This chapter examines how major global transformations – including the green transition, digital transformation and artificial intelligence, the transformation of food systems, demographic change, and evolving forms of international co‑operation and partnerships – are creating new development opportunities for Latin America and the Caribbean. It assesses the region’s capacity to seize these opportunities in a context of persistent macroeconomic, productive and social challenges, including weak growth, low productivity, limited fiscal space, financing constraints, labour informality, poverty and inequality. The chapter argues that turning these global shifts into stronger development outcomes will require policies that combine productive transformation, social inclusion and sustainability, with a key role for regional co-operation and integration.
Latin American Economic Outlook 2026
Abstract
Latin America and the Caribbean (LAC) can navigate a rapidly changing global context by turning major global shifts into opportunities for sustainable and inclusive development. Climate change, digital transformation, artificial intelligence (AI), demographic change and geopolitical fragmentation are reshaping the global economy. In the process, they are creating new risks but also opening new avenues for structural transformation. For LAC, these shifts create opportunities to strengthen its position in renewable energy, critical raw materials,1 low-emissions fuels, digital services, AI-related infrastructure, sustainable agriculture and food systems, and the care and silver economy, while diversifying and enhancing international partnerships. As demand grows for low-carbon energy, strategic minerals, digital infrastructure and reliable international partners, the region’s natural resource endowment, biodiversity, clean electricity matrix and growing human capital can become important sources of comparative advantage. If supported by appropriate public policies, these assets can help attract investment, foster innovation, create quality jobs and strengthen the region’s position in emerging global value chains (ECLAC, 2026[1]).
These trends emerge against a backdrop of persistent macroeconomic and structural constraints. Several LAC economies have demonstrated considerable resilience to recent global shocks, supported by stronger macroeconomic policy frameworks and relatively sound fundamentals. However, long-standing modest growth in LAC remains insufficient to support meaningful income convergence with advanced economies, largely reflecting weak productivity dynamics, low investment, limited innovation and constrained fiscal space. High debt-servicing costs, tight financing conditions, shallow financial markets and commodity-dependent external accounts further limit the region’s capacity to finance production transformation and respond to shocks.
Social progress also remains fragile and uneven. While labour markets have shown resilience, they remain characterised by high informality, segmented access to quality jobs, large skills gaps and persistent inequalities across gender, age, territory and household types. Poverty and inequality have declined in recent years but remain high by international standards. Meanwhile, many households remain weakly connected to contributory social protection systems. Addressing these challenges will require a policy agenda that combines formalisation; productivity upgrading through productive development policies such as those proposed by the Latin American Economic Outlook (LEO) 2025 (OECD et al., 2025[2]); better skills; broader tax base and more effective and progressive tax systems; and more comprehensive social protection.
The chapter is structured in two broad sections. The first examines five major global transformations and the important development opportunities they create for LAC, given the region’s specific strategic assets and advantages. It analyses the opportunities associated with the green transition; digital transformation and the AI revolution; the transformation of global food systems; demographic change; and evolving forms of international co-operation and partnerships. The second section assesses the socioeconomic panorama of the region, examining where LAC stands across key dimensions and arguing that the changing global context presented above represents an opportunity to overcome longstanding development challenges in the region. It first considers macroeconomic and structural constraints, including weak growth, limited productivity gains, fiscal pressures, financing constraints and external vulnerabilities. It then examines social conditions, with a focus on labour market segmentation, informality, poverty and inequality.
The global economy is undergoing profound transformations, including the green and digital transitions, demographic change, the transformation of global food systems, and the reconfiguration of global economic and geopolitical relations. These transformations are reshaping global patterns of production, investment, technology and trade, creating new opportunities for LAC to strengthen its role in the global economy and advance its development.
LAC enters this period of change with a distinctive set of strategic assets and advantages, including abundant natural resources, significant renewable-energy potential, rich biodiversity, a strong position in global food production, and close economic and political ties with major global economies. Together with the region’s geographic, productive and human capabilities, these assets position LAC to respond to emerging global demand for clean energy, critical raw materials, food and digitally enabled goods and services, while attracting investment, strengthening domestic value addition and supporting more diversified and resilient economies. The extent to which these opportunities translate into sustained development gains will depend on the region’s ability to mobilise investment, build capabilities and strengthen institutions, while leveraging regional and international partnerships.
The opportunity of the green transition: Renewable energy and critical raw materials
A significant part of the global economy is undergoing a move towards lower-carbon models of production and consumption. This green transition comes associated with a rapid deployment of renewable energy and increasing global demand for clean energy sources and critical raw materials, which in turn are reshaping investment, trade, technology and energy systems. In this context, access to abundant, reliable and competitively priced renewable energy is becoming an increasingly important source of comparative advantage.
These transformations create important development opportunities for LAC. Externally, the region can leverage its abundant resources to participate more actively in global markets and value chains, by supplying renewable electricity and critical raw materials, and producing transportable forms of clean energy, such as green hydrogen and its derivatives. Access to clean and competitively priced energy could also help the region attract investment in energy-intensive activities seeking to reduce their carbon footprint, while creating opportunities to develop local productive, technological and service capabilities. Internally, greater renewable-energy deployment could lower and stabilise energy costs, thereby enhancing the competitiveness of regional economies. It could also reduce external dependence and exposure to fossil-fuel price volatility, strengthen energy security and economic resilience, and facilitate compliance with international climate commitments. More broadly, if appropriately managed, the expansion of renewable energy and critical raw materials could contribute to a more inclusive and environmentally sustainable development model. Regional co-operation may also support these opportunities by addressing shared infrastructure limitations, improving regulatory co-ordination, and strengthening technological and productive linkages (OECD, Forthcoming[3]).
This section first examines the evolution of the green transition and renewable energy demand and supply, as well as LAC’s position in this context and the region’s readiness to seize the resulting opportunities. It then explores the main areas of opportunity for the region, both externally and internally.
The global deployment of renewable energy has accelerated amid recent global disruptions and declining costs
Renewable energy is becoming increasingly important in the global energy system, driven by rapid deployment, rising investment and growing demand for renewable electricity. In 2024, renewables accounted for 92.5% of new global power-generation capacity (IRENA, 2025[4]). At the same time, renewable electricity generation is projected to increase by 60% between 2024 and 2030 and is expected to meet more than 90% of the growth in global electricity demand over this period (IEA, 2025[5]). Beyond the energy system itself, the economic importance of clean energy technologies is also growing rapidly: their combined global market value has increased by 20% on average per year over the past decade, reaching nearly USD 1.2 trillion in 2025 (IEA, 2026[6]). At the same time, global investment is increasingly shifting towards clean energy, with investment in clean energy technologies and infrastructure expected to reach USD 2.2 trillion in 2026, twice the amount invested in fossil fuels (IEA, 2025[7]).
Renewable energy technologies have also demonstrated strong cost competitiveness. In 2024, renewables remained the most cost-effective option for new electricity generation globally based on a levelised cost of electricity (LCOE) basis (IRENA, 2024[8]). Between 2010 and 2024, the global weighted-average LCOE of utility-scale solar photovoltaic (PV) declined by around 90%, while onshore wind costs fell by more than 60% (IRENA, 2024[8]). New solar capacity added between now and 2030 will account for 80% of the growth in renewable power globally by the end of this decade. Onshore wind has emerged as the lowest-cost source of new power generation, with a weighted-average LCOE of USD 0.034/kWh, followed by solar PV (USD 0.043/kWh) and hydropower (USD 0.057/kWh) (IRENA, 2024[8]; IEA, 2025[9]).
The acceleration of renewable energy deployment has been fostered by a mix of economic-related issues, environmental priorities and energy security concerns. These include better cost competitiveness, increasing investment flows, industrial policy objectives, growing electricity demand, the commitment of countries to Nationally Determined Contributions and the search for new sources of competitiveness in a changing global energy economy. Moreover, in recent years, the global energy system has experienced successive shocks, including the COVID‑19 pandemic, the war of aggression against Ukraine by the Russian Federation (hereafter “Russia”) and heightened geopolitical tensions in the Middle East. These shocks have exposed vulnerabilities associated with fossil-fuel dependence and underscored the strategic value of low‑carbon, domestically available energy sources.
The rapid expansion of clean-energy markets is accompanied by a highly uneven geography of investment and production, with potential implications for global energy markets and industrial competitiveness. The People’s Republic of China (hereafter “China”) has emerged as the world’s largest energy investor, with its share of global clean energy investment rising from around one-quarter a decade ago to almost one-third today (IEA, 2025[7]). China also accounts for around 60% of global manufacturing capacity in key clean‑energy technologies, including solar PV modules, wind power equipment and batteries, and approximately 40% of global electrolyser production (IEA, 2023[10]). Renewable energy investment increased substantially across all three major economies between 2015 and 2025. Investment in renewable power and low‑emissions fuels (including sustainable biofuels, biomethane, low-emissions hydrogen and hydrogen-derived fuels)2 more than tripled in China, increasing by around 201% over the period, while the European Union and the United States expanded investment by approximately 116% and 95%, respectively (Figure 1.1). These trends point to a broad acceleration of clean-energy investment across major economies, with particularly rapid growth in China and sustained expansion in the European Union. The concentration of investment and manufacturing capacity in a small number of economies could shape third countries’ ability to benefit from the expansion of clean-energy markets and to develop competitive positions in emerging value chains.
Investment in renewable energy has also been growing in LAC in the last decade, and the region already has one of the cleanest energy mixes globally
Clean energy investment in LAC has increased by almost 25% since 2015, reaching USD 70 billion in 2025, while investment in fossil fuels declined by more than 20% in the same period (Figure 1.1). Investment trends underscore tangible progress despite different country contexts and transition pathways. Colombia and Costa Rica recorded the largest relative increases, reflecting a doubling of renewable investment flows. Brazil also played a central role in strengthening regional momentum, supported by an enabling investment environment for small‑scale solar PV and bioenergy projects.
Note: 2025 values are estimated.
Source: IEA (2025[7]), World Energy Investment 2025, https://www.iea.org/reports/world-energy-investment-2025.
LAC countries have a markedly cleaner energy mix than the world average, reflecting in large part the region’s exceptionally high share of renewable energy in electricity generation, mainly due to the region’s abundant hydropower and growing deployment of wind and solar energy. However, fossil fuels continue to account for a large share of the region’s overall energy consumption, particularly in transport and other non-electric uses, highlighting the scope for further decarbonisation (OECD, 2023[11]; OECD, 2023[12]).
Renewable sources in LAC accounted for 34.3% of total energy supply (TES) in 2024, compared with 14.5% globally. This reflects the region’s strong reliance on biomass (20.5%) and hydropower (8.8%), whose shares are substantially higher than the global averages of 10.6% and 3.9%, respectively. This is largely because coal plays a much smaller role in the region (3.9%) than worldwide (31.3%), despite the continued importance of oil (32.3%) and natural gas (28.2%) (Figure 1.2, Panel A). The contrast is even more pronounced in the power sector, where renewables generated 64.3% of electricity in LAC, more than double the global average of 31.9%. This reflects the dominant contribution of hydropower (42.5% of generation), complemented by wind (9.2%), solar (7.8%) and renewable thermal sources (4.3%) (Figure 1.2, Panel B). Consequently, non-renewable sources accounted for only 35.6% of electricity generation in LAC, compared with 69.8% globally. In sum, the region has progressed much further in decarbonising its electricity sector than its broader energy system, where fossil fuels still supply nearly two-thirds of total energy demand.
Note: In Panel A, World category “Other” includes biomass, solar, wind and geothermal. In Panel B, World category “Other” refers to geothermal and biogas.
Source: OLACDE (2026[13]), Sistema de Información Energética de América Latina y el Caribe (SIELAC), energy balance matrix and electricity generation by source, Latin American and Caribbean Energy Organization (OLACDE), https://sielac.olade.org/.
Renewable electricity generation is expected to continue expanding in LAC, increasing from just over 60% of electricity supply today to around two-thirds by 2030 and close to 80% by 2050 under current policy settings (IEA, 2023[14]). Solar PV and wind are the main drivers of this growth, led by Brazil, Mexico, Chile and Argentina, while coal- and oil-fired generation declines. Hydropower remains a key pillar of the region’s power systems, particularly in Brazil, Colombia, Costa Rica, Ecuador, Panama, Paraguay and Venezuela, being an important source of flexibility, helping to integrate growing shares of variable renewable energy and maintain system reliability. As renewable energies continue to expand, this flexibility will become increasingly important to balance electricity systems, maintain reliability and facilitate the integration of larger shares of renewable energy (OECD, 2023[12]; IEA, 2023[14]). At the same time, climate change is expected to alter hydrological regimes across the region, increasing exposure to droughts and affecting hydropower output. These risks reinforce the need for more diversified and climate-resilient electricity systems, supported by investment in grid infrastructure, energy storage, demand-response mechanisms and other sources of operational flexibility to ensure security of supply and facilitate the integration of variable renewable energy (OECD, Forthcoming[3]; OECD, 2023[12]).
LAC’s abundant renewable resource base offers an opportunity to strengthen competitiveness, enhance energy security, and support job creation and sustainability
Increased renewable-energy deployment can strengthen the competitiveness of regional economies by reducing and, over time, stabilising energy costs. This is particularly relevant for electricity-intensive activities, for which energy costs can represent a significant share of production costs. Continued expansion of low-cost renewable generation could therefore help reduce electricity costs for households and firms, while promoting greater diversification of the generation mix. Realising these benefits will, however, require complementary investments in electricity grids, storage and other forms of system flexibility to integrate higher shares of variable renewable generation.
Greater reliance on domestic renewable resources could also strengthen energy security and economic resilience by reducing exposure to international fossil-fuel markets and price volatility. This is particularly relevant given that, despite being a net exporter of crude oil and coal, LAC is a net importer of oil products and natural gas (IEA, 2023[14]). Expanding renewable generation can reduce the need for imported fuels and limit the transmission of external energy shocks to electricity prices, inflation and production costs.
The adoption of renewables can also be a source of development by helping to create quality jobs. In a scenario where investments in green sectors in LAC increase by three percentage points annually, additional net job creation could reach 10.5% by 2030 in the region (OECD et al., 2022[15]). Realising these gains will require well-targeted investments in human capital to address persistent gender gaps in green sectors and develop the skills required for emerging green occupations. New green occupations in LAC tend to be formal and skill-intensive, often requiring advanced scientific and technical competencies, which are more likely to be held by highly educated men (OECD et al., 2023[16]).
Finally, renewable-energy deployment can help countries advance towards their international climate commitments while supporting a more environmentally sustainable development model. Beyond reducing greenhouse-gas emissions from electricity generation, the substitution of fossil fuels with renewable sources can reduce local air pollution and other environmental pressures associated with fossil-fuel extraction and combustion. At the same time, renewable-energy deployment can generate environmental and social pressures of its own, including through land use, impacts on biodiversity and water resources, and demand for critical raw materials. Strong environmental governance and appropriate social safeguards will therefore be essential to ensure that the expansion of renewable energy translates into lasting environmental benefits and contributes to a more sustainable development model.
These benefits could be maximised by putting in place policies to advance regional grid integration. In fact, regional electricity integration could allow countries with different resource endowments and demand patterns to share electricity and flexibility. Stronger regional interconnections could reduce flexibility needs, broaden access to dispatchable resources and improve resilience to changing climatic conditions (IEA, 2023[14]). Beyond physical interconnections, co-ordinated system operation, congruent trading agreements, and reliable rules for cross-border electricity exchanges will also be needed to realise these benefits (OECD, Forthcoming[3]; IEA, 2023[14]). As an illustration, the experience of the Regional Electricity Market (Mercado Eléctrico Regional, MER) in Central America, an EU’s flagship initiative of the Global Gateway Investment Agenda, and the System of Electricity Interconnection of the Countries of Central America (Sistema de Interconexión Eléctrica de los Países de América Central – SIEPAC) are combining cross-border transmission infrastructure with regional governance, market-operation and regulatory arrangements to facilitate electricity trade and improve system integration (IDB, 2024[17]).
