In July last year, the Inter-American Development Bank (IADB) stated that, “Latin America should turn its infrastructure investment focus towards digital technologies and away from physical infrastructure to stimulate its economic recovery after the coronavirus pandemic.” Six months later, a World Bank blog reached the same conclusion.
While we are not convinced that digital infrastructure investment should come at the expense of physical infrastructure, there are clear benefits of investing in digital.
For example, the IADB estimates that digitalisation of public services like water, electricity and internet could lead to GDP growth of 5.7% over 10 years. A Mexican innovation specialist explains that the first steps have already been taken, “Mexico has created the ‘Agencia digital de Innovación Pública’, a specialist team to stay up-to-date with how digital infrastructure can improve the efficiency of government.”
“Mexico has created the ‘Agencia digital de Innovación Pública’, a specialist team to stay up-to-date with how digital infrastructure can improve the efficiency of government.”
Innovation specialist, Mexico City
The COVID-19 pandemic has underlined the importance of reliable digital infrastructure, such as digital health, homeschooling, mobile banking, e-commerce etc. This has accelerated the industry’s growth and is making it an increasingly attractive asset for investors.
There is a clear opportunity for investment in digital infrastructure across much of Latin America where there is a serious problem with equal access. For example, while the telecommunication companies cite 90% mobile and broadband coverage, fixed broadband household penetration is only 46% and actual subscribers to mobile broadband services is just 53%.
We asked a senior economist at the World Bank what investors should be mindful of when investing in digital infrastructure in Latin America:
“First, most countries in Latin American and the Caribbean entered this crisis with weak fiscal positions. Each investment needs to focus on potential savings, as well as maximising impacts and efficiency of all public spending.
Second, many countries in the region underinvest their capital budgets – for every dollar of infrastructure investment planned for construction in a year, only 40 to 80% is implemented.
Third, many stimulus programmes from past crises included complex projects whose benefits came too late, investments should be ready, easy to implement and fast to execute.
Finally, jobs were a critical issue before the crisis and are even more so now. Investments to increase resilience, services and efficiency should be designed to create more low and medium skills jobs.”
“Each investment needs to focus on potential savings, as well as maximising impacts and efficiency of all public spending.”
Senior economist, World Bank, Washington
An environmental and social issue specialist warns, “It is not always true that digital means green. There needs to be a focus on using digital technologies to stimulate the circular economy. For example, by digitalising the food supply chain in the early 2000s, Uruguay was able to trace a foot-and-mouth disease outbreak, leading to a quality certification system that boosted their beef exports 700% between 2001 and 2018.”
The digitalisation of everything continues at speed!