The human capital challenge for the development of Smart Cities in Latin America 

The human capital challenge for the development of Smart Cities in Latin America 

In this article, Daniel Yankelevich, Co-founder of Practia, a company bridging the gap between businesses and technology, discusses human capital’s impact on Smart City progression in the Latin America region. 

Daniel Yankelevich, Co-founder of Practia

What image comes to mind when you think of Latin America? You probably envision natural spaces, small towns, and not very urban places that are still relatively unpolluted. The reality, however, is quite different. Latin America (LATAM) is one of the most urbanised regions on the planet. Currently, 81.2% of the population in LATAM lives in urban areas, and by 2050, this number is projected to increase to 89%. 

LATAM, in fact, boasts the highest proportion of its population concentrated in megacities, defined as cities with more than 10 million inhabitants. According to the Institute for the Development and Innovation in Smart Cities (IDI): ‘this is an indication that the centre of gravity of the urban world is moving to developing countries.’ 

It comes as no surprise that LATAM cities are investing in infrastructure to become Smart Cities. Cities like Santiago, Buenos Aires, Bogota, Montevideo, Sao Paulo, Panama City and San Jose, among others, have shown improvements in over 100 indicators related to Smart Cities, and spending on Smart City initiatives has been steadily increasing. 

Smart City technologies, however, face criticism due to their potential to exacerbate income inequalities. Four factors are suggested to explain this phenomenon: the uneven diffusion of information and communication technologies, the affordability of these technologies for low-income citizens, the potential for Smart Cities to further divide human capital, and the involvement of private actors in project implementation. On this last issue, the BBVA bank noted in a 2021 report that one of the main disadvantages of Smart Cities is that ‘there is a dependence on technology service companies’, which often do not develop infrastructure in the region and only maintain commercial offices. 

LATAM presents specific challenges in terms of the infrastructure required to support Smart Cities. Some challenges are well-known, such as improving access to technology and increasing investment. Others are now gaining more attention, such as the need for human capital, coordination among stakeholders, information exchange, and suitable institutions. The region is reaching technological maturity, evident from the data: the tech industry in LATAM grew by 5.6% in 2022, reaching a total value of US$517 billion. LATAM also has the highest rate of entrepreneurship in the world, according to the Global Entrepreneurship Monitor, with venture capital investment surpassing US$5 billion. Some countries in the region have seen record levels of foreign direct investment, with Brazil receiving US$92 billion in 2022. Several LATAM startups have achieved unicorn status. To develop Smart Cities in LATAM, a large population of educated citizens is essential. The International Development Bank (IDB) estimated in a report that closing the digital gap would create over 15 million direct jobs in the region, boosting economic growth by 7.7%. 

The adoption of AI could be a game-changer in accelerating development. The impact of AI does not solely depend on technology; it primarily depends on how technology is adopted. Take education, for instance, as we already emphasized the importance of human capital and educated citizens. Strong results show the impact of tutors in early education. Children with access to tutors exhibit impressive improvements in learning results, in particular in math. Finding tutors is in general very challenging and especially in LATAM. Therefore, innovative ways to adopt AI in education could bridge the gap for many students. Replacing human tutors with AI assistance may not be straightforward, but it is imperative to find ways to incorporate AI to achieve better outcomes. AI does not inherently amplify system injustices; it is the intended use of AI that may either amplify or reduce those injustices. 

Regarding investment, LATAM offers numerous advantages that could attract more direct investment: proximity to the US, a compatible time zone, and a long history of being a war-free zone, likely to continue in that manner. All these factors position LATAM favourably in the new global value chains. 

LATAM has a pressing need for digital transformation in both the private and public sectors. Digital transformation provides the foundation upon which Smart Cities can be built. According to SPER Market Research, the LATAM Digital Transformation Market is estimated to reach US$ 207.87 billion by 2032 with a CAGR of 15.13%. We firmly believe that digital transformation helps to solve many of the challenges mentioned and, therefore, forms the basis for the development of Smart Cities. 

Digital Transformation can also be a great equalizer. Publicis Sapient has produced two documentaries, directed by the Academy Award-winning director Ben Proudfoot, showcasing real-life cases of how digital transformation positively changes the lives of people in need. These are not fictional scenarios; they are actual cases that complement any quantitative analysis. Technology can be a factor that reduces the gap in unequal societies. 

It is crucial not to overlook the significant heterogeneity within LATAM. While it’s common, it’s also a mistake to perceive LATAM as a homogenous entity. The differences are cultural, economic, and political, but there are also many common issues and challenges. Analysing each country individually would require an entire book, but we can expect most of LATAM to move in the same direction.  

Digital infrastructure projects must consider the need for human capital to facilitate the development of Smart Cities. This approach will contribute to the growth of an increasingly educated population and the strengthening of institutions. While Digital Transformation initiatives require significant effort, they have the potential to accelerate development and potentially reduce disparities. 

If these efforts are successful, we will have the opportunity to document several real cases of technology improving the lives of many people. 

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