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450 400 350 300 250 200 150 100
50 0
CAPITAL INFLOWS TO LATIN AMERICA: (portfolio flows, USD mn)
Source: IFS and BBVA Research
enrollment at all educational levels must remain a strategic economic goal.
INNOVATION IS ESSENTIAL
As important as education is innovation to LAC countries, particularly within the fields of science and technology. Inno- vation capital is significantly lower in Latin American coun- tries, averaging 13 percent of GDP, compared to 30 percent
of average GDP in OECD nations. Most innovation capital in Latin America goes into higher education rather than invest- ments in applied R&D. Unfortunately, tertiary education does not help businesses solve their productivity issues, since it does not provide the technically skilled workers they need. In order to foster innovation, there must be buy-in from the busi- ness sector to support R&D efforts, and Latin America and the Caribbean need to attract foreign direct investment (FDI) that is directed toward both innovation and structural change.
WHO’S ATTRACTING FDI?
According to the United Nations, the LAC region experienced economic growth in 2013 of 2.67 percent before dropping to 1.4 percent in 2014 and -0.2 percent in 2015. One contrib- utor to this decline is weakened investment demand along with “sluggish external demand and deteriorating terms of trade.” Although Mexico’s economy has been improving, it experienced a considerable drop in FDI in 2014, although that
number was dragged down by the significant acquisition of Mexican company Grupo Modelo in the prior year. In 2015, Brazil’s FDI, consistently the largest in the region, lagged ap- preciably, having lost 36 percent over the same period in 2014. Peru, which attracted 28 percent of GDP from FDI in 2014— the highest in the LAC region—was down 11 percent in 2015.
LONG-TERM IMPROVEMENTS
In 2010, global growth was recorded at 5.2 percent. The IMF originally forecasted global growth for 2015 at 3.8 percent but has revised that prediction multiple times, now believing that for the next five years, growth will not exceed 4 percent. That is not good news for Latin America, since many nations are heavily dependent upon global demand for their commodities.
This ever-changing region is seeing long-term structural, political, and social improvement, however. Political change is largely peaceful and structured; banking and financial systems are stable; and macroeconomic strategies are generally sound, with glaring exceptions like Venezuela. Most LAC countries have strong democracies and governments devoted to trans- parency. Active social programs enforce economic growth among the region’s poorest citizens, and entrepreneurism is at an all-time high. As noted international attorney Luis Moreno Ocampo put it, “The reality is that Latin America will not go backwards. It can be a shining star of growth, opportunity, and hope in our hemisphere.”
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