LAC could enhance and expand its role as an important supplier of renewable energy transition commodities and products to global markets
LAC’s abundant renewable energy resources and relatively clean electricity mix place the region in a strong position to supply a range of products and inputs that are expected to play a critical role in the global energy transition. These inputs include green hydrogen and its derivatives (such as ammonia, methanol and e‑fuels); sustainable aviation fuels and other biofuels; low-emissions industrial products such as green steel and green fertilisers. Realising this potential, however, will depend on the region’s ability to attract investment; develop enabling infrastructure; strengthen domestic value chains; and provide stable and predictable policy and regulatory frameworks that support long-term industrial development (ECLAC, 2026[1]).
Low-emissions hydrogen production at lower costs could foster decarbonisation of hard to abate sectors in LAC and overseas
The region’s relatively low-emissions electricity mix provides an advantage to attract firms from abroad seeking to decarbonise production processes and supply chains in response to tightening climate regulations, investor expectations and consumer demand. This is particularly relevant for electricity-intensive activities such as green hydrogen production, green steel, fertilisers, mining and minerals processing, data centres and advanced manufacturing (IEA, 2023[14]). Attracting FDI and foreign activities seeking reliable, abundant and low-carbon sources of energy could generate positive spillovers for local economies by strengthening domestic supply chains, creating demand for local goods and services, and fostering technology and knowledge transfer.
Similarly, LAC countries can also be strategic providers of renewable electricity for other countries, either directly, where cross-border interconnections allow, or through transportable forms of clean energy and other products required for the global energy transition. One notable example is low emissions hydrogen,3 which LAC has the potential to produce at a lower cost than many other regions and could help decarbonise hard-to-abate sectors (e.g. long-distance trucking, aviation, shipping and heavy industry) in the region and overseas (IEA, 2023[14]). This is a growing opportunity, as global hydrogen demand is projected to increase 15% by 2030 and 45% by 2050 compared with 2022 (IEA, 2023[14]).
LAC exports of hydrogen-based fuels are expected to represent 15% of low-emissions hydrogen regional production by 2030 and 45% by 2050 (IEA, 2023[14]). Moreover, intraregional demand is expected to rise faster than the global average although it remains concentrated in traditional applications (oil refining, ammonia and methanol and iron and steel). Hydrogen production in LAC is currently concentrated in six countries accounting for almost 90% of regional demand and production (Argentina, Brazil, Colombia, Chile, Mexico and Trinidad and Tobago) (IEA, 2021[18]). Trinidad and Tobago is the largest hydrogen consumer, largely driven by its ammonia and methanol industries. Scaling up low-emissions hydrogen production could contribute to reduce the region’s reliance on imported natural gas and ammonia given that almost 90% of hydrogen in LAC is produced using natural gas (IEA, 2023[14]).
Policy support for hydrogen is gaining momentum across LAC. Chile was the first country in the region to adopt a national hydrogen strategy in 2020, followed by Colombia in 2021, Uruguay in 2022, and Argentina, Brazil, Costa Rica, Ecuador and Panama in 2023. Over 200 low-emissions hydrogen projects are planned in LAC. Near-term development opportunities lie mostly in refining and ammonia production for domestic use, which may provide demand for initial low-carbon hydrogen projects and support their gradual scale up. A phased approach to supply in the region, starting with smaller-scale projects, will help mitigate risks, reduce capital investment and provide valuable experience for scaling up in the future. The main barriers lie in high capital costs, infrastructure gaps and the need to create global markets. A key challenge for scaling up low-emissions hydrogen production is ensuring sustainable water use, as electrolytic hydrogen requires reliable water supplies. To avoid increasing pressure on local water resources, robust site assessments, water management and the use of alternative sources such as desalinated seawater or treated wastewater are essential, particularly in water-stressed areas (OECD, 2023[12]).
LAC is also well positioned to expand production of low‑emissions fuels. Bioenergy is a growing industry in the region, with biofuels playing an important role in advancing both energy security and climate objectives. The region already accounts for more than one-quarter of global liquid biofuel production, with Brazil representing around 93% of regional output (OLACDE, 2024[19]). The share of biofuels in road transport in LAC is roughly twice the global average and has continued to increase over the past decade (IEA, 2024[20]). Rising global demand for sustainable aviation fuels (SAF), conceived as a major pathway to decarbonise the aviation sector, could create new exports opportunities for LAC countries. Biojet kerosene is particularly promising because it is a drop-in fuel that can be used in existing aircrafts with little or no modification. Today biojet kerosene production makes up for only 0.1% of global aviation demand, but global demand is projected to increase in the next decades (IEA, 2023[14]). LAC’s biojet kerosene production in LAC is projected to represent from near zero to around 5-20% of global production by 2030, building on its competitive advantages in biofuel production, abundant biomass availability and industrial know-how. Brazil (Fuel of the Future Law No. 14.993/2024), Chile (SAF Roadmap 2050 in 2024) and Colombia (National SAF Roadmap in 2025) have already adopted dedicated strategies to support the development of sustainable aviation fuels, providing policy signals that could help attract investment and position the region as a future supplier of SAF to international aviation markets (Governo Federal of Brazil, 2024[21]; Government of Chile, 2024[22]; Government of Colombia, 2025[23]).
Partnerships to advance the green transition can provide a favourable context for LAC to make the most of its abundant renewable energy sources and benefit international partners seeking to engage with the region. For instance, the European Union’s technology, investment capacity and experience in green transition policies create strong complementarities with LAC’s assets. Co-operation is already advancing through initiatives such as the regional programme Global Gateway Euroclima, which supports renewable hydrogen, energy storage and regional electricity markets, as well as Team Europe co-operation on green hydrogen in countries such as Chile. The opportunity extends beyond energy supply to developing new technologies, value chains and green industries in both regions. This is reflected in the Regional Electricity Integration initiative, through which the EU, LAC governments and regional institutions are working to strengthen electricity grids, cross-border interconnections, regulatory co-operation and the deployment of renewable energy across the region.
The LAC region holds strong potential to become a strategic supplier of critical raw materials for the green transition
Sustained demand growth for critical raw materials is projected over the coming decades
The global energy transition is expected to drive sustained growth in demand for critical raw materials over the coming decades, with the clean energy sector accounting for the bulk of incremental growth. Projections suggest that global demand for lithium will increase threefold between today and 2040; graphite demand will double; and nickel demand will increase by around 65% in the same period. Demand for cobalt and rare earth elements is also expected to expand significantly, rising by around 50‑60% over the same period. Copper, which already serves the largest established market among these materials, is projected to grow in demand by around 30% by 2040 (Figure 1.3).
Note: Mt = million tonnes; kt = kilotonnes. Figures are projections under (IEA, 2026[24]) Stated Policies Scenario, an exploratory scenario that reflects the prevailing direction of the energy system under today’s policy settings, without assuming that aspirational targets are met. The figures for copper are based on refined copper (excluding direct-use scrap); those for rare earth elements are for magnet rare earth elements only. Growth rates (in blue) are between 2024 and 2040.
Source: Authors’ elaboration based on IEA (IEA, 2026[24]), Global Critical Minerals Outlook 2026, https://www.iea.org/reports/global-critical-minerals-outlook-2026.
These trends reflect distinct demand for drivers across technologies. The deployment of batteries in electric vehicles (EVs) and stationary storage applications underpins strong growth in demand for lithium, graphite, nickel and cobalt. At the same time, increased investment in construction, grid expansion and the electrification of industrial equipment is driving rising demand for copper. Growing deployment of EVs and wind power is also boosting demand for permanent magnets, intensifying requirements for magnet rare earth elements (IEA, 2025[25]; OECD, 2026[26]).
LAC could become a strategic supplier of critical raw materials for the global green transition, reflecting the scale and diversity of its natural resource endowment
The region is a major producer of key minerals for clean energy technologies. While Argentina, Bolivia, Chile and Peru are notable for copper or lithium, Venezuela, Brazil, Argentina, Mexico, Peru and Guyana have substantial oil and natural gas resources (IEA, 2023[14]).
LAC’s critical raw materials market represents around 25% of the global total, with an estimated value of USD 180 billion. Copper accounts for the largest share (USD 70 billion), followed by iron ore (USD 50 billion), gold (USD 30 billion) and silver (USD 10 billion) (OLACDE, 2024[27]). In 2023, the region held 48% of global lithium reserves, 36.6% of copper, 35% of molybdenum and 34.5% of silver reserves (Figure 1.4). LAC includes the world’s largest copper producer (Chile); the world’s largest silver producer (Mexico); one of the world’s top ten steel producers (Brazil); the second‑ and fourth‑largest lithium producers (Chile and Argentina, respectively); and a top ten bauxite producer (Jamaica) (OECD et al., 2022[15]).
Source: ECLAC (2024[28]), Critical minerals for the energy transition and electromobility: Economic development opportunities and socioenvironmental challenges, https://www.cepal.org/en/insights/critical-minerals-energy-transition-and-electromobility-economic-development-opportunities.
Projected supply gaps for several critical raw materials present an opportunity for LAC
LAC could step in to bridge expected supply gaps for several minerals under current announced mining projects (IEA, 2026[24]). Future supply is unlikely to keep pace with projected demand for several minerals critical to clean energy technologies, particularly for copper, cobalt and lithium. Meanwhile, risks persist for graphite depending on project execution and policy developments. The projected supply gap for copper is approximately 25% by 2035 (Figure 1.5). These projections suggest that additional production capacity will be needed from new jurisdictions. This, in turn, makes the case for mineral-rich countries in LAC to expand investments in critical raw materials, particularly Chile and Peru for copper; Argentina, Chile and Bolivia for lithium; Brazil for graphite, rare earths and nickel; and Cuba for cobalt (IEA, 2026[24]).
Note: CPS = Current Policies Scenario; HDS = High Demand Scenario; STEPS = Stated Policies Scenario. The percentage values indicate the share of base case supply against 2035 primary supply requirements in the STEPS. Expected supply is based on mined or raw material output based on announced projects, except for graphite, where the figure refers to the sum of natural flake graphite and synthetic graphite supplies. Primary supply requirements are calculated as total demand net of secondary supply, also accounting for losses during refining operations. Rare earths refer to magnet rare earth elements only.
Source: IEA (2026[24]), Global Critical Minerals Outlook 2026, https://www.iea.org/reports/global-critical-minerals-outlook-2026.
Lithium and copper offer significant opportunities for LAC, reflecting both the projected increase in global demand for these critical raw materials minerals and the region's large share of global reserves and production. Led by Argentina, Bolivia and Chile, LAC supplies 35% of the world’s lithium and holds around half of global lithium reserves (48%). The region accounts for 40% of the global production of copper, led by Chile (27%), Peru (10%) and Mexico (3%), respectively (IEA, 2023[14]). Lithium carbonate-equivalent production capacity in LAC is projected to expand rapidly over the next decade, by around 2.7 times. If projects currently in the pipeline or classified as probable are realised, production capacity could increase fivefold (ECLAC, 2024[28]). Global copper demand is projected to increase from around 26 Mt in 2023 to more than 36 Mt by 2040, driven largely by the expansion of clean energy technologies, electricity networks and electric vehicles (IEA, 2025[25]). Realising this potential will require targeted investment, adoption of environmentally and socially responsible mining practices, and coherent policy frameworks to strengthen regional and local value chains. Co‑ordinated planning – both within the region and with global energy demand trajectories – will be critical to promote value addition, create quality employment and ensure that mineral development translates into sustained socio‑economic gains.
Investment in critical-minerals production is exposed to fast-moving technology and demand cycles. Advances in battery chemistries and other clean-energy technologies could shift demand away from specific minerals and affect the commercial viability of long-lived mining and processing projects. LAC countries can mitigate these risks by diversifying their mineral portfolios, strengthening market and technology monitoring, and developing adaptable value chains that can respond to evolving demand.
Avoiding the extractivism trap: LAC’s critical raw materials endowment is substantial, although still concentrated in extraction and raw material exports
LAC’s resource endowment is substantial, although the region captures only a limited share of the value generated along critical mineral supply chains. In most countries, mining remains concentrated in extraction, with downstream refining, chemical processing and manufacturing largely taking place elsewhere. In 2025, LAC countries refined on average only around 20% of the key energy minerals they extracted (excluding lithium) (IEA, 2026[24]). Critical mineral projects in the pipeline could generate approximately USD 185 billion in cumulative economic value by 2035 for the region. However, if local refining and processing capacities were expanded substantially, the economic value generated could rise to approximately USD 220 billion, illustrating the importance of moving beyond extraction towards downstream activities (IEA, 2026[24]). Nevertheless, LAC remains far behind East Asia in processing capabilities. China dominates many midstream segments, including refining and battery materials production, giving it a decisive advantage in capturing value from global supply chains (IEA, 2026[24]).
Critical raw materials’ trade shows that LAC remains more dependent on raw material exports than any other major resource-rich region. Primary products account for approximately 62% of the region’s critical raw materials’ exports, while semi-processed products represent only 38% (Figure 1.6). By comparison, semi-processed products account for a larger share of mineral exports in other resource-rich regions, reaching 58% in Africa and 60% in Oceania. This composition highlights a key structural challenge for the region: translating its strong mineral resource base into greater participation in processing, refining and other higher value-added activities along critical mineral value chains (OECD, 2026[29]; ECLAC, 2026[1]).
Note: “Critical raw materials” refers to aluminium (including alumina and bauxite), cobalt, copper, graphite, lithium, nickel and rare earth elements.
Source: Authors’ elaboration based on ECLAC (2025[30]), Foreign Direct Investment in Latin America and the Caribbean, 2025, https://www.cepal.org/en/publications/83116-foreign-direct-investment-latin-america-and-caribbean-2025.
LAC will need the right enabling conditions in place to move beyond extractivist patterns of natural resource management. Holding vast reserves of critical raw materials does not automatically translate into higher exports or income gains. For example, critical raw materials account for 55% of export revenues in Chile and 40% in Peru, with exports remaining concentrated in raw and minimally processed forms (IEA, 2026[24]). The ability to capture value from these resources depends on structural conditions, including access to reliable and competitively priced energy, adequate infrastructure, an enabling regulatory framework and achieving higher levels of economic complexity. These conditions are essential for participating in higher value‑added segments of production chains. In the absence of these factors, LAC countries risk replicating previous extractivist patterns, with limited opportunities for upgrading and value capture. Strong technological foresight capabilities; inclusive social governance; robust environmental regulations; and a careful co‑ordination of critical raw materials strategy within a broad, sustainable and equitable industrial policy are critical for long-term success (Lebdioui and Riofrancos, 2026[31]).
Opportunities for LAC in mineral production are increasing, although the region will need to focus on creating higher value added, benefiting local economies, creating quality jobs and taking into account sustainability aspects. Global critical mineral supply and processing, as well as refining chains, remain highly concentrated, although mining supply shows signs of mild diversification. The top three producing countries, on average, account for 76% of global mine production. This share is projected to decline modestly to 73% by 2035, except for nickel where 70% of global supply is concentrated in Indonesia. For lithium in particular, supply is expected to become more diversified as growing production in Africa and continued investment in Argentina reduce the combined share of Australia, Chile and China from around 75% to below 70% (IEA, 2026[24]). In this context, LAC can offer a combination of large resource endowments, proximity to North American markets and growing renewable electricity availability that could support lower-carbon mineral production. The challenge remains to increase value creation.
