World Economic Forum on Latin America · World Economic Forum on Latin America | 5 “One of the major perceptions I have from this meeting is the change in the mood compared to last

World Economic Forum on Latin AmericaNew Partnerships for a Sustainable RecoveryCartagena, Colombia 6-8 April 2010

The views expressed in this publication do not necessarily reflect those of the World Economic Forum.

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REF: 210410

Contents > Preface Page 3

> Executive Summary Page 4

> Demography, Democracy and Governance Page 6

> Leading the Green Economy Page 10

> New Opportunities for Cooperation Page 12

> Paths towards Economic Recovery Page 16

> Reducing Inequality in Latin America Page 20

> Summaries of Private Meetings Page 22

> Acknowledgements Page 24

> Contributors Page 26

2 | World Economic Forum on Latin America

World Economic Forum on Latin America | 3

Preface

With the resolute support of the Government of Colombia, the 2010 World Economic Forum on Latin America in Cartagena welcomed 550 global and regional leaders to construct “New Partnerships for a Sustainable Recovery”. Participants from more than 40 countries representing business, government, academia and civil society addressed pressing issues such as the promotion of economic growth, strengthening of democracy, reduction of poverty and inequalities, and environmental sustainability. They shared renewed views on regional governance and international cooperation towards trade integration, enhanced security and environmental performance. Regional leaders from different sectors also focused on specific problems affecting Latin America, which include the international community’s initiatives to rebuild Haiti and reconstruction efforts in Chile after earthquakes in both countries.

Latin America can lead the world in many value chains – in renewable energies, clean transportation, sustainable food production, ecotourism and creative industries, among others. While a demographic bonus and macroeconomic stability are foreseen in most countries, the pace of recovery in 2010 and 2011 might vary considerably from one country to another. With regard to monetary policy, inflation in the region as a whole will be low by historical standards, which will continue to help poverty reduction. Assuming that macroeconomic stability can be preserved, the region now needs to enhance its productivity by reducing its transaction costs and considerably improving its economic and social infrastructures.

The World Economic Forum on Latin America in Cartagena was an exceptional opportunity to address regional issues of global importance and to highlight new solutions rooted in the Latin American context and culture. While regional challenges are influenced by global trends, proposed solutions were based on successful local initiatives. There is clear evidence that the region has made progress in addressing major social challenges and promoting democracy over the past 10 years. Nevertheless, to build on those remarkable achievements and secure prosperity into the next decade will require innovative changemakers to take the lead. The concrete proposals that emerged from this regional meeting are therefore presented in this report to the benefit of current and future generations.

Emilio Lozoya AustinDirector, Head of Latin America

4 | World Economic Forum on Latin America 44 || World Economic Forum on Latin America

Executive Summary

As the poster democracy for Latin America’s remarkable turnaround, Colombia was the perfect vantage point for participants to take stock of how the region had weathered the global economic crisis and to focus not just on the broad strokes of a strategy for sustaining economic recovery but on exactly how to do it. The crisis, as well as other recent stresses from high food and energy prices and the devastating earthquakes in Haiti and Chile, has brought home to Latin American leaders and citizens the lesson that closer collaboration and deeper integration are the best ways to ensure stability in today’s volatile and unpredictable global economy.

At this critical juncture, the majority of Latin American countries are taking the transformational path and forging “new partnerships for sustainable recovery”, the theme of this year’s World Economic Forum on Latin America. Over three days of interactive discussions in sessions, lunches and dinners and a rousing concert of Latin music to promote social change, participants came away with a sense that, despite Latin America’s good fortune to have managed well through the crisis, this is not a time for complacency but a time to look forward and implement solutions to the pressing challenges the region faces.

“Ten years ago, we couldn’t have held a meeting like this, mainly because of the security situation.”

Jorge Londoño Saldarriaga

President and Chief Executive Officer, Bancolombia, Colombia; Co-Chair of the 2010 World Economic Forum on Latin America

The 2010 World Economic Forum on Latin America was organized under five sub-themes: Demography, Democracy and Governance; Leading the Green Economy; New Opportunities for Cooperation; Paths towards Economic Recovery; and Reducing Inequality in Latin America. Following is a summary of some of the proposals that emerged from the sessions.

Demography, Democracy and Governance

• Law and order – Security should be regarded as a fundamental democratic value, without which investment and economic growth are impossible. Crime and terrorism are not solely rooted in poverty, but must be addressed through social and economic programmes and not just brute force.

• Democratic governance – Pragmatic policies that deliver tangible results will bolster democratic institutions and the faith of citizens in their leaders.

• Regional governance – The region may be better off pursuing limited or focused mechanisms for regional cooperation, such as an emergency fund for humanitarian relief instead of ambitious programmes that are likely to fail or difficult to achieve.

Leading the Green Economy

• Deforestation – Innovative approaches to protect biodiversity and valuable natural resources, such as government subsidies to low-income families in exchange for commitments to preserve forests, need to be considerably enlarged and supported by governments, private enterprise and international institutions.

• Private sector – Private-sector-supported programmes to develop the green economy, such as sustainable logging or Amazon protection, should be expanded beyond limited corporate social responsibility initiatives to achieve the scale necessary to protect the region’s environment.

• Market opportunities – Latin America should avail of its tremendous competitive advantages by developing carbon trade, ecotourism and biofuel production.

