World Economic Forum on Latin America 2006

WORLD ECONOMIC FORUM World Economic Forum on Latin America Building a Stronger Latin America in the Global Economy São Paulo, 5-6 April 2006 INSIGHTS

Contents This publication is also available in electronic form on the World Economic Forum’s website at the following address: World Economic Forum on Latin America Web report: http://www.weforum.org/summitreports/latinamerica2006 (HTML) The electronic version of this report allows access to a richer level of content from the Preface 3 meeting including weblogs, photographs and session summaries. The report is also available as a PDF: http://www.weforum.org/pdf/SummitReports/latinamerica2006.pdf Foreword 4 Other specific information on the World Economic Forum on Latin America, São Paulo, 5-6 April 2006 can be found at the following links: The Creative Imperative in Latin America 7 http://www.weforum.org/latinamerica http://www.weforum.org/latinamerica/programme http://www.weforum.org/latinamerica/indepth Managing Global and Regional Risks 8 http://www.weforum.org/latinamerica/partners http://www.weforum.org/latinamerica/competitiveness Improving Latin America’s Competitiveness 10 Continuing with the Integration Agenda 12 Re-evaluating the Investment Framework 14 The views expressed in this publication do not Priorities for Action in Latin America 16 necessarily reflect those of the World Economic Forum. Acknowledgements 18 World Economic Forum 91-93 route de la Capite CH-1223 Cologny/Geneva Switzerland Tel.: +41 (0)22 869 1212 Fax: +41 (0)22 786 2744 E-mail: contact@weforum.org www.weforum.org © 2006 World Economic Forum All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, including photocopying and recording, or by any information storage and retrieval system. REF: 200406 1 World Economic Forum on Latin America

Preface In an election year in many countries across the region, the World Economic Forum on Latin America provided a platform, at a critical moment, for leaders to discuss the challenges and the opportunities facing the region in the years to come. Representing 24 countries, 300 participants from business, government, academia, media and civil society gathered in São Paulo on 5-6 April 2006 to reflect on Building a Stronger Latin America in the Global Economy. Special attention was placed on how Latin America could achieve sustained and equitable growth. Based on Forum tools brought to the meeting (Global Risks, Global Competitiveness, Global Scenarios), concrete recommendations emerged from the gathering. Consensus was reached on Regional Risks, Competitiveness Challenges, and Priorities for Action in Latin America. The results are incorporated in this publication. In the closing plenary, participants voted to focus over the next years on education – specifically teacher training and improving the quality of schools – and on using public-private partnerships to invest in infrastructure in rural areas, underdeveloped regions and urban slums. The Forum would like to once again take this opportunity to thank the Co-Chairs of the World Economic Forum on Latin America in São Paulo, who provided valuable insight and support for the programme. They were: Jorge Gerdau Johannpeter, President and Chief Executive Officer, Gerdau, Brazil Luis A. Moreno, President, Inter-American Development Bank, Washington DC We now look forward to building a new partnership with the region. This will provide you and us at the World Economic Forum with essential guidelines to continue to engage with the region in specific initiatives and address the relevant issues in our forthcoming Annual Meeting in Davos as well as in our next World Economic Forum on Latin America roundtable during 2007. Peter Torreele Sylvie Naville Managing Director Associate Director, Latin America 3 World Economic Forum on Latin America

