Venezuela Information Technology Report Q2 2008

Market Overview With spending in key sectors continuing to receive a boost from recycled oil revenues, the Venezuelan IT market is projected to grow at a compound annual growth rate (CAGR) of 8% over the 2007-2012 period.

While still one of the smaller markets in the Latin America region, the total value of Venezuelan spending on IT products and services should pass US$1.5.bn in 2008 and US$2bn by 2012.

Spending by key sectors such as government, telecoms, oil and financial services is likely to be robust, despite the risk of an economic contraction due to overdependence on oil. The government's 2007-2012 Economic Plan envisages a key role for technology in development, and various public bodies are rolling out e-infrastructure projects to address the digital divide and increase efficiency.

The overall economic outlook does have downside risk, with GDP/capita growth likely to slow as the forecast period progresses. However, key sectors will continue to provide opportunities. The oil industry sector is enjoying record profits and revenues, which seems likely to translate into more IT and modernisation projects. Telecoms operators such as Movilnet are investing in technology to support growing subscriber bases and roll out of new services.

The retail sector should also continue to perform in terms of PC sales growth, due to more affordable computers. Despite income disparities and the likelihood of slowing private consumption, a PC penetration rate of less than 12% indicates plenty of potential for organic growth. The enterprise sector represents an opportunity in the forecast period, but overall levels of investment are likely to remain relatively low compared to some countries in the region.

Industry Developments Some recent government pronouncements have outlined the role envisaged for information technology in Venezuela's development. A key role for science and technology was outlined in the government's 'Social and Economic Development Plan for 2007-2013'. The plan states that 'the country's productive development should be based on technology development' and that technology can 'render services to the country'.

Moreover, the government has indicated that information technology is one of the areas where private investors, including foreign companies, can make a contribution. COPARI (Invest Venezuela) the national investment agency, recently identified ICT as one of seven key business areas where private investment can play a role compatible with the country's Social and Economic Development: One key government priority is to tackle the digital divide.

Competitive Landscape Lenovo's Venezuela operation has said that it aims to grow 1% above the overall PC market growth rate in 2008. Lenovo has nearly doubled market share in Venezuela to over 20%, compared to 11%-12% in 2005. The company has a strong presence in a number of verticals such as banking, telecoms, oil and the public sector. In 2007 Lenovo Venezuela's PC sales reportedly nearly doubled, with revenues rising 60%.

The Venezuelan adoption of open source in the public sector lags considerably behind government objectives. In H207, Microsoft's key distributor in Venezuela, RKM IT Solutions (a division of US company New Market Technology) saw its Microsoft sales jump 345% in H207. The company attributed the increase mainly to enterprise software and to its recent upgrade to Microsoft Large Account Reseller. Recent successes have included the sale of a corporate Microsoft licence to Venezuelan bank Banplus.

Computer Sales Hardware dominates Venezuelan IT spending more than in many Latin American markets, accounting for an estimated 66% of the 2007 total. BMI is projecting that Venezuela's computer and accessories market will have a CAGR of around 7% over the 2007-2012 period. For 2007, computer sales were put at US$785mn, and they should pass the US$1bn mark by 2011. The main drivers of growth in the PC segment are lower prices and greater affordability, partly as a result of government cheap computer programmes and initiatives to encourage local production.

Software Venezuela's software market is estimated to have been worth US$259bn in 2007, and market value is expected to pass US$286mn in 2008 and US$400mn by 2012. Software CAGR for 2007-2012 is projected at around 9%. Software has opportunities for growth over the next few years, despite a software piracy rate estimated at 86% in 2006, around 20% above the regional average. The market landscape is likely, moreover, to remain shaped by the government's drive to promote open source software.

IT Services Venezuela's IT services market is estimated to have grown around 11% in 2007 to a value of around US$217mn. Slightly lower growth is expected in 2008. By regional standards, the percentage accounted for by services in this hardware dominated market is much lower than average at around 16%. However, BMI predicts that IT services will account for a steadily increasing portion of IT spending during the forecast period. High revenues from the oil industry will provide funds for spending on IT projects, which are often favoured in such circumstances.

E-Readiness Because of the low levels of internet access the country, the Venezuelan government has generally been slow to roll out e-services. The recent decision by the government to launch in 2008 a consultation on a new telecoms law to promote competition may be a hopeful augur of progress. The country has fast growing mobile penetration, and has also been rolling out fixed wireless services such as WI-FI and the Korean technology WiBro.

According to BMI estimates, the number of Venezuelan internet users reached 5mn in 2007, representing 18% of the population. The percentage of broadband subscribers in the general population, however, was only 3.3% with less than 1mn subscribers.

The government is committed to policies of improving e-use in the public sector, and reducing the digital divide. In Q208, state owned telecoms company Telecom Venezuela signed a co-operation agreement the Comptroller General's Office (CGR) and the National IT Institute (CNTI) to help build ICT infrastructure for the CGR and other public bodies.

The development of e-infrastructure is seen as one method to fight corruption in the public sector.

Telecom Venezuela is also working with the government on a project called Telepolitica which involves using ICT for local development projects.