In Part One of our interview, IDB President Mauricio Claver-Carone explained his personal interest in the Nearshore industry. Here, he offers more insights on how Latin America can grow its regional proposition as a viable Nearshore location and in doing so, strengthen vital elements of integration, digitalization and infrastructure that will improve the lives of its people.
In Part Two, Claver-Carone also explores the changes that need to be seen in Latin America to prepare itself for the digital economy, from finishing schools to retooling workers. He also offers his ideas on how Latin America can make the most of the overlap between the production of goods in sectors like agriculture, and the growing service economy.
NSAM: Historically, the IDB has not had much focus on Nearshore as an industry. Will this change under your tenure? What role might the IDB play?
MCC: The IDB Group has long promoted a hemispheric market. We have also worked to increase foreign direct investment and bolster export promotion programs, which can help increase nearshoring in manufacturing and services.
Imagine how much easier it would be to manufacture and distribute COVID-19 vaccines in the region if its infrastructure and supply chains were already as robust as they are in developed countries.
We have a lot of work to do, but already we are seeing encouraging signs, especially in services. Amazon and Hewlett Packard relocated parts of their services centers to Colombia and Costa Rica, respectively. Several Latin American cities also ranked among the Top 25 for digital services, including Sao Paulo, Santiago and Montevideo, according to the 2019 Tholons Services Globalization Index.
The pandemic has magnified nearshoring opportunities in digitalization, education, and the orange economy—and we are seizing them.
The IDB is great at diagnosing the region’s problems. Now we need to also become great salespeople for nearshoring in the region
In Uruguay, for example, we have funded “finishing schools” to train some 7,000 employees, from more than 200 companies, in the skills required by foreign investors in areas including IT, healthcare, and architecture. We are also supporting workforce reskilling programs, which have led more than 30 international companies to invest or expand operations in Uruguay.
NSAM: The IDB focuses on a number of economic sectors, including science and technology. However, there is no specific focus on ICT, despite the important role it plays in the global economy. Might the IDB be placing more interest here?
MCC: The IDB is working to boost digital services exports and help people develop a wide range of skills, including in information communications technology. We have approved $128 million to fund nine programs in services. For example, we are helping to position Colombia as a hub of business services, including software, animation, and video gaming.
In Chile, we are helping to expand the services export sector. More than 300 companies have received export training, and over 1,600 employees have received training in highly demanded skills through a new digital talent initiative.
Imagine how much easier it would be to manufacture and distribute COVID-19 vaccines in the region if its infrastructure and supply chains were already as robust as they are in developed countries
We are also helping businesses connect with each other. One of our annual events, Outsource2LAC, is the region’s most important outsourcing and offshoring digital services forum. So far, participants have held more than 11,000 B2B meetings, leading to at least $50 million in closed business deals and about $350 million in projected deals.
We also created ConnectAmericas, the region’s top online network of business leaders, with more than 370,000 registered entrepreneurs. More than 40% of registered companies work in knowledge-based services.
I’m a big believer in services exports. They add more value than traditional exports, create more jobs, and are not subject to commodities market volatility.
After the 2008-2009 recession, services exports recovered faster than exports of commodities and other goods. And over the past five years, services exports grew an average of 2.4% annually, while goods exports shrank 2.7% over that period.
And let’s not forget that goods and services often overlap. Latin America and the Caribbean is a world leader in food production, accounting for 14% of global agriculture. Agricultural technology plays a key role in making supply chains and food production processes more efficient. These days AgTech startups use remote sensors, geolocation, artificial intelligence, and other advanced technologies. Investment in these services will grow. We also see nearshoring potential in financial services like Fintechs.
NSAM: The IDB has a broad mandate to achieve development in a sustainable, climate-friendly way while reducing poverty and inequality throughout Latin America and the Caribbean. How might the Nearshore industry play a role in achieving these goals?
MCC: Companies want to bring production closer to consumers—and consumers want environmentally-friendly sourcing. Many consumers want to buy local, which is better for the environment and reduces carbon footprints. We can accelerate this process by closing the trade infrastructure gap with other regions and making it easier to produce goods locally.
After the 2008-2009 recession, services exports recovered faster than exports of commodities and other goods
The IDB is backing regional infrastructure projects to help sustainably integrate production and logistics. By improving everything from watershed management to fiberoptic networks we are helping to make it more appealing for companies to invest in the region and in local supply chains, while also doing so in areas that have not received much investment. That can reduce inequality. If undeveloped areas are better integrated, it will make more sense for companies to create jobs there.
In Central America, where inequality is high, we are helping to modernize technological infrastructure and equipment at border crossings. At the Paso Canoas border crossing, which accounts for 75% of Costa Rica-Panama trade transit, we expect a coordinated border management system to reduce the average crossing time of a refrigerated truck from 17 hours to less than one. Imagine how helpful that would be for transporting refrigerated vaccines.
But the big challenge is to retool our workforce, so it can thrive in the digital workplace. We are working on numerous public-private initiatives to invest in human capital and help our countries better match local human talent with companies’ needs for specialized digital skills.
NSAM: You mentioned to the journalist Andres Oppenheimer that “Nearshoring is huge,” and that “When global borders were shut down because of COVID-19, the best experience that companies had were right here in the Western Hemisphere.” Can you expand on that?
MCC: To give you a sense of the scale of the opportunity, we analyzed product categories where Latin America and the Caribbean are already successfully exporting to the U.S.—but where there is obvious room for growth.
For example, Costa Rica could increase exports of medical products and equipment by $1.5 billion, an increase of 66%, if it captured just 10% of what the U.S. already imports from its Top 10 sources. Brazil could increase aviation industry exports to the U.S. by over $1 billion, a 60% increase, if it captured 20% of what the U.S. imports from its top-10 sources.
Costa Rica could increase exports of medical products and equipment by 66% if it captured just 10% of what the U.S. already imports from its Top 10 sources
The region also has huge potential in services. Consider the recent McDonald’s ad campaign with Colombian reggaeton artist J Balvin. This was only the second time a celebrity has appeared on a McDonald’s menu since Michael Jordan did it three decades years ago. Because of the pandemic, J Balvin was in Medellin, so they shot and produced everything in Colombia. The campaign was outstanding and shows what we can do in the region.
We are developing tools to help countries increase nearshoring. These will include ideas for increasing integration and guidelines on how to attract investment and improve the business climate. They will also help identify the needs of companies seeking to invest in the region as well as the needs of smaller firms that want to modernize, increase capacity and work with foreign investors. We unveil more details in the coming weeks and months.
The IDB is great at diagnosing the region’s problems. Now we need to also become great salespeople for nearshoring in the region.
Find Part One of our conversation with IDB President Mauricio Claver-Carone here.