Caribbean & Central America - October 2020

The coronavirus (Covid-19) pandemic has accelerated many economic changes that were already under way, and the development of e-commerce in Central America is one example.

Digital commerce still has very low penetration in the region at just 1% according to a survey by market research firm, Kantar, published in June. This is less than the 6% penetration in all of Latin America and the 10% in Europe on estimates from Stelleo Tolda, chief operations officer at online marketplace MercadoLibre. However, the restrictions on movement brought in due to the pandemic have caused an explosion in e-commerce transactions. Kantar found that in Central America these increased by 299% in April alone, as people were forced to forego face-to-face transactions and shop online from home.

Guatemala is a particularly interesting case as domestic e-commerce businesses have been flourishing. In 2019, Guatemalans spent US$155m on e-commerce purchases from foreign firms, many of them operating via Post office (PO) boxes in the US, with US$110m spent in the local market, according to a survey by the e-commerce unit of the Guatemalan chamber of commerce. This year those numbers are forecast to reach US$250m in foreign transactions and US$240m locally, with local firms capturing a larger percentage of a growing market. Some 50% of Guatemalans make an online purchase each month, the survey found.

Buyers are heavily concentrated in the capital, but other parts of the country have also seen growth. In addition, around 5,000 firms were selling online in July, a number which is predicted to increase by 152% to reach 6,500 by the end of the year. These numbers are growing despite a high percentage of unbanked individuals and a low percentage of credit card holders, e-commerce has grown faster during the pandemic after years of steady progress.

In Honduras, local initiatives are driving this growth. One example is Sandmart.hn, which offers food and drink deliveries in the city of San Pedro Sula, Honduras’s second largest city and the capital of Cortés department. Costa Rican drinks company, Florida Ice and Farm (Fifco), is just one example of a company that brought forward plans to implement digital sales due to the pandemic. Fifco general manager, Ramón Mendiola, told Costa Rican daily, La Nación, in an interview in late August that the company had not planned to do so this year.

There are many initiatives under way to further develop the sector in Central America. For example Sube Latinoamérica, a digital commerce company, supports small businesses that want to build a web page, social media presence or online sales; Guatemala is part of the “eTrade for All” initiative run by the United Nations Conference on Trade and Development (Unctad) that makes e-commerce work for development; and in April, the Honduran government launched a small business digitalisation programme in association with the Organization of American States, which offers business owners free assistance to start selling online.

Analysts at Consortium Legal, a Central American law firm, says that the region as a whole has a strong regulatory framework that will allow further growth in the e-commerce sector, although Nicaragua lags behind its neighbours, and consumers seem to be getting more comfortable with buying online. However, the rapid growth of the sector has given rise to new opportunities for cybercriminals, as the rush to start selling products online means some companies don’t have adequate security features.