Foreword – Building a Stronger Latin Foreword – Building a Stronger Latin America in the Global Economy America in the Global Economy “When our region raises its “It is obvious that there “The lack of infrastructure “The world needs a very head and negotiates on are people who benefit and investment is really the clear sign that [the Doha equal terms with rich from the lack of reforms, bottleneck to global Round] will end in countries without arrogance who make a lot of competitiveness.” success. But the level of but with humility and money and have a lot of ambition is very low perseverance, we will power because of this Luis A. Moreno nowadays. The clock is President, Inter-American achieve more than when we situation that hurts the ticking and we just don’t Development Bank, Washington were just crying out and great majority.” move. The US and EU DC; Co-Chair, World Economic weeping. We are ready to are just playing poker.” Forum on Latin America Moisés Naím do that now.” Editor-in-Chief, Foreign Manuel A. González Sanz Policy Magazine, USA Minister of Foreign Trade of Luiz Inacio Lula da Silva Costa Rica President of Brazil What was immediately palpable when participants Managing Global and Regional Risks Improving Latin America’s Competitiveness Continuing with the Integration Agenda gathered in São Paulo for the World Economic Forum on Latin America was the fresh confidence Economic inequality and social marginalization are While Latin America lags other emerging markets It is essential for Latin America to deepen evident in the region, particularly in Brazil, a country the greatest risks facing Latin America. These two including East Asia, China, India and Eastern integration if it is to be more globally competitive. that has overcome macroeconomic trauma and problems are hindering the region from improving its Europe in competitiveness rankings, most volatile politics to emerge motivated and self- competitiveness. countries in the region are making progress in • The region must pursue efforts to improve assured in its stability and growth prospects. In their efforts to catch up. infrastructure links, increase intra-regional trade more than two dozen sessions and private • Latin American countries should look inward and and boost cooperation in strategic sectors meetings, business, government and civil society assess their own advantages and shortcomings if • Macroeconomic stability is now widely such as energy and tourism. leaders from Latin America and around the world they are to achieve greater competitiveness and regarded in the region as a political imperative. reviewed the state of the region and frankly sustainable growth. • In trade development, emphasis should discussed both its advantages and shortcomings. • To boost competitiveness, the region needs to continue to be made on multilateral and • Education is the compelling solution to income focus on improving logistics, reducing regional initiatives. But with those efforts The highlight of the event was the spirited address disparity and social inequity. bureaucracy and eliminating trade barriers. stalled, bilaterals may be the best alternative. by Luiz Inacio Lula da Silva, President of Brazil, who gave an upbeat assessment of the region and his • Government and business should not ignore the • Public-private partnerships could help marshal • Infrastructure development, particularly through country as they face the challenge of “Building a opportunity that exists in mobilizing the region’s the resources necessary to invest in necessary public-private partnerships, is crucial for Stronger Latin America in the Global Economy”, the poor, both as a source of labour and a potential infrastructure development. regional integration. meeting’s theme. In a session that lasted nearly two market. hours and included a question-and-answer period, • Investment in education is essential, • The energy sector, particularly non-petroleum Lula neatly covered each of the meeting’s four sub- • Political will over vested interests is essential to particularly in better training and compensation products and biofuels, could play a leading themes, key challenges facing the region: implementing meaningful reforms. for teachers. role in enhancing regional integration. “Managing the Impact of Global and Regional Risks”, “Improving Competitiveness”, “Continuing • Latin American countries should also aim to • The region should not let political differences the Integration Agenda” and “Re-evaluating the exploit their comparative advantages and derail integration. Investment Framework”. established niches such as biofuels and “We don’t want to take from the rich to give to the poor to make everybody poor; we want everybody to be renewable energy. prosperous.” At the end of the meeting, participants identified Ricardo B. Salinas Pliego education and infrastructure as the most pressing of Chairman, Grupo Salinas, Mexico the priorities for Latin America. These are the key “We need to improve in terms of automation, information “What we see today is an explosion of bilaterals. This is messages that emerged from the two days of technology and the quality of our labour force.” bad for the world, but this is unfortunately the way the interactive deliberations: José C. Grubisich Filho Americas are going.” Chief Executive Officer, Braskem, Brazil Marcos S. Jank President, Institute for International Trade Negotiations (ICONE), Brazil 4 5 World Economic Forum on Latin America World Economic Forum on Latin America

