Roadmap for Enabling Trade and Investment through Technology in Latin America and the Caribbean
Kati Suominen, Founder and CEO
The Covid-19 crisis has thrown Latin America and the Caribbean (LAC) economies into a tailspin. Export revenue is expected to plunge even more severely than 24 percent registered during the 2008-09 financial crisis, GDP growth is expected to be negative 9 percent in 2020, and some 19 percent of firms in the region, most of them microenterprises, are expected to close, with millions of workers becoming unemployed. While Covid-19 exposed LAC economies’ continued vulnerability to external supply and demand shocks, international trade and ongoing dynamics such as interest by especially U.S. companies to accelerate nearshoring, can also accelerate LAC’s recovery. And to harness trade and investment to accelerate the region’s economic recovery, LAC governments have a new tool: disruptive technologies such as 5G connectivity, cloud computing, artificial intelligence (AI), blockchain, advanced robotics, additive manufacturing, and 3D printing.
Emerging Technology Use Cases in Trade
This new report prepared as background document for the Inter-American Development Bank offers LAC governments examples of the power of disruptive technologies to expand the region’s trade and investment, and a roadmap to accelerate the adoption and use of disruptive technologies. The report discusses many technology use cases, such as:
AI and blockchain hold great promise for LAC border agencies to meet their triple objectives of securing and facilitating trade and collecting customs revenue. In LAC, customs administrations of Chile, Colombia, Costa Rica, Mexico, and Peru have already piloted blockchain by implementing the pioneering CADENA, a solution facilitated by the IDB [to share data on real time on their respective Authorized Economic Operator (AEO) certificates securely with each other. Japanese, Jamaican and Dutch customs agencies, among many others, have piloted AI to secure and spot customs fraud in inbound ecommerce shipments, for example by using use machine vision to identify suspect parcels in a fraction of a second, and to leverage web-crawling to match shipments’ declared prices and weight with those sold on online marketplaces.
The adoption of technologies such as Internet of Things, AI, and blockchain can accelerate trade throughput in LAC ports. World’s pre-eminent ports such as Rotterdam, Valencia, Singapore, and Los Angeles have adopted various “smart ports” technologies, such as using blockchain to help port ecosystem players to share data and choreograph interactions with each other; robots and drones to patrol port assets; and terminal operating systems and machine learning techniques that help port ecosystem players optimize the traffic flow in and out of ports. A number of LAC ports too have been applying digital technologies, and several ports such as Kingston in Jamaica, Veracruz in Mexico, Valparaiso in Chile, Santos in Brazil have adopted or are in the process of adopting port community systems (PCSes), one of the success drivers in European ports that enables port ecosystem players to message and interact with each other.
Digitization of ports and border agencies can be built on to facilitate trade at and behind the border. Trade does not stop at the border – for cargo to move, also inland logistics, warehouses, transport corridors, and last-mile delivery systems need digitized. The IDB and partners are amid supporting ambitious projects in Nicaragua, Panama and Costa Rica to automate border crossings digital data exchanges of customs, sanitary, and immigration information from trucks, cargo, and people crossing border points. Many other technology applications can further streamline hinterland logistics, such as smart highways applying sensors, traffic cameras, and IoT to optimize navigation, traffic signals, and container tracking. The IDB has supported such smart traffic systems in several road corridors and border crossings, including among Argentina and Chile, Ecuador and Colombia and Ecuador and Peru, and Nicaragua and Costa Rica. In addition, digital addressing systems, autonomous vehicles, and contactless payments, whose adoption has accelerated amid Covid, will enable efficient and safe “final five feet” at-door delivery.
LAC export and investment promotion agencies can use digitization and AI to optimize their resources to target the right buyers and investors, match them to the right opportunities, and mass-customize their work. The explosive growth of ecommerce, digitally deliverable services, and tech-driven trade intermediaries such as Logistics Technologies (LogTechs), FinTechs, and Regulatory Technologies (RegTechs) open new opportunities for LAC export promotion agencies to build public-private partnerships that enable especially those hardest hit in the crisis, micro and small firms, to reach new customers, identify new logistics options, access fast-disbursing working capital loans, and automate trade compliance. LAC investment promotion agencies too can pursue many technology use cases – for example, IDB is helping Costa Rica’s CINDE use AI to map potential investors, estimate investors’ respective investment probabilities, and expand the group of investors, to help agency staff finetune advertising campaigns and offer to investors targeted and customized solutions. Estonia Investment Agency’s chatbot Suve that responds in several languages to queries about Covid-19, such as access to healthcare, logistics, and supply chain management.
