Sergio Díaz-Granados
Executive President of CAF. Previously, he served as Executive Director for Colombia at the IDB. He was Minister of Trade, Industry and Tourism, Vice-Minister of Business Development, and Chairman of the Board of Bancoldex and Procolombia, in Colombia. He is a lawyer and specialist in Government and Finance from the Universidad Externado de Colombia, with postgraduate studies in Public Management for Social Development at INAP (Spain).
Interview
Q/ What are the region’s main current and future challenges for its development in the coming decades?
The current challenges facing Latin America and the Caribbean today are, essentially, its low economic growth. And this, in the last decade, has been particularly severe because almost from 2008 onwards, the region has had growth averages between 0.9% and 1.3%. And this low growth is the worst since 1950. We have a great challenge now, and that is to get back on the path of growth. This low growth in Latin America is also expressed in some variables that are worth remembering.
One, the high rates of informality in Latin America and the Caribbean, which, on average, are between 55% and 58%, with countries that are already close to 90% informality and countries that are around 25%, 26%, with great heterogeneity, but with a very high informality average for Latin America and the Caribbean.
Second, with low trade exchange rates. The region, in spite of all the efforts and multiple integration efforts, has one of the lowest trade exchange rates with neighboring countries in terms of trade integration, both in goods and services; it is very low in comparison with other regions. And, of course, we have a problem also of stagnation in the expansion of the middle classes. The middle classes are under constant stress and all the social mood surveys show this in Latin America and the Caribbean. The feeling of insecurity, not only physical, but of uncertainty that surrounds the middle classes in Latin America and the Caribbean. And this is very much associated with low growth.
Now, are there challenges ahead? Of course there are. One of them is the aging of the population in Latin America and the Caribbean. We are not going to be able to count on the population bonus as Africa will be able to do. Forty-two percent of the world’s young people will be in Africa by 2030. We no longer have that population bonus.
The reality is that we are going to have a growth of 11% to 18% of the population over 65 years of age in the next 30 years. This means that the region has to prepare itself to seek forms of economic growth with a smaller population or a smaller demographic bonus than the one that accompanied us in the 50s, 60s and 70s. This is going to be a very important future challenge.
A present challenge, but one that will increase in the future, is climate change. Our region is the most exposed because most of the population is located between the Tropics of Capricorn and Cancer. We are going to have a greater impact due to climate change that the region has not generated. Of course, the first line that is going to face this climate shock is the Caribbean islands. But, in general, all coastal populations in Latin America and the Caribbean are going to be heavily exposed to climate change. We have already seen in the last few years the enormous bills that the climate change crisis has passed on to us, which, in particular, is a water crisis, due to excess or lack of water. We have seen it in all the countries of the region, from forest fires, to floods, to droughts, to collapses in the electricity system. So the Americas already have a present challenge that will increase in the future, and that is to adapt to climate change. Preparing for this will be vital for Latin America and the Caribbean to ensure growth.
On the other hand, we have certain sectors of the economy that have been showing growth fatigue, and this is the case, for example, of housing construction. We see a contraction in housing supply in Latin America and the Caribbean over the last ten years. Which also implies, of course, that we have to prepare a series of reforms and policies in many of the sectors in Latin America and the Caribbean to revitalize their growth. And all this has to lead to the fundamental question, which is how to resume the path of growth in Latin America and the Caribbean, how to raise productivity in Latin America and the Caribbean. The region needs today more than ever to take into account trends, especially decarbonization and digitalization as part of the tools for growth in the region.
Q/ You have highlighted the idea of Latin America and the Caribbean as a solution region. What do you mean, what attributes does the region have, what attributes does the region have to contribute to the major global problems, what conditions and policies are key to achieve this?
Latin America is a solution region because it has what the world needs. It has the capacity to increase food production in a world that has not yet solved the problems of poverty and malnutrition, neither within Latin America nor, of course, in the rest of the world’s emerging regions. Latin America can become a region that offers nutritional solutions for the planet, not only for the region. We are a solution region in terms of our food production capacity in all thermal floors, from north to south, from Mexico to Argentina. The region is a food producing power. We can feed not only our region, but also ensure nutrition for many other regions worldwide. So it is a first great attribute that the region has when we say solution region, we say it on the basis of the current attributes and its potential.
Second, the region is vital for the energy transition. The world requires a smaller carbon footprint and Latin America has all the conditions to generate non-conventional renewable energies, such as wind and solar, but also to expand its hydro capacity in the region. So we have an enormous potential to make the energy transition a reality in Latin America and the Caribbean, and to bring these clean energies, these green energies, to the production of goods and services. So Latin America can become one of the important solutions worldwide in the production of goods and services with a lower carbon footprint. And that is a great opportunity for Latin America and the Caribbean today.
The third thing is that the region has a concentration of minerals and rare earth metals in countries such as Brazil, the Dominican Republic, Chile, Peru and Central America; throughout the region we have a great potential of minerals and metals that allow us to become a relevant player in the digital transition. The minerals and metals required for the digital transition, the energy transition, are found in significant concentrations in Latin America and the Caribbean. And we have to think about this opportunity offered by the region, not to become an exporter of raw materials as we have been in the past, but to be able to evolve, as other countries in the world have done, to use their raw materials to add value.
We have a great opportunity in Latin America in at least three areas in which Latin America and the Caribbean is a solution region: in food production, in the expansion of the production of goods and services from clean energy, and in the use of its natural resources to add value and make possible an energy and digital transition at a global level.
Q/ What are CAF’s distinctive attributes to contribute to the development of Latin America and the Caribbean?
The important thing to remember about CAF’s attributes is that this bank is from Latin America, for Latin America and the Caribbean, and by Latin America and the Caribbean. The bank is a bank led by the countries of the region, it is a bank that belongs to the region. Therefore, with this description, with this definition, it is a bank close to the needs of each country, with a development agenda that reflects the priorities, the needs of each one of the countries in the region, that understands the importance of regional integration, that also understands the challenges that are the most pressing, the most important today for Latin America and the Caribbean. I believe that CAF’s governance characteristic makes it a bank close to the countries of the region and with a capacity to understand the region’s problems and challenges much more closely, which allows it, of course, to deploy policies and programs that are what the region really needs.