• Metrics – Clearer standards for measuring and reporting on carbon emissions are necessary for Latin America to lead the transition to low-carbon growth.

World Economic Forum on Latin America | 5World Economic Forum on Latin America | 5 | 5

“One of the major perceptions I have from this meeting is the change in the mood compared to last year. People are talking about the future now.”

Luiz Fernando Furlan

Co-Chairman of the Board of Directors, BRF Brasil Foods, Brazil; Co-Chair of the 2010 World Economic Forum on Latin America

New Opportunities for Cooperation

• Trade – Latin America should pursue pragmatic strategies for deepening regional integration such as the new initiative to link countries along the Pacific Ocean.

• Infrastructure – Countries should pursue more bilateral or plurilateral cooperative projects such as the Itaipú Dam.

• Industry – To fully engage new partners in Asia and other emerging markets, Latin American economies need to diversify their products and services and make it easier for small and medium-sized companies to participate by investing in human capital, skills training and innovation development.

Paths towards Economic Recovery

• Infrastructure – Investment in infrastructure should focus not only on classic utilities such as water and electrical grids but also on telecommunication systems and education.

• Foreign capital – To attract the capital needed to fund the upgrading of infrastructure and other investments will require strengthening regulatory frameworks and increasing government transparency.

• Regional and Asian markets – In the face of decreased consumer spending in the US and Europe, Latin American businesses should focus on regional markets and on Asia. Governments can support this shift by pursuing bilateral trade agreements and increasing intraregional regulatory collaboration.

• Commodities – Improving education can reduce the region’s dependence on the commodities sector by creating a workforce with the skills necessary to develop industrial and service economies.

Reducing Inequality in Latin America

• Education – To address high dropout rates and tremendous gaps in education quality, reform initiatives should focus on improving curricula and teaching to increase the competitiveness of the region’s workforce.

• Health – Healthcare systems will need to adapt to the higher death rates from chronic diseases rather than infectious diseases. This trend necessitates increasing the use of technology and creating partnerships to help finance growing demands on medical resources.

• Infrastructure – Considerable investment in infrastructure such as water and sanitation systems is required to improve the plight of the region’s urban poor.

• Gender – Cultural and social programmes such as microfinance directed to women are necessary to eliminate gender disparities evident in higher unemployment rates and lower wages for female workers.

“Our governments are usually slow in policy reforms, but those who take the initiative and make the right decisions – and we all know what we have to do – will have much better results.”

Luis Fernando Alarcón Mantilla

Chairman and Chief Executive Officer, Grupo Empresarial ISA, Colombia; Co-Chair of the 2010 World Economic Forum on Latin America


Demography, Democracy and Governance


“It is important to acknowledge that democracy gives results.”

Enrique Peña Nieto

Governor of the State of Mexico, Mexico; Young Global Leader

“We are not absent from the region. We put a lot of value in our cooperation with Colombia and other countries.”

Arturo Valenzuela

Assistant Secretary of State for Western Hemisphere Affairs of the United Statesr

Proposals

• Law and order – Security should be regarded as a fundamental democratic value, without which investment and economic growth are impossible. Crime and terrorism are not solely rooted in poverty, but must be addressed through social and economic programmes and not just brute force.

• Democratic governance – Pragmatic policies that deliver tangible results will bolster democratic institutions and the faith of citizens in their leaders.

• Regional governance – The region may be better off pursuing limited or focused mechanisms for regional cooperation, such as an emergency fund for humanitarian relief instead of ambitious programmes that are likely to fail or difficult to achieve.

The holding of the World Economic Forum on Latin America in Cartagena underscored the significant progress that the region has made in recent years in strengthening democracy and improving standards of governance. Colombia is an example of a country that has put its house in better order, tackling seemingly insurmountable security challenges due to a civil war and unfettered drug-trafficking that had pushed the state to the brink of failure, while at the same time bolstering its evolving democratic political system.

By addressing head on the fundamental issue of law and order, Colombia and other nations can now afford to focus on pressing challenges such as poverty, inequality and the poor quality of education. The new stability has also

opened up fresh opportunities for both foreign and domestic investment that have already resulted in social dividends. Latin American capital markets have expanded threefold since 1995. The so-called “lost decade” at the end of the 20th century gave way to a decade of promise at the beginning of this century, setting up the region for what could well be a sustained period of fast growth and rapid social development.

The fact that the region managed through the global economic crisis without any economic and social upheavals is evidence that the homework has paid off and most countries are on better footing than they were in the boom-and-bust days. Yet, if the promises laid down over the past decade are to be fulfilled, this is no time for complacency, not least because the region’s favourable demographics – the working-age population will expand until 2045, though in some countries it will start to decline compared to the number of retirees as soon as 2020 – offers a brief window of opportunity for Latin America to make real gains.

