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Digital Transformation in Latin America in Post COVID-19 Era and its Implications for Korea Economic development, Industrial structure

Author Yeongseok Kim, Jae-Sung Kwak, and Kisu Kwon Series 21-10 Language Korean Date 2021.12.30

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   The digital revolution is heralding the advent of an Intelligent Information Society. The emergence and adoption of new digital technologies such as Artificial Intelligence, the Internet of Things, Big Data, Cloud Computing, and 5G is triggering significant changes in both the economy and society. The newly coined term to describe these changes is digital transformation. Meanwhile, during the prolonged COVID-19 pandemic, we have witnessed a considerable part of economic and social activities conducted in a non-face-to-face manner using the internet. As a result, people’s acceptance of digital technology has also increased significantly. In other words, the most noticeable change caused by the COVID-19 pandemic is the acceleration of digital transformation. In the post-COVID-19 era, digital transformation in Latin America is also expected to accelerate. Therefore, this study attempted to analyze the current status, trends, and policies for digital transformation in Latin America and derive policy implications for strengthening cooperation in the digital transformation between Korea and Latin America.
   Chapter 2 outlines the digital transformation of the post-COVID-19 era. First of all, we review various definitions of digital transformation. We also briefly examine the seven vectors and policy frameworks of digital transformation proposed by the OECD. Then, we defined the concept of digital transformation in this study as "the economic and societal effects of digitization and digitalization." Subsequently, we looked at the changes in business and society after the COVID-19 pandemic and the impact of the COVID-19 outbreak on digital transformation. The most noticeable change caused by the COVID-19 pandemic is the acceleration of digital transformation. 
   Chapter 3 analyzes the current status and digital transformation policies in Latin America. First, we examined the digital infrastructure in Latin America. It is insufficient, but there is a trend of improvement. The cross-border and national networks in Latin America are relatively in good condition, but the middle-mile and last-mile networks are insufficient to deliver higher capacity. The digital accessibility in Latin America is showing good progress, but the digital divide in the region remains just as stark. The Internet usage rate in Latin America is 66.7%, which is less than the level of advanced countries (86.7%) but is far above the world average (51.4%) or the average of developing countries (44.4%). Meanwhile, the wired and wireless broadband penetration rate in Latin America is 12 and 72 per 100 people, respectively, slightly below the world average (15.2 and 75). The wired and mobile internet speed is lower than the world average, and internet fees are expensive compared to their income levels.
   Second, digital transformation in Latin America has been accelerating since the COVID-19 outbreak. The digitalization of economies is faster in the consumption and distribution sectors than in the production sector. By industry, the digitalization of the financial and ICT sectors in Latin America is comparable to that of advanced countries, but the digitalization of agriculture and manufacturing industries is lagging. The digitalization of the consumption and distribution sectors has been progressing rapidly since the COVID-19 crisis, and e-commerce is one of the fastest-growing sectors. The startup activity in Latin America is booming. The number of technology-based startups in Latin America (also called Tecnolatinas) that raised more than $1 million of capital reached 1,005. The number of unicorn companies with a corporate value exceeding $1 billion increased to 28. The digitalization of society is also progressing rapidly. Since the COVID-19 outbreak, 26 Latin American countries have established ways to provide education services through various distance learning modalities. For example, 26 countries implemented internet-based forms of learning. While education processes have continued remotely, using digital or traditional means (such as TV or radio), the effects of the digital gap have been amplified in the case of rural and lower-income students, which have lower internet access. The COVID-19 pandemic has accelerated the use and importance of telehealth and telemedicine. Meanwhile, Latin Americans internet users spend more time on social media than any other region in the world, and this trend has been strengthened even more since the COVID-19 outbreak. The digital transformation of Latin American governments has made notable progress. Most Latin American governments are classified as higher-performers in the UN E-Government Development Index or the OECD Digital Government Index. However, on average, it takes 5.4 hours to complete a public transaction in Latin America. Moreover, Mexico and Chile are the only Latin American countries where more than half of government transactions can be started and completed online. More efforts to offer web and mobile access to public services should be made to make government services more efficient. However, Latin American countries are classified as good performers of open government data and e-participation policies. 
