Such creative entrepreneurship is also emerging in Latin American countries, with an emerging wave of govtech start-ups offering cutting-edge solutions to longstanding public-administration challenges. In Argentina, for example, there is MuniDigital, a platform focused on improving the management of services at the municipal level by collecting up-to-date and accessible data, as well as Appterix and Signatura, which offer blockchain-based solutions for public management and digital signatures, respectively. In Colombia, Datasketch leverages big and open data to create public value.

Mexico boasts Visor Urbano, which focuses on the fast and efficient processing of permits for business licenses and construction permits. Brazil has Linte, whose software supports document automation and workflow control, and Facilit, which develops data dashboards to monitor performance management. And, outside Latin America, Spain has Green Urban Data, a producer of software that facilitates decision making on climate action.

Such innovative entrepreneurship is exactly what Latin American public administration needs. Yet the market for public-administration technology solutions, which generates more than $400 billion per year globally, remains dominated by large tech companies. If governments take steps to open up that market up to govtech start-ups, they would boost diversity and competition, spurring increased innovation with a stronger focus on the end users.

To this end, Latin America’s governments should take action on at least three fronts. First, they should adapt regulatory policies, in order to facilitate public procurement of technology from govtech start-ups. Such regulatory frameworks should lower entry barriers for start-ups, simplify sales cycles and promote public demand for innovation. Colombia and Spain, for example, are testing innovation criteria to public-procurement processes, in order to help government bodies find alternative solutions to the challenges they face. Several governments, like those in Chile, Colombia, Portugal and Uruguay, have created innovation labs within government entities to incubate and accelerate disruptive solutions in sandbox-like arrangements.

Governments should also implement legal, regulatory, fiscal and contractual measures that help start-ups to survive the “valley of death”, that is, the early stages of a start-up’s development, when the new products or services are not yet bringing in revenues from customers or users. For example, Chile recently enacted a law establishing a firm 30-day payment deadline for SMEs. This will benefit start-ups most of all.

Finally, governments should cultivate, at least initially, the emerging market for public-administration technology solutions through investment funds and seed capital for govtech start-ups, especially in the early stages of their development. Venture capital funds, mostly US-based, tend to be suspicious of companies for which the public sector is a client, because they tend to take longer to hit their competitive stride. These companies need investors with longer time horizons of, say, three to five years.

That is where the public sector comes in. In order to close initial investment gaps, some countries have already created public funds to foster and finance govtech start-ups focused on improving public administration. Companies and programmes that have been financed include the United Kingdom’s GovTech Catalyst Fund and Israel’s Digital Innovation for Public Sector Challenges programme. Other countries, such as Canada and France, are working to develop similar programmes and deploy catalytic funds to close the initial investment gap.

Just as the fintech industry has transformed the financial sector, the emerging govtech industry can create a new paradigm for the efficient provision of public services. As they pursue a much-needed digital transformation, Latin American governments should work actively to develop and nurture a new generation of public-private partnerships with govtech start-ups producing the relevant and cost-effective solutions needed to make governments leaner and smarter. If they get this right, the region can look forward to a more prosperous, efficient and competitive future.

 

Carlos Santiso is director of Digital Innovation in Government at the Development Bank of Latin America. Copyright: Project Syndicate, 2019. www.project-syndicate.org

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