Briefing | Challenges transitioning to development
Latin American and Caribbean countries face severe challenges in their attempt to meet the evolving needs of individuals and businesses in this ever changing world where business demands are rapidly changing. Technology and staffing requirements must improve to fulfil these functions so that businesses can progress.
Many countries have found themselves in four fundamental traps that have presented challenges to materializing the desired levels of economic growth and development according to the Latin American Economic Outlook 2019. Despite an increase in wealth and standard of living in some countries, others have failed to progress. Many are characterised by widespread poverty and a very vulnerable middle class because of innate challenges that are embedded within. These include a productivity trap, social vulnerability trap and institutional trap.
How to escape the productivity trap?
Latin American and Caribbean countries are experiencing low productivity and slow growth in many sectors because their productive sectors have not evolved to incorporate technological advancements in the procedures and processes that increase worth. According to the Latin American Economic Outlook, these countries largely produce and export primary production or extractions which are not sufficiently vertically or horizontally diversified to create value added. The value of what you produce gives an indication of the level of productivity. If the value of what you produce does not increase it means productivity has not increased. Service sectors are also sustained in primary lower level category. Business process outsourcing, though providing jobs, has not really evolved into that which has the potential for vertical diversification to increase in value. The tourism industry faces similar but more extensive challenges with local ownership being marginalised from sectors that provide backward and forward linkages. These domestic linkages must improve to increase value creation through value added diversification.
How severe is the social vulnerability trap?
In many Latin American and Caribbean countries, the middle class remains vulnerable and face the risk of becoming poor once more due to innate structures of the economy. Many college graduates in these countries have to settle for low quality jobs that do not afford them the ability to save and invest to increase their future earnings in order to create a buffer against poverty and adverse economic shocks. For example, many college graduates can only find jobs in their degree area or any degree area and ends up working for subsistence income in a call centre in the BPO industry. Lack of investment in key social services, for example, health care and garbage disposal etc., reduces the level of social protection and the standard of living. Unless these innate challenges are addressed where college graduates can earn an income that allows them to save and invest, these countries will be trapped in a low output low productivity cycle.
What is the institutional trap?
Institutions in these countries are failing to respond to the needs of its citizens. According to the Latin American Economic Outlook 2019, this creates low satisfaction and distrust in critical processes that these countries need to be sustainable. The widespread corruption and favouritism in personal and business processes has weakened citizens’ confidence. Citizens place less value on core national duties for example paying taxes. Furthermore in many of these countries, key civil servants are not compensated enough to motivate them to carry out their functions effectively. Nurses, doctors, teachers, police are underpaid and therefore demotivated. Many of the best talents migrate which contributes to low absorption rate that reduces the level of productivity.
Dr Andre Haughton is a university lecturer and People's National Party senator