5 ways to galvanise a GovTech ecosystem

In 2018, the Cutzamala system, a Mexican water distribution system serving 22 million people, required a major upgrade.

As the maintenance work ensued, almost a million Mexico City residents found themselves without water. Public servants in the Municipality of Cuauhtémoc swung into action to distribute water, but they quickly realised that an operation of this scale required external assistance.

They turned for help to an unobvious source: a young technology start-up with fewer than ten employees. Working with public officials, Cityflag deployed a mobile app and dashboard to monitor water distribution in real time, helping to manage the delivery of over 400, 000 gallons of water.

Breaking the mould

Cityflag belongs to a generation of new technology companies that direct their efforts towards public value creation — the creation of social, economic and cultural benefits for citizens as a core business function—not private profit alone. In Ibero-America, these companies are achieving significant global recognition. More than 85% of Latin American entrepreneurs recognised by the MIT Technology Review as Innovators under 35 in 2017 and 2018 are building companies that serve a public good.

Despite this evident public-mindedness, entrepreneurs based in Ibero-America are often poorly connected to the policy community. Where Cityflag partners with governments, other start-ups frequently work in parallel to public-sector organisations, not in conjunction with them.

This disconnection is unfortunate: government digitisation teams across Latin America are making strides in serving citizens through digitisation, and achieving international recognition for their efforts. Yet they also face major challenges, including recruiting and retaining technological talent. To build and maintain digital transformation agendas that meet citizens’ needs, governments must harness opportunities to work with innovative GovTech providers, whether to rationalise administrative processes or provide better public services.

Governments in the region have tended to favour large, incumbent technology suppliers, an approach that staves off new entrants, contributes to corruption risks, and often lacks cost effectiveness. Small, innovative firms, by contrast, face procurement frameworks that disincentivise partnership, and lack of opportunities to interact with procuring entities. Despite evidence that government procurement can help to unleash national competitiveness, investors and other regional stakeholders struggle to see government procurement as a vehicle for fostering innovation.

Only 12.2% of new entrepreneurial activity in Latin America in 2017 was in Government, Social Services and related sectors, lower than almost every other global region. Companies like Reciclapp (recycling) and Dart (disease detection), working with government ministries in Chile, are exciting outliers.

Nurturing an Ecosystem

To better enable the flow of ideas, knowledge, products and services between innovative suppliers and governments, it is critical to take an ecosystem-based approach that draws together and builds trust among a community of stakeholders committed to public sector digitalisation.

Innovation system theorists note the critical role of “structured government support” to foster the “sustained linkages” between individuals and organisations that comprise an innovation ecosystem. In the case of GovTech, policymakers in Ibero-America should focus their initial support around five key forms of relationship building:

1. Gathering around a common cause

As with any innovation policy, to achieve the broadest and most active local support, policymakers must define and shape GovTech in relation to locally perceived needs and aspirations. In other words, policymakers need to contextualise their GovTech initiatives to their local priorities and objectives.

Portugal is one of the first countries in the region to take this approach. It has focused its GovTech agenda around the Global Goals, helping to raise the international profile of Portugal as a contributor to the UN agenda. Given the youth of the GovTech sector globally, long-run outcomes of specific GovTech policies remain to be seen, but context-based, unifying narratives can catalyse early-stage, high-level support.

2. Early and clear market engagement

Across Ibero-America, there is a clear need for better and earlier market engagement. Ibero-American policymakers can learn from the experiences of other governments in seeking to reach a broader range of potential technology providers.

The UK, for example, has embedded an Engagement Lead function within its flagship GovTech Catalyst team. Scotland has built a website dedicated to explaining its procurement processes to new and potential entrants in jargon-free language.

Initiatives for facilitating engagement between procurers and suppliers can also emerge from outside government. GovTech ecosystems encourage and facilitate this cross-sectoral input. BrazilLAB, a non-governmental organisation based in São Paulo, has created the "GovTech Seal", a platform that showcases Brazilian start-ups addressing public sector challenges. As Guilherme Dominguez, Director of BrazilLab, described to me over email, the platform enables public managers in Brazil to “easily identify potential entrepreneurs to serve them.” Increasing the visibility of entrepreneurial activity helps to build a bridge between government needs and solutions readily available on the market.

3. Updating procurement frameworks and cultures

One Chilean Govtech founder who we spoke to for the research project, describes “not even trying” to pursue government contracts, despite having a suitable product to offer. The big, familiar players win by default, he feels.

The conviction that a government contract would be a no-go is not unusual. In the cases where he is right and governments indeed wouldn’t consider procuring from startups like his, these barriers must be addressed through both cultural transformation and systemic change.

But across Ibero-America, procurement frameworks are often not the primary barrier—the stumbling block is instead how they have historically been interpreted and enacted. Several countries in the region leave room for competitive dialogue—allowing the market to provide needed analysis and to respond with suitable innovation—but implementation is patchy or confined to specific "complex" cases, such as large-scale energy and natural resource projects.

Updating how frameworks are implemented will require retraining and shifts in organisational cultures towards greater permissiveness for experimentation. It may also require a new kind of project management skillset in public-sector organisations, if contracts are disaggregated and awarded to multiple, smaller suppliers.

4. ‘Crowding in’ financing

Regional funds and accelerators have made small investments into GovTech companies.

But Ibero-America lacks a dedicated GovTech Fund, and entrepreneurs focused on the government market report a struggle to secure capital from public or private sources. This shortage brings with it a risk of "brain drain", as the most dedicated GovTech founders move closer to financing outside the region.

2020 may be a key year for regional GovTech supplier opportunities, which should encourage investment. The recently agreed EU-Mercosur deal includes government procurement, strengthening access to public-sector contracts across the region. The UK Global Digital Marketplace, which partners with governments to assist in making their procurement processes more transparent (therefore boosting their capacity to procure from a broad range of suppliers), is also progressing its work, including in Mexico and Colombia.

Investors best placed to finance GovTech ventures in Ibero-America are likely to share several common features: investing with patience; prioritising social impact; performing an "educator" and "connector" function; and showing active commitment to broader ecosystem development.

A variety of funder types may meet these criteria, including national funding bodies, impact investors, and regional development banks. Given the close relationship between GovTech and sustainable development, a "blended finance" mechanism could bring together these parties, enabling entrepreneurs to draw on the strengths of each (though let’s avoid the blending "hype").

5. Measurement and evaluation (M&E)

As the pioneering City Government of Barcelona describe in their procurement principles, "Procurement cannot end when the contract is signed". A "monitoring and control system must instead be established during execution", and the results evaluated.

On a global scale, M&E is currently poor across public and private-sector GovTech programmes, from accelerators to pilots. Yet collecting and analysing performance data from the earliest moment can provide the empirical evidence needed to tweak policy and programme design.

Transparent M&E is crucial for ecosystem development: analysing results can keep the community on track for realising common goals—or push towards the collective imagination of new ones. — Tanya Filer

 

Tanya Filer conducted an analysis of Govtech's ecosystem in Ibero-America, commissioned by the CAF's Digital Innovation in Government Department, on which this article is based. A policy brief based on the large-scale analytical report will soon be available in Spanish.