A view on Latin America Time to go structural and digital XVII Encuentro Santander – América Latina ‘Digital Transformation’ London, June 19-21 2018

1. A view on Latin America
Time to go structural and digital
Ángel Melguizo
Head Latin America, OECD Development Centre
XVII Encuentro Santander – América Latina ‘Digital Transformation’
London, June 19-21 2018

2. Our view on Latin America
• A common feature across Latin America in recent years is the growing
disconnect between markets, society and public institutions
• The disconnect has been largely driven by
Weak productivity and low growth
Rise of the middle class, with higher unmet aspirations
Modest progress of institutions
• The economic recovery and the electoral cycle are windows of
opportunity to address these structural challenges
• The structural agenda has a core digital component
2

3. Outline
• Economic prospects 2018-19
Better, but not good enough
• Long-term challenges: productivity, inclusion, institutions
Time to go structural and digital
• The digital agenda
OECD Going Digital project
Towards a Latin America 4.0 strategy?
3

4. Our view on Latin America:
From the short term…
Outlook 2018-19: Better, but not good enough
• Synchronized mild recovery
• Risks on the downside
China
Financial shocks
Commodities
Protectionism
4

5. GDP growth in Latin America and the OECD
(% annual)
Source: OECD Economic Outlook, Interim Economic Outlook (March 2018) and OECD STEP 103 database andIMF(2018) World Economic Outlook, Database
April 2018. 5
Latin America: better, but not good
enough…
-4
-2
0
2
4
6
8
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Latin America and the Caribbean OECD

6. 6
The economic recovery in Latin America
in figures
Source: OECD (2018), OECD Economic Outlook, Volume 2018 Issue 1: Preliminary version, OECD Publishing, Paris. http://dx.doi.org/10.1787/eco_outlook-
v2018-1-en and IMF(2018) World Economic Outlook, Database April 2018.
GDP growth in Latin America (%)
2017 2018 2019
Argentina 2.9 2.0 2.6
Brazil 1.0 2.0 2.8
Chile 1.6 3.6 3.6
Colombia 1.8 2.7 3.2
Costa Rica 3.2 3.7 3.7
Dominican Rep 4.5 5.5 4.9
El Salvador 2.4 2.3 2.3
Mexico 2.3 2.5 2.8
Panama 5.3 5.6 5.8
Peru 2.5 3.7 3.9
Venezuela -14.0 -15.0 -6.0

7. Implemented trade and investment measures
(Number of trade measures that are likely to affect foreign commerce)
G20 to LAC LAC to LAC
Source: OECD/ECLAC/CAF based Global Trade Alert database.
Risk factors
Protectionism: from words to action
-120
-100
-80
-60
-40
-20
0
20
40
60
80
2010 2011 2012 2013 2014 2015 2016 2017
Net Liberalising Discriminatory
-30
-25
-20
-15
-10
-5
0
5
10
15
20
25
2009 2010 2011 2012 2013 2014 2015 2016 2017
Net Liberalising Discriminatory

8. Outline
• Economic prospects 2018-19
Better, but not good enough
• Long-term challenges: productivity, inclusion, institutions
Time to go structural and digital
• The digital agenda
OECD Going Digital project
Towards a Latin America 4.0 strategy?
8

9. Our view on Latin America:
… to the long term: going structural and digital
Structural challenges
• Overcoming the middle-income trap
• Consolidating the middle class
• Rethinking institutions and rebuilding trust
A coordinated digital agenda is a ‘must’ for
• Businesses
• Citizens
• Governments
9

10. Labour productivity in Latin America, OECD and China, 1950-2018
(as a % of US productivity)
Source: OECD/CAF/ECLAC based on Conference Board (2018), The Conference Board Total Economy Database. 10
Going structural and digital
i. Productivity is (almost) everything
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Peru Chile Colombia Mexico LAC average OECD average
China South Korea Argentina Brazil Uruguay

11. Policy priorities to evade the middle-income trap
(Discriminant analysis evaders vs. trapped, average loading)
Note: Ranking of importance from left to right. Average loading.
Source: Melguizo, A. S. Nieto-Parra, J.R. Perea and J.A. Perez (2017), “No sympathy for the devil! Policy priorities to overcome the middle-income trap in
Latin America”, OECD Development Centre Working Paper, No. 340.
11
Institutions, skills, trade and finance are key
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
Rule of law Quality of
education
Tax revenue Combined
polity score
Gross
capital
formation
Capabilities Tertiary
schooling
Stocks
traded
Domestic
credit

12. Latin America sits on the periphery of
global value chains
Note: A larger circle reflects an economy whose sectors are connected within global production networks.
Source: Criscuolo and Timmins (2017). OECD Economic Survey Brazil 2018
Map of global value chains
12

