Independent analysis and consultancy firm Ovum, specializing in global coverage of IT, and telecommunications industries, presented their study “Seven public policy recommendations to attract investment in Latin America” on June 20, 2017 at the Latin America Telecommunications Congress to bring light to the potential the Latin America telecommunications market holds with proper reforms.
The study calls for reforms to help increase the amount of foreign investments going into Latin America. One such reform is the push to have governments take responsibility for “generating market conditions that promote economic growth and social development.” This strategy is one that has been proven to expand the productive capacity of an economy, increase job creation, and increase lasting local demand.
The study highlights several countries that have had success in increasing foreign investments with “sustainable public policies.” One such country is Chile, a country who receives 8% of their GDP from direct foreign investments. Based on Chile’s 2016 GDP, this would amount to roughly 19 million dollars.
Chile has created a system of incentives and guarantees for foreign investments that provide foreign companies an opportunity to participate in the country’s economy. The country’s stable economic system with large growth potential, legal security, low levels of risk, and high quality of infrastructure help make it particularly attractive to investors.
The study also highlights the case study of Mexico, which implemented a significant telecommunications reform in 2013 that created a new institutional environment and promoted competition within the telecommunications industry, broadcast industry, and general economy.
Mexico’s reform lifted restrictions on foreign direct investment for communications and limited it to 49% for the broadcast industry. Mexico also created a regulatory body, the Federal Telecommunications Institute, that controls both the telecommunications and broadcast sectors and holds exclusive power over competition.
The Federal Telecommunications Institute has implemented “permanent regulatory actions” that have provided equal opportunity for regulators. According to the Federal Telecommunications Institute, these reforms resulted in a rise from 1% to 10% of the total foreign direct investment. Mexico has already received $7.9 billion in foreign direct investments in the first quarter of 2017, possibly putting the country on track to increase this percentage.
In addition to governmental accountability, the study also calls for a single regulatory authority to control the telecommunications industry, audiovisual media industry, and the allocation of public assets.
Mexico is also an example of this as the country only has only the Federal Telecommunications Institute as a regulatory authority. In contrast, Columbia has two regulatory authorities which has caused unmoving debates for several years.
The study also stresses the importance of implementing policies that promote long-term competition, preventing anti-competitive practices, the effects of reducing the tax burden, removing artificial barriers to stimulate market development, and the convenience of implementing flexible and harmonized regulatory policies for the promotion of new technologies and new business models.
Ovum also recommends the transparency and protection of intellectual property as well as clear rules to attract investment, especially in the case of subscription television in Latin America.
Subscription television in Latin America faces threats from signal theft and unauthorized pay-tv providers as these illegal activities account for 30% of total connections. Legitimate operators are required to pay significant taxes, which illegal providers do not. According to 2015 figures from Alianza, these illegal activities result in a loss of 1.2 billion in annual taxes, 50 thousand new jobs, and 6.5 billion for legitimate operators.
To attract investment in this section Ovum recommends transparency, protection of intellectual property and clear rules.
Ovum estimates that telecommunications represent about 2.6% of the GDP of Latin American countries. By implementing public policy that promotes the best use of this important industry, Ovum believes that Latin America can easily grow the percentage that the telecommunications sector can contribute to the GDP of Latin America.