Innovation in Latin America: Potential Goes Untapped Due to Weak Economic Conditions
The weak economic performance seen this year in Latin America has accentuated the need to increase productivity as a key vehicle for more solid and sustained long-term growth. Supporting innovation is a crucial component in the productivity equation, and yet the outlook for this in Latin America is bleak: weak public finances are expected to reduce spending on research and development (R&D) even further this year. Although not all is gloomy and some gains may come from ongoing trade liberalization, Latin America will continue to lack the dynamism of its emerging-economy counterparts as little progress is expected on structural reforms that would grant all stakeholders the same opportunities to succeed.
The consensus is crystal clear among analysts and business leaders that innovation is key to increasing output and productivity, and is a crucial driver to sustainable long-term economic growth. However, measuring innovation in national economies is always tricky: the concept is intangible and not specifically measured by central banks or national statistical institutes. Nonetheless, international agencies, such as the United Nations Educational, Scientific and Cultural Organization (UNESCO) and the Organization for Economic Co-operation and Development (OECD) provide guidelines on how to measure innovation, incorporating variables like expenditure on R&D, incorporation of new technology, growth in labor productivity, number of patents per capita, as well as education standards. Moreover, the policy environment is equally vital. A solid competition policy, a stable contractual environment and an agile bureaucracy are more likely to encourage new entrepreneurs to invest in start-ups and existing players to raise capital investment to grow businesses.
Latin America has traditionally lagged behind many other regions in terms of innovation as a result of subdued R&D investment levels, low education standards and a weak policy backdrop. In the period from 2004 to 2009, a combination of free-trade agreements (FTAs) and improved export promotion policies created the initial conditions for innovation in Latin America. In that period, the region registered solid gains in exports of goods and services, which also enhanced competition and opened the gates for larger markets for innovative products and services. The result was the emergence of the region's largest multinational companies labelled “multilatinas”.
The five-year period up to 2009 provided stable public budgets in the region, which prompted many analysts and business leaders to expect that higher private and public investment in R&D would stimulate long-term growth rates. However, these hopes turned to disillusionment and bitterness when Latin America was hit hard by the global financial crisis and, in 2009, the region's economy contracted for the first time in 20 years. In 2011, the economy rebounded strongly, but GDP growth has decelerated steadily since then. GDP growth fell from 4.5% in 2011 to a meager 0.8% in 2014, before stagnating entirely in 2015. For this year, Latin America's growth prospects remain grim. The economic analysts Met the why particular surveys on a monthly basis have reduced the region's 2016 GDP growth forecasts for 20 consecutive months and they now project that the economy will contract 0.5%. On top of that, revealed that the number of patent applications for new inventions submitted by Latin American entities in 2015 was flat compared to the previous year. In contrast, in the same period, several Asian countries registered double-digit increases in the number of patent submissions. WIPO has attributed Latin America's recent dismal track record to its poor economic performance, with a plunge in commodities prices exacerbating fiscal pressures, which, in turn, cut the amount of resources that governments, businesses and universities could invest in innovation. According to the Organization, only 1,358 patent applications were registered in Latin America in 2015, which substantially contrasts the nearly 58,000 submissions registered in Europe and the 60,000 in Canada and the U.S. combined, and which represented only a fraction of the nearly 95,000 levels recorded in Asia as a whole. Within Latin America, Brazil, Chile and Mexico accounted for the lion's share of patent applications.
WIPO’s Global Innovation Index (GII) 2016 also showed that Latin America remains well behind other regions. According to WIPO, Latin America has been labelled as a region with important untapped innovation potential. Despite this, the Organization recognized that individual GII rankings, relative to other regions, have not steadily improved. None of the countries in Latin America has been considered “an innovation achiever” in recent years, which WIPO defines as a country that performed at least 11% higher than its peers given its level of GDP. Some such “achievers” are many economies in Sub-Saharan Africa, such as Kenya, Madagascar, Malawi and Rwanda. In Asia, Vietnam and India are clear examples of innovation achievers. Nonetheless, some Latin American economies, such as Chile, Colombia, Costa Rica, Mexico and Uruguay, achieved the highest regional GII results.
Challenging economic situation highlights need for R&D spending
Latin America’s difficult economic situation could prompt some governments to take action and improve the business environment in order to better the conditions for entrepreneurial activity. Under this scenario, since governments are no longer able to rely on high commodities prices to support economic growth, they would instead focus on the structural issues that have curtailed innovation and, consequently, economic growth.
