Opportunities to Grow Hand in Hand with Europe

The EU already offers opportunities for Latin American products, especially within the framework of existing trade agreements. This trade relationship, which is in recovery, can be deepened through strategic partnerships and technical and financial cooperation with the EU in various areas to overcome the challenges of sustainable development. Here we present concrete proposals in three of those areas.

Paths Toward Digital Transformation

CAF –Development Bank of Latin America and the Caribbean– prepared, together with experts, an analysis on the region’s opportunities in the area of digital development, presented in the document Innovative Paths for Investment, Cooperation, and Digital Partnership with Europe.

The list of potential actions begins with connectivity to bridge the urban-rural gap and refers to the democratization of 4G, 5G, fiber optic, and satellite networks, coordinated with advances in cybersecurity.

It also proposes the digitalization of productive processes, particularly for small and medium-sized enterprises, and in traditional sectors such as agriculture and livestock, enabling them to reach highly competitive global standards. Likewise, it highlights the need to advance toward more agile and connected States and to invest in digital skills to prepare the workforce of the future.

Finally, it suggests establishing smart digital regulation concerning data privacy, market competition, ethical and responsible artificial intelligence, and taxation of digital services—areas in which Europe is becoming a global leader and promoter of balanced global regulation.

According to estimates by the International Monetary Fund, between 2021 and 2027 the EU will mobilize up to 300 billion euros globally in areas such as digital, climate, energy, transportation, health, education, and research. For the case of LAC, the EU has committed over 45 billion euros focused on 5G connectivity, cybersecurity, and artificial intelligence.

Alliance to Tackle the Green Challenge

Europe and LAC took a key step toward greener cooperation during the 2023 summit held in Brussels between the EU and the Community of Latin American and Caribbean States (CELAC). There, projects were defined under the Global Gateway initiative, aimed at mitigating the climate impact that—according to projections—will affect LAC countries more severely due to geographic factors. At that time, discussions included green hydrogen in Chile, Brazil, and Argentina; electric mobility in Colombian cities; and rural electrification in Central America.

Given today’s complex global context, Europe is seeking to diversify its energy and critical raw materials partners to avoid overdependence on China and Russia. According to the document Joint Climate Action between Europe and Latin America and the Caribbean: A Common Agenda for Development, LAC stands out as a strategic and reliable partner, not only for trade alliances but also for building and developing a shared agenda to face climate challenges.

The most significant initiatives include reducing deforestation—linked to the consolidation of sustainable value chains—transitioning to renewable and energy-efficient sources, electrifying transportation, and producing green hydrogen. On this last point, Latin America holds an advantage thanks to the high share of renewables in its energy mix.

According to data from the Global Entrepreneurship Monitor, Latin America could increase its commercial-scale solar and wind energy capacity by more than 460% by 2030 if the 319 gigawatts (GW) of potential new projects in the region are realized. Brazil, Chile, Colombia, Peru, and Mexico are the countries with the highest potential to expand commercial-scale solar and wind capacity.

However, for the climate agenda between Europe and Latin America to become a reality, it will require political will, determination, and investment—as well as acknowledgment of the differences between the two regions. Adjusting fiscal policies and developing a political framework that attracts private sector investment in carbon reduction efforts are essential.

Keys to Social Cooperation

LAC faces a structural challenge of high inequality, low social mobility, and stagnant productivity. Its Gini coefficient—which measures income inequality—exceeds that of Europe and Central Asia by nearly 50%. This inequality is not limited to income; it also affects health, education, access to quality jobs, and wealth accumulation. Furthermore, these disparities are reproduced across generations. Relative social mobility in LAC is among the lowest in the world.

Contrary to what might be expected, social public spending (SPS) in LAC has grown substantially over recent decades and has reached levels close to the average of the Organisation for Economic Co-operation and Development (OECD) countries as a percentage of GDP. However, its redistributive impact remains limited. While in the OECD such spending reduces the Gini index from 0.48 to 0.29, in LAC it only drops from 0.51 to 0.48.

According to the document Challenges of Social Policy in Latin America and the Caribbean: Analysis and Policies, this is due to an institutional architecture that penalizes formal employment and subsidizes informality. Benefits are often tied to formal jobs, which excludes the most vulnerable workers. In addition, the design of SPS and the tax system fails to effectively target and redistribute resources.

CAF’s report proposes a systemic reform to address this situation, based on two main pillars. The first is to restructure human capital, starting with inclusive, high-quality education from early childhood, with a focus on digital skills, STEM, and technical training. The second is to transform social protection systems into universal schemes, decoupled from employment status and financed through general revenues, with an emphasis on health, old-age, and disability coverage for the entire population. Additionally, the report underscores the need for targeted policies for vulnerable groups.

Pursuing a strategic cooperation agenda with the EU opens the door to joint work in five key areas. The first is the reduction of structural inequalities—a field in which the EU can share its expertise in effective redistribution, progressive fiscal policies, and territorial cohesion, as exemplified by its structural funds.

The second area is the transformation of social protection: the reforms proposed by CAF align with the European Pillar of Social Rights. The EU can support transitions toward universal systems by providing technical assistance, regulatory frameworks, and budgetary cooperation.

The third focus is on human capital formation for the digital era, where the European experience in vocational and technical education and retraining can play a crucial role.

A fourth front is social cohesion and sustainability. The European concept of social cohesion as multidimensional inclusion resonates with the demands of LAC. This includes integrated urban policies, access to housing and services, and citizen participation.

Finally, the fifth area is institutional and regulatory convergence, where the EU can contribute to strengthening LAC’s institutions in areas such as gender equality, decent employment, and non-discrimination, promoting regulatory frameworks inspired by its own legislation.