This means tackling key development challenges that are especially tough in a region of rapid urbanization where 70% of the population is city dwellers: the lack of water and sanitation, the need to improve education and bridge skills gaps, and the weakness of the rule of law as manifested by high levels of crime and corruption. Achieving results in these fundamental areas will be critical if countries are to consolidate the democracies that they have struggled to build. While most Latin Americans support democracy, they are also sceptical of the ability of politicians to

Support for democracy in Latin America

Exhibit 1: Most Latin American publics support democracy,but are less satisfied with domestic politics

Source: Latinobarometro (2009); UN population division (2010)

Per

cent

age

of r

espo

nden

ts

* Population-weighted average of 18 countries** Responses of "very satisfied" or "somewhat satisfied"

100%

75

50

25

0

Gua

tem

ala

Mex

ico

Col

ombi

a

Per

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Latin

Am

eric

a*

Bra

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Hon

dura

s

Chi

le

Arg

entin

a

Uru

guay

Ven

ezue

laa o aa u ll s ee aa yy aa

How satisfied are you with the waydemocracy works in your country?**

Democracy is preferable to anyother type of government

**


do what needs to be done. Enthusiasm among citizens for democracy is less likely to wane and jingoistic populism to win favour if elected leaders deliver.

Take the issue of security. The Inter-American Development Bank has estimated that Latin America’s per capita GDP would be 25% higher if the region succeeds in reducing its crime rate down to the world average. Such a bonus could produce significant social benefits if the additional growth unlocked resources that could then be channelled to education. Colombia and Peru are recent examples of countries that have enjoyed some measure of success in improving security.

The key to fighting crime and corruption is to abandon approaches that only employ force as a weapon. While poverty should not be mistaken as the main reason for criminality, policy-makers should take social and economic issues into account when devising law-and-order strategies. It is critical to focus on the efficiency of law enforcement organizations and the integrity of judicial systems. In fighting drug cartels and gangs, producing countries need to work with consuming countries on ways to make the drug trade tougher to conduct and less profitable, such as decriminalization of some illicit substances and the creation of alternative sources of income for workers involved in growing them.

Faith in leadership and institutions of governance can be built and reinforced if public- and private-sector players are seen to act with resolve and efficiency in times of turmoil. The cooperative efforts of governments as the global economic crisis unfolded have been an important factor in restoring the confidence of citizens in the markets. If collaboration breaks down and countries revert to go-it-alone approaches out of self-interest, cynicism is bound to return and the road to full recovery will be much more difficult.

The multinational response to the earthquake in Haiti, the democratic political transition in Chile even as the country was mourning its own losses from a temblor, and the regional approach to resolving the political impasse after the coup in Honduras last year were additional governance highlights for Latin America. Yet, beneath the surface, there remains a great deal of scepticism that countries will not fall into the same political traps, fumble over persistent inefficiencies and let longstanding rivalries get in the way. As so many participants at the meeting lamented, despite cultural affinities and shared history and language, Latin America is one of the least integrated regions in the world.

“If this region collectively, and countries individually, don’t see the power of coordination, then I see this as a serious challenge. As coordinated as the world was during the crisis, I do fear that in the recovery there will be a tendency for countries to go it alone. That is a risk.”

James S. Turley

Chairman and Chief Executive Officer, Ernst & Young, USA; Co-Chair of the 2010 World Economic Forum on Latin America


For this reason, participants underscored doable solutions over grand ambitions. For example, 22-year-old Global Changemaker Diego Ribeiro of Brazil proposed that a regional emergency fund for humanitarian relief be set up. The move by 11 Latin American countries along the Pacific Rim to create a free trade zone and coordinate trade and investment policies and standards is a clear attempt to create a coalition of the willing that is ready and able to engage the fast-growing Asian economies, particularly China. Ultimately, pragmatism may be the key to achieving sustainable recovery and fulfilling the promise of Latin America

“We are backing this region to succeed.”

Graham Mackay

Chief Executive, SABMiller, United Kingdom; Co-Chair of the 2010 World Economic Forum on Latin Americar

“We have problems in human rights, but we have made progress. [The US has] to cooperate with us rather than prevent the [US-Colombia] free trade agreement from proceeding.”

Noemí Sanín de Rubio

Presidential Candidate, Colombia


Leading the Green Economy


Proposals

• Deforestation – Innovative approaches to protect biodiversity and valuable natural resources, such as government subsidies to low-income families in exchange for commitments to preserve forests, need to be considerably enlarged and supported by governments, private enterprise and international institutions.

• Private sector – Private-sector-supported programmes to develop the green economy, such as sustainable logging or Amazon protection, should be expanded beyond limited corporate social responsibility initiatives to achieve the scale necessary to protect the region’s environment.

• Market opportunities – Latin America should avail of its tremendous competitive advantages by developing carbon trade, ecotourism and biofuel production.

• Metrics – Clearer standards for measuring and reporting on carbon emissions are necessary for Latin America to lead the transition to low-carbon growth.

Latin America will become the focus of global attention regarding climate change when the COP16 talks are held in Cancun at the end of 2010. Against the backdrop of COP15 in Copenhagen and its failure to generate a global framework, Latin American nations are increasingly recognizing that they cannot afford to wait for the international community in protecting rainforests and reducing emissions. While the region is responsible for 12-20% of global emissions, nearly half that figure results from deforestation and land-use changes.

The REDD+ programme – Reduced Emissions from Deforestation and Degradation, plus (+) management, conservation and enhancement of forest carbon stocks – focuses on supporting programmes that offer local solutions to deforestation. Colombia’s Forest Keepers and Brazil’s Bolsa Foresta programmes represent one strategy in which governments issue subsidies to low-income families living in protected forests, in exchange for their commitment to protect these areas. Such programmes offset the market incentives for families to use the land for mining, agriculture or potentially even drug trafficking, which is a major source of deforestation. Programmes that strengthen indigenous populations are also a good strategy for protecting biodiversity in the Amazon. As inheritors of 10,000 years of experience living in the region, indigenous communities are an essential constituency in protecting the region’s environment.

