Five trends that will plot Latin America's path in the coming years

This is a machine translation of the original Suramericana release, published in Spanish. 

Social trends in the world have been affected countless times by factors that are not alien to citizens and that are part of the daily life of the world population. The COVID-19 pandemic, the economic crisis and recession, in addition to various regulatory actions, permanently change the political, social and economic course of regions such as Latin America, drawing a new panorama that must be taken into account by its inhabitants to strengthen the search for their well-being and that of their families.

Under this reality, Suramericana, through its Observatory of Trends and Risks, constantly analyzes the Latin American environment to offer tools that allow knowing the disruptive events that have the greatest impact on the region, with the purpose of anticipating and making visible the new opportunities and risks. that may occur in the coming years. In its latest Trends 2022 report for Latin America, the company identified the following five:

1) Reduction of the middle class and increase in poverty in Latin America and the Caribbean

According to data from the World Bank, the COVID-19 pandemic led, in 2020, to 4.7 million people, belonging to the middle class in Latin America and the Caribbean, moving into vulnerability or poverty. The spread of the virus generated a considerable decrease in the purchasing power of the 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 setback in Latin America of 12 years in terms of poverty and 20 years in terms of extreme poverty. In a complementary way, the ILO stresses 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 of the region. region.

Additionally, domestic consumption is one of the main determinants of economic growth and, being exposed to different disruptive events, which have occurred between 2020 and 2022, it is expected that important challenges will be evidenced 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, massify 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.

2) 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 with the Sustainable Development Goals (SDGs), Latin American countries and their business sector have been 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) They show that, by 2030, the decarbonization of the economy can generate 15 million net jobs and drive economic growth of more than 1% per year.

This vision undoubtedly brings important challenges for the business sector, associated with the transformation of its processes. The measures may imply substantial changes in its 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 its share of the global green bond market by 2024, from the current 2% to 8%.

3) Transformation of geopolitical interests

Global events such as the COVID-19 pandemic, the conflict between Ukraine and Russia and, in general, changes in environmental conditions, technological developments and economic, social, cultural and political globalization, have transformed the environment, propitiating the emergence of new strategic assets for the nations, consequently modifying the system of international alliances.

For Juanita Gomez Loaiza, Corporate Risk and Trend Modeling Manager at Seguros SURA, the global growth in electric mobility and the constant need for information and connectivity "implies a greater demand for cell phones, tablets and electric vehicles, whose batteries are made with lithium, an abundant raw material in Latin America, especially in Chile, Argentina and Bolivia (the so-called “lithium triangle”), as well as Mexico”, where, according to the United States Geological Institute, up to 67% of the world's reserves of this valuable mineral are found. The International Energy Agency estimates that by 2040 the demand for lithium will increase 42 times.

UNCTAD estimates that as a result of the COVID-19 pandemic, organizations will focus more on the continuity and resilience of their logistics chains, studying and accelerating "reshoring" and "nearshoring" processes, also driven by rising costs. of production in China, even higher than those of some Latin American countries such as Mexico. The proximity to the large markets in the United States or Europe, along with competitive production costs and qualified personnel, makes the region more attractive for investment. However, for Gomez Loaiza, "there are still important gaps in the capacity of the regional infrastructure that must be addressed to improve competitiveness."

4) Dilution of borders in the digital age

The fourth industrial revolution, the speed of change and the new expectations lead companies to permanently transform and risk entering fields that transcend their traditional performance, crossing the barriers of their economic sector through the development of new models of business.

In Latin America, this transformation has been slow compared with 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; power generation/transmission with household appliances and the world of sports with insurance, among others.

According to a report by the EY firm, 57% of companies in Latin America have increased their investments in digital transformation. The industries that did so most are: fishing, health, manufacturing, logistics and transportation, education, consumption and retail, banking and insurance and automotive.

In 2020, despite the disruption of the pandemic, Latin America was one of the regions that grew the most in number of broadband users and, if we add the fact that in the last 2 years the region has also been a protagonist in the rounds of capital funding for startups with a participation 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 as one of the countries that exports the most software services per person," explains the Trend Modeling and Corporate Risk Manager.

The attractiveness of the region is indisputable and was even recently the focus of the first investment made by Jeff Bezos in South America through NotCo, a Chilean unicorn that uses an algorithm to find combinations of plants that allow food of animal origin to be replicated, 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) Globalization and its associated risks

Bearing in mind that the effects of the economic behavior of a country or multinational company, cyber attacks, the effects of climate change, social inequality and protest movements cross borders, it becomes increasingly important to understand the signs of the environment international.

On this occasion, Gomez 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 may have on other economic variables”.

The supply chain crisis, caused mainly by the asymmetric recovery at the 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. Latin 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 the central banks,” details the Manager.

Additionally, the conflict between Russia and Ukraine brings economic and financial consequences that could begin to be reflected in the deterioration in the perception of risk and greater inflationary pressure that leads to a possible economic slowdown due to the measures that must be taken to mitigate said acceleration.

Despite the fact that Russia is not a relevant actor as a trade partner of the region (according to data from Trade Map to 2020, in general, exports or imports represent less than 2% of their total value), the collateral effects of the war will generate impacts on regional economies, given that the sanctions against Russia are having consequences on the international prices of raw materials and on supply chains, which would translate into a higher cost of goods and services associated with the food and energy sector.

In this sense, 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 FocusEconomics 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 to take into account in the coming years is related to the high migratory flows that occur in the region, from those European migrants who seek a higher and more accessible quality of life, to the migrants who, because of government mistrust and lack of opportunities, they move to other Latin American nations or to the US and Canada.

About Suramericana:

 With more than 76 years of experience, Suramericana SA is a company specialized in the insurance industry and in trend and risk management. It is a subsidiary of Grupo SURA (81.1%) and is also backed as a shareholder by the German reinsurer Munich Re (18.9%). The Company is a multi-solution, multi-channel, and multi-segment platform with operations in 9 countries in Latin America, where it seeks to deliver sustainable well-being and competitiveness to each of its 18 million customers, including individuals and companies, served by nearly 22,000 employees and 25,000 advisors. It is presented to the market as Seguros SURA in Colombia, Chile, Mexico, Argentina, Brazil, Uruguay, Panama and the Dominican Republic, and as Asesuisa in El Salvador. Suramericana is the seventh insurer in the region, by volume of written premiums, and is the third of Latin American origin.