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What Does Latin America Need to Grow?

With just over 8% of the planet’s population, Latin America accounts for 5.26% of the global GDP. While the United States, with almost half of that population, constitutes 15%.

Although the nations of this region have great natural resources (mining, fishing, livestock, agriculture, tourism potential), their growth is lagging behind the rest. In fact, the global expected for this year is 2.9% (figures from the IMF); while for Latin America it would be 1.3%.

There are different opinions about the factors that contribute to this delay in development, as well as about what should be done to get out of such a situation. We have analyzed the views of the experts (World Bank, IDB, ECLAC, CAF). Here are the conclusions.

What is preventing the growth of Latin America?

On the one hand, it is stated that several countries in the region have made social and economic progress, achieving the status of middle-income countries. Among these cases, it is worth mentioning: Uruguay, Chile, Panama, and Costa Rica.

However, on the other, there are nations such as Venezuela or Bolivia (below 3000 USD) or even Haiti (1829 USD), in which there is not only an economic setback but a social and institutional deterioration.

Concerning the obstacles to the development of the region, the ECLAC highlights the following:

  • Persistence of poverty, as well as a large gap between those who have and those who do not; moreover, the extreme poverty rate is alarming: 10.2%.
  • This gap is also observed in the inequality of access to education, health and social protection, as well as basic services (water, sanitation, electricity).
  • Slow labor market and high rates of unemployment and underemployment.
  • Insufficient investment in infrastructure works and social interest.
  • High rates of violence; the homicide rate in countries such as Mexico, El Salvador or Venezuela is several times higher than the global average.
  • Forced migrations; this can be translated, although ECLAC does not mention it, into talent drain.

In addition, other problems can be mentioned such as the low industrial and technological development and unequal access to technologies (for example, the Internet); and the problem of corruption, which affects the decrease in public investment, as mentioned above.

What does Latin America need to grow?

But, these negative situations could be reversed, if certain actions are implemented instead, strategically outlined. Let’s see what the experts recommend about what Latin America needs to grow.

Innovation, technology and industry

According to the indications of the CAF (Andean Development Corporation), LATAM must bet on innovation, given the outlook that is looming in the economy and the swings in the price of raw materials. It is appropriate to point out that the economies of the region, for the most part, rely on the primary sector.

Innovation in technology and supporting the growth of the industry are the necessary formula to increase productivity levels. Even, this is what China has been doing for a while now. And it’s giving them results, as far as it can be seen.

However, the experts of this organization clarify that when talking about innovation, it is not necessary to think only about technologies but to have a broader view, which points to logistics, infrastructure and financial instruments, as they all contribute to improving competitiveness.

Productivity and investment

Of course, one cannot talk about development without going through an increase in productivity. In this case, the private sector must continue to grow, in a sustained way. And to achieve this, investment should be increased, not only nationally but also from abroad.

And although it is stated that the investment rate has grown, compared to previous years, it is necessary to improve their quality, attracting capital for high-value-added sectors. In this context, also it is considered key to take advantage of knowledge transfers, which foreign companies can generate.

De-bureaucratization and access to credit

One of the limitations to the development of local businesses is access to financial resources, via credit. About it, Latin America also presents handicaps, both due to high-interest rates, as well as bureaucratic requirements and obstacles to access financing.

In this way, these obstacles put limits on local SMEs. Therefore, we must move towards de-bureaucratization, eliminating requirements that do not favor growth, but quite the opposite: they discourage investment.

Efficient State

According to the IDB, it is necessary to raise the institutional quality, strengthen the transparency of management and improve public investment in infrastructure. Although in a free market economy, the private sector contributes most of the provision of goods and services, there are some that the state must take care of.

Among these, it is noted that an efficient State must attend to the provision of citizen security services, education, transportation, water supply and sanitation, as well as energy.

In addition, it must be ensured that it works transparently, accountable to the citizenry. This is not only essential to maintain the social balance, but it decreases the country’s risk and attracts investment.

To do this, some countries must reform the tax system, and in others, administrative management systems must be improved.

Human resource

However, with higher productivity, a strengthened industry, a better functioning market, an efficient state and a favorable investment climate, it is still not enough for Latin America to grow. And what would be missing from this equation? The human factor. There can be no sustainable economic growth without human development, as pointed out by the ECLAC.

This means addressing several priority aspects. One is poverty reduction. Poverty generates problems that force public spending to be implemented in other areas. For example, increased violence implies spending on judicial and prison systems.

Of course, reducing poverty is not an easy task, but we must try to maintain and develop social inclusion programs and strengthen income. A population with better incomes undoubtedly favors the market economy.

On the other hand, this also requires raising educational levels, improving coverage and guaranteeing not only access but also the pursuit and completion of studies, the only way to have a larger and better qualified local workforce.

Competitive LATAM

There are already some established bases for Latin America to achieve a productive transformation, which will allow the region to make a qualitative and quantitative leap, approaching the levels of development of more consolidated economies, such as China, the USA or the European Union.

However, progress is not the same in all countries. Uruguay and Chile, as well as Panama and Costa Rica, are at the forefront of this process. In Colombia, Brazil, Argentina and Mexico, firm steps are being taken. But there are several that are lagging, such as Bolivia, Venezuela and El Salvador. And in others, like Haiti, there is a lot to work for.

The conditions are there, in most countries; there are natural resources. But there is a lack of political will and citizen participation, which are the pillars of any transformation, whether of a country or a region. 

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