For the OECD, one of the solutions is to rely on foreign direct investment.
From EFE
Latin American and Caribbean (LAC) countries must adopt an ambitious and comprehensive investment agenda if they are to reduce worrying levels of poverty and extreme poverty and harness the great shared potential to advance a more robust and sustainable development trajectory. , today unveiled the OECD report on the region's 2023 outlook.
However, at an event at the headquarters of the Economic Commission for Latin America and the Caribbean (ECLAC) in Santiago, Chile, he warned that the slowdown in economic activity in Latin America and the Caribbean in 2023 also suggests that the region is returning to rock bottom growth levels, that were observed before the pandemic.
“Following the post-pandemic growth recovery in LAC in 2021, external conditions became less favorable in 2022, public support transfers were reduced, monetary policy was tightened and the impact of reopening economies faded,” he explained.
“Socioeconomic conditions in LAC continue to remain challenging, with poverty rates (29%) and extreme poverty (11.2%) still on average at pre-pandemic levels in 2022,” he added.
High level of informality
The report also warns that one of the main obstacles to addressing this situation is work informality, which translates into lower salaries and lack of access to social safety nets.
According to the data presented, “on average, 42.8% of the region’s population lived in a household dependent exclusively on informal employment.”
In addition, “the rise in inflation is increasingly eroding purchasing power in LAC, hitting the most vulnerable populations particularly hard.”
“In the first half of 2023, households in extreme poverty experienced an average price increase of approximately 4.0 percentage points more than the average of households in the region,” he added.
More and better investments
Another of the worrying data in the document highlights that “LAC has one of the lowest total investments of any region in the world, at just 20% of GDP, partly due to low national savings rates.”
“Since 2000, gross domestic savings have averaged 20% of GDP, compared to 35% of GDP in East Asia and the Pacific economies.” The private sector is the largest source of investment in almost all LAC countries (averaging 78% of total investment in 2019 ),” he emphasizes.
Adding to the lack of savings is the fact that most of these investments are concentrated in the private sector, while the public sector shows significantly less positive figures.
“The public sector has a crucial role to play by investing in strategic public infrastructure and mobilizing private investment. To this end, the public sector can assist by updating investment regulatory frameworks and ensuring good regulation of public-private partnerships (PPPs) within sound institutional frameworks,” he suggests.
In this sense, for the OECD, one of the solutions is to rely on foreign direct investment, which, in its opinion, “represents an opportunity to increase productivity and innovation and create high-quality jobs”.
Foreign direct investment in Latin America and the Caribbean “exceeded 3% of GDP in 2017-19 ($464 billion) and 2020-22 ($445 billion) and reached 4% of GDP in 2022. Foreign companies “tend to be more productive and invest more in product innovation and research and development (R&D) than domestic companies.”
“These differences suggest that there is significant potential for knowledge and technology transfer from foreign companies to domestic companies.” Likewise, foreign companies in LAC tend to offer higher average salaries and employ a higher proportion of unskilled workers,” he points out .
“Investment from the EU and the United States has had a particularly positive impact on job creation in the LAC’s manufacturing sector.” FDI in renewable energy in Latin America creates more jobs than fossil fuels,” an investment in research and development and emerging sectors “may change the production structure” of the region, which is characterized by low productivity levels.
“Investments in physical capital, knowledge and innovation, whether at home or abroad, will be a fundamental factor in productive transformation.” Likewise, investments in strategic sectors will enable the region to take advantage of new opportunities, for example related to the green transition and digital transformation,” he emphasizes.
Green and digital transformation
In line with this argument, the report identifies four areas of action: the green transition, digital transformation, the health and care economy and sustainable agriculture and food systems, focusing on sustainable companies and the circular economy as well as better education and training.
Likewise, a new investment agenda is proposed that requires the mobilization of financial resources through innovative instruments from both the public and private sectors.
“It is crucial to move towards more effective and progressive tax systems, greater efficiency in public spending and debt management, and more robust and sustainable tax frameworks to stimulate public investment in a context characterized by limited fiscal space,” he recommends.
“There are at least two areas with potential to improve the flow of private and public finance for sustainable development goals.” First, development finance institutions can play a key role in facilitating access to finance for the productive sector,” he explains.
The second area is “the development of innovative financing instruments, such as Green, Social, Sustainable and Sustainability Linked Bonds (GSSS). These bonds account for 32% of the total international bond issuances in LAC.
In both cases, it is also proposed to strengthen institutions, adding that “international alliances can create synergies between international organizations, governments, experts, development agencies and private sector institutions to attract investments that contribute to the productive transformation” of LAC through the attractiveness of private investments and innovative mechanisms such as blended financing to mobilize additional resources for sustainable development projects.