Infrastructure development is necessary to drive growth.

Paving the Way for Growth in Latin America

Juan N. Cento, Regional President FedEx Express Latin America and Caribbean Division, explores the impact of infrastructure on a country’s economy and intra-regional and global competitiveness.

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By Juan N. Cento

The adage “numbers never lie” is true when examining the correlation between a country’s investment in transportation infrastructure and its economic prosperity.

Consider these statistics from the World Economic Forum’s annual Global Competitiveness Index (GCI)¹, which assesses a series of factors that impact the economic performance of 144 countries in relationship to one other.

Those countries – like Switzerland, Singapore and the Netherlands – that rank near the top in overall global competitiveness also rank within the top 10 in the extensiveness and quality of roads, railroads, ports and air transport.

And those that lag near the bottom in competitiveness, including Haiti, Guinea and Venezuela? They also have among the poorest transportation infrastructures in the world.

Empirical evidence like the GCI serves to quantify what common sense has already revealed: if roadways lack pavement, railroads are non-existent, ports are outdated and airports are underdeveloped, businesses will be unable to capitalize on regional or global opportunities. Trade remains poor, jobs go wanting and a country’s quality of life and hope for prosperity crumbles.

The answer to this problem is deceptively easy – increase government, private and public-private partnership (PPP) investment in well-planned, long-term infrastructure projects. The reality, of course, is quite different — as numerous other societal issues and political realities can temper the flow of funds to desperately-needed initiatives.

The Latin America and Caribbean (LAC) region of the world has experienced moderately strong economic growth in the last decade, thanks to intensified demand for its natural resources, more attractive import/export policies and relatively stable, economically-engaged governments.

But LAC continues to lag behind burgeoning economies in Asia, Europe and elsewhere, and much of that gap stems from the region’s lackluster attention to and insufficient progress in maintaining and upgrading its transportation infrastructure. It is a problem that will continue to fester if not corrected soon.

Business can greatly benefit from infrastructure improvements. In particular, small- and medium-sized businesses (SMEs) have the most to gain, as they are least likely to have the resources to overcome logistical hurdles.

Malaysia² is a great example of a country that has focused on infrastructure development for more than three decades, and its businesses – of all sizes — have reaped the rewards. Soon after its independence in 1963, the Malaysian government made expanding and modernizing its infrastructure a key priority. Importantly, public funding has been supplemented by private sector investment. As a result, its road system has grown six-fold since 1966, and modern roadways are extensive in both urban and less developed regions. Similar investment has led to the development of new ports, adding much-needed capacity for Malaysia’s lively international trade.

Today, Malaysia – an economic outlier just a generation ago – ranks a robust 20th in the GCI index; that is higher than even China and EVERY LAC country.

At the other end of the spectrum lies the continent of Africa, home to 12 of the 15 lowest rated countries in the GCI index³. While portions of the continent suffer from widespread issues – like extreme poverty and poor education – a key impediment to progress is a severe lack of navigable ports, paved roads, and other transport essentials.

But those African countries that have made infrastructure investment a priority – especially mineral-rich Mauritius, Morocco and South Africa – are beginning to benefit economically by having made infrastructure growth a pillar in long-term governmental planning.

While LAC as a whole is a GCI laggard, several economies are showing a general upward trend in prosperity – and much of it can be linked to significant and substantial infrastructure investment.

Action in LAC

Chile, 33th in the GCI and 49th in infrastructure, is the highest-ranking LAC country4. The relatively high quality of its transportation infrastructure coupled with a stable government and solid economic framework have made Chile the most competitive economy in the region – with more growth likely.

Despite occasional slippage due to a variety of economic factors, some other LAC countries have generally been rising up the ranks of global competitiveness5 — such as Panama (48in the GCI), Costa Rica (51), Brazil (57), Mexico (61) and Colombia (66). While each has a long way to go to be on even footing with more-advanced Asian and European economies, each continues to make key, strategic investments in important, long-term transportation projects.

For instance, Mexico’s president, Enrique Peña Nieto, has pledged to boost investment in the country to ramp up its economic growth engine. A key plank is the National Infrastructure Program (NIP)6, which consists of wide-ranging investments in railroad and roadway projects to the tune of nearly$100 billion. Significantly, the government – and taxpayers – won’t bear the burden alone, as a large portion of the investment will stem from PPPs.

Colombia – where inadequate infrastructure is the second biggest deterrent to conducting business there, according to the World Economic Forum7 – is also committed to increasing its competitiveness by investing heavily in infrastructure. Its government, like Mexico, has passed a PPP law that enables foreign entities to invest through advantageous “build-operate-transfer” concessions.

Of course, Brazil’s hosting of this past summer’s FIFA World Cup and the upcoming Summer Olympics in 2016 has accelerated the development of numerous transportation infrastructure projects, which should lower its skyrocketing logistics costs and positively impact business growth long after the games have ended.

These countries have followed the key mandates that came from the Sixth Summit of the Americas, held in Colombia in 2012. One particular insightful mandate8 was that a region-wide commitment to improving the quality and quantity of transportation is crucial for boosting intra-regional and global competitiveness.

The recently released GCI report echoed those sentiments, as the authors noted that “In order to achieve higher levels of productivity, new actions in terms of engaging in much-needed structural reform and productivity-enhancing investments are required.”9

The rest of LAC must take heed. The opportunities to compete within the region and globally have never been greater, but steady, long-term growth will not occur if we neglect key institutional necessities, such as education, financial management and technological readiness.

And particularly critical in powering the region’s economic engine is smart investment in robust and modern infrastructure assets.

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