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Digital Transformation

This is how digital technologies are driving exports in Latin America
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Published by ConnectAmericas

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It is estimated that by 2030, digital exports from six countries in Latin America will grow four times over current levels due to digital transformation, according to the study "THE DIGITAL SPRINTERS: Boosting exports through digital technologies", published by AlphaBeta and commissioned by Google.

For Argentina, Brazil, Chile, Colombia, Mexico, and Uruguay digital exports present a significant US$140 billion annual opportunity by 2030: equivalent to 2.1 percent of their 2030 projected nominal gross domestic product (GDP). 

However, this is a conservative estimate as it does not include all of the efficiency benefits that digital technologies can bring to export- related industries (e.g., through better tracking of goods in transit through Internet of Things technology).

The digital economy is creating new large export markets for businesses, and digital technologies are also helping to lower the costs of exporting, particularly for micro, small, and medium- sized enterprises (SMEs).

How can digital technologies boost exports?

  1. Creating new exportable digital solutions 

Digital technologies have given rise to a range of new digital solutions that can be exported abroad. These include mobile applications, online video services, and digital services such as data processing rendered to overseas customers. For instance, Google Play has allowed application developers across Latin American economies to create new applications and make them available to a global mobile user base.

       2. Reducing costs of access to overseas markets

These include increases in the exports of goods and services through cross-border digital platforms (e.g., e-commerce) and cross-border digital advertising.

       3. Supporting efficiency in exporting processes

There are various examples of how technologies can do this, such as paperless trade, emails and machine translations, machine-to-machine (M2M) tracking of exported goods, and the application of Internet-of-Things (IoT) technologies in ports. Cloud computing platforms can provide the compute, storage, database, and analytics capabilities needed to make use of the huge volume of data from these applications and drive resultant efficiencies.

The six economies are already experiencing a US$34 billion boost to their annual export values from applying digital technologies (about 0.8 percent of their combined GDPs).

There’s an estimation that 64% of this comes from the reducing costs of access to overseas markets through digital advertising and e-commerce platforms which lowers costs while the remaining comes from the creation of new digital solutions. 

“In particular, MSMEs are expected to see greater benefits given that they tend to lag larger firms, both in levels of digitalization and exports”, the study indicates.

Based on a review of international best practices and the current performance of each of the focus countries, several lessons have emerged to help capture the opportunity.

Five strategic imperatives are crucial to capturing the export opportunity: 

  • Lead from the top: 

Having a clear roadmap for digital transformation that effectively coordinates sectors with strong public and private sector champions is crucial. From the outset, governments can benefit from defining a clear plan, roadmap, or national strategy for digital transformation, covering key topics such as digital trade.

A good example is Brazil, which issued an encompassing national Digital Transformation Strategy (E-digital) in 2018. The top-down policy framework established the Digital Government Secretariat, under the Ministry of Economy and Finance and the Modernization of State Secretariat, ensuring that  the suggested initiatives had political support and financial resources to be implemented. The strategy included six thematic axes, one of which (“International Dimension”) laid out strategic actions to boost trade exports of goods and services. 

  • Build Physical Capital 

To unleash the benefits of Internet- enabled trade, governments must issue policies to guarantee universal access to high-quality broadband and implement measures to tackle handset affordability. Storage and connectivity infrastructure, e.g., through data centers and subsea cables, increase security, reduce latency, and lead the way for further investments by the private sector.

  • Develop Human Capital

This strategic imperative includes two policy levers: 

1) Bridge digital skills gaps related to exports amongst public officials and the wider population

2) Develop training programs for businesses, especially MSMEs, to leverage digital tools for exports.

  • Enhance Competitiveness 

Countries need strong privacy protection, interoperable standards and cross- border mechanisms aligned with international best practices. Secondly, governments need policies and international agreements that ensure online consumer and business rights. This includes internationally recognized cybersecurity standards that minimize adverse trade.

This strategic imperative can be applied following the next policy levers 

1) Implement robust and clear regulatory frameworks for data storage, usage and transfer

2) Promote digital security and build trust among businesses and consumers and 

3) Implement trade facilitation measures and policies.

Enable technology usage 

Considering that MSMEs are oftentimes resource- constrained with less extensive IT equipment, digital skills, and managerial and technical skills, governments should promote the diffusion of digital technologies through financial support (such as tax incentives or direct grants for R&D) and non-financial support, such as cooperative research ventures between universities and companies.

A good example is Colombia, where individuals and MSMEs that make investments in eligible R&D projects are entitled to deduct 25 percent of the value invested in such projects from their income tax. Such initiatives strengthen the link between research centers and MSMEs, encouraging innovation and productivity growth.

Collectively, the six Latin American countries can increase their export value by more than US$100 billion annually, from US$34 billion today to US$140 billion in 2030, if each country is able to catch up from its current level of performance to the best-performing country for that digital solution, by 2030.

Among these, digital services and e-commerce exports opportunities continue to be the most critical across all six focus countries.  

To learn more about the results, you can read the full report here. 


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