Latin America is the World Leader in eCommerce Growth Despite Serious Challenges
eCommerce in Latin America is booming, and with the number of people using the internet and social media growing by the day, there is plenty of opportunity for companies selling online, also known as “eRetailers”. In fact, online sales are expected to grow 19% in the next five years – well above the global average of 11% – and are foreseen doubling in value to $118 billion in 2021. Two of the three fastest-growing eCommerce markets in the world are in Latin America: Colombia and Argentina.
Despite these impressive statistics, eRetailers face many challenges in Latin America, including online payment security, low banking services usage among citizens, and serious logistics issues, according to Patricia Galina of IEBS. The World Bank highlights some key areas where Latin America lags behind other regions as “lack of adequate roads and railways and port and airport efficiency”. It also cites corruption and cumbersome customs as major concerns. Lower purchasing power and tricky government regulations present yet another major roadblock. In addition, there are challenges related to trade and financial structures, such as the aforementioned banking penetration rates, along with low levels of confidence in electronic payment systems and lack of free flow of data. Analysts believe that companies must find a way to overcome these barriers to realize their full potential in this very promising market.
Next year, eMarketer forecasts that 155 million of the 650 million people in Latin America will shop online, an impressive increase of 40 million over 2015. This is thanks in part to a rise in internet and smartphone usage, especially in urban areas. Statista reports that in 2016, 27% of internet users made a purchase on their mobile phones and 40% of those people did so monthly.
Not only will the number of online shoppers increase substantially in the next three years, but the average revenue per user is expected to grow from $275 to $330. Brazil leads the pack in online spending, with nearly $17 billion worth of purchases in 2016. Mexicans bought $7 billion online in the same year, and Argentinians spent $5 billion. A study conducted by América Latina Business Review, found that, “87% of people who made an online purchase felt that the transaction was secure, which lead 97% of them to say they would buy online again.” That said, the average number of online transactions per person per year in the region was the lowest in the world at just 9.2 in 2016, as reported by eMarketer. The challenge for eCommerce companies is to tap into this market by making it easier and more appealing to buy online.
The booming eCommerce growth of recent years took place against a backdrop of a struggling economy. Now that the region is on healthy recovery path following the recession in 2016, it seems the sector will continue to see impressive results. A Consensus Forecast of economic analysts projects GDP growth of 2.3% this year, nearly a full percentage point above 2017, and sees it reaching 2.7% in 2019.
At the same time, inflation is moderating. “Regional inflation excluding Venezuela is seen coming in at 5.5% at the end of 2018. In 2019, inflation is seen ending the year at 4.8%” says Angela Bouzanis, Senior Econoimst for Latin America at FocusEconomics. In a variety of countries, growth in retail sales are forecast to nearly double in 2018 and pick up further in 2019, with continued growth through 2021. In the biggest economies, Brazil and Mexico, retail sales are seen picking up this year and next, while consumer confidence is expected to remain steady.
A Look at the Major Players
Some of the key players vying for a bigger stake in this exciting eCommerce market are MercadoLibre, Amazon, Walmart and Alibaba. MercadoLibre is by far the most popular online retailer in the region, with operations in 18 markets. With more than 50 million unique visitors per month in 2016, it outpaced Amazon and Brazilian B2W. Mateo Valdivieso of SeekingAlpha says that one of MercadoLibre’s strengths is that it, “offers technological and commercial solutions that address the distinctive cultural and geographic challenges of operating an online commerce platform in Latin America.” Billy Duberstein of investing site The Motley Fool concurs: “MercadoLibre has strong roots in Latin America and knows the idiosyncrasies of the culture, for now at least, this offers it a clear advantage over Amazon.”
MercadoLibre’s strong market position has not fazed the competition. Latin America is seeing somewhat of a gold rush from international players looking to cash in on its impressive growth. Amazon is breathing down MercadoLibre’s neck: When the U.S. giant entered Brazil in October 2017, the regional leader saw a 10% stock selloff shortly thereafter, although it has since recovered. Alibaba is also trying to get a foothold, as is Walmart, both of which are aiming for a strong position in Mexico, among other countries.
Additionally, within each country, there is fierce competition from local players. Often these companies have found ways to overcome some of the key challenges such as logistics, yet they will have an uphill battle competing against multinationals with money to burn.
