Latin America’s economies continue to lose competitiveness

As expected, the seven largest economies in the region fared poorly in the latest IMD World Competitiveness Report. However, because the region’s markets are significantly larger than those of most countries worldwide, they remain interesting for foreign investors.

by Alexander Busch, Latin America correspondent for Handelsblatt and Neue Zürcher Zeitung

 

Since 1989, the International Institute for Management Development (IMD) in Switzerland has published its annual ranking of the competitiveness of countries. For this purpose, the IMD World Competitiveness Center surveys entrepreneurs, investors and managers in 63 countries worldwide according to numerous criteria with which competitiveness can be measured.

Latin America performs particularly poorly. With the exception of Chile, the other six countries in the region are among the bottom performers in the economies surveyed. Peru (54), Mexico (55), Colombia (57), Brazil (59), Argentina (62) and Venezuela (63) perform worse than almost all locations worldwide.

However, even Chile, which has a better rating, is only in the bottom third of the ranking at 45th place. The Andean country has even dropped ten positions in the ranking over the last five years. It is followed by Argentina and Colombia, which have been overtaken by six and five countries respectively. Overall, however, all seven of Latin America’s largest economies have lost positions over the past five years. Only Venezuela has been at the bottom of the IMD report since 2017.

However, other countries are also at the bottom of the rankings on individual points. Brazil, for example, occupies the worst position among 63 countries in terms of workforce training. Argentina brings up the rear in terms of entrepreneurial friendliness and the treatment of foreign investors.

The legal framework for entrepreneurs is poor in almost all countries. The low level of legal certainty, in turn, is the decisive reason why investors do not invest their capital in infrastructure. They fear that the laws could suddenly change and they would have to write off their investments, as has happened in Argentina and Venezuela.

Basically, investment in infrastructure is not only below average in a global comparison. Latin America also falls far behind in human capital and technology.

However, it is striking that foreign companies and investors continue to invest above average in the region. This is particularly true of Brazil and Mexico, the largest economies in Latin America, which account for around half of the population and economic power.

This could be due to the importance of the domestic markets. Looking at the market sizes of the seven most important economies, they remain well above the midfield of the countries surveyed worldwide.

The conclusion suggests itself that Latin America remains attractive to foreign companies primarily because of its large domestic markets – despite the region’s structural shortcomings.

Competition
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