Colombian and the region past and present

COLOMBIA AND THE REGION

PAST AND PRESENT

Alvaro Uribe Vélez

Issues to be addressed

1. The current context of Emerging Markets and

the evolution of Latin America 1980-2012

2. Latin America between two policy paths

3. The policy challenges in the region

4. Lessons from the Colombian Experience

1. The current context of Emerging Markets and

the evolution of Latin America 1980-2012

1. The current context of Emerging Markets and the

evolution of Latin America 1980-2012

1. Emerging economies have become engines of

economic growth

2. During the last three decades developing

countries have experienced a profound

transformation driven by two components: On the one hand a rapid demographic transition. Since 1980 the World

population has increased by 2.5 billion people and 95 percent of that

growth has taken place in the developing World.

The other element has been a dynamic period of sustainable economic

growth. In 1980 developing economies represented 33 percent of the

World GDP and today that number is closed to 46 percent.

1. The current context of Emerging Markets and the

evolution of Latin America 1980-2012

1. By 2050 19 of the top 30 economies by GDP will be countries that we

currently describe as ‘emerging’

2. China and India will be the largest and third-largest economies in the world

3. Eight countries – India, China, Brazil, Russia, Indonesia, Korea, Mexico and

Turkey – will be responsible for most of global growth up to 2025

4. Emerging economies will account for 68% of global growth by 2030

5. In 1980, 5% of goods were sourced globally. By 2000, this was 20%. By

2025, it will be 50%

6. In 1980, world exports accounted for one-sixth of global GDP. Today it is a

quarter. By 2030, it will have risen to a third

7. By 2030 the urban middle class will rise to 42% of the global population. The

number of people with daily income of $10 to $100 a day will rise from 1.8

billion today to 4.9 billion by 2030.

1. The current context of Emerging Markets and the

evolution of Latin America 1980-2012

According to FAO: Demand for food could

increase 50% by 2030

Demand for water has been projected to rise by

30% between 2000 and 2030

The International Energy Agency has said

energy needs will grow by 40% by 2030 According to BP China represents 20.3% of the World Energy Consumption

(The world largest energy consumer in 2010 for the first time over the U.S)

Natural Gas consumption has experience its strongest consumption rate since

1984 (7.4%)

Coal share in world energy consumption has reached its highest level since

1970 (29.6%). China represents 49% of the world coal consumption

In 2010 Global Biofuel consumption grew by 13.4%

How does Latin America fit in this panorama? Between 1980

and today some changes have occured…

1. The inflation tragedy is over: in 1985 regional inflation average

was 159%, today is below 6%. This means that fiscal and

monetary prudence have become policy principlkes

2. Debt is no longer a threat: Debt to GDP ratios in the region have

passed from 40% in 2002 to 20.4% in 2011

3. Between 2003 and 2011 the region experienced a growth

average of 4.4%...the highest since 1967-1974

4. Democracy has expanded in the region with few exceptions…

5. Regional exports have increased 160% betwee 2002 and 2010

6. In 2011 the region faced a record number in FDI reaching almost

113 US$billion

1. The current context of Emerging Markets and the

evolution of Latin America 1980-2012

1. The current context of Emerging Markets and the

evolution of Latin America 1980-2012

Population

Close to 600 million people

Average age between 24 and

28

Per Capita Income in PPP

close to US$10.000

Poverty reduction

64% of our population is a expanding middle class

During the last decade 40 million people have left the poverty line

Life expectancy has increased from 65 to 75 years

Child mortality has been reduced by 50 per cent

Literacy rates are above 94%

Mobile phone penetration has increased by 78 per cent.

Internet access has increased by 33%

Healthcare coverage has increased by 50 percent.

water and sanitation coverage has reached 80%

Commodities in time of Demand

10 percent of the World oil reserves

6 percent of the World Gas reserves

Almost 50 percent of the World cooper reserves

50 per cent of the World silver reserves

13% of the World iron reserves

26% of the World fertile land

24% of the World beef supply

Bio Reserves

20 per cent of the World Biodiversity is concentrated in the Amazon ring

Almost 50% of the World potable water supply

57% of the world primary forest

Policy Changes match four range of opportunities

The change process and the potential for the years ahead has happen by accident and it is a consequence of

the consistency, congruence and sense of urgency that a group of countries have adopted as their policy

cornerstone. Brazil, Mexico, Colombia, Chile, Peru and Uruguay represent 70 per cent of the region’s

population and 75% of the regional GDP.

