Latin America's golden era: The road ahead - OFID

80 Pages·2014·3.85 MB·English

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Latin America’s golden era:
The road ahead
Ecuador rejoins OFID
Ministerial Council
meets in Doha
Palestine: Where dignity
and resilience prevail
African NGOs receive OFID
Annual Award for Development
OFID Quarterlyis published COMMENT
four times a year by the OPEC Fund
for International Development Latin America and the Caribbean:
(OFID). The challenge of inclusive growth 2
OFIDis the development finance
agency established in January 1976
by the Member States of OPEC
SPECIAL FEATURE
(the Organization of the Petroleum
Exporting Countries) to promote
Latin America’s golden era: The road ahead 4
South-South cooperation by extend-
ing development assistance to other,
Investment, integration, infrastructure:
non-OPEC developing countries.
The three ‘I’s to unleash Latin America’s potential 10
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JULY 2014
SPOTLIGHT
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EDITOR-IN-CHIEF Mauro Hoyer Romero
EDITOR Audrey Haylins
CONTRIBUTORSReem Aljarbou, Namat Alsoof, Nadia Benamara,
Damelys Delgado, Lorena Gil, Faris Hasan, Shirin Hashemzadeh,
Souhad Khriesat, Romulo Martinez, Arya Gunawan Usis, Justine Würtz
PHOTOGRAPHS Abdullah Alipour Jeddi(unless otherwise credited)
PRODUCTION Susanne Dillinger
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COMMENT
Latin America and the Caribbean:
The challenge of inclusive growth
T he sun of the new millennium has risen high in Its energy resources are also abundant. Here too,
Latin America and the Caribbean. The region’s though, yawning disparities prevail. While Venezuela
economy has performed at its strongest since the has the world’s largest proven oil reserves, smaller
1970s, extreme poverty has been cut to just six percent countries are almost entirely dependent on imports
of the population, and the ranks of the middle class to meet their power needs.
are booming.
The challenges, therefore, remain. For Latin America
Despite growth tailing off after the 2008 financial cri- to enjoy growth that is truly sustainable and inclu-
sis, the lives of millions continue to improve. More sive, many obstacles must still be overcome.
jobs are available—an estimated 70 million women
The World Bank warns of the region’s over-reliance on
have joined the labor market— and social spending
commodity exports; of the need for greater innova-
has significantly increased, leading to better public
tion and diversification, and for the establishment of
services.
broader and deeper links to the global economy. It
The impressive statistics, however, come with a also highlights the continent’s weak infrastructure
caveat: not all countries or people have had the good and logistical deficiencies. Then there are inflationary
fortune to be part of this transformation. There re- pressures, capital-flow volatility and exchange-rate in-
main substantial differences among nations—in stability—all factors that have to be addressed.
terms of size and wealth—and within nations—in
On the social front, urgent steps need to be taken to
terms of income, gender and ethnic inequalities.
improve the lot of the 80 million Latin Americans
The region holds enormous promise. In addition to who live in extreme poverty, the 47 million who suffer
broad swathes of fertile farmland—which have made from hunger and the 30 million who lack access to
it the largest net food-exporting region in the world— modern electricity services. Should the economic
it is home to almost a quarter of the world’s forests context change, the new middle class will also be vul-
and close to one-third of global fresh water sources. nerable.
2 OFID QUARTERLY JULY 2014
OFID has close ties with the region. Member Country Given their relative importance, it is no coincidence
Venezuela was instrumental in OFID’s establishment that the water supply and sanitation, agriculture and
38 years ago. It was in Caracas, the Venezuelan capital, energy sectors together account for over 38 percent of
at the second OPEC summit in 2000, that OPEC OFID’s cumulative commitments to the region.
heads of state and government reaffirmed their com-
Improved infrastructure—including roads and other
mitment to poverty eradication, describing it as the
forms of transport—represent the key to the conti-
“overriding global priority.”
nent’s economic competitiveness. And here, too, we
Ecuador, meanwhile, has just reactivated its member- are channeling substantial support—some US$554m
ship after an absence of 22 years, recognizing in OFID as of end-2013. Better transport links will help cut
“an invaluable tool” for realizing President Correa’s the cost of doing business in Latin America, make its
vision of “a strong and united Latin America working exports more attractive and promote regional inte-
collectively for the economic and social betterment gration.
of our people, our region and developing countries
We are also putting our trade finance and private sec-
around the world.”
