world economic forum on latin america 2008

World Economic Forum on Latin AmericaSecuring a Place in an Uncertain Economic LandscapeCancún, Mexico 15-16 April 2008

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1 | World Economic Forum on Latin America

Preface

Page 4

Summary: Securing a Place in an Uncertain Economic Landscape

Page 9

Global Trends and Economic Shifts

Page 13

Asia and Latin America

Page 17

Merging Business and the Environment

Page 20

Growth through Critical Investments

Page 24

Enhancing Innovation in Business and Social Issues

Page 28

Acknowledgements

Contents


The World Economic Forum on Latin America thisyear took place as the world focused with perplexityand concern on the global financial turbulence and itspotential risks and serious implications for the worldeconomy. This unique gathering also took place as theregion closed a five-year cycle of economic growth ofover 5% per annum, income per capita growth of over3% per annum, international reserves of over US$ 450billion, poverty rates reduced from 44% to 35%, andFDI inflows having reached US$ 95 billion in 2007.While the region’s economy has performed well, theenormous social challenges it is confronting demandcontinued efforts to make growth more inclusive.

The 500 leaders from business, government and civilsociety from over 40 countries turned the WorldEconomic Forum on Latin America into an exceedinglyrelevant gathering. Together this uniquemultistakeholder group evaluated the trends andchanges in the global economy, in the political arena,in trade relations between Asia and Latin America aswell as developments affecting investment to stimulateregional growth and the search for innovation inbusiness and social affairs.

The agenda included a regional overview of businessand political strategies in five spheres: geopolitics;competitiveness; energy security; growth with incomedistribution; and innovation related to security, climatechange and the preservation of biodiversity.

The programme aimed to support regional leaders intheir efforts to share perceptions and seek commonsolutions to the multiple challenges. These includepromoting the modern face of Latin America andemphasizing the best of its creative culture,entrepreneurs and economic performance, as well asits achievements in the realm of social issues and inthe preservation of its natural riches.

The diverse mix of participants set an agenda for2008 to respond to the financial turmoil, designproactive strategies to ensure economic sustainabilityand make the decade to begin in 2010 morepromising for the region. With the presence of eightheads of state or government, over 40 ministers,secretaries, governors and heads of internationalorganizations, and hundreds of CEOs, the meetingconcluded with a shared optimism about the recentmacroeconomic achievements and the prospects fora growing middle class, but also stressed the need forurgent action on long overdue aspects, including theneed for quality education, for more and betterinfrastructure, for regional trade, energy andinfrastructure integration, for higher saving andinvestment rates, and the urgency of further structuralreforms on the institutional front to allow higherproductivity growth and therefore more inclusiveeconomic growth rates.

Preface

Emilio Lozoya AustinHead of Latin America, Global Leadership Fellow


Summary: Securing a Place in an Uncertain

Economic Landscape

“This meeting will help all of us make amuch better Latin America and build aLatin America that looks to the futurewith optimism.”

Felipe Calderón, President of Mexico

“There is now reconciliation betweengovernment and business. It’s notanymore ‘economy versus society’; it’snot ‘left versus right’. It’s ‘forward orbackwards’.”

Klaus Schwab, Founder and Executive Chairman, World

Economic Forum

More than 500 business, government and civil societyleaders from over 40 countries gathered in theglistening resort of Cancún on Mexico’s YucatánPeninsula for the World Economic Forum on LatinAmerica. While the focus was “Securing a Place in anUncertain Economic Landscape”, the topmost issueon everybody’s mind was how the US downturn andthe slowdown in the global economy would affect theregion. For all the uncertainty in the markets,participants took comfort in knowing that LatinAmerica’s economic performance in recent years hasbeen its best in decades, mirroring the strength in theglobal economy.