This group of countries have common characteristics that explain their outstanding performance:

1. The strengthening of Liberal Democracy

2. The adoption of an institutional Framework in favor of foreign and national investment

3. The construction of a sound and sustainable social safety net

4. The expansion of export markets and the commercial integration with the World (FTA’s)

5. A public administration driven by results

6. A sound Macroeconomic Administration driven by fiscal and monetary prudence

7. Better regulatory environment

8. Construction of strategic infrastructure

9. The consolidation of an innovation agenda leaded by an improvement in education

10. A well capitalized financial sector and the constant expansion of financial services

Today countries like Panama, Dominican Republic, Costa Rica, Salvador, Guatemala, Honduras,

Belize, Paraguay, as well as most of the Caribbean States, are following that line of behavior

1. The current context of Emerging Markets and the

evolution of Latin America 1980-2012

Policies have been the root of Latin American Changes

Building Modern Democracies

(5 parameters)

Security

Freedoms and Private Initiative

Independent Institutions

Social Cohesion

People Participation

A dynamic Economic

transformation

Investment Target Policies

Maintaining Fiscal and Monetary transformation

Integrate commodity and knowledge based

economies.

Expand export markets

Create an Entrepreneurship culture

(Innovation agenda)

Closing Social Gaps

Improve education (quality, coverage,

vocational)

Insure Universal Healthcare

Formal Job creation

Access to Finance

Climate Change, Environment and Energy

Sustainability

Expand renewable sources

Install an energy efficiency conscience

Improve waste management

Protect the Amazon Ring

Reduce Co2 Emissions

1. The current context of Emerging Markets and the

evolution of Latin America 1980-2012

Despite the changes that have been achieved some important challenges remain…

2. Latin America between two policy paths

2. Latin America between two policy paths

The regional current Political Map is a “Tale of two cities” like the Charles Dickens Book… (The

ALBA and the non Alba Model)

ALBA (Leaders: Venezuela,

Ecuador, Bolivia, Nicaragua and Cuba)

Anti-U.S

Anti-Free Trade

Lack of investment Confidence

Weak institutions

Political Insecurity

Ideology driven countries

Political Polarization

Modern Democratic Center Countries (Brazil, Colombia, Peru, Chile, México, Uruguay, Paraguay, Panamá, Republic

Dominican, Costa Rica, etc)

Cooperation with the U.S

Pro Free Trade

Investment Confidence

Independent Institutions

Political Stability

State Long Term Policies and Mgt by Results

Organized Party Systems

The Democratic Center takes the lead: • Investment grade countries are in this Group: Mexico,

Brazil, Chile, Colombia, Peru and Panama.

• Countries with more market access through FTA’S are

in this group

• Countries with more FDI are in this group

• Countries with more Middle Class Expansion are in

this group.

• Better fiscally sustainable social programs: Chile,

Mexico, Brasil and Colombia.

Only the group of Countries in the Democratic Center

will become the regional active participants of the

Emerging Markets Boom…some of the ALBA

Members will see some benefits, but without solid

long term development agendas, they will face

transitory profits…

Venezuela

Inflation

Reduction in oil production

Brain drain

Social conflict

Insecurity

Private initiative in Jeopardy

Bolivia

Loss of citizen support

Quality of live deterioration

Lack of private initiative

Loss in private investment

Ecuador

Press Liberties in danger

Lack of long term private investment

Political stability at the expense of higher

tensions

Oil driven political power

Nicaragua

Institutional deterioration (Reelection without

constitutional authority)

Corruption

Private initiative: Uncertainty

Shameful Chavistas

2. Latin America between two policy paths

Bad policies are deteriorating the political and economic context in the ALBA

Countries….

