The first quarter of the year has ended, with world-class events such as the Russian invasion of Ukraine, the economic and political agenda that will set the course for the next nine months is taking shape. Since the president of Russia, Vladimir Putin, announced the beginning of a military operation in Ukraine, the world is facing a new conflict with influence on multiple sides.
However, that's not the only thing he's doing this year. a period of transformation. The power of the technology gave 2022 a new rhythm. Phenomena such as virtual reality and the metaverse are disrupting the ways in which they interact and companies are looking for new points of contact with their customers.
In parallel, the challenges to counteract the effects of climate change increase. For local, regional and global governments, as well as for the private sector, the agreements established in the Glasgow Pact are essential to defining their respective agendas.
Without a doubt, 2022 is and will be a year of transformations. Experts at Make Sure You Live outlined the eight trends that will predominate in Latin America during the next few months of the year.
1) Metaverse
Talking about the metaverse is a complex issue these days. It means entering into a universe of definitions and concepts that are being built and developed at the same time as they materialize, becoming a tangible reality that was imagined many decades ago, when the technology needed to create it did not yet exist, but whose theoretical bases and uses were quite clear.
While a single definition of the metaverse may be difficult to achieve, it could generally be explained as a network of interconnected virtual environments in which people can interact with each other or with digital objects.
This “realistic” interaction in the virtual world requires a series of characteristics that, according to several analysts, make this trend different from current versions of the Internet, virtual reality or augmented reality (technologies that the metaverse appropriates, integrates and enhances).
2) Shrinking middle class and increasing poverty in Latin America and the Caribbean
According to World Bank data, the COVID-19 pandemic led to 2020 million middle-class people in Latin America and the Caribbean becoming vulnerable or poor in 4.7. The spread of the virus has caused a considerable decline in the purchasing power of inhabitants in the last two years, deepening a series of structural inequalities that are reflected in the high levels of informality and lack of social protection.
According to a report prepared by the Economic Commission for Latin America and the Caribbean (ECLAC), the crisis caused by the pandemic will mean a 12-year setback in terms of poverty and a 20-year setback in terms of extreme poverty in Latin America. In addition, the ILO highlights in a worrying way how the partial recovery of employment has been led by the growth of informal employment, where this type of occupation represents 70% or more of the net creation of jobs in several countries in the region.
Additionally, domestic consumption is one of the main determinants of economic growth and, as it has been exposed to different disruptive events that have occurred between 2020 and 2022, it is expected that significant challenges will arise in terms of its dynamism, mainly due to the decrease in purchasing power in the region.
To mitigate this phenomenon, according to the Inter-American Development Bank (IDB), policies are urgently needed to promote the formalization of the economy, expand and improve the equity of social security and pension systems, generate financial sustainability of education and health, and transform institutions to make them more efficient.
3) Transition to a green economy
This trend is and will be one of the main protagonists in the coming years. Aligned with the United Nations Global Compact and the Sustainable Development Goals (SDG), Latin American countries and their business sector are accelerating their transition towards a green and sustainable economy, focused on protecting the environment and the communities that comprise it.
Studies by the Global Commission on the Economy and Climate indicate that bold and effective climate action could generate at least USD 26 trillion in cumulative economic benefits by 2030. Data from the Inter-American Development Bank (IDB) and the International Labor Organization (ILO) show that, by 2030, decarbonizing the economy can generate 15 million net jobs and boost economic growth of more than 1% annually.
This vision undoubtedly brings important challenges for the business sector, associated with the transformation of its processes. The measures may imply substantial changes in their business strategies, but they become opportunities for the development of new technologies that contribute to the continuity and sustainability of companies.
With this, the issuance of green bonds and participation in carbon offset markets will increase exponentially in the coming years. The IDB expects Latin America and the Caribbean to quadruple their share of the global green bond market by 2024, from the current 2% to 8%.
4) Finance and technology: breaking with tradition
The fourth industrial revolution, the speed of change and new expectations are leading companies to constantly transform themselves and take the risk of venturing into fields that go beyond their traditional operations, breaking through the barriers of their economic sector by developing new business models.