tor facilities to good use in many of our Partner Coun-
Most important of all are our Partner Countries—31 tries. These useful mechanisms are mostly benefiting
of them across the region, from Haiti, the poorest, to micro-, small- and medium-size enterprises, which
Brazil, the world’s seventh largest economy. Since first are the main engine of economic growth and typi-
providing balance of payments support to El Salvador, cally account for almost 80 percent of jobs across the
Guatemala, Guyana, Haiti and Honduras in 1976, we continent.
have delivered a total US$2.2bn to the region in
OFID has had the privilege of working in Latin Amer-
much-needed development financing for a wide
ica and the Caribbean for almost 40 years. In addition
range of initiatives.
to our own direct assistance, we have served as a cata-
As elsewhere in the world, our primary objective in lyst—by dint of our membership—for enhanced Arab
Latin America is to alleviate poverty among the most cooperation. Having supported the region through
vulnerable and underserved members of the popula- some difficult times, it is gratifying to finally witness
tion. We also seek to support countries’ economic the blossoming of its inherent promise.
transformation and boost competitiveness. We stand ready to work with our Partner Countries to
Given the region’s needs—and its potential—OFID’s safeguard this promise and the progress already
achieved, and to make good the outstanding chal-
strategic focus on the water-food-energy nexus is par-
lenges—especially those involving the more fragile
ticularly timely. Water resources, though plentiful,
peoples and nations. As the Latin American sun rises
must be well-managed to remain sustainable. The
(cid:2)
ever higher, they must not be left in the shadows.
agriculture sector has the capacity—if properly nur-
tured—to be the future breadbasket of the world. And
the region’s rich energy resources could be better har-
nessed to help power agro-industry and make daily
tasks easier for ordinary people.
OFID QUARTERLY JULY 2014 3
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SPECIAL FEATURE
Latin America’s
golden era:
The road ahead
After a decade of substantial growth
and social achievements, progress
continues in countries of Latin America
and the Caribbean, albeit at a lower
rate. Now the region faces the challenge
of establishing strong policies for
sustained progress.
by Lorena Gil
5
SPECIAL FEATURE
T he new millennium brought hope to Latin the region. These include territorial heterogene-
America and the Caribbean (LAC). Eco- ity, cultural diversity and asymmetries with the
nomic growth and social progress came hand in developed world, as well as weak institutions and
hand, bringing important changes to the region, human rights gaps. There is also great income,
which has historically been the most unequal in gender, territorial and ethnic inequality.
the world. Its abundant natural resources—which are
In the early 2000s, poverty was halved and also unevenly distributed among countries—
the middle class grew by 50 percent—to one- make the region’s ecosystems of undeniable im-
third of the population. The lives of millions im- portance. According to the United Nations
proved, and today the global context seems to Environment Program, LAC is home to 23 percent
present opportunities for continued develop- of the world’s forests, 31 percent of its freshwater
ment. However, many are the challenges and resources and six of the world’s 17 mega-diverse
threats that policy-makers face in the quest to countries.
maintain socially inclusive growth. The region is also rich in energy options,
Nations in LAC are significantly different in including hydrocarbons, hydroelectricity and
terms of size, wealth and resources. The region in- biofuels. As with other regional disparities, while
cludes both Haiti, one of the poorest countries in Venezuela has the world’s largest proven oil re-
the world, with half of its population living on serves, smaller countries are required to dedicate
less than US$1 per day, and Brazil, the world’s sev- growing percentages of their budgets to fuel im-
enth largest economy. ports. The Inter-American Development Bank
Latin America The United Nations Economic Commission (IDB) reports that approximately 30 million peo-
for Latin America and the Caribbean (ECLAC) has ple—six percent of the LAC population—lack ac-
(18 countries):
identified a number of features that characterize cess to modern electricity services.
Persons living in poverty
and indigence, around
2005, 2011 and 2012a
(in percent)
Around 2005 Around 2011 2012
Country Year Poverty Indigence Year Poverty Indigence Year Poverty Indigence
Argentina b 2005 30.6 11.9 2011 5.7 1.9 2012 4.3 1.7
Bolivia (Plurinational State of) 2004 63.9 34.7 2009 42.4 22.4 … … …
Brazil 2005 36.4 10.7 2011 20.9 6.1 2012 18.6 5.4
Chile 2006 13.7 3.2 2011 11.0 3.1 … … …
Colombia c 2005 45.2 13.9 2011 34.2 10.7 2012 32.9 10.4
Costa Rica d 2005 21.1 7.0 2011 18.8 7.3 2012 17.8 7.3
Ecuador 2005 48.3 21.2 2011 35.3 13.8 2012 32.2 12.9
El Salvador 2004 47.5 19.0 2010 46.6 16.7 2012 45.3 13.5
Dominican Republic 2005 47.5 24.6 2011 42.2 20.3 2012 41.2 20.9
Guatemala 2006 54.8 29.1 … … … … … …
Honduras 2006 71.5 49.3 2010 67.4 42.8 ... ... ...
