The Contrarian: The Cost of Living Dangerously

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Addressing the Global Travel & Tourism Summit in Las Vegas in May of this year, Mexican President Calderon quipped: “I saw thousands of spring-breakers in Mexico having fun. My understanding is the only shots they received were tequila shots — a lot of them.”
His remark, no doubt innocently designed, was met with derision by the many people who have lost family and friends to Mexican violence. The comment is not simply a PR guffaw. It is reflective of a disconnect between an arms-guarded elite who play down the importance of violence in their societies and the majority of the population, which is exposed to the highest rates of violent crime of any continent in the world.
With a few notable exceptions, such as Colombia and Peru, violence has steadily since the 1980s grown more prevalent across Latin America. Frustrated by implacable organized crime, most political leaders, and much of the business class, have grown to accept violence as part of their lives and have pressed forward with efforts to develop their companies and the economy as a whole. Few political leaders in Latin America grasp the extent to which violence impedes economic development.
Latin America is no monolith when it comes to violence. It includes some of the most violent nations on earth, including El Salvador, Honduras, Jamaica, Guatemala and Venezuela¸ but also some of the safer destinations favored by travelers, such as Chile, Uruguay, Cuba and Argentina. In spite of the horrifying cartel violence reeling through northern Mexico, the country as a whole boasts a lower homicide rate (18 per 100,000 people) than Brazil (22) or even a much improved Colombia (35), according to the latest cited national statistics (2008 or 2009).
Violence brings both direct and indirect costs to a developing economy. Direct costs are the ones typically included in any calculation of the cost of crime. The table estimates said costs in 2010 at 8 percent of GDP, or $80 billion. That was 3.2 times the estimated volume of inbound remittances ($25 billion), four times the level of estimated foreign direct investment ($20 billion), 3.33 times Mexican oil exports (est. $24 billion), and more than five times the volume of international tourism receipts (est. $15 billion).
But the true cost of crime is more than double this figure. Violence prevents victims from working, scares tourists and investors away and drives the most educated and innovative citizens abroad, taking with them their savings, their ideas and their entrepreneurial drive.
If violence costs Mexico 17.3 percent of its national income each year, the figure is even higher in most of Central America, parts of the Caribbean and in Venezuela. No other issue, not even underfunded education, weak judiciary or poor infrastructure, can claim such a negative burden on a Latin American economy.
Latin American governments expend huge efforts to promote tourism, export manufacturing and inbound foreign investment. Added together, these three sectors do not begin to match the negative economic impact of their nations’ violence.

John Price is the managing director of Americas Market Intelligence and a 20-year veteran of Latin American competitive intelligence and strategy consulting. jprice@americasmi.com.

 

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About the Author: John Price is the managing director of Americas Market Intelligence and a 20-year veteran of Latin American competitive intelligence and strategy consulting. jprice@americasmi.com.

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