Despite the advances of LAC’s frontrunners, the region is far from other developing countries in the world, such as the members of Association of Southeast Asian Nations (ASEAN).
ASEAN has a similar size of population to LAC, at 620 million, but, as of 2018, has a lower per-capita GDP. Despite this relative disadvantage in demand conditions, ASEAN is roaring ahead in digitalization thanks to a strategy of collaboration and a more uniform improvement across all drivers of digitalization.
ASEAN has also signed up to a lofty goal of fostering a regional single digital market by lowering all kinds of tariff and non-tariff barriers to the movement of goods, services, and data across borders — a big attraction for global investors. In a single digital market, an ecommerce company can set up its base in Malaysia, for example, as a hub to sell to the other nine ASEAN countries without any restrictions. By contrast, in LAC, trade barriers and the lack of a common digital agenda, despite the many similarities in culture and language, make it harder for small- and medium-sized businesses to engage in cross-border digital commerce.
The LAC does have some advantages over ASEAN. The LAC 4, or the region’s four biggest economies of Argentina, Brazil, Colombia, and Mexico, do better on the use of digital payments for internet commerce. However, in ASEAN businesses have found ways around the lack of non-cash payment instruments. Instead of paying for online shopping with a card or mobile wallet, in the ASEAN 4 (Indonesia, Thailand, Philippines, Vietnam), 69.3% of respondents reported use of cash on delivery for online purchases in the latest Global Findex, whereas only 34.4% did in the LAC 4. On the other hand, the ASEAN 4 do better on inclusive growth: over twice the number of women, young adults, and those among the poorest 40% in the ASEAN 4 engage in online purchases compared with their LAC peers.
Closing the trust gap is vital, too. The Fletcher School Mastercard study on Digital Trust in the Digital Planet 2017 report placed Brazil and Mexico in a state of Low Trust Equilibrium, compared to all of ASEAN 4, which demonstrated a Trust Surplus. These findings are corroborated by the latest Global Findex study where nearly one in five adults over the age of 15 in LAC 4 countries indicated that a lack of trust in financial institutions as the reason for not having a bank account. The ASEAN 4, by comparison, enjoy significantly high levels of trust in financial institutions.
No matter the similarities and differences between the regions, ASEAN carries an advantage thanks to the inter-governmental regional digital agenda. It has a plan, however slow the progress towards the goal. The region is working towards fostering a single digital market by 2025. No such agenda exists in LAC.
Can the LAC outpace ASEAN? The demand-side conditions are favorable. It is incumbent on businesses and governments in the region to work together to eliminate barriers to digital progress and speed up the deployment of services, from online payments to ride-share apps and other digital platforms. It will require policy alignment and collaboration. Creating a regional digital agenda to promote cross-border digital commerce will accelerate the digital growth of the entire region, and provide economic opportunities to many who remain unconnected and under-connected, and unbanked and under-banked. A small business owner in Guatemala will be able to sell to consumers in Chile – a tremendous opportunity for regional economic growth.
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