A faster path to digital transformation in Latin America

By Angel Melguizo, Vice President, Economic, External & Regulatory Affairs, VRIO Corp; Eduardo Salido Cornejo, Head, Public Affairs Intelligence, Telefónica Hispanoamérica; and Welby Leaman, Senior Director, Global Policy Strategy, Walmart[1]

Covid-19 put in stark relief the urgent need for accelerated digitalisation around the world. The good news is that so many people stepped up to meet this challenge. In many parts of the private sector, digital rollout that business executives thought would take years was achieved in weeks or even days, as customers’ digital adoption soared. Latin America was no exception to this phenomenon: in mid-March 2020, internet traffic increased by more than 40% practically overnight. The robustness of telecommunications infrastructure in the region – built by decades of investment – and the flexibility of many Latin American governments during the pandemic, were among the factors that facilitated this transition.

We should celebrate this progress as well as the renewed focus it has generated on expanding connectivity and digital adoption. Indeed, convincing arguments exist in favour of accelerating the economic recovery through digitalisation in the region. GSMA calculates that a 10% increase in mobile Internet penetration has the potential to increase GDP by 1.2%, while a 10% increase in a country’s digitalisation can generate 1.9% in GDP growth.

According to recent GSMA figures, 45% of Latin Americans do not have access to the Internet, more than 285 million people. Around 45 million of them live in areas without coverage, networks, communications services and other basic infrastructure. Investment in connectivity will be critical to bridging the digital divide and reducing inequalities, particularly given the striking correlation between connectivity and poverty in the region

Yet connectivity is just one piece of the puzzle. Encouraging greater adoption of digital technologies is another. Historically, digital transformation has been moderate in the region, with around 4.5% of business adoption from 2014-2016 compared with 13% in Southeast Asia and 16% in China.

To increase connectivity and technology adoption, governments and the private sector must face up to some inconvenient truths

  • The IDB estimates that in Latin America, USD 18.7 billion is needed to close the digital divide in mobile access and another USD 50 billion for fixed-line access. In Latin America, telecommunications depends almost exclusively on private investment. For the private sector to cover the cost of closing the digital divide requires business cases and financial incentives for investors.
  • Telecommunications investment in the region has been falling in per capita terms since 2010. Latin America invested USD 43 per inhabitant in 2020, down from USD 46 in 2019. While some operators have increased investment, in aggregate terms the gap is increasing between Latin America and the United States (where per capita investment is seven times higher), Europe (three times higher) and Asia (twice as high).
  • Many current digital and telecommunication policies are well intentioned but fail to include necessary incentives to promote and support investment. From price controls, excessive regulatory fees and burdensome and outdated local regulation, to unaffordable spectrum, Latin America continues to lag behind when it comes to smart policy for better connectivity. The economic case is clear: with smart and flexible regulations by forward-looking institutions, investment will increase by as much as 64%

A favourable and enabling environment for investment should promote financial, regulatory and technological innovation and encourage collaboration through competition, infrastructure sharing and new models of spectrum access and use. Specific regulatory frameworks for rural areas are also needed. Additionally, safeguarding public trust will require measures to address digital security, data privacy, protection and governance, and ethical considerations.

We call for a comprehensive regulatory revamp and offer ourselves as willing partners to address the challenges of today and to prepare for those of the coming decades. We believe that through multi-stakeholder dialogue and innovative public-private partnerships, including with development banks, we can leverage the private sector’s role as an enabler of digital adoption. Businesses of all sorts have relationships of trust with millions of customers, suppliers, employees, and other stakeholders who will depend on those relationships as “on-ramps” into the digital economy.

Likewise, digital transformation of public and social services can be an engine to accelerate the adoption of connectivity by citizens – as well as building trust in the power of digital tools to improve transparency. A co-ordinated approach to incentivising investment and promoting adoption could bring significant benefits, as seen in Panama and Brazil, where efforts to encourage investment were accompanied by steps to digitise public administrations and state-owned companies. The expansion of connectivity to rural areas can serve as a platform to develop digital services that are better adapted to these areas, especially in the education, health and financial sectors, which can in turn contribute to the financial sustainability of rural connectivity projects.

There is no time like the present to overcome the barriers to digital transformation. The response to the COVID-19 pandemic is driving an unprecedented mobilisation of capital and policy initiatives in support of an inclusive recovery. We have a unique opportunity to accelerate inclusive digital transformation across Latin America and the Caribbean. Greater public-private collaboration can help to seize this moment.

Carpe diem!

[1] This article draws from a previous blog post co-authored by Angel Melguizo and Karim Lesina, Executive Vice President, Chief External Affairs Officer, Millicom, published in The Dialogue, as well as from comments by Walmart International’s Chief Financial Officer at an OECD Emerging Markets Network event entitled “Digital Transformation as a Driver for Post-COVID Recovery.”