Other World Bank studies confirm that Latin America and the Caribbean could increase competitiveness. The World Bank Logistics Performance Index puts Latin America and the Caribbean squarely in the middle of the 139 countries ranked. Among developing regions, Latin America and the Caribbean invest among the least in infrastructure as a share of GDP – roughly a third of East Asia – and this spending needs to be more efficient.
World Bank enterprise surveys show that 29% of firms report a lack of qualified labour as an obstacle to growth compared with 15% in Asia. Even many years after the North American Free Trade Agreement, industrial parks in the north of Mexico complain of electricity and water shortages as major bottlenecks.
Policy pathways
Such challenges need not be game-enders and can be targeted by policies. In China, pro-active policies of local governments were employed to attract foreign direct investment and facilitate its success by, for instance, helping firms navigate the local system and resolving bottlenecks.
Similarly, Singapore’s Economic Development Board is seen as a critical ingredient, even in a highly welcoming business environment, to wooing foreign direct investment and encouraging it to engage in progressively more sophisticated tasks, which countries in Latin America and the Caribbean could benefit from.
Singapore and the Asian Tigers (Hong Kong, Singapore, South Korea and Taiwan), more generally, aggressively work to upgrade local firm capabilities and local innovation systems so that progressively more sophisticated tasks are onshored and supplier networks can emerge organically and efficiently.
Diverse approaches
Plans to seize the current opportunity are yet to emerge in any committed way in Latin America and the Caribbean. Mexico has taken an ambivalent stance, including disbanding its foreign direct investment promotion authority and observers worry that it is foregoing multiples of current foreign direct investment arrivals.
On the other hand, Costa Rica, working with the United States to take advantage of the 2022 Chips and Science Act, has leveraged its engineering capabilities and skilled workforce to attract $1.2 billion in new INTEL investments over the next two years. Colombia has taken tentative positive steps, recently bringing US CEOs to the cities of Cali and Quibdo. However, such efforts could be ramped up.
The country has ports on both coasts, established manufacturing centres such as Medellin and Bogota and cities in the relatively tranquil Coffee Axis with good infrastructure and education, including some like Manizales in Caldas that are working aggressively with the Massachusetts Institute of Technology to improve their entrepreneurial environment. A Singapore-style effort could help match these regions with potential partners.
Opportunity into investment
Proximity alone cannot guarantee foreign direct investment or ensure a more dynamic development impact than in previous eras. A more deliberate and energetic effort and vision could help shift the region out of its growth doldrums.
If Latin America and the Caribbean embrace nearshoring and green transition-related foreign direct investment, including in commodities, less as a source of employment and taxes and more as a fulcrum for national learning, both movements could prove transformational.
It will require trade facilitation and port efficiency improvements, help navigating local conditions and deeper trade agreements. But it will also require developing the capabilities – basic and technical education, managerial and engineering capabilities – that have been integral to the success seen in Asia.
This blog was originally published on World Economic Forum on February 19, 2024.