The scale of REDD+ projects must be expanded to achieve the necessary environmental impact, and the private sector – particularly multinational companies – can play a role in achieving this scale. Several major companies have become involved in marketing rainforest products to international customers by offering hotel guests the chance to donate to rainforest funds or promoting sustainable logging. However, most of these projects are restricted to corporate social responsibility activities. Achieving the desired environmental impact will require larger-scale involvement from the private sector, which could come from tax incentives, public-private partnerships or new market opportunities.

A significant portion of the world’s biodiversity is located in the Amazon, which gives Latin America unique advantages in promoting ecotourism and other potentially profitable economic opportunities. The carbon market has grown to approximately US$ 100 billion, and this growth indicates the tremendous potential for Latin America, which is expected to increase trading particularly with Asia in the next two years. However, the stalled global climate change talks have failed to produce clear parameters for this market, and the lack of clarity has inhibited many potential players from getting involved.

For the carbon market to grow, standards for GHG emissions must be established. At the moment, no clear metrics for measuring pollutants or reporting corporate data govern the market, and the reporting that does take place tends to be selective and fails to provide a clear picture of current emissions.

Increasing biofuel production also offers the potential of economic growth. Sustainable sugar cane plantation and ethanol production for this purpose must be reconciled with goals of food security and zero net deforestation. Again, lack of clarity regarding a global climate change framework has stalled the growth of this market.

Latin America can increase its competitiveness as a leader in the green economy by improving a broad range of social and economic metrics, such as infrastructure development, education quality and research spending. The lesson of recent years is that, to maximize the potential of their resources and protect against extreme events, nations must establish their own vision for low-carbon growth rather than wait for the international community.

“The great tragedy of Copenhagen was that the carbon market was left in limbo. We don’t know the market dimensions, the price of carbon, or if the solution will be taxes or concessionary financing, or what the rules of the game are.”

Alicia Bárcena Ibarra

Executive Secretary, United Nations Economic Commission for Latin America and the Caribbean (ECLAC), Santiago

Source: World Bank (2009)

Greenhouse gas emissions per capita

Latin America’s emissions due to land-use changes are thehighest in the world, on a per capita basis

15

10

5

0

-5

Gre

enho

use

gas

emis

sion

s pe

r cap

ita,

2000

(t C

O2e

/per

son)

High incomeChina and India World Latin America

Energy

Other

Land-use change


New Opportunities for Cooperation


Source: IMF Direction of Trade Statistics (March 2010)

Latin America’s trade partners

Per

cent

age

of L

atin

Am

eric

a's

tota

l mer

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trad

e

Total trade

Exhibit 1: Trade with the US has fallen from 50% of Latin America'strade in 2002 to 33% in 2009

100%

75

50

25

0

(US$, billions) $736 $955 $1,353 $1,932 n/a

2004

50%

16%

3%

2002* includes trade with Hong Kong and Macao** through 3Q 2009

2004

45%

19%

5%

41%

20%

6%

2006

33%

24%

8%

2009**

36%

21%

8%

2008

Other

US

China*

Latin America

“We have common roots. We all agree on strengthening our democratic institutions because what is at stake is our future. Integration is possible.”

Fernando Armindo Lugo Méndez

President of Paraguay

“NGOs and the private sector can expedite the time frame [of reconstruction] by many years. We have to direct investments to where Haiti has real potential.”

Lorenzo A. Mendoza

Chief Executive Officer, Empresas Polar, Venezuela; Young Global Leader

Proposals

• Trade – Latin America should pursue pragmatic strategies for deepening regional integration such as the new initiative to link countries along the Pacific Ocean.

• Infrastructure – Countries should pursue more bilateral or plurilateral cooperative projects such as the Itaipú Dam.

• Industry – To fully engage new partners in Asia and other emerging markets, Latin American economies need to diversify their products and services and make it easier for small and medium-sized companies to participate by investing in human capital, skills training and innovation development.

The global economic crisis has made clear two important facts that must guide the development strategies of Latin American countries going forward. First, demand in their traditional markets in North America and Western Europe is not likely to recover to pre-crisis levels in the near-to-medium term. Second, the dynamic emerging markets in Asia, Africa, the Middle East and Latin America itself offer new opportunities to drive the fresh growth the region needs to sustain economic recovery.

But to take full advantage of these new openings, Latin America must further diversify its engagement with Asia and other emerging-market partners beyond commodities trade, and surmount persistent rivalries and bureaucratic obstacles to deepen regional economic integration. In recent years, these

prescriptions have been on the table, but the crisis could serve as the catalyst that finally allows pragmatism to overcome stasis.

Consider the challenge of regional integration. There are obvious benefits to be gained from bilateral cooperation in the areas of infrastructure and energy security. Brazil and Paraguay, for example, have collaborated in the construction and running of the Itaipú Dam and hydroelectric power plant – shared costs, shared risks, shared benefits. There are numerous opportunities for such cooperation in other sectors, including ecotourism and telecommunications.

