The rapid growth of the internet and other information and communication technologies (ICTs) is changing the way we do business, consume, produce and interact with one another. ICTs are reducing traditional trade barriers like distance and time, allowing businesses and consumers around the globe to connect and trade. This has led to the rapid growth of digital trade, or “e-commerce”. In 2013, there were 85 million online buyers in Latin America – that’s almost 10% of global online buyers. By 2018, online buyers in Latin America will total 140 million, which represents a 64% increase in just five years.
This is exceptional growth. However, the use and benefits of e-commerce are still concentrated in a handful of mostly developed countries. In many developing countries, the penetration rate of e-commerce remains low. Latin America is a case in point. Although e-commerce has been growing in the region, it still lags behind other regions with similar levels of development. Deloitte (2014) estimates that if Latin America were to attain the same level of internet usage as advanced economies, the region’s productivity could increase by 13%.
One reason Latin America is lagging is its relatively low broadband penetration rates (only 15% of the population has access to fixed broadband). It also has poor ICT infrastructure and lacks the services for building the technical skills needed to harness e-commerce. There is a huge opportunity for e-commerce growth in Latin America, but countries currently do not have equal access to the software and hardware required to implement this.
So what can we do to improve e-commerce and make it more inclusive? Recently, the IDB joined the UN Conference on Trade and Development (UNCTAD)’s new eTrade for All initiative, which is dedicated to making e-commerce a key component of development. To achieve this, eTrade for All is focused on a demand-driven, bottom-up approach that will address the needs and interests of developing countries. For example, identifying gaps in knowledge and providing training and capacity building so countries can increase their participation and benefit from e-commerce. This means making information and resources available online, for free, and providing technical assistance and capacity building so that MSMEs, SMEs, entrepreneurs and individuals have equal access to knowledge and tools.
These goals are in line with work the IDB’s Integration and Trade Sector is already engaged in. For example, INT provides virtual training courses on e-commerce and broadband and created Connect Americas, a virtual space for companies to connect, learn and access financing. We also help countries implement trusted trader and security programs for foreign trade operators like the Authorized Economic Operator and Exporta Fácil programs, make their national single windows interoperable, and implement solutions for online payment systems. The IDB is also working with the Pacific Alliance countries to create a Regional Digital Market that promotes inclusive and sustainable development based on digital connectivity, digital government, the digital economy and the digital ecosystem.
All these activities contribute to more efficient and expedited shipping and allow for just-in-time delivery, which in the world of e-commerce is essential.
Beyond increasing knowledge and engaging partners to implement solutions, individual countries must take steps to improve the supply of reliable and affordable ICT infrastructure services for their citizens. This means investing in broadband and reducing the cost of internet access, which can have significant economic impacts. According to our own research, every 10% increase in broadband penetration corresponds to a 1.4% increase in economic growth in low- and middle-income countries. In Latin America, a 10% increase in broadband penetration translates into a 3.2% average increase in GDP and 2.6% increase in productivity.
Other unilateral measures countries can take include creating regional internet exchange points (IXPs). Currently, all regional LAC internet traffic passes through IXPs in the United States, and it is estimated that up to 2 billion inefficiencies are transferred to LAC consumers (Andean Development Corporation).
These investments in technology, knowledge and capacity building are critical to the region’s future. The IDB will continue to work on these issues and engage in partnerships like the eTrade for All initiative to make e-commerce more accessible to Latin Americans and give countries the opportunity to become more active players in global e-commerce.