Foreword – Building a Stronger Latin The Creative Imperative in America in the Global Economy Latin America During the World Economic Forum on Latin “Latin America is in the “We cannot afford to come The following is a selection of creative process of normalizing; it is up with economic equations America, government, business and civic society approaches that participants discussed in what many people have without looking at the social leaders considered how the region can achieve São Paulo: been working for, and the side. Unless we invest in the and sustain high economic growth with equitable financial system is part of social side, we will not be income distribution. This continued discussions that.” politically positioned to • Education: Train and properly compensate tackle economic problems.” held at the World Economic Forum Annual teachers to raise the quality of schools. Do John Williamson Meeting 2006 in Davos. Throughout the not simply extend the mandatory school Senior Fellow, The Institute for Jorge Gerdau Johannpeter consultation process, the focus has been on International Economics, USA President and Chief Executive year. discerning the “creative imperative” in Officer, Gerdau, Brazil; Co-Chair of the World Economic approaching the challenge of building a stronger • Infrastructure and Investment: Employ Forum on Latin America Latin America in the global economy. public-private partnerships to channel investment into urgently needed Participants in Davos, São Paulo and around the infrastructure. world have worked to come up with innovative Re-evaluating the Investment Framework • Businesses in the region should play an active role solutions and approaches and to set priorities for in diversifying the economy and attacking such • Business Model: Deepen the effective action that would constitute an agenda for Latin To remedy the region’s poor performance in competitiveness shortcomings as poor education reach of existing regional business models America to enhance its global competitiveness. attracting foreign direct investment compared to and low R&D investment. by finding ways to tap the human resources Some of these proposals were included in a list other emerging markets, Latin America should and consumer potential of the poor. of ten recommendations for social and economic tackle major competitiveness shortcomings such as • In devising their strategies and business models, change that were issued in a communiqué at the doubts about political stability, investor ignorance investors should take into account the region’s • Social Equity: Develop safety net closing session of the World Economic Forum on and deficiencies in the financial sector. social context – the need for growth with equity. programmes that are fiscally sustainable, Latin America. After reviewing them, participants while promoting other progressive policies voted to focus over the next year on education – • Latin America’s attractiveness to investors has including efficient tax collection, universal specifically teacher training and improving the been hampered by poor regulation and lingering social security and home ownership quality of schools – and on employing public- perceptions that the region is politically unstable. financing schemes. private partnerships to invest in much needed “We are progressing fast in Brazil. In very short time, we will be investment grade. It will be very important to infrastructure in rural areas, underdeveloped • Governments should combat ignorance about the • China: Turn China’s emergence from reduce the cost of capital to have more liquidity. When the regions and urban slums. region with greater transparency and better challenge to opportunity by taking cost of capital becomes reasonable, Brazilian companies governance. advantage of China’s low-cost environment should boom” David Feffer through business process outsourcing and President, Suzano Holding, Brazil • Bottlenecks need to be unblocked. In particular, its need for natural resources, which Latin deficiencies in the financial sector, including the America possesses in abundance. difficulty small and medium size enterprises have in accessing capital, must be addressed. • Financial Services: Provide innovative products such as securitized instruments (mortgages, real estate investment trusts, debt) that help small and medium-sized companies access funding by bringing down the cost of capital and increasing liquidity. • Trade: Ensure that bilateral agreements go beyond commitments made at the multilateral level, while maintaining focus on multilateral and regional initiatives. • Competitiveness: Fight investor ignorance with increased transparency and better governance by using such tools as competitiveness assessments and region- wide and cross-regional benchmarking. 6 7 World Economic Forum on Latin America World Economic Forum on Latin America

