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dataPlor Raises $2M to Digitize Small Businesses in Emerging Markets, Latin America’s Digital Tax Conundrum, a Wave of Compliance Measures Sweeps Across the region, and more…

dataPlor raised its third round of seed capital to digitize Latin American small businesses, Colombia
LATAM Business Weekly
dataPlor Raises $2M to Digitize Small Businesses in Emerging Markets, Latin America’s Digital Tax Conundrum, a Wave of Compliance Measures Sweeps Across the region, and more…
By dataPlor • Issue #28 • View online
dataPlor raised its third round of seed capital to digitize Latin American small businesses, Colombian government announces National Development Plan 2018 – 2022, report on the composition of Latin American retail e-commerce, and more from the region.

dataPlor Raises $2M to Digitize Small Businesses in Emerging Markets
In Latin America, there is growing disparity between the emerging digital food delivery market and the number of businesses in the region with an online presence. 
As food delivery startups continue to expand throughout Latin America, VCs are becoming increasingly involved in funding mega rounds, with hopes of capitalizing on consumer online buying trends within the region’s growing digital populations.
dataPlor raised its third round of seed capital, bringing the company’s total amount raised to $2 million USD. The most recent round was led by Quest Venture Partners, along with participation from ffVC, Magma Partners, Sidekick Fund and the Blue Startups accelerator. 
Founded in 2016 by Geoffrey Michener, dataPlor’s platform recruits, trains and manages a network of over 100,000 independent contractors — what dataPlor calls Explorers— who are tasked with feet-on-the-street visits to local businesses to capture information like latitude and longitude points, photos, hours of operation, owners’ names and contact info, and whether or not a business accepts credit cards. 
dataPlor then licenses this data to multinational companies like American Express, iZettle and PayPal. The company also works within a joint partnership to digitize Mexico with Google and Virket. In its first three years of operation, dataPlor has gotten 150,000 Latin American businesses onto Google.
Photo courtesy of dataPlor
Photo courtesy of dataPlor
According to Founder and CEO Geoffrey Michener, dataPlor pays their Explorers above-market wages, and is cautious about “not using the Uber model to drive down the cost of paying contractors” (Tech Crunch). 
Michener told Tech Crunch that 80% of Mexican businesses don’t have any digital footprint, and less than 5% of businesses have a website. The lack of local businesses’ online presence affects the reach of what Google can index, as well as from where delivery services like iFood subsidiaries or Rappi can deliver. 
“Basically, offline businesses are missing out on new digital distribution opportunities and, therefore, big cash.”
In the U.S. and Europe, companies like Google and Uber power their platforms by scraping data from online directories. This process works differently in Latin America, however, considering that in emerging economies, most businesses are still offline and therefore have fairly limited chances of showing up in Google’s index. 
“Michener likes to think of his business model as a trifecta of helping small businesses get onto Google for free, creating part-time opportunities for a growing workforce in LatAm and using its tech to help Google and Uber become better populated with accurate info in geos that might be more difficult for a foreign company to access” (Tech Crunch).
dataPlor first launched in Mexico and has expanded into Brazil — an aggressive move for a young company due to Brazil’s competitive startup scene and Spanish-Portuguese language barriers. Company representatives say dataPlor will expand to Chile, Peru and Colombia in 2019.
“dataPlor’s tech stack could pique interest for any company that wants a hand in the digitization of growing markets. Now that they’ve built a playbook for Explorer logistics, that operational piece of their business may be interesting to companies like Google, Apple and Uber too”  (Tech Crunch).
Paraguay's Plans for New International Hub Corredor Bioceanico
Paraguay plans to turn its remote, northwest Chaco region into an international transport hub; serving as an important link between ports on the Atlantic and Pacific coasts of South America. In a proposal, Paraguay’s government compares this Corredor Bioceanico to a present-day Panama Canal. 
According to Public Works Minister Arnoldo Wiens, investment of over $2B in basic infrastructure such as roads and bridges seeks to transform the region and boost trade. The Corredor Bioceanico will connect ports in Brazil and Chile; while a renovated highway will span the region, connecting north to south.
“It’s going to generate unprecedented development,” said Weins (Bloomberg). 
Although Wiens compared its potential impact on regional trade to that of the Panama Canal in the early 20th Century, Latin America boasts a long history of ambitious infrastructure projects that don’t always materialize.
 According to Bloomberg, Paraguay had plans to build two, 13.9 kilometer tunnels through the Andes, and has made little progress since Argentina and Chile created a joint entity to manage the project in 2010.
“The annual value of goods transported over the current Transchaco highway could more than triple to around $5 billion in about five years with better roads, according to Wiens.”
