By Carlos Felipe Jaramillo
The Latin America and Caribbean region faces much uncertainty in 2025. This uncertainty is because of the many political changes around the world, the impact of ongoing wars, the rising tide of crime and violence in the region and growing fiscal and debt management difficulties.
But focusing on the negative can make one miss the positive. This new year offers some great opportunities that can help countries prosper in these uncertain times. These opportunities are in the green economy, digital, fiscal reordering, and reforms.
First, we should acknowledge the challenges that a changing political landscape may bring in terms of trade and migration policies. At the same time, geopolitical tensions and realignments promise to keep shifting alliances and value chains, and countries find themselves looking for reliable business partners.
2024 will be remembered for shocking images of spiraling violence. Criminal gangs are spreading this violence to countries where it was previously not a significant issue. Apart from reducing the quality of daily life, violence also takes a big economic toll. It can cost as much as 8 percent of Gross Domestic Product. Countries want to spend more on security to meet this growing challenge. But they are hobbled by large pandemic-era debts and their economies are not growing fast enough to ease this burden.
But it should not be just doom and gloom. Amid the darkness, there is opportunity. To benefit from this, a positive agenda for the region should include the following.
Capitalizing on the green opportunity to attract more investment. Latin America and the Caribbean is already a leader in green energy with one of the greenest power grids and least carbon-intensive economies in the world. There is huge potential for solar, wind and geothermal. This gives the region an edge as a location for selling products free of fossil fuel emissions.
The region has significant lithium and copper reserves for electric vehicles and other low carbon technologies. It has great potential for green hydrogen to make industries that are hard to electrify, such as fertilizers and steel, free of fossil fuel emissions. Capitalizing on these opportunities will require a mix of incentives, institutions, coordination, and key public investments.
Deepening the digital opportunity so more people can enjoy a more prosperous life. The region has already made big gains in digital commerce, digital employment and tech start-ups with high market valuations, known as unicorns. Countries such as Argentina, Colombia and Mexico are investing in technology training for young people. This is expanding digital job opportunities and spreading the adoption of artificial intelligence. There is a boom in the number of unicorns. The number quadrupled between 2018 and 2021 and grew further after then.
The region’s challenge now is achieving universal broadband access and usage. This will require a big push investment, rather than incremental action, in infrastructure and digital skills.
Move forward on fiscal themes. This could make societies fairer, promote growth and create more room in government budgets to invest for the future.
There is a big focus on wealth taxes. Taxing financial assets can be difficult given how hard it can be to tax movable assets such as stocks and bonds. A better way is to tax property as this cannot be moved and is a much larger share of wealth in Latin America and the Caribbean. Countries in the region typically collect only 2 percent of tax revenue from property taxes—below the global average—even though 80 percent of wealth in the region is held in in real estate. Related to the digital opportunity above, governments can employ new digital platforms to make property tax valuations and improve mapping, data collection, and data sharing.
Pass and implement reforms to increase growth with inclusion. When I speak to leaders across the region, I increasingly hear an appetite for reforms to boost growth. This contrasts with years of putting off reforms.
A big reform must be introducing more competition. People pay too high prices for lower-quality goods and services. This reduces overall welfare and contributes to higher inequality. More competition can make it hard for uncompetitive companies and their workers. Fair competition and pro-competition policies must therefore be paired with innovation policies and working national innovation systems, including better education and skill-training systems. Increasing productivity at the company level can help more of them compete internationally.
2025 will confront Latin America and the Caribbean with immense challenges. The news headlines will at times look scary. But the region can pursue opportunities in the green economy, digital, fiscal reordering, and reforms. These can help it prosper in the global economy of today. It is now time to make the most of these opportunities and give the region’s people the brighter tomorrow they deserve.
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