It was one of the few positive things in Latin America during the pandemic, and amid the worrying human and economic toll that the coronavirus has claimed in the region – one of the worst-hit regions in the world – the technology -experience a rare ray of hope shown.
Venture capital investment in Latin American companies has more than tripled to $ 15.7 billion by 2021. That was more than the combined total for Southeast Asia, Africa and the Middle East, according to data from the Global Private Capital Association.
In a region known for its large bank margins, it’s no surprise that Latin American fintechs are the main beneficiaries, accounting for 39 percent of all investment flows, according to the Latin American Private Capital Investment Association. E-commerce received another 25 percent.
One of the biggest beneficiaries of the accelerated adoption of technology during the pandemic was Mercado Librae, Amazon’s equivalent in the region, whose public revenue increased by 184 percent from 2017 to 2020. This placed the company 292 on Statista’s rankings of “The Financial Times” latest publication of the fastest growing companies in the Americas.
But the region now stands at a crossroads.
Will the technology boom of the pandemic be a temporary change in data, or could the huge crop of new ventures in Latin America fuel the region’s ever-disappointing economic growth?
Nicholas Szczaci, co-founder and managing partner of Caszc, the region’s largest venture capital firm, believes the impact of the pandemic is likely to be temporary.
“2030 will not be different from what it could have been (without the pandemic),” he says.
“The trend was there before, but the shape of the curve has changed in 2020, 2021 and 2022. It certainly looks different now, but in the coming years it will probably converge to what it would have been.”
Szczaci highlights some of CASZC’s investments, including Brazil’s Newbank – the largest financial technology company in the region. New Bank was traded on the New York Stock Exchange last December with a market capitalization of more than $ 40 billion. The other investment is Mexico’s first unicorn “startup with a value of more than a billion dollars”, “Cavak” of used cars, which was valued at more than eight billion dollars in a funding round last year.
Newbank and Kafak were privately owned from 2017 to 2020 and their performance was not captured in the FT’s rankings of the fastest growing companies, although the student finance fine technology firm Pravalier was on the rankings.
However, with credit conditions tightening worldwide, beginners in the region will have to struggle hard to get paid.
In January, SoftBank, one of the largest technology investment groups, lost its Bolivian chief operating officer Marcelo Clore, the driving force behind its fast-growing investment fund in Latin America.
Last month, Xu Niata, managing partner at SoftBank International, indicated that this year the Latin American fund would focus on its existing portfolio, rather than new ones. This month, Niata and another managing partner, Paolo Passoni, said they were also leaving SoftBank to start their own Latin American-focused investment firm.
“One of the major trends is the way mergers and acquisitions are taking place across the market, given the huge pockets of capital that these beginners have amassed,” said Carlos Ramos de la Vega, venture capital director at the Latin American Private Capital Investment Association. . It is too early to say whether last year’s funding record of $ 15.7 billion will be repeated.
At the same time, governments can help by boosting investment in mobile and fixed broadband networks. There are strong reasons for doing so: The Inter-American Development Bank estimated last year that a $ 68.5 billion investment to bridge the region’s digital divide with OECD countries would create up to 15 million jobs and increase GDP growth by 7.7 percent would promote.
This investment is much needed. More than 285 million Latin Americans – about 45 percent – do not have access to the Internet, according to the Global Association of Mobile Networks (GSMA). Yet per capita investment in telecommunications has declined in real terms for more than a decade and is far behind the United States, Europe and Asia.
Surprisingly, many political leaders in the region appear to be absent from this discussion. Presidents such as Mexican President Andres Manuel Lopez Obrador talk about “transforming” national projects such as the airport, tourist railways and a major oil refinery, but he has little to say about technology. The $ 3.7 billion post-pandemic economic recovery package launched this month by new Chilean President Gabriel Borek focuses on fuel price subsidies and social benefits, rather than digital infrastructure.
If Latin America’s technological boom is to provide a lasting boost to the region’s prosperity, governments must encourage greater investment in mobile and fixed broadband networks, and use public funds to bridge the digital divide in unprofitable rural areas.
This will help ensure that the digital gains made during the pandemic are not wasted in the years to come.