A woman walks behind a signage of Nubank
Brazil’s Nubank is the region’s biggest fintech © Paulo Whitaker/Reuters

It was one of the few positives in Latin America during the pandemic: amid the alarming human and economic toll taken by coronavirus on the region — one of the hardest hit in the world — a boom in tech provided a rare shaft of light.

Venture capital investment in Latin America’s companies more than tripled in 2021 to $15.7bn. That was more than the combined total for south-east Asia, Africa and the Middle East, according to data from the Global Private Capital Association.

In a region famous for its hefty banking margins, it was not surprising that Latin America’s fintech disrupters were the main beneficiaries, capturing 39 per cent of all the investment flows, according to the Association for Private Capital Investment in Latin America (LAVCA). Ecommerce received another 25 per cent.

One of the biggest beneficiaries of the accelerated adoption of tech during the pandemic was MercadoLibre, the region’s answer to Amazon, whose publicly disclosed revenues surged 184 per cent from 2017 to 2020. This placed the company 292nd on the latest FT-Statista ranking of The Americas’ Fastest Growing Companies.

However, the region now stands at a crossroads.

Will the tech boom of the pandemic turn out to be a statistical blip, or can Latin America’s bumper crop of start-ups boost the region’s perennially disappointing economic growth?

Nicolas Szekasy, co-founder and managing partner of Kaszek, the region’s biggest homegrown venture capital firm, believes the pandemic effect is likely to be temporary.

“2030 will not be different from what it would have been [without the pandemic],” he says.

“The trend was already there but the shape of the curve changed in 2020, 2021 and 2022. It definitely looks different now but, in the coming years, it will probably converge to what it would have been.”

Szekasy highlights some of Kaszek’s investments, including Brazil’s Nubank — the region’s biggest fintech. The company floated on the New York Stock Exchange last December with a market capitalisation of more than $40bn. Another is Mexico’s first unicorn, used-car marketplace Kavak, which was valued at more than $8bn in a funding round last year.

Nubank and Kavak were privately held from 2017-2020 and their performance was not captured in the FT’s fastest-growing company ranking, though a Brazilian student-finance fintech, Pravaler, is included.

However, as credit conditions tighten globally, the region’s start-ups will have to fight harder for funds.

SoftBank, one of the biggest tech investors, in January lost its Bolivian-born chief operating officer Marcelo Claure, the driving force behind its fast-growing Latin America investment fund.

Last month, Shu Nyatta, managing partner at SoftBank International, signalled that the Latin America fund will concentrate its attention this year on its existing portfolio, rather than on new companies. This month, Nyatta and another managing partner, Paulo Passoni, said they were also leaving SoftBank to start their own LatAm-focused venture firm.

Carlos Ramos de la Vega, director of venture capital at LAVCA, says: “One of the most important trends . . . is how M&A activity plays out across the market, given the substantial capital pockets that these start-ups have raised,” he says. It is too early to tell whether last year’s $15.7bn funding record would be repeated.

In the meantime, governments could help by boosting investment in mobile and fixed broadband. There are powerful reasons to do so: the Inter-American Development Bank estimated last year that investing $68.5bn to close the region’s digital gap with OECD countries would create up to 15mn jobs and boost GDP growth by 7.7 per cent.

That investment is sorely needed. More than 285mn Latin Americans — around 45 per cent — do not have internet access, according to the global mobile association GSMA. Yet per-capita telecoms investment has been falling in real terms for more than a decade and lags far behind the US, Europe and Asia.

Surprisingly, many of the region’s political leaders seem absent from this debate. Presidents such as Mexico’s Andrés Manuel López Obrador speak of “transformational” national projects, such as an airport, a tourist railway and a huge oil refinery, but have little to say about tech. And a $3.7bn post-pandemic economic recovery package launched this month by new Chilean President Gabriel Boric is focused on subsidies for fuel prices and welfare payments, rather than digital infrastructure.

If Latin America’s technology boom is to give a lasting boost to the region’s prosperity, governments should promote greater investment in mobile and fixed broadband, and use public money to plug the gaps in unprofitable rural areas.

That will help ensure the digital gains made during the pandemic are not squandered in the years to come.

Michael Stott is the FT’s Latin America editor

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