Peru

Humala Challenges

Maintain Investment Confidence

(The mining royalty debate)

Improve social expenditure

targeting

Improve Labor markets

• Combat informality

• Improve productivity

Continue with International insertion

• Implement the FTA with USA

• Pacific Agenda with Colombia, Chile and Mexico

Challenges

Fiscal and Monetary Credibility

Institutional quality

Capacity to generate

confidence

Solve Public-Private

Conflicts

Trigger FDI

Argentina

Security

Human Insecurity

Legal Insecurity

Political insecurity

Individual Liberties

Property rights at risk

Limit freedom of expression

Limit freedom of press

Independent institutions

Courts controlled by the Executive

Branch

Independent institutions are controlled by the Executive

father

One Party controls the Parliament

Citizen participation

Limited

Controlled

Instruments vital for political

pressure

Social Cohesion

Class polarization

Fiscal policy is unsustainable

Venezuela

ChallengesRegional integration

Urban security

Drug consumption

Cost of money

Infrastructure

Weak Doing Business Indicators

Foreign Policy

Brazil

The Challenges of Doing Business in

Brazil

Area: 8,514,877 sq km

Population: 203,429,773 (July 2011 est.)

GDP: $2.172 trillion (2010 est.)

GDP Composition by Sector:

Services: 67.4% (2010 est.)

Industry: 26.8%

Agriculture: 5.8%

Unemployment Rate: 6.7% (2010 est.)

Exports: $201.9 billion (2010 est.)

Export Commodities: Transport

equipment, iron ore, soybeans,

footwear, coffee, autos

Export Partners: China 12.5%, US

10.5%, Argentina 8.4%, Netherlands

5.4%, Germany 4.1% (2009)

Imports: $181.7 billion (2010 est.)

Import Commodities: machinery,

electrical and transport equipment,

chemical products, oil, automotive

parts, electronics

Import Partners: US 16.1%, China

12.6%, Argentina 8.8%, Germany 7.7%,

Japan 4.3% (2009)

Good results but there are some worriying “TO DO BUSINESS” indicators

Country DB 2011 DB 2010

Mexico 35 41

Peru 36 46

Colombia 39 38

Chile 43 53

Argentina 115 113

Uruguay 124 122

Ecuador 130 127

Brazil 127 124

Venezuela 172 170

Doing Business

2011 shows some

elementes that

affect Brazil as a

destiny for

investments (127

out of 180 in the

Doing Business

Report)

1. Bureaucracy

2. Weak Infrastructure

3. Weak Technology

4. Preference to Local Companies

5. Complex tax system

The Challenges of Doing Business in

Brazil

Brazil in comparison to the Region best and worst

performers

Indicator Brazil Chile Mexico Colombia Peru Venezuela

Starting a Business

(Proceadures)15 8 6 9 6 17

Starting a Business

(Days)120 22 9 14 27 141

Days for

Construction

Permits

411 155 105 50 188 395

Hours devoted to

pay taxes (Hours

per year)

2600 316 404 208 380 864

Days to enforce a

contract616 480 415 1346 428 510

Enforcing Contracts

(Cost % Claim)16.5 28.6 32 47.9 35.7 43.7

Cost to export US$

per ContainerUS$173

0

US$74

5

US$1420 US$1770 US$860 US$2590

Brazil Infrastructure

challenges

Brazil’s infrastructure ranks

74th out of 133 countries, even

though its overall economy

ranks 56th, according to a

World Economic Forum (WEF)

survey that asked firms to rank

global competitiveness. Among

the BRIC economies, Brazil’s

infrastructure ranks similar to

India’s (76) and Russia’s (71),

but it lags China’s (46). Within

Latin America, Brazil’s

infrastructure ranking is near

Mexico’s (69) and is

significantly better than

Venezuela’s (106), but it is far

behind Chile’s (30);

Infrastructure spending in Brazil has been in a

declining trend over the past 40 years, averaging

5.4% of GDP during the 1970s, 3.6% in the 1980s,

2.3% in the 1990s, and 2.1% in the 2000s. Some

studies suggest infrastructure investment of 2.0% of

GDP is needed simply to sustain the current

infrastructure stock in Brazil

Brazil must invest 4% of GDP (doubling its current

investment) for 20 years to catch up with Chile, the

benchmark in Latin America, according to our

estimates.

