Latin America has never failed to thrill investors with its volatility. After reaching record GDP levels around 2012, the collapse of global commodity prices caused the region to lose more than one trillion dollars in wealth from 2014 to 2016. Now, thanks to the stabilization of commodity prices, the strength of the U.S. economy and reclaimed political stability, investors are freshly optimistic about Latin America.
The region finds itself once again at the doorstep of promising growth; in 2019, Latin America’s GDP will expand by nearly $500 billion dollars, growing at 2.8%. In the next 10 to 15 years, the region is expected to grow no less than 2.5% annually, outpacing the United States, Europe and East Asia (see Figure 1). And thanks to their renewed confidence, increased disposable income, and rapid adoption of technology, Latin Americans are more ready than ever to participate in a global marketplace. As the region finds itself in the throes of digitization, global e-commerce companies would be wise to look upon this region with interested eyes.
The groundwork for growth
Latin America is one of the most mobile and internet-friendly regions in the world. The GSMA predicts that the region will have 450 million mobile internet subscriptions—reaching 100% penetration of adults—by 2020. Brazil (#2), Mexico (#6) and Argentina (#8) are all in the top 10 global markets for total hours spent on the internet and are global leaders in WhatsApp and social media usage. While Latin America’s e-commerce sales amassed more than $100 bn in annual spend in 2018, the region remains largely untapped. E-commerce makes up a mere 2% of the region’s total GDP and fewer than 1 in every 4 people are online shoppers. In stark developmental contrast, in North America, e-commerce constitutes 5% of GDP and 6 out of 10 people shop online.
Continued e-commerce growth in Latin America is therefore imminent, supported by internal dynamics as well as external. Shifting demographics are an example. Latin America is the fastest-aging region in the world, with the population of children aged 0-14 years old projected to fall by 7% from 2010 to 2020. Falling fertility rates, coupled with economic growth, provide families with more disposable income to spend on non-essential goods. Additionally, the region has a small brick-and-mortar retail footprint, with just over half of the retail space compared to the U.S., and nearly twice the population. This physical limitation and the high cost of running a retail store are pushing consumers toward e-commerce.
Finally, as shoppers look online, they increasingly seek out international brands. In both Brazil and Mexico, the average ticket for cross-border online purchases is less expensive than domestic orders, causing cross-border e-commerce to grow at twice the speed of domestic (42% vs 18%, respectively, see Figure 2). For these reasons, it should come as no surprise that Latin America is the world’s second-fastest growing e-commerce market, expanding 25% annually through 2021 (see Figure 3).
Areas with prime potential
Which e-commerce verticals are primed to grow most rapidly? As mentioned, retail e-commerce is still immature and will be fueled by the entrance of international competitors and falling prices. Regionwide, retail e-commerce represents only 2.5% of all retail spend, compared to 10% in the US and 20% in China. In addition to the growth expansion of Amazon, the entrance of Chinese marketplaces such as AliExpress, Wish and Deal Extreme are making products evermore available to Latin American consumers at increasingly accessible prices.
The Latin American services segment has proven itself to be outdated, inefficient, and primed for rapid change. Local and international disruptors have taken the challenge head-on by addressing service deficits in the region, particularly in transportation and logistics.
Sao Paulo and Mexico City are among Uber’s largest world markets, and Latin America as a whole has become the company’s fastest-growing region. Sao Paulo residents have more than 150,000 Uber drivers at their disposal, and according to a survey of Uber riders in 65 countries, Paulistanos use the app more frequently than citizens of any other city in the world.
The Uber-like courier service Loggi delivers more than 100 million orders in Brazil every day. Similarly, Rappi, the regional leader in on-demand deliveries, is experiencing a 30% monthly sales increase in Brazil, Colombia, and Mexico. Other digital services like Netflix, Spotify, and even online educational platforms are leveraging the lack of supply in Latin America, delivering service to increasingly hungry—and connected—Latin American consumers.
The likes of Rappi, Uber, and AliExpress are just a few of the many examples of companies that have leaped into unchartered territory to address regional pain points in Latin America. And despite the region’s volatility, these trailblazers have come out winners.
As a whole, the Latin American market remains highly consolidated among a few privately and state-owned corporations. Decades of limited competition have created structural inefficiencies and delivered poor service to consumers—this paves a clear path for international companies to impact change in the region and benefit from it. With positive forecasted economic growth, the under-explored e-commerce space, favorable demographic shifts, and an increasingly sophisticated consumer, Latin America is an exceptional business opportunity for international players willing to ride the waves of the region’s ups and downs. With the correct planning, local knowledge, and a committed spirit, the potential in the region is unlimited.
This article is a result of a thought leadership partnership between Americas Market Intelligence and EBANX. It was originally published on the Latin American Business Stories site from EBANX, where you’ll find posts on tech developments, business trends, market analysis and more.
1 GSMA, 2017
2 ECLAC and AMI analysis
3 ICSC, 2018
4 Folha, 2018
5 EBANX Labs, 2019
6 EBANX Labs, 2019