Remarks by Angel Gurría,
Paris, France, 9 June 2017
(As prepared for delivery)
President Morales, Ministers, Ambassadors, Distinguished Participants,
It is my great pleasure to participate in today’s EMnet meeting on Latin America. I am particularly honoured to welcome His Excellency Jimmy Morales, President of Guatemala, to this event with our network of multinationals working in emerging markets. The topic of our discussion is both timely and relevant: “Navigating Uncertainty: Strategies for Innovation and Growth”.
Uncertain times are often the most creative times, the times when challenges press for new solutions, new policies, new business strategies. Latin America and the Caribbean is full of ingenious and entrepreneurial people, but we need to strengthen the frameworks to facilitate and democratise innovation.
Economic prospects in Latin America are improving but challenges remain
Latin America is finally coming out of a prolonged economic slowdown. After two consecutive years of recession, the region is expected to recover in 2017 with a GDP growth around 1%. This is good news.
However, this growth level is still well below the global average of 3.5%, and well below the region´s average growth of 4% between 2004 and 2014. FDI inflows fell by 20% in 2016 because of the economic recession and weak commodity prices for the region’s key exports. Unfortunately, this deceleration is reversing some of the progress that had been made in reducing poverty : 7 million Latin Americans became poor in 2015, increasing the region’s total poverty rate to close to 30% or 175 million people.
The international context is not helping. The global economy remains stuck in a low-growth trap, combined with weak investment and trade. And policy uncertainties are increasing, as a growing number of people around the world feel that globalisation is leaving many behind.
Latin American countries have only one way out of this low-growth trap: to accelerate and intensify their reform efforts. Our countries need to keep pressing for reforms in crucial areas, such as education, skills, labour, fiscal, competition, gender inclusion, anti-corruption, to name just a few. One of the most important areas where we need to implement deep and broad reforms is the challenge of facilitating and promoting innovation.
Stimulating and strengthening innovation in more value-added sectors of the economy and achieving productivity gains are key strategies to reinforce regional economic growth and reduce inequalities. Yet, Latin American countries still invest little in science, technology and innovation. With the exception of Brazil, R&D activities in the region represent less than 1% of GDP, compared with an OECD average of 2.4% and significantly below the 4.2% of leaders such as Korea and Israel. Latin America’s labour force also lacks the necessary skills. Two out of three young Latin Americans are not equipped to meet labour market needs. Consequently, firms find it difficult to hire workers with adequate skills and, in one-third of the cases, prefer to recruit foreign talent.
Governments need to invest in skills while strengthening their own capacities to design regulations that can facilitate innovation and investment in the most productive sectors. The OECD Programme for the International Assessment of Adult Competencies (PIAAC) can provide comparable data to support these efforts, so we invite countries in the region to join. Better policies will only take place in a context of strengthened governance. Better institutions for development will thus be needed. This will be the topic of the 2018 Latin American Economic Outlook, which we publish yearly along with the Inter-American Development Bank and the Development Bank of Latin America.
But the private sector also plays a critical role. Companies are key players in promoting innovation, through investments, technology transfers and skills development. They can generate formal and qualified employment. They can improve the conditions of the active population. They can offer a brighter future to the younger generation. Unfortunately the level of innovation of Latin American firms is still quite low. On average Latin American businesses spent around 0.17% of GDP on R&D, significantly below the 1.47% spent in OECD countries.
The time is now for governments and firms to work together to identify the main barriers to private investment and to design policies to promote business and government-led innovation. The OECD can help.
The OECD is helping LAC countries develop their innovation capacity. We have been working with countries in the region to strengthen their skills base and improve the performance and equity of their education systems. Through our Latin America Competition Fora, our Start-up Latin America publications, and our Innovation Reviews for Costa Rica, Colombia, Mexico, Panama and Chile, we have been promoting a level-playing policy environment that enables technology and knowledge uptake by SMEs, improves access to financing by young entrepreneurs and addresses regulatory barriers that favour incumbents. We have also looked into how open government strategies and open data can promote innovation in the public sector. Our Broadband Policies for Latin America and the Caribbean: a Digital Economy Toolkit, has also been providing public authorities in the region with an overview of the policies, regulatory practices and options that can maximise the potential of broadband as a driver of innovation and economic and social development.
The OECD´s Development Centre has contributed to these efforts through its annual Latin American Economic Outlooks, which have focused on key regional challenges such as, developing skills, promoting entrepreneurship, harnessing the potential of the region´s youth, and improving logistics. The Centre´s Multidimensional Country Reviews have also helped identify some of the key policies needed to remove binding constraints to sustainable development and well-being improvements for countries in the region.
Last but not least, EMnet has been crucial for the OECD´s engagement with Latin American multinational companies for over ten years. Our network of multinationals working in emerging markets, EMnet, provides an excellent platform to engage so many of you here in fruitful discussions with public officials and OECD experts on doing business in emerging economies. Today’s conversation will allow us to explore further ways to promote private investment in innovation in Latin America, while encouraging inclusive and sustainable development.
President Morales, Ladies and Gentlemen,
Innovation is essential for development. Innovation is vital to escape the low-growth trap and promote more inclusive growth in productive economies.
We welcome the opportunity to hear how Guatemala is working with the private sector to promote innovation and inclusive growth. We are very happy for having the opportunity to hear these insights directly from President Morales. To hear more about Guatemala’s development agenda and opportunities for the private sector, please join me in welcoming the President of Guatemala.
President Morales, the floor is yours.