Refining remains significantly more concentrated than mining at the global level, making it more difficult and costly for individual countries to invest in developing these capacities in isolation. Today, China accounts for just under 50% of global copper refining capacity, 70% of lithium refining, 75% of cobalt refining, 85% of magnet rare earth separation and over 90% of battery-grade graphite production (IEA, 2026[24]). At the same time, Indonesia has rapidly emerged as a dominant actor in nickel processing, accounting for 70% in 2024 (UN Comtrade, 2026[32]). Concentration risks have become increasingly important as governments adopt export controls and industrial policies aimed at securing domestic access to strategic raw materials. Export restrictions on critical raw materials have increased more than fivefold since 2009. They remain at historically high levels, covering up to 70% of global exports of cobalt and manganese, 47% of graphite exports and 45% of rare earth elements (OECD, 2026[33]).
Producing countries across LAC are pursuing diverse strategies to capture a greater share of value from critical mineral production. While the region is a major supplier of copper, downstream processing and manufacturing activities remain limited, with less than 10% of locally mined copper used in domestic manufacturing. To address this gap, in lithium, Chile has sought to attract investment in downstream industries through preferential supply arrangement. For its part, Mexico has strengthened state involvement in the governance and development of strategic mineral value chains since 2023. Meanwhile, Argentina has coupled investment incentives with efforts to expand local supplier development and processing capacity. In addition, Brazil has leveraged industrial and innovation policies to support domestic production of battery materials and clean energy technologies. In the Andean region, countries such as Peru are increasingly exploring strategies to promote local beneficiation, technology transfer and stronger linkages between mining operations and domestic industries.
The critical raw materials sector could become an increasingly important source of employment in LAC, particularly if producing countries move beyond extraction into processing and manufacturing. In Chile, for example, the development of domestic lithium value chains could create between 19 000 and 32 600 jobs by 2035, with employment gains concentrated in higher value-added activities such as cathode and battery production. In Argentina, seven lithium production plants were established in the last decade, creating more than 5 000 direct jobs in the northwest region. Nonetheless, construction phases can employ up to six times more workers than operations phases (OECD, 2026[26]). Targeted training and certification requirements could help equip local workers with the skills needed for operational roles, facilitating their gradual integration into the formal economy, improving access to social protection systems, including health care, pension programmes and unemployment benefits (IEA, 2023[14]; OECD, 2026[26]).
Regional integration could enable a more diversified and resilient critical raw materials ecosystem than any single country could develop independently. For example, lithium extraction in the Southern Cone, Brazilian processing capabilities, Andean copper production and Mexican manufacturing could together support regional participation in battery and clean technology supply chains. This would help the region to move beyond its traditional role as a supplier of raw materials and capture a greater share of the economic benefits associated with the global energy transition. Further regional integration provides opportunities to strengthen investment attractiveness, develop shared infrastructure, foster technology transfer and develop skills to build more competitive and resilient critical mineral value chains (IEA, 2026[24]).
The importance of regional co-operation is increasingly recognised by governments across the region. In August 2026, Chile, Argentina, Bolivia and Peru signed a joint declaration on strategic minerals for regional integration, described as a first step towards a more permanent partnership. The declaration aimed at positioning the region as a reliable and strategic supplier of critical raw materials for the energy transition, electromobility and artificial intelligence, by promoting sustainable mining development, technical co‑operation and responsible investment (Ministry of Mining of Chile, 2026[34]). This experience builds on existing binational co-operation frameworks, notably the reactivation of the Chile-Argentina Treaty on Mining Integration and Complementation in 2026 and the Memorandum of Understanding on Mining Affairs signed by Chile and Peru in 2025. Moreover, the Permanent Forum for Technical Dialogue on Lithium, co‑ordinated by ECLAC since 2022, brings together public institutions and state-owned enterprises from Argentina, Bolivia, Brazil, Chile and Mexico, while engaging subnational authorities, private stakeholders and international partners. The forum promotes sustainable lithium development through regional co‑operation, technical exchange and knowledge sharing (IEA, 2026[24]).
International partnerships will also be critical. For instance, the EU has an interest in diversifying and making its supply chains more resilient and sustainable. This shared interest is reflected in EU strategic partnerships with Argentina and Chile on sustainable raw-material value chains, covering investment, research, infrastructure, skills and higher-value processing, as well as a broader EU initiative on responsible mining in LAC. The EU–LAC Global Gateway Investment Agenda explicitly supports investment in critical raw materials and joint value chains, including the EU-Brazil Critical Raw Materials Partnership, which has identified joint investments in lithium, nickel and rare earth elements in the country. Moreover, the EU-IDB Critical Raw Materials Initiative backed by a EUR 6.3 million EU grant and expected to leverage around EUR 120 million in IDB investments will support initiatives in mining governance, geological knowledge, sustainable extraction and critical raw materials value chains, in Argentina, Bolivia, Brazil, Chile and Ecuador (EU, 2024[35])
Realising the development potential of critical raw materials will require a comprehensive policy approach that ensures local beneficiation, strengthens domestic value addition, mobilises investment and supports industrial development, while ensuring that mineral wealth translates into broad-based economic and social benefits. Key priorities include ensuring responsible business conduct and due diligence of mining companies, fostering regional co‑operation across strategic value chains, developing local supplier capabilities and skills, and promoting innovation and technology transfer. At the same time, governments will need to strengthen environmental governance, transparency and community engagement to ensure responsible and inclusive development. Effective management of resource revenues and macroeconomic risks, including through fiscal frameworks and economic diversification strategies, will also be critical to maximise long-term development gains and avoid the adverse effects often associated with commodity dependence.
The digital transformation and the AI revolution: A strategic opportunity for productivity, inclusion and sustainable development
Digital technologies are becoming foundational to how economies produce, trade, innovate and deliver public services, while the rapid development of artificial intelligence (AI) is accelerating this transformation. The expansion of cloud computing, data infrastructure and AI is reshaping production processes and creating new opportunities across a growing range of sectors. For LAC, this trend presents both a development opportunity and a risk: digital technologies can help address long-standing productivity and inclusion gaps, but uneven access, skills and productive capabilities could also widen existing divides.
This section first documents the acceleration of digital transformation and AI globally and in LAC. It then considers three broad channels through which the region could benefit: leveraging its renewable-energy and critical-mineral endowments to support the digital transition; strengthening its capacity to develop and adapt digital technologies and AI, albeit selectively; and using digitalisation to raise productivity, improve public services and expand participation in new activities and markets. The final part considers the infrastructure, skills, productive capabilities and institutions needed to capture these opportunities (García Periche and Martínez Pinto, 2024[36]; OECD et al., 2025[2]; ECLAC, 2025[37]).
Digital transformation and Artificial intelligence (AI) are rapidly expanding globally, while LAC’s capacity to capture its benefits remains uneven
Artificial intelligence has moved rapidly from a specialised technology to a mainstream economic technology, with generative AI driving an especially rapid expansion in adoption and investment. Generative AI reached around 53% population adoption globally within three years of its introduction, faster than the personal computer or the Internet, while organisational AI adoption in surveyed organisations reached 88% in 2025. Global corporate investment in AI more than doubled in 2025, underscoring the speed at which the technology is moving from experimentation towards widespread deployment (Stanford HAI, 2026[38]).
The participation of LAC in this global trend remains uneven. The region has been particularly active in terms of AI usage, accounting for 14% of global visits to AI solutions and ranking third worldwide in downloads of generative-AI applications. Expenditure on AI adoption in LAC, measured by the revenues of AI solutions and service providers, was estimated at USD 11.59 billion in 2023, equivalent to only 3.7% of global expenditure on AI solutions and services (Figure 1.7). Although the region’s AI expenditure slightly exceeded that of the Middle East and Africa (USD 9.55 billion), spending was approximately seven times lower than in the United States (USD 87.18 billion) and more than five times lower than in Europe (USD 63.18 billion). This gap in AI spending risks limiting the region’s capacity to develop, deploy and adapt AI technologies at scale (ECLAC, 2025[37]).
Note: AI expenditure was based on the revenues of AI providers. Latin America includes: Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Dominican Republic and Uruguay.
Source: ECLAC (2025[37]), Overcoming Development Traps in Latin America and the Caribbean in the Digital Age: The Transformative Potential of Digital Technologies and Artificial Intelligence, https://www.cepal.org/en/publications/81383-overcoming-development-traps-latin-america-and-caribbean-digital-age.
The potential economic gains are nevertheless substantial. Based on conservative approaches, AI has been estimated to generate USD 565 billion in additional economic output in LAC over 2025-2030, equivalent to around 1.03% of projected cumulative GDP over the same period (Figure 1.8) (ECLAC, 2025[37]). However, recent evidence suggests that only 23% of LAC organisations are currently generating any economic value from AI use, while just 6% report significant value creation (WEF and McKinsey & Company, 2026[39]). This suggests that the region is already engaging with AI at scale as a user, but has significant scope to translate adoption into productivity gains, new activities and higher-value capabilities.
Note: Latin America calculations include: Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru and Uruguay. This aggregate economic contribution of AI to output (GDP) breaks down as follows: (i) spending on AI (as measured by the revenues of AI service providers); (ii) the indirect effects of AI services on the other sectors of the economy; and (iii) the indirect effects that the complementarities between AI and the use of cloud computing have on the economy, measured by the benefits from AI in terms of cost efficiency, new product development, support for start-up incubation and the like.
Source: Jung and Katz (2026[40]), Impacto económico de la inteligencia artificial en América Latina: transformación tecnológica y rezago en materia de inversión y capacidades laborales, https://www.cepal.org/en/node/68349.
Progress within the region is highly heterogeneous. Chile, Brazil and Uruguay are classified as AI pioneers in the 2025 Latin American Artificial Intelligence Index (ILIA), while eight countries are classified as adopters and more than one-third remain at an exploratory stage (Figure 1.9). The uneven distribution of AI capabilities suggests that the region is not starting from a single baseline and that opportunities for catching up will depend on countries’ existing technological, productive and institutional capabilities (ECLAC, 2026[41]).
Index, base 100
Note: The “Pioneers” category comprises countries scoring above 60 points and refers to those that have achieved a leadership position, standing out for their efforts in key areas such as technological infrastructure, development of specialised talent, scientific productivity and innovation capacity. “Adopters” comprises countries with scores between 35 and 60 points and reflects an intermediate level of performance, with room for improvement in several relevant areas that constrain broader deployment of AI. “Explorers” are countries scoring below 35 points and reflects earlier stages of maturity.
Source: ECLAC (2026[41]), Latin American Artificial Intelligence Index (ILIA) 2025, https://repositorio.cepal.org/server/api/core/bitstreams/58abbd61-7c47-4208-8e8f-44bc1d14b894/content.
Digital transformation and AI bring about important development opportunities for LAC
Digital transformation and AI offer LAC opportunities at different levels. These include leveraging the region’s natural-resource advantages, building capabilities to develop and adapt digital technologies, and using digital tools to improve productivity, innovation and the delivery of economic and social services. Despite notable progress in expanding basic digital infrastructure, digital transformation across LAC remains uneven, constrained by persistent gaps in access, connectivity, digital skills and government digitalisation.
LAC can leverage renewable energy and critical raw materials to support the digital transition and attract digital infrastructure, including data centres
The expansion of AI creates demand not only for computing and connectivity, but also for the physical resources that underpin them. LAC can build on its critical-mineral endowments and abundant renewable-energy resources (see previous section) to attract increasingly electricity-intensive digital activities. The clearest example is data centres: access to reliable, competitively priced and low-emissions electricity could become an increasingly important factor in their location as demand for AI computing expands.
Data centres are a critical component of the digital economy, providing the infrastructure to store, process and transmit data. Nearly 10 000 data centres are operating across 164 countries (UNDP, 2025[42]). Their strategic importance is increasing as demand expands for cloud services, 5G connectivity and, increasingly, AI. AI applications, particularly the training and deployment of large-scale models, require substantial computing capacity, fueling rapid growth in demand for data-centre services and infrastructure.
Global demand for data centres is projected to grow between 19% and 22% per year through 2030, with the United States, Germany and the United Kingdom continuing to dominate the market (UNDP, 2025[42]). Although China hosts only 3.2% of the world’s data centres, it possesses the second-largest computing capacity globally, behind the United States (Figure 1.10, Panel A).
The United States and China dominate the global landscape for hyperscale data centres – large-scale facilities that provide the computing power for AI model training, cloud services, data processing and advanced analytics. Together, the United States and China host around one-third of global hyperscale data-centre capacity, while LAC accounts for only around 0.4%. This highlights the region’s limited participation in the most advanced segment of digital infrastructure (UNDP, 2025[42]). LAC's data centre market is projected to nearly double, from USD 5-6 billion in 2023 to around USD 10 billion by 2029. Hyperscalers in LAC are expected to increase from 2 in 2025, located in Brazil, up to 15 by 2032 (UNDP, 2025[42]).
The LAC region could benefit from constraints in traditional data-centre industry hubs located in other developed countries to keep pace with AI computing demand. The data-centre industry is facing growing constraints in its traditional hubs, driven primarily by limited power availability, increasing regulatory complexity, and rising social and political concerns related to environmental impacts (IDB, 2025[43]). These pressures are prompting operators to seek alternative locations for AI data centres, which creates new opportunities for LAC. The extent to which data centres will contribute to broader development objectives in the region will depend on the generation of productive linkages with local firms, the reinforcement digital ecosystems and the support of local capability development, while ensuring that their high demand for electricity and water is managed sustainably.
The rapid expansion of AI applications and non‑latency‑sensitive activities, such as AI model training and the optimisation of digital workloads across time zones, is opening strategic opportunities for LAC countries to attract new investments in digital infrastructure. The abundance of renewable resources in LAC, particularly hydropower, can position the region as a provider of low‑cost, low‑carbon electricity for sustainable AI infrastructure. Realising this potential will require converting this resource endowment into reliable, competitively priced and contractable energy, supported by strong regulatory frameworks and investment certainty (UNDP, 2026[44]). Moreover, LAC’s geography, climate and renewable energy endowment provide a potentially attractive environment for the development of data-centre infrastructure. In this context, LAC’s abundant renewable energy resources could enable global firms to reduce the carbon footprint of AI and data-centre operations, while complying with evolving environmental standards (IDB, 2025[43]).
Although LAC hosts around 557 traditional data centres (Data Center Map, 2026[45]), accounting for just 4.9% of global facilities (Figure 1.10, Panel A), the region’s market value is expected to nearly double from about USD 5 billion in 2023 to around USD 10 billion by 2029. This growth underscores the region’s potential as a hub for data storage and processing services for AI expansion (UNDP, 2025[42]). Within the region, Brazil leads the expansion of data-centre infrastructure, hosting more than one-third of all facilities (37.16%) and the only two hyperscalers in LAC (Figure 1.10, Panel B), followed by Chile (11.85%) and Mexico (11.67%) (Data Center Map, 2026[45]). While these countries have relatively robust data-centre industries, only around one in five facilities complies with international sustainability standards. Colombia, Peru, Costa Rica and Panama are emerging as potential hosts for new data centres (ECLAC, 2026[41]).
Note: Panel A: Share of total data centres worldwide. G7 countries include the United Kingdom, Japan, Italy, Germany, France and Canada. “Other industrialised countries” refers to OECD Member countries not in the G7 or the LAC region.
Source: Authors’ calculations based on Data Center Map (2026[45]), https://www.datacentermap.com/.