Juan E. Notaro, Executive President of development bank Fonplata, said that Paraguay, Bolivia, and Brazil should work together to choose a route that is “economically viable” to build, as it doesn’t make sense to have a lot of competing alternatives. 
However, rapid deforestation is transforming the extremely hot, ecologically diverse area – once known as the “green hell” – where a large number of the country’s indigenous communities reside.
Yan Speranza, Executive Director of conservation non-profit Fundacion Moises Bertoni, said that Paraguay faces the challenge of minimizing the environmental impact from large-scale development that sooner or later is going to reach the Chaco. 
“Our environmental regulations are very good in general terms… The big problem is always the ability of the state to enforce the law. The lack of enforcement capacity is a concern.”
The government’s plans are part of a larger nationwide building program that includes more than $6.8 billion for highways, water and waste projects. The central bank has signaled it might lower its 2019 growth forecast- currently standing at 3.2%- when it updates its outlook for the economy in the following days. 
“Although multilateral lenders including CAF and the Inter-American Development Bank will probably provide half of Paraguay’s public works funding needs, Wiens sees the private sector’s participation rising to 30% in a few years from 20% today.”
Over the next year 12 months, the government plans to raise at least $1.2B in public-private partnerships and turnkey projects; including two segments of the Corredor Bioceanico, which could obtain funding from global capital markets. 
Foreign investors have already signaled their willingness to pour money into Paraguayan infrastructure. 
According to Bloomberg,
“The consortium that holds a turnkey contract to build the first segment of the Corredor Bioceanico raised $450 million from a global bond sale in May, while a $250 million bond sale next month will fund part of the expansion of Highways 2 and 7 in southern Paraguay under a PPP contract.”
How Extortion Is Holding Back Mexico's Small Businesses
Local small businesses in Mexico are increasingly confronted with obstacles to expansion: a problem that Mexican economist Luis de la Calle has named “extortionomics”. 
 It’s not just a threat from organized crime or corrupt public officials, however. Red tape, regulations, and a perplexing fiscal system contribute to a prohibitive tax on small and growing businesses. 
De la Calle told America’s Quarterly, 
“As soon as small businesses start to become successful, they are subjected to extortion and that creates a vicious cycle that obliges them to stay small.”
President Andrés Manuel López Obrador will need to address this problem if his promised transformation of Mexico’s economy is to come to fruition. He presented his 2019 National Development Plan, which he presented to the lower house back in April, foresees 6% GDP growth by the end of his six-year term. The plan lays out measures to tackle corruption, provide small businesses with easier access to credit, and simplify paperwork for entrepreneurs looking to start new businesses in the country. 
“A large portion of Mexico’s small businesses are informal, employing 57% of the labor force but generating just 22.7% of the country’s GDP. Many small enterprises face almost insurmountable challenges to growth, and business owners often prefer to keep their operations under the radar” (America’s Quarterly). 
According to a government survey, of the Mexican small business owners who say they do not want to expand, fear over security is the most common reason why.  
According to Manuel Molano, General Director of the Mexican Institute for Competitiveness (IMCO), 
“We have a ‘Peter Pan’ economy, where small businesses in Mexico don’t want to grow because as soon as you step out of your family circle you enter the radar of an illegitimate labor union, or deal with the tax or social security authority.”
Latin America’s Digital Tax Conundrum
Throughout Latin America, there is a lack of uniformity in the way in which each country charges taxes, as some countries levy value added tax (VAT) and others look to income tax.
According to a March report by the UN Economic Commission for Latin America and the Caribbean (Eclac), Argentina (21%), Colombia (19%) and Uruguay (22%) are already charging VAT on digital services such as Netflix, Spotify and Amazon. Meanwhile, Costa Rica (8.5%), Paraguay (10%) and Chile (19%) are currently proposing to apply VAT (BN Americas). 
According to the report, Uruguay and Peru are the only two countries that have modified their laws to charge income tax on digital platforms. Mexico currently has a bill in congress to do so.
The Eclac report estimates that Latin American countries would bring in roughly US $580M a year if they applied VAT and a special 3% digital services tax on Netflix, Spotify, Apple and Uber. Referring to a 2017 study, Eclac estimated that Netflix, Spotify, Apple and Uber generated about $4.7B USD in revenues in Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Ecuador, Mexico, Peru and Uruguay.
How, or where, digital services platforms, such as the big four– Google, Amazon, Facebook and Apple– should pay taxes is not a new debate. Some big tech companies have a tax haven, and a gateway to Europe, in Ireland.
 As reported by BN Americas, this debate was recently reopened after the Trump administration launched a 301 investigation into France. 
