WASHINGTON, CMC -The World Bank said Wednesday that while the Latin America and Caribbean (LAC) region has made significant progress in economic stabilization over recent decades, growth has stalled, undermining progress, and urgent action is needed to reverse course.
In its latest report, “Competition: The Missing Ingredient for Growth?” released here, the Washington-based financial institution said that the LAC has reached a critical juncture.
The report highlights potential areas for action, emphasizing that leveraging competition policies and institutions is critical to any impactful growth strategy.
The World Bank forecasts that regional gross domestic product (GDP) will expand by 1.6 percent in 2024 and that GDP growth of 2.7 and 2.6 are expected for 2025 and 2026
“These rates are the lowest compared to all other regions in the world and insufficient to drive prosperity. With social transfers declining and wages not yet rebounding to pre-pandemic figures, many households are under pressure,” the bank said.
World Bank Vice President for Latin America and the Caribbean Carlos Felipe Jaramillo said that persistent low growth is not just an economic statistic; it’s a barrier to development.
“It translates into reduced public services, fewer job opportunities, depressed salaries, and higher poverty and inequality. When economies stagnate, the potential of its people is constrained. We must act decisively to help Latin America and the Caribbean break away from this cycle,” said Jaramillo.
The World Bank said factors driving these growth numbers include low investment and domestic consumption levels, elevated interest rates and high fiscal deficits, declining commodity prices, and uncertainty in the prospects of important partners such as the US, China, Europe, and other G7 countries.
It said that an adverse global scenario, marked by geopolitical tensions, disruptions of shipments through the Suez Canal, and the El Niño phenomenon could further dampen prospects.
But it said a bright spot in the region has been inflation management, reflecting decades of solid macroeconomic reforms. Regional inflation, excluding Argentina and Venezuela, stands at 3.5 percent, compared to 5.7 percent for countries in the Organisation for Economic Co-operation and Development (OECD).
The World Bank said that inflationary expectations remain anchored in most of the region, and central bank targets are expected to be achieved in 2024. It added that to capitalize on this progress and reignite economies, LAC must address longstanding challenges.
It said infrastructure, education, and trade reforms are critical to enhance its productivity and global integration.
World Bank chief economist for Latin America and the Caribbean, William Maloney, said that as the COVID-19 pandemic shock recedes, LAC’s growth rates mirror those of the 2010s. “This shows that the region has not addressed persistent obstacles that block its potential, including low education levels, poor infrastructure, and high investment costs, fueling social discontent.
“An agenda that drives growth forward addresses these gaps seriously. Otherwise, the region will remain stuck and unable to attract investments or seize new opportunities, such as nearshoring or the low-carbon economy. Improving competition systems should be part of these strategies, leading to improvements for consumers and businesses,” said Maloney.
The World Bank said fostering competition is central to reviving the economy and winning back investor confidence. It noted that companies innovate, become more efficient, and achieve technological breakthroughs when sound policies, institutions, and frameworks underpin competition. Consumers are better off thanks to lowered prices and more choices. In LAC, this is a pressing matter.
The region has low competition levels, undermining innovation and productivity. Consumers are also penalized, facing higher markups than the rest of the world, the World Bank said.
The report discusses the reasons behind this scenario. It notes that the business landscape in LAC is concentrated, marked by a stark contrast between a few large firms dominating markets and numerous small businesses.
It said 70 percent of workers are self-employed or work in businesses with less than ten employees, mainly engaging in low-productivity activities.
Furthermore, despite the presence of competition agencies and laws in many LAC countries, enforcement is fragile, as many agencies need more funds or are understaffed. Powerful businesses often influence government policies, hindering the effectiveness of competition laws.
“All this creates a cycle where a handful of large companies dominate and influence markets, and businesses have little encouragement to innovate. With low incentives to excel, idle companies remain in business and end up ill-prepared to compete, stifling their potential to drive growth. “
The World Bank said that as countries explore new plans to rekindle growth, they must avoid the temptation to limit competition, which could perpetuate the current cycle of low productivity and low growth.
To improve regional competition frameworks and advance LAC’s position in the global market, the report suggests critical areas for action, including strengthening competition agencies.
The report pioneers evidence that effective domestic competition agencies positively impact productivity, sales, and wages. Bolstering these agencies includes ensuring their independence and enforcing their ability to implement antitrust and pro-competition regulations, especially for bigger businesses. This also involves promoting solid public management practices and training officials.
In calling for support for innovation policies, the report notes competition per se is not enough to make companies thrive. Businesses need to be prepared for increased competition, both domestic and international. This requires complementary policies that stimulate companies to innovate and move them up the technological ladder so they can compete, adopt new techniques, and grow.
It said managerial skills must be upgraded to help companies respond to markets, identify new opportunities, develop business plans, and stimulate workers. This should happen alongside an agenda to improve education at every level, preparing students and the workforce to thrive in competitive environments.
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