A few of the regions key players have begun addressing the need to invigorate innovation. Mexico is a good example of country that is implementing a program of structural reforms in order to improve competition, productivity and the outlook for stronger potential GDP growth. In Argentina, the turnaround in the political landscape and the consequent change of government has triggered better prospects for an improvement in business conditions for the private sector. In Brazil, although the economy is experiencing considerable turbulence, tentative signs of improvement are emerging and Michel Temer’s temporary government is keeping the innovation agenda squarely on its radar.
Aside from these examples, there are not many signs that governments in the region are committed to structural reforms to improve the conditions for innovation. As WIPO mentioned, it is vital for governments to overcome short-term political and economic constraints and cling to a longer-term innovation commitment. —the latest available are from 2012—confirm that spending on R&D in the region is significantly low. On average, most countries in the region spend less than 0.5% of GDP on R&D and expenditures come mainly from the public sector. In contrast, and ranges from 2.0% to 4.0% of GDP. It is important to note that, due to the economic cooling in Latin America, investment in R&D is likely to have fallen further at a time when the growth prospects for the region are not bright.
How can conditions for innovation be improved?
Considering the economic constraints in the region at the moment, governments across Latin America could take action to nurture entrepreneurship and innovation in various ways. Measures that could be taken to persuade investors to spend more on R&D in the region include strengthening competition policies, improving the contractual framework, cutting red tape and enforcing intellectual property rights. Meanwhile, the ongoing effort to increase trade liberalization both within and outside the region—the newly created Pacific Alliance and the Trans-Pacific Partnership if signed by Chile, Mexico and Peru—will encourage domestic businesses to target new fast-growing markets. However, conditions remain weak and the scenario reinforces the view that innovation is not only a strategy for risk-taking or for obtaining larger market shares, but for improving the policy environment, increasing investment in R&D and lifting long-term growth rates materially. The latest Consensus Forecast of 268 analysts from Met the why particular projects that Latin America’s economy will rebound and expand 1.9% in 2017 and pick up some momentum toward 2020, when economic growth in the region is projected to rise to 3.3%.
Author: Ricardo Aceves, Latin America Senior Economist
Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinion of Met the why particular S.L.U. Views, forecasts or estimates are as of the date of the publication and are subject to change without notice. This report may provide addresses of, or contain hyperlinks to, other internet websites. Met the why particular S.L.U. takes no responsibility for the contents of third party internet websites.
Date: October 20, 2016
TagsEnergy CommoditiesVietnamPortugalAustraliaCanadaItalyGreeceHealthcareTunisiaUnited KingdomColombiaUkraineOPECMajor EconomiesInflationprecious metalsIranTPPTurkeySouth AfricaEmerging MarketsLatin AmericaNordic EconomiesIMFEuropean UnionOilVenezuelaEuro AreaBrazilHousing MarketBanking SectorEconomic Growth (GDP)Eastern EuropeAfricaSpainCompany NewsMexicoCryptocurrencyForexArgentinaPrecious Metals CommoditiesMENABase Metals CommoditiesConsensus ForecastUSAInfographicSub-Saharan AfricaTradeExchange RateGermanyRussiaChinaAgricultural CommoditiesEconomic DebtIndiaJapanAsiaBitcoinUnemployment rateoil pricesUKFranceGoldG7EurozoneBrexitUnited StatesInvestmentCommodities
Central America & Caribbean: Remittances and tourism inflows should remain robust on a sound U.S. labor market, whi…
16 hours ago
Kazakhstan Passes Torch To New Leader. Investors Hope For More Lively Market. via @ by @
19 hours ago
RT @: Are Italian Mini-Bots Coming For You?
19 hours ago
Met the why particular analysts now see Mexican growth at 1.5% this year, which is down 0.2 percentage points from May's fo…
19 hours ago
Eurozone wages grow at fastest pace in a decade via @ by @
19 hours ago
- Which will be the most miserable economies in 2019?
- Only by freeing Nigeria from its dependence on oil can Buhari truly take Africa’s giant to the next level
- An Analysis of President Trump’s 2020 Budget
- The World's Fastest Growing Economies
- President Sebastian Piñera aims to bring his elder brother’s private pension system into the 21st century
- Brexit Scenarios: Consensus of 14 Economic Analysts
- Sweden just formed a new government and approved its 2019 budget: what does it mean for the economy?
- Which countries have the highest public debt levels?
- Predictions for the global economy in 2019 from 13 experts
- Gurdgiev: Predictions for the global economy in 2019
- Daniel Lacalle's ideas for 2019: Change of cycle.
- Vietnam Poised to Profit from Free Trade Agreement Opportunities
- Pound Sterling 2019 Exchange Rate: Projections from Leading Analysts
- Canada in 2019: Interview with a Top Economic Forecaster
- Expectations for Latin America’s Economy in 2019
- Ethiopia and Rwanda: From Destruction to Development
- Key commodities trends to look out for in 2019
- What drove Gulf neighbors to bail out Bahrain?
