Central America is at a critical juncture regarding its participation in the digital revolution. In November 2016 several Commissioners convened in San Jose, Costa Rica to engage ministers from the region on this issue. In this article, Commissioner Andrés Ruzo presents a vision to propel the region forward to a more active role in 21st Century economic development.

A Digital Canal is Mesoamerica’s Best Path to the Future

by | Jan 10, 2017 | Insight |

Much has been said about the Panama Canal and its positive impact on the local economy.   So much so that nearby Nicaragua has plans to take advantage of Central America´s strategic geography to emulate this initiative and create a second inter-oceanic canal through the San Juan River and Nicaragua Lake. Stakeholders in Costa Rica have an interest in promoting the creation of a Dry Inter-oceanic Canal, so that it can be used to transport tangible goods from ships in the Atlantic to ships in the Pacific with efficient rail logistics. These efforts have raised a number of questions.  How relevant are these initiatives in a world that has essentially become a service based digital economy?  Should we be making this type of investment for the future, or are we looking at the future through the rearview mirror?

We will soon be at the quarter mark for this 21st century, and the reality we live in is extremely different from that of the 19th and 20th centuries. We are living in the acceleration of the acceleration, in a hyper-connected, social and mobile world. A world in which the most valuable companies are those that have based their strategy on a digital platform that has no boundaries and does not bother to slow down to the regulatory rhythm, such as Uber, Airbnb, Google, Apple and Netflix. Connectivity is key to participating in the emerging services marketplace.

The stakeholders of these five continents are the ships of the future, bringing digital products and passing through whichever digital canal can offer them the best conditions.

We have before us an enormous opportunity: Mesoamerica is in desperate need of a Digital Canal and such a canal does not yet exist.  A Digital Canal is a place that provides favorable conditions such as: (i) infrastructure, mainly broadband; (ii) market sophistication, mainly related to capital markets; and (iii) talent and an ecosystem that encourages innovation and entrepreneurship. Costa Rica already meets these conditions, and has indeed been recognized as the main Foreign Direct Investment center for advanced services and manufacturing in the region.
Clearly, we could be more intentional in actively providing the missing elements to complete the creation of a digital business center, that we can call the “digital canal”.  What are the key elements of a digital canal?  First, it provides increased capacity through the region as well as geographically diverse routes to avoid a single point of failure, which would benefit far away stakeholders in Africa, Asia, Australia, and Europe.  In addition, there are (primarily North American) content provider stakeholders, particularly those that constitute the Pareto Principle of the Internet[1], that often seek to be physically closer to the users who visit their sites in order to reduce latency and failure points. These providers are currently looking into installing local servers in the Mesoamerican region to serve an area ranging from southern Mexico to Panama, including the Caribbean. The stakeholders of these five continents are the ships of the future, bringing digital products and passing through whichever digital canal can offer them the best conditions. In addition, there are nearby stakeholders that would benefit from the increased infrastructure in the region

A second key element of the digital canal is public policy that gives information infrastructure the necessary priority. The present opportunity can be realized by enabling the application of clear and strategic public policies.  Some countries, like Finland, have declared Internet access a public or national right, elevating it to a human right, like the access to information, education and knowledge. They have also included the Internet in the basic basket of goods and services everyone needs, eliminating not just sales tax, but all taxes, such as import taxes on products such as tablets, computers, routers and switches. Other countries have actively invited submarine cable providers to settle in their territories and have made data center infrastructure a strategic priority.

A third key element of the digital canal is financing.  Given that experts expect the traffic going through the envisioned digital canal to be proportionally much greater than the local traffic, revenues derived from tariffs on this international traffic passing through can be critical to the financing of the local infrastructure.

A fourth and final key element is a stable government and economy.  Latin America, like other regions, has been a difficult place for investors and business partners due to the uncertainty attached to corruption and unstable governments.  This is a reason why Costa Rica is the region’s most attractive option.

Such an initiative as the proposed digital canal is multidimensional and complex, but it is also very doable. We can look forward at the rest of the 21st century with hopeful eyes, and leverage everything that we have built upon – peace, nature, health and education talent –  and convert these inputs into the ingredients needed to realize the first Mesoamerican digital canal, in Costa Rica!

[1] These are providers whose services represent 20% of the applications that 80% of the people use, and these are the most popular applications, such as Google, Facebook, Netflix, Instagram, Snapchat, and LinkedIn.

andres-ruzo

Andrés Ruzo 

Commissioner Andrés Ruzo is a serial entrepreneur and currently the Chairman of LinkAmerica, where he serves countries throughout Latin America… read more