How can Argentina stay competitive in the Fourth Industrial Revolution?

Two weeks ago I had the chance to participate in the World Economic Forum on Latin America, held in Buenos Aires, and I took advantage of my time there to visit members of the Macri Administration and leaders of the business community. I have visited Argentina on various occasions in the past and I treasure a respectable range of previous experiences.

My participation was focused on the Global Competitiveness Index that the Forum publishes every year which measures the efficiency of countries in using their resources and abilities to provide prosperity for their citizens.

In 2016 the leaders of the Index followed this order: Switzerland, Singapore, USA, Germany, the Netherlands and Japan. As for Argentina, a country with widespread natural resources, a high literacy rate and a powerful industrial base, it finds itself in a disappointing 104th position (out of 142 countries). What can the Macri Administration do to perform better in this Index?

At the end of 2015, Mauricio Macri inherited a country with an extraordinarily complicated economic situation on all fronts: a fiscal deficit of 5.7% of GDP, a growing deficit in the payment account balance, 40% inflation, the closing of international credit markets, minimal foreign currency reserves, over-valued currency, loss of energy self-sufficiency, etc.

Not without great effort and political wear, suitable policies of economical orthodoxy are being put into place that should allow for the economy to stabilize in the short term, such as: the liberalization of the exchange market, end of the default following an agreement with the holdouts, elimination of tariff barriers and exporter retention, etc. To this, we must add the measures being taken to improve transparency (including official statistics) and the reinforcing of institutions. All of these initiatives have had an immediate effect: a complete subscription of the massive bond issuance in April 2016, an increase of international reserves by 50% and a reduction in inflation.

Although the economic growth announced by international institutions is taking time to activate, my perception is that the country may soon start a virtuous cycle thanks to the recovery of households’ consumption, gross public capital formation (the country needs huge infrastructure investments) and private capital investments (especially, in real estate thanks to the repatriation of capital). Provided there is political stability after legislative elections in October, the economy may soon turn page after some years of imbalance.

However, this economic orthodoxy and reinforcement of the institutions might not be enough to assure long-term competitiveness. As I said during my panel discussions, it is very difficult to predict medium-term and long-term prosperity for countries in the middle of this process of extreme automation and connectivity that we call the Fourth Industrial Revolution. That which will be relevant in the times to come may be very different than what has been relevant so far. For example, the economic growth based on labor surplus could be of little importance in the future (why manufacture with cheap labor in Vietnam if you can manufacture using robots that require little OPEX in California?).

In the current competitiveness index, Argentina is badly positioned on practically all fronts: institutions (130), infrastructures (85), macroeconomic environment (130), health (63), efficiency in goods markets (135), efficiency in the labor market (130), financial market development (127), innovation (81) and sophistication in the business world (88).

However, the country has a few favorable aspects which will help it to adequately adapt to the Fourth Industrial Revolution.

In the first place, the country is relatively well positioned with respect to higher education (40), more so with respect to the number of students in primary (13), secondary (29) and tertiary (16) education than with respect to the quality of the education (92). Moreover, the innovation oriented towards scientific research also has a good grade (33) as well as internet penetration (50) and fixed (54) and mobile (46) communications’ infrastructure. Argentina also has a sufficiently large market for ensuring its prosperity (28).

These aspects are more relevant than ever. Once the country has stabilized its macroeconomic situation it should reinforce itself in education, science and and communications infrastructure. In this new, coming world, these three elements are going to be extremely important. If Argentina makes its labor market flexible, allowing it to adapt to the new environment, it could have a bright future beyond its never-ending potential to lead worldwide food production.

During my recent visit to Buenos Aires, many of the public officials and businessmen I met had just returned to serve the country from successful lives abroad. When a country manages to bring back so much talent, something I learn from my own country during the 80`s, the possibilities of success are extraordinarily increased.