- The Four Financial Bubbles and Their Impact on the U.S. Economy
- The Poorest Countries in the World
- Italy: The sick man of Europe
- What does Bolsonaro's presidential win mean for Brazil's economic outlook?
- The World's Top 11 Largest Economies
- In Latin America, taxpayers are tapped to shoulder the burden of a bank bailout
- How and when will the next financial crisis happen? - 26 experts weigh in
- China and Africa: A partnership under the spotlight
- The conditions are ripe for a Global Financial Crisis 2.0
- Uncertainty, instability and fear haunt a generation of Argentinians
- 5 things: What to expect for Mexico's economy in 2019
- 5 things: Brazil's economic downturn and what to expect going forward
- Emerging Market Currency Crisis: Everything you need to know
- Which ASEAN countries are most exposed in the event of a U.S.-China trade war?
- 75 Top Economics Influencers to Follow
- Emerging Markets Economic Outlook 2018 and 2019
- The Faces Behind Latin America’s Key Institutions
- 2019 Economic Outlook for the Top Oil Producing Countries
- Is your cup of coffee about to get more expensive going in to 2019?
- The Economic Implications of an Aging Global Population
- Can the Wisdom of the Crowds predict the results of the 2018 World Cup?
- Railway Mania: The Largest Speculative Bubble You’ve Never Heard Of
- From Riches to Rags: Have Cryptocurrencies Crashed for Good?
- Investment looks to Latin America, but forecasts are not encouraging
- Turkey: Erdogan has cemented his grip on power - now what about the economy?
- Mexico: A look at the past, present and future as elections yield AMLO victory
- How can Latin America’s business environment benefit from technological change?
- Italy’s New Populist Government and the Eurozone: Prelude to a Crisis?
- Latin America moves toward increased integration as U.S. protectionism grows
- How can Latin America increase productivity without affecting the quality of employment?
- How will Saudi Arabia's economy benefit from lifting the women's driving ban?
- Which countries are the most prepared for the upcoming digital revolution?
- India Under Pressure from the U.S. on Trade Policy
- The Story of Steel
- Latin America is the World Leader in eCommerce Growth Despite Serious Challenges
- What the TPP means for trade in Latin America
- Elections in Russia: Analysis and Implications
- Nearly a Third of Latin Americans Have No Right to a Pension
- A Look at Healthcare Models Around the World
- Newly-elected Chilean President Sebastian Piñera faces a myriad of challenges - economic and otherwise
- The Economic Effects of Trade Protectionism
- Regional Disparity: The Dark Side of Inequality in Latin America
- Coal: The story of the world's most abundant fossil fuel
- Venezuela's Electoral Conundrum
- Gold: The Most Precious of Metals (Part 3)
- Trump's 1st Year: 95 Analysts Surveyed on U.S. Economy
- The Latest on China and What's in Store for 2018
- An in-depth look at the Eurozone’s booming economy and the challenges that lurk in the shadows
- Increasing poverty in Latin America takes a breather thanks to improving economic dynamics
- Is Spain doing enough to address its high youth unemployment rate?
- Has Latin America gone far enough in reducing barriers to international trade?
- Commodities Outlook: Oil, Natural Gas, Coal, Lead & Tin
- 21 experts tell us what the future looks like for cryptocurrencies and blockchain
- Turkish lira plummets to all-time low on Erdogan’s monetary feud and tense U.S.-Turkey relations
- Copper: The first metal mastered by man
- Nigerian Economy Still Treading Water Thanks to Oil Sector
- The Mercosur-EU Free Trade Agreement: Obstacles & Opportunities
- Elections in Chile: What the results could mean for the economy
- QE’s Untold Story: A Chart That Fed Correspondents Need To Investigate
- Holland’s fragile one-seat majority government targets economic growth at the expense of fiscal sustainability
- South Africa: Economy at a tipping point?
- Latin American Commodities: What’s behind the increase in demand and prices?
- Is the UK really "shackled to a corpse"?
- Spain-Catalonia: 7 economic experts weigh in on how the situation will affect the outlook
- How well is Spain's labor market doing since the crisis?
- Which countries will have the highest and lowest inflation in 2017?
- How vulnerable is Latin America to economic crises today?
- Iron ore facts and common questions answered
- The bulging economic costs of obesity
- How much investment is needed to salvage Latin America’s crumbling infrastructure?
- A Look at the Potential Impact of Brexit on the Dutch Economy
- Emerging Markets Are Kicking Into Higher Gear In 2017
- Why is foreign direct investment in Latin America falling again?