Sustainability aspects of data centres should be carefully considered. Most AI and digitalisation policies overlook environmental impacts, which may conflict with the region’s environmental sustainability objectives (ECLAC, 2026[41]). AI‑oriented data centres are highly resource‑intensive, consuming significant amounts of water, electricity and land. These pressures may constitute negative externalities for local communities that need to be weighed against the potential gains in fiscal revenues, including corporate and property taxes (Gorey, 2025[46]).
AI data centres typically require dedicated infrastructure to ensure reliable operation, potentially leading to higher energy system costs that may ultimately be borne by taxpayers. Compared with earlier generations of cloud infrastructure, AI data centres also tend to be physically disconnected from surrounding communities for security reasons and generate a relatively limited number of direct jobs (Gorey, 2025[46]). Their broader contribution to development will therefore depend on their ability to foster productive linkages with local firms, strengthen digital ecosystems and support development of local capabilities.
Recent evidence shows that, in the early stages of development, AI tends to increase energy consumption and CO₂ emissions. However, these relationships are not linear: as AI adoption matures, it can generate positive environmental effects, including emissions reductions and a greater reliance on renewable energy, consistent with a “Green AI Kuznets curve” (Melguizo, Katz and Jung, 2025[47]). AI leading countries, such as Singapore and the United States, are already benefitting from this technological dividend (Melguizo, Katz and Jung, 2025[47]).
These findings point to the need for stronger and more coherent global governance frameworks linking AI and energy at global and national levels, including a strategic vision and solid institutions to drive AI adoption. Current global efforts are led by UN bodies, the G20 and the OECD, although more coherence is needed to guide adoption of national AI strategies. Moreover, innovative financing mechanisms are needed to support greener AI adoption. For example, such mechanisms could make public support conditional on energy performance, as well as on improved transparency, standards and reporting to better monitor associated energy use (Melguizo, Katz and Jung, 2025[47]). In addition, targeted policies are needed to mitigate sustainability risks and ensure local benefits, including through quality job creation, stronger skills ecosystems and the use of AI data-centre investments to enhance digital connectivity and supporting infrastructure.
Investments in AI data-centre infrastructure are exposed to rapid technological change. Advances in computing technologies, shifts in energy costs and changes in corporate strategies could reshape data-centre location decisions and leave long-lived assets commercially or technologically obsolete. To mobilise long-term capital in this sector, LAC countries will need to promote flexible, modular and upgradable infrastructure, supported by contractual and regulatory safeguards that help preserve asset value as technologies and market conditions evolve.
Regional co-operation can foster greater alignment among governments, investors and research institutions, enabling data centres to become a foundation for homegrown AI ecosystems that support innovation, technological development and broader digital transformation across the region. Regional and subregional co‑operation, supported by strategic joint investments, can help the region capture emerging opportunities and develop competitive advantages in the global AI landscape. Latam-GPT – the first open and inclusive large language model developed in LAC – is an important milestone for the region (UNDP, 2026[44]).
Grouping resources, talent and data across countries can improve bargaining power and reduce duplication. The African Union’s Continental AI Strategy, the Guide on AI Governance and Ethics of the Association of Southeast Asian Nations (ASEAN) and the Santiago Declaration for Latin America and the Caribbean all emphasise local ownership, regional co‑operation and public interest digital and data infrastructure (African Union, 2024[48]; ASEAN, 2024[49]; Ministry of Science, Technology, Knowledge and Innovation of Chile, 2023[50]). Building regional institutional capabilities may require resources and concerted efforts, but it offers a foundation for AI and energy transitions to spur long-term development, not just short-term gains. This may support developing economies in capturing the green window of opportunity through inclusive rules, stronger sovereignty and technology spillovers (UNDP, 2026[44]).
International partnerships are key. The relationship with the EU on digital matters is an important example. Both regions have an interest in expanding connectivity and digital adoption while developing a human-centred approach to artificial intelligence, including common approaches to data governance, digital rights and responsible AI. The EU–LAC Digital Alliance, launched in 2023, provides a dedicated framework for co-operation on connectivity, digital policy, skills, innovation and AI. More recently, the partnership has moved towards practical co-operation, including an EU–LAC Supercomputing Network for AI and high-level policy dialogues on AI governance. In this context, the OECD's AI Policy Observatory and AI Toolkit offers a practical resource to support governments in translating AI principles into policy and regulatory approaches, helping to advance trustworthy and human-centred AI across countries and regions (OECD, 2026[51]).
LAC has the potential to capture more value from the digital transformation by developing, adapting and deploying digital technologies and AI
A second opportunity lies in increasing the region’s capacity to develop, adapt and apply digital technologies rather than relying exclusively on solutions developed elsewhere. This should be understood as a selective and realistic objective: LAC is unlikely to replicate the scale of the frontier AI ecosystems of the United States or China, but it can build capabilities in areas where regional data, knowledge and productive strengths provide an advantage. The development of AI applications for agriculture, mining, logistics, renewable energy, climate resilience and public-service delivery could help translate local knowledge and comparative advantages into new products, services and productivity gains. The objective should therefore be less to compete at the frontier in general-purpose AI and more to strengthen the region’s capacity to adapt frontier technologies, develop sector-specific applications and participate in emerging digital value chains.
The digital revolution can also support the expansion of activities in which some LAC economies already have a foothold, including digitally delivered services and other knowledge-intensive activities. The region’s ICT exports remain modest: ICT goods account for around 5.2% of total goods exports, compared with 12.3% globally, while ICT services exports reached USD 19.5 billion in 2024, only 1.6% of the global total (UNCTAD, 2026[52]; ECLAC, 2025[37]). These figures point to both a relatively small existing base and scope for expansion, provided that countries strengthen digital capabilities, innovation ecosystems and access to international markets.
The most immediate and broad-based opportunity is likely to come from wider diffusion of digital technologies across firms, governments and households. Digital tools can reduce transaction costs, facilitate access to markets and information, improve business processes and support the delivery of public services. AI can amplify these effects by automating or augmenting tasks, improving decision-making and enabling new products and services. In LAC, where productivity growth remains weak and firm-level capabilities are highly uneven, the gains from diffusion and effective adoption may be particularly important. However, the benefits will depend on whether digital technologies are integrated into production processes and value chains rather than remaining limited to basic connectivity or consumption.
Seizing these opportunities will require stronger investment, capabilities and enabling institutions, while adopting a regional approach to build scale and strengthen impact
Digital transformation in LAC requires further expanding investment in digital infrastructure and skills
LAC countries made notable progress in expanding basic digital infrastructure, nonetheless, digital transformation remains uneven, reflecting persistent gaps in access, infrastructure, skills and digital government. Connectivity infrastructure in LAC has advanced considerably, with mobile broadband and 3G coverage reaching over 90% of the population. More advanced digital infrastructure like fibre-optic networks reached 59% of the population, while high-speed broadband covers 34%. Mobile phone ownership is widespread (87%), and 86% of the population has access to 4G networks, while 5G represents only 5% of total mobile connections. Nevertheless, nearly a third of the population do not use the Internet regularly (Figure 1.11), highlighting a persistent gap between infrastructure availability and effective connectivity. Connectivity access drops drastically in rural areas and among lower-income groups, resulting in gaps of up to 50 percentage points between the wealthiest and poorest households (ECLAC, 2025[53]).
Additional investment in digital skills is needed to take advantage of digital transformation. Less than 50% of the population in LAC (45%) possess basic digital skills, while only 22% and 14% have intermediate and advanced skills, respectively (Figure 1.11). These connectivity and skills disparities constrain the ability of firms and workers to adopt more sophisticated digital technologies, including cloud computing and AI. This, in turn, limits the contribution of digital transformation to productivity growth and inclusive development (ECLAC, 2025[53]).
Source: Authors’ elaboration based on UNDP (2025[54]), Atlas of Artificial Intelligence for Latin America and the Caribbean, https://www.undp.org/latin-america/publications/; data from the International Telecommunication Union, 2025.
Addressing the digital skills gap requires sustained national efforts to modernise education and training systems, expand lifelong learning opportunities, strengthen partnerships with the private sector and better align skills provision with rapidly evolving labour market needs. These measures are essential to equip workers with the digital, technical and transversal skills increasingly demanded by technological change and digital transformation. In addition, regional co‑operation can help countries accelerate progress by developing shared networks that can serve as a common basis for countries to design curricula, skills policies and assessment instruments adapted to their contexts.
The Digital Competence Framework for Latin America and the Caribbean (DigCompALC) provides a common language for identifying and developing the digital competencies with which citizens, workers and institutions need to engage with the digital economy. DigCompALC covers 21 competencies across five areas, with AI as a cross-cutting domain. It introduces a pre-basic proficiency level designed to capture the depth of digital exclusion in LAC, including populations with limited or no access to digital environments (Ripani, 2025[55]).
Specifically focusing on direct investments on AI, the relatively low level of AI investment remain a major constraint on the region’s ability to capture its benefits. In 2025 LAC attracted only around 1.12% of global AI investment, despite accounting for 6.6% of global GDP and 8.8% of the world’s population (ECLAC, 2026[41]). AI investment and startup activity remain highly concentrated in Latin America and the Caribbean, pointing to a still-fragmented innovation ecosystem. Chile, Uruguay, Brazil, Mexico and Colombia account for the vast majority of AI-related investment and startup creation in the region, while Argentina stands out, representing more than half of the estimated total value of AI investments (ECLAC, 2026[41]).
Public AI strategies are key to guide countries’ actions, but implementation is lagging
With the uneven development of AI strategies in the region, some countries risk falling behind. Nine LAC countries have national AI strategies, but only a few have allocated budgets, defined implementation plans or established impact indicators. Without execution mechanisms, these strategies risk remaining mere statements. Countries such as Brazil, Chile and Uruguay, considered as AI pioneers, have robust national strategies, multi‑stakeholder co‑ordination bodies and long‑term visions. Seven countries have yet to define a roadmap or been unable to consolidate a national strategy for the development of AI. Costa Rica and Cuba have recently published their strategies, while Panama and Venezuela are still completing theirs. This process illustrates it is still possible to define AI initiatives at the national level (ECLAC, 2026[41]). However, the uneven progress towards national AI strategies risks generating a fragmented region with unbalanced regulatory frameworks. In this scenario, entire countries may fail to fully benefit from AI.
Strengthening the effectiveness of AI governance is a priority. Establishing a policy framework is an important first step, but it is not sufficient. Without a clear implementation plan, these strategies risk remaining largely declarative documents, with limited budgetary backing, no measurable impact indicators, and weak monitoring and evaluation mechanisms. The focus should shift from strategy design towards implementation, institutional capacity, financing, monitoring and accountability to ensure that AI policies deliver tangible economic and social outcomes.
Making the digital revolution a driver of production transformation in the region will require active productive development policies
Connectivity and digital infrastructure are necessary but not sufficient conditions for production transformation. Without deliberate policy effort to translate digital access into real and effective use, the digital transition risks reproducing and deepening structural heterogeneities. In practice, this means the incorporation of digital tools and AI into production processes, business models and value chains in ways that measurably increase productivity, innovation and competitiveness (ECLAC, 2025[53]).
Addressing the challenge of production transformation requires moving beyond infrastructure expansion towards active policy support for technology adoption at the firm level. LAC countries have made progress in this direction, with initiatives that illustrate both advances and differences across countries. Brazil stands out with the Brasil Mais Produtivo programme, which has benefitted more than 100 000 firms. For its part, Chile operates multiple programmes aimed at SMEs – such as Ruta Digital and Digitaliza tu PyME – offering subsidies, training and co-financing for innovation. Costa Rica has developed Digital Checkup 2.0, which allows companies to assess their level of digital maturity and receive training of up to 16 weeks. Similar initiatives are found in Uruguay and Colombia. However, these advances coexist with structural challenges that limit their reach and sustainability. Institutional fragmentation, weak articulation between digital and productive development policies, and uneven interministerial co-ordination persist across the region (ECLAC, 2025[56]).
These limitations point to a deeper structural problem. Digital transformation agendas and productive development policies (PDPs) have historically evolved in parallel, governed by different ministries and institutional logics. Digital agendas have focussed on connectivity and e‑government, while PDPs have targeted firms and sectors through technology extension services, investment promotion and innovation financing. Neither domain is sufficient on its own, yet their integration remains the exception rather than the rule.
Bridging this gap between digital agendas and PDPs requires active co-ordination across multiple levels. At the firm level, digital extension services must be aligned with productive sectoral priorities rather than designed as generic horizontal programmes. At the sectoral level, industrial strategies must incorporate digital readiness as a core diagnostic dimension. Finally, at the institutional level, co‑ordination mechanisms between digital transformation bodies and productive development institutions are essential to ensure that digital investments translate into concrete productive outcomes (ECLAC, 2025[56]).
Beyond the national level, a regional dimension to digital productive transformation is equally critical, given the scale requirements of the digital economy and the need for regulatory convergence, shared digital infrastructure and integrated data ecosystems. Strengthening regional integration as a platform for productive development requires closer alignment between digital and productive agendas. In this context, reinforcing the eLAC Digital Agenda, with an explicit productive development dimension, could provide the institutional backbone for advancing regional co-operation in these areas (see Chapter 2) (ECLAC, 2025[56]; Calderón et al., 2021[57]).
Alongside demand-side adoption policies, LAC also needs PDPs that actively strengthen the regional supply of digital technologies. A significant gap persists between the region's high consumption of digital technologies and its limited capacity to develop and produce them locally. In 2025, LAC accounted for some 14% of world traffic to AI solutions while representing only 11% of global Internet users (ECLAC, 2026[41]). The relatively small contribution of ICT goods to total exports and the region's limited participation in global ICT services exports underscore its weak position in global digital value chains (UNCTAD, 2026[52]; ECLAC, 2025[56]). This asymmetry between consumption and production of digital technologies risks deepening the region’s technological dependence and limiting its capacity to capture value from the digital transition. Strengthening domestic technological capabilities, supporting local digital firms and fostering regional digital value chains could help close this gap.
Closing this supply-side gap requires a diversified set of policy instruments. Potential instruments include investment promotion; research and development incentives for digital technology firms; targeted trade and export facilitation for ICT services; the development of technology parks and digital innovation ecosystems; and the strengthening of digital talent pipelines through education and training policies. Among these instruments, cluster and productive articulation initiatives (IAP) in the digital economy can play a complementary role by connecting digital supply-side actors – start-ups, technology firms, universities and development agencies – with productive sectors. In so doing, it can facilitate the adaptation of digital technologies to local contexts. Available evidence suggests that some active digital cluster initiatives in LAC are already working on this type of linkage, with agendas covering AI and analytics, cybersecurity, EdTech and AgTech, among others (ECLAC, 2025[37]). Their contribution depends, however, on effective articulation with national PDPs and regional digital agendas such as eLAC – conditions that remain partial and uneven across the region (ECLAC, 2025[56]).
Regional co-operation is key to promote LAC’s involvement in AI development
Regional and subregional co‑operation, supported by joint strategic investments, is essential to building durable comparative advantages in an increasingly competitive global landscape. In addition to supporting long-term development, regional co‑operation can enhance institutional capacity and bargaining power by pooling resources, talent and data across countries, while reducing duplication.
Latam GPT, the first open and inclusive large language model developed in LAC, is an important milestone in the region for AI development. Built on regional data through collaboration among 27 institutions and more than 60 experts, Latam-GPT is designed to reflect the region’s linguistic, cultural and regulatory specificities (UNDP, 2025[42]).
