Paving the way to competitiveness in the Americas

Will history prove that the Sixth Summit of the Americas in Colombia in April 2012 was an inflection point in Latin American and Caribbean competitiveness? At the very least, leaders were able to unite – more or less – on the need for better connectivity to boost productivity and competitiveness. Better still, they identified five key mandates relating to road, rail, electricity and information and communication technologies that were ripe for action.

For good reason. Transport, energy and ICT infrastructure are crucial for boosting competitiveness. Good transport infrastructure decreases the costs of transporting raw materials, intermediate components and goods, integrates national and regional markets – thus enhancing the efficiency in the allocation of resources – and reduces the time and cost for people to travel and interact, enhancing the flow of ideas that is crucial for innovation. Energy networks that provide reliable and affordable electricity are also essential for production, while ICT networks are becoming increasingly important for their ability to reduce transaction costs and enable innovation wherever it touches economic activities.

April’s wake-up call, it could be argued, has been a long time coming. According to the Global Competitiveness Report 2012-2013 published this week, the Americas still lag behind in building a dense network of transport and electricity infrastructure. The shortfall can partly be blamed on its complex orography, but it is also greatly due to historically low public investment and private sector mobilization.

Why has the region allowed itself to fall behind? Partly, this is due to poor economic management in the past that led to a necessary macroeconomic stabilization process in the 1990s. Then, hard-pressed governments, seeking to balance their books, drastically reduced spending on infrastructure. The problem was, when the good times came back in the past decade, the rapid economic expansion was not accompanied by significant expansion of investment, especially in rural areas where neglect has been at its highest.

The information revolution of the 21st century has not helped the Americas close the gap, either. Indeed, with bandwidth for the region stubbornly remaining only slightly above 20% of the OECD average, the digital divide between Latin America and the developed world and many Asian economies is actually widening today.

Addressing these weaknesses by improving national infrastructure and the intra-national transport, energy and ICT connectivity will be crucial for moving the Americas forward. This will help increase national and regional productivity thanks to the deepening of national and regional markets, the reduction of transaction costs and creation of more favourable conditions for innovation.

Engaging in these resource-intensive projects will require closer collaboration between the public and private sectors to leverage each other’s capacities and resources, and between national governments to enhance “connecting the Americas”. The opportunity must not be missed.

Author: Benat Bilbao is Associate Director, Economist, Global Competitiveness and Performance Team at the World Economic Forum.

Pictured: Hundreds of trucks are seen along the main highway in Desaguadero, some 1000 km (620 miles) south of Lima, located along the border between Peru and Bolivia. REUTERS/Gaston Brito