Latin America: time well employed, time wasted

Latin America. Image: CEAL. Elcano Blog
Latin America. Image: CEAL. Elcano Blog
(Latin America / CEAL)

Latin America –many of its countries, states and companies– have taken advantage of the economic growth of recent years to boost the creation of a middle class which, in turn, should be the basis for future development. In this respect, the region has made good use of its time. The World Bank estimates that 34.4% of the region’s population is already middle class. Some studies calculate that being middle class involves having a daily income per person of at least US$4.35-15.23 (around €14.17) in 2010 purchasing power parities, a level inapplicable in either Europe or the US. The middling sort are the dynamic part of these societies that are now most vocally opposed to corruption in Brazil and elsewhere. Their demand is to be able to continue rising, not to fall back down again.

Over the past few years there has been a reduction in the region’s endemic inequality and, according to the UNDP (United Nations Development Programme), 56 million Latin Americans have escaped poverty in the 10 years from 2002 to 2012. Their societies and economies have benefitted from bankarisation (Chile is ahead), although they are still far from the rates normal in developed countries. During the period, Latin America multinationals, the multilatinas, have also emerged and begun to invest in the outside world, and especially in Spain, in a reverse move from what was the norm in the 90s. And this is not to mention, with certain notable exceptions, the reinforcement of democracy, despite persistently high levels of corruption (the Petrobras case in Brazil is a good example, although the Chávez regime in Venezuela, which set off vowing to put an end to it, has ultimately become structurally corrupt itself).

Now that the cycle is reversing and that the IMF’s forecasts for the region are becoming gloomier, it is increasingly evident that the good years have not been exploited sufficiently to implement reforms and invest for the future, by creating new industries, for instance. There has been an excessive dependence on the export of raw materials, with a strong bias towards China, which is the now the leading trading partner of many countries in the region but whose economy is now slowing down. Should an economic slowdown become entrenched in Latin America, the rise of the middle classes could see a reversal.

There are certainly differences between countries, roughly between those in the Pacific Alliance and those in Mercosur. One of the worst is Venezuela, whose regime, first with Chávez and now with Maduro, has been unable or unwilling to invest in the future and even undermined the present by failing to adequately maintain its vital oil industry, not to mention other basic products that are becoming increasingly scarce. It is not enough to distribute wealth amongst the poor if they are not provided with a future, something Chavism has signally failed to do. This is in stark contrast to other ideologically similar regimes in the region, such as Evo Morales’ Bolivia, who have done somewhat better. Chile, in turn, has succeeded in attracting investment and fostering innovation with well thought-out schemes. Mexico has also benefitted from the US bonanza through the NAFTA agreement, although growth is now contracting somewhat.

Some studies indicate that the competitiveness of the manufacturing sector in most of the region’s countries has declined from 2007 to 2012, after an upward trend in the previous five years. Even the recent upswing in raw materials has been unable to generate a significant increase in exports to GDP. Manufactured products have recorded annual growth rates ranging from 10% in Mexico to 36% in Chile in 2002-07, but from -8% in Colombia to 6% in Mexico in 2007-12 according to a BBVA analysis. Manufacturing competitiveness dropped in most Latin American countries in the decade from 2007 to 2012, contrary to the growth registered between 2002 and 2007. Thus, not everything can be blamed on China’s slowdown, a strong dollar and the gradual ending of Quantitative Easing (QE) by the US Federal Reserve. There has also been a glaring lack of strategic vision, by both governments and companies, and a short-sighted policy of just doing what was easiest.

This can be seen in patent applications, for instance. Between 1995 and 2010 they increased in the region by 138%, or 8.62% per year, higher than in the rest of the world (respectively 88.9% and 5.56%). The problem is that for the most part they were patents from non-native foreign companies. The knowledge economy has entered the region very unevenly and way of foreign capital. Own investments in R+D have tended to come increasingly from the public sector.

In 2011 the Interamerican Development Bank titled one of his reports on the region ‘The imperative of innovation’. This is applicable to many other regions, since it is not a matter of handing out lessons from a country like Spain, itself in need of a re-industrialisation, especially when the IMF expects the Mexican economy to overtake Spain’s in GDP terms this very year 2015.