To catch up with South Korea — the benchmark in

Asia — Brazil would need to invest 6–8% of GDP per

year

Source Morgan Stanley

Brazil Infrastructure

challenges

Challenges for

infrastructure development

Improving the business environment. Brazil needs a more

stable and credible regulatory environment The main issues are:

1) regulatory bottlenecks, 2) excessive renegotiations of

concessions, and 3) the lack of efficiency of regulatory agencies

Rethinking fiscal priorities. The government needs to redesign spending strategies and rethink priorities by 1) addressing budget rigidities, 2) reducing mandatory earmarking in the budget, and 3) revisiting structural entitlements (i.e., social

security reform)

Reforming the tax system. The government intake is close to 40% of GDP, while companies

spend on average 2,500 hours per year to

prepare, file, and pay their taxes

Reform the Police Structure

Citizen participation in the fight against

organized crime

Strengthen intelligence

Border affairs

• Drug Consumption

• Assault Weapons

The security challenge

Mexico

Chile

Two situations

Characteristics

Economic Stability

Political Stability

Investor Confidence

Innovation and entrepreneurshi

p agenda

Quality of live and

opportunities

Youth distrust in Political

Parties and in Government

Aggressive protests

Dependant on the China effect

Ecuador

The political condition

Economic

4.5% Fiscal deficit

Oil price has been the driving force

Investors distrust

4.5% inflation

Political

The President has concentrated more powers

Conflict with congress and with independent media will deteriorate as

the Government pushes more interventionist reforms

There is not a clear opposition figure

Urban security has been deteriorating

Bolivia: new problems arise

Economic

Populism platform loosing popular support

Fiscal superavit driven by more tax collections

Economic Growth above 4.6% driven by Gas price

Inflation close to 9%

Investors distrust with the exception of foreign governments

corporations

Political

2/3 of Congress controlled by the President Coalition

Hunting of all opposition leaders

Confrontation with Santa Cruz Governor Ruben Costas.

Next week 56 Supreme Court Judges will be elected

International

Under the influence of Chavez

Improvement in the dialogue with the U.S

International Market Distrust

Country Homicides

per 100K

Hab

Violence cost as %

of GDP (Live years

lost due to

handicapped

circumstances)

Private sector losses

due to insecurity (%

sales)

Violence costs

as % of GDP

Number of

gang

members

Number of

gangs

Honduras 43 1,31% 4.5% 9.6% 36.000 112

Guatemala 45 1.43% 3.9% 7.7% 14.000 434

El

Salvador

58 1.99% 4.5% 10% 10.500 4

Nicaragua 14 0.96% 3.1% 10% 4.500 268

Costa Rica 8 0.58% 3.6% 2.660 6

Panamá 11 0.63% 2.5% 1.385 94

Central America: The security Drama

Violence and organized crime

Not the same stories

A region of different development stories

The 7 giants (Brazil, Mexico, Argentina, Chile, Colombia, Peru

and Uruguay)

a) 70 of the Region population.

b) 85% of the Region GDP

c) Poverty reduction

d) High levels of investment

e) Commercial integration

f) Institutional stability

Central America

a) 3% of the Region GDP (US$163 Billion)

b) 7% of the Region population (43 million)

c) Income inequality

d) Moderate investment levels

e) Low tax collections

f) Fragile energy matrix

Caribbean

a) 4% of the Region Population

b) 2% of the Region GDP

c) Tourism dependence

d) Natural disaster risks

e) Low industrial base

f) Need for long term access to markets

3. The policy challenges in the region

The China effect…

Country China

Ranking as

a trading

partner

Porcentage

of total

exports

2010

Brazil 1 15%

Mexico 4 2.2%

Colombia 3 6.2%

Chile 1 16%

Peru 2 16%

Venezuela 2 7.9%

China’s influence as a trading

partner will continue to

increase, thus strenghthening

its political and diplomatic

relations with the regional

key players…

China is the destination for c.10% of LatAm exports today, and is the

largest trade partner for Brazil and Chile. LatAm was also the largest

recipient of announced Chinese outbound investment in 2010, focused

on energy and mining

U.S-Latin America relations The evolution of U.S Latin America Relations…from Doctrines to specific policies…

Doctrines

Monroe Doctrine

Teddy Roosevelt “BIG STICK”

Howard Taft “Pan-American Union”

FDR “Good Neighbor”

Ike Pan American Operation

Alliance for Progress

Carter “Human Rights Agenda”

Reagan Regional Cold War

Bush “War on Drugs” and trade

Clinton “NAFTA” & “FTAA”

Objectives

Protect the region from foreign invasions and strengthen the U.S influence in the hemisphere

Exercise strategic control of the region applying hard power (Military interventions in Nicaragua, DR, Haiti, etc)

Build and institutional and permanent diplomatic coordination under the U.S Leadership.

Regional support for World War II and coordination to face the Great Depression

Improve development assistance to prevent social turmoil (Creation of the IDB)

Improve development assistance to prevent the communist expansion.

