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Latin America and the Caribbean have unique assets: the region is home to about 50% of the world’s biodiversity, a third of its energy matrix comes from renewable sources and has significant reserves of raw materials critical to the energy transition. Its geographical location, cultural strength and young population represent core values for better integration into global value chains.
However, the COVID-19 pandemic and the complex global context, as well as outstanding structural challenges, have slowed social and economic progress in recent years. Inequalities are profound: nearly 45% of households have all members working informally, and 29% of the population lives below the poverty line.
In the sixteenth edition of Economic Prospects for Latin America (Leo) 2023: Investing for sustainable development, We suggest that the region adopt an ambitious investment agenda to promote comprehensive and sustainable development.
The challenge is significant, as investment in the region amounts to about 20% of GDP, one of the lowest levels of all regions of the world. To achieve this, we must work on five lines of action:
1. Encourage and encourage investment in strategic sectors compatible with productive development policies
Significantly increasing investment is key to generating employment and creating local added value in emerging sectors. Green transition, in areas such as sustainable transport and the circular economy; digital transformation; health and care economics; Sustainable agricultural and food systems, among others, are areas that countries and their regions can prioritize within their productive development policies.
To realize this potential, investment in infrastructure in energy, water, transport and communications will be essential. Investment in R&D barely amounts to 0.65% of GDP in the region (2.7% in OECD). Therefore, it is necessary to significantly increase these investments, as well as those allocated to education, especially in the formation of skills necessary for the new economy.
2. Taking advantage of foreign investment to promote innovation and good employment
In 2022, Latin America and the Caribbean emerged as the region with the largest FDI inflows in relative terms, accounting for 4% of regional GDP. To increase the quality and impact of this investment, it is necessary that foreign direct investment encourage increased transfer of knowledge and technology into the productive fabric, and move towards renewable energy sectors and activities that generate formal employment opportunities for the population. Likewise, you must ensure that profits from these investments are taxable in the jurisdictions in which the value is created.
3. Promoting new financial frameworks and financial instruments for greater and better investment
The outstanding issue for financing development is implementing fiscal reforms that encourage fairer and more efficient tax and spending systems that contribute to entrepreneurship. In Latin America and the Caribbean, the region’s tax-to-GDP ratio is less than 22%, while the average in the OECD is 34% and in the European Union 40%. It is particularly necessary to enhance access to finance for micro, small and medium enterprises. It will also be important to promote innovative financial instruments, such as green, social, sustainable and sustainability-linked bonds.
4. Towards stronger institutions to link the investment agenda to social priorities
Mobilizing large-scale investments will not be enough to move toward development. Strong public institutions are essential to ensure that investments are consistent with the region’s social and productive priorities. Establishing dialogue mechanisms with social and economic actors will be crucial to forging a new social contract that promotes quality job creation and the transition towards a green and just economy. Moreover, reducing inequality will contribute to stimulating greater demand and shared welfare, thus generating a more attractive environment for investment.
5. Working together through strengthened international alliances
An investment agenda of this size cannot be addressed in isolation. It is necessary to build new international alliances and innovative forms of cooperation between the countries of the region and the rest of the world. The European Union and Latin America and the Caribbean enjoy close political, economic and cultural relations. Together, the two regions represent 21% of the world’s gross domestic product, 14% of the world’s population, and a third of the members of the United Nations. The European Union is one of the leading trade and investment partners in the region and wants to deepen these relations. In this sense, the EU Global Gateway Initiative, with the EU-Latin America and Caribbean Joint Investment Agenda of €45 billion until 2027, presented at the July 2023 Summit, represents an innovative step for cooperation with the region and the achievement of the Millennium Development Goals. Sustainable development goals.
Our institutions are ready to work together and support the efforts of countries in the region.
