Opening Remarks by Angel Gurría, OECD Secretary‑General, delivered at the Tenth Ibero-American Business Meeting: Promoting Innovation and Competitiveness in Ibero-America
7 December 2014, Veracruz, Mexico
(As prepared for delivery)
Mr. Director General of ProMéxico, Ladies and Gentlemen:
It is a pleasure to take part in this 10th Ibero-American Business Meeting, not only because it is taking place in my country, in the beautiful port of Veracruz, but also because we are going to address an issue – innovation as the engine of development – that is enormously important for Ibero-America.
The countries of Latin America and the Caribbean, and Spain and Portugal too, are being urged to enhance their competitiveness. Success in this endeavour will depend to a great extent on the efforts we make to insert the region into the knowledge economy, into the global flows of innovation, and into value-added chains. It is a key issue for the development of our peoples.
Let me begin with a few remarks about the economic context in which Latin America is facing this challenge.
The economic picture in Latin America
After a phase of impressive growth, Latin America is now experiencing a slowdown. The average growth rate for the region in 2014 is likely to be around 1.4%, the lowest in the last five years. In fact, if that forecast is correct, this will be the first time in the last 10 years that Latin America has grown more slowly than the OECD average.
But beyond this cyclical picture, the key question is whether we are witnessing a permanent adjustment in the region's potential growth capacity. Our analysis suggests that this is indeed the case: in fact, Latin America's growth potential today is lower, and is much closer to 3% then the 5% that we calculated just a few years ago.
Now that the favourable winds from abroad are abating – primarily those linked to high demand and prices for commodities – we are going to have to paddle our own canoe, and we are going to find that the region's capacity for endogenous growth is limited.
Latin America continues to face a series of structural challenges and bottlenecks that impinge upon its competitiveness and its capacity for development: these include low productivity, high informality, the fragile rule of law, inefficient logistics and weak competition, to cite just a few examples.
To address these challenges will require a new round of reforms in the fiscal, judicial, labour, financial, education, competition and regulatory areas, among others. A number of Latin American countries are already pursuing major reforms in some of these areas, and the OECD is supporting many of these efforts. But there is still a long road ahead.
One of the crucial areas in which Latin America, and to some extent Spain and Portugal as well, must undertake structural changes to enhance their competitiveness is precisely that of innovation, the issue that concerns us here today.
Innovation, the most resilient economic engine
Innovation is the comparative advantage of the knowledge economy, the engine that is most resilient to crises. It is also the reflection of a properly integrated, functional and efficient system of education and skills development. It is not a panacea, of course, but it is a very faithful indicator of a country's development potential, of an economy's strength, and of the vision of its leaders and entrepreneurs.
Latin America has among the world's highest endowments in ingenuity and creativity, but our countries still lag behind in their capacity for innovation. According to estimates by the OECD Development Centre, Latin America's knowledge-based or "innovation" capital amounts to only 13% of GDP, compared to 30% in the OECD.
Gross spending on research and development in Chile and Mexico is only 0.4% of GDP, while in Korea it is 4.4% and in Israel 3.9%.
Another factor behind the region's low capacity for innovation is the weak level of private sector participation in innovation and in activities that lead to innovation. Business spending on research and development (R&D) in Argentina, Colombia, Costa Rica and Mexico represents less than 0.2% of GDP, compared to 3.4% in Korea and around 2.3% in Finland and Sweden.
We are not going to get very far with such low levels of innovation. The governments of Latin America need to foster the creation of national innovation systems, bringing together the various ministries, the private sector, the financial sector, the academic world, civil society, and international organisations.
Building such systems will require a series of fundamental conditions and incentives: a regulatory framework that fosters business participation in innovation; physical and ICT infrastructure that will facilitate the emergence of platforms for investing in knowledge and innovation; programmes to support innovation among SMEs; a strategy for linking investment promotion with innovation policies; and a well-educated and properly supported workforce that can develop its capacities.
It is also essential to strengthen programmes for the creation of start-ups. Start-ups are a key factor in bringing about structural change. They have a greater degree of flexibility that allows them to "break the mould", to introduce new knowledge-intensive products and services, and to boost productivity in various sectors.
Yet we must remember a basic principle for the success of these results: any strategy of innovation for competitiveness must be backed by a high-quality education system.
A quality education: the basis for innovation and competitiveness
Unfortunately, education is the Achilles' heel of Latin America. While some countries in the region have made significant progress in terms of education coverage and spending, many countries still have very high school dropout rates: Latin American students aged 15 and 16 still rank among the poorest performers on PISA tests, and even students with the best qualifications are more than two years behind in their schooling with respect to OECD countries.
Student performance is also affected by inequality. One third of the performance differential among Latin American students can be explained by their socioeconomic status. In fact, only 9% of students in the lowest income quintile go on to university, while the corresponding figure for youngsters in the highest quintile is nearly 50%.
But even if students get into a Latin American university and do well there, they are still at a disadvantage, for there is no Latin American university ranked among the world's "top 100".
Lastly, efforts to improve education must also be accompanied by moves to bring educational content into line with the skills and capabilities required by the labour market. There remains much to be done in this area as well.
Latin America is among the regions that have the greatest difficulty in supplying the skills demanded by businesses. The OECD is working with several countries in the region, and with Spain and Portugal, to identify and develop the needed skills. We are planning to expand co-operation on this topic.
In this digital age, education, innovation and skills are the three levers needed to place our countries firmly on the path to competitiveness in the knowledge economy and in global value chains. Yet, as indicated in the Latin American Economic Outlook 2015 which we present every year in the context of the Ibero-American Summit, it is essential that policies in these three fields should be integrated and geared to the creation of economies that are more inclusive and more sustainable.
Armed with best practices in education, innovation and skills – which the OECD can offer – along with the necessary human and financial resources and the essential will to change and to excel – which must come from governments – and adding, lastly, the vision and the ambition of a modern and competitive business class, we can together design, promote and put into practice better innovation policies for a better life.