Managing Global and Regional Risks Managing Global and Regional Risks Update 2006: Global Economy Closing Plenary on “Priorities for Action”: Co-Chair Jorge Gerdau Johannpeter, World Econommic Forum Managing Director Ged Davis and Co-Chair Luis A. Moreno The twin curses of economic inequality and social While cooperation from the global community is In spite of that well-placed political will, the task been done.” He noted one key reason: “It is marginalization loom as the greatest risks facing certainly welcome, Latin Americans are prepared to won’t be easy. “It is not uncommon to come up obvious that there are people who benefit from Latin America. “Business can no longer survive in a tackle their own problems. “The problem with South with answers like education, institution building, the lack of reforms, who make a lot of money failed society,” said Ivan F. Zurita, Chief Executive America is that we have looked to the United States reducing corruption and fighting inequality,” said and have a lot of power because of this situation Officer, Nestlé Brasil, Brazil. and Europe and admired their wealth, and we have Naím. “It is all true, and it has all been said that hurts the great majority.” looked to China and admired its growth, but we before. But over the last 20 years not much has Compared to global rankings, corruption and haven’t thought about what we should be doing organized crime also rank higher as risks in Latin ourselves,” said Luiz Inacio Lula da Silva, President America than elsewhere. In turn, China is more of Brazil. “It is like someone who envies his often classified as an opportunity than a threat, neighbour’s new television set instead of trying to Top ten risks affecting the region except to Mexican industry, and concern over figure out how to buy his own TV.” international terrorism is downplayed. very high Programmes like Brazil’s Bolsa Familia, Mexico’s Using the Gini Index of inequality in the distribution Oportunidades and Colombia’s Familias en Acción of income and consumption, a World Bank study are credited with beginning to weave a safety net found that at the end of the 20th century Latin under the poorest of the poor. Beyond social America and the Caribbean measured nearly 10 programmes, “Education, education, education,” as Organized crime Regulation Income China’s rise US twin deficit high inequalities points greater inequality than Asia and 17.5 points Ricardo Young Silva, President, Ethos Institute, Regional political instability than OECD countries. Another study by the Inter- Brazil, put it, is high on the agenda. Oil price American Development Bank found that extreme Environmental degradation poverty worsened in many Latin American countries At least some answers to questions about long- during the early years of the current decade. This term sustainable growth and increased global Natural disasters Climate change medium stands in contrast to strides made in China and competitiveness may lie precisely in the human India to lift over 100 million people out of extreme resources that are now wasted by poverty and poverty. exclusion. “We cannot afford to come up with economic equations without looking at the social > Severity The risk posed by inequality and exclusion “is side,” said Jorge Gerdau Johannpeter, President nothing new,” observed Moisés Naím, Editor-in- and Chief Executive Officer, Gerdau, Brazil, and Co- low Chief, Foreign Policy Magazine, USA. “But now it Chair of the World Economic Forum on Latin low medium high very high has more political potency and a greater economic America. Said President Lula: “People in Latin > Likelihood effect.” Noted David Rothkopf, President and Chief America used to say there was a paradox, that you Executive Officer, Garten Rothkopf, USA: “The had to grow first to invest in social programmes Geopolitical Societal Environmental Economic consequences of inequality can be recast as later. We believe that spending money on the poor disenfranchisement, political polarization and, is an investment.” perhaps most sensitively, as a class culture.” 8 9 World Economic Forum on Latin America World Economic Forum on Latin America

