Latin America economic summaries: 2018 (Part 2)

Colombia

Economic growth weakened as the year ended in Colombia, with a widespread loss of confidence. Manufacturing slowed, and inflation rose. Overall in 2018, GDP grew 2.6%, but is predicted to increase to a growth of 3.5% in 2019, due to rising oil prices, lower corporate taxes and new infrastructure projects all bearing fruit. Colombia’s deficit has halved over the last year, from -4% of GDP in 2017 to -2% at the end of 2018. A tighter labour market should buoy private consumption, while an acceleration in fixed investment should also fuel growth, both of which can help to further reduce the deficit. However, Colombia remains vulnerable to external factors. Export growth fell throughout the year, standing at only 0.3% more than 2017 by October 2018, symptomatic of international and regional protectionism. The government has planned to target stronger and more inclusive growth thorough multiple means.

These include boosting productivity through structural reforms, which would also support more balanced regional development, improving road, ports and customs logistics and reducing regulatory burdens. Increasing openness to trade would boost competition and productivity. A thorough reform of the pension system is needed to foster inclusive growth. Increasing the coverage and benefits of the public minimum income-support programme would particularly help to reduce old-age poverty. Expanding early childhood education would improve school outcomes and allow more women to take up paid work, and can better help to align skills to market needs. In 2018 98% of the municipalities in Colombia had an internet connection. It is estimated that 60% of Colombians have direct access to this network, and the government has also focused on creating 925 public ‘internet connection spaces’ to allow communal network access.

Ecuador

In Ecuador, growth has lost steam considerably from 2017, and is predicted to continue slowing in 2019. In 2017, growth was at 2.7%, falling to 1.9% by the end of 2018, and is predicted to be 1.7% in 2019. The reasons for this are a fall in production from the state-owned central oil company, Petroamazonas, although it has slightly picked up at the end of the year. Rising oil prices should help the Ecuadorian economy to an extent, but this will be offset by the spending cuts outlined in the November budget, with a target of lowering the deficit to -3.2% of GDP. The uncertain global financial situation also deeply hurts Ecuador, as their economy is heavily dollarized and as such relies on US investment and monetary policy. Private consumption will also likely lose ground as inflation picks up and credit growth weakens. The 4th International Conference on Technology Trends, CITT 2018 was held in Babahoyo, Ecuador, in August 2018. It covered discussion and writing on sectors such as communications; security and privacy; computer and software engineering; computational intelligence; e-government and e-participation.

Peru

The Peruvian economy enjoyed strong growth in 2018, surging from 2.5% in 2017 to 4.5% at the end of 2018. Growth is predicted to slow to 3.5% in 2019 but remains one of the strongest economically in Latin America. In 2018, credit continued to expand robustly, the agriculture and fishing sectors recorded outstanding performances and public investment rebounded sharply from a slight fall at the start of the year. Business sentiment and consumer confidence remained surprisingly negative throughout the year, but Peru’s deficit fell from the -3.1% of GDP it was in January to -2.2% in October. In mid-November, a parliamentary committee passed a law that prohibits all public sector salary hikes, in a bid to keep public finances in check. Growth should remain solid, underpinned by a solid domestic economy and healthy external demand for commodities. Improving investor confidence, solid credit growth and a favourable business environment, coupled with rising infrastructure spending, will likely buttress fixed investment. In addition, continued job gains and rising wages in the private sector should sustain consumer spending. Moreover, large international reserves should shield the country from possible capital flight, while healthy public finances should give fiscal policy some room for manoeuvre. The main risk to Peru’s growth lies in escalating global trade tensions and a possible slowdown in China’s economy, potentially harming exports and investment potential.

The two winners of the 2018 SingularityU Peru Global Impact Challenge can show what a strong economy and government confidence in technology can achieve. One winner, Doménica Obando submitted a project called Sperantech, aimed at democratising language learning by making it cheap, simple and individually focused. The other, Wiliam Trujillo Herrera, proposed an R and D project; Protein and Alkaloids from Tarwi. The project will focus on R&D and production of LUPINOL, an alkaloid-based biopesticide derived from Tarwi’s protein production. Tarwi is a native legume from the Andes of Peru which contain 50g of protein and 3g of alkaloids for 100g of Tarwi. The project to mass produce a proteic superfood and an affordable biopesticide to promote organic agriculture and food security in the world. Both these projects can show the innovation that can delvelop when underpinned by economic security.

Chile

Chile also saw high growth in 2018, with the growth rate standing at 3.9%, up from the 1.5% of last year. Growth is predicted to slow slightly to 3.2% in 2019, but both wages and private consumption should rise. The economy finished the year on a strong footing, despite the first contraction of mining GDP in over a year in October. A buoyant construction industry and sustained investment in machinery and equipment propped up solid fixed investment to a five-year high. Growth next year will largely be driven by sturdy domestic demand, although the pace of expansion will ease from this year’s print amid a moderation in global trade. Chile’s commodity boom in copper has helped to mask a significant productivity gap. The reliance on natural resource intensive sectors limited diversification of exports in terms of goods, firms and destinations. This implies a high vulnerability to external shocks notably to copper developments, and environmental costs. Recent reforms eased firm registration, launched an integrated digital portal for business procedures, improved electricity supply and raised investment in renewables. However, productivity and export performance would be aided by lowering high entry barriers and regulatory complexity as well as addressing skill shortages, improving international connections and domestic infrastructure. Labour market and social reforms, focusing especially on women and the low-skilled, are a win for inclusive growth. Relative poverty, the share of low-skilled workers, gender participation and wage gaps and youth unemployment remain high by OECD standards. Broader access to childcare and healthcare, higher effectiveness of training policies, additional reforms to the tax system and an expansion of transfers would share prosperity more widely.  Reducing severance payments of permanent contracts while increasing the coverage of unemployment benefits would also help to curb the large share of short-term and informal contracts across the country.

Chile is making it easier for foreign entrepreneurs and investors to participate in Chile’s startup ecosystem. The government launched a new tech visa last year that allows tech talent to acquire a visa in just 15 days. The government-backed Start-Up Chile program that offers equity-free grants up to US$40,000 has attracted technology entrepreneurs from all over the world. The government also gives one-year visas to those who want to continue developing their startups in Chile. The Start-Up Chile program offers mentoring workshops, co-working spaces, and access to investors. The implementation of mandatory electronic invoicing in Chile has made doing business and dealing with taxes in the country much more efficient. There are many benefits of electronic invoicing, including the ability to optimize cash management, minimize risks, improve real-time traceability, improve data quality, access and accuracy, as well as reduce complexities with trading partners in other countries.