A co‑ordinated effort to transfer good practices and promote shared ethical standards would benefit the entire region (ECLAC, 2026[41]). Several ethical guidelines have been developed in LAC to steer AI expansion towards socially desirable outcomes (OECD/CAF, 2022[58]; UNESCO, CAF and OGTIC, 2026[59]). A key challenge will be to advance data openness and interoperability, in line with global trends, while striking a balance between regulatory and ethical considerations, development-oriented policies and effective implementation. This will be critical to ensuring that AI creates economic and social value without stifling innovation (ECLAC, 2026[41]). This process should promote inclusion transparency and accountability, and mitigate risks such as bias and misuse (UNDP, 2026[44]). Regional and international initiatives, including the Santiago Declaration for LAC, the African Union’s Continental AI Strategy and ASEAN’s AI governance guidelines, underscore the importance of local ownership, regional co‑operation, and public‑interest digital and data infrastructure (UNDP, 2026[44]). Initiatives such as the EU-LAC Supercomputing Network for AI between the European Union and the LAC region, under the Global Gateway Strategy, are also examples of concrete partnerships in this sector.
LAC as a global food security provider
Global food demand is projected to continue increasing, while the goal of ending hunger by 2030 is unlikely to be achieved
Global demand for food is expected to continue rising over the coming decade, driven by population growth, urbanisation and rising incomes, particularly in lower middle-income countries in Asia and Africa. Global consumption of agricultural and aquatic food products is projected to increase by around 12.5% by 2035, reinforcing the strategic importance of regions such as LAC, which can supply international markets (OECD/FAO, 2026[60]). The composition of global demand will also evolve, with a particular continued projected growth in demand for animal-source foods in many middle-income economies (OECD/FAO, 2026[60]).
The region can contribute to reducing global food insecurity both by expanding sustainable food production and strengthening value chains. Food insecurity remains a major global challenge, with approximately 735 million people experiencing hunger. Trends suggest the world is unlikely to achieve the goal of ending hunger by 2030 (OECD/FAO, 2026[60]). Importantly, the challenge is no longer solely one of global food production. Hunger persists due to poverty, unequal access, conflict, climate-related shocks and disruptions to food supply chains. This points to a growing opportunity for LAC, both to sustainably expand food production and strengthen the reliability, affordability and resilience of food supplies reaching global markets (OECD/FAO, 2026[60]; FAO et al., 2026[61]; Granados, 2024[62]).
LAC already plays a pivotal role in global food systems
LAC combines abundant natural resources, strong agricultural production capacity and deep integration into global food markets, positioning it as one of the world’s most important food-producing regions. Although the region accounts for only around 15% of global land area, it receives approximately 29% of global precipitation. It also holds about one-third of the world's renewable water resources and contains nearly 40% of global freshwater reserves, providing significant advantages for agricultural production. The region accounts for approximately 14% of global agricultural and fisheries production and around 18% of global agrifood exports (OECD/FAO, 2026[60]). LAC’s agricultural output is sufficient to feed an estimated 1.3 billion people, twice its population, underscoring its importance as a net supplier to international markets.
Latin America is also expected to maintain its position as the world’s primary exporter of agricultural commodities. The region’s net agricultural trade surplus is projected to increase from approximately USD 109 billion in 2024 to USD 126 billion in 2035 (Figure 1.12). This trend is largely influenced by Brazil, Argentina and Paraguay. North America is projected to remain the second-largest exporter, with exports stabilising below their 2020 peak. The Europe and Central Asia region, which became a net exporter in 2014 following productivity gains and investment, particularly in the Black Sea region, is also expected to expand its trade surplus (OECD/FAO, 2026[60]).
Note: Net trade (exports minus imports) of commodities covered in the Agricultural Outlook, measured in constant 2014-2016 United States dollars.
Source: OECD/FAO (2026[60]), OECD-FAO Agricultural Outlook 2026-2035, https://doi.org/10.1787/47874669-en.
The current mismatch between food-surplus and food-deficit regions offers an opportunity for LAC, although it also entails challenges
The opportunity for the LAC region stems not from a projected global shortage of food production but rather from two other factors. First, there is a growing mismatch between rapidly expanding demand in food-deficit regions, particularly sub-Saharan Africa, North Africa and the Middle East, and Developed and East Asia. Second, exportable food surpluses are concentrated in a relatively small number of producing regions, such as LAC, North America, and Europe and Central Asia (Figure 1.12).
The widening food and feed deficit in Asia creates opportunities for LAC, but also increases the exposure of exporters to changes in Asian demand, trade policy and geopolitical relationships (OECD/FAO, 2026[60]). LAC’s contribution to food security depends partly on its ability to remain a reliable supplier during periods of volatility (Illescas and Vicentin Masaro, 2024[63]). This is why LAC countries would benefit from predictable market access and a rules-based multilateral trading system, including greater transparency and stronger disciplines around export restrictions. At the same time, access to key markets increasingly depends on compliance with sustainability-related requirements. As major markets, including the European Union, strengthen environmental and sustainable agriculture standards, LAC producers will need to adapt production practices and improve traceability to maintain competitiveness and secure continued market access.
South America is best positioned to expand its role in global food markets through productivity sustainable gains, value addition and export diversification. Strengthened trade integration, including through recently negotiated agreements such as the EU-Mercosur Partnership Agreement, could create additional opportunities for agricultural exports, provided producers are able to meet sustainability and traceability requirements. Opportunities in Mexico are closely tied to strengthening its position within North American agrifood value chains; Central America can benefit from higher-value exports, agro-processing, regional trade and stronger linkages between family farms and markets. For its part, Caribbean priorities lie in building more resilient food systems, reducing import dependence where feasible, developing fisheries and aquaculture, and better connecting agriculture with tourism demand. These differences underscore the need for differentiated strategies that reflect each subregion’s resource endowments, market structures and climate vulnerabilities.
Food security and productivity gains within LAC remain a priority
While growing global demand creates important export opportunities, challenges related to food access, affordability, nutrition and resilience remain significant within the LAC region too. In 2024, undernourishment affected 5.1% of the population, while moderate or severe food insecurity affected 25.2%. Although both indicators have improved steadily since the COVID‑19 pandemic, substantial disparities persist across countries, subregions and population groups. This highlights the need to complement export competitiveness with policies that strengthen domestic food security and access to healthy diets (FAO et al., 2026[64]). Moreover, productivity gains within the region may not translate into broad-based development if they remain concentrated among large, capital-intensive producers. The distribution of productive capabilities and benefits should therefore be treated as a central component of the opportunity, not as a secondary social-policy concern (CAF, 2026[65]; ECLAC et al., 2026[66]).
Regional co‑operation can be a cross-cutting enabler contributing to greater co‑ordination on sanitary and phytosanitary standards, transport and logistics corridors, agricultural research and innovation, and climate adaptation initiatives. Sustainability and traceability frameworks at the regional level can lower costs, enhance resilience and strengthen the LAC’s capacity to supply international markets, while improving domestic food security.
Beyond its role as a major agricultural producer, LAC can contribute to global food security, trade resilience and the transition towards more sustainable food systems. Realising this opportunity will depend on four mutually reinforcing priorities: fostering sustainable agriculture productivity growth through innovation, research and development, and the adoption of digital technologies; strengthening resilience to climate risks through investments in irrigation, climate-smart practices and risk-management tools; improving logistics and connectivity to facilitate access to domestic and international markets; and advancing more sustainable agrifood systems that reduce environmental pressures while enhancing economic, social and health outcomes. Progress across these areas can be supported by stronger regional co-operation, including through knowledge sharing, policy co-ordination and collective action on shared challenges.
Demographic trends bring about new challenges but also provide new economic opportunities
LAC is undergoing a rapid demographic transition, reflecting broader global trends but with distinct regional implications. Worldwide, fertility rates have fallen from 3.3 births per woman in 1990 to 2.3 today, while life expectancy reached 73.3 years in 2024 and is projected to rise to 77.4 years by 2054 (United Nations, 2024[67]). In LAC, population ageing has accelerated as life expectancy increases and fertility rates decline rapidly, gradually reducing the share of the working-age population and increasing dependency ratios. Migration flows are also reshaping demographic dynamics, altering the size and composition of the working-age population across countries. Sustained emigration may compound population decline and ageing in some countries, while immigration could support labour-force growth in others. Together, these forces are transforming the age structure of LAC societies, with profound implications for economic growth, public finances, labour markets and social cohesion. These challenges are particularly relevant in a region where informality remains high, affecting more than half of the working-age population, and social protection coverage remains relatively limited, increasing vulnerabilities as populations age.
An ageing population puts increasing pressure on fiscal space and social protection systems
LAC countries have experienced important progress in terms of life expectancy, which has grown by almost four years in two decades – from 72.5 in 2005 to 76 years in 2025. It is expected to rise to 80 years by 2050 (UN, 2024[68]). This has implications for the structure of the population, with the group aged 65+ growing from 6% of the population in 2005 to around 10% in 2025, and expected to reach almost 20% by 2050 (Figure 1.13). In parallel, the 0‑14 age group will have declined from around 30% in 2005 to slightly above 20% in 2025, and to 16.5% in 2050. Importantly, the share of the working-age population (15‑64 age group) is reaching its peak and will start to decline after 2030.
Source: Authors’ elaboration based on UN (2024[68]), World Population Prospects: The 2024 Revision, https://population.un.org/wpp/.
An important implication of these demographic dynamics is the increasing pressure on the working-age population to sustain older people (Figure 1.14). Old-age dependency ratios represent the number of people aged 65+ per 100 working-age individuals (15‑64). A rising dependency ratio means that a smaller working-age population must support a growing number of dependents, with significant economic and social implications. This is likely to put pressure on public finances through higher pension and healthcare costs, while slowing potential growth as labour force expansion weakens. At the same time, it increases the urgency of boosting productivity, raising labour force participation (especially among women and older workers) and reducing informality. The shift may also affect savings patterns, strain care systems and exacerbate inequality, particularly across groups for which access to social protection remains uneven. Overall, it marks the transition from a demographic dividend to a more constrained environment where policy choices become critical to sustain growth and inclusion.
Source: Authors’ elaboration based on UN (2024[68]), World Population Prospects: The 2024 Revision, https://population.un.org/wpp/.
Fertility rates are falling, further accentuating ageing dynamics and exacerbating the need to increase productivity as the main engine of growth and social progress
Fertility rates are falling rapidly in LAC. In 2024, the total fertility rate for the region stood at 1.8 children per woman. This is significantly below the replacement level, usually set at around 2.1 children per woman. The region has been beneath this threshold since 2015 (Figure 1.15). Being below the fertility replacement rate means that, on average, the number of births is below the level required to keep the population size stable. Over time, this leads to smaller cohorts of younger people, population ageing and eventually a decline in total population unless offset by immigration. As a result, the working-age population shrinks relative to dependents, increasing pressure on economic growth, public finances and social systems.
The decline in fertility rates in LAC has been relatively fast. This decline is comparable to other emerging regions like East and Southeast Asia (Figure 1.15) but in contrast to more developed regions like Europe. However, the fall in fertility rates in LAC has taken place at a moment where the region still has significant structural vulnerabilities (López-Calva, 2020[69]). Conversely, many East and Southeast Asian economies saw fertility rate declines after major progress in raising income per capita, providing access to key social services and building institutional capacities.
Source: Authors’ elaboration based on UN (2024[68]), World Population Prospects: The 2024 Revision, https://population.un.org/wpp/.
While these demographic trends bring about major challenges, they also create new opportunities for LAC countries
The demographic dividend in LAC (i.e. the period when the working-age population is at its maximum share of the total population) is closing rapidly. How governments, firms and families respond over the coming decade to the challenges associated with these demographic trends will largely determine whether the region can turn this moment into a development opportunity.
In countries with a relatively large and growing working-age population, a higher share of workers relative to dependents can boost growth, savings and fiscal space. Consequently, they can continue to benefit from a remaining demographic dividend. However, for this to happen, the countries will need to invest significantly in education quality, healthcare and pathways towards job formalisation.
At the same time, ageing itself is creating new economic opportunities. For instance, the “silver economy” is likely to drive demand for healthcare, long-term care, pharmaceuticals, financial services and age-related technologies, offering opportunities for job creation and investment (Cecchini et al., 2025[70]). The scale of this opportunity is significant. The silver economy already generates roughly USD 22 trillion annually worldwide, and LAC is positioned to capture a growing share of that value as its older population expands (IDB, 2025[71]). As of 2024, 166 million people aged 50 and over lived in the region, representing 25% of the total population, a figure projected to reach 280 million (38%) by 2050. This would create durable consumer demand in housing, healthcare, tourism and entrepreneurship aimed at this cohort. Financial innovation stands out as a particularly promising dimension of this opportunity: today's older adults are more active, digitally connected and financially empowered than the stereotypes of previous generations suggest. Consequently, the silver economy can be a fertile ground for new financial products and services tailored to this population (Ponce and Etchegoyen, 2025[72]).
In addition to the potential of the silver economy, the “care economy” represents another important opportunity. Expanding labour force participation, especially through greater provision of childcare and eldercare, can help sustain labour supply, improve gender equity and strengthen fiscal outcomes. Indeed, formal care sectors could bring substantial benefits – from increased economic empowerment for women to better preparedness and resilience to external shocks. For instance, investment in the care economy can help female care workers transition to formal employment (OECD, 2024[73]). Estimates suggest that investing in care policies across 23 countries in the region could create around 31.3 million jobs. Of these, 10.6 million would be in childcare and 20.7 million in long-term care, with about 88% in the formal economy (CEPAL and ILO, 2026[74]).
Emerging opportunities for LAC in a changing multilateral and co‑operation landscape
Greater scope for LAC to shape global governance
Multilateralism and international development co‑operation are undergoing a profound transition, marked by heightened geopolitical polarisation, erosion of consensus-based global governance, and growing volatility in international economic and financial relations. Strategic competition among major powers has increasingly spilled over into trade, finance, technology and environmental governance. These trends are contributing to a more fragmented and less predictable system.
Momentum generated during the COVID‑19 crisis has also weakened. The pandemic initially catalysed ambitious agenda-setting, including renewed attention to global public goods, social inclusion and reform of the international financial architecture. However, progress has since slowed. Key negotiations on climate, financial reform and multilateral governance have faced delays or setbacks, reflecting broader geopolitical tensions and competing policy priorities (ECLAC, 2026[75]; OECD et al., 2022[15]).
The evolving landscape creates both challenges and opportunities. The dynamics at play create uncertainty, complicating long-term planning and implementation of national development strategies. This is especially the case given the region’s openness to trade and investment and reliance on external financing. However, they are also opening new spaces for countries and regions that can build coalitions, facilitate dialogue and contribute to global agenda-setting (OECD et al., 2024[76]; Manservisi and Pezzini, 2025[77]; Government of Canada, 2026[78]; OECD, 2026[79]).
LAC already occupies a distinctive position in the global multilateral system. While not a cohesive geopolitical bloc, the region maintains a strong normative commitment to multilateralism, international law and rules-based co‑operation. In the context of increasing fragmentation and the emergence of more flexible, issue-based coalitions, this positioning creates opportunities for LAC to strengthen its role within evolving multilateral arrangements and global governance discussions.
LAC countries have played an active role in shaping global agendas, particularly on sustainable development, climate change and financing for development. This commitment is reflected in the region’s sustained participation in multilateral processes, including the submission of Voluntary National Reviews. These reviews are country-led reports submitted to the United Nations to assess and communicate progress, challenges, and lessons learnt in implementing the Sustainable Development Goals (SDGs) under the 2030 Agenda for Sustainable Development (Figure 1.16). By 2025, 32 of the region’s 33 countries had submitted at least one Voluntary National Review (VNRs). Between 2016 and 2025, the region submitted a total of 71 VNRs, equivalent to an average of 2.15 reviews per country, one of the highest reporting intensities across UN regional groups. This sustained engagement reflects LAC countries' continued commitment to multilateral co-operation and collective action in support of sustainable development. LAC countries also continue to advocate for multilateral solutions in areas such as climate adaptation, biodiversity protection, social inclusion and sovereign debt reform (EU-LAC, 2025[80]; UN, 2025[81]).