Improving Latin America’s Improving Latin America’s Competitiveness Competitiveness Most Latin American countries have made great Yet, seen from a global perspective, the region’s strides to improve their competitiveness. They have progress pales by comparison. On the World quelled hyper-inflation, restructured and paid down Economic Forum’s Global Competitiveness Index debilitating foreign debts, and privatized sundry (see Figures 1 & 2), the Latin American country state-owned firms. Import tariffs have been slashed, average lags behind scores for China, India, Eastern exports are up and nearly every country is more Europe and the East Asian NICs (Hong Kong, integrated into the global economy than it was a Singapore and Taiwan) . In 1980 Latin America decade or two ago. Some governments have boasted more extensive networks of productive embarked on regulatory reforms designed to infrastructure like roads, electricity and unleash the creative energy and job creation telecommunications than the countries of East Asia. capacity of small businesses. Since then the Asian “tigers” scampered ahead and now lead by a factor of three to two, according to a “I am impressed by the acceptance across the World Bank report. A child entering school today in region of macroeconomic stability as a political Argentina or Brazil can expect to complete 16 years imperative,” said Anoop Singh, Director, Western of study, according to a UNESCO study, but the Hemisphere Department, International Monetary quality of education leaves much to be desired; a Fund (IMF). No longer, he added, are such policies 32-country study by the OECD measuring 15-year- imposed from abroad. “This is an amazingly olds’ abilities in math, science and their native South African Minister of Trade and Industry Mandisi Mpahlwa and Brazilian Minister of Development, Industry and Trade Luiz Fernando Furlan in discussion during the session “Competing in the Global Economy” important development,” he said. language ranked Brazil and Mexico well behind the global average. Figure 1: Regional comparators for goods market efficiency Rather than lament lost opportunities, many Latin American policy-makers are looking on the bright represent two elements of the solution to the “There is a very serious energy agenda that we side. “There is good news on two fronts,” said Luiz equality equation. “We don’t need one great can work on together,” observed E. Anthony Fernando Furlan, Minister of Development, Industry business executive; we need hundreds of great Wayne, US Assistant Secretary of State for and Trade of Brazil. “First, Brazil’s competitiveness is executives. We don’t need a few good Economic and Business Affairs. “We are growing. There are signs of that in foreign trade, engineers; we need thousands of good embarking on a programme to diversify our which is up by 20% a year over the last three years. engineers,” said President Lula. energy sources and change the mix, and Brazil And second, there is room to improve our is a leader in ethanol production.” competitiveness in terms of improving logistics, One road to success is to further specialize in reducing bureaucracy and eliminating domestic areas where the region already enjoys a A potential outgrowth of efforts in biofuel could barriers.” competitive advantage. Latin America and be a broader expansion in biotechnology. “There A. Good markets: distorsions, especially Brazil are well positioned to become are only three countries in the world that have competition and size Many countries are banking on public-private global leaders in biofuels and renewable energy, decoded the genome of a living organism, and partnerships (PPPs) to boost infrastructure and the United States and other countries are Brazil is one of them,” said Furlan. “And we are Source: World Economic Forum, Global Competitiveness Report 2005-2006 development. In Brazil the new legislation for PPPs keen to explore partnerships in the region to rich in biodiversity.” Figure 2: Regional comparators for labor market efficiency includes a guarantee fund to calm the skittish develop them. nerves of private investors who might otherwise be “Over the years, the price paid to producers for ethanol wary of joining forces with the government. “Without Furlan has met with officials from California, has dropped from US$ 100 a barrel to US$ 30 a barrel investment in infrastructure, we’ll remain spectators Japan, South Africa and elsewhere to discuss without subsidies. It has become competitive with for the next 100 years,” said Luiz Inácio Lula da initiatives in the biofuel realm. New investments gasoline.” Silva, President of Brazil. in the cultivation and refining of sugarcane, Jose Goldemberg Secretary for the Environment, Brazil’s raw material for ethanol production, are Government of the State of São Paulo, Brazil Education has become a mantra for many Latin booming. Meanwhile Argentina is offering American reformers, but guaranteeing high quality incentives for biofuel development from instruction for the poor majority is proving more soybeans, said Martín P. Redrado, President of difficult than building classrooms and tracking down the Central Bank of Argentina. truants. Training for teachers and higher salaries to B. Labor markets: flexibility and recruit better candidates into the profession efficiency Source: World Economic Forum, Global Competitiveness Report 2005-2006 10 11 World Economic Forum on Latin America World Economic Forum on Latin America