In facing the current slump, said José Sergio Gabriellide Azevedo, President and Chief Executive Officer,Petroleo Brasileiro, or Petrobras, and a Co-Chair ofthe meeting, “taking a regional perspective is veryimportant because we have special questions and

solutions in Latin America and this is one place wherewe can exchange ideas and develop goodperspectives for the future.” President Felipe Calderónof Mexico concluded that the World Economic Forumon Latin America had given the continent “theopportunity to see how much we share and how it ispossible to overcome our differences”. He added:“This meeting will help all of us make a much betterLatin America and build a Latin America that looks tothe future with optimism.”

The optimism was certainly palpable but it was mixedwith appropriate caution, especially with the prospectof high food and oil prices continuing in the shortterm. Central American and Caribbean leaders issueda dramatic warning about this “perfect storm” in oneplenary session. “The cautious optimism,” concludedKlaus Schwab, Founder and Executive Chairman ofthe World Economic Forum, “shows the resilience


3.10%

6.30%

9.40%

12.50%

9.40%

10.90%

46.90%

1. Education: Construct a quality education system

2. Infrastructure and Investments: Boost infrastructure integration and promote intraregional trade

3. Security: Reform the criminal justice system to enforce the rule of law and fight crime

4. Economic Growth: Deal with the US recession

5. Economic Security: Promote access to sanitation, housing, banking and employment

6. Energy Security: Meet the growing demand for energy

7. Natural Resources: Use water and other natural resources responsibly

Which is the most important initiative to make the decade beginning in 2010more promising for Latin American countries?

which has been achieved in Latin America’seconomic, political and social development.” There isnow, Schwab believed, “reconciliation betweengovernment and business. It’s not anymore ‘economyversus society’; it’s not ‘left versus right’. It’s ‘forwardor backwards’.”

At the World Economic Forum on Latin America, thefocus was definitely forward. In a vote in the closingplenary session, participants identified education,specifically the need to construct values and skills-driven education systems, as the top priority for LatinAmerica to achieve sustainable development and laythe foundation for a promising decade starting in2010. (See the chart for full results.)

The Cancún meeting was organized under five sub-themes: “Global Trends and Economic Shifts”, “Asiaand Latin America”, “Merging Business and theEnvironment”, “Growth through Critical Investments”and “Enhancing Innovation in Business and SocialIssues”.


As the pressures of globalization have pushed regionsand sub-regions around the world to deepenintegration, and the global economic centre of gravity

has been shifting to Asia, the question is whetherLatin America will ride the wave or fall behind. Can theregion find its identity?

• Latin America’s recent economic performance hasbeen its best in decades. But political differencesappear to have limited efforts to deepen integration.

• While the region’s relationship with the US used tobe paramount, strains have emerged due toAmerica’s post-9/11 policies and the ambivalence ofmany American politicians to the Bushadministration’s pro-free trade agenda. Some Latincountries, notably Brazil and Chile, have now forgedstrong ties with Asia, especially China.

• Latin American countries are beginning to feel thebenefits of opening up to the global market. CentralAmerican nations, in particular, have realized theadvantage of pooling resources and populations tocreate a larger, more competitive combined market.

• Testing times lie ahead. In addition to the globaleconomic slowdown and the downturn in the US,Latin American countries are facing a “perfectstorm” of high food and oil prices that could weakentheir economies and threaten social stability (seeFigure 1).

• The key is for Latin American nations to worktogether as a region but also for each country todetermine what restructuring and reforms it mustimplement.


“This is a perfect storm. We were onthe right path but how long can wewithstand the situation? We have tofeed our people and commodities arebecoming scarce.”

Elias Antonio Saca, President of El Salvador

Figure 1: Commodity Price Rises

Source: IMF

While metals and oil have risen sharply since 2003,agricultural prices have shown a more recent rise

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* West Texas Intermediate crude oil** Prices in constant US$, base month January 2008

Wheat

Oil*

Iron Ore

Soybeans

Maize (corn)

Copper


China and India have become global economic forcesat the same time that Mexico and Brazil havethemselves appeared on the radar screens ofcorporate strategists and investors. Some LatinAmerican countries such as Brazil and Chile havealready developed strong trading links with Asia.

• Confronted by the challenges of food and energysecurity and rising inflation, China is a naturaltrading partner for the resource-rich countries ofLatin America.

