James BargentThe recently released Legatum Prosperity Index paints a picture of Latin America as a region on the up and ready to stake a claim as a major player in the global economy. However, improvements in overall prosperity are tempered by a sluggish performance in education, governance and security.
The Prosperity Index is an annual report released by UK-based think tank Legatum, which compiles data on a 142 countries using a broad range of indices that go far beyond the usual macroeconomic indicators, stretching from per capita income to levels of anxiety and how far people trust their fellow countrymen.
The report is divided into eight sub-sectors: economy; entrepreneurship and opportunity; governance; education; health; safety and security; personal freedom; and social capital. These are combined to produce an overall prosperity score, in which Latin America outstripped the global average for the first time after every single country showed a marked improvement on previous performance, and six countries ranked in the top 50.
In comparison with the rest of the world, the region’s performance was strongest in the economy sub-index, with Mexico, Chile and Panama, which all overtook Brazil, leading the way following improvements in per capita income, market size and employment status.
However, while the overall rankings emphasize the gap between the region’s high flying economies, with Mexico now outperforming the United Kingdom and Israel and hot on the heels of the United States, and the other top economies not far behind, it is the less developed economies that are improving quickest. The biggest leap in performance was seen in the unfashionable economic backwaters of Nicaragua, Bolivia and Paraguay. According to Legatum, this rise was a result of an increase in per capita income, high-tech exports and self-reported employment status.
Latin America also scored strongly in the area that is perhaps of most interest to the Nearshore sector – entrepreneurship and opportunity – demonstrating a steady rise slightly above the global average.
Telecom and R&D Sectors Grow
In this sub-index, which examines factors such as business start-up costs, telecommunications infrastructure, R&D expenditure and general perceptions over whether a country facilitates entrepreneurship and allows hard-working citizens to get ahead, Panama, Chile, Costa Rica and Brazil all now rank in the top 50 countries.
Each of these countries performed highly on business start-up costs (worked out as a percentage of GNI per capita), recording scores between 4.5% and 11.4% compared to a global average of 31.3%. However, while they also performed well in mobile phone use, even these top countries seriously lagged behind global averages on internet coverage.
At the other end of the scale, six counties ranked in the bottom fifty in the sub-index – Haiti, Nicaragua, Honduras, Bolivia and Paraguay – although only Haiti ranked among the lowest scoring countries. In each of these, business startup costs were significantly in excess of the global average – with Haiti posting an astonishing 286.6% of GNI per capita – while internet coverage and R&D investment were far below average scores. In this last respect, again Haiti, this time joined by Nicaragua, recorded abysmal scores, with 0% of GDP invested, compared to an average of 0.8%.
However, despite this mixed performance, the region as a whole is improving with only Argentina, and more surprisingly Uruguay, showing a decline in performance.
Underperforming Education Sector
One potential concern for the region is stagnant performances in education, although Latin America’s virtual flat line in this area still marks it above the rest of the world, which demonstrated an overall decline in performance.
Only Argentina scraped into the top 50 countries at 47th place, while Haiti, Guatemala, Paraguay, El Salvador, Belize and Honduras all placed in the bottom 50. Even more of a concern is that Belize was joined by some of the region’s overall high performers as recording a decline, with Brazil, Panama, Chile, Costa Rica, Uruguay, and Argentina all sliding down the rankings.
Of the indices examined, the area of most interest for foreign investors seeking out a labor force capable of meeting the demands of a tech and services based economy will likely be levels of tertiary education, and here the region again shows a wide gap between the best and worst performers.
At the top end, is Panama, with an average of 0.8 years of tertiary education per worker – double the global average of 0.4 years. Following close behind are Costa Rica and Peru, which both have an average of 0.7 years. At the bottom end, Paraguay and Guatemala have an average of just 0.1 years, and once again Haiti brings up the rear, with an average of 0 years.
In an area often cited as a major concern of doing business in Latin America – security – there was again a major gap between the best and worst performers, while the region as a whole, although improving, ranks slightly below the global average.
The countries with a reputation as the least violent and the least affected by the drug war, gang violence, and general criminality performed well, with Uruguay, Chile, Costa Rica and Panama all making it into the top 50. However, against this are Colombia, Haiti, Venezuela, Ecuador, Mexico, Guatemala, the Dominican Republic, and Bolivia, which all ranked in the bottom 50. Surprisingly missing from this list was Honduras, which, despite having the world’s highest murder rate, posted a middling score, ranking 79th.
However, security, along with governance, was just one of two sub-indexes in which Latin America ranked lower than the global average. Overall, the Prosperity Index shows a region with growing promise for foreign investors and highlights some of the advantages for the Nearshore sector, as well as the serious challenges that remain to be confronted.
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