Latin America's Digital Trade Faces A Connectivity Test

Latin America and the Caribbean are expanding their digital exports rapidly, but weak connectivity, uneven regulation, skills shortages and limited regional integration continue to hold back a larger share of the global market. Geneva: Latin America and the Caribbean (LAC) are becoming more important players in digital trade, but the region still captures only a small share of a market that is expanding much faster than conventional trade. Exports of digitally delivered services from the region rose nearly fivefold, from US$18.5 billion in 2005 to US$87.7 billion in 2024. The increase has been significant, particularly since the Covid-19 pandemic, but the region's progress remains uneven. A small group of economies has built sizeable digital-service sectors while much of Central America, the Caribbean and the Andean region continues to face gaps in connectivity, digital skills, payments, logistics and access to finance. Globally, digitally delivered services exports reached US$4.78 trillion in 2024, accounting for 14.8% of total world exports. The segment has expanded much faster than merchandise trade and other services. Since 2005, digitally delivered services have grown nearly fourfold, compared with average annual growth of about 4.5% for goods and 4.9% for other services. Digital trade is broader than online services alone. The internationally agreed statistical framework defines it as international trade that is digitally ordered and/or digitally delivered. Digitally ordered trade covers purchases made through digital networks, including goods and services, while digitally delivered trade refers principally to services supplied remotely through computer networks. The distinction matters because internationally comparable data are much stronger for digitally delivered services than for digitally ordered trade in goods. There is also an important statistical qualification. The term 'digitally deliverable services' refers to services that can potentially be supplied remotely, while 'digitally delivered services' refers to those actually delivered through digital networks. Estimates based on the destination of digitally deliverable services can therefore differ from figures based on their recorded origin. The classification of digitally delivered trade also has wider policy implications, with WTO members holding differing views on whether all such transactions should necessarily be treated as trade in services. For Latin America and the Caribbean, the acceleration came after a period of relative stagnation in the latter part of the 2010s. Digital services proved comparatively resilient through global disruptions, helped by the growing ability of businesses to operate remotely and serve overseas customers without the physical movement of workers or goods. Digitally delivered services now account for about one-third of the region's commercial services exports, compared with roughly one-fifth in 2005. Brazil is the largest exporter, with digital services exports of about US$29.4 billion in 2024, followed by Mexico, Costa Rica and Argentina. Yet the economic weight of digital services varies sharply. They account for about 9% of gross domestic product in Costa Rica, 8% in Dominica and 6% each in Belize, Grenada and Antigua and Barbuda. In most other economies, the share remains 1% or less. That unevenness is central to the region's digital trade challenge. Europe accounts for about 53% of global digitally delivered services exports, Asia for 23% and North America for 18%. Latin America and the Caribbean account for only about 2%, even though the region represents about 2.9% of global services trade and 6.4% of merchandise trade. Foreign investment is beginning to change that picture. Average annual foreign direct investment into sectors capable of supplying digital services increased from US$3.41 billion in 2010-14 to US$3.79 billion in 2015-20 and then to US$10.85 billion in 2021-24. Data processing and related services accounted for 67.2% of that investment. Jamaica, Costa Rica and Barbados have been among the economies benefiting from the trend. The region's principal external market is the United States, which accounted for 34.4% of Latin America's and the Caribbean's exports of digitally deliverable services and 42.2% of imports. Imported digital business, telecommunications and financial services can themselves strengthen domestic firms by improving productivity, access to technology and the quality of products and services that local companies sell abroad. Regional trade, however, remains much weaker. Intraregional trade in digital services was about US$7.8 billion in 2023, representing only 8.4% of the region's digital-service exports and 5% of its imports. The comparable share for merchandise trade is about 15%. Europe conducts 62.4% of its digitally delivered services exports within the region, compared with 41.3% in Asia and 14.7% in North America. Latin America's and the Caribbean's 8.4% share is only marginally above the Middle East's 8.2%. Mercosur accounts for nearly half of the region's intraregional digital-services trade, with more than half of its members' trade in the sector occurring within the bloc. The Pacific Alliance accounts for about 21% and the Central American Common Market about 16%. Intra-bloc shares are about 31% for Mercosur, 24% for the Pacific Alliance and 38% for the Caribbean Community. Digital platforms reveal a similar dependence on markets outside the region. About 60% of inbound visits to e-commerce platforms serving Latin American and Caribbean consumers originate within the region, compared with 23% from the United States, 14% from Europe and 2% from China. But outbound traffic tells a different story: only about 13% of visits from the region go to Latin American and Caribbean platforms, while 47% go to US platforms and 33% to Chinese platforms. The 60% regional inbound figure is also heavily influenced by the larger Latin American economies and should not be read as evidence that Caribbean consumers have comparable levels of regional digital-market integration. The regulatory environment presents another divide. Telecommunications and computer services are generally somewhat more open in the region than the global average, with Uruguay and Ecuador among the more open markets. Distribution services are less open in several