Although its strong linkage with macroeconomic performance might negatively impact sector growth in the near future, Peru’s IT sector has nonetheless experienced solid expansion. This growth pattern has been sustained by strong demand. Most importantly, significant investments are taking place in the infrastructure side, as a government plan to deploy a fibre-optics network across the country takes shape and increasing competition lowers the cost for consumers.
Investment in hardware by both consumers and businesses continues to make up a hefty percentage of the overall market. Moreover, a dynamic telecommunications sector is encouraging the expansion of smartphone technology, which has allowed small and medium-sized enterprises (SMEs) to access software and increase IT usage in order to sustain expansion at affordable costs. Increasingly, IT is viewed as a way to accelerate economic and social development across Peru.
Sector Figures
The country’s IT market remains anchored to a large extent on the hardware component of the business, which accounted for 74.4% of total sector investment in 2014, according to figures by consultancy firm DOMINO Consultores. This figure is forecast to climb to 75.7% by the end of 2015. The second largest component of the sector is IT services, which accounted for 20.1% of the sector in 2014. Finally, software represented 5.5% of investment in IT that same year.
Overall, the Peruvian IT market was valued at over $4bn in 2014 and is expected to reach $4.8bn by the end of 2015, according to preliminary figures by DOMINO Consultores. This represents a 20% market increase for 2014 and a 21% preliminary growth rate for 2015. However, these figures are somewhat skewed by the strong impact that smart-phone acquisition in particular is having, not only on the Peruvian market, but most IT markets across the region. “The hardware component, for example, expanded by 20.6% in 2014, but if you take out smartphone sales, that takes out 9% of the growth that the hardware segment experienced,” Fernando Grados, general manager at DOMINO Consultores, told OBG. “In other words, the growth in the IT market over 2014 has been sustained largely by smartphone acquisition”.
The trend is expected to continue in 2015 and 2016 as smartphones become an ever more important element of IT dissemination. Smartphones already accounted for 34% of the mobile phone market in Peru, as of September 2015 according to information by DOMINO Consultores. Investment in IT services and software also experienced strong growth in 2014, expanding by 27.8% and 20.8%, respectively. However, these two segments of the IT market are set to experience a slowdown in growth rates over 2015, with services expected to grow by 16.3% and software by 10.3%.
Government Policy
The impact of governmental policy and consumption patterns in the IT sector is lower in Peru than other countries in the region. According to figures by DOMINO Consultores, public organisations accounted for 11.7% of total investment in the sector in 2014.
As a source of policy, governmental participation in the sector has been strengthened since the 2011 launch of the Digital Agenda 2.0. The plan has focused to a large extent on enhancing IT usage in Peruvian companies and homes, but also on improving IT-based programmes within the public sector and significantly boosting the use of technology to make public administration more transparent and usage more efficient.
The Ministry of Production (Ministerio de la Producción, PRODUCE) runs yearly programmes to support technological innovation and entrepreneurship as well as financing for firms wanting to improve their access to information technology. Most programmes have been financed through the ministry’s Fund for Innovation, Science and Technology (Fondo para la Innovación, Ciencia y Tecnología, FINCyT), launched in 2007 with support from the Inter-American Development Bank. The fund and additional supports have now been grouped under the name the National Innovation Program for Competitiveness and Productivity (Programa Nacional de Innovación para la Competitividad y Productividad, Innóvate Perú) platform, launched in February 2015 to centralise a broad scope of support programmes for innovation, science and technology.
This support is currently distributed through three different funds managed under Innóvate Perú; the FINCyT, the Fund for Research and Development for Competitiveness (Fondo de Investigación y Desarrollo para la Competitividad, FIDECOM), aimed at strengthening IT training and usage within Peruvian firms; and the Marco Fund For Innovation, Science and Technology, which focuses on developing research capabilities and strengthening Peru’s public innovation system.
FIDECOM finances up to 75% or a maximum amount of PEN404,000 ($129,000) for firms wanting to use IT to improve productive activities. It also supports companies wanting to go on technological missions abroad, at a maximum co-financing of $30,000. Another programme, financed through FINCyT helps companies pay for highly specialised technological consulting for productive activities, from both national and international experts, up to 50% of the total cost to a maximum of $30,000.
Other public and private institutions are also supporting new IT ventures in Peru. Most private universities already have established financing schemes for small IT ventures, small amounts of between $10,000 and $20,000 invested in various programmes, according to Rolando Liendo Chicata, general manager at Lolimsa, an IT company focusing on the health sector. “These are small amounts, but before there was nothing, so things are much better,” he told OBG.
