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By Eileen Turkot, RSM Latin America Regional Leader
After the COVID-19 Omicron variant spike, 2022 business activity is finally moving forwards. Latin America has faced great challenges posed by the pandemic, but it has also seen opportunity. According to the Economic Commission for America and the Caribbean (ECLAC), the region will see very moderate growth in comparison to last year, estimated at 2.1%, which is in line with the forecasted performance of the global economy. However, the region currently has a window of opportunity, the business world has a new spotlight on the crypto-economy boom.
According to the ECLAC’s estimations on their preliminary overview report, the region's economic machines will underperform this year. Brazil, the largest economy in Latin America, is estimated to see the least amount of growth, with just 0.5%. Mexico’s economy is estimated to grow 2.9%, Colombia 3.7% and Chile 1.9%. According to the ECLAC’s study, the recovery of the countries of the region will depend, above all, on domestic demand. In 2021 this experienced a rebound driven by the increased consumption propelled by the cash support, which was implemented by the governments to overcome the COVID-19 emergency. Whilst remittances grew by 30% which further impacted this.
In this sense, it will be imperative to apply measures to control inflation and avoid slowing growth. The financial authorities will have to make strategic use of all the instruments at their disposal, such as controlling interest rates. The report also suggests increasing tax collection revenue and improving tax schemes.
In 2021, 11 countries in Latin America and the Caribbean managed to recover their GDP numbers back to what they were prior to the crisis. In 2022, another three would be added, bringing the total to 14 countries out of the 33 that make up the region.
But there is another chapter to this story, a chapter that began in 2021 with the approval of cryptocurrency as legal tender in El Salvador. This unprecedented measure, which made El Salvador the first-ever country to accept Bitcoin as a national currency, has ignited the conversation in Latin America, and brings with it, opportunity.
With more than 455 million current internet users, and a higher-growth projection than any other part of the world, Latin Americans are looking at current technological solutions for financial inclusion and digitisation as a service. This opens up a huge market of possibilities for regional and global companies that want to develop and capture these opportunities before anyone else.
For millions of Latin Americans, cryptocurrency represents a quick way to receive resources sent by relatives who work abroad. According to the latest figures published by Chainanalysis, four countries in the region – Venezuela, Argentina, Colombia and Brazil – are among the top 20 carrying out the most cryptocurrency operations.
This has a logical explanation. According to the World Bank, the formal remittance market in Latin America is around 96 billion dollars. Traditional money transfer services have historically come with high fees, unfavorable exchange rates, limited hours, long transmission times, and daily amount limits. However, with the newfound availability in crypto remittances, a new opportunity presented itself since the system uses a different exchange rate as a reference and does not have any commissions or transfer limits. Given the improvement in the speed and efficiency of transferring money, sending remittance via cryptocurrency channels has become the more viable option.
It is important to consider that the adoption barriers for cryptocurrencies in many Latin American countries are often lower than the traditional practices within financial management. Let us take into account the following data: approximately half of the Latin American population does not have access to basic banking services. As for credit cards, only 113 million out of 650 million have access to them. The World Bank reports that 55% of adults in the region have a mobile phone and internet access. This is 15 percentage points higher than the developing country average. From this, we gain a clear understanding of why an unbanked population with access to Wi-Fi chooses cryptocurrency over a checking account.
In short, there was some hesitance around the adoption of cryptocurrencies, but the prevailing sentiment in most countries has moved in favour of regulating cryptocurrencies, opening up endless possibilities for the future; we are already seeing the first movements and regional initiatives. What happens next is just a matter of time.
At RSM Latin America, we understand our clientele’s concerns and their permanent search for growth. We have a genuine interest in their future projects, and we have the highest-level specialists, both in the region, and in the rest of the world, to advise and guide organisations of all sizes to move forward with confidence.