In trade, if recent moves by 11 Latin American economies along the Pacific Ocean to come together lead to a viable free-trade zone with common trade and investment rules and standards, it would be a triumph in stark contrast to previous trade regionalization efforts such as Mercosur and the Free Trade Area of the Americas (FTAA). Efforts should be made to conclude bilateral and plurilateral trade arrangements within the context of the multilateral Doha Round negotiations under the World Trade Organization (WTO). And countries should find ways to unblock stalled or unimplemented free trade agreements such as the one Colombia and the US signed in 2006.

With 9% of Latin America’s trade, China is now the region’s third largest trading partner. (Last year, China surpassed the US as Brazil’s top trading partner.) India, meanwhile, has less than 2% of the total. If the full potential of trans-Pacific commerce is to be achieved, Latin


America must create new opportunities at home by providing the necessary tools to companies, both large and small, to take advantage of the opportunities offered by China, India and other emerging economies. Air and sea connections, for example, need to be improved; there are currently no non-stop air links between Latin America and Asia. In addition, Latin American businesspeople are often reluctant to conduct business in English. The costs of doing business in distant Asia can be out of reach for most small and medium-sized companies

Latin American economies must also explore ways to expand further beyond commodities trade to gain more value from its partnership with Asia. To achieve this will require significant investment in human capital to develop the skills necessary to drive higher-value industries and the innovation required to produce goods and services that Asians will buy.

The drive to engage more fully with Asian economies, particularly China and India, could become a catalyst for forging new partnerships among Latin American economies that could bolster intra-regional trade, which accounts for only 20% of the region’s total trade, compared with 50% for Asia and 70% for Europe. By pooling resources and comparative advantage and joining forces to create a bigger market, countries can boost their collective and

individual competitiveness. This could lead to cross-border mergers and acquisitions and the emergence of more “multilatinas”, or global Latin American companies.

The recent earthquakes in Haiti and Chile have amply demonstrated that Latin American nations have the capacity to overcome political, ideological and cultural divisions to join forces in a time of emergency. Similarly, the G20-led efforts to address the impact of the global economic crisis demonstrated the value of multilateral approaches. The question is whether such successful instances of regional and global collaboration can be replicated more broadly. For example, Latin American countries, particularly its bigger economies, Mexico and Brazil, could play a critical role in bringing the Doha Round to a conclusion.

Indeed, the reconstruction effort in Haiti over the long term could prove a test of how long the goodwill and cooperative spirit can last. To achieve full recovery of what is the poorest nation in the Western Hemisphere will require massive investment and a series of public-private partnerships across sectors and countries. The same is true if Latin America is to play its role in sustaining the recovery from the global economic crisis and in contributing to international efforts to address climate change. With regard to global warming, the announcement by regional business

“We all want integration. However, when we get to the nitty-gritty, each country starts to fight for its own industries and agriculture. What it would take is a much broader attitude. We have to think beyond all paradigms so that integration becomes a reality.”

Ricardo Martinelli

President of Panama


“The multiplicity of crises is heralding a change. This is a wonderful opportunity for the whole continent to profit.”

Álvaro Colom Caballeros

President of Guatemala

leaders in Cartagena that they support REDD+ projects and related initiatives to reduce greenhouse gas emissions from deforestation was an encouraging milestone.

The paradox of Latin America has long been that a region where nations share so much history and culture has not integrated as well as other parts of the world. But Latin American nations appear to be waking up to the reality that they must hang together and offer Latin American solutions to global problems – or else they will be left behind to fight among themselves over the crumbs of the global economy left by more nimble, fast-moving players.

“Where are the innovation centres? The biggest challenge today is how to bring about quality education throughout the region.”

Leonel Fernández

President of the Dominican Republic


Paths towards Economic Recovery


“Now is the time to celebrate that we were able to manage the crisis, but a new wave might be coming and we need to be ready.”

Liliana Rojas-Suarez

Senior Fellow, Center for Global Development, USA

Proposals

• Infrastructure – Investment in infrastructure should focus not only on classic utilities such as water and electrical grids but also on telecommunication systems and education.

• Foreign capital – To attract the capital needed to fund the upgrading of infrastructure and other investments will require strengthening regulatory frameworks and increasing government transparency.

• Regional and Asian markets – In the face of decreased consumer spending in the US and Europe, Latin American businesses should focus on regional markets and on Asia. Governments can support this shift by pursuing bilateral trade agreements and increasing intra-regional regulatory collaboration.

• Commodities – Improving education can reduce the region’s dependence on the commodities sector by creating a workforce with the skills necessary to develop industrial and service economies.

Relative to last year’s economic collapse, the economy of Latin America is a success story in weathering the global recession. After an average decrease in GDP of 2% last year, Latin American economies are expected to grow at 4% in 2010. Macroeconomic reforms established by many governments helped reduce debt ratios, control inflation and position Latin America for long-term growth. However, the region still lags Asian growth rates. To increase its competitiveness and promote economic development, Latin

American governments will need to continue practicing fiscal discipline and establish clear visions for infrastructure development, education spending and improvements in specific sectors such as agriculture.

Historically, the region has looked to demand from US consumers as its primary export market. Over-reliance on the US consumer has had severe implications for sectors such as Mexico’s auto and manufacturing industries in particular, and continued softness in US demand will mean that Latin America will need to develop new strategies to grow its economy.