Promote Human Rights policies to confront the emerging power of dictatorships in the region.

Intervention in Nicaragua, Grenada and Panama.

Fight against Drug Cartels in the region concentrated in Colombia, promotion of NAFTA and Unilateral Trade Preference Act.

Enactment of NAFTA, promotion of the FTAA (1993) and the Andean Trade Preference Drug Enforcement Act.

Policies

Bush Vs Obama and the FTA’s… (Next slide)

U.S-Latin America relations

Two administrations and its strategic approaches…

Bush:

1. FTA’s with Chile, Colombia, Peru,

Panama, CAFTA, DR.

2. Actively supported the fight against

terrorism in Colombia.

3. Promoted the Democratic Charter in

the OAS (Signed in Lima September

11 2001)

4. Politicaly confronted anti-democratic

regimes in the region.

5. Stablished the Millenium Corporation.

6. Debt Relief for Bolivia, Nicaragua,

Honduras, Haity and Guyana.

Obama:

1. FTA’s with Colombia and Panama

took almost 3 years to be ratified

2. Actively supported the fight

against terrorism in Colombia

3. Political diplomacy with anti-

democratic regimes in the region

4. Timid speech against Drug Cartels

in the region

5. Cautious attitude towards the

security crisis in Mexico and the

U.S share of responsibility

The Hispanic community must be a business

trigger with Latin-America

Hispanomics

50 Million people (The

world second largest spanish

speaking country)

US$1.3 Trillion Consumption Market (More

than the Mexican GDP)

According to the U.S Census Bureau in 2007 there were 2.3

million Hispanic-

owned business

Creates 2.6 million direct

jobs

Hispanic Community and the Rising Star

ChallengesPromote

trade

Promote investment

Facilitate intra

regional cooperation Expand

cultural exchanges

Facilitate innovation

The U.S represents 28% of the world GDP with 4.2% of the World Population

The U.S is the world largest importer of goods accounting for 13% of global imports, while being the third mayor exporter with 8.5% of world exports

Although these facts show the importance of the U.S as the world most important economic engine, U.S exports have only accounted for 8% of GDP over the last 18 years

Intra-regional trade dominates world trade: Trade within the EU represents 72% of all European Trade. 52% of Asian Exports remained in Asia, 48% of North American Exports remain in North America

Central America and South America only represent 10% of U.S Exports

U.S Trade with Latin America

4. Lessons from the Colombian Experience

Security

28.837 homicides

2882 kidnappings

69 homicides per 100.000 habitants

1645 terrorist attacks

350 mayors out of their municipalities

158 municipalities without police

Economy

Average Economic Growth 1994-2001: 2.1%

GDP per Capita: US$2377

Investment as % of GDP: 16.5%

Exports: US$11.975 million

FDI: US$2.100 million

Inflation: 6.99%

Fiscal balance: -3.2%

Social

Unemployment: 16.2%

Health Coverage: 25 million Colombians.

Pension affiliates: 4.5 million

Poverty: 57%

Education Coverage: Primary 97%, High school: 57%, University: 24%.

Mobil Phone Lines: 4.6 million

Internet coverage: 1.9 million

Ten years ago Colombia was a fragile state…

The Colombian Paradox: a long and stable democracy in a permanent

threat from terrorist groups, drug dealers and organized crime…

Colombia faced a Confidence Deficit

The elusive quest for peace

Many governments exhausted all their political capital

attempting to reach peace through political dialogue…the

result was military strengthening from illegal armed groups and a rapid

growth in their criminal activities (68% thought the

country was going in a negative track)

Terrorist Groups (Guerrillas and Paramilitaries) had

created a sense of defeat in the Colombian people.

Fear impacted in the Colombian people Mindset

The lack of investment

The drain of human capital

The sense of danger in Colombian roads.

The expansion of massive kidnappings created an emotional domino effect

Building Confidence became our

priority

We introduced a comprehensive policy

framework…

Social Cohesion

Investment with

fraternity

Democratic Security

Confidence

Security as a Democratic Value

Security for all

Confront all criminal

organizations

Security without

martial law

Security with freedoms and human rights

protection

Security in coordination

with the people

Investment Target

Security:

Human

Legal

Political

Sound Macroeconomics

Incentives

Access to markets

Competitiveness factors:

• Infrastructure

• Regulation

• Connectivity

• Logistical chain

Social Cohesion

Highest quality in education

Universal healthcare

Access to Finance

Stable Jobs and

entrepreneurial spirit

Connectivity

Our policy achievements generated a turning

point

Indicator 2002 2010

Homicides 28838 7400

Kidnappings 2882 123

Homicides per

100K Habitants

69 16.3

Terrorist

attacks

1645 250

Municipalities

without

mayors

presence

350 0

Municipalities

without police

158 0

Indicator 2002 2010

Average

Economic

Growth

2.1% 4.3%

GDP per

Capita

2377 5300

Invest %

GDP

16.5% 24.6%

Exports US$11.

