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Peru

How The Gray Economy Slows Down The Data Revolution

In Latin America, where half of all jobs are off the books, businesses can't tap into the vast and potentially valuable resource of data to usher in digital transformation.

 Farmers working in their plots in Costa Rica
Farmers working in their plots in Costa Rica
Ángel Guillén*

-Op-Ed-

LIMA — Data is one of the driving forces in process of digital transformation that is underway all across the world. But what happens when there are no numbers? Such is the case of the so-called informal economy. And that, in turn, is why off-the-books employment is a major barrier to fully using data as the resource that it is.

This is a particularly big problem in Latin America, where half of all jobs could be described as informal. As a region, therefore, it lags far behind in terms of exploiting data use to add value to products and services sold to the 600 million people living there.

Traditionally, public policies have first sought to formalize work before using data through fiscal, regulatory and credit mechanisms. In spite of improvements, informality remains chronic in this region. Complicating matters even more is the coronavirus pandemic, which may wipe away whatever progress has been made in recent decades.

Is there another way? Consider three examples of how data can reduce the informal economy:

First, in South and Southeast Asian countries people commonly have a card or QR code to pay for transportation services or shopping in grocery or convenience stores. This is itself an incentive for shopkeepers to be in the banking system and to work above board. The information can then be analyzed to find consumption patterns, and improve the value proposition of businesses.

The more people are in the system, the greater its benefits when mass data are used.

Second, new open banking regulations in Europe have favored the rise of thousands of businesses that use the shared data of millions of bank customers to provide more competitive financial services. Crossing more information can provide a better risk profile. Again, a small business has an incentive to enter the banking system.

Third, the coronavirus pandemic has shown our healthcare systems to be highly precarious, with serious problems in providing coverage and primary attention. Electronic medical histories and transfers of operations between hospitals would improve this attention. Data could be used to create algorithms that emit early warnings of people's health risks. The more people are in the system, the greater its benefits when mass data are used.

Let us consider now a small business near a transport hub that gains customers for using QR for payments. Its cash till is used by a fintech company to provide it with cheaper loans or, counsel better nutrition and dieting for the owners when they go for a medical checkup. Seeing these benefits, they may no longer object to "the treasury's share" as Latin Americans gingerly refer to tax.

Perhaps we shouldn't think of formalizing work so much as "datifying" it, as one inevitably entails the other.


*Ángel Guillén is director of analytics at Apoyo, a business consultancy in Lima.

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Photo of a sunset over the USS Nimitz with a man guiding fighter jets ready for takeoff

U.S fighter jets ready for takeoff on the USS Nimitz

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-Analysis-

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Stay up-to-date with the latest on the Russia-Ukraine war, with our exclusive international coverage.

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Visiting Paris on Tuesday, Ukrainian Defense Minister Oleksïï Reznikov recalled that a year ago, the United States had refused him ground-air Stinger missiles deliveries. Eleven months later, Washington is delivering heavy tanks, in addition to everything else. The 'no' of yesterday is the green light of tomorrow: this is the lesson that the very pragmatic minister seemed to learn.

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