A major barrier to developing new markets has been poor infrastructure. Some estimates indicate that infrastructure spending will need to be tripled in the coming years to meet market and demographic needs. Many major projects are already underway, such as the widening of the Panama Canal and preparing Rio de Janeiro for the 2016 Summer Olympics. However, outdated water, electrical and transportation systems continue to increase the cost of doing business in Latin America and hamper economic growth.

Underdevelopment of the region’s telecommunications infrastructure has impaired entrepreneurship and market efficiency in the region. Investing in technology and telecommunications not only improves entrepreneurship, but it can also help make classic infrastructure systems more efficient, due to innovations such as “smart” electrical grids that use technology to structure energy delivery.

Source: IMF (2009); PwC forecasts (2010)

Economic growth in Latin America

Exhibit 1:The region's economy shrank by 2% in 2009

8%

6

4

2

0

-2

-4

-6

-8

Ann

ual c

hang

e in

GD

P

2000 2005 2006 2011F20071999 20042002 2003 2008 2009 2010F2001

Mexico

Brazil

Latin America

World (PPP)

Colombia


Access to capital is likely to be a challenge for many nations attempting to make such infrastructure upgrades, given the scale and duration of these projects. Mexico, for example, has modified regulations governing pension funds to allow them to invest in future revenue streams of infrastructure projects, such as tollbooths and other utilities. Foreign investment will also be necessary to support these projects, and the ability to attract outside capital will be a major factor in determining the competitiveness of Latin American nations.

Good governance is an essential metric in luring foreign investors, and the lack of regulatory stability has hampered economic development in the region, more so than investor interest or the availability of funds. Foreign investors need assurances that contracts will be enforced and projects can mature in stable regulatory environments. Chile has demonstrated a long track record of improving transparency of its legal systems, and this history of past performance is one of the best ways to entice foreign funds. Inability to access large pools of foreign capital will restrict growth, not only for large-scale investments, but also for new businesses. Many small to medium-sized enterprises in Latin America face double-digit interest rates because of the difficulty of identifying venture capital, angel investors or options to conduct public offerings.

Improving regional cooperation would increase the availability of capital for such purposes and could increase market efficiency. Though economic integration has been talked about for years in Latin

America, little progress has been made. Large economic disparities within the region – from tremendous markets such as Brazil to tiny, poverty-ridden islands such as Haiti – have caused some experts to conclude that full-scale market integration is unlikely in the near future and potentially undesirable. Instead, Latin American governments should focus on establishing internal agreements to support trade. These intra-regional agreements, as well as trade agreements with Asia, have become even more important as a result of political barriers to US free trade agreements. Though talks began in May 2003, the trade agreement with Colombia, for example, continues to be stalled in the US Congress.

Another impediment to economic recovery has been education. Underdeveloped education systems throughout the region have contributed to the region’s reliance on raw commodities trade, rather than a strong service industry or even exports of industrial goods, which would yield higher prices. Latin America has access to valuable natural resources, as well as high availability of water, which has made it a leader in agricultural production. Improving education could help create more options for converting resources into high-value exports.

Agriculture constitutes a large part of the Latin American economy, but growth in this sector must be balanced against threats to the environment. Agriculture consumes the majority of the world’s supply of drinking water, and increasing arable land is traditionally tied to deforestation. Considerable strides have been made in improving farming efficiency,

“There is a need for us to rebuild on the ground the governance structures of Haiti. The critical issue is what we can do to ensure that the administrative capacity is there to deliver.”

David John Howard Thompson

Prime Minister of Barbados

“To turn over sovereignty as far as political issues is something we don’t have and probably can’t have in the future.”

José Miguel Insulza

Secretary-General, Organization of American States (OAS), Washington DC

Source: Morgan Stanley Research; World Bank; Global Insight (2008)

Emerging markets forecast infrastructure spending

Asia to account for the bulk of emerging marketsexpenditures on infrastructure

$3,500

3,000

2,500

2,000

1,500

1,000

500

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Infra

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pro

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2008 20152009 2010 2011 2012 2013 2014 2016 2017

Africa

Eastern Europe

Asia

Middle East

Latin America


which has helped decrease average energy consumption of corn, soy and cotton production. Increasing agricultural productivity in the future will require additional investments in technology, research and education.

Latin America historically has lagged in technological innovation and education. Following the model of Singapore and China by investing in “innovation hubs” could help generate more entrepreneurship, greater productivity and jobs. In addition, higher education in Latin America tends to be extremely separated from the private sector. Improving collaboration between academia and business could also help stimulate innovation. Though Latin American economies proved their resilience during the last crisis, continued discipline and bold investments in infrastructural and educational upgrades will be needed to increase competitiveness in the future.

“We have to take into account democratic principles, Christian values and good governance. Public-private partnership should start from the bottom. We need to have a dialogue with the grassroots.”

Joseph Philippe

Founder, Fonkoze, Haiti


Reducing Inequality in Latin America


“To improve education, more of the same is not enough.”

Vicky Colbert

Founder and Executive Director, Fundación Escuela Nueva Volvamos a la Gente (Escuela Nueva Foundation), Colombia; Social Entrepreneur; Global Agenda Council on Education Systems

Proposals

• Education – To address high dropout rates and tremendous gaps in education quality, reform initiatives should focus on improving curricula and teaching to increase the competitiveness of the region’s workforce.

