Letter IEDI n. 1071—Digital transformation in Brazil: challenges and recent advances
Today's Letter IEDI discusses the study Going Digital in Brazil, carried out by the OECD and released at the end of last year, covering the main points of the chapters “Fostering the Digital Transformation of the Brazilian Economy” and “Policies for Digital Transformation.” Other aspects of the report have already been dealt with in Letter IEDI no. 1062.
The first of these chapters examines the impacts, potential and obstacles of emerging digital technologies, such as the Internet of Things (IoT), in the agribusiness, manufacturing industry, financial and health services sectors, as well as provides policy suggestions for these sectors. In the second chapter, the OECD presents its recommendations for an integrated approach to government policies, in order to ensure that they are coherent and cohesive with measures for digital transformation.
In the OECD's assessment, there is an untapped potential in Brazil for digital technologies, which can contribute to productivity gains, increased efficiency, cost reduction and greater environmental sustainability. However, the diffusion and adoption of these new technologies come up against, among other obstacles, a complex and dysfunctional tax system, protection against foreign competition and limited access to credit by small companies with high innovative potential.
At least in part, taxation is responsible for the high cost of developing IoT in Brazil. In addition to the high import tariffs on foreign information and communication technology (ICT) products, in the tax regime of the Telecommunications Inspection Fund (FISTEL) two different fees are applied to the installation (TFI) and to the operation (TFF) of telecommunications equipment, including machine-to-machine (M2M) SIM cards, sensors or base stations.
According to the study, Brazil has adopted several comprehensive initiatives aimed at promoting digital transformation in areas such as agriculture, industry and services, with a focus on new data-driven business models. These are the cases of the Brazilian Strategy for Digital Transformation (E-Digital), launched in Mar/18, and of the National IoT Plan, formalized in Jun/19, in whose scope the Agro 4.0 Chamber, the Brazilian Chamber for Industry 4.0 and the Health 4.0 Chamber were created.
Despite the progress achieved, the OECD believes other public policy measures are needed in the sectors of agribusiness, industry, Fintechs and cybermedicine.
For agribusiness activities, the main OECD recommendations are: promoting a national innovation network and a test platform for agribusiness; developing an inclusive framework for agricultural data governance; aligning the National IoT Plan with the Strategic Agenda for Precision Agriculture.
In the case of the industry, among other actions the OECD suggests: expanding access to technologies available on the international market; reducing tax uncertainty for new business models enabled by digitalization; strengthening the governance and policy coordination mechanisms of Industry 4.0.
For the area of digital financial services, the main recommendations are: creating equal conditions for new payment institutions; enhancing competition in credit markets; improving coordination between financial regulators and promoting regulatory sandboxes.
In the case of cybermedicine, which is even more relevant in the context of COVID-19, the OECD suggests: validating and expanding Brazil's cybermedicine program, Connect SUS, in all regions of the country; enhancing interoperability and coordination between public and private health systems; updating the regulatory framework for health data protection and information security.
To ensure a comprehensive government approach that is coherent and cohesive with policies for digital transformation, the OECD advocates that Brazil strengthen coordination mechanisms and expand resources for the E-digital Strategy. This can be achieved by reinforcing the role of the Interministerial Committee for Digital Transformation (CITDigital), created in Mar/18, and through a specific budget allocation that channels new resources to programs focused on information and communication technologies.