The Economist January 15th 2022 27
The AmericasTechdisruption
Silicon linings
W
hen threeyoung entrepreneurs de
cided to start an online marketplace
in Argentina in 1999, their chances seemed
slim. Only a select few had access to the in
ternet and money was scarce. “There were
no local venturecapital firms, and inter
national ones wouldn’t even look at Latin
America,” says Marcos Galperin, one of the
founders. In 2001 the trio met an investor
in Silicon Valley who looked at their sales
and asked if the figures were in “millions
or billions”. They were in thousands.
Two decades later, during the pan
demic, their online shop, MercadoLibre
(“free market”), became the highestvalued
company in Latin America, surpassing
Petrobras, Brazil’s state oil firm, and Vale, a
mining giant. Although it has since fallen
behind both, MercadoLibre remains the re
gion’s startup success story, valued at
$59bn. It was big before covid19, but as
people stayed at home it got a boost: in
some countries new orders more than
doubled between 2019 and 2020.
It is part of a broader trend. According
to cbInsights, a data provider, over $20bn
of venture capital went into 952 deals in
Latin America in 2021, nearly four times as
much as in 2019 (see chart 1 on next page).
The region is catching up from a low base,
and quickly: investment since 2015 has
grown over tenfold, speedier than in Asia,
Europe or the United States. It now has 27
unicorns—privately held startups valued
at over $1bn—up from four in 2018.
The past two years have been grim in
Latin America. According to The Econo-
mist’s excessdeaths tracker, it has lost a
higher share of its people to covid than any
other region. Long lockdowns have scarred
its economies. But the pandemic has also
created opportunities. Disruption has ac
celerated. More startups are likely to
emerge, if governments let them. Some of the boom reflects a global surge
in investment in startups. Venture funding
worldwide reached $621bn in 2021, a re
cord. But some investors are particularly
bullish about Latin America’s potential.
The total market capitalisation of tech
firms as a proportion of gdpis still just un
der 4%, compared with 14% in India and
30% in China. The InterAmerican
Development Bank (idb) reckons that the
value of the tech sector in the region grew
from $7bn in 2010 to $221bn in 2020.
Most of the innovation so far has been
in fintech. Latin America’s banking sector
is the most profitable in the world, with an
estimated return on equity of 1315%, much
higher than in most developed regions. Fat
margins are not the result of efficiency. Op
erating expenses, relative to assets, are
higher than in other parts of the world. In
terest rates are, too. The difference (or
spread) between the rates that banks pay
depositors and charge borrowers was 7%
compared with a global norm of 5% in 2018
(the latest available data from the World
Bank). Although several factors contribute
to this, critics blame a lack of competition.
In Brazil five banks control over 80% of
the market. Archaic rules in some coun
tries, such as insisting that people turn up
in person to make changes to their ac
counts, mean that many go without them
at all. In Mexico, where there are 13 bank
branches per 100,000 people, compared
with 30 in the United States, half the popu
lation is unbanked. The unmet demand forB UENOS AIRES
The pandemic has accelerated Latin America’s startup boom
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