Columbia Institute for Tele‐InformationDr. Raúl L. Katz

Industry 4.0: Reshaping productivity, employment and inclusivenessPolicy Research Workshop at the German Development InstituteBonn, 28-29 May 2018

2

THE GDP GAP BETWEEN LATIN AMERICA AND OECD COUNTRIES HAS BEEN GROWING OVER TIME

3.724 4.246 5.075 5.877 6.846 7.860 7.3008.943 10.048 10.026 10.159 10.237

8.651 8.311

26.84129.667

31.14032.592

35.36037.139

34.50035.904

38.376 38.062 38.274 38.77936.412 36.864

0

5.000

10.000

15.000

20.000

25.000

30.000

35.000

40.000

45.000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

América Latina y el Caribe Miembros OCDE

Source: World Bank

3

PRODUCTIVITY IS KEY TO FOSTER GROWTH: YET, ITS CONTRIBUTION IN LATIN AMERICA IS NEGATIVE

3,52% 3,46%

1,92%1,76%

-0,48%-1,0%

-0,5%

0,0%

0,5%

1,0%

1,5%

2,0%

2,5%

3,0%

3,5%

4,0%

China South Korea Russia India

Latin America

Source: Author based on data from The Conference Board Total Economy Database™ (Adjusted version), November 2017

4

WE BUILT AN INDEX THAT MEASURES A COUNTRY’S LEVEL OF DEVELOPMENT OF A DIGITAL ECOSYSTEM

Infrastructure of Digital Services

Connectivity of Digital Services

Household Digitization

Digitization of production

Deevelopment of Digital Industries

Digital Competitive intensity

Digital factors of production

Regulatory Framework and Public Policies

5

DIGITIZATION DEVELOPMENT IS DIRECTLY LINKED TO PRODUCTIVITY GROWTH

y = 0,0106x2 + 0,6084x - 1,752R² = 0,5881-2,00

0,00

2,00

4,00

6,00

8,00

10,00

12,00

2,00 7,00 12,00 17,00

GR

OW

TH O

F LA

BOR

PR

OD

UC

TIV

ITY

200

4-20

15

GROWTH OF DIGITAL ECOSYSTEM DEVELOPMEN INDEX 2004-2015

y = 0,0365x2 - 0,1675x - 0,3842R² = 0,2692

-6,00

-4,00

-2,00

0,00

2,00

4,00

6,00

2,00 7,00 12,00 17,00

GR

OW

TH O

F TO

TAL

FAC

TOR

PR

OD

UC

TIV

ITY

200

4-20

15

CRECIMIENTO DEL ÍNDICE CAF DEL ECOSISTEMA DIGITAL 2004-2015

Source: Author

Laborproductivity TotalFactorProductivityGrowth in digital ecosystem developemnt index 0,2622

(0,0683)***0,228

(0,0674)***Digital ecosystem development index 0,0358

(0,0585)0,0605(0,0577)

Observations 201 201R‐squared 0,6914 0,5832

6

FOUR CHALLENGES FACED BY LATIN AMERICAN DIGITIZATION OF PRODUCTION

Limited accumulation of intangible capital

Limited digitization of small and medium enterprises

Low capacity in management of digitization within small and medium

enterprises

Embryonic adoption of advanced digital technologies

7

THE ANALYSIS OF DIGITIZATION OF PRODUCTION IS BASED ON A SIMPLIFIED VALUE CHAIN

SUPPLY CHAIN PRODUCTION DISTRIBUTION

INFRASTRUCTURE

VALUE ADDED

• Information Technologies (computers, software, applications)• Networks (fixed and mobile) • Broadband

• Access to information on supplies and services

• Online procurement of supplies

• Use of platforms for acquisition of inputs

• Electronic banking

• Digitization of internal production processes (e.g. ERP, CRM)

• Interfaces with providers of outsourced functions

• Digitization of distribution functions

• Capacity for receiving purchase orders and provide customer care

8

WE DEVELOPED AN INDEX TO MEASURE THE LEVEL OF DIGITIZATION BY VALUE CHAIN STAGE

DISTRIBUTION

6 7 9

10

• Use of Internet to get information on raw materials and services

• Use of Internet to gain government information

• Use of Internet to interact with government• Use of electronic banking• Use of internet for procurement of raw

materials• Procurement conducted by Internet• Use of Internet to pay suppliers• Use of Internet to recruit employees

• Computer adoption• Tablet/smartphone adoption• Internet use• VPN use• Intranet/LAN use• Extranet use

• Percentage employees using computers• Percentage employees using tablets• Percentage employees using Internet• Percentage employees using email• Percentage employees using VoIP• Use of IM• Use Internet for training

• Use of Internet for customer care• Use of online sales channel• Percentage of sales via electronic channels• Use of Internet to receive purchase orders• Use of Internet to distribute online products• Share of digital distribution• Use of electronic banking• Use of web site• Social network presence• Mobile applications

INFRASTRUCTURE PRODUCTION SUPPLY CHAIN

9

LIMITED ACCUMULATION OF INTANGIBLE CAPITAL CONSTRAINS DIGITIZATION OF PRODUCTION PROCESSES

67

81

67

78

48

62

80

6267

42

55

80

62

42 43

0

20

40

60

80

100

Total Infrastructure Supply Chain Production Distribution

Spain Portugal Latin America

Source: Katz, R. Human Capital and digital transformation in Latin America. ECLAC, 2018