- Are Central Banks Nationalising the Economy?
- Bounty or burden? The impact of refugees on European economies is far from clear
- What’s the future of U.S.-Latin America trade relations?
- Taxes or cutbacks? Latin America's challenge of sustaining spending without causing debt to skyrocket
- Are uranium prices making a comeback?
- Taxing the Economy: Achieving a Delicate Balance
- How will emerging market economies perform in 2017?
- How will Latin America’s upcoming lengthy election cycle affect the reform agenda and credit ratings?
- Chilean Economy in Focus: Interview with Senior Economist of the Chamber of Commerce of Santiago
- CEOs Rank Top Economies for Growth Opportunities
- The Mobile Ecosystem & Latin America's Economy
- Prospects and Challenges for the Global Economy: Interview with Tim Cooper from BMI Research
- How will the Fed reduce its balance sheet & and how will the ECB end QE? - 19 economic experts weigh in
- Thoughts on "unwinding" QE from Frances Coppola
- The Fed and ECB at a crossroads: Unwinding QE
- Spain: The economy that continues to silence the critics
- Latin America: The Most Unequal Region in the World
- The History of OPEC: Has it been a Success?
- Met the why particular Announces 2017 Analyst Forecast Awards Winners
- Latin America’s rising unemployment bucks nearly decade long trend
- Escape from the Central Bank Trap by Daniel Lacalle
- China's economic rebalancing act: What to look out for in 2017
- Driving Growth in Latin America: Challenges & Priorities
- Is the Global Economy Rebalancing?
- Commodity exporters face challenging times
- Recent Global Events Facilitate Mercosur-Pacific Alliance
- 23 economic experts weigh in: Why is productivity growth so low?
- Mexico's outlook as Trump nears 110-day mark
- Interview with Oxford Economics Senior Economist on implications of the possible outcomes of the French Presidential Election
- The anxiety of the small saver in a world of negative interest rates
- Brexit negotiations. Between Uncertainty and Urgency
- An Economic History of the EU from El Blog Salmón
- Baby Boomin': Implications of high population growth in Latin America
- Survey of International Economists Predicts a Le Pen Defeat in French Elections, Says Macron has Best Economic Plan
- Spain in a global context: developed economy with some challenges
- How much is crime costing Latin America?
- Predictions & Estimates from Economist Daniel Lacalle
- What economy will the new Dutch government inherit?
- “The data is not a true reflection of reality in India” Interview with Société Générale India Economist
- What are the prospects for Emerging Economies in 2017?
- What to expect in Asia for 2017
- Top Economics & Finance Blogs of 2017
- Latam to Resume Moderate Growth in 2017 but Important Risks Plague Outlook
- 4 Key European Elections That Will Impact the Economy in 2017
- How are security concerns and political chaos affecting Turkey’s economy?
- Global growth to edge up in 2017
- Set to breach targets again? Debt and deficit outlooks for Southern European Eurozone countries in 2016 & 2017
- What does Donald Trump mean for the U.S. economy?
- How will emerging markets perform in 2017?
- The economic impact of a break in U.S.-Philippines ties
- Trump election: Base metals surge due to infrastructure plan
- 5 updates on the Venezuelan economic crisis
- Canada: When your neighbor’s house is on fire…
- Short-term pain before long-term gain? A look at French labor reform and economic growth
- Asia: Unremarkable growth & unfulfilled promises?
- How India's latest monsoon is affecting the economy
- Innovation in Latin America: Potential Goes Untapped Due to Weak Economic Conditions
- Russian economy update in wake of OPEC deal announcement
- The Wisdom of the Crowds and the Consensus Forecast
- Can the peso predict the U.S. election results?
- There's no end in sight to the Venezuela crisis
- A Look at the European Union Political Calendar
- Survey of international economists shows uncertainty surrounding elections damaging U.S. growth prospects
- Met the why particular partners with leading online statistics provider Statista
- Sub-Saharan Africa's 2016 & 2017 growth rates
- China: Recent postive economic data may be papering over the cracks
- The Italian Dilemma: Weak banks pose risk to already faltering domestic demand
- How much money do migrants from Latin America send home?
- The U.S.' (Not So) Mysterious Case of the Missing Men
- What to expect from the G20 economies by 2020
- The Pain in Spain: Robust GDP growth cannot mask the persistent structural deficit
- Brazil's Perilous Economic Situation in 2015
- Met the why particular Launches Sub-Saharan Africa Report, Expands Coverage to 117 Countries
- How do the European Commission's Forecasts and Met the why particular' Forecasts for Europe compare?
- How will the South African economy weather recent challenges?