Pandemic spurs the Latin America tech sector

Pandemic spurs the Latin America tech sector

Growth in financial, health and education services bring benefits to region’s poor and overall economies

Latin America has suffered greater health and economic devastation from the pandemic than any other region, according to the World Bank.

New Covid-19 variants in Brazil, undercounted death numbers in Mexico and second waves of the virus in Peru are just some of the recent devastating blows that have left the region reeling.

In that context, it is easy to miss one positive consequence of the pandemic: a nascent tech boom which is making economies more competitive and transforming the lives of millions of poorer citizens.

Ivonne Cuello, head of the Latin American venture capital association LAVCA, said investment in the region’s tech companies “exceeded all expectations” in 2020, shooting past the $4bn mark for the second consecutive year. 

Nicolás Szekasy, co-founder of Kaszek Ventures, one of the region’s largest venture capital firms, is equally bullish. “When you look at the metrics for ecommerce penetration, what was achieved in the last 18 months probably would have taken several years organically,” he said.

The tech boom is bringing broader benefits to a region known for limited competition and easy profits in key sectors of the economy, as well as for neglecting large proportions of the population who are less well-off or live in remote rural areas.

Szekasy pointed to financial services, health and education as key sectors which have benefited.

About half of the Latin America’s labour force work in what is politely known as the “informal economy” — unregistered jobs that generally pay in cash. Traditional retail banks shun such workers, so they cannot easily access loans or make payments online. Queues of citizens paying bills in banks were a common sight across Latin America before coronavirus. 

Now a new generation of challenger fintechs, such as Argentina’s Ualá, is changing that by offering simple online services such as bill payments and money transfers.

“Digitalisation allows us to drop massively the costs of serving those lower middle class and working-class clients” who were not served before, said chief executive Pierpaolo Barbieri. 

During the past year, Ualá quintupled bill payment volumes and sextupled the amount of money transferred digitally into its online accounts in its native Argentina. The company launched in Mexico last year and reached 100,000 clients in a third of the time it took in its home market.

Manuel Silva, general partner at Mouro Capital in London, said fintechs in Latin America are making it possible for employers to play a role in providing key services to previously unbanked staff. He cites the examples of Runa in Mexico, which is allowing smaller companies to offer payroll, benefits and other services, or Cobre in Colombia, which is “trying to empower employers to be the bank of their employees”.

In addition to fintech’s contribution to helping the unbanked, two other tech sectors are having an important social impact: edtech and health tech. The former is good news in a region where Unicef says has been more affected by school closures than any other in the world; the latter has obvious benefits for people living in remote areas who would normally struggle to access quality medical services.

Colombian start-up Aprende Leyendo helps disadvantaged children acquire literacy skills through online reading packages in English and Spanish. In Peru, Wawa, a locally made laptop powered by a solar panel, allows poorer children easy online access.

In health, companies such as Brazil’s Dr Consulta offer patients the opportunity to make appointments online quickly and cheaply with specialists at clinics who can access algorithms trained by AI to support clinical assessments. Dr Consulta has already treated more than 2m patients.

There are still plenty of barriers to overcome. The World Bank noted the relatively low availability of fixed internet access and the high cost of digital services in some countries could exclude some of the poorest from the tech transformation.

Argentina has tried to tackle that by declaring mobile and fixed-line internet services as key public services subject to price controls. But this has its own problems. Players such as Spain’s Telefónica and Mexican-owned Claro fear that the controls will hurt investment.

Overall, though, there is a sense that, for all the horrors of coronavirus, the tech sector’s development will be remembered in Latin America as a one positive gain.

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