Latin America’s digital economy is poised for tremendous growth
Digital technologies and platforms permeate every aspect of our lives today, transforming the way we interact, transact, buy, sell, and dwell. With a tap and a swipe on our smartphones, we can check train schedules, borrow ride-share bikes, turn up the thermostat at home, and monitor energy output from rooftop solar panels. Efforts by country governments, foundations, and the private sector have been expanding digital and financial access around most of the developing world, enabling small businesses and individuals to participate in and derive economic and social value from the digital planet. Latin America, like most parts of the emerging world, is experiencing a tremendous digital change.
To study this digital transformation afoot in the region, The Fletcher School at Tufts University, in partnership with Mastercard, present the Latin America and the Caribbean edition of the Digital Evolution Index (DEI LAC).
DEI LAC is a data driven evaluation of digital development across LAC’s 24 biggest countries. It is an analysis of the underlying drivers that govern a country’s digitalization: Supply Conditions, Demand Conditions, Institutional Environment, and Innovation and Change. A combination of a total of 99 indicators across these four drivers provide insights into both the current state digitalization and its change over time (rate of digitalization) for each country.
This research provides policymakers and business leaders across the region with a framework to understand how they can accelerate digital change locally to achieve a greater impact.
Digital evolution explained
DEI LAC includes analysis of the LAC countries’ DEI scores and digital momentum — the rate at which countries have been developing their digital economies since 2008. To investors and businesses, momentum is indicative of market attractiveness and potential; to policymakers, it is a proxy for competitiveness. It can be used to illustrate the pace of progress.
Countries are grouped into in three cohorts based on their momentum:
- High-momentum countries are evolving quickly, suggesting that they have the potential to become strong digital economies in the future. High momentum reflects a society where people are willing and able to participate in the digital economy; businesses are creating value adding digital products and services; and institutions have a pro-digitalization mindset.
- Middle-momentum countries often have strong consumer demand, but may be lacking in infrastructure and institutional mechanisms needed to speed up their digital progress.
- Low-momentum countries face significant challenges in infrastructure, institutions, and innovation. They may be at risk of deteriorating further.
With these three groups, countries can look at their digital peers to identify what initiatives and techniques they can replicate at home from successful models elsewhere. Using digital lessons learned can offer the opportunity for accelerated growth, not just for businesses and institutions looking for opportunities in the changing digital landscape, but also for governments and policymakers overseeing the evolution of the digital environment and digital capability.
A regional spotlight
In this edition of the Digital Evolution Index, we’ve put the spotlight on LAC. The region is poised for digital growth, with conditions favoring strong digital consumption: a large young and mostly urban population, increasing internet and smartphone penetration, and a consumer hunger for digital services fueled by growing disposable incomes.
Many countries within LAC are in medium-growth momentum, meaning that consumer demand is robust but overcoming hurdles – in infrastructure and innovation – is the key to unlocking greater digital progress. As a whole, the region is still far behind digital stalwarts such as Estonia, Israel, New Zealand and the UK — countries that are both highly digitally evolved and continue to retain strong momentum.
it is crucial that governments of LAC countries pursue digitalization aggressively as a source of competitiveness in the global economy. The DEI LAC is a tool for understanding how different countries in the region are making the transition from a physical past to a digital future; it also offers a simple way to measure which Latin-American countries are most ready for the transition, how quickly they are digitalizing, and whether some of them are better positioned than others.
The Digital Evolution Index tracks change back to 2008. We chose 2008 as the starting point for our research; this enabled us to study how countries coped in the aftermath of the Great Recession, a leveling event for the global economy. Since then, it continues to be true that while countries are on a journey toward a “digital planet,” they are traveling at different speeds.
Despite a recent shift in some countries — developed and developing — towards nationalism and protectionism, the rise of digitalization has continued unabated, becoming more central to the global economy. Cross border flows of technology, ideas, news, entertainment, and data have grown manifold, accounting for more than a third of the increase in global GDP in 2014 (US$2.8 trillion), prompting some researchers to call this the “fourth channel for globalization” and “the era of digital globalization.”
With the digital economy now firmly in the driver’s seat of globalization and exerting a “larger impact on growth than merchandise goods trade” the notion of “digital competitiveness” has become front and center for countries, their policymakers, businesses, and indeed their citizens — to whom digital platforms are a ticket to inclusion into the global marketplace.
The DEI LAC reveals these and other crucial insights that can help senior decision-makers across industries, including the governments within LAC, identify how they can help take their countries’ digital economies to the next level.
 Lund, S., et al., “Globalization Is Becoming More About Data and Less About Stuff,” Harvard Business Review, accessed July 5, 2017, https://hbr.org/2016/03/globalization-is-becoming-more-about-data-and-less-about-stuff.
 Mallaby, S., “Globalization Resets,” accessed December 13, 2016.
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