In Latin America, this transformation has been slow compared to other international competitors, but it is expected to intensify in the coming years to maintain the region's competitiveness. Some examples that demonstrate this trend are the growing relationship between industries such as: health and food; energy generation/transmission with household appliances; and the world of sports with insurance, among others.
According to a report by the firm EY, 57% of Latin American companies have increased their investments in digital transformation. The industries that have done so the most are: fishing, health, manufacturing, logistics and transportation, education, consumer and retail, banking and insurance, and automotive.
In 2020, despite the disruption caused by the pandemic, Latin America was one of the regions that grew the most in terms of the number of broadband users. If we add the fact that in the last 2 years the region has also been a protagonist in the capital funding rounds for startups with a share of approximately 40%, it is possible to conclude that there is still a lot of potential in the region. “This potential is initially concentrated in large economies such as Argentina, Brazil and Mexico, but some small countries such as Uruguay stand out for being one of those that exports the most software services per person,” explains the Manager of corporate risk and trend modeling.
The region's appeal is undeniable and was even recently in the spotlight for Jeff Bezos' first investment in South America through NotCo, a Chilean unicorn that uses an algorithm to find combinations of plants that allow the replication of foods of animal origin, making them more sustainable.
In parallel, a recent study published by the Mastercard Economics Institute, 'Recovery Insights: Small Business Reset', suggests that, during the pandemic, the number of small and large companies that went digital in Latin America for the first time exceeded 200% in 2020, and the consolidation of this trend continued in 2021.
5) Transformation of geopolitical interests and change in power structures
For years, Latin America has also witnessed profound political changes that are aimed at the power of the left as a new proposal. The examples are expanding every day and offer a new vision of what the new Latin America will be like.
In addition to the continuity of Daniel Ortega as president of Nicaragua and the proposal of the patrolman and union leader José Pedro Castillo in Peru, there are new experiences such as the historic victory of Gabriel Boric in Chile and the presence of Gustavo Petro, a leftist candidate who leads the polls in Colombia for the presidential elections on May 29.
In turn, including Argentina with its leader Alberto Fernández and Andrés Manuel López Obrador in Mexico, the region has the leftist presence of Xiomara Castro, the first woman and the most voted in the history of Honduras.
In this way, a 'progressive wave' is born to achieve an effective ideological shift. New priorities appear on the agenda with various initiatives such as tax reform, the design of a new pension system and the strengthening of public health and education.
Additionally, the most recent edition of the Democracy index calculated by The Economist indicates that the Latin American region showed the worst deterioration in its rating compared to other regions, going from 6.09 out of 10 to 5.83. With 10 being a system in complete democracy, this result shows that a growing number of Latin Americans live in weakened systems and that the prospects for the region with a polarized electoral panorama are even more complex.
Russia's war with Ukraine threatens to deepen divisions between democratic and authoritarian regimes worldwide, which is associated with greater geopolitical tension that will change international relations.
6) Caring for biodiversity
On the other hand, Latin American countries are gradually becoming more aware of the consequences of human action and population growth on animals and ecosystems. Thus, people and different institutions are changing the way they approach nature, going from seeing it only as a provider of products and services to perceiving it as a life support system.
In this line, nature (forests, rivers and their basins, moors, animals, among others) begins to be considered as a living actor subject to rights and enjoys protection and respect from the State and citizens to ensure its existence, restoration, maintenance, regeneration and the protection of cultural wealth. That is, it is recognized as having dignity before courts as a new subject with legal attributes that can be enforced through constitutional and legal protection actions.
According to the United Nations Environment Programme (UNEP), around 60% of the world's terrestrial life and various marine and freshwater species can be found in Latin America and the Caribbean. The current trend is for an increasing number of countries to adhere to the commitments established in international, regional and national agendas that demand and protect rights for the health of society and the planet.
Its development and commitment will allow us to mitigate and avoid possible irreversible impacts on the planetary boundary of climate change, as well as on other boundaries that ensure the sustainability of human, animal and ecosystem health. In this way, whatever the scope, Latin America's path in the coming years is beginning to take shape and be mapped out in such a way that changes will be inevitable.