Continuing with the Integration Continuing with the Integration Agenda Agenda “In an ideal world, we would go multilateral, but that negotiated faster than multilateral deals but can solution is the public-private partnership (PPP) This “project of the century,” as Lula dubbed it, world does not exist. Bilaterals, however, should be result in a messy jumble of inconsistent which allows for risk to be shared between could be a major catalyst for cross-border WTO plus.” Manuel A. González Sanz commitments. The best agreements are typically government and private actors. Brazil has been cooperation and regional cohesion. Minister of Foreign Trade of Costa Rica forged among the bigger economies, leaving small at the forefront of PPP deployment in Latin ones disadvantaged. “In an ideal world, we would America, with legal frameworks for such Politics, however, could get in the way. Many go multilateral, but that world does not exist,” partnerships in place in some dozen states and participants warned of a growing political divide. Manuel A. González Sanz, Minister of Foreign Trade at the federal level. Risk management becomes “The hemisphere has split between countries Deeper integration of Latin America is essential for of Costa Rica, conceded. “Bilaterals, however, even more difficult with cross-border that want greater participation in the global global competitiveness, particularly in the face of should be WTO plus.” infrastructure investment. For this reason, Latin economy and those that reject the global greater cooperation among countries in other American countries have to negotiate regional environment,” warned Eric Farnsworth, Vice- regions and the rise of China and India. Yet the With infrastructure, the main impediment is the lack agreements along the lines of Europe’s Energy President, Council of the Americas, USA. Others immediate outlook for closer relations among Latin of private sector participation due to risk. Funding Charter Treaty in which over 50 nations observed that the wave of populism emerging in American economies is poor. While intra-regional requirements are so high that governments alone participate. some countries threatens regional harmony. “We commerce has mushroomed, the Free Trade Area of cannot provide the necessary capital to remedy are in a dangerous situation,” cautioned Boris the Americas (FTAA) and a Mercosur-EU Latin America’s infrastructure deficit. But according The energy sector may play a leading role in Fausto, Historian and Professor, Political arrangement have stalled at a time when progress is to the World Bank, the value of infrastructure enhancing regional integration. Brazil this year Science, University of São Paulo, Brazil. imperative, given the World Trade Organization’s projects with private investment fell from a record joins the ranks of the half dozen Latin American flagging Doha Round. And while recently across the US$ 71 billion in 1998 to US$ 16 billion in 2003. countries that are net exporters of petroleum, Despite such risks, the logic of deeper regional region, democracy has spread, macroeconomic allowing the region to cooperate more in integration remains compelling and the pressures stability has increased, the investment climate has As in other developing regions, besides traditional developing energy markets and alternative fuels. to pursue it are building rapidly, the stakes rising improved and confidence has palpably risen, this concession schemes such as the build-operate-and A planned US$ 25 billion gas pipeline network every day. Indeed, Latin America cannot afford to celebrated convergence of favourable factors has transfer (BOT) arrangement, an increasingly popular will link natural gas reserves in Venezuela with talk for another century. It must act now. not translated into significant practical integration. Brazil, Argentina, Bolivia, Paraguay and Uruguay. Take infrastructure. Last year, the World Bank reported that the rate of infrastructure spending in Latin America had been halved since the 1980s, falling to 2% of GDP, compared with 4%-6% in East Asian middle-income countries and inadequate regional supply chains raised export costs by 15% to 34%. The Bank called on countries in the region to triple spending on infrastructure to make up for years of under-investment and poor maintenance. “If we don’t have the bridges, highways, railroad and energy facilities, we will just keep talking for another century about the need for integration and it won’t happen,” said Brazilian President Luiz Inacio Lula da Silva. The priority therefore is to accelerate efforts to improve infrastructure quality and links, boost intra- regional trade and promote cooperation in such areas as energy, tourism and investment. On the trade front, countries are discovering each other. “We were manic about the US buying from us,” President Lula explained. “But we forgot that our neighbours could also buy from us.” With regional efforts stymied and the Doha Round in Plenary Session on “Competing in the Global Economy”: E. Anthony Wayne, US Assistant Secretary of State for Economic and Business Affairs; Henrique de trouble, Latin American countries are focusing on Campos Meirelles, Governor of the Central Bank of Brazil; Martín P. Redrado, President of the Central Bank of Argentina; Alan P. Larson, Senior Strategic Adviser and Director, World Economic Forum; Senior Adviser, Covington and Burling, USA; Mandisi Mpahlwa, Minister of Trade and Industry of South Africa; Luiz bilateral accords, which can go further and be Fernando Furlan, Minister of Development, Industry and Trade of Brazil 12 13 World Economic Forum on Latin America World Economic Forum on Latin America