Formidable Challenges Must be Overcome
The challenges these and other eCommerce companies are up against are daunting. Logistics, traffic and infrastructure are major issues in Latin America, where logistics alone can amount to 15% of the cost of what’s sold, well above other regions. Many online retailers have put logistics on the back burner for years, focusing on the user experience through purchase, and as a result it can take weeks for a purchase to arrive at the customer’s door, according to Bloomberg and Simpliroute.
Adding to logistics issues are a myriad number of regulations and rules, which are different in each country. The International Development Bank states that, “among other factors, [is] the much-needed updating of many of the legal underpinnings for commercial transactions. […] payment mechanisms, dispute settlements, and devices to ensure that contracts are upheld are all areas in which the legal structure of trade needs to adapt to the new ways of trading that this revolutionary technology has brought.”
Another barrier occurs at the time of payment. Access to secure, credit card-based payment methods is limited, and, while card use is growing, it is relatively uncommon in the region because many people do not use a formal banking system, according to an article by Jason Harvey. Those who have a debit card are often not permitted to use it for online transactions. Retailers have found ways to manage this reality. eShopWorld reported that 36% of online consumers prefer to utilize PayPal, and 35% use Cash on Delivery. That said, in the largest markets – Argentina, Brazil and Mexico – consumers’ preferred payment method is in fact via credit card. This is just one of the many indications of the disparity between the largest economies in the region and their smaller neighbors.
Who will come out ahead in eCommerce in Latin America? Will Amazon dethrone Mercadolibre, or will the Latin American giant hold its ground? Can local players step up and fill the needs of consumers and meet challenges they best understand, keeping global players at bay? Only time will tell.
Written by Miriam C. Dowd
5-year economic forecasts on 30+ economic indicators for 127 countries & 33 commodities.
Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinion of FocusEconomics S.L.U. Views, forecasts or estimates are as of the date of the publication and are subject to change without notice. This report may provide addresses of, or contain hyperlinks to, other internet websites. FocusEconomics S.L.U. takes no responsibility for the contents of third party internet websites.
Date: March 22, 2018
TagsVenezuelaEconomic Growth (GDP)United StatesArgentinaAfricaJapanMajor EconomiesEurozonePrecious Metals CommoditiesForexGermanyHealthcareVietnamLatin AmericaConsensus ForecastBase Metals CommoditiesCommoditiesEnergy CommoditiesOiloil pricesUnited KingdomEmerging MarketsSpainAustraliaCompany NewsEconomic DebtSub-Saharan Africaprecious metalsTPPExchange RateAgricultural CommoditiesUnemployment rateMexicoIMFIranGreeceIndiaItalyEuro AreaTradeGoldEastern EuropeTurkeyInflationUkraineG7South AfricaMENARussiaInvestmentBrazilCanadaChinaBrexitNordic EconomiesPortugalOPECCryptocurrencyUKEuropean UnionHousing MarketUSATunisiaFranceAsiaBanking SectorInfographicColombiaBitcoin
Kenya: Growth to moderate in 2019, with persistent drought conditions weighing on the agricultural and electricity… https://t.co/yJHUdsF5Ob
2 hours ago
3 hours ago
FocusEconomics analysts forecast the Korean economy to grow 2.2% in 2019, which is down 0.1 percentage points from… https://t.co/LYCLMRG0UM
4 hours ago
FocusEconomics analysts project the Vietnamese economy to expand 6.6% in 2019 and 6.4% in 2020. Read more: https://t.co/DktWuumRcp
16 hours ago
FocusEconomics analysts see South African growth at 0.9% in 2019, which is down 0.3 percentage points from last mon… https://t.co/fx9ZkJIzAy
1 day ago
- Which will be the most miserable economies in 2019?
- Only by freeing Nigeria from its dependence on oil can Buhari truly take Africa’s giant to the next level
- An Analysis of President Trump’s 2020 Budget
- The World's Fastest Growing Economies
- President Sebastian Piñera aims to bring his elder brother’s private pension system into the 21st century
- Brexit Scenarios: Consensus of 14 Economic Analysts
- Sweden just formed a new government and approved its 2019 budget: what does it mean for the economy?
- Which countries have the highest public debt levels?
- Predictions for the global economy in 2019 from 13 experts
- Gurdgiev: Predictions for the global economy in 2019
- Daniel Lacalle's ideas for 2019: Change of cycle.
- Vietnam Poised to Profit from Free Trade Agreement Opportunities
- Canada in 2019: Interview with a Top Economic Forecaster
- Pound Sterling 2019 Exchange Rate: Projections from Leading Analysts
- Expectations for Latin America’s Economy in 2019
- Ethiopia and Rwanda: From Destruction to Development
- Key commodities trends to look out for in 2019
- What drove Gulf neighbors to bail out Bahrain?