13. Limited insertion of entrepreneurs in
global/regional value chains
Percentage of entrepreneurs with at least 25% of revenues from international customers, 2015
Source: OECD/ECLAC/CAF, Latin American Economic Outlook 2017: Youth, Skills and Entrepreneurship , based on Global Entrepreneurship Monitor
individual data, 2015.
0
5
10
15
20
25
30
35
40
45
50
Panama
Colombia
OECDaverage
Uruguay
Chile
Ecuador
PuertoRico
LACaverage
Barbados
Peru
Mexico
Guatemala
Argentina
Brazil
%
Adult Young

14. The businesses digital divides are
notable…
Diffusion of selected ICT tools and activities in enterprises, 2016 (% firms 10+ employees)
Source: OECD (2017a), Digital Economy Outlook 2017, OECD Publishing, Paris.

15. … (potentially) deepening socio-economic
polarization in the near future
Source: Andrews, D. C. Criscuolo and P. Gal (2016), “The Best versus the Rest: The Global Productivity Slowdown, Divergence across Firms and the Role of Public
Policy”, OECD Productivity Working Papers, No. 5
The divergence in multi-factor productivity growth

16. Economies have to go digital
Bridge the digital divide
- Entrepreneurs (COL, MEX, CHL)
- Small and middle-size enterprises
Leapfrogging opportunities from going digital:
- Trade facilitation (paperwork)
- Financial deepening citizens and SMEs (e.g. branches)
- Digital strategies in traditional banks &
- Digital banks &
- Fintechs: 700+ in LAC: BRA, MEX, COL, ARG, CHL

17. Financial deepening: work in progress…

18. … with some good prospects if we go
digital

19. Banking digitalisation in EMEs, especially
in Latin America, is promising
0
10
20
30
40
50
60
70
80
90
100
0.0 1.0 2.0 3.0
0
10
20
30
40
50
60
70
80
90
100
0.0 1.0 2.0 3.0
Emerging Markets digital banking prospects, 2015
0
10
20
30
40
50
60
70
80
90
100
0.0 1.0 2.0 3.0
%usersofdigitalbankingin2025
Annual median growth rate 2015-25
Latin AmericaEmerging AsiaEmerging Europe
Source: BBVA Research (2018), Accelerating Digitalization in Emerging Markets

20. Going structural and digital
ii. The emergence of the middle class(es)
Latin American population by socio-economic groups
(% population)
Note: The affluent, those that earn over 50 USD per day are not included.
Source: OECD/ECLAC/CAF based on LAC Equity Lab tabulations of SEDLAC (CEDLAS and the World Bank, 2017). 20
32
23
38
35
43
25
15
20
25
30
35
40
45
50
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Middle class (13-70USD) Vulnerable (5.5-13 USD) Poor (under 5.5 USD)

21. Source: Ljubica N. and G. Quintini (2018), "Automation, skills use and training," OECD Social, Employment and Migration Working Papers 202.
0
10
20
30
40
50
60
70
1. Jobs: The risk of automation is (likely)
smaller than thought …The future of work adds uncertainties
Jobs at a significant risk (50-70%) and of high risk (>70%) of automation in OECD (%)

22. Latin America ranks in the middle, at an early
stage of automation (activities, not jobs)
Source: AfDB/ADB/EBRD/IDB (2018), The future of work. Regional perspectives.
Activities at high-risk of automation (%)

23. Societies have to go digital
Connect all (income, age, gender, rural); expand broadband
0
20
40
60
80
100
%
Education gap All Internet users
Tertiary education
Low or no formal education
Source: OECD (2017b), OECD Science, Technology and Industry Scoreboard 2017, OECD Publishing, Paris.
Gap in Internet use by educational attainment (% population, 2016)

24. Societies have to go digital
• Bridge the digital divide
- Connect all (income, age, gender, rural)
- Expand broadband
• Train for the next:
- Education for jobs  (re)(up)skilling for tasks
- ‘New-collar jobs’
- ITs can help transitions between jobs (online
data/platforms based on blockchain)
ARG, BRA, COL, CHL, MEX

25. (soft)Skills for Latin America 4.0
25
Yes No
0%
10%
20%
30%
40%
50%
Skills gap in Latin America
Firms with difficulties to fill vacancies (%, 2018) Skills required in Latin America
Source: Manpower Group and OECD Development Centre (forthcoming), Skills para una America Latina 4.0. Resultados de la
Encuesta de Brechas de Habilidades

26. Perception of corruption in government in Latin America, Southeast Asia and OECD
(percentage)
Source: OECD/ECLAC/CAF own elaboration based on data from Gallup World Poll (2017)
26
Going structural and digital
Rethink institutions
50
55
60
65
70
75
80
85
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Latin America and the Caribbean Southeast Asia OECD%

27. Despite economic progress, perceptions on
well-being (related to institutions) deteriorated
Selected indicators of governance and well-being in Latin America and the OECD
(% respondents replying positively)
Source: OECD/ECLAC/CAF based on Gallup World Poll 2016.
27

