Business in Latin America and the Pacific Alliance
It is interesting to note that overall Latin America and the Caribbean (LAC) regions are beginning to emerge from six years of stagnation to some positive economic growth. It is projected by World Bank that the LAC grew by 1.1% in 2017 and it is projected that it will continue its growth in 2018 by 1.8% and 2.3 % in 2019. This is good news for this region of the world. Brazil and Argentina are the major growth countries. Brazil along with all its scandals and other political distractions had a two year contraction to a growth of 1% in 2017. Argentina had a 2.9% growth rate in 2017 and is projected to have the same in 2019. Brazil is the one country that has really had a major turnaround primarily because of the Odebrecht and Petrobras scandals. These two corruption indignities have really almost destroyed the faith in government officials. One leader, Ms. Dilma Rousseff has been impeached and her successor Michel Temer is in not much better condition. All of this turmoil has had significant impact on Brazil’s reputation in the world and on its own domestic economy (World Bank, 2018).
Because of the stagnation and the other political turmoil in Brazil there has been a slowing of the social progress in the region. This is consequential because social progress affects the quality of life among the members of the populations. Lack of social progress can produce social unrest and more turmoil which the region can do without.
A variety of reasons have stymied the growth and development in Latin America over the years. Natural disasters, disease, and abject poverty are major constraints on the economic development in many Latin American countries.
Additionally, the issues of crime and violence are two factors that really have had a major impact on societies especially in Central America. The drug cartels which illegally move their products from South America through Central America create major havoc among any person or anything that tries to stop its movement. This has created an environment of enormous fear among many of the countries’ populations. It along with gangs which occupy villages, neighborhood causing incredible disruption have had a very threating impact on many countries in Latin America. Movement away from the crime and violence has caused major immigration issues that have are disrupting thousands of families across Latin America. All of these factors significantly impact the ability to have a stable and economically productive society.
The Latin American region needs investment, savings, exports, and private sector investment. When people have good jobs they can feed their families and improve the quality of their lives. This is a critical need in Latin America at the present time.
Another improvement relates to the rebuilding or building of more suitable infrastructure so that businesses can operate efficiently. Because of the deteriorating infrastructure in many of the Latin American countries, logistics costs (that is movement of goods) costs 3 to 4 times more than that of OECD countries. This creates a disincentive for private businesses to establish their businesses in this region.
Finally, Latin American countries have to recognize that human development is at the core of building any economic success or improving the quality of life among its people. This means that the countries must invest much, much more in education. It is through education that people advance and develop themselves and their environments. Good educated populations have a multiplier effect which means that once it gets going it spreads all over. This is what needs to happen in Latin America. Building human development is a key to successful economic development.
The Pacific Alliance (PA) trading bloc – a group of four prospering countries – Chile, Peru, Colombia and Mexico is, after 7 years, showing real progress. The growth in 2018 is higher than the Latin American average. The IMF expects the growth of the region to average 2%. The four (4) members of the PA have growth percentages as follows: Colombia 2.7%, Mexico 2.3%, Peru 3.7% and Chile 3.4%. These are impressive numbers and demonstrate that this trading bloc is achieving great progress and success since its inception. The four member countries are growing, economically, way above the Latin American average and seem to be part of the reason why Latin America is moving out of its stagnation. The PA trading bloc is making a major contribution to the economic development of the region. There is real hope for the PA. It now accounts for 57% of Latin America’s foreign trade and 41% in the region (Global Reach, 2018).
One final point – while we see some major positive signs in Latin American economic development, two countries are involved in major political turmoil due to leadership issues: Venezuela with Nicolas Maduro and Nicaragua with Daniel Ortega and his wife in control of the power structure of that country. These two countries are in deep trouble and there does not seem to be hopeful signs that the turmoil in these countries is going to cease. Both countries are led by strong man dictators (artificially elected by the populace). Both countries are in deep economic trouble of their leader’s making. These are sad cases because the ultimate losers are the average citizen in the cities and rural areas of the country.
World Bank (2018). The world Bank in Latin America and the Caribbean, http://www.worldbank.org/en/region/lac, accessed on 7/17/2018.
Global Reach (2018). Progress and impact of the Pacific Alliance on Co https://www.tmf-group.com/en/news-insights/articles/2018/may/progress-and-impact-of-the-pacific-alliance/ Colombia, Mexico, Peru and Chile, accessed on 7/17/2018.
John E. Spillan is Professor of Management in the School of Business at the University of North Carolina at Pembroke, USA. His research interests are in the areas of international business, management, and teaching pedagogy. He is the co-author of Doing Business in Latin America: Challenges and Opportunities and Crisis Management in the New Strategy Landscape.