- The Four Financial Bubbles and Their Impact on the U.S. Economy
- The Poorest Countries in the World
- Italy: The sick man of Europe
- What does Bolsonaro's presidential win mean for Brazil's economic outlook?
- The World's Top 10 Largest Economies
- In Latin America, taxpayers are tapped to shoulder the burden of a bank bailout
- How and when will the next financial crisis happen? - 26 experts weigh in
- China and Africa: A partnership under the spotlight
- The conditions are ripe for a Global Financial Crisis 2.0
- Uncertainty, instability and fear haunt a generation of Argentinians
- 5 things: What to expect for Mexico's economy in 2019
- 5 things: Brazil's economic downturn and what to expect going forward
- Emerging Market Currency Crisis: Everything you need to know
- Which ASEAN countries are most exposed in the event of a U.S.-China trade war?
- 75 Top Economics Influencers to Follow
- Emerging Markets Economic Outlook 2018 and 2019
- The Faces Behind Latin America’s Key Institutions
- 2019 Economic Outlook for the Top Oil Producing Countries
- Is your cup of coffee about to get more expensive going in to 2019?
- The Economic Implications of an Aging Global Population
- Can the Wisdom of the Crowds predict the results of the 2018 World Cup?
- Railway Mania: The Largest Speculative Bubble You’ve Never Heard Of
- From Riches to Rags: Have Cryptocurrencies Crashed for Good?
- Investment looks to Latin America, but forecasts are not encouraging
- Turkey: Erdogan has cemented his grip on power - now what about the economy?
- How can Latin America’s business environment benefit from technological change?
- Mexico: A look at the past, present and future as elections yield AMLO victory
- Italy’s New Populist Government and the Eurozone: Prelude to a Crisis?
- Latin America moves toward increased integration as U.S. protectionism grows
- How can Latin America increase productivity without affecting the quality of employment?
- How will Saudi Arabia's economy benefit from lifting the women's driving ban?
- Which countries are the most prepared for the upcoming digital revolution?
- India Under Pressure from the U.S. on Trade Policy
- The Story of Steel
- Latin America is the World Leader in eCommerce Growth Despite Serious Challenges
- What the TPP means for trade in Latin America
- Elections in Russia: Analysis and Implications
- Nearly a Third of Latin Americans Have No Right to a Pension
- A Look at Healthcare Models Around the World
- Newly-elected Chilean President Sebastian Piñera faces a myriad of challenges - economic and otherwise
- The Economic Effects of Trade Protectionism
- Regional Disparity: The Dark Side of Inequality in Latin America
- Coal: The story of the world's most abundant fossil fuel
- Gold: The Most Precious of Metals (Part 3)
- Venezuela's Electoral Conundrum
- Trump's 1st Year: 95 Analysts Surveyed on U.S. Economy
- The Latest on China and What's in Store for 2018
- An in-depth look at the Eurozone’s booming economy and the challenges that lurk in the shadows
- Increasing poverty in Latin America takes a breather thanks to improving economic dynamics
- Is Spain doing enough to address its high youth unemployment rate?
- Has Latin America gone far enough in reducing barriers to international trade?
- Commodities Outlook: Oil, Natural Gas, Coal, Lead & Tin
- 21 experts tell us what the future looks like for cryptocurrencies and blockchain
- Turkish lira plummets to all-time low on Erdogan’s monetary feud and tense U.S.-Turkey relations
- Copper: The first metal mastered by man
- Nigerian Economy Still Treading Water Thanks to Oil Sector
- The Mercosur-EU Free Trade Agreement: Obstacles & Opportunities
- Elections in Chile: What the results could mean for the economy
- QE’s Untold Story: A Chart That Fed Correspondents Need To Investigate
- Holland’s fragile one-seat majority government targets economic growth at the expense of fiscal sustainability
- South Africa: Economy at a tipping point?
- Latin American Commodities: What’s behind the increase in demand and prices?
- Is the UK really "shackled to a corpse"?
- Spain-Catalonia: 7 economic experts weigh in on how the situation will affect the outlook
- How well is Spain's labor market doing since the crisis?
- Which countries will have the highest and lowest inflation in 2017?
- How vulnerable is Latin America to economic crises today?
- Iron ore facts and common questions answered
- The bulging economic costs of obesity
- How much investment is needed to salvage Latin America’s crumbling infrastructure?