28. Governments and public institutions have to
go digital
28
– More reliable
– More capable
– More open and innovative
– With a forward-looking perspective
Latin American Economic Outlook 2018
Digital component

29. Enabling states: credibility - strengthening
the rule of law and regulatory systems
29
• Independent and effective legal institutions to fight crime, corruption and policy capture.
OECD Recommendation on Public Integrity
• Effective regulatory frameworks  fair competition. OECD Recommendation on Public
Procurement (Chile Compra, Colombia Compra Eficaz)
• ITs (big data, blockchain)  limit corruption (verifying identity, registering assets,
tracking transactions), and build accountable and transparent states
20
30
40
50
60
70
80
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
%
Latin America & Caribbean OECD Southeast Asia
Trust in the judicial system in Latin America, OECD, and Southeast Asia
Source: OECD/CAF/ECLAC based on Gallup World Monitor (2017)

30. Enabling states: efficient and effective states
require strengthening capacities
30
Tax revenue in LAC and OECD (% GDP)
• Merit-based civil service recruitment systems – impartiality and state capabilities
• Raising tax revenues (electronic invoicing ARG, BRA, CHL, MEX), and spending better
• Centres of Government - leadership, coordination and policy coherence (ARG, PER)
• Improve management cycles, inc. monitoring and evaluation - better service delivery
(Sinergia, Colombia; MIDE, EVALUA Jalisco)
22.8
34.3
0
5
10
15
20
25
30
35
OECD-LAC tax-to-GDP gap LAC average OECD average
Source: OECD/ECLAC/CIAT/IDB (2017), Revenue Statistics in Latin America and the Caribbean

31. Enabling states: openness, transparency and
forward-looking vision
31
• Open governments - culture of transparency, accountability and access to information
(Paraguay, Dominican Rep)
• Innovation labs - collaboration and citizen engagement within public institutions to
design cost-effective, risk-taking small pilot projects (Mi Quito, Mi Medellín, Ágora Rio,
Bogotá Abierta)
• Use of big data - detailed information to guide public policy action (health Brazil)
• Vision to anticipate change and adapt: skills, PDP, innovative labour regulations
Open government and citizen participation in Latin America

32. Outline
• Economic prospects 2018-19
Better, but not good enough
• Long-term challenges: productivity, inclusion, institutions
Time to go structural and digital
• The digital agenda
OECD Going Digital Project
Towards a Latin America 4.0 strategy?
32

33. Pillar 1
Horizontal
activities
Understanding
Vectors of Digital
Transformation
Analysis in one
particular policy
domain
More than 70 reports,
from over 80 projects,
from over 12 policy
domains
Jobs and Skills
Policy brief
3 working papers
Contributions to the 2019 Skills Outlook
Contributions to the 2019 Employment Outlook
A workshop in North America
Pillar 2
Committee-
specific work
Pillar 3
Cross-cutting
modules
Responding
Integrated Policy
Framework
Transversal issues
Strategic Foresight
Policy Design
Digital security
The OECD Going Digital project
Productivity,
Competition and Market
Openness
5 working papers
2 Workshops at the Global Forum on Productivity
Well-being
1 synthetic report
1 working paper
Statistical and policy tools
Measurement
5 papers
2 workshops
Online portal
Detailed guidance on statistical frameworks
Source: OECD (2018), Going Digital in a Multilateral World

34. • Privacy in a data-driven economy requires interoperable strategies
that strike a balance enhanced reuse and sharing of data vs
privacy and intellectual property
• Reducing digital divides (geography, gender, age, education; firm
size, industry) are essential
• Governments have an opportunity to be remade by digital
transformation to improve efficiency, enable innovative policy design,
and expand citizen and stakeholder engagement
• Internet cuts across national borders and changes conventional
notions of location & jurisdiction  stronger international and
multi-stakeholder co-operation
34
Measuring and responding
Source: OECD (2018), Going Digital in a Multilateral World

35. 35
The digital transformation and known
unknowns

36. Now’s the time for a Latin American Digital
Strategy
• Digital transformation is everywhere
– Not IT-users vs IT-producers
– Data at the core: access, privacy, security, property rights
• Digital can create positive dynamics to address long-terms challenges
(productivity, inclusion, trust) if responses are:
– Multidimensional beyond IT: trade, skills, labour, …
– Multi-stakeholder: business + society + governments
– Multinational
• Latin America needs an integrated regional strategy: from good national
practices to regional integration (eLAC2020; OECD GD project; …)
36

37. www.oecd.org/going-digital
www.latameconomy.org
Ángel Melguizo
Head Latin America, OECD Development Centre
XVII Encuentro Santander – América Latina ‘Digital Transformation’
London, June 19-21 2018