In 2007 George W Bush traveled to Latin America to bolster the United States’ image in the region by focusing on poverty reduction and security initiatives. There were a number of mass protests and after his visit to some sacred Mayan ruins in Guatemala a group of indigenous Mayans felt the need to purify the site to eliminate Mr Bush’s “bad spirits”. The image of the US in Latin America remained poor. According to Latinobarómetro, the Chilean polling firm, in 2007 46% of Latin Americans felt that the United States was either a “negative” or “very negative” force in the region. Continue reading
Author Archives: stephenkeppel
Bogotá’s urban innovations of the last two decades have been copied around the world but in recent years the Colombian capital appears to have lost some of its magic. After a period of steady advance during the “Mockus-Peñalosa-Mockus” years (1995-2003) Bogotá’s urban renewal has backtracked and the outside world is now beginning to notice. Just a week ago the Economist magazine claimed that “the chaos and corruption seem to be back” in Bogotá. Continue reading
Honduras (yes, tiny Honduras) took a bold step earlier this year which could alter its economic trajectory and potentially impact the rest of Latin America. Frustrated by a lack of results from economic liberalization and free trade agreements which have been thwarted by cronyism, corruption and a lack of competitiveness, the Honduran Congress passed a constitutional amendment in January giving the government the power to create special development regions, or Charter Cities, which will have their own legal jurisdiction, administrative systems and laws. Charter Cities are created with a governing system defined by the city’s own charter document rather than by state, provincial, regional or national laws. The most recent examples include Hong Kong and Shenzen in China but the history of cities based on a unique governing charter goes back to the 12th century founding of Lübeck, a prosperous trading outpost in northern Germany. Continue reading
But how can this be when up to 75% of Chocóans do not have access to basic services, infant mortality is 54 per 1,000 (compared to 19 per 1,000 for Colombia), the poverty rate is the highest in the country, and violence and corruption are still common? While the current reality is bleak for many Chocóans if you take a moment to look beyond these specific indicators and think innovatively about the region’s value and potential you may find that instead of being poor and “backward”, Chocó could be the richest department in Colombia. Continue reading
Things have been quiet around the Latin American desk at the office these days. While we have been diligently analyzing GDP results and budget plans and tweaking economic forecasts (often upward) our colleagues in the Western Europe and Middle East teams have been rushing back and forth from client calls and television interviews talking about debt crises and political instability. Continue reading
The anniversary of the devastating earthquakes in Haiti and Chile and the havoc wreaked by recent flooding in Colombia and Brazil reinforce the fact that 2011 will be a year of reconstruction in much of Latin America. Reconstruction of this scale can be costly, time consuming and socially disruptive, so it is important to avoid the failures of the past and strive for rebuilding projects that are effective, successful and sustainable. Continue reading
The year 2010 saw dynamic emerging markets steal the spotlight from the US and Europe which continued to struggle to recover from the global financial crisis. Economics and politics in Latin America proved surprisingly stable and economies like Colombia grew more strongly than expected. As we enter a new year there are some important global and regional trends which will set the tone for 2011. This year will see power shift, new leaders emerge and new alliances take form. Technological innovators will continue to set the pace while unexpected events shape policy decisions. Continue reading
After some hope that billions of dollars of support from the international community would help Haiti rebuild from the devastating earthquake in January things have taken a turn for the worse in recent months. An outbreak of cholera, a flawed election in November and an inability of the US and Europe to meet their aid pledges has put Haiti’s reconstruction in peril. Haiti needs help from its Latino neighbors who have something unique to offer: shared experiences.
Reconstruction efforts and aid have normally been the responsibility of the larger world powers and if something happens in the western hemisphere it is the US who is usually called upon to sort things out. However, US, Canadian and European aid for Haiti has often fallen short. In many cases Latin American leaders are in a better position than others to offer the support that Haiti needs.
But why should Latin American countries who are facing their own problems (such as the floods in Colombia) and do not have the economic resources of the greater powers help Haiti? Firstly, the situation is dire. Even before the earthquake Haiti was a broken country. It is trapped in a cycle of poverty that is made worse by frequent natural disasters and very weak governing institutions. Instead of elaborate aid projects and traditional relief support favored by developed nation donors, Haiti needs assistance building the foundations of government and the economy. Haiti needs to develop health, education and judicial systems that can create a foundation of stability from which the country can develop. The US and Europe formed these systems in the 19th century (or earlier) but Latin American countries have taken on these challenges more recently and their experiences are more relevant to Haiti’s situation.
After the January earthquake, Latin American leaders came out strongly in support of Haiti and for the first time many were in a position to offer help. Countries such as Brazil, Chile and Colombia are still in the process of development and can more easily identify with some of Haiti’s problems. Brazilian troops have already been able to use their experience of battling gangs in the favelas of Rio and Sao Paolo to help the UN forces clean up violent areas in Port-au-Prince. Chile is in its own much more successful earthquake reconstruction process (without relying on NGOs) and can offer valuable advice and expertise. Colombia’s dramatic economic, social and security improvements over the past decade can show Haiti’s political and business leaders that change is possible. It is true that Latin America does not have the financial resources of the US and Europe but Colombia and others can and should share their experiences and give advice on the steps needed to improve governance, security and confidence.
In many ways Haiti’s reconstruction is a test of Latin American solidarity. Normally considered a regional outsider, with its unique culture and language, Haiti is historically important. It was the first place Colombus landed in the new world and the first independent nation in Latin America. Without the vital support of Haitian president Alexandre Petion in 1817 Simon Bolivar’s campaign for independence may have ended in failure. Latin America has the chance to succeed in Haiti where others have failed, mainly because of shared experiences. But given the many challenges they still face at home, can Latin American leaders step up to the challenge in Haiti? The success of Haiti’s reconstruction may depend on it.
