Latin America needs to avoid being complacent and implement reforms that boost infrastructure, innovation, institutions and information communications.
BY JOACHIM BAMRUD
Boosting competitiveness can help reduce poverty in Latin America, according to Benat Bilbao, Associate Director and Economist at the Global Competitiveness and Performance Team at the World Economic Forum.
“We always see competitiveness as …improving productivity, [which is] a driving force behind higher degree of prosperity,” he says. “There cannot be economic growth without long term gains in productivity. By improving competitiveness, productivity when evenly distributed [can help] by providing opportunities for all.”
Although Latin America has made noticeable gains in poverty reductions the past decade – especially in countries like Brazil, Chile and Peru – the region still faces an average poverty rate of 38 percent, according to The World Bank.
While Chile has long ranked as the most competitive country in Latin America, Brazil now ranks as the third-most competitive economy in the region, according to the latest Global Competitiveness Index from the World Economic Forum. That represents an improvement of five spots from the 2011-12 index.
The impressive result comes despite Brazil’s image as a protectionist economy, with a heavy tax burden.
“Protectionism and high tax burden are two of the key challenges that the country is facing to boost its competitiveness,” Bilbao says.
However, those factors are offset by the size of Brazil’s economy, the largest in Latin America and the sixth-largest in the world.
“Even though it’s not open, the internal market is a very big, which allows for gains for productivity,” Bilbao says.
Meanwhile, Brazil has pockets of excellence in terms of innovation. “They have some companies that have excelled and are global leaders,” he says. “Embraer, for example. They are really excelling.”
These two features have allowed Brazil to move up in the rankings.
However, WEF’s Global Competitiveness Report 2012-13 does highlight several challenges that are faced by companies. At the top are tax regulations, with tax rates ranking as the third-most problematic area for doing business in the country.
Other key challenges include inadequate supply of infrastructure, inefficient government bureaucracy and restrictive labor regulations.
Overall, Latin America’s average score on the 2012-13 competitiveness index remained virtually unchanged from a year earlier.
“With the average of Latin America and the Caribbean we have not seen significant progress, but big economies like Brazil and Mexico have been improving in the ranking,” Bilbao says.
Mexico, Latin America’s second-largest economy, moved up five spots – from 58 in 2011-12 to 53 in 2012-13.
“Countries like Panama [have been] growing steadily in the rankings [while] also middle economies like Peru have seen some significant improvement in the past year,” Bilbao points out.
Panama ranked in 40th place on the latest index, up from 49th place in the 2011-13 index. Meanwhile, Peru went from 67th to 61st place.
Overall, Latin America still faces several challenges, mainly around institutions, infrastructure, information communications and innovation, Bilbao says.
“Those four areas are holding back potential,” he says.
Latin America’s physical infrastructure is not well connected and still suffering.
“It takes far too long from one port to another,” Bilbao says.
As for innovation, the region has lagged behind in boosting its scientific and innovation system, he points out. “Only the last few years they have been considering their innovation system,” Bilbao says.
The WEF executive emphasizes that there are big differences between countries in terms of improving competitiveness.
“It’s difficult to generalize,” he says. “Each country in different stages. You have countries in Central America [that are] not really improving. Chile -- even though it’s the best performing – has not been making substantial progress, and the recipes are completely different. In the case of Chile, they have to have decisive investments in education and innovation as the economy is moving to a higher state of development… beyond raw materials.”
Meanwhile, in other regions like Central America, Venezuela, Bolivia and Paraguay, the countries are not progressing and need to boost the function of institutions, Bilbao says. Or in the case of Argentina, to provide more legal and physical security for running economic activities, he adds.
Bilbao warns against complacency in Latin America after the region has been able to withstand the recent global economic crisis thanks to its commodity boom.
“There needs to be awareness [of the need] to make growth sustainable, …. to improve competiveness and that implies making reforms that are needed, and investment in infrastructure, innovation, instututions and information communications,” he says.
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