   Third, most Latin American countries have their digital agendas. Digital agendas prioritize or include ICT infrastructures such as 5G networks and 5G auctions already began in Latin America. The total investment required to build 5G networks in Latin America is estimated to be $120.1 billion over the next seven years. Most Latin American countries also have their own digital transformation strategy aligned with national development plans. The digital transformation is expected to bring new opportunities for the region to cope with the development traps. 
   Chapter 4 analyzes the current status and policies of digital transformation in Brazil. First, Brazil’s digital connectivity is evaluated as the best among Latin American countries. The cross-border and national networks are in good condition. Fiber optic coverage in Brazil has increased to 82 percent. Digital accessibility falls short of the level of advanced countries, but it is classified as the highest among Latin American countries. Brazil’s internet usage rate is 74%, far above the world average (51.4%). The penetration rate of wired and mobile broadband is 15.7 and 97.4 per 100 people, respectively, exceeding the world average (15.2 and 75).
   Second, the current status of digital transformation is also evaluated as the most advanced among Latin American countries. The digital transformation of the economy is also making considerable progress. Brazil’s digitalization of the production sector is considered outdistancing among Latin American countries. According to McKinsey’s assessment, Brazilian leader companies’ average digital maturity score is 66 points, similar to the average score of global leader companies (67 points). The digitalization of the consumption and distribution sectors is also rapidly developing. In particular, e-commerce is multiplying due to COVID-19, which has achieved ten years of progress in only ten weeks. The startup boom continues. Brazil is reviewed as a representative mecca of startups among developing countries and Latin America. Between 2012 and 2020, the number of startups in Brazil increased by more than five times, from 2,500 to 13,300. The digital transformation of society is also progressing quickly. The digitalization of the education sector is rapidly advancing. when schools were closed after the COVID-19 crisis, 87% of educational institutions provided remote education services. However, there are digital gap problems, as 89% of middle and upper class (AB) students participated in remote education, while only 71% of low-income (DE) students could participate. The digitalization of the health sector is also accelerating. After the COVID-19 incident, the Brazilian congress eased the telemedicine regulations. As a result, 1.3 million telemedicine services had been provided in 2020, and 2 million cases are estimated to be delivered in 2021. Meanwhile, Brazil has some of the heaviest social media consumption per capita on the planet. In Brazil, people use SNS for private communication, but the usage for business purposes is also increasing rapidly. The level of digital transformation of the government is also evaluated to be world-leading. Brazil is the first country to introduce an electronic voting system (1996), being the top country in the digitalization of the government. Brazil ranked 16th overall in the OECD digital government index of 33 countries (29 member countries and four non-member countries) in 2020, and 7 out of 10 Brazilian citizens are using e-government services.
   Third, Brazil is one of the most active countries to implement digital transformation policies. Brazil is expected to start building 5G in earnest from 2022, as it successfully closed bidding in the 5G spectrum auction in November 2021. Furthermore, the Brazilian government has approved rules for a spectrum auction for 5G networks without restricting Huawei’s involvement as an equipment supplier. However, Chinese equipment is not permitted for constructing a federal government communication network. Meanwhile, Brazil issued its Digital Transformation Strategy (E-Digital) in 2018. The E-Digital strategy comprises two features: constructing a digital transformation environment (enabler) and promoting digital transformation.
   Chapter 5 analyzes Mexico’s digital transformation status and policies. First, Mexico’s digital connectivity is generally in good condition. Unlike other Latin American countries, Mexico’s cross-border network is mainly built by terrestrial cables. Meanwhile, Mexico operates the world’s first and only wholesale mobile network to increase mobile telecommunications coverage. Also, the Mexican government launched the ‘CFE Telecommunications and Internet for All’ project to expand the national backbone network utilizing CFE’s fiber-optic network. As for internet access, Mexico’s internet usage rate far exceeds the global average, but among OECD member countries, it is the lowest, along with Colombia. Mexico’s internet usage rate is 70.1%, and the penetration rate of wired and mobile broadband is 17.3 and 79.9 per 100 people, respectively, slightly exceeding the global average (15.2 and 75).
