Latin America

Lessons learned from structural transformation in least developed countries

Development Matters policy , , , ,

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By Daniel Gay[1], Inter-Regional Adviser on LDCs, UN Department of Economic and Social Affairs

To learn more about countries’ strategies for economic transformation, including a session on Least Developed Countries (LDCs), follow the 10th Plenary and High-Level Meeting of the OECD Initiative for Policy Dialogue on Global Value Chains, Production Transformation and Development in Paris, France on 27-28 June 2018 
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Bangladeshi garments workers in Dhaka, Bangladesh. Photo: Shutterstock.com

At Leather Wings, a small shoe-making outfit based in central Kathmandu, four women sit in a small room cutting up bright red cowhide imported from India. Next door, a dozen of their colleagues stitch the shapes together on sewing machines. The owner Samrat Dahal says the boots, designed by a German expat, sell via the Internet in India, China and Italy.

The company, founded in 1985, sums up some of the issues facing the Nepalese economy: entrepreneurial leaders at the helm of a committed workforce making a competitive and quality product for which overseas demand is ample. The problem isn’t finding buyers; it’s scaling up production to meet that demand. Exports by the handful of players in Nepal’s shoe industry totalled only USD 23 million in 2015. The task of boosting production in Nepal is doubly pressing given that the country already meets the criteria to graduate from the least developed country (LDC) category, something that the government wants to happen as soon as 2022. Nepal’s productive capacity predicament is typical of many LDCs. Moving onto a path of long-term prosperity requires structural transformation that expands production via manufacturing, services and higher-productivity agriculture.

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Stabilising Argentina’s Public Expenditure

Development Matters Latin America/Caribbean, policy , , ,

By Dr. Sebastian Galiani, Professor of Economics, University of Maryland 1

development-financeThe present government in Argentina inherited a particularly high level of public spending compared to the country’s own history. Consolidated public expenditure for the three levels of government − nation, province and municipalities − reached 42.2% of Gross Domestic Product (GDP) in 2015. This is an almost 17 point hike from before the 2001-2002 crisis when this expenditure was 25.6% of GDP.

Three areas drove such growth in public spending. First, the public wage bill grew 4.8 points of GDP since 1998 − mainly driven by the provinces and municipalities. Second, pension benefits grew 4.7 points of GDP since 1998. And third, private transfers increased 5.0 points of GDP, of which subsidies to public services represented 3.6% of GDP. In contrast, public investment almost did not grow during 1998 to 2015, at 1.4 points of GDP. The end result was a level of primary spending that is higher than that of all Argentina’s Latin American neighbors, and up to 8 percentage points above what is expected for a country at its level of GDP per capita.

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Reducing violence in El Salvador: What it will take

Development Matters Gender, Latin America/Caribbean, Security, Youth , ,

By Ian Brand-Weiner, Policy Analyst, OECD Development Centre; Katharina Ross, Project Officer Latin America & Asia, Plan International Deutschland e.V; Francesca Cárdenas, Head of Public Relations, Plan International El Salvador; César Pineda, Grants specialist, Plan International El Salvador

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A young woman is being trained through the Youth Employability and Opportunities initiative.

Violence holds El Salvador’s economic and social development potential hostage. Violence and inequalities often reinforce each other in Latin America: countries with higher levels of inequality tend to have higher rates of intentional homicides (Figure 1). El Salvador, however, stands out. Its homicide rate is disproportionately high compared to its level of inequality. The small Central American country surpassed Honduras and Venezuela in 2015 to become the most violent country in the Americas, with 108 homicides per 100 000 inhabitants.

The violence and its consequences are costing the government, households and enterprises 16% of GDP annually. These costs include expenses for public and private security, extortion, medical treatments, preventing and combating violence, the penitentiary system, and the opportunity costs for those in prison or forced to emigrate. These costs exclude the intangible ones, such as the suffering of victims and their families, the long-term fear and psychological effects impacting their employability and that of future generations, and decreased trust in the community and state.
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Bridging the green investment gap in Latin America: what role for national development finance institutions?

