Despite the strong medal performance of countries like Brazil and Colombia in the Rio Summer Olympics, Latin America is not having a great year. The United Nations’ Economic Commission for Latin America and the Caribbean (ECLAC) recently updated its growth forecast for the hemisphere and predicted a contraction of 0.8 percent. Lower commodity prices, compounded with a reduction in demand for primary products and lower investment flows, have cut into the region’s short- and, possibly, medium-term economic prospects.
Against this deflating economic news, it’s easy to miss the performance of Central America. This year the combined countries of Guatemala, Honduras, El Salvador, Nicaragua, Costa Rica, and Panama will grow by 4.3 percent. Since these economies are closely linked to the U.S. economy, the ongoing recovery in the world’s largest economy will offer a boon to Central Americans in the following years. In the past, the sub-region’s policymakers have failed to seize the opportunity of prosperous times to lay the foundation for long-term socioeconomic progress in the region. Can we change this time?
Transformation through trade
Trade and economic integration are at the core of Central America’s economic development agenda. Eighty percent of Central America’s trade is with partners we have free trade agreements with; the bloc’s strategy now is to build on this to facilitate trade, creating mechanisms to avoid procedural and infrastructure bottlenecks in border crossings. This will increase the transit speed of goods in the region –currently as low as 17 km/h – and lower the costs associated with border crossings, responsible for around 12 percent of the cost of consumer goods.
It’s a good step, but the real goal needs to be moving Central American countries up the ladder from their dependence on low value-added services, to more competitive, diversified economies. The combination of the rise of the creative industries with the region’s expected population boom offer an historic opportunity to do this.
The demographic boom and creative industries
Around 45 million people live in Central America, approximately 27.5 million of them between the ages of 15 and 64. And an additional 15 million people will be added to that age bracket by 2045, the Latin American and Caribbean Demographic Centre (CELADE) estimates.
Taking advantage of this considerable source of human talent and creativity to become more competitive will require considerable investments in education, research and development. But as Felipe Buitrago and Iván Duque suggest, the creative economy is a potentially transformative development opportunity for Latin America.
Globally, the creative economy totaled $4.3 trillion in 2011. In the Americas, the sector was worth $1.93 trillion in 2011, making it the region’s seventh largest export, with related goods and services worth $87 billion, and the fourth largest labor force with 23.3 million workers, similar in size to the entire population of Colombia. It’s also been a growth industry for the economies of the Central American isthmus. From 2005 to 2014, exports of creative goods and services, such as audiovisual production and effects and textile ornaments and designs, from Central America rose from $187.9 million in 2005 to $268.7 million in 2014, at an annual increase of 4.1 percent. Yet, despite these impressive numbers, the sector accounts for only 0.9 percent of total exports and 0.1 percent of the region’s GDP, leaving considerable room for growth.
For one, Central America’s creative economy remains centered on design products (interior, graphic, fashion, jewellery, toys) accounting for 47.9 percent of total exports in the creative sector. A large chunk of the rest is linked to textiles—one of the region’s key industries—articles for interior design, and jewelry. That leaves a number of other sectors for expansion, some of which have recently jumped, including audio-visual production and effects (annual growth of 46.6 percent) and media products (42.8 percent). Additionally, more than half of the exports in the sector are destined for other countries in Central America (56.7 percent) and the U.S. (31.5 percent), leaving plenty of opportunity for new markets such as Mexico, Canada and South America.
For now, the sector remains a niche in Central America. But it is an interesting and potentially lucrative one that offers a chance to reduce the region’s dependency on the export of commodities and low-productivity agriculture. Luckily, the region is already working on some of the areas that could be conducive to the development of the industry. Besides the trade facilitation agenda and renewed efforts to consolidate the Central American Customs Union, governments across the isthmus are drafting a regional strategy to increase competitiveness and productivity by increasing participation in global value chains.
Those efforts alone, though, won’t be enough. It’s going to take a more coordinated and focused strategy. What’s missing is a set of policies that will provide a much-needed boost to creative industries and draw on the region’s favorable demographics and trade position. Among those would be rules and policies that attract investments for research and development, boost local start-ups and their access to technology and skills; and update regulations to increase legal certainty for the development of the sector. The challenge is considerable, but as the region’s population continues to grow, it is urgent to open increased opportunities for Central America’s youth to join the economy and contribute more actively to the region’s development.
Javier A. Gutiérrez is the Executive Director of the Secretariat for Central American Economic Integration (SIECA). You can follow him on Twitter @jantgut.