Remarks by Angel Gurría
San José, Costa Rica - 18 April 2018
(As prepared for delivery)
President Solis, Minister Mora, Ministers, Ambassadors, Ladies and Gentlemen,
It is an honour to open the Second Ministerial Summit on Productivity in Latin America and the Caribbean.
This meeting follows a successful initiative that started in Santiago de Chile, where we met in December 2016. I trust that today’s Summit will be once again an opportunity to exchange views on how stronger productivity growth can contribute to better lives in the region.
The Governments and Central Banks of our countries have made strong progress over the past two decades and have paved the way for more resilient and inclusive growth. Nonetheless, projections for economic growth for the next two years are still not very encouraging. GDP growth in the region is projected to increase by 2.3% this year, less than the 3.7-3.9% expected for the global economy.
Furthermore, the low level of productivity when compared to advanced economies goes a long way towards explaining our lower living standards. Not only is the level of productivity lower, but the rate of growth as well. This is very worrying because productivity growth is the traditional engine propelling the gradual transformation of emerging economies into advanced economies, with its corresponding social and wellbeing benefits.
This is a matter of concern not only in Latin America and the Caribbean, but also in OECD countries. Average productivity growth in countries in the Organisation halved between 2000 and 2016, falling from 2.2% to 1%. And this in spite of technological advances and innovations in business models. Understanding the keys to this trend is the aim of the OECD Global Forum on Productivity, which is specifically interested in explaining why rapid technological progress is not reflected in higher productivity growth.
Since its creation in 2015 during a Productivity Summit in Mexico, which was hosted by President Enrique Peña Nieto, the Global Forum has held regular high-level meetings where policymakers and researchers exchange views and share insights. In 2016, we gathered in Lisbon to discuss how structural reforms can stimulate productivity growth. In 2017, we met in Budapest to analyse the contribution of global value chains to productivity growth. Next June, we will gather in Ottawa to discuss the role played by new technologies, especially digital innovation, in stimulating productivity.
Delivering this knowledge at the regional level, as we do for the countries of Latin America and the Caribbean through this forum, allows us to link all these acquis with the realities of our countries. We have known for years that strict regulation, government restrictions, red tape, corruption, informality, and skills mismatches have been obstacles to making our economies more productive.
Recent research has shown that the lack of trade integration is also a key obstacle to productivity growth in Latin America. Unfortunately, there is little foreign trade among us. We have strong trade linkages with advanced countries, and increasingly with China, but there is very limited intra-regional trade. Research shows that regional trade relations, especially regional value chains, are essential to fast productivity growth. Such regional value chains are playing a key role in North America, Europe, and Asia, but there are none in Latin America. This is a lost opportunity.
Impetus must be given to signing trade agreements, opening our borders, facilitating trade flows, and attracting foreign direct investment. Costa Rica has successfully developed policies to this end: from 2010 to 2016 its average productivity growth was 2.3% per year . This is in large part due to a very open trade system and policies to attract multinational firms.
In 2016, trade in Costa Rica, measured as the sum of total exports and imports, was 64% of GDP, while the average for Latin American and Caribbean countries was only 44%. Similarly, the net inflow of foreign direct investments here was 5.1% of GDP, compared with an average of 3.5% in Latin American and Caribbean countries. However, there is still room for improvement, as trade restrictions remain. These include costs related to information flows, transport and logistics, customs and border procedures to mention a few.
Progress has already been made in signing multilateral and bilateral reductions of tariffs and in reducing trade restrictions. Latin American and Caribbean countries have made progress with Mercosur, NAFTA, the Dominican Republic-Central America Free Trade Agreement and more recently the Pacific Alliance. Addressing the missing links between the existing trade agreements in the region will play a big role in establishing a regional value chain similar to the model that prevails elsewhere, with benefits for productivity growth. A regional initiative in this direction would be key to our success.
Furthermore, it is necessary to implement structural reforms focused on education and skills, and to ensure that the skills acquired are adapted to labour market requirements. An expanded infrastructure with better access, together with the removal of regulatory barriers to competition, would greatly contribute to improving productivity growth. It is necessary to make it easier to do business, but also to allow bankrupt companies to initiate insolvency proceedings more easily, so that they do not retain scarce resources that could be used by other, more productive companies. Informality is also a pitfall of low productivity. Reforming the tax mix with a view towards lowering social security contributions would encourage small informal enterprises to register in the formal market.
In spite of the progress made, all of these are areas in which Latin America lags behind. Such reforms would boost dynamism and make our region more inclusive, thus expanding opportunities and sharing prosperity more broadly.
Doing things well requires well-coordinated policies between institutions. This is the approach advocated by the OECD, in particular through our Global Forum on Productivity. I am pleased that countries such as Costa Rica, Chile and Mexico have established Productivity Commissions with the aim of co-ordinating various aspects of structural reform, following successful examples in Australia and New Zealand. The OECD encourages other countries to establish such Commissions and to exchange views on best practices, both with each other and with us at the OECD.
Ladies and Gentlemen,
I would like to thank the Minister of Foreign Trade Alexander Mora and the Vice President of the World Bank for Latin America and the Caribbean Jorge Familiar for having encouraged their staff to collaborate with the OECD to make this Second Ministerial Summit happen. I hope that this conference will mark the beginning of a new dialogue among the countries in our region on how to become more integrated and how to become more productive together.