Development Matters Climate change, Development finance, Latin America/Caribbean, SDGs , , , , ,

By Maria Netto, Lead Capital Markets and Financial Institutions Specialist, Inter-American Development Bank, and Naeeda Crishna Morgado, Policy Analyst – Green Growth and Investment, OECD              

Green-investmentThe developing world urgently needs more and better infrastructure. Affordable and accessible water supply systems, electricity grids, power plants and transport networks are critical to reducing poverty and ensuring economic growth. The way new infrastructure is built over the next 10 years will determine if we meet the Sustainable Development Goal (SDGs) and the Paris Agreement objectives. Considering the long lifespan of most infrastructure projects, the decisions developing countries make about how they build infrastructure are critical: we can either lock-in carbon intensive and polluting forms of infrastructure, or ‘leap frog’ towards more sustainable pathways.

Many countries in Latin America are making this shift: thirty-two of them have committed to cut their emissions and improve the climate resilience of their economies, in infrastructure and other sectors, through Nationally Determined Contributions (NDCs). The cost is estimated at a staggering USD 80 billion per year over the next decade, roughly three times what these countries currently spend on climate-related activities. What is more, this is in addition to a wide investment gap for delivering development projects and infrastructure overall – the World Bank estimates that  countries in Latin America spend the least on infrastructure among developing regions in the world.
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Reimagining job-oriented education to give youth the chance of a better future

Development Matters Gender, Latin America/Caribbean, Youth , , , , ,

 By Mariana Costa, Co-founder and CEO of Laboratoria

 To find out more on youth and inclusive development, go to the 2017 International Economic Forum on Latin America and the Caribbean website

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Laboratoria graduates. Photo credit: the Laboratoria website

Receiving quality higher education in Latin America is still a privilege, with two-thirds of youth in the region lacking advanced technical, professional and management skills. Despite their limited access, acquiring these valuable skills is still the main vehicle to a career. The consequences are not minor. According to OECD data, 21% of youth are not working or studying, and another 19% are working in the informal economy. All of them face limited opportunities to fulfil or even discover their potential. A better way must be found to give the region’s young talent a path to professional growth.

A few years ago, I started a web development company in Lima, Peru. In the process of building our team of software developers, my partners and I discovered what appeared to be a loophole in the system. Most of these coding professionals, making competitive salaries and facing endless opportunities for career growth, did not have a fancy degree from a renowned university. They were self-taught developers, university dropouts or computer engineering graduates from obscure technical institutes. Despite the lack of a degree, they were doing great. And they were not the only ones. According to Stack Overflow’s 2016 survey, 56% of developers do not have a college degree in computer science or related fields. In tech, the key to a high paying job often has more to do with what you can build than where you studied.

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Informal is normal in Latin America: taxes matter

Development Matters Latin America/Caribbean , , , , , ,

By Juan Carlos Benítez, Economist at the Latin American and Caribbean Unit, and Angel Melguizo, Head of the Latin American and Caribbean Unit, at the Organisation for Economic Co-operation and Development (OECD)

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Informality equals vulnerability. In emerging economies and particularly in Latin America, informal is normal. On average, 55% of workers in the region did not contribute to pension or healthcare programmes in 2013. Although informality rates vary significantly across countries (Figure 1), a common feature of informality is its large prevalence amongst the poor and low-middle income workers (e.g. Jutting and De Laiglesia, 2009). On average, 85% and 73% of households in the lowest earning quintiles do not have any member contributing to social security schemes. Furthermore, informality is “one of the most striking differences, within the middle sectors, between the vulnerable population and the consolidated middle class” (Lustig and Melguizo, 2015).

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Instituciones, Gobernabilidad y Desarrollo

Development Matters Latin America/Caribbean , , ,

Por Danilo Astori, Ministro de Economía y Finanzas de  Uruguay

En la reflexión y la acción acerca de los caminos que conducen a niveles cada vez más altos de desarrollo económico y social, la cadena que nace en las fortalezas institucionales de la sociedad, e incluye como eslabones a la transparencia, la rendición de cuentas y la gobernabilidad, asume una importancia crucial. En tiempos como los actuales, en los que la volatilidad y la incertidumbre, así como los problemas de gobernanza afectan al mundo en su conjunto, es relevante detenerse a examinar el papel a jugar por los conceptos antes señalados.
Es claro que el que refiere al desarrollo económico y social de una sociedad se encuentra íntimamente asociado al de proyecto nacional, entendiendo por tal el que se define como una verdadera cuestión de Estado, definida y ubicada por encima de los partidos políticos y otras organizaciones sociales, así como la de la alternancia de unos y otras en el poder. Continue reading →