Note: Average number of Voluntary National Reviews (VNRs) submitted per country between 2016 and 2025. Calculated as the total number of VNRs submitted by countries in each UN regional group divided by the number of countries in the group.
Source: Authors' calculations based on (UN (2025[81]), United Nations High-level Political Forum (HLPF) Voluntary National Reviews Database, https://hlpf.un.org/c/ountries.
The region’s engagement extends beyond participation and advocacy. LAC countries have assumed leadership, convening and facilitation roles across major multilateral processes, including the United Nations system; the G20; BRICS (Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran, Saudi Arabia, the United Arab Emirates and Indonesia); climate and biodiversity negotiations; and financing-for-development processes. These roles have become more diverse in recent years and have been shared across a broad range of countries, reflecting the region’s capacity to contribute to agenda-setting and bridge-building across different areas of global governance (Figure 1.17).
Selected formal leadership, convening and participation roles
Note: The horizontal bands group roles into four governance domains: (i) UN institutional governance; (ii) global economic and political steering; (iii) planetary environmental governance; and (iv) global development and financing architecture. Colours distinguish categories of engagement (see legend), including leadership, convening, hosting, co-facilitation and participation roles. Labels identify the relevant institution/process, role and country (country codes in parentheses).
Source: Authors’ compilation based on official records and websites of the UN Security Council, UN General Assembly, ECOSOC, UN DESA, Group of 77 and China, G20, BRICS, UN Ocean Conference, Convention on Biological Diversity (CBD), UNFCCC, UN-Habitat and the Financing for Development process.
The region’s influence derives less from economic weight than from its capacity for coalition building, mediation and agenda-setting. Across a diverse set of countries, LAC has demonstrated different forms of “middle power diplomacy”, combining Global South positioning with active engagement in OECD, UN, G20 and regional fora (Tagliapietra and Casarões, 2025[82]).
Active participation in initiatives such as the Financing for Development process, discussions on sovereign debt reform and emerging agendas such as Beyond GDP would create opportunities for LAC countries to support the evolution of international co‑operation frameworks and financing arrangements. These processes provide avenues to advance approaches that better reflect multi‑dimensional development challenges, structural vulnerabilities and the financing constraints. At the same time, they support more nuanced development metrics, country diagnostics and financing frameworks. Such shifts could, in turn, influence how international financial institutions, including multilateral development banks (MDBs), assess countries’ needs and allocate support (OECD, 2026[83]; OECD, 2026[84]).
Yet, the region's ability to leverage these opportunities is constrained by its internal fragmentation. Regional fragmentation, political heterogeneity and divergent development models limit collective action. This creates a risk of a “middle power trap”, where influence remains episodic rather than sustained, particularly in the absence of stronger co‑ordination mechanisms (Tagliapietra and Casarões, 2025[82]).
International co-operation for productive transformation and sustainable development in LAC
In addition to participating in global co‑operation debates, LAC has actively shaped them. Since the Development in Transition framework, several countries in the region have contributed to reframing international co‑operation beyond traditional donor-recipient models, emphasising multi-dimensional development challenges and differentiated pathways (OECD et al., 2019[85]). The co-operation model promoted by some LAC countries places strong emphasis on knowledge exchange, technical assistance and peer learning. South-South and triangular co‑operation remain central, reflecting the region’s dual role as both recipient and provider of development solutions. These forms of co-operation have also evolved, increasingly supporting policy learning, institutional strengthening and knowledge sharing around common challenges such as digital transformation, climate action, social inclusion and productive development. (SEGIB, 2024[86]; UN, 2025[87]).
As international development co‑operation and partnerships become more explicitly linked to increasing trade and investment at home, LAC could leverage its position to attract support for sustainable development. Co‑operation is increasingly shaped by strategic self‑interest in the form of geopolitical and economic competition, a shift that can make co‑operation more selective and less predictable. However, the shift is also creating new opportunities for LAC countries to attract investment, technology and expertise in sectors that have become strategically important in the global economy. Co‑operation is now more explicitly expected to support trade integration, investment mobilisation and economic resilience. For a predominantly middle-income region with limited access to concessional finance, this shift is particularly significant. It creates opportunities to leverage the region’s strategic assets and partnerships to attract investment, technology and knowledge that support long-term development objectives. At the same time, growing competition among global partners may limit the region’s room for manoeuvre, making it increasingly important for LAC countries to balance partnerships in ways that preserve strategic autonomy and advance national development objectives.
Recent partnership patterns point to co‑operation models that leverage development instruments to catalyse private investment. Emerging partnerships – such as those with the European Union and China – illustrate increasingly integrated approaches combining trade, investment and co-operation instruments, particularly in sectors linked to the green and digital transitions. They reflect a broader shift towards models that increasingly combine investment, infrastructure development, technology co‑operation and productive development objectives.
The development impact of emerging co‑operation models depends critically on their ability to support diversification and higher value-added activities. Maximising the benefits of these partnerships therefore requires ensuring that investment is accompanied by technology transfer, skills development, institutional strengthening and stronger linkages with domestic productive sectors. This would allow countries to move up value chains and reduce persistent inequalities (OECD et al., 2023[16]; OECD et al., 2024[76]).
The EU-LAC Global Gateway Investment Agenda illustrates this evolving model of co‑operation (see Chapter 3). Beyond mobilising investment, it seeks to combine financing, policy dialogue, technical assistance and institutional strengthening in strategic sectors linked to sustainable development and productive transformation. Several initiatives demonstrate the potential of such approaches. Support for the development of green hydrogen ecosystems in Chile combines investment mobilisation with regulatory development, technology deployment and skills formation, helping to build domestic capabilities around emerging clean energy value chains. Similarly, co‑operation on regional electricity integration seeks to strengthen regulatory harmonisation, infrastructure planning and electricity market integration, contributing to renewable energy deployment, regional integration and energy security. This process involves the European Union, the Latin American and Caribbean Energy Organization, national governments and development finance institutions.
From a financing perspective, private finance is the dominant external flow to LAC. Official development assistance represents only a small share of gross national income. Conversely, private flows, particularly foreign direct investment (FDI), have played a key role in supporting structural transformation and global integration. FDI has contributed to job creation, technological upgrading and sectoral diversification, including in renewable energy and digital activities.
The European Union has been a key partner in this process. In addition to accounting for nearly one-third of greenfield FDI-related jobs in the region, it supports export diversification, skills development and the transition towards greener and more knowledge-intensive sectors (OECD et al., 2025[2]; OECD, 2025[88]).
The growing importance of private finance also reinforces the need to ensure that investment translates into broader development outcomes. While FDI has supported employment, diversification and productivity gains, its impact remains uneven across countries and sectors, and private flows other than FDI tend to be more volatile. At the same time, access to concessional finance remains constrained. Rising debt-service burdens continue to constrain fiscal space in several countries, highlighting the importance of debt sustainability and reform of the international financial architecture (OECD, 2026[89]).
In this context, new partnership approaches seek both to mobilise investment and also strengthen its developmental impact. Emerging mechanisms – including country platforms promoted by the G7 and MDBs; blended-finance instruments; and stronger collaboration between MDBs, national development banks and private investors – offer opportunities to reduce fragmentation and crowd-in investment for strategic sectors. More broadly, MDBs are increasingly combining financing with technical assistance, project preparation, knowledge sharing and private capital mobilisation to support productive sectors, climate action and infrastructure development.
LAC has opportunities both to mobilise more investment and shape how investment contributes to development. Realising the full potential of these partnerships will require international co‑operation frameworks that focus on the quality of finance rather than solely on volumes; deepen understanding of the socio-economic impacts of FDI and other private flows; and promote comprehensive policy approaches that enhance their catalytic contribution to development. Co‑operation instruments beyond finance, including knowledge sharing, technical assistance and institutional strengthening, remain critical to ensuring that investment contributes to productive transformation, capability building, stronger domestic linkages and long-term development outcomes.
Initiatives such as the EU-LAC Global Gateway illustrate the potential of this approach. They combine investment mobilisation with policy dialogue, institutional strengthening, skills development and regional integration. In so doing, they help align investment more closely with the region’s long-term development and transformation objectives (EU-LAC, 2025[80]; OECD et al., 2025[2]). More broadly, the region’s ability to advance its development objectives in an increasingly fragmented and resource-constrained international environment will depend on how effectively it leverages its distinctive position at the intersection of development, trade and investment. Drawing on its experience in South-South co-operation, its contribution to global development debates and its engagement with a diverse range of partners, LAC can help shape more integrated and effective models of international co-operation. Realising this potential will require stronger regional co-ordination, sustained policy alignment and a continued focus on ensuring that partnerships and investment support capability building, productive transformation and long-term development outcomes.
Weakening international economic growth
The global economic outlook has weakened as the conflict in the Middle East has disrupted energy supplies, raised commodity prices and heightened uncertainty across the global economy. Beyond the severe humanitarian consequences, the conflict has highlighted the strategic importance of the region as a supplier of energy and other critical industrial inputs, as well as a key hub for global trade and transport. The immediate effects have been reflected in higher energy and commodity prices, disruptions to trade routes and tighter financial conditions. However, the economic consequences extend well beyond the countries directly involved. They are transmitted through global supply chains, financial markets, and consumer and business confidence, with particularly significant impacts on commodity-importing and more vulnerable economies. The episode underscores the importance of policies that strengthen macroeconomic resilience, enhance energy security, preserve open markets and support the capacity of economies to absorb future shocks (OECD, 2026[90]).
Growth is expected to moderate across LAC’s main economic partners, although the extent of the slowdown will depend on the duration of the disruptions stemming from the conflict in the Middle East. Under a time-limited disruption scenario, growth in the United States, the Euro area and China is projected to soften in 2026 before recovering gradually as energy markets stabilise and uncertainty recedes. A more prolonged disruption would result in a significantly weaker outlook. Persistent energy shortages, higher commodity prices and tighter financial conditions would slow growth across all major economies. Under either scenario, the external environment facing developing economies is expected to become less supportive. This reflects weaker demand in key export markets, heightened uncertainty and less favourable conditions for trade and investment (OECD, 2026[90]).
Transmission channels of the Middle East crisis
The complex situation in the Middle East is likely to affect LAC primarily through indirect transmission channels. While direct economic linkages between the region and the Middle East are relatively limited, the conflict has significant spillover effects through its impact on global growth, commodity markets, supply chains and financial conditions. Although the region is less directly exposed to the Gulf than Asia or Europe, experience suggests that global shocks are rapidly transmitted through prices, trade and financial markets. At the same time, LAC enters this episode with stronger macroeconomic fundamentals than in previous periods of global turbulence, including more credible monetary policy frameworks, greater exchange-rate flexibility and more resilient financial systems (ECLAC, 2026[91]; OECD, 2026[92]). In particular, slower growth in major economies such as the United States, the European Union and China could weaken external demand for LAC exports, and dampen trade, investment and tourism flows (OECD, 2026[90]; Tobias et al., 2026[93]; UNCTAD, 2026[94]).
A second transmission channel operates through energy and commodity markets. Disruptions to oil and gas supplies have contributed to higher energy prices, which in turn increase production and transport costs across the global economy. The impact on each LAC country depends on its individual energy trade balance. Net fuel-importing economies can face higher import bills, renewed inflationary pressures and deteriorating external balances. Conversely, hydrocarbon exporters such as Guyana, Colombia and Brazil can benefit from stronger export revenues and improved terms of trade. However, these gains may be partly offset by weaker global demand (OECD, 2026[90]; Tobias et al., 2026[93]; UNCTAD, 2026[94]).
A third transmission channel is through disruptions to global supply chains. The Middle East plays an important role not only in energy markets but also in the production and export of fertilisers, petrochemicals and other industrial inputs. The Gulf countries account for around one-third of global urea exports and about one-fifth of exports of other key fertilisers, meaning that disruptions can have repercussions well beyond the region (ECLAC, 2026[91]). Higher shipping costs, longer delivery times and shortages of key intermediate goods could increase production costs across a range of sectors. For agricultural producers, higher fertiliser prices raise input costs and contribute to higher food prices, with implications for inflation and food security (ECLAC, 2026[91]; OECD, 2026[90]; Tobias et al., 2026[93]; UNCTAD, 2026[94]).
Finally, heightened geopolitical uncertainty could tighten global financial conditions and increase financing costs for LAC economies. Rising risk aversion, higher sovereign bond yields and capital flows towards safe-haven assets can increase borrowing costs, particularly for countries with elevated financing needs or limited fiscal space. At the same time, higher energy and food prices could erode household purchasing power and place additional pressure on inflation (see below), complicating the task of monetary authorities. Higher interest rates for longer periods in advanced economies could further increase external financing costs. Meanwhile, a stronger US dollar could put additional pressure on exchange rates, import prices and foreign-currency debt servicing across the region (ECLAC, 2026[91]). Together, these channels could weigh on economic activity and make it more difficult to mobilise the resources needed to support sustainable and inclusive development (OECD, 2026[90]; Tobias et al., 2026[93]; UNCTAD, 2026[94]). Compared with previous external shocks, stronger macroeconomic frameworks should help the region absorb part of the impact. However, elevated public debt, alongside narrower fiscal and monetary policy space, may limit governments’ capacity to respond if global conditions deteriorate further (OECD, 2026[92]).
Growth in LAC remains insufficient to achieve meaningful income convergence
Against a backdrop of weakening global growth and heightened uncertainty, LAC’s growth remains too weak to deliver meaningful income convergence. Since 2023, economic activity has expanded at a pace broadly consistent with the region’s estimated potential growth rate. Yet this rate remains low, limiting the region’s ability to close the income gap with the economies of OECD Members (OECD et al., 2023[16]). As a result, even a period of relatively stable growth has done little to alter the region’s long-term development trajectory. While gross domestic product (GDP) per capita in LAC has increased steadily since 2000, growth has been insufficient to generate meaningful convergence with OECD Member economies. It has also been lower than in other emerging economies, such as those in East Asia. Measured relative to the OECD average, GDP per capita in the region has remained broadly stable at around one-third of OECD levels for most of the past two decades (Figure 1.18).
GDP per capita, PPP (constant 2021 international dollars)
Note: GDP per capita is measured in purchasing power parity (PPP) terms at constant 2021 international dollars and expressed as a percentage of the OECD average (OECD = 100). Regional averages are based on the aggregation methodology of the World Development Indicators and are calculated as population-weighted averages of the countries included in each region.
Source: Authors’ elaboration based on World Bank (2026[95]), World Development Indicators, https://data.worldbank.org/indicator/NY.GNP.PCAP.CD.
Climate-related shocks could further constrain an already subdued growth outlook. Against a backdrop of persistently low potential growth and limited income convergence, the possible emergence of an El Niño episode represents an additional downside risk for several LAC economies. Although its effects vary considerably across countries, El Niño typically disrupts economic activity through lower agricultural and fisheries production, damage to infrastructure and pressures on electricity generation. This is especially the case in countries with high dependence on hydropower. These disruptions can weaken output in climate-sensitive sectors and exacerbate structural vulnerabilities, further limiting the region’s capacity to accelerate growth (BBVA, 2026[96]; EIU, 2026[97]).
The economic impact of El Niño is also likely to be amplified through inflation and financing channels. Adverse weather conditions can reduce food supply, increase energy costs and disrupt domestic supply chains, contributing to renewed inflationary pressures across the region. In turn, higher inflation could slow the pace of monetary easing or require a more restrictive policy stance than anticipated, weighing on investment and domestic demand. Given LAC’s prominent role in global agricultural and commodity markets, climate-related supply shocks may also generate broader trade and price effects. As a result, a severe El Niño episode could simultaneously weaken growth and increase inflation. This, in turn, would create an additional policy challenge for economies already struggling to achieve stronger and more inclusive growth (BBVA, 2026[96]; EIU, 2026[97]).