• Some economies, notably Brazil, Chile andColombia, have focused on deepening relations withAsia. Lingering unease with embracing Asia remainsin nations such as Mexico, which competes moredirectly with China. Latin America is still a relativelyclosed region.

• Latin America should avoid depending too heavilyon commodities trade with the resource-hungryeconomies in Asia. That said, China’s strong growthcould help the region weather the current globalslowdown and a recession in the US.

• The challenge for Latin American economies is touse the rise of China and India as catalysts forchange and restructuring to put themselves in abetter competitive position in the global economy.There is no room for complacency.

From left to right: Jaime Morales Carazo, Vice-President of Nicaragua; Elias Antonio Saca, President of El Salvador; Patrick Manning, Prime

Minister of Trinidad and Tobago; Susan L. Segal, President and Chief Executive Officer, Council of the Americas, USA; Manuel Zelaya Rosales,

President of Honduras; Álvaro Colom Caballeros, President of Guatemala; Eduardo Sojo Garza-Aldape, Secretary of the Economy of Mexico

F

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Central American leaders warned that the impact of climbingfood and oil prices could undo the recent gains theireconomies have made. “This is a perfect storm,” said EliasAntonio Saca, President of El Salvador. “How long can wewithstand the situation? We have to feed our people andcommodities are becoming scarce. This scandalous stormmight become a hurricane that could upset not only oureconomies but also the stability of our countries.”

At the same time, these hikes in commodity prices havecreated some short-term wins in the region. The tradebalance is substantially positive, but inflation could tip thebalance and push lower-income households further intopoverty. This situation poses a conundrum: Latin Americancountries, rich in natural resources, should be benefiting fromprice increases, but should governments be tackling theissue of potentially crippling inflation?

“The situation of rising commodity prices is really a mixedbag for Latin America,” said Luis Andrade, Director,McKinsey & Company, Colombia. “The trend seems to bepositive overall, but threats are looming, particularly on theinflation side.”

Price controls “will not work”, according to Felipe LarraínBascuñán, Professor of Economics, Catholic University ofChile. “An important public policy issue is how to help smallfarmers take advantage of price rises,” he said. Governmentsshould invest in new technology, training and financialincentives. It is time to rethink the productivity agenda,concluded John C. Compton, Chief Executive Officer,PepsiCo Americas Foods, PepsiCo, USA. “We are looking attransformational changes in our production and plan tobecome net zero users of commodities such as energy,water and electricity,” he said. “We used to talk about reuseand recycle, now we are talking about replenishing. We wantto put these inputs back into the environment.”

Making the Most of Rising Commodity Prices

“Taking a regional perspective is veryimportant because we have specialquestions and solutions in LatinAmerica and this is one place wherewe can exchange ideas and developgood perspectives for the future.”

José Sergio Gabrielli de Azevedo, President and ChiefExecutive Officer, Petroleo Brasileiro Petrobras, Brazil; Co-Chairof the World Economic Forum on Latin America


Latin America is at the forefront of many of the globaldebates over environmental issues such as climatechange, alternative fuels, deforestation and the impactof urbanization. It is natural that businesses in theregion should now be addressing these concerns.

• “Environmental sustainability” is regarded as amainstream prerequisite for successful infrastructuredevelopment. Even the war on the drug trade has a“green” edge, as the rainforests are threatened byencroaching coca producers.

• The biofuels debate is heating up, as food pricesmount. Once touted as a clean-energy panacea,these renewables are now criticized for their use oflarge amounts of water and land that mightotherwise go to growing more food staples.

• Brazil is leading the way in developing a newgeneration of biofuels that may be moreenvironmentally sound.

• With oil prices set to remain high, the demand forbiofuels will increase, spurring a diversification ofsources and the development of better products.Biofuels will not become a substitute for petroleum.

