Since the fall of the Berlin Wall, Latin America's economies have been centred on commodities production for export
Latin America's economies have been centred upon commodity production for export since the fall of the Berlin Wall. While accepting the Nobel Prize for literature in 1982, Gabriel García Márquez spoke of “the loneliness of Latin America”. In his remark, he addressed the lack of chances for the region's growth during the Cold War.
Regions in Asia and China in particular have exhibited an insatiable desire for Latin commodities, ranging from Chilean copper to Brazilian crude and Argentine soybeans. The cyclical and uneven progress has fueled Icarian legends of enormous wealth and corruption that rival Garca Márquez's magical realism.
However, as the world moves towards a greener future, this extractive development model is likely to become obsolete. It is also likely that green initiatives in Europe and elsewhere might be put to test. Digital services are one such example where Latin America needs to establish a paradigm of growth that is both sustainable and inclusive. The region is a tremendous space for investment opportunities. With a population of 700 million people, it is nearly half the size of China and has a much higher GDP than India. Though its most valuable advantage is its relative youth, it occupies a demographic middle ground, with a younger age profile than developed economies but higher average incomes than south Asia. High dependency on commodity exports intensified inequality, resulting in the formation of super-rich elites. Since cartels and monopolies have long held back local capitalism, the Latin middle class is small and neglected. There are chances that this might change as a result of digital services and the domestic market is merely one facet of the situation. As has been the case in Asian technology, what begins with the provision of more efficient and competitive services can lead to economies of scale that can be used to develop global firms. Latin America has the market size as well as the profit margins to attract the necessary investment.
Despite its ever lasting financial volatility and its relative affluence, Argentina was an internet pioneer in the 1990s, supported by a modernising government. It grew regional champions such as ecommerce leader Mercado Libre and services exporter Globant from the ground-breaking fintech Patagon in 1999. With the introduction of Nubank, a newly IPO-ed neobank, and car marketplace Kavak in the last decade, Brazil and Mexico have taken the lead. Dismissive investors are now rushing to Latin presentation decks. The subsequent gold rush is likely to generate some large winners and some major losers, but the individual stories are less important than the formation of digital ecosystems.
Latin America's service exports lag behind not only Europe and the United States, but also Asia. However, the emergence of more local players is likely to change this. Latin American IT talent can cost half of what it costs in Eastern Europe or a fifth of what it costs in Miami, let alone San Francisco. Market share in services exports will increase as the market for coding talent grows. This in turn will boost local markets by providing alternatives where monopolies previously existed. The rusty cartels are now facing intense competition. Even as they try to reverse-engineer innovation, they are likely to reject it, therefore, it is advisable to not pay heed to them. For far too long, people who talk about freedom simply to protect their own interests have pushed the region back. That is why, in the region, more than half of adults have never used a debit card and spend more for data roaming than almost anyplace else.
The expansion of Singapore's Shopee in Brazil and Amazon in Mexico demonstrate why foreign investment in a neglected region must be encouraged. Remote hiring combined with local development should raise wages and enhance the middle class. This might be game-changing, especially for countries like Argentina that have recurring balance-of-payments issues. Digital services export has a promising future, but with significantly better productivity and climate implications than agriculture. It could even be the saviour of more traditional industries like real estate.
The region is also in need of scale. It needs to revitalise regional integration programmes like Mercosur and the Andean Community, which have been inactive for a long time. The case for Latin integration is greater than ever in a world trending toward multipolar trading blocs. This could eventually involve a single currency. In this view, the EU should serve not just as a trading partner, but also as a model of what may be done.
In his Nobel acceptance speech, García Márquez remarked that when confronted with grief, Latin America’s answer was life. It was a foresighted demographic observation: today's young technology industry has the potential to accelerate the shift away from an extractive development paradigm. Digital services are the soybeans of the future.