There are various use cases of the potential for data and technology-driven services to boost productivity and resilience of large LAC sectors, such as manufacturing and agriculture. The productivity of LAC economic sectors trails far below the productivity levels of the United States and other advanced economies. In manufacturing, LAC is also behind Southeast Asia and China. One method to increase the productivity and export competitiveness of the LAC manufacturing sector is through incorporation of high-value added services – R&D, design, consulting services, software, graphic design, IT systems services, branding, marketing services and so on – in the region’s manufactured exports. Another method is to improve the efficiency of services that imply costs to manufacturers – such as logistics and warehousing; leasing of machines, equipment, and facilities; financial, insurance and legal services, and so on. Additive and distributive manufacturing techniques, such as 3D printing, robotics, and distributed software-driven design and printing of components hosted in virtual inventories, can drive significant further new efficiencies in LAC firms’ production and help the region deal with supply shocks and shortages. Distributed manufacturing techniques can further enhance LAC region’s resilience and responsiveness to supply shocks.
Cultivating high-value added B2B services is a key development and trade strategy for LAC trade and economy policymakers. Products of smart manufacturing and agriculture are “smart” because of the sophisticated services that are either embedded in them (such as data science, R&D, engineering, and branding) or that enable their finance, freight, delivery, and after-sale service. Data- and technology-driven services, both domestic and imported, play a critical role in helping LAC firms and economies to increase their output, and bring more technology-intensive products and services to world markets. Technologies also help LAC meet the growing demands, highlighted by Covid-19, for the “3 Rs” of production – resilience, responsiveness, and reconfigurability, all of which are possible because of excellent services. A vibrant and sophisticated local services sector can also help LAC economies attract foreign investors.
LAC trade and economy policymakers can harness trade and economic data and technology in their own work, to better identify trade challenges in specific sectors and geographies, gauge the likely impact of policy interventions affecting millions, and pre-empt shocks. Real-time data are available widely, only they have not been harnessed well for economic policymaking, partly because valuable data remains trapped in unstructured forms in paper-based documents. For example, governments have real-time data on shipments, by virtue of customs bill of lading-level data and postal services’ parcel shipment data and can use these data to understand and track trade patterns and identify frictions. AI and unsupervised learning can be deployed to detect causal patterns that elude human analysts, to predict the impacts of economic policies. An exciting tool for policy planning is digital twins, a digital application that mimics real-life products and systems, such as trade ecosystems or entire economies.
Beloeware technology uses cases for trade by entity, across firms' sales cycles, and levels.
Figure 1 - Technology in trade - use cases by entity
Figure 2 - Technology in trade - use cases and examples in a firm's sales cycle
Figure 3 - Technology in trade - levels of sophistication
The goal of digitization is to promote automation and interoperability that generate efficiencies for trade regulatory bodies and save exporters and importers time and money – and open opportunities for efficiencies, as well.
For example, when interoperating better, players in the trade ecosystem such as freight forwarders, shipping lines, terminal operators, and ports can streamline and, using smart contracts, automate the many invoicing and payment transactions with each other, and thereby improve all players’ cash flow.
How LAC governments can adopt new technologies
Disruptive technologies have a high return on investment, and they are often surprisingly cost-effective to adopt. The more basic solutions such as technologies for data sharing among border agencies are rather easy to adopt. The main task, and often the most time-consuming one, is the process to adopt technologies. The “how” is typically more important than the “what”.
The first and most important step in the process of adopting technologies is identifying the pain points that need to be solved, build consensuses among the many players on the need for a solutions, and jointly decide on the technology most suitable for the task. Technology itself is secondary; consensuses among people that apply it is a priority and often the most time-consuming part in digitizing trade ecosystems.
Second, in considering and piloting new technologies, LAC governments can learn from their peers in other parts of the world. For example, Singapore and Korea have excelled in using blockchain and AI in customs and single windows; European countries have been in the global vanguard in using IoT, blockchain, and AI in port automation; and the United States and Europe have mastered smart manufacturing, agriculture, and transport; and Singapore, Thailand, and Japan have excelled in suing blockchain to create “Single Windows+” platforms that allow both public and private sector actors involved in a shipment to access the same data in real-time.
Third, LAC governments need to urgently improve the fundamentals necessary for broad-based adoption of technologies – such as put in place interoperability standards; pursue regionally compatible national digital regulations; improve financing for firms and agencies’ digital transformation; improve human capital key to both applying and developing new technologies; invest in innovation; and roll out 5G-powered Internet connections key to Internet of Things and machine-to-machine data flows.
Recognizing the power of technologies open opportunities to revolutionize trade and investment, the IDB is a partner to LAC governments in the process of adopting new technologies to facilitate trade, promote investment, and accelerate economic recovery. The Bank is actively working on the transformation of trade ministries, border entities, and investment and export promotion agencies, as well as the private sector through innovative solutions and projects with AI and blockchain technologies, among others, across the region, and prioritizing technology adoption as a key response to Covid.