economies. Some countries retain nationality requirements or regulatory gaps that can restrict market access. The region has also made uneven use of international trade rules to lock in reforms. WTO commitments remain limited in a number of digital sectors. Only about half of the economies have subscribed to the Basic Telecommunications Reference Paper, while participation in the WTO's Services Domestic Regulation disciplines is also incomplete. The General Agreement on Trade in Services can provide a framework for binding reforms and improving predictability, but many countries have yet to use those commitments fully. Most economies in the region have pledged to adopt disciplines under the WTO's Investment Facilitation for Development Agreement. At the same time, participation in the WTO's work on electronic commerce and the emerging plurilateral Agreement on Electronic Commerce remains uneven, reflecting different levels of readiness to undertake the associated commitments. Tariffs on information and communication technology products provide another measure of the gap. Only nine countries—Colombia, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, Panama and Peru—have zero tariffs or bound commitments consistent with the Information Technology Agreement. Elsewhere, tariffs range from about 1% in Mexico to more than 10% in Brazil, with many countries imposing rates of 4% to 8%. Bound rates in several cases remain above 30%, leaving considerable scope for future tariff increases even where applied rates are currently lower. Digital regulation itself has advanced considerably. Electronic documents, electronic signatures and data-protection frameworks are now widespread. Many countries permit cross-border data transfers subject to adequacy or comparable safeguards, and only a relatively small number impose broad data-localisation requirements. Cybersecurity frameworks, however, are less comprehensive, while rules governing intermediary liability remain limited. Approaches to artificial intelligence regulation are also diverging. Connectivity remains one of the most visible constraints. Internet use exceeds 90% in Chile and the Bahamas, but remains below 80% in many Central American, Andean and Caribbean economies. Fourth-generation mobile networks are widespread, while fifth-generation deployment is still at an early stage. The Dominican Republic is the only economy in the region with fifth-generation coverage exceeding 70%. Affordability is an equally important barrier. Fixed broadband can cost the equivalent of about 38% of gross national income per capita in Haiti, 14% in Argentina and 11% in Honduras. In Mexico and Guyana, the comparable burden is below 2%. Such differences affect not only household access but also the ability of smaller businesses to participate consistently in digital markets. Connectivity therefore cannot be treated simply as a telecom-sector issue. Reliable electricity networks, backbone infrastructure, cloud capacity and data centres increasingly form part of the same economic infrastructure. Brazil, Mexico and Chile host most of the region's data centres, while their scarcity elsewhere can increase latency, reduce reliability and create concerns over security and resilience. Domestic data centres are not indispensable in every country if cross-border data flows are reliable and open, but weak connectivity and power infrastructure can still constrain the development of cloud computing, artificial intelligence and data-intensive services. Public-private partnerships will be important in closing these infrastructure gaps. Payments are another bottleneck. About 74% of adults in the region have a transaction account, but only about 20% use online payment channels for person-to-business transactions. More than a dozen economies have introduced fast-payment systems, yet cross-border payments remain relatively slow and expensive. Only about half of the region's economies guarantee access to payment services through their WTO commitments. The distinction between person-to-business and business-to-business payments matters because both are needed for digital trade to scale. Consumers need affordable ways to pay online, while small exporters need reliable systems for receiving international business payments. Greater interoperability between national fast-payment systems, alongside migration towards standards such as ISO 20022, could reduce friction and improve the exchange of payment information. Logistics pose a parallel problem. The region continues to lag the Organisation for Economic Co-operation and Development economies in transport infrastructure, shipment arrangements, logistics performance and the ability to track consignments. Customs procedures remain a source of delay in several markets. Most economies have ratified the WTO Trade Facilitation Agreement and are working towards full implementation by 2038, although Haiti and Suriname had not ratified it at the time covered by the assessment. Postal systems are also important as e-commerce expands. Delivery times, tracking and traceability remain uneven, while the growth of online commerce can generate an exponential increase in low-value parcels. Shared digital trade platforms, interoperable customs systems and more harmonised procedures across neighbouring economies could reduce these costs and make regional digital commerce more viable. Artificial intelligence and machine learning could improve some of these systems. Automated customs classification, risk assessment and document processing can reduce delays and transaction costs. At the same time, artificial intelligence is likely to make a wider range of information-intensive services tradable across borders, increasing demand for cloud computing, data processing and digital infrastructure. The human-capital gap may prove harder to close. Many economies face shortages not only of advanced technical workers but also of people with basic digital, managerial and entrepreneurial skills. The region produces a smaller proportion of graduates in science, technology, engineering and mathematics than several other major regions. A lack of basic digital skills also leaves many households and potential entrepreneurs outside the digital economy. The opportunity is particularly relevant for micro-enterprises and women-led businesses. Digital platforms can lower the cost of reaching customers beyond a firm's