000

US$

39.000

FDI US$2.1

00

US$ 7.000

Inflation 6.9% 2.5%

Indicator 2002 2010

Unemployment 16.2% 11.6%

Health

Coverage

25.1 million 43.1

million

Pension

affiliates

4.5 million 7.1

million

Poverty 57% 38%

Education

coverage (Primary, Hs,

University)

97%

57%

24%

100%

79.4%

35.5%

Mobile phone

users

4.6 million

lines

41

million

lines

• Reached the highest economic growth in

more than 20 years

• The largest education, health and

connectivity coverage in its history

• The largest poverty reduction in Colombian

history

• The biggest FDI rates in history

• The lowest violence records in 30 years

• Expanded the middle class

• Highest exports in Colombian

History.

• Paramilitary groups dismantled

• FARC structure severely

dismantled

• Per Capita income more than

doubled

Colombia’s current

challenges

Security

Maintain Macro-Vision and Micro-Management

Continue dismantling all terrorist organizations

Continue dismantling drug cartels apparatus.

Strengthen Citizen Security agendas with local

authorities

Economic

Face new trends of currency appreciation

Maintain and increase FDI flows (Security, incentives

and stability rules)

Fiscal Policy to face new countercyclical challenges

Increase tax collections

Expand new trade markets through FTA’s

Social Cohesion

Fight labor informality and create quality jobs

Insure education and health quality

Expand vocational training coverage

Create Entrepreneurial Family Transfers program

Political

Judicial reform.

Strengthen Democratic Center

Improve local institutional capacity

New law implementation (Victims and land)

Prevent the emergence of populist movements

Additional issues for Q&A

In search of the knowlege

economy

Issues to

evaluate

Education

R&D

Science and Patents

Technology Gap

In search of the knowlege

economy Despite the long list of positive results we still lagg behind in the transition

to a real knowlege economy… (Lets look at PISA tests and researchers)

• Among the Latin American countries participating in PISA tests, between 20 and 50 percent of students

score below level one (the lowest performance level) in math and between 10 and 30 percent in science,

which means that a larger proportion of 15-year-olds lack basic numeracy skills and the rudiments of

scientific knowledge.

• According to the data available from 13 countries in the region, there was on average only one researcher

per 1000 workers in the labor force in Latin America and the Caribbean. This number is seven times

smaller than the OECD average and nine times lower than in the United States. In China the figure is 1.8

and in Spain 5.4. In the region, Argentina leads the ranking with 2.4 researchers per 1000 workers,

followed by Chile and Brazil, with 2.0 and 1.3 respectively. Guatemala and Paraguay show the smallest

numbers, with less than 0.15 researchers per 1000 workers in the labor force.

• In Latin American and Caribbean countries there are more researchers working in social sciences and

humanities (and in other unspecified fields) than in engineering and technology. In fact, except for Mexico

and Uruguay, for the rest of the reporting countries, engineering and technology frequently has the

smallest share (less than 20 percent). The natural and agricultural sciences continue to be the dominant

fields of research: together they typically represent between 30 and 40 percent of researchers.

In search of the knowlege

economy

• In contrast, although some progress has been made in recent years, Latin America still invests significantly less

in R&D than benchmark economies. According to Red de Indicadores de Ciencia y Tecnología (RICYT)

estimates, R&D investment in the region represented 0.67 percent of GDP compared to 0.52 in1997. Between

2000 and 2007, the R&D investment in the region grew at an average annual rate of 7.8 percent, a bit higher

than the OECD rate of about 5.9 percent but at a significantly slower pace than in China (22.5 percent).

• In OECD countries, the business sector is the main and the fastest-growing source of R&D financing. Sixty-five

percent of R&D expenditures on average are financed by business. In Japan, South Korea, the United States,

and China, this share is above 70 percent. In Latin American and the Caribbean, business’ share in R&D

financing represents less than 40 percent. Between 1997 and 2007, this figure remained largely the same.

