Uruguay: The Silicon Valley of South America

Source: Wikipedia

I know what some of you may be thinking, “Where is Uruguay?”.
Squeezed between Brazil and Argentina, with a population of about 3.5 million on a territory smaller than the state of Missouri, Uruguay is best known for its beautiful beaches, herds of cattle and passion for soccer. However, with a $1.2 billion IT industry by 2016 and in constant expansion, and more than 700 tech companies exporting software across 52 different markets, Uruguay is also the leading software exporter per capita in South America, and the third in the world.

Harvard University recently identified Uruguay as “one of the most advanced software development centers in the region”, primarily focused on the country’s capital city, Montevideo.
Now, it seems to be true that Uruguay has a great software development culture but, calling it the Silicon Valley of South America might be a bit presumptuous, don’t you think? (Spoiler alert: No it’s not).

“My first trip to Uruguay was eye-opening. I had no idea that this small country had so much to offer. From the impressive universities, the entrepreneurial spirit, and magnificent coastline, it is clear that Uruguay is poised to step onto the world stage.”

- Tina Seelig, Faculty Director of the Stanford Technology Ventures Program (STVP), Stanford University.

If we do a little analysis of the factors that transformed Silicon Valley into what is today, you’d be surprised to find how many similar factors are evident today.

The same way the Valley’s success story is not simply a matter of chance, Uruguay’s success in the IT industry is the result of a sophisticated government master plan, combined with a series of opportune circumstances.

1. Government subsidies

After WWII through the end of the 70s, the San Francisco Bay Area began receiving massive support from the US government, encouraging the economic conditions for technology innovation to thrive in Silicon Valley.

In a similar fashion, outstanding tax benefits and government incentives have been applied in Uruguay for the past decade. The most relevant benefit for global IT firms is 100% exemption of income tax for the payment obtained through the exports of software and its related services (Decree 150/2007).

2. Talent

We can all agree that established professionals and young university graduates are the core of Silicon Valley’s workforce.

In 2008, Uruguay became one of the first countries in the world to embrace the One Laptop per Child program (OLPC), an ambitious project aimed to bring computing to children in the developing world.
The program is run as a joint efforts of the Technological Laboratory of Uruguay (LATU), National Agency for Research and Innovation (ANII), the Agency for the Development of Government Electronic Management and Information Society and Knowledge (AGESIC), the National Telecommunications Administration (ANTEL ), the Ministry of Education and Culture (MEC), the Primary Education Council (CEP), and the National Public Education Administration (ANEP).

Source: http://www.produccionnacional.com.uy/plan-ceibal/

Nowadays, nearly all of the 300,000 children in Uruguay’s public schools have their own computers, and many high school graduates enroll in computer science, engineering or IT programs.

Uruguay’s public education system is among the continent’s finest, and the country has a 96% literacy rate. Stanford has been keeping an eye on Uruguay as well, working together with ANII for some time now.

3. Space

Frederick Terman, a Stanford professor and one of the founding fathers of Silicon Valley, introduced the idea of incentivizing students to start their own business by allowing them to use the university’s tracts of land. Terman’s program helped people like William Hewlett and David Packard, among others, to take off. 
These were the first co-working spaces long before the term was coined.

Co-working spaces are part of the core of any Uruguayan startup; a solution to the problem of isolation that many freelancers experience working at home. These dedicated spaces allow entrepreneurs to mitigate some of the initial costs of having your own place as a small business.

Economic free zones have also operated in Uruguay for over 20 years. Free zones are exempted from ALL taxes (net income tax, VAT, customs duties, property taxes, etc.). Dividends paid to shareholders are never taxed or retained. VAT and customs taxes are waived for construction or equipment needed for operation.

WTC Montevideo Free Zone (source: http://www.wtcmontevideofreezone.com)

4. Infrastructure and natural conditions (a.k.a: location, location, location)

Besides being a regional logistic hub (thanks to its natural port), Uruguay is the leader in communications in Latin America according to the International Telecommunication Union’s 2014–2015 Information Technology and Communication’s Development Index (ICT), which measures Internet penetration, mobile phone usage, and other related indicators.

Source: http://www.smartservices.uy/innovaportal/v/1205/13/innova.front/market-y-nearshore.html

The excellent telecommunications infrastructure, combined with a cultural affinity with Europe and North America, similar time zone ( +2 hours US Eastern Standard Time, + 1 hour during daylight saving time), and English proficiency, make the country an ideal nearshore location.

5. Entrepreneurial atmosphere

Uruguayans are hardcore innovators. From the first pacemaker to the creation of the mammography examination, Uruguay had achieved technological feats that seem statistically impossible for a country of its size.

Montevideo has a thriving startup scene, most notably in the gaming industry, similar to what once was the Homebrew Computer Club in Menlo Park, California.

This entrepreneurial environment caught the attention of the well-known accelerator 500 Startup, which in June of 2017 announced its arrival to Uruguay as part of the Montevideo Accelerator Program, focused on growth hacking, product designing, fundraising, and bringing Silicon Valley expertise to seed-stage companies in Uruguay.

It would be naive to attribute the success of Silicon Valley solely to the combination of the five factors mentioned above. So it would be to believe this melting-pot of cultures, talent and innovation could not also take place somewhere else.

A closer look into the history of events could throw some light on what turned a little area of Northern California into the tech mecca it is today. And, even more importantly, give us some clues on how to replicate this scenario in Uruguay, a country that has discovered technology is its DNA.