Part of the problem with government’s impact on the domestic IT market, is that public investment has been primarily focused on the hardware side and not on software. “The government continues to show a lot of resistance to services such as cloud computing, hosting and general services outsourcing. This is a problem because most of the technological change happening today is in the services side, not hardware,” Grados told OBG.
Hardware
To a larger extent than in other IT markets in the region, the hardware segment of IT has a very significant role in the Peruvian market. Traditionally accounting for three quarters of investment in the sector, hardware has become even more important in the local market as smartphone sales become critical. Hardware sales in the Peruvian market rose 20.6% in 2014 and are predicted to expand by a further 23.6% in 2015, according to preliminary estimates by DOMINO Consultores. In 2014 Peruvian households accounted for 37.7% of desktop sales, 56.6% of laptop sales and 95.8% of tablet sales. Locally-assembled hardware remains a vitally important part of the domestic market. Of the 594,869 desktops sold during 2014, up to 376,340 were assembled in the country using imported components.
Despite the strength of the consumer market, a weaker currency might negatively impact equipment sales. “The strong US dollar has affected the consumer-goods market. Customers are now prioritising purchasing dollars and thereby reducing consumption; this has resulted in weaker aggregate demand,” Oscar Mendoza, territory manager for Toshiba Peru, told OBG.
Software
Despite being smaller than hardware, the software market has been growing, expanding by 20.8% in 2014 to reach $222m in value, or 5.5% of the market, according DOMINO Consultores. An additional part of the software market goes under-reported, as ad-hoc software development is sometimes included in the services segment.
In spite of their small size, several Peruvian companies have become software exporters by focusing on certain niches, such as in health care technology, for example. Part of efforts to develop the local market for software development might also improve through a better catering of solutions to small and medium-sized companies, which account for over 99% of firms in Peru.
Software acquisition in Peru is largely segmented depending on the size of firms, with large corporate buyers accounting for the bulk of the market, spending $62.3m in 2014, compared to $53m spent by big companies, $45m by medium companies and a mere $14m by small firms. The Peruvian government spent $42m in software acquisition in 2014, and the consumer market, the smallest component, accounted for $5m, according to figures by DOMINO Consultores. Because of the weight of business clients, the software market is driven by annual or bi-annual contracts, which has the effect of creating peaks in the segment’s performance every couple of years. “SMEs in Peru have experienced significant growth over the last 10 years. This has led to increased demand for IT services, which allows these companies to focus on their core business and outsource non-core activities,” Gianni Hanawa, general manager for Level 3, told OBG.
Internet Access
Internet penetration in Peru remains relatively low, although market liberalisation through increased regulation and the government’s investment in a nationwide broadband network are starting to change this. Delayed development of internet access infrastructure combined with the expansion in mobile internet services has meant that fixed internet access has yet to experience exponential growth. The segment reached 1.7m connections in March 2015, from 943,423 in 2010, according to figures by the Supervising Organisation for Private Investment in Telecommunications (Organismo Supervisor de Inversión Privada en Telecomunicaciones, OSIPTEL). “The development of the National Fibre-Optic Network (Red Dorsal Nacional de Fibra Optica) will greatly contribute to the decentralisation policies across the country.” Felipe Hughes, general manager for Ricoh, told OBG. “This project will allow more consumers to be connected and have market access regardless of their location.”
On the other hand, the number of mobile phone lines with internet access rose from 10.2m in the first half of 2014, to 11.9m in the third quarter of 2014, according to the latest available figures by OSIPTEL. Research by eMarketer puts the total number of internet users in Peru at 16m, as of April 2015, and expects it to climb up to 21.3m by 2019. This puts internet penetration at around 52.6%, which should be increased further by the government’s $333m National Broadband Network project, which aims to bring broadband internet access to 180 provincial capitals by adding 13,500 km of fibre optics by 2016 (see Telecommunications chapter).
IT Adoption
Besides improving penetration levels of broadband internet access, strengthening the use of IT capabilities in Peruvian companies is also part of the country’s strategy to link the IT sector to competitiveness and economic development. In many cases, small Peruvian firms rely on more accessible IT tools to improve sales.