7) Crisis in supply chains
Given that the effects of the economic behaviour of a country or multinational company, cyber attacks, the effects of climate change, social inequality and movements of dissent cross borders, it is becoming increasingly important to understand the signals of the international environment.
On this occasion, Gómez Loaiza shares that, with the global disruptions of recent years, mainly associated with the pandemic and the conflict between Russia and Ukraine, "the interdependence that continues to exist between countries when it comes to international trade and the different repercussions that this can have on other economic variables is evident."
The supply chain crisis, caused mainly by the asymmetric recovery at a global level, had already been causing deviations in the expected economic performance of the region for 2022. “The phenomenon of inflationary pressure began to be a common denominator worldwide and in Latin America countries such as Brazil, Chile, Colombia and Mexico presented annual price variations above 7% as of February 2022. Levels well above the monetary policy objectives of central banks,” explains the Manager.
In addition, the conflict between Russia and Ukraine brings economic and financial consequences that could begin to be reflected in the deterioration in risk perception and greater inflationary pressure leading to a possible economic slowdown due to the measures that must be taken to mitigate this acceleration.
Although Russia is not a relevant player as a trading partner in the region (according to Trade Map data for 2020, exports and imports generally represent less than 2% of the total value of exports and imports), the collateral effects of the war will have an impact on regional economies, given that sanctions against Russia are having consequences on the international price quotation of raw materials and on supply chains, which would translate into higher costs of goods and services associated with the food and energy sectors.
In this regard, Suramericana highlights the risk of loss of purchasing power in the region in the coming years, which could lead to an increase in social discontent. According to Focus Economics and JP Morgan, inflation expectations for the end of 2022 have increased for some countries such as Chile and Colombia by more than 100 basis points, compared to the projections made in January.
Another aspect that Suramericana highlighted as something to be taken into account in the coming years is related to the high migratory flows that occur in the region, from European migrants seeking a higher and more accessible quality of life, to migrants who, due to government distrust and lack of opportunities, move to other Latin American nations or to the United States and Canada.
A study conducted by the Edelman communications agency in the Edelman Trust Barometer 2021 reported a drop in the confidence that Latin citizens have in the actions of NGOs, companies, government and the media. According to the research, none of the countries studied, including Mexico, Argentina, Colombia and Brazil, obtained a confidence index (with more than 60 points) or registered a improvement compared to 2020.
At the same time, amidst the great social discontent, companies are the institutions with the greatest trust among Latin Americans. In Colombia, Brazil and Mexico, they are the only ones that generate trust compared to governments, NGOs and the media. Along the same lines, a study prepared by CCK Central America that measured trust in 2019, prior to the pandemic, indicated that 48% of Salvadorans did not trust any institution. The percentage of distrust was higher among people between 35 and 44 years of age.
In this context, Suramericana highlights an extremely important opportunity for the region: its qualified workforce and competitive costs, which allow strengthening the technology industry and leading to the development of world-class unicorns such as Mercado Libre and Rappi. Data from a study conducted by ALLVP indicate that more than 85 companies in the region have valuations of over USD 100 million, which have the potential to become the next unicorns in the region.
8) End of the pandemic?
“We can end the acute phase of the pandemic this year, we can end COVID-19 as a global health emergency,” said WHO Director-General Tedros Adhanom Ghebreyesus. The WHO Director-General’s remarks sum up the sense of fatigue and expectation that is being felt in many countries around the world regarding the COVID-19 pandemic.
However, the WHO has also been clear in warning that in order to emerge from the acute phase of the pandemic, it is essential that vaccination processes reach high percentages throughout the world, without exception, and therefore urgent calls are being made to adopt concrete and effective actions to guarantee equitable access to vaccines.
The identification of the Omicron variant at the end of 2021, which is much more transmissible than previous ones, serves as a reminder that the situation is highly variable and that as long as there are large unvaccinated population groups, the emergence of new variants will be practically inevitable, making it a priority to guarantee the capacity and availability of health systems, so that they can deal with infections without collapsing, thus mitigating the need to incur in restrictive measures such as those that have had to be implemented in the last two years.
To see the full 2022 Trends report by Suramericana, make click here