The author is founder and CEO of Ualá and CEO of Greenmantle
In accept his 1982 Nobel Prize in Literature, Gabriel García Márquez spoke “the loneliness of Latin America”. He referred in that speech to the lack of opportunities for the region’s development in the context of the Cold War.
Since the fall of the Berlin Wall, Latin American economies have turned to commodity production for export. From Chilean copper to Brazilian crude and Argentine soybeans, Asia in general (and China in particular) has shown an insatiable demand for Latin commodities. The resulting growth was cyclical and unequal: it fueled Icarian tales of great wealth and corruption that are worthy opponents of García Márquez’s magical realism.
However, as the world moves toward a greener future, this extraction development model has a limited shelf life. This will be challenged by green initiatives in Europe and elsewhere. Latin America urgently needs to find a more sustainable and inclusive growth model. One exists in the form of digital services.
The region represents a fantastic market price. With a population of 700 million, it is about half the size of China and produces a significantly larger GDP than India. Yet his greatest asset is his relative youth: it finds him in a demographic sweet spot, with a younger age profile than developed markets but with higher average incomes than South Asia.
Excessive dependence on commodity exports exacerbated inequality, creating super-rich elites. Local capitalism has long been held back by cartels and monopolies, so the Latin middle class is relatively small and underserved.
Digital services can change that. Domestic markets are only part of the story. Starting with the provision of more efficient and competitive services can bring economies of scale to build global businesses, as was the case in Asian technology. Latin America has both the market size and the margins to attract the necessary investment.
It also has the talent. Due to its relative wealth – and despite its notorious financial instability – Argentina was an internet pioneer in the 1990s, assisted by a modernizing government. From groundbreaking fintech Patagon in 1999, it has grown regional champions such as e-commerce leader Mercado Libre and services exporter Globant. In the last decade, Brazil and Mexico have taken the lead, with the emergence of Nubank, the recent IPO ed neobank, a motor brand Kavak.
Investors who once rejected Latin pitches are now rushing in. The resulting gold rush will yield some big winners and spectacular failures, but the individual stories matter less than the rise of digital ecosystems.
Latin American export of services track not only Europe and the US, but also emerging Asia. The rise of local players will change that. Technical talent in Latin America can be half the cost of Eastern Europe’s or a quarter of Miami’s, let alone San Francisco’s. As the market for coding talent expands, market share in services exports will also increase. This will boost local markets and create options where monopolies once existed.
Eventually competition comes to the rusty cartels. They will oppose it, even if they try to reverse-engineer innovation. Do not pay attention to them. For far too long, the region has been held back by those who talk about freedom just to hedge their own rents. That’s why over half of adults in the region have never had a debit card and pay more for data roaming than almost anywhere else.
Locals will not be alone for long. The expansion of Singapore’s Shopee in Brazil and Amazon in Mexico show why we should welcome foreign investment in a neglected region. The combination of remote rental and local development should boost wages and strengthen the middle class. This can be transformative, especially for countries with recurring balance of payments crises such as Argentina. The export of digital services has a future as bright as agriculture, but with much better productivity and climate implications. It can even be the saving grace of more traditional sectors such as real estate.
The region also needs scale. It should revive dormant regional integration projects, such as Mercosur and the Andean community. In a world prone to multipolar trade blocs, the case for Latin integration is stronger than ever. Eventually, it could include a single currency. In that sense, the EU must not only be a trading partner, but also an example of what is possible.
García Márquez said in his Nobel speech that Latin America’s answer was life when confronted with tragedy. It was a thriving demographic remark: today’s youthful technology sector could drive the shift away from an extraction development model. The soybeans of the future are digital services.