Mexico 2006 31.7 8.7 2010 36.3 13.3 2012 37.1 14.2
Nicaragua 2005 61.9 31.9 2009 58.3 29.5 … … …
Panama 2005 31.0 14.1 2011 25.3 12.4 … … …
Paraguay 2005 56.9 27.6 2011 49.6 28.0 … … …
Peru e 2003 52.5 21.4 2011 27.8 6.3 2012 25.8 6.0
Uruguay 2005 b 18.8 4.1 2011 6.5 1.1 2012 5.9 1.1
Venezuela (Bolivarian Republic of) 2005 37.1 15.9 2011 29.5 11.7 2012 23.9 9.7
a ECLAC is in the process of updating poverty estimates, the results of which will appear Source: ECLAC, on the basis of special tabulations of data from
in Social Panorama in 2014 household surveys conducted in the respective countries
b Urban areas
c Figures from the National Administrative Department of Statistics of Colombia
d Figures for 2011 and 2012 are not strictly comparable with data from previous years
e Figures from the National Institute of Statistics and Informatics of Peru
6 OFID QUARTERLY JULY 2014
SPECIAL FEATURE
A new class distribution
Paraguay 13.6
Panama 8.4
The rise of the LAC middle class has meant new
Bolivia (Plur. State of) 6.8
realities for its citizens and made headlines
Peru 5.6
around the world. The World Bank has noted
Guyana 5.2
how at least 43 percent of all Latin Americans
Nicaragua 4.6
changed social class between the mid-1990s and
Ecuador 4.5
the end of the 2000s, most of them upward.
Uruguay 4.4
Defining middle class as individuals with
Colombia 4.3
an income of between US$10 and US$50 per
Haiti 4.3
day, the Bank estimates that 34 percent of the
4.3 Central America plus Cuba,
region’s population currently belongs to this
Chile 4.1 Haiti and Dominican Rep.
group. Notably, between 2003 and 2009, the
Dominican Rep. 4.1
number of middle class grew by 50 million to
Suriname 3.9
reach 152 million people. The fastest growth
Guatemala 3.7
has been more visible in Brazil and Colombia,
Costa Rica 3.5
with an increase of some 40 percent and 50
3.0 South America (10 countries)
percent respectively.
Argentina 3.0
Economic performance and job creation
Saint Lucia 2.8
have been considered the main drivers of mid-
Cuba 2.7
dle-class growth. Nevertheless, analysts have
Honduras 2.6
identified other influencing factors; namely,
2.5 Latin America and the Caribbean
the incorporation of 70 million women into
Brazil 2.3
the labor market, better access to quality educa-
Saint Kitts and Nevis 2.0
tion, and pressure from citizens to their govern-
El Salvador 1.7
ments. New public policies, including state
Grenada 1.5
pensions and cash transfers to the poor, to-
Trinidad and Tobago 1.5
gether with major changes in fiscal policy and
Venezuela (Bol. Rep. of) 1.3
increased effectiveness and transparency in
1.2 The Caribbean
public administration, have helped to fuel
Mexico 1.1
progress.
Bahamas 0.7
Within the region, according to analysts,
Belize 0.7
the growth of the middle class implies higher Source: Economic Commission for Latin
Antigua and Barbuda 0.6
America and the Caribbean (ECLAC),
purchasing power and a large group of citizens
Jamaica 0.2 on the basis of official figures.
who will demand reforms and improved serv- Barbados -0.2
ices in areas such as education, health, infra- Saint Vincent and the Grenadines -0.5
structure and governance. Globally, there is Dominica -0.7
5 10
hope about the existence of a group with in-
creasing spending power, which will boost con-
sumption, especially on non-essential goods Latin America and the
and services. The economic challenge Caribbean: GDP growth
Although the gains are easily acknowl-
rates, 2013
edged, there are contrasting opinions regarding In the period 2003–2008, Latin America went
(percentages based on US$
the possibility of maintaining growth. Interna- through its most significant expansion since the
tional organizations and the specialized media 1970s, growing at an average yearly rate of 5 per- at constant 2005 prices)
appear to agree on the need for policy reforms cent (ECLAC). After this boom and the global cri-
in sectors such as employment, tax and social sis came a deceleration of growth, with a 2.5
security. percent regional rate for 2013. Forecasts for 2014
In many countries of the region, low taxes differ depending on the source: While the IMF
hinder the provision of good quality services. predicts growth of 2.5 percent, ECLAC estimates
Education is an area of special concern. It has 2.7 percent and the World Bank 2.9 percent.