Re-evaluating the Investment Re-evaluating the Investment Framework Framework “Investment is function of confidence. Investors have to be While Latin America has benefited from the spread Each country individually, and the region climate by investing more in R&D, partnering the able to see what lies ahead. Our countries, however, are of democracy, perceptions of instability are collectively, should use competitiveness government in education and healthcare perceived as politically unstable.” Rosario Cordoba exacerbated by anxieties about growing populist assessments to address specific shortcomings. programmes aimed at boosting competitiveness, Director, Revista Dinero, Colombia movements in some countries. The large number of There are many bottlenecks that have to be and developing new sectors that leverage Latin presidential elections this year has stoked worries tackled. In financial services, for example, small America’s comparative advantages. For example, further. “The problem of political risk in Latin and medium size enterprises need better access the region can take a leading role in Spanish- America today is much more about stable political to capital. This would require a range of reforms and Portuguese-language outsourcing and IT In the area of investment, the priorities for Latin coalitions and quality of governments,” said José to bring down the cost of capital and enhance services. America are clear. First, the region must find ways Miguel Insulza, Secretary-General, Organization of liquidity including changes in the tax regime, to boost foreign direct investment (FDI), which has American States (OAS), Washington DC adjustments to collateral and bankruptcy rules, Businesses should also be encouraged to lagged other regions. Second, the continent must better prudential regulation, the establishment of incorporate the social context in their investment diversify the business and investment opportunities That is perhaps the biggest challenge that Latin credit bureaus and the launching of innovative strategies. This means combining the need to it offers beyond natural resources and commodities, American countries hoping to boost FDI have to risk mitigation instruments. The region should grow with social responsibility, according to Ivan particularly in light of the emergence of China as face. While Chile, Brazil and Mexico have managed work together to develop a capital markets hub. F. Zurita, Chief Executive Officer of Nestlé Brasil. both a market opportunity and a formidable to differentiate themselves from the pack, most “If you are able to have one single financial Nearly three-quarters of their consumers in Brazil competitor. Third, Latin America should tackle other countries have failed to avoid the tar brush of centre for Latin America, then liquidity will be are in the lower middle class or low income bottlenecks that hinder its ability to raise and sustain poor governance. The region must combat much greater and companies won’t migrate to brackets. To reach these customers, Nestlé set high growth with equitable income distribution. ignorance about Latin America and the tendency of raise capital,” explained Guillermo de la Dehesa, up sales and distribution networks in slum areas. These include: a skills deficit, the lack of many investors to take a simplistic approach. Vice-Chairman, Goldman Sachs Europe, Spain. This is the sort of business model innovation that infrastructure, the immaturity of the region’s capital Greater transparency and better governance are the investors must adopt to make inroads in today’s markets, regulatory unpredictability, the tax burden, most obvious ways to achieve this. Finally, businesses in the region have an active Latin America. high interest rates, and lingering perceptions that role to play. They can enhance the investment Latin America is politically unstable. According to the United Nations, in 2004, US$ 67.5 billion in FDI flowed into Latin America and the Caribbean – mainly to Brazil, Mexico and Chile. This was a rise of 44% over the year before, but only accounted for 29% of total investments going to developing economies, only slightly greater than China’s share (26%). This was significantly lower than the level at which the region used to enjoy in the 1990s. The fall in attractiveness mainly concerns factors ranging from poorer infrastructure quality and investment to problems with the management of public finances. Additionally, unpredictable politics, arbitrary regulations and slow bureaucracies aggravate the situation. “Investment in the region is insufficient and very low because countries, with the exception of Chile, have poor regulation,” Rosario Cordoba, Director, Revista Dinero, Colombia, explained. “Investment is a function of confidence. Investors have to be able to see what lies ahead. Our countries, however, are perceived as politically unstable.” Opening Plenary on “Risks and Opportunities for Regional Development”: Peter Torreele, Managing Director, World Economic Forum; Ricardo B. Salinas Pliego, Chairman, Grupo Salinas, Mexico; Claudio Lembo, Governor of the State of São Paulo, Brazil; José Miguel Insulza, Secretary-General, Organization of American States (OAS), Washington DC; Jorge Gerdau Johannpeter, President and Chief Executive Officer, Gerdau, Brazil; Gilberto Kassab, Mayor of São Paulo, Brazil; Guillermo Perry Rubio, Chief Economist, Latin American and Caribbean Region, World Bank, Washington DC 14 15 World Economic Forum on Latin America World Economic Forum on Latin America