From left to right: Jaime Morales Carazo, Vice-President of Nicaragua; Elias Antonio Saca, President of El Salvador; Patrick Manning, Prime

Minister of Trinidad and Tobago; Susan L. Segal, President and Chief Executive Officer, Council of the Americas, USA; Manuel Zelaya Rosales,



Latin America needs to deploy its capital resourcesmore wisely. To do so will require measures toincrease transparency and openness in labour andfinancial markets. The aim of such structural reformswould be to increase the productivity of the region’seconomies.

• Business, government and civil society leadersagain stressed the importance of better education,identifying the need for values and skills-driveneducation systems as the top priority for the region.This means encouraging students to take morepractical courses such as the hard sciences and toimprove the quality of teaching.

• The dysfunctional effects of the informal sector onthe larger economy must be addressed. Theseextend beyond the loss of tax revenues and theunfair advantages to firms that do not play by therules. Workers in the informal sector retire to a life ofhardship. In light of these problems, there areopportunities for financial institutions to provide newservices such as microfinancing to smallenterprises.

• The absence of working capital and high taxesaccount for a significant proportion of failuresamong small and medium-sized enterprises,suggesting that governments should examine taxregimes to enhance the viability of SMEs and limitinformal-sector growth.

• Regulatory reform is essential in many LatinAmerican economies to enhance the access ofSMEs to needed capital, to create moretransparency and competition, and to allow for morecompetition in inefficient or low-productivity sectors.

• Infrastructure development will require enormousoutlays of capital. The needs are such that public-private partnerships are essential to raise sufficientcapital. Attracting private investment, however, willrequire reforms including measures to ensure a levelplaying field and a stable regulatory environment.

Enhancing Innovation in Business andSocial Issues

Instead of struggling to come up with new conceptsor fresh ideas for addressing the region’s economicinsecurity, Latin America should focus onimplementing on a larger scale some of the manysolutions that are leading to real changes at the localand national levels.

• The good news that has buoyed confidence in LatinAmerica is part of a continuum dating backdecades, running through a dramatic transition froma continent of corrupt military dictatorships to avibrant region where democracy reigns and freetrade is the norm.

• There are harsh realities. Political unrest is growingin many countries. In some cases, there has been abacklash against opening markets and free trade.

• Support for social entrepreneurship could becomean important way to promote the free market whileat the same time addressing poverty. Microfinancingcould also bolster efforts to address wideningincome gaps. But better regulation, supervision andmonitoring of the sector are required.

• To combat the problem of criminal gangs in somecommunities, innovative solutions such as workprogrammes have proven effective.


As global trends of regional integration and marketopening intensify and the economic centre of gravityshifts with increasing pace to the dynamic emergingeconomies of Asia, the question is whether LatinAmerica is riding the wave or falling behind. In onesession, Colombia’s Minister of Trade, Industry andTourism Luis Guillermo Plata, a World EconomicForum Young Global Leader, noted that the AndeanPact and the European Community were launched atabout the same time. Today, he observed, the AndeanCommunity of Nations, as the South American tradebloc is now known, is a weak alliance, while theEuropean Union has common passports and acommon currency used by a majority of its members.Recalling that Latin America has been described as a“lost continent”, Plata asked participants: “What canwe do so potential trading partners and investors canfind us again?”

It may be worrisome that the issue of Latin America’sregional identity remains so vexing in this age ofglobalization, even though Latin American economiesare more in sync than they have ever been, despitepolitical differences. “The last four years have been thebest [economically] since 1492,” quipped MoisésNaím, Editor-in-Chief of Foreign Policy Magazine.Intraregional trade has grown (and in 2006 accountedfor 20% of all trade; see Figure 1), yet, intraregionalfriction has risen. “We are looking at blocs in LatinAmerica in a way we never did before,” he said.“There are deep divisions. This will define a lot of whatwill happen” in the run-up to the next decade.

