It’s taxing: Cloud computing in Brazil

It’s taxing: Cloud computing in Brazil

Author: Philipe Moura
Published: 2014-03-10

Brazil is the top 5th IT market. But it is losing leadership to Chile in Latam. Check out what needs to be done.
Cloud computing is a business model rather than a specific technology. All the key elements to make it successful (broadband, computing architectures, and e-commerce) are now readily available. From the simplest Software as a Service (SaaS) products to complex Infrastructure as a Service (IaaS), there is no IT without cloud anymore.
Cloud services are said to be a key source of economic growth. Marco Iansiti (Harvard) and Gregory Richards (Keystone Strategy) believe that investments in cloud computing will drive 0.83% to 0.99% of growth in U.S. GDP in the next 10 years (http://dx.doi.org/10.2139/ssrn.1875893). Many countries including Brazil are trying to tap into the economic benefits of the cloud. But there are many challenges to be addressed before this becomes a reality.
In 2012, Google announced an investment of USD 150 million in a data center in Chile. Brazil's IT market is much larger than Chile's, so how does one explain this choice?
According to Brasscom, the Brazilian ICT trade association, setting up a data center in Brazil costs USD 61 million; whereas in the United States, it costs USD 43 million. Maintaining it is also expensive: It costs USD 100 million/year to maintain a data center in Brazil and USD 43 million/year in the United States.
Brazil is a behemoth IT market – the fifth-largest in the world, according to IDC – accounting for USD 144 billion or 2% of global IT revenues in 2012. This is, in itself, an incentive for companies to invest in the country. Yet, there are other issues that need to be resolved before Brazil can have a bustling cloud market. Energy is too expensive; taxes are high; last-mile bandwidth is still scarce; and data privacy and protection regulations are erratic.
Moreover, the Brazilian government is still discussing fundamental issues that will affect cloud businesses: a controversial Internet Bill of Rights; a delayed Data Privacy Law; a quid pro quo between state and municipal governments over who taxes whom. The government is threading a path that is correct overall, but IT is a fast-paced business. The bottom line is that Brazil's cloud services are not competitive internationally. If the country does not align its incentives to fulfill its potential, it could lose the opportunity to lead the Latin American cloud services market.

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