Latin America’s Head-First Dive Toward E-Commerce

By Alexander Borushek*

Left: Tech Park/ Sebastian Bassi/ Flickr/ Creative Commons License (modified)
Right: Informal work/ Alba Sud Fotografia/ Flickr/ Creative Commons License (modified)

The boom in e-commerce during the COVID‑19 pandemic has been stronger in Latin America than in most other regions, presenting profound consequences for traditional informal economies as well as for citizens previously disconnected from formalized economic and financial networks. Since March 2020, long-lasting and recurrent lockdowns have upended informal economies by forcing people away from face-to-face – and often cash-based – transactions. In response, retailers and consumers have been pivoting toward new online alternatives.

  • The growth in e‑commerce has also been a bright spot in an overall bleak economic landscape, with sales growing by an astonishing 63 percent in 2020, topping $100 billion. Not only did this far exceed estimates from prior to the pandemic (12.5 percent projected in November 2019) or in its early days (19.4 percent in June 2020); it was the largest percentage increase of any region in the world.
  • Latin American consumers appear quite content with the shift. More than 80 percent of the region’s first-time online shoppers say they plan on continuing to do so after the pandemic. This is good news for established entities like Argentina’s e-commerce giant MercadoLibre – which already accounted for about half of all online sales in Latin America and saw 2020 revenues double – and international competitors such as U.S.-based Amazon, Singaporean conglomerate Shopee, and China’s Alibaba subsidiary AliExpress, which are looking to make inroads in the region.

Record sales also highlight the region’s urgent need to address the deficiencies that separate its e-commerce sector from the larger and more sophisticated ones in the United States, Western Europe, and the Asia-Pacific.

  • Of particular importance is infrastructure. Beyond underinvestment in bridges, ports, and highways, the region suffers from significant bottlenecks in the logistics planning processes that affect how and at what speed products are delivered.
  • Larger crossborder synergies are hampered in part by a lack of uniform importing schemes, in contrast to the ease with which products pass through borders of the European Union or into the United States. Another obstacle is the chronically low quality, reliability, and “relevance” of the region’s postal services, according to the Universal Postal Union. In its report last October, the UPU concluded that “compared with its level of economic development, the region has the worst relative [postal] performance worldwide.” Moreover, 60 percent of the “last-mile” delivery industry is made up of either small, often informal, businesses or independently contracted drivers who use their own vehicles. This results in a huge lack of cohesive route optimization. MercadoLibre and other big players are trying to build out independent fulfillment networks, but a lot of work remains.

The e-commerce ecosystem is giving other investors, retailers, and consumers a general sense of optimism that positive change can occur.

  • Millions of citizens have been brought into the banking system since the pandemic, often through nimble fintech platforms like MercadoPago or Brazil’s NuBank (the latter having seen record numbers of new users). Coupled with widespread smartphone ownership and the already-high penetration of mobile internet and data, more people than ever are shopping and will be able to purchase items online.
  • International investor interest in the sector is also high. Recently the U.S. e-commerce firm Etsy announced that it had acquired its Brazilian counterpart Elo7 in a $217 million deal. Additionally, SoftBank’s Latin America Fund has at present five e-commerce ventures in its portfolio, including the Colombian super-app Rappi.

While Latin America’s e-commerce sector has yet to display the speed of Amazon Prime or offer the panoply of services available in China, it is highly unlikely to be just a temporary byproduct of the pandemic. Recurring pandemic scares might just provide the momentum the e-commerce industry needs to consolidate its role as an integral piece of the post-COVID economic equation – helping societies address deep-rooted problems that plagued the people simultaneously dependent on the informal economy and most likely to benefit from increased access to banks and other formalized financial networks.

August 10, 2021

* Alexander Borushek is a graduate of American University’s School of International Service and currently a Business Development Representative for Envoy Global, a tech firm that works in immigration and global mobility.

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