Historically, of course, the determining geopoliticalrelationship for the region has been with the UnitedStates. But some of America’s post-9/11 policies andthe ambivalence of many US legislators towards theBush administration’s strong support for free tradeand free-trade agreements with countries in the regionhave created strains even though, as Peter Hakim,President of Inter-American Dialogue, observed, “thesubstantive [Bush] agenda has been pretty good” forLatin America. Washington, acknowledged Thomas A.Shannon Jr, Assistant Secretary of the Bureau ofWestern Hemisphere Affairs in the US StateDepartment, has had to attend to the damage to itsstanding in the region. “Because of democratization,the opening of markets and globalization,” he

Figure 1: Growth in Latin American Trade

Source: IMF Direction of Trade Statistics

Intra-regional trade growing faster than trade with the US

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Latin

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atr

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(100

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China*

2004


From left to right: Moisés Naím, Editor-in-Chief, Foreign Policy Magazine, USA; Rafael Fernández de Castro,

Academic Dean, Autonomous Technological Institute of Mexico (ITAM), Mexico; Thomas A. Shannon, Assistant

Secretary, Bureau of Western Hemisphere Affairs, US Department of State, USA; José Miguel Insulza, Secretary-

General, Organization of American States (OAS), Washington DC; Fernando Araújo Perdomo, Minister of Foreign

Affairs of Colombia; Jim Kolbe, Senior Adviser, McLarty Associates, USA


reckoned, “Latin American countries have options theydidn’t have before. We are not the only ones around.This is a competitive environment.”

Indeed, as Brazil and Chile have certainly shown, theemergence of China and India have served upenormous opportunities for Latin America across thePacific and could lead to a surge in investment fromAsia into the continent. This new partnership couldhelp them weather this period of global economicstress as the US looks set to dip into recession. Thatsome Latin American economies have to some extent“decoupled” from the US is an indication that theregion may have reached a new level of maturity in itsdevelopment. As Carmen Gisela Vergara, Minister ofCommerce and Industry of Panama, explained, somecountries such as her own are only beginning to seethe value of opening up to the global market. Despitemisgivings within the local business community,Panama signed a number of agreements in an effortto boost job creation and investment. Last year, theeconomy grew by more than 11%.

“The situation of Latin America to deal with what’shappening with the world economy has never beenstronger,” said Alejandro Baillères, Chief ExecutiveOfficer of Grupo Nacional Provincial of Mexico and aCo-Chair of the World Economic Forum on LatinAmerica (see Figure 2). “This is a good opportunity toshowcase Latin America,” agreed fellow Co-ChairWilliam R. Rhodes, Chairman, President and ChiefExecutive Officer, Citibank NA, Citi, USA. “Obviously,Latin America is not as dependent on the USeconomy as it used to be, say, a decade ago.”

There was certainly fresh confidence on display in thesession that brought together top leaders of CentralAmerica. “Twenty years ago, Central America was atwar,” said Elias Antonio Saca, the President of ElSalvador. “Now much has changed. Central Americaacts as a bloc. We have set ideologies aside and weare agreeing on issues such as a customs union. Weare gradually implementing the European Communitymodel. It took Europe 50 years to do it. We areimplementing it quite quickly.” Added Jaime MoralesCarazo, Vice-President of Nicaragua, who pointed outthat he had been a leader of the Contra forces in his

“If I am asked to give advice [on tradeand immigration] to the next [US]president, I will say to stick with theBush agenda.”

Peter Hakim, President, Inter-American Dialogue, USA

“The situation of Latin America to dealwith what’s happening with the worldeconomy has never been stronger.”

Alejandro Baillères, Chief Executive Officer, Grupo Nacional

Provincial, Mexico; Co-Chair of the World Economic Forum on

Latin America


country but agreed to join the administration ofSandinista leader Daniel Ortega Saavedra: “We nowfavour dialogue and agreement rather thanintransigence and exclusion. We are freeing ourselvesfrom our dependence on the past.”