• Health – Healthcare systems will need to adapt to the higher death rates from chronic diseases rather than infectious diseases. This trend necessitates increasing the use of technology and creating partnerships to help finance growing demands on medical resources.

• Infrastructure – Considerable investment in infrastructure such as water and sanitation systems is required to improve the plight of the region’s urban poor.

• Gender – Cultural and social programmes such as microfinance directed to women are necessary to eliminate gender disparities evident in higher unemployment rates and lower wages for female workers.

Latin America continues to trail all other regions in terms of equality. In the most extreme case of Bolivia, the richest quintile of the population earns more than 40 times more than the poorest 20%. In more typical Latin American nations, the income disparity between the richest and poorest quintile is more than a 20-fold difference in household income. Progress has been made in reducing poverty in recent years: the number of Latin Americans living in poverty decreased by 11% between 2003 and 2008. Still, persisting economic divisions contribute to social unrest and inhibit the region’s economic prosperity.

Reducing social inequality requires improving education and job skills. The region has made great strides in boosting student enrolment, but youth in the region will lack competitiveness in global job markets if dropout rates are not reduced and education quality is not improved. In Mexico, 97% of students enrol in primary education but only 25% graduate from secondary school, and this rate is not uncommon in the region.

Further, the quality of education in the region is likely to hamper prosperity. The Programme for International Student Assessment (PISD) – a metric of education quality created by the Organisation for Economic Co-operation and Development – indicates that 64% of Argentinean

ninth graders enrolled in schools lack the ability to solve math problems involving more than two digits, and 58% of those students are functionally illiterate. Such data suggests that dramatic changes are needed in terms of what and how children are taught, in order to reduce social disparity. Some suggest that tangible skills should be the focus of training in impoverished rural areas. In Colombia, new collaborative learning programmes that targeted remote regions resulted in better education quality in rural versus urban areas. Emphasis on math, science and technology will also be necessary to improve regional competitiveness; however, international employers have stressed that on-the-job technical training can always be offered. Basic communications skills and work ethic are essential skills for maintaining a competitive workforce.

Improvements in public health systems will also be needed to respond to demographic shifts that have pushed the majority of Latin Americans to urban areas. The majority of deaths in the region are now caused by chronic, rather than infectious, diseases, and this change poses greater demands on healthcare systems. Cardiovascular diseases, cancer and obesity, for example, are typically more expensive to treat than infectious diseases. While costs can be offset by investments in preventive care, the demands posed on the region’s healthcare systems will continue to grow. Many countries have privatized aspects of medical care, such as health insurance and hospital management, and more public-private partnerships will be required to absorb the growing demands on healthcare systems.

Technology also offers prospects for improving health at lower costs, particularly for regions that lack access to medical facilities. Thirty per cent of the region’s population lives in remote areas, and the overwhelming majority uses mobile phones. Devising flexible, technological solutions to medical care can improve not only treatment for these individuals, but also health monitoring to improve detection of pandemics and respond to emergencies. Technology can also improve the efficiency of storing and sharing medical data. The earthquake in Haiti destroyed hospitals as well as the medical records they stored. Utilizing cloud computing could offer an affordable solution to increasing technological capacity and the ability of medical practitioners to share data.

In addition to changes in health, urbanization has resulted in severe housing and sanitation deficits in low-income areas. Roughly 80 million Latin Americans lack access to clean water, and many parts of the population spend more than 30% of their income to buy it. The majority of impoverished Latin Americans are urban dwellers, and alleviating poverty will depend on devising solutions to improve services to these areas. Several programmes in Asia have succeeded in converting slums into commercial developments with mixed-income housing. For such experiments to take hold in Latin America, it will also be necessary to tackle cultural mentalities that have traditionally resisted socioeconomic integration.

Parity between women and men has also lagged in the region: unemployment rates remain far higher for women than men, and women typically receive fewer years of schooling. Several innovative microfinance programmes have focused on providing loans specifically to women. These programmes not only empower women, but they can also help solve practical urban problems, such as housing. Low-income homes in Latin America are typically built on a room-by-room basis and financed by high-interest consumer credit. Microfinance programmes in Brazil now offer low-interest loans to women for such construction, which reduces costs and provides a vehicle for improving livelihoods in low-income areas. These programmes, like many others that focus on social inequality, will be needed to have a meaningful impact on poverty reduction.


Summaries of Private Meetings

Engineering & Construction Industry Partners MeetingInvesting in the Andean Region

• Infrastructure is a huge challenge in all sectors across the region. Energy and mining are currently hitting bottlenecks in transporting both equipment and product. Transport opportunities are critical to export not just raw materials, but also finished products with value added by the producing country.

• Local sources of capital, including pension funds, are becoming increasingly important for investments in countries with attractive conditions.

• Private equity funds have an important role as an intermediary to bring pension funds’ long-term capital into infrastructure investments, since they have the skills that pension funds often do not have to analyse complex, long-term investments.

• Capital may be increasingly raised outside traditional money centres. Brazil is already doing this, raising capital in China, in Chinese currency, to invest in Brazil. Other countries in the region may do the same in the future.

