Are Internet Policy and Technology the Keys to Latin America’s Future?

Last week, Brazil’s Minister of State for Science, Technology, and Innovation Aldo Rebelo traveled to Washington, D.C., as part of the preparation for President Dilma Rousseff’s upcoming visit in late June. Minister Rebelo’s visit is a timely reminder that innovation and technological penetration are increasingly important—both in Brazil and throughout Latin America.

Business leaders and policy experts alike are lauding the region’s mobile market boom—a growing phenomenon that will likely spawn new trends in technology usage and behavior. Earlier this year, the Harvard Business Review named four Latin American countries as “break out” digital economies—a label used for those with the fastest advancing rates of digital development. With the fastest growing rate of mobile Internet penetration in the world, Latin America is poised to become a global hub for innovation and technology.

But where does Latin America stand in terms of connectivity, innovation, and technology? And, more importantly, what does the changing reality mean for the future of the region?

Q1: What is the current status of Internet policy in Latin America?

A1: Internet policy covers a wide range of issues, all of which impact governance and innovation. Latin America is a diverse region—one filled with success stories and policy debacles alike.

One of the cornerstones of Internet policy is net neutrality—a concept for which several countries in Latin America are acting as leaders. Chile and Peru were among the first countries in the world to ban arbitrary Internet blocks and speed limits, a model then emulated in several European countries.

In 2010, Chile passed the first net neutrality law in the world, explicitly prohibiting Internet service providers (ISPs) from blocking, interfering with, and discriminating against any Internet users.

And just last year, Brazil passed its Marco Civil, a civil rights framework for the Internet, which seeks to legislate the nexus between net neutrality and cybersecurity. It’s a precedent-setting law, in part because it was developed through a bottom-up participatory process.

The model law faced challenges in light of 2013’s U.S. National Security Agency revelations, which led Brazil to consider national requirements on Internet hardware. However, legislators removed those provisions before the final vote, recognizing how those rules would harm Brazil’s ability to expand its Internet infrastructure.

Another problematic area has been Venezuela, where the government engages in Internet censorship and recently proposed new regulations to further control what its citizens can view online. While Internet access in Venezuela has expanded over the past decade, the country’s recent lack of investment in its telecom infrastructure means it has some of the slowest Internet speeds on the continent.

Q2: Where do Internet penetration and social media stand in the region?

A2: Latin America has over 300 million Internet users, meaning over half the region’s population is currently online in some form. However, there is a significant digital divide both among countries (South America having a higher usage rate than Central America or the Caribbean) and within countries (Internet use heavily correlates with economic status). Almost three-fourths of Latin America’s Internet users come from just four countries: Argentina, Brazil, Colombia, and Mexico.

While landline infrastructure lags behind, many of the region’s Internet users access it via mobile devices. A study from the GSM Association estimates that in 2013 there were 328 million mobile users in Latin America. Mobile phone user penetration as a percentage of the total population remains low according to eMarketer, at just 65.2 percent in 2014, but that figure is getting higher each year.

Social media is growing in importance. According to a recent study by Frost & Sullivan, an economic and technology analysis group, Latin America has 179 million Facebook users—13 percent more than the United States’ 158 million. Brazil alone hosts 65 million Facebook users, making it the second-largest market for Facebook globally, and Mexico and Argentina both place in the top 10. And social media users in the region spend almost double the time using social media as their U.S. counterparts.

Businesses are catching up, too. Over 65 percent of Latin American companies are active on at least one social media platform, embracing it as the most popular communications tool among enterprises across the region.

Though the region boasts a growing base of social media users (largely enabled by smart phone penetration), high costs and lackluster infrastructure continue to make access difficult for marginalized and low-income communities.

Q3: What are some of the challenges to technology and innovation in Latin America?

A3: The region has made great strides in terms of Internet policy, innovation, and technological penetration. But there’s still much to be desired.

