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Latin American Economies Gain in Global Competitiveness

Latin American Economies Gain in Global Competitiveness

By Robert L. Scheier

The World Economic Forum essentially gave a big round of applause to the tiger economies of Latin America recently, with it annual Global Competitiveness Report. Chile, Mexico and Brazil showed strong advancement – but one Caribbean country also is rising in the ranks, despite a bit of a quiet demeanor.

Uncontrollable factors such as rising commodity prices, as well as intentional choices such as business-friendly policies and modest levels of public debt, have set a foundation for the region to boost the fortunes of its economies and populations. But to take their game to the next level, the WEF recommends, these countries should focus on improving education, trust in public institutions and their transportation infrastructure.

A country by country look at the rankings shows the critical role of good governance, good infrastructure and good education:

Chile, at 31st most competitive, “remains the most competitive economy in the region” with high levels of trust in the rule of law and “transparent public governance mechanisms” and a sound and traditionally counter-cyclical macroeconomic policy. The WEF likes the measures Chile took to open its markets to foreign competition, its relatively flexible labor market and “sophisticated and efficient financial markets,” not to mention the boost from rising prices of exports such as copper. Challenges include low levels of innovation, which is held back by low investment in R&D, “relatively low-quality scientific research institutions…weak university-industry collaboration in R&D (and) the perceived poor quality of the overall educational system.”

Barbados moved up one place to 42 despite the hit the downturn has given to its tourist sector, as well as rising government debt, persistent budget deficits and a low national savings rate. The good news is its “stable, transparent, and reliable institutions…high-quality infrastructures…and excellent educational system.

Panama, in 49th place, has “the strongest competitive position in Central America” with efficient financial markets, solid transport and very good technological adoption. Major weaknesses remain, however, in education, a rigid labor market, low levels of trust in politicians, insufficient judicial independence and rising favoritism in government decisions.

Brazil rose five places at 53rd with one of the world’s largest internal markets, a sophisticated business environment, and one of the most efficient financial markets and highest rates of technology adoption and innovation in the region. Problem areas include lagging infrastructure, macroeconomic imbalances, poor education system, rigid labor market and insufficient progress boosting competition.

Rising one place to 63rd, Uruguay has long-standing strengths in well-functioning public institutions, education, and stable policies encouraging foreign investment. Growth figures like 8.5 percent last year were led by private consumption and rising international commodity prices, and lead to a risk of an overheating economy.

Peru at 67th place keeps moving up in the rankings as a result of cooling inflation, reduced government deficit and debt, and an increasingly entrepreneur-friendly environment. Increased efficiency in the labor and financial markets, a relatively large domestic market (43rd) and its openness to trade and investment has also helped. As with other countries in the region, relatively weak public institutions, transport, education and innovation continue to hold it back.

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At 68th place, Colombia was boosted by a sound and stable macroeconomic environment with low inflation and manageable levels of public debt, a large domestic market, an improving educational system with high levels of enrollment and improving quality. But despite government efforts to eradicate organized crime, security concerns drag down its potential. The WEF also called for improved regulation to foster domestic competition and more investment in infrastructure.

Argentina rose two places to 85th. The WEF says the potential of its large, well educated domestic market remains untapped due to factors such as a lack of trust in politicians, uncertainties and favoritism in government decisions, and inefficient and bureaucratic public sector as well as low confidence in the financial system. As a result, the forum said, businesses have trouble getting financing through local markets, loans and venture capital. (Watch GDR for an upcoming report on the financing situation in Mexico.) Finally, the WEF worries that without structural reforms, “the high growth that the economy has experienced since 2003 is unlikely to continue.”

Other regional players either remained stable or fell slightly in the rankings. The sharpest declines, such as for Costa Rica, Guatemala, El Salvador, Nicaragua, and Jamaica, were “mainly due to a deterioration of the security conditions,” the forum said.

All in all, according to the WEF, LatAm is doing well in a tough economic climate, but can do more to stay ahead of the next hungry geography – wherever that may be.

This article originally appeared on Global Delivery Report

 

About Kirk Laughlin

Kirk Laughlin is an award-winning editor and subject expert in information technology and offshore BPO/ contact center strategies.
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