Latin America: is increased productivity the answer to prosperity?

September 6, 2012

Strong global economic headwinds may hit Latin America in the short term, but a sharper focus on improving productivity in the long run could sustain the region’s growth trend, explained top experts and development leaders today.

Gathering at the XVI Annual CAF Conference, the experts stressed that Latin America’s main challenge going forward is to tackle its low productivity and competitiveness, which at 30 percent of the US per capita income is one of the world’s lowest. 

“Latin America needs to wage what I call the ‘Battle of Productivity’ if it wants to make this the region’s decade,” said World Bank Regional Vice President Hasan Tuluy. As the current global environment makes implementing the region’s development agenda tougher, productivity increases can maintain the growth momentum, he added. 

Good economic policies and fiscal management have accounted for an exceptionally good decade, Tuluy noted. But luck has also played an important role.

“The external environment in terms of global growth and demand for commodities has been has been favorable, which allowed for significant progress at relatively little effort.”  

“So while the region is well positioned to build on these gains, its next development phase will be tougher, requiring a more sustained effort,” Tuluy said.

 The Bank’s Chief Executive for Latin America noted that it’s in the region’s best interest to preserve its many social and economic gains over the past decade, including lifting 74 million people from poverty and bridging the region’s notorious inequality gap.    

A need for increased innovation and productivity, better infrastructure and wider cooperation, took center stage at the CAF annual gathering –a hemispheric meeting of experts, business leaders and policy makers which sets the tone for the region’s agenda.

In his introductory speech, CAF President Enrique Garcia noted that there has been a renewed interest in ‘green’ infrastructure investments, especially roads. “We need to make these investments sustainable and mindful of the environment,” Garcia warned.  

In this vein, Chile’s former finance minister Alejandro Foxley called for a renewed emphasis on strategic regional partnerships “by pushing such integration from business.” Foxley cited the Alianza Pacifico trading bloc as a promising example for regional cooperation.   

Another noteworthy example of private-public partnerships is Brazil’s recent announcement of a US$65 billion plan to boost investment in infrastructure, with the private sector playing an important role to make up for limited fiscal space.  

According to the WBG’s Private Participation in Infrastructure database, Latin America attracted a record US$55.4 billion in 2011, making it the region with the largest share of PPI investment in developing countries. Most of that investment went to electricity projects and two thirds of it to Brazil. 

The challenge of  ensuring investment in sectors other than power and in more challenging countries than Brazil remains.

“Without private participation integration is not viable,” said Inter-American Development Bank President Alberto Moreno.

Peru’s finance minister Luis Miguel Castilla concurred.  He noted that taking risks and doubling up on innovation is the only way forward for Latin America.

“We need to support long term agendas and public policy beyond the electoral cycles,” Castilla said.

The XVI Annual CAF Conference, which runs September 5-6, is co-organized by the OAS and the Inter- American Dialogue.