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Francisco J. Sánchez: Why the Business World Needs to Pay Attention to Latin America

Recent headlines out of Latin America can’t detract from the larger story of growth.

 

Over the past few years, headlines coming out of Latin America would make you believe that it is in economic crisis. Not only has growth been sluggish in the region, but scandals have shrouded some of its largest corporations, while some countires — like Venezuala — continue to grapple with a severe economic crisis.

Yet these stories obscure the larger story of an incredible economic success. To borrow Malcolm Gladwell’s phrase, Latin America has reached a “tipping point” in two areas that are crucial to long-term economic prosperity: 1) inclusive growth, and 2) international economic agreements. As leaders from the private and public sector gather in Mexico’s Riviera Maya this week for the World Economic Forum (WEF) on Latin America, these are the real trends they should recognize when considering the future of Latin America.

In the last two decades, Latin America has experienced remarkable growth. In 1994, the total GDP of the region stood at $1.7 trillion. By 2013, that figure had risen to $5.7 trillion — 7.4 percent of the global GDP. Latin America also now exports more than $1 trillion a year.

This growth has had an impact on people on every level of Latin American society. Consider that in 1990, the poverty rate (those living on $1.25 or less per day) in Latin America stood at 12.2 percent. By 2011, that figure had dropped to 4.6 percent. In the last 10 years, the middle class of the region has risen by half to represent 30 percent of the total population. In a time where the backbone of modern economies — the middle class — is eroding in some parts of the developed world, Latin America is witnessing significant growth.

At the same time, the region is increasingly forging the type economic partnerships that generate long-term growth. Mexico, Peru and Chile are playing an important role in the Trans-Pacific Partnership, a trade pact under negotiation that would integrate them into an economic network of 12 Pacific Rim countries comprising over 40 percent of the global economy. The Pacific Alliance is another agreement projecting Colombia, Chile, Peru and Mexico onto the global stage. In addition to promoting free trade through diplomatic missions, the Alliance is unifying its members into a common stock market.

The above trends are some of the most telling about the long-term prospects of Latin America. They show a future where sophisticated consumer economies will compete in the global marketplace with the aid of savvy governments. Regardless of economic slumps and passing scandals, this is a foundation for economic success. Quite simply, when a growing middle class is aided by smart policies, growth follows.

With all of this in mind, global businesses leaders should take note of the WEF on Latin America next week. Similar to the World Economic Forum in Davos, the top companies and executives from the region will be in one place at one time, and major decisions for the next year will be made. This year’s forum is the place where global businesses can begin to forge relationships that will allow them to be a part of the region’s future growth.

For the United States, the forum comes at a particularly opportune time. With a simple gesture, President Obama made history at last month’s Summit of the Americas. Meeting Raul Castro, leader of a country at odds with the United States for over 50 years, he created a sense of possibility for increased U.S. relations with the entire region. The United States already has free trade agreements with 11 Latin American nations, including Colombia, Mexico, Peru and Chile. It is time to build on that. The Trans-Pacific Partnership is a good place to start building these ties.

As Fareed Zakaria has noted, the “rise of the rest” will be one of the most definitive questions facing the United States in the 21st century. Latin America will be a crucial part of this question.

(Top image: Panama Canal, courtesy of wanderluster, iStock Editorial)

 

Francisco J. Sánchez is the Chairman of CNS Global Advisors. Prior to CNS, he served as Under Secretary for International Trade at the U.S. Department of Commerce. During the Clinton Administration, Sánchez served as the Assistant Secretary for Aviation and International Affairs at the U.S. Department of Transportation. He previously served as a Special Assistant to President Clinton and as Chief of Staff to the Special Envoy to the Americas.

 

 

 

 

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