Despite progress in expanding Internet penetration, Latin America suffers from what the World Bank has called an “innovation gap.” On average, the region’s entrepreneurs introduce new products less frequently, invest less in research and development, and hold fewer patents than their counterparts in other parts of the world. And a lack of competition, inadequate intellectual property protections, and inefficient infrastructure prevent the region from sustaining innovative growth—though these could all be bolstered by improved Internet and technology policies.

Again, there are regional success stories.

The Chilean government launched a program called Startup Chile, which aims to create a friendly entrepreneurial ecosystem. The program is in its seventh iteration and provides entrepreneur applicants from around the world with $40,000, mentorship, and six months of office space to launch their ventures from Santiago.

In Colombia, significant advances in a new information technology–based institutional framework have already supported over 23,000 companies. And high-speed Internet access is now available in more than 90 percent of the country’s populated areas.

Among the most pressing challenges is increasing Internet penetration—an issue reflective of Latin America’s persistent problems with income inequality and social stratification. Governments should design policies to promote Internet access proactively within poor communities. If not, they risk further exacerbating the region’s digital divide and its already high levels of economic inequality.

Intellectual property (IP) remains a controversial issue in the region, as well. Pharmaceutical enterprises, shared business interests, artists, and authors all weigh in on the debate—one that is particularly fresh in the context of the ongoing Trans-Pacific Partnership (TPP) negotiations. Though some push for stronger IP protections to incentivize research and development, others fear that limiting the transfer of technology across borders will only stymie the nascent innovation industries seeking footing in Latin America. For example, Chile’s entrance to TPP under current conditions may mean it must rework its intellectual property laws, which many view as a model for improved innovation and open source sharing.

Perhaps the trickiest challenge is creating a robust culture of innovation. Though the region is poised to take off, it remains new to the game—and there are still too few innovators and entrepreneurs ready and willing to take the plunge and risk failure. This limited willingness to take risks comes from a set of financial regulations and a business culture that harshly punish failures. Businesses that want a successful entrepreneurial ecosystem will need to adapt their cultures to hire and promote those who have had productive efforts but who also may have had failing efforts. Governments should pass laws that reduce red tape to start up and shut down a business and allow those that failed to rebound without harsh bankruptcy punishments.

Q4: What are the implications of Internet policy and technology penetration in the region?

A4: Some of the benefits of robust Internet policy and technological penetration are obvious. Connectivity, access to information, free expression—these are all increasingly pivotal to a free and democratic society.

With this in mind, a forward-looking Internet policy could help to bolster democracy in Latin America. This policy tool has the potential to develop the strong public sphere necessary to push for democratic consolidation, to facilitate commerce, and to allow for greater accountability of elected officials. Currently, there is a divide between countries that are working to promote a free Internet and open government data and countries that are working to restrict Internet access and government information. Not surprisingly, that divide matches up with countries that are challenging democratic norms in the offline world as well. With the long-term goal of Internet freedom, regional Internet policy could prove part and parcel to efforts to ensure political freedoms all across Latin America.

Latin America could well be the next hot spot for social innovation. The region’s long struggles with economic inequality and social stratification are increasingly brought to light by its large and vocal millennial population, more vocal than ever in calling for social and institutional change. Even as some political systems remain tightly controlled by older generations, innovative technologies have the potential to magnify the voices and influence of Latin America’s youth.

Conclusions

As Internet and technological penetration take off throughout the region, Latin America could be on the verge of a series of exciting changes—if only it can create the conditions to allow for them. Improving Internet infrastructure, building a culture of innovation, and resolving persistent controversies over intellectual property and similar issues will enable the region to take advantage of this unique moment. And if it manages to do that, the region could carve out its place in innovative markets while putting itself on track toward greater political openness and the development of a more participatory democracy.

Carl Meacham is director of the Americas Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. James Bosworth, CSIS senior associate, provided his invaluable input. Juan Osuna, intern scholar with the Americas Program, provided research assistance.

Critical Questions is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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