been seen how middle-class citizens have more LAC’s economic dependency on commodi-
years of education than the poor, and how a bet- ties—which represent up to 60 percent of its ex-
ter education implies greater productivity. Nev- ports—was favorable for the region during the
ertheless, the difference in the quality of the first decade of the century, when booming Asian
schools attended by social classes in Latin Amer- countries required them for its own growth. How-
ica continues to be the greatest in the world. In- ever, with a slower pace of expansion in devel-
vestment in schools, healthcare and innovation oped countries and a slowdown in China, the
must become priorities for governments. demand and the prices of the region’s main (cid:3)
OFID QUARTERLY JULY 2014 7
SPECIAL FEATURE
Foreign Direct Investment in Latin America It is also believed that LAC must seek to capture
and the Caribbean, 2004-2013 greater value added in trade. Infrastructure and
logistic deficiencies are generally acknowledged
(US$m) Source: ECLAC
as a hindrance to economic growth. In LAC,
transport costs per container are among the high-
200 177.0 184.9
169.5 est in the world, and logistic costs represent 18–35
percent of a product’s value (the average is 8 per-
139.8
150 129.4 cent in OECD countries). Furthermore, low pro-
ductivity and innovation are also limiting the
creation of more value added.
100 85.1 83.7
The social challenge
50
With the establishment of the Millennium Devel-
opment Goals (MDGs) in 2000 and a favorable
economic scenario, the fight against poverty
2004-2007 2008 2009 2010 2011 2012 2013
gained strength in LAC’s agenda. According to
the World Bank, social spending as a share of GDP
(cid:4) raw material exports have declined, posing eco- rose from nearly 12 percent to 14.5 percent
nomic challenges for the long and middle term. between 2000 and 2011, with public spending on
For the World Bank—and based on previous education increasing from 3.9 percent to 5 per-
regional experiences—the dependency on com- cent and health spending rising from 3 percent to
modity exports could be more a curse than a bless- nearly 4 percent.
ing. According to the Bank, the growth-related Both the World Bank and ECLAC have
challenge for LAC’s policymakers is to establish highlighted conditional cash transfer programs
deeper and broader links to the global economy as part of the successful experiences on the road
in general, and to China in particular. It believes toward achieving the MDGs. These programs ex-
there is a need to learn—from enhanced interna- panded to 18 countries, covering some 20 per-
tional trade, foreign direct investment and finan- cent of the region’s population and benefiting
cial integration—how to improve business over 110 million people, with an investment of
processes, adopt new technologies and diversify. just 0.4 percent of each country’s GDP (2009).
ECLAC has identified other threats facing To finance them, tax collection in the region in-
the region from global economic instability, creased from 16 percent to 20 percent of GDP
including capital-flow volatility, exchange-rate between 2000 and 2010, due to more efficiency
instability, and domestic inflationary pressures. and a broadening of the tax base.
Its recommendation is to adopt firm policies to Halving the level of extreme poverty is one of
safeguard employment and other gains made in the MDG targets that the region has already met,
the social sphere. since the proportion of people living on less than
One region, two realities
The fact that there are two types of At that time, the first group— this forecast to change. ECLAC
economies in LAC has influenced Argentina, Brazil, Bolivia, Chile, estimates that for 2014, South
development in the region and is likely Colombia, Ecuador Paraguay, Peru, American countries will suffer the
to continue affecting local realities. Uruguay, Venezuela, and Trinidad and harshest impact, while those in
In 2011, the Inter-American Tobago—was very well positioned Central America and the Caribbean
Development Bank identified two because of the high commodity are expected to gain. Caribbean
regional blocks: a Brazilian cluster of prices and growth in emerging econo mies will benefit from receiving
net commodity exporters, with high economies. The IDB referred to them tourists from industrialized countries
international trade with emerging as “the clear winners,” when contrast- and exporting services to developed
markets and low dependence on ing them with the Mexican cluster— nations, while lower growth in China
industrial countries; and a Mexican Central American and Caribbean will weaken the demand for exports
cluster of net commodity importers countries plus Mexico. of South American commodities.
with strong commercial ties to Only three years later, the
industrialized countries. current global scenario has caused
8 OFID QUARTERLY JULY 2014