- A Look at the Potential Impact of Brexit on the Dutch Economy
- Emerging Markets Are Kicking Into Higher Gear In 2017
- Why is foreign direct investment in Latin America falling again?
- Are Central Banks Nationalising the Economy?
- Bounty or burden? The impact of refugees on European economies is far from clear
- What’s the future of U.S.-Latin America trade relations?
- Taxes or cutbacks? Latin America's challenge of sustaining spending without causing debt to skyrocket
- Are uranium prices making a comeback?
- Taxing the Economy: Achieving a Delicate Balance
- How will Latin America’s upcoming lengthy election cycle affect the reform agenda and credit ratings?
- How will emerging market economies perform in 2017?
- Chilean Economy in Focus: Interview with Senior Economist of the Chamber of Commerce of Santiago
- CEOs Rank Top Economies for Growth Opportunities
- The Mobile Ecosystem & Latin America's Economy
- Prospects and Challenges for the Global Economy: Interview with Tim Cooper from BMI Research
- How will the Fed reduce its balance sheet & and how will the ECB end QE? - 19 economic experts weigh in
- Thoughts on "unwinding" QE from Frances Coppola
- The Fed and ECB at a crossroads: Unwinding QE
- Spain: The economy that continues to silence the critics
- Latin America: The Most Unequal Region in the World
- The History of OPEC: Has it been a Success?
- FocusEconomics Announces 2017 Analyst Forecast Awards Winners
- Latin America’s rising unemployment bucks nearly decade long trend
- Escape from the Central Bank Trap by Daniel Lacalle
- China's economic rebalancing act: What to look out for in 2017
- Driving Growth in Latin America: Challenges & Priorities
- Is the Global Economy Rebalancing?
- Commodity exporters face challenging times
- Recent Global Events Facilitate Mercosur-Pacific Alliance
- 23 economic experts weigh in: Why is productivity growth so low?
- Mexico's outlook as Trump nears 100-day mark
- Interview with Oxford Economics Senior Economist on implications of the possible outcomes of the French Presidential Election
- The anxiety of the small saver in a world of negative interest rates
- Brexit negotiations. Between Uncertainty and Urgency
- An Economic History of the EU from El Blog Salmón
- Baby Boomin': Implications of high population growth in Latin America
- Survey of International Economists Predicts a Le Pen Defeat in French Elections, Says Macron has Best Economic Plan
- Spain in a global context: developed economy with some challenges
- How much is crime costing Latin America?
- Predictions & Estimates from Economist Daniel Lacalle
- What economy will the new Dutch government inherit?
- “The data is not a true reflection of reality in India” Interview with Société Générale India Economist
- What are the prospects for Emerging Economies in 2017?
- What to expect in Asia for 2017
- Top Economics & Finance Blogs of 2017
- Latam to Resume Moderate Growth in 2017 but Important Risks Plague Outlook
- 4 Key European Elections That Will Impact the Economy in 2017
- How are security concerns and political chaos affecting Turkey’s economy?
- Global growth to edge up in 2017
- Set to breach targets again? Debt and deficit outlooks for Southern European Eurozone countries in 2016 & 2017
- What does Donald Trump mean for the U.S. economy?
- How will emerging markets perform in 2017?
- The economic impact of a break in U.S.-Philippines ties
- Trump election: Base metals surge due to infrastructure plan
- 5 updates on the Venezuelan economic crisis
- Canada: When your neighbor’s house is on fire…
- Short-term pain before long-term gain? A look at French labor reform and economic growth
- Asia: Unremarkable growth & unfulfilled promises?
- How India's latest monsoon is affecting the economy
- Innovation in Latin America: Potential Goes Untapped Due to Weak Economic Conditions
- Russian economy update in wake of OPEC deal announcement
- The Wisdom of the Crowds and the Consensus Forecast
- Can the peso predict the U.S. election results?
- There's no end in sight to the Venezuela crisis
- A Look at the European Union Political Calendar
- Survey of international economists shows uncertainty surrounding elections damaging U.S. growth prospects
- FocusEconomics partners with leading online statistics provider Statista
- China: Recent postive economic data may be papering over the cracks
- Sub-Saharan Africa's 2016 & 2017 growth rates
- The Italian Dilemma: Weak banks pose risk to already faltering domestic demand
- How much money do migrants from Latin America send home?
- The U.S.' (Not So) Mysterious Case of the Missing Men
- What to expect from the G20 economies by 2020
- The Pain in Spain: Robust GDP growth cannot mask the persistent structural deficit