Source: Reuters / Jorge Silva
As vaccines become available around the world, Latin America is still reeling from the COVID-19 pandemic. According to the latest figures, the region’s economy contracted seven percent in 2020—the greatest recession on record for Latin America and the Caribbean. While countries across the region have begun vaccination campaigns, many governments are struggling to contain yet another wave of cases. As a result, many have reimposed strict preventive measures, including curfews, lockdowns, and border closures as the number of available beds in intensive care units dwindles to dangerous levels.
If there is a silver lining in this grim outlook, it is that the pandemic has highlighted the transformative power of technology for Latin America and the Caribbean, and accelerated its digital transformation, not only in leading start-up markets like Argentina, Brazil, Colombia, and Mexico, but throughout the entire region.
The pandemic has demonstrated that the future is digital. With a stable internet connection, users worldwide can conduct many of their essential activities remotely, often just through a smartphone. The region is primed for digital solutions and digital services, which could become even more accessible as developers release more affordable handheld devices. In 2020, 72 percent of all mobile connections in Latin America were conducted via smartphones; by 2025 this figure is expected to reach 80 percent.
Shifts in consumer behavior that would otherwise have taken years to materialize have also been accelerated by the pandemic. For example, according to the Central Bank of Costa Rica, last year 55 million transactions were conducted through the bank’s digital platform for small retail payments, Sinpe Móvil, marking a 787 percent increase from 2019. In the last year, millions of Latin Americans have opened bank accounts for the first time to access COVID-19 related government financial assistance; if these citizens continue to use these accounts, they will represent a vast untapped market for innovative financial solutions addressing the cumbersome financial bureaucracy that remains the norm throughout the region.
While digitalization will not eliminate the negative impacts of the global pandemic, it could accelerate the region’s recovery by creating new consumption models and boosting productivity. However, many obstacles could prevent Latin American countries from unlocking their full digital potential: among them, antiquated and insufficient regulatory systems, a lack of digital talent, and lingering effects of the pandemic—such as a widening digital divide between urban and rural communities.
One of the largest challenges for the region’s countries is quickly modernizing regulatory regimes to encompass the increased use of digital technologies that has occurred over the course of the pandemic. A well-designed regulatory regime will incentivize digitalization, minimize unintended consequences, and ensure that digitalization benefits the majority of citizens. However, even well-intentioned regulations, if poorly implemented, can stifle innovation, especially if they create cumbersome procedures for approval and implementation.
The first such regulatory reform of its kind, Mexico’s Ley Fintech was applauded for paving the way to expand the country’s fintech (financial technology) sector. However, due in part to pandemic-related closures, the Comisión Nacional Bancaria y de Valores, the country’s financial regulatory agency, has only granted operational approval to eleven out of 93 fintech companies which originally applied for authorization in September 2019. This slow regulatory approval process threatens to hinder the rapidly expanding sector, which has continued to grow at an average rate of 23 percent each year since 2016. As digitally enabled companies disrupt traditional sectors, regulators across the region face the unique challenge of balancing consumer protection with incentivizing and facilitating innovation.
A current lack of digital talent also presents another obstacle to the region’s digitalization. Many promising initiatives have arisen in response to the pandemic, including collaborations between fast-growing educational technology companies and local governments to provide free digital skills courses. However, as Inter-American Development Bank (IDB) President Mauricio Claver-Carone noted at the multilateral’s annual conference, only in the field of programming, one million new programmers are needed to meet the anticipated regional demand by 2025. Unfortunately for Latin America, the pandemic has also caused millions in the region to abandon their university studies, which could further decrease Latin America’s digital talent pool. As such, additional private-public sector collaboration will be critical to developing a skilled workforce that is aligned with private sector demand.
Increasing digital skills among Latin American rural populations could help generate new opportunities and increase efficiency throughout the region. Before this future can be realized, however, rural communities must first have ample and consistent access to the internet. According to the IDB, 71 percent of the region’s urban population has at least one way to connect to the internet, compared to just 37 percent of the region’s rural population. Rather than leading to expanded opportunities for all, failure to include rural communities in national digitalization strategies could lead to the exclusion of millions as companies, governments, and businesses implement new digital tools to cater to the region’s connected population.
Relatedly, as countries continue to struggle to contain the spread of COVID-19, connectivity challenges will likely have long-lasting implications for Latin America’s youngest generations. UNICEF estimates that from March 2020 to February 2021, Latin American and Caribbean schools were closed for an average of 158 days—the longest closures in the world. For the 32 million children in the region between the ages of five and 12 who were unable to participate in remote education, this has led to a major interruption in their education, leaving them potentially a year behind their digitally connected peers. If the pandemic leads to continual cycles of closures and openings (which appears to be likely), local and national governments must create better long-term plans to ensure that these children do not fall further behind.
Despite these challenges, there seems to be no lack of enthusiasm for the region’s tech potential. The pandemic notwithstanding, in 2020 Latin America’s tech industry struck a record number of 488 deals with venture capitalists, channeling USD $4.1 billion into the region’s startups. The IDB has even predicted that, at this rate, annual venture capital investments in Latin America could surpass USD $30 billion by 2030.
Such enthusiasm is well placed: Latin America has a large, albeit diminished, middle class, low labor costs, and plenty of entrepreneurial spirit. If policymakers enact measures to support digitalization, technology-based innovation could help spur a post COVID-19 recovery and serve as a boon for the region’s economies in the years ahead.
Sara Van Velkinburgh is a consultant focused on bilateral U.S.-Latin American affairs. She has held a variety of positions in Washington, D.C. and throughout the region. Her focuses are Latin America’s digitalization, Colombian affairs, the regional impact of COVID-19, and trade and investment. She is a graduate of Boston University.