   Second, Mexico’s digital transformation has also accelerated since the COVID-19 outbreak. The digital transformation of the economy is progressing faster in the consumption and distribution sectors than in the production sector, and in particular, e-commerce is showing the fastest growth. Meanwhile, Mexico strengthened startup support through the INADEM during President Pena Nieto’s presidential term. Even though the INADEM disappeared in 2019, the number of startups has been steadily increasing thanks to active investment by private venture capitals. Meanwhile, the digital transformation of society is also accelerating. However, the Mexican government decided to offer education by television to its more than 30 million public school students after the COVID-19 outbreak. Mexico’s decision to rely on television highlights the country’s low internet penetration and vast social inequality. However, the COVID-19 triggered the sharp growth of telemedicine, and the digitalization of the health sector progressed rapidly. The digital transformation of the government is also showing an improvement. Mexico has demonstrated improvements in digital government services, such as operating a single government portal (gob. mx) and issuing birth certificates online.
   Third, Mexico’s national digital strategy has changed significantly since the inauguration of the AMLO government. The top priority of the digital transformation policy proposed by the AMLO government’s national development plan is to provide internet services to the entire nation by expanding wireless internet networks. The national digital strategy, the implementation scheme of the national development plan, also emphasizes developing the state-led digital infrastructure and solving the digital gap problem. The AMLO government’s national digital strategy contains information on the digital government and digital society but does not present any information on the digital economy.
   Chapter 6 analyzes Colombia’s digital transformation status and policies. First, Colombia’s cross-border and national backbone networks are relatively in good condition, but the middle-mile and last-mile networks are still underdeveloped. The internet usage rate is 67%, the same as the Latin American average (66.7%), but it is the lowest among OECD member countries. Meanwhile, the wired broadband penetration rate is 15.7, similar to the world average (15.2 people), but the mobile broadband penetration rate is 63.6, lower than the world average (75 people), Latin American average (72 people), and developing countries average (651 people).
   Second, Colombia’s digital transformation has progressed rapidly since the COVID-19 outbreak. Regarding the digital transformation of the economy, the digitalization of the production sector is relatively underdeveloped. However, 80% of SMEs have accelerated the adoption of digital technologies and remote work due to the impact of the COVID-19. Colombia does not have a high level of digitalization in the production sector. However, digitalization in the consumption and distribution sectors is relatively ahead. In particular, e-commerce is showing the fastest growth since the COVID-19 outbreak. Meanwhile, startups in the e-commerce and fintech sectors are showing rapid growth as the Colombian government actively stimulates startup activity. The digital transformation of society is also accelerating. In particular, digital transformation in the health sector accelerated, with telemedicine soaring after the COVID-19 crisis. However, in the education sector, only 13% of all students could participate in a class remotely using the internet due to digital gaps. Meanwhile, the digital transformation of the government has surpassed the advanced countries. The OECD ranks Colombia in third place behind only South Korea and the UK in evaluating the digital government index among 33 countries (29 member countries and four non-member countries) in 2020. Colombia is also making significant progress in providing digital government services, opening public data, and establishing an online citizen participation portal.
   Third, the Colombian government is consistent in carrying out digital transformation policies. The government is aware of the importance of 5G networks. However, 5G is not currently available in Colombia. The commercial service of the 5G network will be possible in 2024 as telecommunication companies are focusing on expanding the coverage of 4G networks. Meanwhile, the National Development Plan 2018-2022 of Colombia prioritizes digital transformation as a prerequisite for the economic and social development of the country. In addition, the government is operating various digital transformation-related consultation and training programs for individuals and businesses. 
   In the last Chapter 7, we propose policy implications for the cooperation between South Korea and Latin America. To be specific, we suggest strategies to strengthen cooperation in the following two policy measures: a differentiated approach to individual countries in Latin America and the establishment of a cooperation framework. Then we propose the cooperation tasks and policy implications for three countries: Brazil, Mexico, and Colombia.

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