Last week, the World Economic Forum (WEF) released the Global Competitiveness Report 2017-18. The results for Latin America show that the region is still far from unified in developing globally competitive economies. The region is divided, with some of the best and some of the worst country results on at least this measure of development, with the largest economies in the region—Brazil and Mexico—performing surprisingly poorly.
After two years of recession in many countries in the region, Latin America’s GDP is expected to grow by 1.1% on average in 2017. With a painful end of the commodity boom that decreased the value of many of the region’s major exports, the region is slowly adjusting to the new dynamics of the international economy. Latin America’s collective slow response to global dynamics is evidence of the challenges in the region.
According to the WEF report, Latin America experiences large performance gaps across all twelve competitiveness measures (Figure 1). These gaps are especially pronounced with regard to institutions, infrastructure, macroeconomic environment and technological readiness. While Panama, Costa Rica and Chile perform at the top in at least one or two competitiveness dimensions, it is surprising to observe the absence of the largest economies in the region at the top of the competitiveness race (with the exception of Brazil in the category of market size).
Figure 1: GCI score range for Latin America across the 12 pillars, 2017-2018 edition.
The obvious question: What are Latin America’s main challenges and how can the report’s results help guide the region’s priorities?
As the report shows, the region still needs to work in almost every measure of competitiveness to be at least closer to its peers in other regions. (Take for example labor market efficiency or innovation, where the top scoring countries in Latin America—Jamaica and Costa Rica—are still far away from the best score at a global scale).
But probably the biggest challenge faced by the region is the diversity and unequal performance across the region. Areas such as infrastructure, macroeconomic environment and tech readiness show how unequally Latin American countries perform in terms of competitiveness. Of course, this dispersion of performance is connected with inequality at a larger scale as different sectors of the population and geographic pockets of the country enjoy—or suffer—different types of access to infrastructure and public goods.
The region’s three largest economies—Argentina, Mexico and Brazil—are good examples of the differences. Argentina has improved twelve positions in the latest ranking, now ranking 92nd out of 137 economies in the world. The main reasons behind this improvement are its institutions, reflecting “renewed trust in public and private institutions.” Other pillars that present signs of recovery in Argentina are business sophistication, technological adoption, and innovation. Much of Argentina’s improvement can be attributed to a more responsible government with a less populist approach to policymaking. After 12 years of Kirchnersm governments, policies in Argentina such as trade subsidies and foreign exchange controls have finally subsided.
Mexico maintains its 51st position. Interestingly, however, the report highlights that Mexico is progressing at a slower rate than other countries. The main challenge for Mexico are the strength of its institutions, a falling score in terms of government spending and a deterioration in corporate ethics and responsibility. So, not only is Mexico growing slowly in terms of competitiveness overall, but in some areas signs of deterioration are starting to appear.
Brazil moves up one position to the 80th place in the competitiveness ranking. It is worth noting that the institutions pillar has improved eleven positions, which reflects the positive effects of investigations leading to more transparency after the corruption scandals that have rattled Brazil politically and economically in recent years. However, Brazil’s largest progress comes in the innovation pillar, a result of more industry-university-business collaboration, higher quality research, and better-trained scientists and engineers.
How are other regions performing in comparison to Latin America? Findings from the GCI show stronger economic growth in Europe and East Asia and the Pacific. Examining these regions can help point to methods to improve Latin America’s global economic position.
This year the Euro area is expected to grow 1.9%, up from 1.8% last year, while emerging European markets are expected to grow 3.5%, up from 3 percent. The advancement of scientific institutions, increased funding for research and development, and the private sector’s capacity for innovation has expanded Europe’s innovation ecosystems. The region also benefits from access to venture capital funds, essential in the development of a booming innovation ecosystem. Europe’s top economies continue to lead in competitiveness and more than half of the top-ten-ranked countries on the GCI are European, including Switzerland, ranked first globally.
For future growth, the rest of Europe must focus on improving their global competitiveness by leveraging the force of their current recovery.
In East Asia and the Pacific, 13 of the 17 countries covered by the GCI earned higher scores than last year, with Indonesia and Brunei Darussalam representing the highest improvements in the region. The overwhelming majority of countries with improved scores is evidence of the region’s economic homogeneity. Other highlights include Malaysia, the region’s top emerging economy, and Singapore, the region’s most competitive economy and 3rd ranking globally on the GCI. This year, Hong Kong SAR rose to 6th globally, from the 9th position in 2016, and is ranked among the top 10 globally in technological readiness. On the other hand, increased access to mobile technologies in China has expanded the “sharing economy,” which, by 2020, is predicted to grow to 10% of the country’s GDP. Japan joins Singapore among the top ten in innovation globally.
Economic success in East Asia and the Pacific exemplifies a feasible path for growth in Latin America. The strong presence of emerging economies in both regions means they are comparable cases. The Asia Pacific region’s booming export industry and high domestic demand from emerging economies greatly contributes to regional growth. Following brief instability in 2016, the region’s advanced economies have been aided by the stabilization of regional financial markets. Recent trends emphasize growth in innovation promotion and technological readiness. These factors are key to economic development in a region of emerging economies. If Latin America can successfully leverage similar methods of growth, the region might begin to develop a unified path toward development.
In sum, the latest Global Competitiveness Report shows that the region still has a long way to go. But, what comes next? Despite a frustrating lack of progress overall, there are some success stories in the region that could provide insights to improve the regional debate on these issues and start working toward coordinated national competitiveness agendas.
Colombia is an interesting example. In 2006, based on the results of the GCR, Colombia defined a vision for the year 2032 in which the country would be one of the three most competitive in Latin America. To achieve this goal, the national government and the private sector—led by a group of entrepreneurs—decided to create an institutional arrangement for competitiveness, now called the National System of Competitiveness, Science, Technology and Innovation. Another example is the Mexico Competitiveness Lab, the largest and most advanced institution of its type under the Reform Agendas for Growth and Social Inclusion Project at the World Economic Forum. Its work uses helps to develop public-private action plans for growth and inclusion. The initiative was launched in 2013 to create actionable agendas for public-private collaboration and has helped Mexico become one of the most supported country in its efforts to develop a public-private financing scheme for innovation, following the recommendations of the Insight Report based on the Global Competitiveness Index.
Of course, individual efforts will not be enough to transform the region as a whole. But considering the individual examples mentioned above, which show how public-private actions can use the results of the GCR productively, the region can work to develop a plan to adopt a more unifying development strategy. If not, Latin America will continue to lag behind its peers in Europe and Asia for the foreseeable future.
Note: this article is based on the Latin America section of the Global Competitiveness Index 2017-2018.
Nicolas Albertoni is originally from Uruguay. He is a Fulbright-Laspau Scholar at University of Southern California pursuing a Ph.D. in political science and international relations.
Mia Rudd is an undergraduate economics student at the University of Southern California and Outreach Team Lead for the Security and Political Economy Lab.