Limited productivity gains are at the root of LAC's weak growth performance
Weak productivity dynamics, rather than a lack of capital accumulation alone, have been central to LAC’s limited growth performance. Growth decomposition suggests that, while capital accumulation has contributed positively, the region has struggled to translate investment into sustained gains in productivity, efficiency and structural transformation. Weaknesses in productive investment, innovation and technological adoption (OECD et al., 2023[16]) have translated into low total factor productivity (TFP) growth, constraining the quality and impact of growth. By contrast, Emerging Asia has combined strong capital deepening with more robust TFP growth, enabling investment to support deeper structural change rather than predominantly factor-driven expansion. LAC’s growth model remains comparatively more reliant on labour inputs and less effective in sustaining productivity-enhancing dynamics (Figure 1.19).
Average contribution to GDP growth by decade (percentage points)
Note: TFP = total factor productivity. Using Penn World Table 11.0, countries were grouped into Advanced, Emerging Asia and LAC. Annual GDP growth was decomposed into labour, capital and TFP contributions using a Cobb-Douglas framework (α = 0.4), with decadal averages used for comparison.
Source: Authors’ elaboration based on Feenstra, Inklaar and Timmer (2015[98]), The next generation of the Penn World Table, www.ggdc.net/pwt.
Limited fiscal space constrains public investment and growth in LAC
Limited fiscal space has constrained LAC’s capacity to support sustained growth and production transformation. Although fiscal positions have improved since the sharp deterioration during the pandemic, overall fiscal balances have remained in deficit of around 3% of GDP, while primary balances have gradually returned to near balance (Figure 1.20). These trends reflect a combination of limited tax capacity, rigid budgets, reliance on volatile revenues and elevated financing costs. Together with inefficiencies in the composition of public spending, these factors have reduced governments’ ability to allocate resources effectively towards infrastructure, human capital, innovation and other productivity-enhancing investments.
Note: The regional average is calculated as an unweighted average of the economies with available data: Argentina, Brazil, Chile, Colombia, Costa Rica, Ecuador, the Dominican Republic, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru and Uruguay.
Source: Authors’ elaboration based on ECLAC (2026[99]), CEPALSTAT, https://statistics.cepal.org/portal/cepalstat/index.html?lang=en; ECLAC (2026[100]), Fiscal Panorama of Latin America and the Caribbean, 2026: Strengthening tax systems to finance more productive, inclusive and sustainable development, https://www.cepal.org/en/publications/89990-fiscal-panorama-latin-america-and-caribbean-2026-strengthening-tax-systems.
Tax revenues in LAC remain insufficient to meet financing needs, with an overreliance on indirect taxes
Despite significant variation across countries, tax revenues in LAC remain comparatively low and insufficient to meet development financing needs. In 2024, tax revenues averaged 21.7% of GDP, well below the OECD average of 34.1% (OECD et al., 2026[101]). The structure of taxation in LAC further limits its effectiveness. Personal income tax and social security contributions accounted for only 26.1% of total revenues (5.7% of GDP) in LAC, compared to 49.2% (17% of GDP) in OECD Member economies (Figure 1.21). By contrast, corporate income tax represents a larger share of GDP in LAC (18.4%) than in the OECD (11.9%). Taxes on goods and services dominate the structure, making up 47.7% of revenues (10.3% of GDP), with value added tax alone contributing 28.4% (6.1% of GDP) (OECD et al., 2026[101]). However, the revenue potential of VAT is constrained by extensive exemptions and reduced rates, which narrow the tax base while disproportionately benefitting higher-income households (OECD et al., 2026[101]; Peláez Longinotti, 2026[102]).
Note: The LAC average excludes Venezuela due to data issues. Ecuador is excluded from the LAC average for personal income tax and corporate income tax revenues due to data quality issues. The OECD average corresponds to the 2023 average and represents the unweighted average of the 38 OECD Member countries, including Chile, Colombia, Costa Rica and Mexico.
Source: OECD et al. (2026[101]), Revenue Statistics in Latin America and the Caribbean 2026, https://doi.org/10.1787/2f21f131-en.
The limited capacity of tax systems to mobilise revenues and finance quality public goods has also contributed to a weak fiscal contract between citizens and the state. Across LAC, only 29.4% of respondents agree that tax revenues are spent for the public good, while 49.6% disagree. This compares unfavourably with Africa, where 38.1% agree and 43.1% disagree, and with Asia, where 38.4% agree and 36.5% disagree. Citizens are similarly sceptical about the value they receive in return for their taxes. Only 25.4% of respondents in LAC consider public services and infrastructure to be a fair return for the taxes they pay, compared with 55.7% who disagree. Again, perceptions are more negative than in Africa (41.7% agree versus 43.9% disagree) and Asia (42.2% agree versus 36.1% disagree). Perceptions also vary considerably across the region. The share of respondents who agree that tax revenues are spent for the public good ranges from around 20% in Guatemala and 23% in Argentina to more than 45% in Nicaragua and 36% in Mexico. Similar disparities emerge in perceptions of the fiscal return from taxation: while more than 40% of respondents in Nicaragua and around 30% in Mexico consider public services and infrastructure to be a fair return for the taxes they pay, the corresponding share falls below 25% in Argentina, Colombia, Guatemala and Peru (Figure 1.22).
Percentage of respondents who agree/disagree with the statement
Note: Panel A is percentage of respondents who agree/disagree with the statement “Tax revenues in my country are spent for the public good.” (Neutral responses not shown). Panel B is percentage of respondents who agree/disagree with the statement “I feel that the public services and infrastructure I receive are a fair return for the taxes I pay.” (Neutral responses not shown). Regional aggregates are calculated as simple (unweighted) averages of the countries included in each region. Africa comprises Angola, Côte d'Ivoire, Egypt, Kenya and Nigeria. Asia aggregate comprises Kazakhstan, Malaysia, Pakistan, the Philippines and Viet Nam. LAC comprises Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay and Peru.
Source: OECD/IFAC/ACCA (2024[103]), Public Trust in Tax 2024 – Latin America and Beyond, https://doi.org/10.1787/52ce48d5-en.
Rising debt and tight financing conditions constrain fiscal space in LAC
Despite efforts to stabilise and reduce public debt levels in recent years, debt-servicing costs remain elevated, limiting fiscal space in LAC. Several countries have implemented fiscal consolidation measures and debt ratios have generally declined from their post-pandemic peaks. However, tight global financial conditions and higher borrowing costs have kept interest payments on public debt at historically high levels. Interest payments increased from around 2.3% of GDP in the mid-2010s to nearly 3% of GDP in 2024, remaining well above levels observed in many advanced economies (Figure 1.23, Panel A). As a result, even where debt dynamics have improved, governments continue to devote a growing share of public resources to servicing debt. This, in turn, reduces the fiscal space available to support productive investment, strengthen public services and respond to economic shocks.
Rising debt-servicing costs compete with other possible uses of public resources, such as public investment and public goods. In 2023, interest payments on public debt were equivalent to almost 2.5 times public infrastructure expenditure on average, compared with less than one-to-one in the early 2010s (Figure 1.23, Panel B). Debt service also represents a substantially larger share of social expenditure than in OECD Member economies. Interest payments represented around 72% of education spending and 45% of health spending in LAC, nearly double the corresponding OECD averages of 37% and 22%, respectively. In several countries, debt-servicing costs exceeded expenditure on either education or health (Figure 1.23, Panel C). As a result, a growing share of public resources is being devoted to servicing past borrowing rather than advancing development objectives through investments in infrastructure, human capital and essential public services.
Note: Debt service is calculated as general government primary lending/borrowing minus general government net lending/borrowing.
Source: Authors’ elaboration based on IMF (2026[104]), World Economic Outlook, https://data.imf.org/en/datasets/IMF.RES:WEO.
Stronger monetary policy frameworks have improved macroeconomic stability
Monetary policy frameworks in LAC have strengthened significantly, improving nominal stability despite persistent structural constraints. Over recent decades, the adoption of more independent central banks, inflation-targeting regimes and stronger macroeconomic frameworks has reduced the frequency and severity of inflationary episodes compared to earlier periods.
The post-pandemic inflation surge in the region highlighted both vulnerabilities and improved policy credibility. Several central banks in LAC reacted earlier and more decisively than many of their peers, drawing on strengthened institutional frameworks and past experience with inflationary pressures. As a result, although inflation rose more sharply during 2021‑2023, it declined relatively quickly thereafter, with convergence towards pre-pandemic levels (Figure 1.24, Panel A). This pattern points to enhanced monetary policy effectiveness, even in the face of large global shocks. More recently, the conflict in the Middle East has begun to affect inflation and policy rate expectations, reversing earlier disinflation trends. Meanwhile, persistent core inflation – particularly in services – continued to delay convergence towards central bank targets in LAC (Banco de España, 2026[105]).
Real interest rates in LAC remain structurally high. Real policy rates have remained elevated across much of the region, particularly relative to advanced economies and Emerging Asia (Figure 1.24, Panel B). This has been driven by higher sovereign risk, fiscal vulnerabilities, shallower financial systems and sensitivity to external conditions. These factors contribute to a higher cost of capital for households and firms, constraining long-term investment, innovation and private sector expansion.
Note: CPI = Consumer Price Index.
Source: Authors’ elaboration based on IMF (2026[104]), World Economic Outlook, https://data.imf.org/en/datasets/IMF.RES:WEO.
External accounts in LAC reflect commodity dependence and volatile financing dynamics
External accounts in several LAC economies reflect a historical pattern of commodity dependence and volatile capital flows that reinforces structural macroeconomic vulnerabilities. Capital inflows surged during the commodity boom but proved highly cyclical rather than structurally transformative. Portfolio flows have been particularly volatile, increasing sensitivity to global financial conditions and shifts in investor sentiment. Since the mid-2010s, total capital inflows as a share of GDP have declined, while portfolio inflows have weakened and, in recent years, turned negative (Figure 1.25). More recently, portfolio inflows in LAC have shown relatively greater resilience than in other emerging regions during episodes of global stress. However, they have still slowed and remain sensitive to geopolitical developments and shifts in global financial conditions (Banco de España, 2026[105]).
FDI has remained comparatively more stable than other forms of external financing, helping to cushion external financing conditions amid heightened global uncertainty. In LAC, FDI inflows reached USD 194 billion in 2025, equivalent to 2.8% of GDP and 14.0% of gross fixed capital formation. Portfolio and debt flows have become increasingly sensitive to global financial conditions. However, FDI has continued to provide a relatively resilient source of external financing, supporting balance-of-payments sustainability and helping finance current account deficits across several economies in the region (ECLAC, 2026[106]).
Source: Authors’ elaboration based on IMF (2026[104]), World Economic Outlook, https://data.imf.org/en/datasets/IMF.RES:WEO.
Social context and structural socio-economic challenges
LAC labour markets are resilient, but structural gaps persist
The LAC region’s labour markets remain segmented along multiple dimensions, with high cross-country heterogeneity and persistent gaps in access to good-quality jobs. Recent labour market developments in LAC point to a familiar pattern: employment has broadly recovered from the profound shock of COVID-19 and remained resilient. However, large segments of the LAC population still face persistent labour exclusion and the quality of their jobs has improved only slowly (OECD et al., 2022[15]; OECD et al., 2023[16]; OECD et al., 2024[76]; OECD et al., 2025[2]).
Percentages of the population aged 15-64 in each group
Source: Estimates based on CEPALSTAT and OECD (2026[107]), Key Indicators of Informality based on Individuals and their Households (KIIbIH), https://data-explorer.oecd.org/s/55m.
Working-age employment rates in LAC have been remarkably stable over the past decade, but this strength should not be mistaken for robust and inclusive labour market dynamism. The regional employment rate for the population aged 15‑64 rose only marginally from 64.9% in 2014 to 65.3% in 2019 and recovered the pre-pandemic levels at 65.3% in 2024 (Figure 1.26, Panel A). This suggests that the region has managed to be resilient and to preserve employability during the last big shock but has not shifted to a significantly higher-employment equilibrium. In a context of low growth, however, informality has often worked as a buffer for the absorption of shocks. After being muted during the pandemic, job creation in the informal economy recovered faster than in its formal counterpart (ECLAC, 2023[108]; OECD, 2023[109]; OECD et al., 2025[2]).
Behind the regional average lies substantial heterogeneity across countries (Figure 1.26, Panel A). At the upper end of the distribution, employment rates are above 70% in Peru (71.0%) and Paraguay (70.6%), followed by Mexico and the Dominican Republic at 68.0%, and Uruguay at 68.3%. At the lower end, Honduras (57.1%), Costa Rica (59.5%) and Colombia (62.9%) remained well below.
The most persistent gap in employment prospects remains the gender divide. In 2024, men in the LAC region record an employment rate of 78% compared with 54% for women, implying a gap of around 24 percentage points (Figure 1.26, Panel B). The disparity is particularly large in Guatemala, where male employment rates were 84.4% against 40.5% for women, and in Honduras (75.7% versus 41.9%).
Even in countries with lower than regional gender gaps, sizeable differences in percentage points remain, as in Argentina and Peru (16), Brazil (20), Chile (19) and Uruguay (12). The gender inequality in labour markets is largely shaped by three factors: the unequal distribution of unpaid care work; discriminatory social institutions and social norms that constrain women’s labour market participation; and barriers that go beyond labour demand and market features alone (ECLAC, 2023[108]; OECD, 2023[110]; ILO, 2024[111]).
At the same time, the cross-country variation in women’s employment rates suggests that policy and institutional arrangements matter. Female employment is comparatively high in Peru (63.2%), Uruguay (62.2%) and Paraguay (59.3%), but much lower in several Central American economies. This points to the importance of childcare provision, transport, working-time arrangements, labour intermediation and the broader institutional environment that allows women to enter and remain in paid work. In this regard, expanding women’s labour participation is both a social objective and a route to raise potential growth and make labour markets more inclusive (ECLAC, 2023[108]; ILO, 2024[111]).
Young and older people continue to face much weaker labour market participation than prime-age adults (Figure 1.26, Panel C). In 2024, the employment rate in LAC was only 39.4% among those aged 15‑24, compared with 78.5% for the 35‑49 group, and 66.4% for workers aged 50‑64. Youth employment is lower, although still high, in Chile (26.1%), Costa Rica (31.0%), Argentina (31.3%) and Uruguay (32.6%). Part of the lower shares of youth in employment reflect rising school attendance, which is a positive long-term development also observed across OECD Member countries. Overall, high youth unemployment partially reflects weak school-to-work transitions, scarce formal entry jobs and the concentration of younger workers in precarious forms of employment. ILO’s latest regional review underscores precisely the difficulty in securing formal employment opportunities for youth (ILO, 2024[111]).
At the regional level, the employment rate is 65.5% in urban areas and 64.5% in rural areas (Figure 1.26, Panel D). Rural employment exceeds urban employment in Peru, Ecuador and Bolivia, while the reverse is true in Guatemala, Honduras, Chile and Costa Rica. These differences largely reflect variation in productive structures and household labour strategies rather than unequal opportunities across space (ECLAC, 2023[108]). Higher rural employment often coexists with lower productivity, higher self-employment and weaker protection, particularly in agriculture and small-scale activities (OECD, 2023[109]; OECD, 2024[112]; ILO, 2024[111]).
