Latin America and the Caribbean’s digitization: Time to scale-up investments

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PPPs could help unlock the digital transformation in Latin America and the Caribbean | Image: World Bank

Even as the region is more connected than ever, countries in Latin America and the Caribbean (LAC) still face multiple digital gaps. About 200 million people lack access to basic digital infrastructure, and for many more such access is of poor quality or too expensive. The increasing use of technological solutions has been reinforced by the COVID-19 crisis. Lockdowns triggered a swift but uneven transition towards digital interactions including remote work, online education, e-commerce, digital health, and many other aspects of our lives that once took place in person. Today, however, the region continues to lag behind more developed economies with more than a third of LAC households remaining unconnected (Figure 1).

As we continue to embrace this digital environment, what are the main obstacles that are holding back this transformation? How can investments in digital infrastructure be scaled up?

Figure 1. Individuals using the Internet (% of population)

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Digital exclusion is a multifaceted problem

One of the reasons why many people do not access or use digital services is the high cost of connectivity relative to income. In a sample of 21 LAC countries, we calculated the average price of 1GB of mobile data was $2.74 in 2020, and found Panama at the top of the list ($6.66) and Chile with the lowest price ($0.71). Expressed as a percentage of monthly GDP per capita, Haiti and Bolivia are the most expensive countries (2.6 and 1.7 percent, respectively). Similarly, when looking at broadband prices, Haiti had the most expensive (in both absolute and relative terms) broadband price with an average package price of $123.75 per month. Various components affect the cost of broadband, including market competition, regulation, installation and ongoing service fees, as well as the prices of devices to access and use broadband services.

As affordability emerges as a main factor related to digital exclusion, many other barriers constrain equal access to internet. Limited telecommunications infrastructure, tax burdens, inefficiencies in service provision, price distortions due to lack of competition and adequate regulation limit the reach of digital services for a significant share of the population. Moreover, network operating and maintenance expenses are also high in LAC, disincentivizing much needed investments in digital development.

Time to invest more to help close the digital gap

Investments at scale could unleash higher private sector engagement in digital development. Telecoms operators have a clear preference to serve fast-growing and large-sized markets, which explains why digital connectivity remains limited particularly in the Caribbean and Central American countries. Thus, small and medium LAC economies could benefit from greater regional (or multi-country) investments. Another possible avenue is a digital development fund that could finance different types of projects from digital infrastructure, data centers, to digital financial services or digital platforms. Improving digital infrastructure and service delivery in rural areas is paramount. Previous findings indicate that ICT projects in rural areas have an extra layer of complexity attached to raising capital, government participation, environmental considerations, and physical conditions. One of the main reasons for this limited coverage is low financial profitability for private operators in the most remote and less populated areas. This problem is not unique to the region-it occurs in most countries-but in LAC effective mechanisms have not yet been implemented to achieve universal service. While there is no simple formula, there are feasible actions that could increase the viability of digital development projects in rural areas. Beyond increasing the amount of financing to rural projects with a digital footprint, the IFC could have a leading role in this area by supporting suitable funding mechanisms (which include last-miles solutions) and providing advisory services to streamline PPP frameworks.

As a result of COVID-19, digitization and increased demand for connectivity are back on the national policy agendas across the LAC region. The pandemic has proved that access to the internet is not a luxury, but a vital service. Widespread adoption of digital technologies by households, firms, and governments in LAC can contribute significantly to achieving shared prosperity. However, to avoid amplifying inherited inequalities and ensuring that technology benefits all, more public, private, and multilateral investments are needed. Policy actions should respond quickly and effectively to articulate digital transformation not just in LAC but also in other emerging economies.

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