A 2014 survey by Ipsos Peru and Microsoft Peru found that social media and Skype were two of the most widely used IT instruments by Peruvian SMEs. The same survey found a considerable improvement on the penetration levels of other IT applications. The percentage of small firms using some form of cloud computing application, for example, rose from 35% in 2011 to 42% in 2014 .
However, part of the challenge will also rest on the way that suppliers market their products in a market like Peru. “It seems that the general IT industry does not understand the needs of small companies. Sometimes the industry will offer a full programme or solution, which the small company cannot afford,” Fernando Grados told OBG. “What companies need to do is offer more affordable solutions, like an accounting system, for example, which will be useful for small business in their activities and improve performance.”
Exporting small firms are also set to benefit from more IT integration thanks to a project by the Ministry of Foreign Trade and Tourism (Ministerio de Comercio Exterior y Turismo, MINCETUR) which will add specific tools that cater to small importing and exporting companies within the existing one-stop shop for international commerce known as Ventanilla Única de Comercio Exterior.
The platform already allows for Peruvian exporters to centralise all necessary documentation. The new instruments include a tool to allow smaller firms to manage export and import flows through a cloud-based service. The project, budgeted at $5m, is expected to benefit 40,000 small companies and will be developed with support from the Korean National Cooperation Agency.
E-Government
Other efforts to take a growing number of services and citizen-state interactions online have been advancing, albeit at a slower rate. In the bi-annual UN E-Government Survey 2014 Peru was ranked 72nd out of 193 countries for advancement of its e-government.
The position points to a strong improvement in comparison to its 2012 position of 82nd, but it also underlines the considerable amount of work ahead in order to increase the number of digital interactions between citizens and the state.
A large percentage of government efforts in e-government are channelled through the National Office for Electronic Government (Oficina Nacional de Gobierno Electrónico y Informática, ONGEI), which not only develops policies to increase the use of IT within government bodies, but also keeps track of all online services. According to a report on available online services published by ONGEI in June 2014, there were a total of 782 online services for all state bodies in Peru.
Besides interaction with government institutions, authorities have also focused on e-government to promote transparency, mostly through setting-up a standard transparency portal for each public entity, where aspects of management, budget expenditure, planning and any official activities are accessible to Peruvian citizens. According to ONGEI, as of mid-2014 all public entities in both the judicial and legislative branches of government, and 88% of all institutions in the executive branch of government had established their specific transparency portals.
Jose Luis Camere, managing director for Peru and Bolivia at Hewlett-Packard (HP), told OBG, “Demand from the public sector has been one of the main growth drivers for the IT industry in recent years. The state has significantly increased its use of IT as part of its plan to improve productivity through the use of technology.”
Tax collection and control is also receiving support from online services. As of January 2015, the National Superintendence for Tax Administration (Superintendencia Nacional de Administración Tributária, SUNAT) made it compulsory for all independent workers to submit their payment receipts electronically. To prepare for the added traffic to their platform, Peru’s tax body invested PEN600m ($191.5m) in new data centres.
SUNAT is relying more and more on online services to improve access to information and to increase tax collection. However, some structural elements of the move towards online tax services remain controversial. “SUNAT is implementing the electronic receipt scheme, but the relevant law stipulates that the company needs to hire a data centre to warehouse the copies of the receipts,” Liendo told OBG. “This does not make sense. The state should have the double role, as a tax collector, but also as a facilitator”.
Health & Education
E-government platforms are helping to smooth out a lot of the areas related to public policy and management. E-government is taking a more prominent role in providing access to public services in key areas such as health, education and security, especially in more remote parts of the country. Of these, health is the best serviced, with 43 available online services, such as the Online Medical Appointments platform, which allows patients to book doctors’ appointments online.
The education sector had up to 18 online services as of June 2014, including access to the National Programme for Scholarships and Credit, which allows low-income students to access credit to help finance their education, and the National Observatory for School Textbooks, a national platform that has information on all schoolbooks used for each education level, including prices and sales points. As the national broadband network connects more regions across the country, e-government services will become easier to implement.
Outlook
Lowering the cost of telecommunications has helped connect an increasing number of Peruvians to the internet. But economic growth driven by IT can only be achieved if a larger number of SMEs increase IT usage. Private and public financing schemes will continue to help bring more firms into the digital economy. Underlining the expanding use of IT, the government is adding a number of public services to its digital platforms. These initiatives have reduced economic barriers by allowing in-home access to several public administration processes. Lastly, the increase in e-government services will also support the reach of the state – especially in strategic areas such as education and health – in the remote areas of the country.