 “The French levy would impose a 3% income tax on total revenues generated by certain large digital services companies operating in the country. The tax only applies to companies with total annual revenues of at least 750mn euros (US$840mn) globally and 25mn euros in France.”
There was a general agreement among lawyers consulted by BNamericas that it is quite unlikely that the United States would take retaliatory measures against Latin American nations- or even against France- as punishment for implementing digital taxes.
According to Thierry de Saint Pierre, President of Chile’s IT association Acti, charging VAT on digital services platforms is a global trend that is currently being discussed by the OECD nations.
 Claudio Magliona, President of Acti’s legal team, told BNAmericas that, 
 “Charging VAT is seen by many in the market as the fairest form of taxation to level the playing field between local and international players, which will pay the same, and that the services will be taxed under the regime in which they are consumed.”
According to Víctor Fenner, Executive Director of EY Chile, domestic companies can deduct a tax credit from VAT, while foreign companies cannot.
“In that case, one could say that the worst affected [by taxing foreign digital services companies] is the consumer, which is maybe why many countries in the OECD are looking at applying taxes other than VAT, including income taxes.”
This conversation raises the fundamental question of who will end up paying the tax. Under Chile’s proposal, the tax will be retained by credit card processors. 
According to the Information Technology Industry Council (ITI), a multilateral solution is necessary to avoid uncertainty and fragmentation. Therefore, the OECD’s efforts should be taken into account as a reference. 
"The digitization of global business is raising important questions about long standing principles of international taxation. A coordinated, multilateral approach is imperative to reforming the global tax system, especially when it comes to addressing services that are provided digitally across borders.” 
In Response to Scandals Throughout the Region, a Wave of Compliance Measures Sweeps Across Latin America
Throughout the region, the outbreak of scandals and related approval of new corporate criminal liability laws in many countries has created growing anxieties for many executives and board members. If caught, they run the risk of going to jail, damaging the brand’s reputation, and hindering profit growth to a far greater extent than ever before. As a result, a mass hiring movement of compliance officers has been unleashed throughout many Latin American nations.
A short three years ago, Laura Alonso, Head of the Argentine government’s anti-corruption office, told America’s Quarterly that compliance and ethics “were not an issue in the private sector.” Today, however, she states that “(many of) the events that the private sector is organizing are partially or entirely dedicated to ethics and compliance”. 
Despite a lack of reliable data available on the growth of the compliance industry in the region, specialists consulted by America’s Quarterly were quick to highlight that it has quickly become a hot topic in the corporate world. 
In 2012, Isabel Franco, Brazil-based compliance attorney and professor, started a monthly roundtable with compliance officers with 30 people. Today, the group’s mailing list has reached 950 in São Paulo alone. “We can only fit about 40 every month… The subject is on fire,” she said in an interview. 
For many years, some companies would have their law firm draw up an integrity manual and call it a compliance program. According to Martín Lepiane, a partner at Buenos Aires law firm Martínez de Hoz & Rueda, very little was done to improve processes or control mechanisms or spread a sense of ethics down through the ranks. 
When the latest wave of scandals erupted and executives started getting arrested in growing numbers, many began to worry about the implications for their businesses; with growing anxieties about lost contracts and the limited access to financing. 
Today, the problem facing Latin American companies lies in the fact that the current talent pool is lacking compliance professionals, largely because the profession is so new.
According to Sebastián Rago, Managing partner at Wall Chase Group, an executive search firm based in Buenos Aires, “if you have a little bit of experience and put the keyword ‘compliance’ on your LinkedIn profile, you are going to be found.”
“At first, companies reassigned accounting, legal or internal affairs managers to compliance, or just doubled up their roles. But with the career prospects and the salaries increasing in compliance, especially from corruption-tainted companies, more people are entering the profession.”
Multinational companies often send their compliance officers to headquarters for training. For others, a growing number of short certificate programs, conferences and discussion meetings are emerging; such as programs put on by chambers of commerce and emerging compliance associations throughout the region.
 Delia Ferreira Rubio, Chairwoman of Transparency International, insists that increased measures must be taken in this area to ensure that ethics, integrity and responsibility become a fundamental part of the corporate culture and strategy, dissuading corruption. Otherwise, “it could seep back in when judicial and social pressures wane.”
Matías Nahón, an expert in corporate compliance and risk management at California-based consulting firm Berkeley Research Group, claims it will take decades for the perspective in Latin America around compliance to change. Many organizations still perceive compliance as a cost that slows decision-making rather than an asset that supports long-term growth by attracting business and investment as consumers increasingly seek out ethical, sustainable and responsible products.