10

WE BUILT A COUNTRY‐BASED OBSERVATORY BASED ON MICRODATA ANALYSIS OF SEVERAL INDUSTRIAL SURVEYS

DANE ICT Ministry

Universe

Indicadores básicos de tenencia y uso de TIC

en empresas

Indicadores básicos de

tenencia y uso de TIC en micro-establecimientos

Encuesta de caracterización de las MIPYME

colombianas y su relación con la

tecnología

Gran Encuesta TIC

Year 2016 2015 2015 2017

Micro (<10) 3,019 36,430 3,870 2,108 1,369,061

Small (11-50) 5,901 809 500 53,304

Medium (51-100) 10,766 134 250 12,056

Large (>100) 2,638 107 150 1,507

Total 22,324 36,430 4,920 3,008 1,435,928

11

THE ANALYSIS CONFIRMED THE LOW DIGITIZATION OF PRODUCTION PROCESSES OF SMEs

50

64

40

59

36

58

70

52

66

43

7482

72

84

58

0102030405060708090

100

Total Index Infrastructure Supply Chain Production Distribution

Microenterprises SMEs Large Enterprises

Source: Author developed for the Observatorio de la Economía Digital de Colombia

12

FURTHERMORE, DIFFERENCES ACROSS REGIONS WERE ALSO IDENTIFIED AND MEASURED

Orinoquia y Amazonia

32 Micros: 20

Grandes:54

Atlántico 19

Micros: 15 Pymes: 25

Grandes: 59

Pacífico 33

Micros: 30 Pymes: 43

Grandes: 61

Oriental 22

Micros: 18 Pymes: 34

Grandes: 59

Central 26

Micros: 22 Pymes: 36

Grandes: 61

Eje Cafetero 20

Micros: 16 Pymes: 31

Grandes: 60

Antioquia 25

Micros: 20 Pymes: 38

Grandes: 62

Nota: La Region Pacifico exhibe sesgo estadistico

13

AN INDEX OF DIGITIZATION MANAGEMENT WAS CONSTRUCTED

GOVERNANCE TRAINING

CYBER-SECURITY INNOVATION

1 2 2

23

• Considers ICT as critical strategic asset• ICT based innovation initiatives

• Protocol to respond to cybersecurity threat• Ability to estimate cost of cyber disruption• Function responsible of cyber-security

• Investment in employee training• Level of importance of workforce

digital training

• Function assigned to ICT management

BUDGETING• ICT dedicated budget• Percentage of OPEX assigned to ICT

14

INDEX OF DIGITIZATION MANAGEMENT WAS PARTICULARLY LOW WITHIN SMEs

2415

33

7

35

23

56

39

66

30

61

50

91

63

86

59

82 76

-

20

40

60

80

100

Governance Budgeting Training Cyber-security Innovation Total Index

Micros SMEs Large

Source: Author developed for the Observatorio de la Economía Digital de Colombia

15

LIMITED ADOPTION OF ADVANCED DIGITAL TECHNOLOGIES

Pillar Technology National Large SMEs Micros

InfrastructureCyber-security 26 % 67.2 % 37.1 % 25.4 %

Cloud computing 20 % 48.8 % 22.9 % 13.6 %

Manufacturing

Internet of Things 8 % 14.8 % 9.3 % 8.2 %

Robotics 1 % 11.1 % 1.2 % 0.6 %

Additive manufacturing 3 % 4.8 % 2.1 % 2.1 %

Virtual reality 1 % 1.7 % 0.9 % 1.0 %

Distribution

Big data 5 % 16.8 % 4.0 % 1.3 %

Artificial Intelligence 3 % 9.7 % 2.4 % 0.7 %

Blockchain 3 % 5.9 % 1.6 % 1.1 %

Source: Observatorio de la Economía Digital de Colombia

16

DIGITIZATION GROWTH IS THE KEY TO INCREASING LATIN AMERICAN COMPETITIVENESS

The digitization gap between Latin America and OECD countries is of 17 pointsWe assumed a convergent scenario over the next ten years

8.3118.556

8.8079.067

9.3339.608

9.89010.181

8.3118.669

9.0429.432

9.83810.261

10.703

11.164

7.000

8.000

9.000

10.000

11.000

12.000

2016 2018 2020 2022 2024 2026 2028 2030

PIB

per

cápi

ta e

n U

S$ d

el 2

016

48 49 51 53 55 57 58 59 60 61 62 63 64 65 66 67

48 51 54 58 6165 68 70 72 74 77 80 82 85 88 91

65 67 70 72 75 77 79 80 82 83 85 86 87 89 90 91

0

20

40

60

80

100

2015 2017 2019 2021 2023 2025 2027 2029

LATAM LATAM- Convergencia con OECD OECD

If this occurs, TFP would grow at 0.66% per year and economic growth would 3.02%, which would result in cummulative GDP of US$ 708.460 between 2017 and 2030

For more information, contact:

Raul Katz - raul.katz@teleadvs.com

Columbia Institute for Tele‐Information