Carlos Felipe Jaramillo
The Latin American and Caribbean region faces a lot of uncertainty in 2025, due to the numerous political changes in the world, the impact of ongoing wars, the growing wave of crime and violence in their countries, and the increasing fiscal and financial difficulties. debt management.
But focusing on the negative can cause one to miss the positive. This new year offers great opportunities that can help countries prosper in these uncertain times. These possibilities are found in the green economy, digital, fiscal reorganization and reforms.
First, we must recognize the challenges that a changing political landscape can pose in terms of trade and migration policies. At the same time, geopolitical tensions and realignments promise to continue changing alliances and value chains, and countries seek reliable trading partners.
The year 2024 will be remembered for the shocking images of a spiral of violence. Criminal gangs are spreading it in countries where it was not a major problem before. In addition to reducing the quality of daily life, violence also has a high economic cost: it can cost up to 8% of the Gross Domestic Product. Countries want to spend more on security to meet this growing challenge, but they are constrained by large pandemic-era debts and their economies are not growing fast enough to alleviate this burden.
But not everything has to be pessimism. In the midst of darkness, there are opportunities. To benefit from them, a positive agenda for the region should include the following elements:
Take advantage of green opportunities to attract more investments. Latin America and the Caribbean is already a leader in green energy with one of the cleanest electricity grids and the lowest carbon intensity economies in the world. There is enormous potential for solar, wind and geothermal energy. This gives the region an advantage as a place to sell products free of fossil fuel emissions.
The region has significant reserves of lithium and copper for electric vehicles and other low-carbon technologies. Green hydrogen has great potential to make hard-to-electrify industries, such as fertilizer and steel, free of fossil fuel emissions. Capitalizing on these opportunities will require a combination of incentives, institutions, coordination and key public investments.
Expand digital opportunities so that more people can enjoy more prosperous lives. The region has already made great strides in digital trade and employment, and tech startups with high market valuations, known as unicorns. Countries like Argentina, Colombia and Mexico are investing in technological training for young people. This is expanding digital employment opportunities and spreading the adoption of artificial intelligence. There is a boom in the number of unicorns. The figure quadrupled between 2018 and 2021, and increased even more thereafter.
The challenge facing the region now is to achieve universal access and use of broadband. This will require major investment in digital infrastructure and skills, rather than incremental action.
Move forward on the tax issue. This could make societies fairer, promote growth and create more room in public budgets to invest in the future.
There is a big focus on wealth taxes. Taxing financial assets can be difficult because of how complicated the taxation of personal property, such as stocks and bonds, can be. A more effective option is to tax property, since it cannot be moved and represents a much larger proportion of the region’s wealth. Latin American and Caribbean countries typically collect only 2% of tax revenue from property taxes—lower than the global average—even though 80% of their wealth is kept in the country. real estate sector. Related to the digital opportunity mentioned above, governments can use new digital platforms to assess property tax and improve mapping, data collection and data sharing.
Approve and implement reforms that promote growth with inclusion. As I speak with leaders across the region, I increasingly see the need for growth-boosting reforms, which contrasts with years of postponing these changes.
An important reform must be the introduction of more competition. People pay too high prices for lower quality goods and services. This reduces general well-being and contributes to increasing inequality. Greater competition can make things more difficult for uncompetitive companies and their workers. Therefore, fair and pro-competitive policies must be combined with innovation policies and functioning national innovation systems, including better education and skills training systems. Increasing productivity at the business level can help more companies compete internationally.
Latin America and the Caribbean will face enormous challenges in 2025. The news headlines can sometimes be disturbing. But the region can look for opportunities in the green economy, digital, fiscal realignment and reforms, which can help it thrive in today’s global economy. It is time to make the most of these opportunities and offer the inhabitants of the region the best future they deserve.