• In technologically advanced countries, the government conducts a limited and declining portion of R&D (11

percent on average in OECD countries). The business sector is responsible for 70 percent of R&D expenditures

and the higher education sector for 17 percent. Non-profit organizations account for the rest. In contrast, in LAC

countries, one-fifth of R&D is conducted by the government, while firms conduct around 41 percent, almost as

much as the higher education sector (38 percent).

• Although the production of science is improving in LAC, it still remains low compared to industrialized nations.

Internationally, the region ranks in the middle in terms of publications per capita, despite improvements. On a

normalized scale of 0-10 (0 = lowest, 10 = highest), relative to the 182 and 183 countries available for this

indicator in 1994- 1998 and 2004-2008, respectively, the region’s score increased from 5.3 to 5.7. However, if we

were to normalize with a sample limited to OECD and emerging countries (BRICS), this score would fall to an

average of 1.5.

Research and Development

1. In OECD countries, the business sector is the main and the fastest-growing source of R&D

financing. Sixty-five percent of R&D expenditures on average are financed by business. In

Japan, South Korea, the United States, and China, this share is above 70 percent. In Latin

American and the Caribbean, business’ share in R&D financing represents less than 40

percent. Between 1997 and 2007, this figure remained largely the same.

1. In technologically advanced countries, the government conducts a limited and declining

portion of R&D (11 percent on average in OECD countries). The business sector is

responsible for 70 percent of R&D expenditures and the higher education sector for 17

percent. Non-profit organizations account for the rest. In contrast, in LAC countries, one-fifth

of R&D is conducted by the government, while firms conduct around 41 percent, almost as

much as the higher education sector (38 percent).

1. Although the production of science is improving in LAC, it still remains low compared to

industrialized nations. Internationally, the region ranks in the middle in terms of publications

per capita, despite improvements. On a normalized scale of 0-10 (0 = lowest, 10 = highest),

relative to the 182 and 183 countries available for this indicator in 1994- 1998 and 2004-

2008, respectively, the region’s score increased from 5.3 to 5.7. However, if we were to

normalize with a sample limited to OECD and emerging countries (BRICS), this score would

fall to an average of 1.5

In search of the knowlege

economyResearch and Development

1. •Although the production of science is improving in LAC, it still remains low compared to

industrialized nations. Internationally, the region ranks in the middle in terms of publications per

capita, despite improvements. On a normalized scale of 0-10 (0 = lowest, 10 = highest), relative to

the 182 and 183 countries available for this indicator in 1994- 1998 and 2004-2008, respectively, the

region’s score increased from 5.3 to 5.7. However, if we were to normalize with a sample limited to

OECD and emerging countries (BRICS), this score would fall to an average of 1.5.

1. As in the case of R&D investment, the production of patents is concentrated in very few countries.

During the period 2005- 08, three countries were responsible for 75 percent of the patents granted by

USPTO to Latin American inventors (1042 in total). Thirty-seven percent of patents granted to the

region were for inventions made in Brazil, 25 percent in Mexico, and 13 percent in Argentina.

1. In absolute numbers, between 1995 and 2008, the most striking expansions in the absolute number

of trademarks are reported for Chile (it increased 6 times) and Panama (5.5 times); followed by

Brazil, Colombia and Mexico (around 3 times). However, in the international ranking, all of them drop

in the normalized score. This is due essentially to the increase in the number of emerging countries

applying for trademark protection

In search of the knowlege

economy

Science and patents

1. In terms of access to computers the gap between Latin America and the

OECD is widening. The number of personal computers per 100 inhabitants

has expanded in the region from 5.5 in 1995 to 11.3 in 2006, while in OECD

countries this ratio grew from 24.8 to 54.4. Therefore, the gap in penetration

rates is persistently rising (from 19.3 to 43.1 computers per 100 inhabitants).

2. The digital gap in internet and broadband subscriptions is widening

substantially. The number of internet subscribers in the LAC region has

increased from 0.8 to 6.9 per 100 inhabitants between 1998 and 2008. OECD

penetration rates have also grown from 4.7 to 27.3. As a result, the gap

between the two regions reached a record level of 20.4 subscribers in 2008.

In search of the knowlege

economy

Technology Gap

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Arizona 2012