LEO 2020: Digital transformation is key to faster recovery and building back better

Digital transformation can help Latin American and Caribbean (LAC) recover faster from the COVID-19 crisis, according to the report Latin America Economic Outlook (LEO) 2020: Digital transformation for building back better.

The LEO report is an annual publication produced jointly by the Development Center of the Organization for Cooperation and Economic Development (OECD), the United Nations Economic Commission for Latin America and the Caribbean (ECLAC), and CAF—development bank of Latin America—, in collaboration with the European Commission.

“LEO 2020 is a very timely report. It will help foster dialogue in LAC countries and with the international community on how we can best leverage digital transformation in the current COVID-19 crisis,” said Colombian president Iván Duque Marquez.

The LEO 2020 report documents the dramatic impact of the pandemic on the most vulnerable and marginalized groups. Micro-enterprises have been hit the hardest: 2.7 million of them are likely to shut down, resulting in the loss of 8.5 million jobs. Going into the crisis, 40 percent of workers in LAC economies did not have access to any form of social protection and 60 percent worked in the informal sector.

“We expect more than 45 million additional people to fall into poverty. The socio-economic crisis calls for a new development model more urgently than ever. Digitalization could be a powerful tool to overcome the region’s structural challenges, but only if conceived as a comprehensive task to drive a gradual structural change, through policies to create new sectors, high-quality jobs, capacity building and innovation,” said ECLAC executive secretary Alicia Bárcena.

“The crisis has created opportunities to advance the necessary reforms that can help spread the benefits of digital transformation and thus achieve inclusive and sustainable growth. It has also exposed the urgent need to close digital gaps between countries, families, students, workers and businesses,” said OECD Secretary General Angel Gurría.

According to LEO 2020, the crisis is exacerbating a series of interrelated structural challenges, including high inequality and informality, low productivity, and poor public services and institutions.

The good news is that digital transformation can help LAC economies overcome the crisis by stimulating business innovation and new consumption models, transforming production systems and value chains, reorganizing economic sectors and introducing new conditions to boost competitiveness. Digital tools can also improve access to public services, including healthcare and education. Lastly, they can help improve governance by placing citizens at the heart of public policy.

As European Union Commissioner for International Alliances Jutta Urpilainen noted, “Digital transformation presents the EU and Latin America and the Caribbean with an opportunity to devise together innovative solutions and address structural challenges. An opportunity also to tackle inequalities once and for all. The European Union’s digital single market is an example of how digital integration can focus on including citizens and supporting businesses. But we must not forget that to benefit, access is a must”.

“Digital transformation offers a unique opportunity to boost productivity and provide better public services in Latin America and the Caribbean. With COVID-19, the region has accelerated its digital processes, but there is still a long road ahead to close the gap with advanced economies,” added CAF executive president Luis Carranza.

However, the report warns of a difficult journey ahead. Internet access, in particular, is far from universal: in 2018, 68% of the LAC population used it regularly, almost double than in 2010, but well below the OECD average of 84%. In addition, while 75% of Latin America’s richest population has access to the internet, only 37% of the poorest population is connected. The difference between rich and poor is much greater (almost 40 percentage points) in LAC than in OECD countries (less than 25 percentage points). Digital transformation entails major challenges, with more than 20% of jobs in some countries likely to undergo some form of automation. Therefore, the region needs new massive investments in education and training to teach workers the necessary digital skills.

The LEO 2020 report describes a number of public policy recommendations to coordinate the multiple digital agendas proliferating in LAC countries and underscores the importance of linking them to National Development Plans (NDPs), 16 of which are discussed in the report. Clear responsibilities and proper implementation are vital to the success of these agendas. The report also notes that to maximize the benefits of digital transformation locally, domestically and internationally, international partnerships need to be renewed.  For example, taxing the digital economy effectively and fairly requires strong international cooperation. Similarly, through more effective regional cooperation, LAC countries could strengthen their national digital capabilities.

More information about the report: http://www.latameconomy.org. Follow the launch on social media on Twitter #EconomicOutlook & #LatinAmerica.