DPL News | E-commerce: A Tool to Boost Economic Growth, Innovation and Competition in Latin America

DPL News | E-commerce: A Tool to Boost Economic Growth, Innovation and Competition in Latin America

This article was originally published in DPL News on 3 January 2022. 

This past year, in the context of the COVID-19 pandemic, digital channels have helped customers and small and medium-sized businesses (SMBs) cope with social distancing measures and health quarantines. In the same way that we temporarily became used to working from home, entertained ourselves using online streaming or entertainment services, and socialize to a greater extent using social networks, shopping online has become more common during the pandemic. 

More importantly, the pandemic has shown the opportunities that e-commerce can bring. First, e-commerce was responsible for the survival of many companies that, during the health quarantines imposed in the region, were left without the possibility of using their physical sales channels. Secondly, the development of e-commerce boosted financial inclusion by offering digital payment methods in a region where 45% of adults do not have a bank account. Third, the ability to sell online offers entrepreneurs wider markets and lowers barriers to entry by facilitating the sale of products without the need to pay the cost of establishing a physical business presence, thereby boosting competition, productivity, employment and innovation.   

However, e-commerce sales only reached 11% of the population and most retail sales still occur through traditional offline channels. Indeed, in Latin America, there are still several challenges that prevent these benefits from reaching a larger percentage of the population. Latin America is below the world average in the B2C E-Commerce Readiness Index, only above Africa according to data from the United Nations Conference on Trade and Development (UNCTAD). Despite the recent growth of e-commerce, its use throughout the region remains marginal. The low rate of internet connectivity – around 60% on average for the region – and fragmented logistics and lack of inclusive payment services continue to stunt the growth and potential of e-commerce. In addition, most SMEs lack the resources or know-how to diversify their sales channels.  

Given the easing of social distancing measures imposed on the continent, the proportion of online shopping will likely decrease, thus giving way to the use of the sales channels that consumers prefer, whether in person, online or omni-channel, which is a combination of the other two options. For example, there are those who choose to see a product in person in a physical shop, and then buy it online. For example, according to data collected by the Mexican Association of Online Sales (AMVO), 9 out of 10 shoppers combine physical and digital sales channels. 

In this context, the role of governments should be to develop policies to enable sustainable recovery of the retail sector, and to harness the potential of digital channels as a tool to boost economic growth, competition, innovation and employment. To achieve this, governments in Latin America will have to facilitate investments in the logistics and connectivity sectors, and support SMEs in their digital transformation including through skills training programs that help entrepreneurs leverage online sales channels.    

In the same vein, governments will need to approach regulation of the retail sector with caution. In Europe and the United States, regulatory agencies are focusing their attention on e-commerce companies, seeking to introduce a number of policies to regulate the sector without recognizing the marginal and pro-competitive role e-commerce plays in the broader online and offline retail landscape. In particular, the conditions for the development of the sector in Latin America are far from the same as in other regions. For example, the latest available data from the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) show that the rate of internet users shopping online in every Latin American country was at least 30% below the Organisation for Economic Co-operation and Development (OECD) average. On the other hand, the region has been and continues to be the birthplace of leading e-commerce companies, which demonstrates Latin America’s uniqueness and incompatibility with foreign regulatory solutions. Governments must recognize how the prevalence of local, regional and international online marketplaces – in addition to adoption of online sales channels among traditional retails – improves competition and supports economic growth.  

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