Priorities for Action in Latin America Priorities for Action in Latin America The aim of the Priorities for Action* is to consolidate 2. Safety Net: Increase demand actions through Economic Priorities for Action 4. Financial Services: Improve access of small options and propose solutions to the regional vouchers and/or conditional cash transfers such enterprises and producers to financial challenges. as the Oportunidades (Mexico), the Bolsa Familia 1. Institutional Reform and Innovation: Set services (“bancarización”, credit, insurance). (Brazil) or the Familias en Acción (Colombia). up a public-private agency to concentrate This would require better creditor rights, Latin America’s leaders recognize the need to renew national efforts on attracting investors and credit bureaus, prudential regulation and and reinforce their commitment to improve the state 3. Housing: Enhance access to housing through promoting innovation. Offer tax credits for innovation in financial products. Promote risk of their region and the world. To compete globally, schemes that support demand, which R&D spending in the private sector. mitigation instruments to help SMEs access countries should pool their strengths to achieve the complements the purchasing power of low long-term financing in local currencies. scale necessary to build better infrastructure, income households. Banks and governments 2. Tax Reform: Increase the tax base, simplify deepen regional agreements and strengthen should promote the use of mortgage insurance the fiscal system and reduce tax evasion by 5. International Trade: Actively engage in regional institutions and governance. and find ways to extend the tenure of investing in information systems. Institutions negotiations to promote fair trade of mortgages. need to be strengthened to ensure that these manufactured and non-manufactured During the World Economic Forum on Latin funds are invested efficiently and to minimize products. America, participants were asked to address the 4. Education: More emphasis and resources the possibilities of corruption and political following question: How can we achieve equitable should be put on the training of teachers and manipulation. distribution of income with economic growth? quality education than in extending mandatory Each country should focus, through stable periods of education for children. Educators 3. Infrastructure and Investment: Public- political coalitions and quality of its government, Figures below refer to participants’ responses on should be appropriately compensated. private partnerships (PPPs) and similar on unblocking the constraints that are impeding social and economic priorities for action and Resources should be employed to improve concessions should be set up to focus on it from achieving equitable income distribution represent percentages of the total audience at the school system management at all levels. building necessary infrastructure over the and sustained growth. Closing Plenary. long term, particularly in rural areas, regions 5. Employment: Increase the supply of skilled that are underdeveloped and urban slums. Together with the ideas collected prior to the labour so that the high value-added sectors of Governments should implement appropriate *The Priorities for Action in Latin America were roundtable the following priorities for action were the economy can grow and improve income regulation and increase capital expenditure. presented to participants on 6 April 2006 in the identified: distribution, while ensuring long-term growth. Closing Plenary of the World Economic Forum Enhance the efficiency of the labour market, for Latin America in São Paulo. Co-Chairs and Social Priorities for Action while protecting the rights and well-being of the participants voted on the base of their employee. willingness to engage in the implementation of 1. Equal Access: Promote active social policies in such priorities. favour of low income households, reconciled with macroeconomic stability, sound fiscal policies and efficient tax collection. An important role should be to enhance access by low income families to basic healthcare, good quality education from pre-school level and universal social security. 16 17 World Economic Forum on Latin America World Economic Forum on Latin America

Acknowledgements The World Economic Forum would like to thank its Partners for their valuable support of the World Economic Forum on Latin America, São Paulo, 5-6 April 2006: Strategic Partners Audi HP KPMG Kudelski Group Merck & Co. Nestlé New York Stock Exchange PepsiCo Zurich Financial Services Regional Partners Banco Hipotecario SA Grupo Salinas Official Carrier Iberia The World Economic Forum would also like to thank the Government of São Paulo and Apex- Brasil for their support and TV Cultura as host broadcaster. 18 World Economic Forum on Latin America

Contributors Peter Torreele is Managing Director of the World Economic Forum. Sylvie Naville is Associate Director, Latin America. Emilio Lozoya is a Global Leadership Fellow and Manager, Latin America. Jacques Marcovitch is Professor at the University of São Paulo and Senior Adviser to the World Economic Forum. Chantal Adamson is Senior Event Manager. Vidhi Tambiah is Associate Director, Global Agenda, at the World Economic Forum. He worked with William Hinchberger and Alejandro Reyes to produce this report. The World Economic Forum would like to express its appreciation to the summary writers for their work at the World Economic Forum on Latin America in São Paulo. Session summaries are available at: www.weforum.org/ Alicia Bartlett, Icon Design Associate Director, Editing: Nancy Tranchet Design and Layout: Kamal Kimaoui, Associate Director, Production and Design Photographs: Julio Vilela 20 World Economic Forum on Latin America

The World Economic Forum is an independent international organization committed to improving the state of the world by engaging leaders in partnerships to shape global, regional and industry agendas. Incorporated as a foundation in 1971, and based in Geneva, Switzerland, the World Economic Forum is impartial and not-for-profit; it is tied to no political, partisan or national interests. (www.weforum.org)

World Economic Forum on Latin America 2006

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World Economic Forum on Latin America 2006 Document Transcript