Could the new Argentine government be the trigger for much needed digital innovation

Could the new Argentine government be the trigger for much needed digital innovation

Despite being one of the largest economies in the Latin America region and even a top 20 economy by size globally, the penetration of digital innovation in Argentina has been relatively shallow by comparison. This is reflected in an under-developed online travel technology marketplace and infrastructure – be that B2C or B2B – with few exceptions beyond the very successful Despegar.

To a significant extent innovation in travel has been held back by not only Argentina’s economic instability since 2001, and subsequent difficulties in accessing international finance capital, but to a greater extent by currency controls, high taxes and an unpredictable regulatory environment for travel businesses.

Following the investiture on Sunday of a new free-market promoting government led by Milei, promising to abolish the Peso and liberalize the economy, all of this could however potentially change soon according to Nicolás Posse, Country Manager for Argentina for the global Spanish-speaking online tours & activities seller Civitatis.

“Of course, legislative approval for such changes will be needed and the new President’s party doesn’t have a majority, so things could be watered down and will take time. But the fact that Milei won such a big mandate, at 55% of the vote, for campaign promises in such stark contrast with recent economic policy for the country would suggest that we’re likely to see a shift towards a more business friendly environment that the digital travel economy could benefit from.”

For sure the international financial community seems to think this as Argentine shares and bonds rallied strongly upon news of the Milei win a few weeks ago. This is very promising for the much-needed digital innovation that Argentina’s travel community requires as “investment is going to be key and local businesses don’t have much money in the bank to self-fund” adds Posse.

So what would a successful digital innovation evolution look like? In short, something closer to what we see in North America, Western Europe or developed parts of Asia. Civitatis believes that whether we are talking about providing in-destination experiences like tours & activities, hotel accommodation, or flights – or indeed the marketing, distribution and sale of such products – right now online technology solutions you are likely to take for granted like inventory systems or revenue pricing, channel management or third-party distribution solutions, and so on, all take place offline in Argentina. By virtue of being offline, that makes data collection and analysis almost impossible. Forget about using AI to automate processes, many actions still happen on triplicate sheets of paper!

To understand why currently such systems really aren’t commonplace in Argentina, first you need to understand some of the real challenges that the digital travel economy faces in Argentina currently. At its core the biggest problem is that most activity takes place in cash and offline, with even some online bookings requiring offline elements like paying in cash in person at a travel agent’s shop.

This is because currency controls mean that monies received from abroad are forcibly converted into the local currency, Pesos, and at an ‘official’ rate which does not reflect the street price. This cost means that despite cash being inconvenient and risky and time consuming, they prefer cash. Not least as high taxes and an unpredictable local regulatory environment mean people prefer to not declare their full earnings.

Posse from Civitatis comments “It can’t be stated just how much a cash economy is the enemy of digital innovation. Not least as businesses that aren’t transparent in their bookkeeping find it hard to raise capital to innovate. But more generally as digital payments are one of the first baby steps towards a digital economy. If you don’t have someone’s credit card details how can you take their reservation remotely? Or be sure they’re actually going to turn up? How are you going to automate refunds or rebookings?”.

Meanwhile it goes without saying that a focus on cash is not convenient for consumers, in fact it is off-putting as they are likely to be by the lack of protection, resulting reduced international demand for visiting the country – precipitating a downward spiral when it comes to investing in innovation.

Additionally, inflation levels of up to 100% a year have meant that travel sellers have had to adjust prices often on a daily basis and respond to the same requests from their suppliers and B2B partners. That’s time consuming and risky, not least considering they’re doing all that manually.

In short whilst over the last few decades other top 20 economies around the world have had a gradual digital evolution towards slick online retailing where you can have coffee delivered to your door via an app, in Argentina travel companies haven’t evolved much in innovation terms as they’ve been living hand-to-mouth from one crisis to the next.

So what does the path to digital innovation for the tourism sector look like? As implied above, Posse tells us “it starts with payments really. Right now there’s not many payment technologies available for the market that are fit for this new purpose, but hopefully with the new economic outlook we´ll see local companies springing up to fill this gap or indeed international companies coming in.”

With payments flowing digitally and data becoming available for the first time, it will be then much easier to begin to use modern technology solutions for inventory, pricing, marketing, sales and distribution. International providers of such solutions will no doubt swoop down onto the market, but there will be plenty of opportunity for local providers to spring up, taking advantage of local knowledge and relationships to create services more relevant to the needs of the market.

If Argentina can navigate this path then it should become an important player as a global source market too. That would be to the benefit of travel agents, tour operators and OTAs in Argentina itself – but also to all the international suppliers of services (B2C and B2B) that Argentines would be consuming. Without this digital revolution, that won’t really happen: a hotel in London or New York doesn’t want to accept cash on arrival!

Wrapping up, Posse states “We are yet to see what the new Milei government finally introduces as its actually economic policy. But we at Civitatis think that the most important thing it can do to develop a thriving digital travel ecosystem will be to create a clear, consistent and long-term regulatory framework. Travel can innovate in almost any environment as long as the rules of the game are transparent and reliable.”


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