immediate location and reduce some traditional barriers to market entry. But those gains are not automatic. Businesses still need affordable connectivity, payment systems, logistics, finance and the skills to use digital tools effectively. That last element is often described as technological absorption: the capacity of a firm to understand available technologies, judge whether they are commercially useful, finance their adoption, manage implementation and absorb the risks associated with a technology whose returns may take time to materialise. Without that capacity, access to technology alone may produce limited productivity gains. The region has fewer digital businesses than its population and economic size might suggest. Only a relatively small number of firms have advanced capabilities in artificial intelligence and big-data applications. Larger, mature, foreign-owned and service-sector firms generally have stronger digital capabilities and were better positioned to shift operations online during the pandemic. Access to finance compounds the problem. Innovative digital firms often depend on intangible assets rather than physical collateral, making conventional lending difficult. Fintech and online distribution businesses have attracted significant investment, but other technology-intensive companies continue to face constraints in obtaining credit and equity. Intellectual-property rights and enforceable contracts can therefore have a role beyond protecting innovation. They can help establish the value of intangible assets and provide lenders and investors with clearer indicators of the assets that underpin a firm's potential repayment capacity. Incubators and accelerators, vocational training, stronger links between universities and industry, public research and technology-transfer programmes can help build that technological base. Multinational companies can also contribute through local investment, training and co-invention. Export promotion has a role as well. Many firms that could potentially sell abroad do not export because they lack information about foreign demand, regulations, pricing and distribution channels. Digital tools can help export agencies identify prospective markets and match firms with buyers. Programmes that combine such information with trade finance, value-added tax reimbursement and access to digital marketplaces and logistics providers can be particularly useful for newer and smaller firms. Existing initiatives such as ConnectAmericas illustrate how partnerships between export agencies, online marketplaces, logistics companies and fintech providers can reduce some of these barriers. The evidence also suggests that export-promotion programmes can help new and smaller firms enter international markets, but their effectiveness depends on whether support goes beyond generic information. Firms need help with actual market entry, compliance, financing and digital distribution. Universities and public research institutions have a further role in building capabilities that individual firms cannot easily develop on their own. Stronger university-industry links, applied research, technology transfer and collaboration with multinational companies can help translate research into commercially useful technologies and services. One of the biggest obstacles to judging progress, however, remains measurement. There is still no consistent, internationally comparable statistical series covering the full scale of digitally ordered trade. The 2023 Handbook on Measuring Digital Trade, jointly produced by the International Monetary Fund, Organisation for Economic Co-operation and Development, United Nations Conference on Trade and Development and World Trade Organization, provides a common framework centred on digitally ordered and digitally delivered trade, but countries continue to differ in their statistical capacity and data availability. Improving national statistics and adopting the Handbook's reporting standards would make it easier to compare economies and identify where digital trade is actually generating jobs, investment and export earnings. Cooperation between statistical agencies, international organisations, universities and the private sector will also be necessary. The Americas Business Dialogue is one potential forum for bringing governments and businesses into that measurement effort. The broader economic case for digital trade goes beyond export receipts. Digital commerce can improve the allocation of resources, allow firms to reach economies of scale, accelerate innovation and spread technology across borders. It can create new forms of comparative advantage in economies that were previously constrained by distance and transport costs. For digitally delivered services in particular, physical proximity matters less than connectivity, skills, trust and reliable digital infrastructure. That creates an opportunity for Latin America and the Caribbean to diversify their export bases and become less vulnerable to shocks in traditional commodities and services. But the same technology can deepen external dependence if regional firms remain primarily consumers of foreign platforms while value, data-intensive activities and intellectual property accumulate elsewhere. The region's next phase of digital trade will therefore depend less on a single technology than on whether several systems improve together. Better broadband without affordable payments will leave businesses constrained. Digital platforms without efficient customs and logistics will struggle to support cross-border commerce. Training without finance will leave firms unable to adopt new technologies. And open markets without reliable infrastructure will limit the ability of businesses to compete. The opportunity is already visible in the sharp rise in digitally delivered exports and foreign investment. The challenge for the region is to turn that expansion into a broader base of locally owned firms, stronger regional trade and more widely distributed productivity gains. If connectivity, regulation, skills, finance, payments and logistics advance together, digital trade could become a significant new source of diversification and resilience. If they do not, Latin America and the Caribbean risk remaining a fast-growing consumer of the global digital economy without capturing a proportionate share of its value. – global bihari bureau Administrator