Innovation is essential in the search for prosperity. Indeed, it plays a key role in the Colombian government’s recently unveiled national development plan (DNP)—Prosperidad para todos—and is one of the 5 (engines) “locomotoras” of economic growth.
But what does innovation mean today in Latin America?
The DNP accurately points out that “innovation doesn’t only mean developing new products and transforming existing ones but it is also creating new ways to produce, deliver, market and sell, and ultimately, generating value throughout the production chain”. The Santos government’s focus on innovation is important because there is a clear innovation gap in Latin America. According to INSEAD’s Global Innovation Index there are no Latin American countries ranked among the top 40 innovators. The highest ranked South America countries are Chile (42nd out of 132), Uruguay (53rd), Brazil (68th) and Argentina (75th)—Colombia comes in at 90th, two spaces after Peru. One reason for the poor performance is a lack of public investment in research and development, which at approximately 0.6% of GDP in South America is well behind fast-growing Asian economies such as South Korea (3%) and Singapore (2.4%).
Despite this, most of South America is currently enjoying firm economic growth. This is largely supported by the commodity boom and a recovery in internal demand. However, rates of unemployment, poverty and inequality remain high. With its focus on innovation and competitiveness the Santos administration is simply acknowledging the fact that no country has found prosperity through a reliance on natural resources and low wages.
Colombia has taken some initial steps to foster innovation but the DNP is right to suggest that more needs to be done to make the leap to a “knowledge-based” economy. According to Michael Fairbanks, a competitiveness expert and founder of the OTF Group, the key areas to focus on are institutions, knowledge resources, human capital and culture. Institutional capital includes legal protections of tangible and intangible property, government departments that work with little hidden costs to the economy and firms that maximize value to shareholders while compensating and training workers. Knowledge resources include international patents and university and think-tank capacities. Human capital represents the skills, insights and capabilities of the workforce and cultural capital means not only country’s artistic output but also people’s attitudes and values toward innovation and entrepreneurship.
Innovation success stories from the US and Europe also highlight the importance of entrepreneurial clusters, an established system of rules and access to financing. The success of Silicon Valley has spawned numerous imitations but few have been able to manufacture California’s concentration of technological entrepreneurs and informed investors. The so-called Silicon Roundabout, an emerging hub of internet companies based in the Shoreditch area of East London, is a recent example of a successful innovation cluster which grew spontaneously as a result of access to highly skilled employees, investment (Shoreditch is adjacent to London’s financial district) and cheap rents.
Government leadership and vision is also important, particularly in emerging countries which do not have the venture capital capabilities of the US and UK. In this regard, the Santos government is off to a good start with its bold plan. Now the government will have to encourage all sectors of society—especially businesses, entrepreneurs and universities—to follow its lead and work together in the search for prosperity.
The integration of the stock markets of Colombia, Peru and Chile and the creation of the Mercado Integrado Latinoamericano (MILA) may prove to be the first step toward the economic integration of Latin America’s Pacific Rim. The first phase of the stock market integration makes the shares of each exchange available to investors in all three countries and is expected to increase trading volumes and create the critical mass needed to attract more foreign investment. The successful creation of the MILA—which many said would be delayed or never completed at all—is encouraging even more expansive integration projects.
Outgoing Peruvian president Alan García has been promoting a plan to create a zone for the free movement of goods, people and capital that would include Colombia, Chile, Panama and Ecuador. While the talk of a grand integration scheme is great for summits and state visits once you set aside some of your Pan-American fervor, you have to ask can something like this really work? The answer is: “well, maybe it has to”.
There are some obvious costs of this sort of integration but Latin America needs to find ways to take better advantage of the global economic shift toward Asia-Pacific while also improving competitiveness and speeding up the process of innovation. The commodity boom will not last forever and commodity exporting countries need to start developing other competitive advantages. However, any integration schemes will have to proceed cautiously. Without the proper regulations increased financial integration and the free movement of people could be a boon for the drug trade and other criminal activities. Historical differences between countries will also be difficult to overcome.
Fortunately, the financial authorities in Colombia, Peru and Chile have shown that incremental integration can be successful. Mr García’s suggested plan is much more ambitious and the inclusion of Panama and Ecuador, which is still a member of Hugo Chávez’s socialist ALBA, could prove risky. However, closer integration is important for attracting investment and spurring growth. While small, Panama has a dynamic economy (which expanded by nearly 6% per year in 2000-09) and a thriving financial sector. Bringing Ecuador back into the free market fold would further reduce some of Mr Chávez’s influence while boosting the economic zone’s oil output. All together, this “Zona del Arco Pacifico Suramericana” would have a population of 111 million and an economy worth US$1.1trn in purchasing power parity terms (just over half the size of Brazil). The zone would be a premier mining producer with an average daily oil production of 1.4 million barrels and access to at least eight ports pointed toward Asia. Chile’s well established rules and regulations would serve as an invaluable model for its partners. The free movement of capital would help to develop the innovation industries which are needed to compete and a united Arco Pacifico would more equally balance a rising Brazil and further reduce reliance on the US market.
While the odds are against the timely creation of such an ambitious grouping, the opening of the MILA this week reminds us that ambitious projects in Latin America can be completed. Panama, Colombia, Ecuador, Peru and Chile should not rush into an integration plan but perhaps they can follow the example of the MILA by focusing on mutual benefits and adopting a well-thought out and achievable plan on action. The need to adapt to the changing global economic and political landscape requires it.