Analysis

Digitizing while industrializing: a double challenge for Latin America

Bnamericas Published: Friday, November 18, 2022
Digitizing while industrializing: a double challenge for Latin America

Latin America lacks long-term structural policies to diversify its industrial base and unlock the full potential of digital transformation, according to a study by Eclac.

“Countries with a lower level of development present an industrial challenge that faces them with the double task of continuing productive diversification and creating conditions for the emergence of industry 4.0 and its diffusion into the productive fabric,” the UN body wrote in its 113-page study.

In its Vision 2025 report for sustainable and inclusive economic development, published in 2021, the Inter-American Development Bank (IDB) had highlighted some of the same challenges.

“The region remains trapped in the production of traditional goods and services, with little gains in terms of producing higher-value-added and more complex products. Manufacturing, mining, agriculture, construction, and tourism and other traditional services continue to dominate most economies,” said the IDB white paper.

IDB also said that SMEs make up over 90% of enterprises in the region and generated 61% of jobs and are too exposed to credit crunches and liquidity shortages, leading to low growth. Investing in both digital transformation and "productive development reforms" is critical to enable the opportunities of the fourth industrial revolution, it concluded.

“It has become increasingly evident that a digital society is not only more dynamic and productive but also more resilient; that is, it has greater capacity and flexibility to react to shocks and crises of various kinds. That is why it is necessary to build a digital infrastructure for the 21st century, reduce inequalities of access and level the playing field,” Eclac said.

In another recent study, consultancy Deloitte estimates that roughly US$100bn in economic gains could be generated in Latin America by 2025 with solutions related to digital and smart cities, from gains in productivity to cost savings.

In another one, Google projected that digital transformation could boost the exports of six major Latin American economies up to US$140bn annually by 2030.

Latin American countries have promoted in recent years policies and regulatory changes that have led to gains in connectivity and digital programs for education, health, and electronic government services.

Eclac recommended that these nations work to expand connectivity and digital tools, especially in underserved areas, with public funds and subsidies if necessary. And to promote sustainable structural change through innovation in the productive chains with the creation of new business models, insertion in value chains, the defense and promotion of competition and the development of financing mechanisms.

The entity also calls for speeding up spectrum auction processes, with licenses at affordable costs; specific programs for human resources and professional training focused on digital skiils.

It also recommends the adoption of easy-to-use e-government services; programs to foster the digitization of SMEs; and incentives for the digital green transition, as well as fair competition regulation for digital markets.

Cepal's and IDB's reports can be accessed here and here.

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