Over the last few years, governments have incorporated the concept of digital transformation into their development agendas. This term has become an essential element in any public policy discourse focused on economic development, the supply of public services, and resource-saving. However, what digital transformation means is rarely explained with precision, despite the many promises associated with it.
A simple interpretation suggests that digital transformation refers to the digitization of processes to make them more efficient. Therefore, concepts such as the Internet of Things, the metaverse, smart territories, and economy 4.0 are key components of this transformation. This paradigm shift in operational processes is supported by various technologies, such as automation, big data, analytics, cloud computing, cybersecurity (including the use of blockchain), and different types of artificial intelligence.
The main objective of digital transformation is to increase efficiency through the use of technology, which in turn increases productivity. Nonetheless, not all digital transformations are the same. Those that occur in the private sector tend to be more controlled and can be implemented gradually, division by division within a company. In the public sector, the process is a lot slower and more complex. Firstly, due to the existence of different levels of government, transformation must happen within agencies and entities of the same rank, whether that is federal, state, or municipal. Secondly, the initiatives that are part of these levels must be coordinated for the information to flow and integrate correctly between jurisdictions.
Given that this integration is complex, many countries have created institutions in charge of coordinating initiatives to promote digital transformation. For instance, in Colombia, there is a Vice Ministry of Digital Transformation, while Trinidad and Tobago created a Ministry of Transformation as the entity in charge of the digitization of the economy. In Mexico, on January 10, 2023, the creation of the Inter-secretarial Commission for Information and Communication Technologies and Information Security (‘CITICSI’) was published in the Federation’s Official Journal. Nevertheless, its work has been limited due to the lack of resources needed to coordinate digital technology in the country, given that the National Digital Strategy, published by the government of President Andrés Manuel López Obrador, was an aspirational text with no quantifiable objectives.
The promise that Mexico’s new President, Claudia Sheinbaum, made of creating the Digital Transformation Agency (‘ATD’), raises the need to define how the ATD and CITICSI will coexist. This task, in theory, should not be complex, as the agencies could be modified to be complementary.
From a practical standpoint, for digital transformation to be effective, there must be resilient telecommunication networks capable of transporting large amounts of data. The 5G ecosystem meets these requirements, since not only does it require antennas, but also large investments in fiber optics and, eventually, the integration of satellite networks. To achieve the three big promises of 5G —data speed, industrial Internet of Things, and low latency— it is necessary to allocate the spectrum frequencies in low, mid, and millimeter bands.
A positive aspect of 5G is that, according to the consulting firm Mobile Experts, this technology will eventually reduce the cost of data transmission by up to 80%, which would make the use of data-intensive applications cheaper, such as virtual reality, analytics, or holograms. In other words, 5G, by reducing digitization costs, would be a catalyst for digital transformation.
The negative aspect of 5G is that the increase in the networks’ density, due to the increased use of mid and millimeter bands, the proliferation of MIMO networks, and the exponential increase in connected devices, could imply a considerable increase in electricity consumption, reaching up to 300%, according to consulting firms such as 451 Research, McKinsey & Company and Analysys Mason. However, the increase in power consumption is not limited to 5G, since applications like blockchain and artificial intelligence will also increase electricity consumption shortly.
A study from Cambridge University shows that the use of Bitcoin consumes around 100 to 120 TWh per year. Furthermore, beyond cryptocurrency mining, blockchain is expected to play a key role in cybersecurity, which will also have implications for power consumption. Likewise, generative artificial intelligence applications will increase electricity consumption. Nor can we forget the impact of virtualization and the increased use of cloud computing, which will boost the proliferation and growth of data storage centers, each one with great energy needs.
If we analyze the last six years, it is evident that the electricity service in Mexico has faced serious problems. During this period, Mexico has recorded at least five massive blackouts, affecting over 15 million people and disrupting the productivity of the country. For example, the December 28, 2020, blackout, caused by a failure in the National Electrical System, left large areas, such as Mexico City, Nuevo Leon, Jalisco, and the State of Mexico without electricity. More recently, on May 7, 2024, a new blackout affected at least 18 states, including major urban centers like Mexico City, Jalisco, and Veracruz.
The problems of generating enough energy to meet local demand are not limited to Mexico. Argentina has been suffering blackouts for more than a decade when weather conditions, such as heat during summer months, exponentially increase electricity consumption. This occurred in January 2022, when the city of Buenos Aires suffered multiple blackouts that left over 700,000 people without electricity.
The weather conditions are not the only reason behind power outages, as lack of maintenance and redundancy can also cause unexpected failures, the way it happened on July 16, 2019. On Father’s Day, the Argentine Interconnection System (‘SADI’) experienced a failure that, according to the Secretary of Energy, caused an overload in the electric transportation system. The result was a blackout that lasted up to 24 hours in parts of Argentina, Uruguay, Paraguay, and southern Brazil.
Other countries in the region experiencing continuous blackouts are Ecuador and Puerto Rico. In the case of Ecuador, the situation is because approximately 70% of the electricity demand is covered by hydroelectric plants. Currently, Ecuador is facing the worst drought in over 60 years, which has drastically reduced reservoirs and energy production. This has caused blackouts of up to 11 hours, severely affecting the country’s economy.
Puerto Rico’s case is an example of how government incompetence in managing a crisis can make the situation worse. The Caribbean island suffered the onslaught of two hurricanes in less than three weeks in September 2017, which led to the power grid’s collapse, with some communities taking up to nine months to get the service back. Since then, the US federal government, through the Federal Emergency Management Agency (‘FEMA’), has allocated over $9.6 million to the reparation of the island’s electrical system, with another $2 million to repair power lines in educational institutions. Additionally, the Puerto Rican government hired the LUMA Energy company for $1.725 million for 15 years to improve the country’s power generation.
As of October 2024, the situation has not improved and Puerto Rico still suffers from daily blackouts, which negatively impacts its economic growth. The causes of this crisis include the lack of maintenance of the electrical infrastructure, poor governmental decisions, lack of transparency in the allocation of contracts, and numerous corruption allegations. As a result, the economy has lost hundreds of billions of dollars annually, with no optimistic prospects in the short term.
The situation in all the countries mentioned —Mexico, Argentina, Ecuador, and Puerto Rico— is similar. They are all betting on digital transformation to increase transparency and become more competitive worldwide. However, achieving this goal requires huge investments, which cannot be financed by the public sector alone; countries need to become attractive to investors.
What are investors looking for? Simple: a legal framework that respects governmental institutions and is not dominated by regulatory discretion. They are also looking for infrastructure in good condition, especially in the areas of interest for their investments.
To attract investments, large investments in civil and telecommunications infrastructure are needed, especially in 5G antennas and fiber optics. It is also essential to allocate spectrum in medium and millimeter bands.
These are the minimum conditions that a country must meet if it wishes to attract capital from large technology providers. Unfortunately, the growing number of power outages in the region has become one of the biggest obstacles to the adoption of technologies that would enable digital transformation. Without a reliable electrical service, digital transformation will not be able to materialize.
The deployment of fiber optics is key to the digitization of services and essential for the expansion of 5G. However, just as telecommunication networks are being upgraded to make the country more attractive to foreign investments, it is equally necessary to upgrade electrical grids. Otherwise, telecommunication networks will be underutilized and unattractive to investors seeking markets with stability in the supply of services.
Without a reliable and stable electrical system, any hope of a country becoming a digital powerhouse will be a mere chimera.
Headline image: Electricity pylons. Photo credit: minka 2507 from Pixabay.
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