Colombian Government’s National Development Plan, and What it Means for the Nation’s Tech Sector
The Colombian government recently announced National Development Plan 2018 – 2022,  which lays out the country’s trajectory for the next 4 years. 
Significantly for the tech sector, the plan offers investments of COP $21.2 billion, roughly $6.5 billion USD, to strengthen the Science, Technology and Innovation (STI) sector, to support the government’s ambition of boosting economic growth in Colombia.  
The Plan, called the ‘Pact for Colombia, pact for equity’, was approved in May, despite controversy and protests from unions and opposition lawmakers, who claimed this plan did not provide adequate funding for social and workers’ needs (Nearshore Americas). 
While the plan touches on a range of areas, it notably seeks to build on the nation’s growing IT economy. Colombia is the fourth largest market in the IT sector in Latin America. 
According to investment agency ProColombia
“[Colombia] has a strong and attractive environment for the development of the IT industry, thanks to the support of the National Government and the commitment of the private sector, which has influenced the arrival of global players that find in Colombia an export platform.”
One of the most demonstrative examples of the country’s potential is the arrival of Amazon. The retail giant chose to open its South American Customer Service Center in the capital city, Bogotá over Chile or Argentina. 
Additionally, Colombia’s second largest city, Medellín, was recently selected by the World Economic Forum to host the first Center for the Fourth Industrial Revolution in Latin America, which will boost research on topics such as blockchain, IoT, drones and precision medicine.
According to the IDC (International Data Corporation), the Colombian software and the IT industry has doubled its sales in the last 7 years. 
The manufacturing, public, financial, and agricultural sectors are generating strong domestic demand, while a growing number of foreign companies are choosing Colombia to develop their software services using nearshore / offshore concepts.
According to ProColombia, the Plan aims to increase public and private investment in science and technology and innovation to 1.5% of GDP. For this, it opens the door for (STI) public funds to be used for rediscount credit lines, with the purpose of financing projects in companies.
“The government seeks to create better conditions for the creation of companies in areas of Science, Technology and Innovation, which will lead the country to strengthen the relationship between technical scientific knowledge and private initiatives.”
Composition of Latin American Retail E-Commerce
Technological and logistical innovations in Latin America have created a multitude of growth opportunities for retailers to engage with consumers across digital channels and geographic areas. A critical aspect supporting the expansion of e-commerce is the rising trust consumers have in making transactions online.
Consumers in Latin America have historically resisted e-commerce, expressing doubts surrounding the security of their personal data and payment information and a general lack of trust in the sellers’ or platforms. 
According to Marcos Guijarro, Managing Director of Mexico at performance media agency iProspect
“We’ve seen that many of the region’s leading ecommerce players are still working to break down barriers and facilitate access to a population that does not have the traditional means to [pay for] online purchases. This translates into facilitating offline payments for online purchases and providing rechargeable payment methods for those people who do not have a bank account or want to use their traditional payment methods for fear of possible fraud.”
Retailers have subsequently responded by improving their security measures, whose efforts have proven effective. 
June 2018 data from The Cocktail Analysis in collaboration with Analistas Financieros Internacionales (Afi) reports that on average, “more than six out of 10 digital buyers felt safe making digital purchases. The most- and least-comfortable digital buyers were in Argentina (78.7%) and Peru (56.4%), respectively” (eMarketer). 
Photo Courtesy of eMarketer
Photo Courtesy of eMarketer
Another substantial factor driving e-commerce is the nature of the marketplaces themselves. 
Patricia Salaverry, Head of Latin American Business Development at PayPal, stated that, 
“Marketplaces have taken on an important role and will consolidate their leadership in 2019—especially for technology products, mobile phones, household items and sports products”(eMarketer). 
Olist’s September 2018 survey confirms that among 75.4% of retail professionals in Brazil that sell products and services on digital marketplaces, 81.5% said their companies did so to increase sales and profits, while 67.9% said it helped them reach more clients.
Photo Courtesy of eMarketer
Photo Courtesy of eMarketer
As stated by Magno Lima, Head of Innovation and Digital at Serviço de Proteção ao Crédito (SPC Brasil),
“Consumers in Brazil tend to connect better with [marketplaces] since it is easy for them to find products in the same place”
Similar trends are at work in Mexico.
Daniela Orozco, Research Manager at the Asociación Mexicana de Venta Online (AMVO), a digital retailer association, said that
“Marketplaces are revolutionizing the way in which retail is being purchased online. National retailers are modifying their business models in order to compete with large multicategory sites that have had an important contribution to the market.”
Video: Latin America Trade: Regional powers seek closer ties
Latin America trade: Regional powers seek closer ties | Mexico News | Al Jazeera
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