Mining & Metals Industry Partners MeetingFrom Seedling to Solution: Partnerships for Reducing Deforestation

• REDD+ presents an attractive emissions reduction option for the industry, in terms of both costs and benefits. Private sector involvement already exists through philanthropic and corporate social responsibility/sustainability activities, and the development of REDD+ markets and carbon financing generates important opportunities for private sector engagement.

• Risk and insurance products can provide an innovative way of thinking about the challenges of leveraging capital to pursue the reduction of deforestation, beyond existing funds or carbon credits, and of aligning interests across the value chain to ensure the sustainability of mining activities.

• Through pilot programmes, credible systems for monitoring and reporting of deforestation should be developed together with third-party certification.

“Latin America has moved from what was a lost decade into the first 10 years of this century, to the decade of promise. The fundamentals have been laid down to lead to the next decade of fast-growing social and economic development.”

Klaus Schwab

Founder and Executive Chairman, World Economic Forum


Open Borders: The Opportunities for Travel, Tourism, Trade and Development in Latin America

• Competitiveness indexes for travel, tourism and trade are important tools to prioritize reforms, monitor progress of a country over time and promote the country’s positive image and opportunities it offers investors abroad. It is important to understand, manage and work with these indexes.

• Providing incentives for people wishing to invest in the tourism sector, streamlining bureaucratic processes to speed up and broaden trade with the outside world, providing new mechanisms for private investment, and improving Colombia’s image internationally to better reflect the country’s current reality are a few of the opportunities identified to improve travel, tourism and trade in Colombia and the region.

• Challenges in Colombia and the region’s travel, tourism and trade sectors include establishing tourism as a long-standing, national priority; upgrading and developing infrastructure; preserving the cultural and national patrimony; and prioritizing investments to support a tourism policy based on the country’s scarce resources.

Reducing Deforestation in Latin America: Moving from Dialogue to Action

Moving to action means unlocking private capital flows to reduce deforestation. Such action requires:• Businesses to invest in activities across

the value chain of sustainable land use and implement “learning by doing” REDD+ activities at scale

• Forest nations to put in place regulatory frameworks for REDD+, including provisions for the recognition of the rights of indigenous communities, effective local governance, identification of economic development needs, and risk mitigating incentives to attract private finance

• Developed country governments to implement regulatory frameworks that generate effective demand for the carbon value of the mitigation created by REDD+ activities and provide public financing when such cannot be provided through private sector engagement

• UNFCCC to fully recognize REDD+, including its use as an offset mechanism and setting clear rules for what qualifies as a rewardable action, and define guidelines for early actions as official rules are further developed

All parties should report results to ensure transparency.


Acknowledgements

The World Economic Forum would like to thank the following companies for their support as Partners or Supporters of the World Economic Forum on Latin America:

The World Economic Forum wishes to thank the Government of Colombia for serving as host country of the World Economic Forum on Latin America. The Forum would also like to thank Proexport for its contribution to the success of the meeting.

The World Economic Forum would also like to thank The Coca-Cola Company and PepsiCo for their support.

Strategic PartnersAccentureAlcoaAUDI AGBank of AmericaThe Boston Consulting GroupCA Inc.CiscoThe Coca-Cola CompanyErnst & YoungGE/NBC UniversalGoldman SachsGoogle Heidrick & Struggles Huawei TechnologiesIntel CorporationKudelski Group

Marsh & McLennan Companies (MMC)NestléPepsiCoUBSWPPZurich Financial Services

Regional PartnerBanco Hipotecario SA

Meeting SupportersInter-American Development BankPacific Rubiales Energy

Host BroadcasterRadio Televisión Nacional de Colombia - RTVC



Contributors

Emilio Lozoya Austin is Director, Head of Latin America, at the World Economic Forum. The World Economic Forum on Latin America is under his direct responsibility.

Arturo Franco is Community Manager, Latin America, and a Global Leadership Fellow. Jacques Marcovitch is Professor, University of São Paulo, Brazil, and Senior Adviser to the World Economic Forum. Nathalie de Preux is Senior Community Relations Manager, Latin America; Antonio Human is Senior Community Relations Manager, Latin America; and Begoña Martinez Gorriz is Senior Programme Associate. Rosanna Mastrogiacomo, Senior Specialist, Events; and Laura de Wolf, Associate Director, Events.

The Report Writers were Mary Bridges and Alejandro Reyes.

Helena Halldén, EditorNancy Tranchet, Associate Director, Editing

Design and Layout: Kamal Kimaoui, Associate Director, Production and Design

Layout: Floris Landi

Photographs by Fabián Ricardo Alvarez, Edgar Domínguez and Andrés Espinoza

Special thanks to PricewaterhouseCoopers for their help in preparing data and statistics underpinning this report.

The World Economic Forum would like to express its appreciation to the summary writers for their work at the World Economic Forum on Latin America, Cartagena, Colombia. Summaries are available at www.weforum.org/latinamerica2010/summaries.

The World Economic Forum is an independent international organization committed to improving the state of the world by engaging leaders in partnerships to shape global, regional and industry agendas.

Incorporated as a foundation in 1971, and based in Geneva, Switzerland, the World Economic Forum is impartial and not-for-profit; it is tied to no political, partisan or national interests.(www.weforum.org)

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World Economic Forum on Latin America · World Economic Forum on Latin America | 5 “One of the major perceptions I have from this meeting is the change in the mood compared to last