Publish in Perspectives - Wednesday, November 6, 2019
Before the recent outbreak of violent protests in Chile, the World Economic Forum ranked it as Latin America’s most competitive country. Experts agree it deserves the top spot.
Experts support Chile’s ranking as Latin America’s most competitive country.
BY LATIN AMERICA ADVISOR
Before the recent outbreak of violent protests in Chile, the World Economic Forum released its 2019 Global Competitiveness Report, ranking Chile as Latin America’s most competitive country, ranking it 33rd out of 141 countries included in the report. Mexico follows at the 48th position. Brazil, while it was the most improved economy in the region over the last year, comes in eighth, at the 71st position worldwide. Why is Chile so far ahead from the rest of the region in terms of competitiveness, and what is holding other countries back? What sorts of policies would improve Latin America and the Caribbean’s competitiveness? How does the region fare as compared to other parts of the world? Is the WEF’s competitiveness index the right tool for policymakers to focus on?
Kathleen C. Barclay, former president of the American Chamber of Commerce in Chile: Chile is a leader in competitiveness within Latin America due to its macroeconomic soundness and the openness of its economy. The country has topped the list for many years since it has had a consistent and clear commitment to both principles over an extended period of time and across different political administrations. None of the other countries in the region have been as committed to these principles and, in many cases, there are broad swings in macroeconomic policies and market openness between different administrations. For these reasons, Latin America and the Caribbean generally lag behind the more competitive economies of Asia, Europe and North America. Going forward, the region will need to focus on improving in both areas. At the same time, lower world economic growth, combined with income inequality and the impact of climate change will add new pressures to economies that, in many cases, have weak institutional foundations and where leadership and effective policy response have been largely absent. In Chile’s case, there is an urgent need to invest in basic education and new technologies to enhance the value-added component of the export mix and reduce dependence on commodities, as well as to generate increased opportunities for a broader base of its citizens—together enabling greater levels of growth and social cohesion. Chile’s increasing base of tech entrepreneurs, many of whom are focused on the circular economy, is making a difference and potentially opening the door for the country to move ahead in competitiveness. The challenge will be for this to happen at a pace that is fast enough to deal with the increasing social pressures as reflected in the broad-based protests currently being experienced in the country.
Nelson Altamirano, professor of economics at the School of Business and Management at National University: The WEF’s global competitiveness index is a good tool to recognize the strengths and weakness of countries in the Latin American and Caribbean region within a world perspective. The best performer, Chile, is in a group with Portugal, Estonia and Saudi Arabia, which are not top performers in their own regions. The lowest performer, Haiti, shares rank with the lowest countries of Sub-Saharan Africa and the Middle East. So, top and bottom countries in the region have the challenge of improving their economic, social, technological and political conditions to foster competitiveness. While Latin America and the Caribbean, in general, has a good level of macroeconomic stability and health indicators, these two relative strengths cannot compensate for a weak enabling environment with poor institutions and slow adoption of information and communication technology, human capital with deficient skills, weak markets and a very deficient innovation ecosystem without business dynamism and innovation capability. Policymakers need to apply fiscal policies that invest in workers’ well-being and productivity (infrastructure, equal access to health care, high quality education, affordable housing, safety nets and innovation). Each country in the region has different capabilities, resources and ways to do it, but as the latest events show in Chile and Bolivia, top and bottom examples in terms of competitiveness, macroeconomic stability alone is not enough to foster economic progress, democratic stability and competitiveness.
Pablo Arosemena, president of the Chamber of Commerce of Guayaquil: As the components of the Global Competitiveness Index suggest, Chile is performing better than neighbor countries in several metrics. However, what is remarkable under the Latin American context is its institutions’ quality. Property rights, checks and balances, and transparency are key aspects in which Chile has improved while other countries have declined. A large proportion of Latin American countries have dealt with authoritarian governments that have undermined institutions. Macroeconomic stability has been another key aspect of Chile’s success. Without a strong macroeconomic environment, it would be difficult to work in the development of other competitiveness pillars. Latin American countries must free themselves from dependence on commodities. Such dependence makes the economy vulnerable to international price fluctuations. Also, it is a source of corruption that generates perverse incentives for politicians. The greater the dependence on commodities, the lower the odds of macroeconomic stability and improved institutions. WEF’s competitiveness index is just one of a set of tools for decision making. However, it is the most important one because of its relationship with long-run growth and other economic and social indicators. The competitiveness index allows policymakers to assess the aim of public policy.
Juan Carlos Sikaffy C., president of the Honduran Council of Private Enterprise: Once again, Chile has been recognized as Latin American’s best-ranked country in the Global Competitiveness Report. This achievement comes from the country’s long-term work to address new challenges that the Fourth Industrial Revolution presents. Its high technological penetration rate has allowed Chile to reduce the digital gap that that rest of the countries in the region must still work on. The macroeconomic stability and good business climate are also factors that help Chile be more competitive than the rest of the region. Political, economic and social instability, the need to implement adequate development policies, as well as the lack of or little advancement on technological areas such as artificial intelligence, virtual reality, mobile or online payments, drones, cloud services, big data and blockchain, hold back the progress of the rest of Latin American countries in competitiveness. Latin America needs to move quickly with policies and laws that regulate the use of technologies and facilitate the access of the people and companies to them. Our region is still far behind other regions of the world, and we must work hard toward closing the digital gap and compete to attract new and better foreign direct investment. Ratings such as the WEF’s competitiveness index not only show us how the countries are doing and which ones are the best to invest in, they also show us our challenges and goals. That gives our governments, enterprises and our society the roadmap for inclusive development, technology, policymaking and facilitation to help our countries get the push they need to become more productive and competitive in this globalized world.