If in 2020 the focus was on dealing with the direct effects of Covid-19, during 2021 the focus was on the recovery of economic activity. It is not that the pandemic has been overcome. Far from it: as anticipated, countries have been exposed to continuous outbreaks, and the emergence of more contagious variants continually jeopardizes progress towards “normality” and the relaxation of controls and sanitary measures.
However, either due to the increase in the vaccination levels of the population (which, however, are far from being optimal), due to fatigue with the restrictions imposed on personal interactions and mobility, due to the economic impossibility of maintaining These restrictions, or by a combination of all those factors, the truth is that in 2021 the economic reactivation acquired priority and this became key for the development of Latin America and the Caribbean in this new context.
The development of the countries in Latin America and the Caribbean
The countries of Latin America and the Caribbean were among the most severely affected in the world by the health crisis. Proof of this is that during 2020 the region’s economy contracted by about 6.7%. The good news is that projections indicate that 2021 has seen a significant rebound in economic activity. But the estimated growth (about 6.3%) will not be enough to bring the region to pre-pandemic levels. Going forward, the outlook does not look very encouraging. On the one hand, there are not enough resources available to sustain the growth in fiscal spending that drove the reactivation. And, on the other hand, inflation, that old acquaintance of the region, is already beginning to show its face. In this context, current forecasts point to growth of no more than 3% on average for the next two years.
How to promote greater dynamism in the economies of the region?
One way to address this question is to identify the trends that are defining the current situation and define the actions that the countries of the region should take in order to take advantage of these currents of change. Along these lines, three areas emerge as particularly relevant: nearshoring, business digital transformation, and a green and blue region.
- Conditions to take advantage of the nearshoring process
Both for geopolitical reasons and for environmental and efficiency considerations, already before the pandemic there were attempts to reverse the process of moving industries to East Asia, particularly by the United States. The disruptions in the supply of key inputs that have occurred due to the health emergency (and that have also helped fuel the rise in prices) have given new life to this trend. For Latin America and the Caribbean this represents an enormous opportunity, since it is estimated that increasing its participation in global value chains by only 10% would generate an increase of 11% in GDP per capita [1].
Obviously, relocation processes take time, and are not automatic. The countries of the region need to be active in promotion, but above all they must create the appropriate conditions to attract companies. In particular, if the objective is not to compete on the basis of low costs, then national innovation systems need to be strengthened so that opportunities for continued productivity growth can be offered to firms. But, above all, it is necessary to have qualified human resources in sufficient quantity. Having talent is a key condition for attracting high-value companies that generate quality jobs.
Costa Rica is one of the countries that has understood this well, and the training of qualified personnel has been a priority of its public policy. Thus, in the framework of the Innovation and Human Capital for Competitiveness Program (PINN) of that country, supported with IDB resources, more than US $ 7 million were allocated to finance both specialized certifications and accelerated training of digital talent through of international Bootcamps. This allowed in the last two years to specialize more than 1,800 people, the bulk of which has been absorbed by the companies that produce medical supplies and equipment, a sector that today represents more than 30 percent of exports and continues to attract firms international to the country.
- Support business digital transformation
The pandemic has prompted the forced digitization of numerous activities. One of the risks facing the region is that this process will continue to deepen the already huge differences in productivity and income that exist between large and small companies. The latter find serious limitations to adapt to the digital age. To be clear, the problem is not simply one of financing, but above all a lack of information, ignorance of the most appropriate options for your business, and weak internal capacities to drive a successful digital transformation. Left to their own devices, the prospects for a successful digital transformation are bleak for the vast majority of SMEs.
Given the above, several governments in the region have begun to implement programs to assist the digital transformation of smaller firms. An interesting case is that of a program that the Uruguayan National Development Agency (ANDE) is beginning to implement with IDB support. Using a comprehensive approach, this initiative proposes to accompany companies in their digital transit starting from an online self-diagnosis that uses a tool specially designed to assess the state of digital maturity of companies, and then support with training and technical assistance the strategies of change. The focus of the interventions is not digitization per se, but the way in which digital technologies can contribute to the business model of companies. Another distinctive element is that the program will also help develop the offer of assistance services to companies, as well as the generation of adequate digital tools to respond to the particular needs of this segment of companies.
- A green and blue region
No less urgent and important than fighting and overcoming the effects of the pandemic is increasing efforts to curb global warming. Within the framework of the Climate Change Conference (COP 26), which took place in Glasgow last November, much more ambitious goals for reducing greenhouse gas emissions were proposed than those previously in force. Although it is debatable whether these new commitments will make it possible to achieve the goal of not increasing the planet’s temperature by 2 degrees Celsius, it is clear that COP 26 gave new impetus to the fight against global warming and that countries will have to redouble their efforts to comply with your commitments.
Latin America and the Caribbean is in a paradoxical situation, as it is one of the regions most affected by climate change, but at the same time it has great opportunities to help counteract it and boost its economic growth in the process. Indeed, its abundance of natural resources and its wide biodiversity represent enormous potential for development through pathways that contribute not only to reducing greenhouse gas emissions, but also to sequestering carbon from the environment. The use of its numerous sources of renewable energy (solar, wind, hydro) to advance the production of green hydrogen; the possibilities that open up in the bio-economy space (such as the production of vegetable protein that catapulted the NotCo company from Chile to world markets, for example); or the sustainable use of marine flora and fauna in protected maritime territories are good examples of the mentioned potential.
Obviously, being able to take advantage of these opportunities requires, among other things, a greater effort in scientific research and in the development of innovations. The good news is that the life sciences area is where most of the relevant research capacity in Latin America and the Caribbean is concentrated. So there is at least a good starting point for achieving sustainable development in this new context.
The Covid-19 pandemic, therefore, has not only been a gigantic challenge in the short term for the economies of Latin America and the Caribbean. It has also been a catalyst for change. The health crisis has accelerated economic transformation in areas such as nearshoring and business digital transformation, while at the same time tackling climate change has remained a priority. Innovation, thus, takes on an even more transcendental role in this new economic context that has marked 2021.