Latin America still needs to implement reforms to sustain further improvements.
BY JOACHIM BAMRUD
The latest Global Competitiveness Index from the Swiss-based World Economic Forum includes some welcome news from Latin America.
Nearly all -- 15 of 18 -- nations in the region improved their score. The average score increased by 0.05 to 4.03 points, according to a Latin Business Chronicle analysis.
Mexico and Peru were among the Latin American countries that improved their competitiveness the most, according to the latest Global Competitiveness Index from the Swiss-based World Economic Forum.
However, experts warn against complacency. “The recent advances in competitiveness rankings are a thankful reversal of what has been a decade long slide across Latin America,” says John Price, Managing Director of Americas Market Intelligence and co-editor of Can Latin America Compete? "Every country in the region is lower in the global competitiveness rankings today than they were in 2000."
The economic models of many Latin American countries have shifted from one driven by value-added exports and underpriced currencies to one driven by high commodity prices, cheap credit and booming domestic demand, he points out.
“Such a model does little to inspire politicians to take on the next round of tough reforms (political, judicial, educational, and legal) needed to permanently boost competitiveness,” Price warns. “Until that happens, this year’s improving competitiveness rankings will prove to be an aberration, not a trend.”
The Global Competitiveness Index looks at twelve pillars of competitiveness: Institutions, Infrastructure, Macroeconomic environment, Health and primary education, Higher education and training, Goods market efficiency, Labor market efficiency, Financial market development, Technological readiness, Market size, Business sophistication and Innovation.
GOOD AND BAD
While Latin America in general does well in terms of macroeconomic environment and some countries have well-developed financial markets, the region clearly lags when it comes to having strong institutions, labor efficiency and adequate infrastructure, health and education systems.
Inefficient government bureaucracy is among the top five problematic factors for business in countries like Brazil, Chile, Colombia, Mexico, Peru and Venezuela, according to a survey from the World Economic Forum published in the Global Competitiveness Report 2011-12..
Another key problem is labor regulations. Restrictive labor regulations is among the top five problematic factors in Argentina, Brazil, Chile, Peru and Venezuela.
Then there’s infrastructure. In countries like Brazil, Colombia and Peru inadequate supply of infrastructure is among the top five problematic factors, while it’s among the top ten problematic factors in countries like Argentina, Chile, Mexico and Venezuela, according to the World Economic Forum.
That situation has consequences. Latin American exports today pay an unnecessary high cost due to inefficiencies in infrastructure. A study by the Inter-American Development Bank, shows that the region’s exports to the United States pay freight rates that average 70 percent higher than those from the Netherlands, in part due to inefficient ports. If those ports were to improve to the U.S. level it would lower costs about 20 percent, the IDB estimates. The study is still just as valid today as when it was published in January 2009.
Meanwhile, the roads linking the ports with cities or airports is still also inadequate in most countries. Latin America urgently needs to ramp up its investments in infrastructure, which average some 2 percent of GDP instead of 5-6 percent, as experts recommend. .
In Brazil, competitiveness is still hampered by several key factors, including the complex tax system. According to the World Economic Forum survey, the top two most problematic factors for doing business in Brazil are tax rates and tax regulations. Brazil is at the bottom of the Latin Tax Index from Latin Business Chronicle, thanks in part to having the world’s highest number of hours to comply with tax regulations (2,600 – or 108 days).
Tax regulations were also among the top five problematic factors in countries like Chile, Mexico and Peru (and was the sixth factor in Argentina).
Despite the progress in the latest Global Competitiveness Index, Latin America still has a long way to go to be truly competitive.
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