Argentina is upping its tech game

Boosting the tech sector

Up until 2000, Argentina’s IT sector was mainly focused on domestic demand. Then the technology boom forced Argentina to restructure its technology market and aim for an international development. Between 2003 and 2013, the number of IT companies grew from +1,800 to +4,000 and, in 2012 alone, Argentina recorded $1.5 billion worth of software exports (a record year).

The Argentine tech sector is an attractive one for its domestic workers, offering salaries 38% above market average. In 2015, 80,000 people worked for a software company in Argentina. By 2017, that number grew to 107,000 workers.

In May 2018, the CESSI (Industrial chamber of software in Argentina) launched the Federal Strategic Plan 2018-30 for the Argentine Software Industry, which aims to create 500,000 new jobs in this sector by 2030, and bring software exports revenue up to $10 billion.

Argentina is often referred as a major producer of unicorns in Latin America (Mercado Libre, Despegar, Globant, OLX, …). While this compliments Argentina’s tech mojo, the country lacks a wider reference of successful tech startups. Some Argentine tech companies, like OLX, chose to launch in other countries to grab more dynamic, innovation-driven markets. Many of Argentina’s startups are me-too applications targeting the domestic market. In 2018, Argentina gathered only 5% of technology FDIs in Latam, a total of $110 million collected by 27 startups, while Brazil collected 1.4 billion for 201 startups.

Argentina has an issue with its innovation-driven economy which jeopardizes its 2018-2030 strategic plan. The tech worker is a cruiser between seasoned companies and young startups. That dynamic stimulates the market, leads to enhanced innovation, brings the cash in, and serves as a base to create a solid, venture-based tech economy. Without a dynamic tech economy, graduates will more likely look to other countries to launch their careers, that’s the threat faced by Argentina right now.

Keep Argentinians home

The Ministry of Science, Technology and Productive Innovation was created in 2007. Lino Barañao was chosen to lead the new government body. Upon taking office, he declared his objective would be to bring Argentinians home. In 2013, he was celebrating the return of the 1000th Argentinian scientist back to his country. How was that possible ?

Since inception, the Ministry of Science, Technology and Productive Innovation’s main goal is the pursuit of its repatriation program launched in 2003. The strategy of the program is to bring back skilled investigators who would then be in charge of developing an international network that would federate more Argentinian scientists and attract them home over time.

In 2005, the Law of Promotion of the Software Industry (25.922/2014) was issued to grant a 70% tax discount to tech companies. In 13 years, 400 companies subscribed to this law.

A key aspect of the program was to admit on a national scale that science and technology now played a crucial role in the competitiveness of the country. By giving more recognition to science as a key driver of the economy, Argentinian scientists felt enrolled in a nation’s effort. Work conditions were also a key to attract Argentinian scientists home. Salaries went up, granting opportunities were increased, new research programs were launched, full-time contracts were signed, special funds for research labs were created, …

In 2017, the government voted a new law, the Entrepreneur’s law (Ley de Emprendedores), that shortened the process of creating a company from 24 days to just one day. This initiative, launched in Chile in 2013, has proven to be extremely successful.

The Law of Promotion of the Software Industry of 2005 will expire by the end of 2019.  The government wants to extend it, but now faces the following problem : Could it offer yet another tax discount to a sector that’s flourishing? Europe is fighting to increase taxes on the cash-rich GAFA, so voting more tax-cuts to tech companies in Argentina would seem contrary to the trend.

But if Argentina doesn’t prorogate this law, the revenue growth of the country’s tech sector will deflate, and Argentina will lose its attractiveness for international VCs and FDIs.

Buenos Aires, focal point

In the 1990s, Buenos Aires concentrated around 70% of Latin America’s venture capital. By the early 2000s, this leadership was no more. Since 2008 (under Marci mayorship), Buenos Aires took on the challenge to reclaim its tech leadership. In 2009, the first modern co-working space, AreaTres, opened in Buenos Aires, and later developed a partnership with Google for Startups. By 2018, more than 100 co-working offices populated the city.

Many software development companies were created or settled in the city in the past 15 years : Engee IT in 2007, Bairesdev and Hoopla in 2009, Devartis in 2010, Redmint Labs, Tictapps and Patagonian Tech in 2011, Blue Trail and Amalgama in 2013, Codika Solutions in 2014, Codenmate in 2016, etc. In 15 years, the city became one of Latam’s global outsourcing hubs. In 2011, a major VC house, NXTP Labs, launched in Buenos Aires. The equivalent of Y Combinator in Argentina, NXTP Labs invested in at least 125 startups since inception (Liftit, Finciero, Weeshing, Alquilando, Everypost, Latincoin, Blink, Solidmation, …).

In 2015, the city was recognized as the top Emerging Entrepreneurial Ecosystem by the Global Entrepreneurship Network (GEN). In 2018, to up its game, the city launched incuBAte, a very competitive incubator program providing equity-free funding, $10K mentorships and coworking spaces. incuBAte started with a 30-entrepreneur pilot program, but it is designed to finance 100 startups per round. In parallel, the Argentine government released a new Entrepreneur’s Law which reduces the time of creating a business from 24 days to just 1.

Our analysis shows how Argentina is not competing directly with the big guns, but rather choosing the elitist position of being highly-skilled and mastering the art of leading-edge innovation. Argentina’s tech sector is highly focused on biotechnology, nanotechnology, and fintech.

I like to picture Argentina as the place for innovation, where scientists and entrepreneurs come with a problem, and from where they leave with a solution.

Lino Barañao, Minister of Science, Technology and Productive Innovation