Digital solutions can fuel growth, inclusion and better governance in Latin America and the Caribbean
Latin America and the Caribbean (LAC) made progress in macroeconomic resiliency over previous decades and navigated the multiple post-pandemic crises with relative success. Yet, according to a new World Bank report, growth remains inadequate to reduce poverty and create jobs, while fiscal constraints limit necessary investments. Expanding digital connectivity, combined with complementary policies, offers the possibilities to create more dynamic and inclusive societies, says the report “Wired: Digital Connectivity for Inclusion and Growth”.
The report estimates regional GDP will grow by 2.0% in 2023, slightly up from 1.4% in previous projections, but still below that of all other regions in the world. Rates of 2.3 and 2.6% are expected for 2024 and 2025. These rates, similar to the 2010s, are not enough to make much needed progress in inclusion and poverty reduction.
“The region has proven mostly resilient to the several post-pandemic external shocks, but unfortunately growth remains anemic.” said Carlos Felipe Jaramillo, World Bank Vice President for Latin America and the Caribbean. “Countries must urgently find ways to boost inclusion and growth, improve governance and build social consensus. Digital solutions can be part of the answer as they help complement structural reforms to increase productivity, improve services delivery for the population and support government efficiency. We see major opportunities for the region here.”
According to the report, LAC carried out well-grounded macroeconomic reforms over the past three decades, leading to increased resilience to shocks, such as the multiple post-pandemic crises of inflation, uncertainty from the Ukraine war, soft commodity prices and growing debt. Poverty and employment have generally returned to their pre-pandemic levels, and inflation, excluding Argentina and Venezuela, has fallen to a regional average of 4.4%, below that of OECD countries.
Though improved from six months ago, the global context remains adverse, marked by high interest rates, low growth in advanced economies and China’s uncertain prospects. Governments will also continue to struggle with fiscal space. While the debt to GDP ratio is estimated at 64%, down from 67% a year ago, it is still above the 2019 level of 57% and high interest rates have increased the debt service burden.
“Private and public investment in digital connectivity can stimulate new sectors and jobs, offer new areas of trade, and increase the efficiency, quality and inclusiveness of government programs ranging from education to agricultural extension in remote rural areas,” said William Maloney, chief economist for Latin America and the Caribbean at the World Bank. “However, digital connectivity is not a silver bullet for growth and can exacerbate existing social inequalities without complementary investments in skills, finance, and regulatory systems to realize the promise of digital technologies for all.”
To help Latin America and the Caribbean seize the advantages of the digital economy, while including the poorest and promoting better governance, the report outlines existing gaps and opportunities in digitalization, such as:
- Infrastructure: Mobile internet access is widespread but presents a coverage gap (areas without a mobile broadband network) of 7% of the population (45 million people). Fixed internet is present in 74% of urban households, but only in 42% in rural areas. Quality is also an issue: 55% of households that have some internet connectivity note low quality of services. Addressing these disparities requires a mix of technological and institutional innovations to facilitate internet access.
- Usage gaps: 38% of the population (240 million people) lives in areas with internet coverage but chooses not to connect. Reasons for this include high cost of internet services, lack of awareness about the potential advantages of connectivity and unfamiliarity with digital platforms. To address these gaps, tackling affordability issues and expanding digital skills are key.
- Beyond access: Investing in complementary areas is essential to ensure inclusivity. Access to broadband alone is not enough. People need the tools and capabilities to seize the opportunities of the digital economy. Critical areas for action include strengthening digital and traditional human capital skills and managerial competences; ensuring the availability of financing; facilitating efficient government protocols and a supportive regulatory structure.
- Governance: Digital tools can make governments more responsive by easing transactions with citizens, improving the efficiency and quality of service provision, and promoting inclusivity. Reducing transaction costs particularly benefits more remote and disadvantaged segments of society. Employing digital networks and tools can help reduce the large share of GDP—as much as 4%—lost in inefficiencies in public expenditures and spending leakages.
