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Latin America: Competitiveness Improves

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Panama sails up as second-most competitive economy in Latin America.

BY CHRONICLE STAFF

 

Latin America has improved its competitiveness the past year, with countries like Panama, Uruguay and Peru making particular progress, according to the 2010-11 Global Competitiveness Index from Swiss-based World Economic Forum.

“Reflecting the strong resilience within
Latin America and the Caribbean in the face of the recent severe global economic downturn, the … assessment for the region for this year points to the important progress made by several countries in improving and reinforcing their competitiveness fundamentals,” the forum says in its report. “These results confirm the important strides the region has made in recent decades toward sounder fiscal management, increased market efficiency and openness, and export diversification, among other areas.”

 

Beyond setting Latin America on a more sustainable growth path in the long run, these reforms have helped it weather the global economic crisis that began in 2008, the forum adds.” In particular, the reduced debt levels (with longer maturity profiles) of most countries in the region, coupled with their increased foreign reserves, have been instrumental in reinforcing their resilience and ability to support their economy with stimulus measures,” it says.

 

The average Latin American score improved 0.07 points to 3.98, according to a Latin Business Chronicle analysis. A clear majority – 13 of 18 countries – improved their scores, while only three saw declines and another two ended up with the same score as last year.

 

Meanwhile, Venezuela is now ranked at the bottom in Latin America thanks to a drop of nine spots on the global ranking and keeping the same score as last year. Along with Paraguay (the second-worst economy), they rank behind countries like Ethiopia and Uganda when it comes to competitiveness.

 

PANAMA SHINES

 

Panama jumped from 8th place last year to second place among Latin America’s economies this year thanks to its score gaining 0.12 points to 4.33. Globally, it jumped from 59th place to 53rd.

 

Panama posts one of the largest improvements in the region, climbing to 53rd this year thanks in large part to a more positive assessment of infrastructure quality, increased macroeconomic stability and technological readiness,” the World Economic Forum says. “This advance reflects the country’s recent important investment in upgrading its infrastructure, its sound macroeconomic management in recent times of crisis, its prowess in absorbing technology (ranked 7th for the variable on FDI and technology transfer), and its increase in ICT penetration rates. The country also continues to benefit from well-developed financial markets. Strengthening the quality of its educational system and increasing the flexibility of its labor market and the efficient use of talent are crucial to further reinforce Panama’s long-term growth potential going into the future.”

 

Panama jumped 21 places to 44th on infrastructure quality, 17 places to 29th on macroeconomic stability and 18 places to 41st on technological readiness.

 

“This advance reflects the country’s recent important investment in upgrading its infrastructure, its sound macroeconomic management in recent times of crisis, its prowess in absorbing technology …and its increase in ICT penetration rates,” the forum says. “The country also continues to benefit from well-developed financial markets.”

 

Panama can further improve its score by strengthening the quality of its educational system and increasing the flexibility of its labor market and the efficient use of talent, the World Economic Forum says.

 

CHILE

 

Chile remains the most competitive economy in Latin America, but saw a decline in its score. “Although Chile’s business sector is fairly efficient and sophisticated, improving

its innovation potential is increasingly becoming a priority as the country approaches the most advanced, innovation-driven stage of development,’ the forum says. “An important element of the problem is the country’s still-unsatisfactory quality of its educational system at all, despite rising educational attainment rates and government efforts to improve educational quality, including through increased spending.”

 

Overall, the forum praises Chile for factors such as having a very efficient goods and labor market, one of the most sophisticated financial markets and the largest pension industry in the region. Chile’s economy is now more competitive than that of Iceland and continues to be more competitive than that of Spain – two members of the European Union.

 

BRAZIL

 

Brazil, Latin America’s largest economy, fell two spots to 58th place, although its score improved slightly.

 

“The competitiveness picture for Brazil remains mixed, with important strengths accompanied by worrisome weaknesses and challenges that must be tackled for Brazil to fully tap its enormous competitive potential,” the forum says.  “The macroeconomic environment in the country remains worrisome, with notably low savings rates, a high interest rate spread, and relatively high public indebtedness. Goods and labor markets display important rigidities that hinder the allocation of resources to their most efficient use. In addition, the quality of institutions remains poorly assessed …with limited trust of politicians and in the rule of law.  Last but not least, further focus and efforts are required to improve the quality of the educational system at all levels … and to reduce regional disparities in educational access and attainment.”

 

Brazil’s competitive advantages include its large market size, providing the efficient and dynamic business sector with important economies of scale, and a large basis on which to absorb and introduce process and product innovation, the forum adds. “Moreover, Brazil displays one of the most developed and sophisticated financial sectors in the region, coupled with fairly efficient infrastructure by regional standards and a relatively well functioning higher education system, notably in its on-the-job training component,” it says.

 

MEXICO

 

Mexico, Latin America’s second-largest economy, fell six spots to 66th place, although its score remained the same.“With an unchanged score of 4.19, Mexico drops six places … to 66th, clearly demonstrating the need for continuous improvement in order not to lose ground in competitiveness vis-à-vis the rest of the world,” the World Economic Forum says.

 

Mexico’s factor markets remain rigid and represent a structural impediment for the country’s growth prospects over the long term. In particular, the labor market is ranked at a dismal 120th place, with burdensome regulations, high payroll taxes and social contributions,, and a less than-efficient use of talent. The reliability and quality of institutions continue to receive a poor assessment…with increasing security concerns among the business community, likely related to recent spiraling drug-related violence and civil unrest. Finally, reform of the educational system to boost its quality is necessary to meet the needs of an economy moving toward the most advanced stage of development. In particular, the poorly rated higher education and training system does not seem to be producing a highly skilled labor force, notably scientists and engineers, and is not sufficiently conducive to technology adoption and innovation. Although the current administration has adopted, or plans to adopt, a number of competitiveness-enhancing reforms addressing many of these shortcomings, further action is sorely required to reinforce Mexico’s competitiveness fundamentals.”


Mexico has a number of important competitive strengths that are similar to those of Brazil, such as the large size of the market available for local companies and a sophisticated and innovative private sector with well-developed clusters and companies operating throughout the value chain, the forum points out.

 

VENEZUELA

 

Venezuela now ranks 122nd among 137 nations globally.  Venezuela’s competitiveness landscape appears to be worsening every year, with a notably dismal assessment of the institutional environment and factor markets efficiency,” the World Economic Forum says. “Despite important investment in education and basic services, infrastructure remains underdeveloped and educational standards at all levels are low, while the macroeconomic environment continues to deteriorate despite windfall oil revenues in recent years. Finally, the country lacks companies that demonstrate sufficient sophistication and innovation potential.”

 

Other noticeable changes:

  • Costa Rica fell one spot in Latin America to third place, although it improved its score
  • Uruguay moved up one spot to fifth place in Latin America, thanks to a strong improvement in its score
  • Bolivia, Paraguay, Uruguay and Nicaragua posted Latin America’s best improvements in their scores
  • El Salvador and the Dominican Republic posted the worst performances, dropping their scores by 0.03 points and 0.02 points, respectively, and falling five and six spots globally.  

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