During the work trips I made this year across a wide range of countries, I was able to witness firsthand the economic and social damage caused by a biological catastrophe (the COVID-19 pandemic) and an ongoing geopolitical one (the war between Russia and Ukraine)—phenomena we usually perceive through statistics. At the same time, I confirmed that integration and free trade, when combined with digital technologies, form a powerful economic dome that helps prevent more severe disruptions, opens up multifaceted development opportunities, and allows us to look toward the future of Latin America and the Caribbean (LAC) with optimism.
A double global shock that swiftly struck traditional goods-trade dynamics and, naturally, the broader economy.
At its peak, the pandemic disrupted business activity and led to the temporary closure of ports that move global trade. Russia’s invasion of Ukraine last February—and the prolonged war that followed—unleashed the first major energy crisis of the 21st century, with all the consequences that entail.
Data from the World Trade Organization (WTO) show a slowdown in merchandise trade, the result of weakened import demand reflecting a deceleration in activity in the world’s major economies. This downward trend will continue at least through 2023, with LAC particularly affected: virtually no growth in terms of trade.
The global structure is shaking, but some pillars have proven more resilient than others, such as exports of knowledge-based digital services. These services now help support the system, offering a key tool to confront the crisis and with all the ingredients to become a paradigm of efficient development and the seed of a virtuous economic cycle..
This is a phenomenon that includes the influential software industry but goes well beyond it when we consider that it also encompasses video games, animation, film production, data analytics, web design… and other services that can be delivered across borders: telemedicine, engineering, seismology, and architecture. When we think about accounting, legal, or even psychology services, we realize the possibilities are endless.
Our studies show that exporters of knowledge-based digital services are consistently more productive than goods exporters—by as much as seven percentage points—thanks to the decisive role of the digital component.
In a region that lost more than 25 million formal jobs, it is particularly significant that services are major job creators, accounting for 63% of total employment on average. It is a powerful reminder that jobs disappear when tasks are automated, but not occupations that require skilled human capital—often with higher-than-average wages—in a digital economy.
Another comparative advantage is the sector’s lower exposure to price volatility, a highly valued characteristic in a context of global inflation.
The sector’s trajectory over time has been remarkable: between 2005 and 2018, knowledge-based service exports grew by 145%, while traditional sectors posted less than 90% growth during the same period.
About a decade ago—when the economic agenda and public policy checklist looked very different—the IDB began identifying the region’s potential in knowledge-based service exports. In fact, in 2011, we organized the first edition of the Outsource2LAC business forum, bringing together tech entrepreneurs from around the world to learn and do business.
What surprised many of us was the leap made by technology and IT services during the two years of COVID-19 disruptions. These changes left us with hybrid work models and a significant expansion of telemedicine.
Ten years of studies, successful support programs, and horizontal dialogue with LAC stakeholders have provided valuable lessons on how to leverage remote services as an export instrument.
Of course, this also brings new challenges and responsibilities for companies, governments, and institutions like ours. There are no miracles—only coordinated effort from every actor in their respective field.
Experience shows that coordination between the public sector and businesses is beneficial in many ways: promoting knowledge acquisition, fostering healthy markets, and strengthening economies with new technologies.
The benefits could be limitless if we are able to overcome barriers that hinder the development of highly specialized activities—barriers related to the need for creativity-friendly environments, regulatory frameworks that enable labor flexibility, and adequate infrastructure, particularly high-speed broadband and cybersecurity.
As in all frontier sectors of the Fourth Industrial Revolution—which requires automation skills, artificial intelligence (AI), and virtual-reality capabilities—the short- and long-term availability of human capital is decisive.
Without this set of public policies and the assurance of digital technology, developing knowledge-based service exports will remain more fantasy than reality.
With the right measures, the region could take full advantage of this new economy that illuminates the future. A recent IDB study suggests that closing the digital infrastructure gap alone could generate GDP gains of between 2% and 17% across LAC, depending on the country.
A robust agenda for developing knowledge-based digital services is a safe bet—a win-win for all actors involved—and therefore beneficial for any country or even regional platforms.
The IDB’s work around the digital ecosystem speaks for itself and reflects our commitment to a different and promising future:
Over one billion dollars in loans to support digitalization, with an emphasis on expanding broadband infrastructure—both fixed and mobile. Chile, Colombia, Trinidad and Tobago, and Uruguay are four countries advancing this development agenda through IDB-supported projects.
Training programs in several countries through public-private partnerships under the Finishing School model, preparing young people who later join participating companies.
- The creation of ConnectAmericas, a virtual platform built around a strong sense of community, to promote business opportunities across all sectors—and particularly in global service exports.
- We recognize that important steps have been taken, but there is still a long road ahead in human-capital development, improved connectivity, and advancing a program as dynamic and ambitious as this one—particularly when addressing double-taxation agreements and effective regulations for data protection, intellectual property, and habeas data.
The support from the IDB and regional governments to a sector full of positive surprises—because of its dynamism—will be on full display at a meeting organized by our institution and the Government of Uruguay in Punta del Este on November 3–4.
We are inviting investors and local entrepreneurs to join the first edition of "TEST & INVEST - Uruguay Business Summit", an in-person forum designed to showcase the country’s investment opportunities and its advantages as an innovation hub in Latin America.
The high caliber of the speakers, executives and academics from Israel, Korea, the United States, and the Río de la Plata region, along with the exhibit of cutting-edge technologies developed in Uruguay, is clear evidence that the IDB and governments are true partners in market intelligence and firmly convinced that innovation—based on the combination of technologies such as automation, AI, and virtual reality, is the right strategy for LAC’s takeoff.