5. Latin America and the Caribbean: towards sustainable development in the 21st century
- Introduction
- Prospects for sustainable economic growth: opportunities amid persistent challenges
- Seizing new (and old) opportunities: the pending agenda and the role of the institutional framework
- The role of multilateral development Banks
- References chapter 5
Key messages
- The Fourth Industrial Revolution generates take-off opportunities for the region, despite persistent challenges. The adoption of Industry 4.0 technologies (artificial intelligence, internet of things, etc.) presents leap-frogging as a possible growth path for the countries of the region. This vision contrasts with the idea of sequential and gradual growth, moving from agriculture to manufacturing.
- In order to harness new technologies so as to address existing development gaps and stimulate economic growth, it is necessary to identify key sectors that maximize the region’s natural advantages. First, a modern agricultural sector must be encouraged. Second, a new industrial policy that integrates the non-tradable services sector should be promoted. The latter, characterized by informality and low productivity, will be essential to absorb low-skilled labor, which could be displaced by automation and digitalization of some processes.
- These growth paths are complementary to industrialization and the specialization of certain countries in the export of tradable services, such as financial or informational. It is essential for the region’s manufacturing sector to consider biodiversity and ecosystems as sources of wealth, particularly in the context of the energy transition. LAC must also find ways to better integrate into global value chains (GVCs).
- Instead of relying exclusively on the extraction of natural resources, such as minerals or oil, the region has the opportunity to transform its ecosystems and species into valuable assets for industries such as pharmaceuticals, agribusiness, biotechnology and tourism. In the context of the energy transition, LAC has important geographical advantages for the development of clean energy. The incorporation of tariffs and trade restrictions based on the carbon content of goods and services will make access to clean energy an important competitive advantage.
- Decarbonization will also foster the formation of value chains to meet the demand for clean energy. The region should make the most of its comparative advantages to produce renewable energy and access to minerals such as lithium and copper to expand its participation in GVCs.
- LAC’s geopolitical positioning facilitates its insertion in GVCs. On the one hand, the region has a low war risk and can position itself as a reliable supplier of inputs. In addition, it has generally remained apart from the imposition of export and import bans, restrictions and licensing requirements motivated by trade wars. LAC has great potential to position itself in GVCs due to the abundance of critical minerals and the expansion of tradable services. The region has shown great growth potential in the development and export of software services, data design and analysis, fintechs and business process outsourcing (BPO).
- The success of public policies depends on the capacity of Governments to design, implement and evaluate regulations effectively. A State with strong institutions, trained personnel and efficient administrative processes can ensure that public policies are implemented in a coherent and sustained manner over time.
- Advancing the State capacity agenda in LAC requires prioritizing institutional strengthening. The four pillars of this agenda are: professionalization of the public service; provision of incentives to develop the potential of civil servants; digitalization of the State, and reinforcement of its capacity to generate, manage and analyze data in real time.
- The direct financing that the multilateral development banks (MDBs) provide to the region’s Governments is the most notorious action. However, the greatest transformative potential of these agencies lies in their ability to address market and coordination failures. The MDBs are key public policy tools with the global experience, the mandate to contribute to development and the capacity to invest in public goods at scale. The MDBs also innovate, pioneering the creation of social impact bonds, green investment funds and results-based financing mechanisms.
- The generation of knowledge from multilateral banks has at least three advantages. First, the MDBs operating in LAC have much more direct and frequent connections with the region’s activities than academia. Second, the MDBs serve as excellent platforms for the dissemination of knowledge, and this facilitates the arrival of the different knowledge products to the forums that matter for evidence to guide public policies. Third, rigorous evaluation of operations allows the MDBs to replicate and scale cost-effective solutions to the region’s problems.