Although in slight decline, informality is widespread and leaves many groups of workers vulnerable
In the LAC region, the informality rate remains high and declined only modestly between 2018 and 2023 – from 53.3% to 52.4%, a reduction of less than one percentage point (Figure 1.27, Panel A). Consequently, more than half of workers in the region remain employed in jobs with limited access to social insurance and formal protections. This leaves LAC trapped in a development pattern characterised by high inequality, low social mobility and weak social cohesion (ECLAC, 2023[108]; ECLAC, 2025[113]; OECD et al., 2025[2]).
Percentages of workers aged 15 or more in each group
Source: Estimates based on OECD (2026[107]) (2026[107]), Key Indicators of Informality based on Individuals and their Households (KIIbIH), https://data-explorer.oecd.org/s/55m.
Informality trends have evolved unevenly across countries, reflecting important differences in labour market structures and policy frameworks. During the five-year period 2019‑2024, measured in percentage points, informality fell in Paraguay by 3.5 points, in El Salvador by 3.1 points, in Costa Rica by 2.3 points, in Brazil by 1.7 points and in Chile by 1.4 points. Meanwhile, informality increased by 3.8 percentage points in Honduras and remained broadly unchanged in Bolivia, Guatemala, Argentina, Colombia and Uruguay. This heterogeneity indicates that informality is not simply a mechanical by-product of income levels. It also depends on labour regulation, enforcement capacity, the cost and design of contributory systems, the sectoral composition of employment, and the ability of firms to scale up and hire formally (OECD/OISS, 2024[114]).
Gender differences in informality are smaller than those observed in employment, but they remain important and vary across countries. At the regional level, informality stands at 52.5% for men and 51.4% for women, implying broad parity. Educational achievements are strongly correlated with the likelihood of holding an informal job (Figure 1.27, Panel C). In 2023, seven out of ten workers in LAC aged 15 or more with no schooling were informal, versus six among those with primary education, four among those with secondary education and three among workers with tertiary education.
Education alone cannot eliminate informality as other production and policy factors are at play. Informality is shaped not only by workers’ human capital, but also by labour demand, firm structure and the organisation of production. Where productive structures remain highly fragmented and dominated by small firms or own-account work, better education improves outcomes. However, better education does not fully substitute for broader structural transformation.
Informality is prevalent among low-paid occupations (Figure 1.27, Panel D). In LAC, informality is 58.8% among low earners and 44.4% among middle earners. Nearly one-third of high earners also work informally (31.2%). Thus, informality is strongly associated with low pay, but it is not confined to the bottom of the distribution. Indeed, in some countries, informality remains high even among high earners (59.6% in Peru) (OECD/OISS, 2024[114]; OECD, 2026[115]).
In LAC, informality is associated with a substantial earnings penalty and remains an important source of labour income inequality. In 2023, informal workers earned less than formal workers both in monthly (58%) and hourly terms (47%), indicating the gap does not reflect working time alone (Figure 1.28, Panel A). The penalty persists even after controlling for the number of hours worked, pointing to lower returns to work among informal workers. This pattern is consistent with the concentration of informal employment in low productivity activities. Such activities include own-account work and small-scale firms, where wages are lower, income is more volatile and coverage by labour institutions is limited (ECLAC, 2023[108]; ECLAC, 2023[108]).
Income inequality in LAC is driven more strongly by disparities within labour market segments than by the divide between formal and informal employment. A decomposition of the Theil-L index of monthly labour income in the primary job into within-group and between-group components provides an important distributional perspective (Figure 1.28, Panel B). The results show that overall inequality is driven mainly by income dispersion within informal employment. By contrast, the gap between formal and informal workers is generally smaller. This confirms that, although segmentation between formal and informal employment is an important source of inequality, it is not the dominant one (ECLAC, 2025[113]).
A non-negligible between-group component means that transitions from informal to formal employment can reduce income gaps directly by moving workers into better-remunerated and better-protected jobs. At the same time, the large within-group component means that formalisation alone will not be enough: inequality also reflects differences in skills, sectors, firm productivity and labour market institutions within each segment. There is growing emphasis on a dual agenda centred on formalisation and productivity upgrading, rather than on incremental marginal interventions in tax regimes or labour regulations (OECD et al., 2023[16]; ILO, 2024[111]; OECD, 2024[116]; OECD et al., 2024[76]; ECLAC, 2025[113]).
Note: The earnings’ gap between formal and informal workers is computed as the difference between the mean monthly (hourly) earnings of formal workers and the mean monthly (hourly) earnings of informal workers in their main job, expressed as a share of the mean monthly (hourly) earnings of formal workers in their main job. A positive value means that formal workers earn more than informal workers; a negative value means that informal workers earn more than formal workers. Monthly earnings refer to gross wages and salaries for employees, and income for own-account workers; they include bonuses and in-kind payments; and in some surveys, earnings are reported net of social security contributions and taxes. Hourly earnings refer to gross hourly wages and salaries for employees; they include bonuses and in-kind payments; and in some surveys, earnings are reported net of social security contributions and taxes. Hourly rates are calculated by dividing monthly figures by the actual numbers of hours worked in a week multiplied by 4.33 – the mean numbers of week in a month. If actual figures are missing, usual hours worked in a week are used. Data are presented for the latest year available. LAC average is calculated as simple unweighted average of countries for which data are available.
Panel B shows the Theil-L index of monthly labour income for workers. The Theil-L index decomposes inequality into two components: (i) the between-group component isolates the portion of inequality attributable exclusively to differences in the average labour monthly income of formal workers and informal workers; (ii) for each group, the within-group component measures separately the dispersion of income within each group (formal and informal workers). Data are presented for the latest year available. KIIbIH and regional averages are calculated as simple unweighted averages of countries for which data are available.
Source: OECD (2026[107]), Key Indicators of Informality based on Individuals and their Households (KIIbIH), https://data-explorer.oecd.org/s/55m.
Economic growth has remained insufficient to significantly reduce poverty and inequality
Despite recent improvements, social progress in LAC remains fragile and uneven. While social conditions improved in 2024, the recovery remained incomplete. Income poverty declined to 25.5% of the population. This was down 2.2 percentage points from 2023 and more than 7 percentage points below the pandemic peak in 2020, representing the lowest regional poverty rate since comparable records began. Extreme poverty also fell to 9.8% but at a slower pace. It stayed at 2.1 percentage points above its 2014 low, suggesting that it remains persistent (ECLAC, 2025[113]; OECD et al., 2025[2]).
Poverty has disproportionately affected groups already exposed to long-standing inequality traps. Children and adolescents continue to face the highest incidence of multi‑dimensional poverty. At the same time, rural populations remain disproportionately affected and women experience higher levels of individual deprivation than men; for every 100 men in multi‑dimensional deprivation, 122 women are in the same situation. These disparities are reinforced by persistent disadvantages associated with household characteristics, territory, gender, socio-economic origin, disability, migrant status and Indigenous identity (ECLAC, 2025[113]; OECD et al., 2025[2]).
Progress in reducing non-monetary deprivation has also been accompanied by persistent structural vulnerabilities. Multi-dimensional poverty measure fell from 34.4% in 2014 to 20.9% in 2024, reflecting sustained gains in housing and access to basic services. However, these improvements have not fully addressed underlying challenges linked to weak labour incomes, high informality and unequal opportunities. As a result, while living conditions have improved across the region, broad-based economic security remains elusive (ECLAC, 2025[113]; OECD et al., 2025[2]).
Income inequality in LAC remains among the highest in the world despite gradual improvements over recent decades. Inequality has followed only a slow downward trend and remains well above levels in OECD Member countries. This reflects persistent structural weaknesses in labour markets, social mobility and social protection systems (OECD et al., 2024[76]; ECLAC, 2025[113]). The regional Gini coefficient declined markedly from 0.53 in 2000 to 0.45 in 2024 (Figure 1.29, Panel A), with most progress taking place during the 2000s and early 2010s. Since then, improvements have slowed considerably, with the regional Gini hovering around 0.46 before resuming a mild decline after 2021. Overall, while inequality has eased, the region continues to face a persistent “high-inequality trap” rooted in segmented labour markets, unequal opportunities and weak social mobility. Inequality levels across LAC countries have become less dispersed over time, although convergence has been partial and uneven (Figure 1.29, Panel B). The gap between the countries with the highest and lowest Gini coefficients narrowed from around 0.24 points in 2000 to 0.16 points in 2024.
Gini coefficients
Note: Households’ level of informality is based on the earners’ conditions. If all workers are informal (formal), they are categorised as informal (formal); if some are formal and some informal, they are categorised as mixed; households with no workers are a specific category.
Source: Estimates based on OECD (2026[107]), Key Indicators of Informality based on Individuals and their Households (KIIbIH), https://data-explorer.oecd.org/s/55m.
Income inequality in LAC is associated with household labour-market status, and most inequality arises from differences within household types rather than between them. At the regional level, the Theil-L index of per capita household income is 0.34. About 87% of total inequality is explained by income dispersion within formal, informal, mixed and no-worker households, and only 13% attributable to differences between these groups (Figure 1.30). Informal households account for the largest share of overall inequality, contributing around 35% of the regional total, followed by formal households (26%). The contributions of mixed households, no-worker households and differences between household types are comparatively smaller. This pattern suggests that while labour informality matters for income distribution, inequality is driven primarily by substantial heterogeneity among households with similar labour market attachment.
Note: The Theil-L index decomposes inequality of per capita monthly income (or consumption, depending on the country’s survey) into two components: (i) the between-group component isolates the portion of inequality attributable exclusively to differences in the average labour monthly income of formal workers and informal workers; (ii) for each group, the within-group component measures separately the dispersion of income within each group (formal, mixed, informal and no-worker households). Households’ level of informality is based on the earners’ conditions. If all workers are informal (formal), they are categorised as informal (formal); if some are formal and some informal, they are categorised as mixed; households with no workers are a specific category. Data are presented for the latest year available. KIIbIH and regional averages are calculated as simple unweighted averages of countries for which data are available.
Source: Estimates based on Key Indicators of Informality based on Individuals and their Households (KIIbIH), https://data-explorer.oecd.org/s/55m.
Overall, LAC income inequality reflects both labour market segmentation across household types and, even more strongly, high income dispersion within each type. This implies that policies aimed at reducing inequality need to combine stronger labour inclusion and formalisation with measures that raise earnings quality and reduce dispersion within both formal and informal segments (OECD, 2023[109]; OECD/OISS, 2024[114]; OECD, 2024[112]). These findings reinforce the policy message that formalisation alone does not automatically produce lower inequality. In many countries, inequality among formal-only households is similar to, or even higher than, inequality among informal-only households. This suggests that LAC inequality is shaped not only by the divide between formal and informal work, but also by wide dispersion within each segment. In turn, reducing inequality for the long term will require not only more formal jobs but also higher productivity, better earnings quality and stronger protection for households with weak labour market attachment or working with informal arrangements (Amarante and Arim, 2023[117]; ECLAC, 2025[113]).
LAC is navigating a period of profound global transformation. The green transition, digitalisation and AI, demographic change, food security, and evolving forms of international co‑operation are reshaping the global economy and creating new opportunities for development. The region is well positioned to benefit from these trends, given its abundant renewable energy resources, critical mineral reserves, biodiversity, growing digital capabilities and long-standing commitment to international co‑operation. These assets provide a foundation for attracting investment, creating quality jobs, advancing productive transformation and strengthening the region’s role in emerging global value chains and global governance.
Yet opportunities alone will not be sufficient to accelerate development. The region continues to face persistent structural constraints, including low productivity growth, limited investment, restricted fiscal space, high financing costs and external vulnerabilities. Social challenges also remain significant. Informality continues to affect more than half of workers, while poverty, inequality and unequal access to opportunities limit both economic dynamism and social mobility. Although LAC has demonstrated resilience to recent global shocks, these constraints continue to hamper its ability to translate growth into sustained improvements in well-being and income convergence.
Harnessing the opportunities created by global transformations will therefore require a comprehensive policy agenda that combines productive transformation, social inclusion and sustainability. Strengthening capabilities, fostering innovation, expanding access to quality jobs, mobilising investment and deepening regional and international co‑operation will be essential to ensure these global shifts translate into stronger productivity growth, greater resilience and more inclusive development. The following key policy messages highlight priorities for turning these opportunities into tangible development outcomes for the region.
Global opportunities for development and production transformation
The green transition, digital transformation and AI, demographic change and evolving international partnerships are creating new opportunities for LAC to accelerate productive transformation and sustainable development.
LAC’s renewable energy potential, critical mineral endowments and clean electricity matrix provide a strong basis for developing new industries, attracting investment and creating quality jobs.
Capturing greater value from the green transition will require moving beyond resource extraction towards higher value-added activities, including processing, manufacturing and innovation-intensive services.
Digital transformation and AI can support productivity growth, innovation and economic diversification but require stronger digital infrastructure, computing capacity, digital skills and governance frameworks.
LAC can strengthen its role as a global food security provider by boosting sustainable agricultural productivity, climate resilience and agrifood value addition, while strengthening domestic and global food security.
Demographic change creates opportunities in the care and silver economies, which can support employment creation, greater labour force participation and more inclusive growth.
Regional integration and international partnerships such as the Global Gateway Investment Agenda of the EU for LAC should increasingly support productive transformation through investment mobilisation, technology transfer, skills development and stronger domestic productive capabilities.
Current macroeconomic and social conditions in Latin America and the Caribbean
Macroeconomic context and structural economic challenges
LAC’s growth remains insufficient to achieve meaningful income convergence with advanced economies, reflecting weak productivity dynamics, low investment and limited structural transformation.
Stronger macroeconomic frameworks have increased resilience to external shocks, but limited fiscal space, high debt-servicing costs and tight financing conditions continue to constrain development prospects.
Expanding fiscal space will require stronger domestic resource mobilisation, more efficient public spending and sustainable debt management to finance productive and social investments.
Mobilising long-term finance and deepening financial markets are essential to support infrastructure, innovation, and the green and digital transitions.
Greater resilience to geopolitical tensions, external shocks and climate-related risks should be accompanied by policies that support long-term productivity growth and competitiveness.
Social context
Persistent labour informality remains a major obstacle to productivity growth, quality job creation, social protection coverage and inclusive development.
Policies to promote formalisation should be combined with productive development strategies that raise firm productivity and expand access to better quality employment.
Expanding women’s labour force participation will require stronger care systems and policies that address barriers linked to unpaid care work and unequal opportunities.
Reducing poverty and inequality will require a combination of stronger labour market outcomes, higher productivity, effective redistribution and more comprehensive social protection systems.
Social protection systems should adapt to an ageing population, evolving labour market realities and growing care needs while ensuring broader and more equitable coverage.
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← 1. Throughout this report, the terms critical raw materials (CRMs) and critical minerals are used interchangeably. Both refer to minerals and metals that are essential for economic activity and strategic technologies, including the energy transition, and whose supply may be subject to elevated risks due to factors such as geographic concentration, market dynamics or geopolitical constraints. The specific list of materials covered may vary across jurisdictions and policy frameworks.
← 2. Low-emissions fuels refer to fuels with substantially lower lifecycle greenhouse gas emissions than conventional fossil fuels, including sustainable biofuels, biomethane, low-emissions hydrogen and hydrogen-derived fuels such as ammonia, methanol and e‑fuels (IEA, 2024[118]).
← 3. Low-emissions hydrogen refers to hydrogen produced through water electrolysis using electricity generated from low-emissions sources, including renewable energy and nuclear power. It also includes hydrogen produced from biomass and from fossil fuels coupled with carbon capture, utilisation and storage (CCUS), provided that upstream emissions are minimised, CO₂ capture rates are high across all emission streams, and the captured CO₂ is permanently stored (IEA, 2023[14]).