How can Latin America’s business environment benefit from technological change?

Technological change is inevitable in the long run, and governments, businesses and individuals must be prepared for it. The Economist, publishes a yearly ranking of 82 economies according to the quality and attractiveness of their business environments, and recently included a ranking of those countries’ readiness for technological change. The ranking incorporates three key categories for assessing the countries: Internet access; digital economy infrastructure (e-commerce), e-government and cybersecurity; and openness to innovation, which includes international patents, research and development (R&D) expenditure and research infrastructures.

Developed countries such as Sweden and Finland are at the top of the ranking, as would be expected. While at the bottom of the ranking are many Asian and African countries such as Libya, Angola, Pakistan and Bangladesh, as are some Latin American countries such as Cuba, Venezuela, Peru and the Dominican Republic. In the short term, the positions of most of the countries at the bottom of the ranking are expected to improve slightly, with the sole exception of Venezuela. Yet there is not a single Latin American country in the top 20.

In terms of Internet access, the study states that Latin America has coverage that varies from country to country and ranges from 20% of the population in countries such as Bolivia and some Central American countries to almost 80% in Argentina. One silver lining is that Internet penetration in the region is expected to be much higher from 2020 onwards, reducing the gap for the less developed economies.

Having the infrastructure that is required for the digital economy to develop, such as secure online transactions, is becoming an increasingly important aspect of business. As broadband functionality improves, online transactions become more commonplace. However, as we have seen in many Latin American countries where Internet connectivity is poor or inadequately regulated, e-commerce businesses grow slowly or are simply non-existent. There are other factors that influence the development of e-commerce, including cultural aspects (trust in online transactions, for example) and of course access to banking services, which includes the need for a credit card.

E-government—the online services offered by governments—offers several benefits, for both citizens and governments, as it tends to increase transparency and therefore trust in institutions. That concept is not familiar at all in Latin American countries. The truth is that, while many governments are striving for greater transparency, they still have a long way to go. Cybersecurity is an even more complex issue and depends highly on each country’s infrastructure. Ensuring Internet security is virtually impossible, even for the most developed countries. However, as we move towards an increasingly interconnected world, governments and corporations have a responsibility to counter attacks.

Finally, with regard to openness to innovation, which includes the number of patents registered, spending on research and development as a proportion of GDP, and the quality of research institutions, the study concludes that Latin America is making slow progress and that there are large gaps between countries. It can therefore be concluded that Latin America is not quite prepared for technological change. There are some exceptions in some areas, but much more needs to be done and invested to prepare for the technological revolution.

Further Reading:

latinoamerica21_logo.jpgRicardo Aceves is a Mexican economist specializing in Latin American macroeconomic issues and currently works as a credit risk analyst at CRIF Ratings in Barcelona. He previously worked as Senior Economist for Latin America at FocusEconomics.

Latinoamerica21 is a blog about current economic, political and social topics in Latin America that is currently published within the newspaper El Observador de Uruguay and Pagina Siete in Bolivia, and will soon be published in other media outlets within the region. The original version of this blog post is available in Spanish: ¿Está América Latina preparada para el cambio tecnológico?

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*Guest blog posts do not reflect the views of FocusEconomics. 

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