Refreshingly, the Central American leaders werecandid about the storm clouds they now see on thehorizon – the double threat of climbing food and oilprices. “This is a perfect storm,” warned Saca. “We’reon the right path but how long can we withstand thesituation? We have to feed our people andcommodities are becoming scarce. This scandalousstorm might become a hurricane that could upset notonly our economies but also the stability of ourcountries.” Added Manuel Zelaya Rosales, the

Figure 2: Latin America's Economic Volatility

Source: IMF (2007)

Region has shifted from low economic growth and high volatility, to high growth and low volatility

6%

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enta

gepo

ints

20042003 200620051998

* Standard deviation of GDP growth rates for 18 Latin American countries

200120001999 2002 2008F2007F

Standard deviation*

Latin America GDP growth

President of Honduras: “The world economy is beingtested and is at risk. International organizations needto develop urgent measures. We are not asking fordonations but short-term lines of credit for food andalternative, renewable and clean energy. Eitherglobalization is a trick – or it is an opportunity.”

“Obviously, Latin America is not asdependent on the US economy as itused to be, say, a decade ago.”

William R. Rhodes, Chairman, President and Chief Executive

Officer, Citibank NA, Citi, USA; Co-Chair of the World Economic

Forum on Latin America


That is the question that confronts all of Latin Americatoday as its economies gaze into that globalizationmirror and decide whether to go through the looking-glass and take a plunge into what looks to be apromising pool of opportunities but could result inbeing something far less inviting. Consider MexicanPresident Felipe Calderón’s predicament as heassesses how to navigate his country through thedownturn in its NAFTA partner to the north. “Ourcorrelation with the US economy can turn from beinga great advantage to becoming a great disadvantage,”he accepted. “When the US catches a cold, Mexicogets pneumonia. My role as president now is to figureout what we will get when the US catchespneumonia.”

The next several months of economic volatility willlikely be tough for Mexico and the rest of LatinAmerica, but it is critical for the region not to get lostonce again but to look forward together, and for eachcountry to decide what it must do to readjust,restructure and renew itself so that the next decade isa promising one. Concluded Calderón: “The key is forLatin America to decide how to speed up growth andto grow with harmony and fairness.”

“Because of democratization, theopening of markets and globalization,Latin American countries have optionsthey didn’t have before. We are not theonly ones around. This is a competitiveenvironment.”

Thomas A. Shannon Jr, Assistant Secretary, Bureau of

Western Hemisphere Affairs, US Department of State, USA

From left to right: Antonio Bonchristiano, Co-Chief Executive Officer, GP Investimentos, Brazil; Daniel S. Och, Chairman and Chief Executive

Officer, Och-Ziff Capital Management Group, USA; Hutham S. Olayan, President and Chief Executive Officer, Olayan America Corporation, USA;

Felipe Larraín Bascuñán, Professor of Economics, Catholic University of Chile; William R. Rhodes, Chairman, President and Chief Executive

Officer, Citibank NA, Citi, USA, and Co-Chair of the World Economic Forum on Latin America


“If China keeps on growing, LatinAmerica will do well.”

Ricardo Hausmann, Director, Center for International

Development, and Professor of the Practice of Economic

Development, John F. Kennedy School of Government, Harvard

University, USA

“China’s insertion in the globaleconomy is an undisputed reality foracademics, business people andpolicy-makers today. Latin Americashould benefit from this wake-up call,seizing the financing opportunitybrought about by China’s rise.”

Javier Santiso, Director and Chief Development Economist,

Organisation for Economic Co-operation and Development

(OECD), Paris

The discussion of Latin America’s relations with Asiafocused on the implications of China and India’s rise atthe same time that Mexico and Brazil have themselvesentered into the consciousness of investors andcorporate global strategists. Attention was also paid tothe success some countries, notably Brazil, Chile andColombia, have had in forging strong trading linksacross the Pacific. Yet the talk was still mainlyarmchair analysis about tremendous opportunities thatmust be grasped rather than about inspiring successstories and exciting initiatives already under way.“Latin America and India have about a fourth of theworld’s population, but only about 2% of itscommerce,” Humberto Ribeiro, Executive Vice-President, Politec, Brazil, remarked. Added RodolfoAlborelli, Managing Director, Head, LAR, and ChiefExecutive Officer of Standard Chartered Bank inArgentina: “What’s needed now is a learning processon both sides.”

But learning has to come by doing. The presence ofsenior Chinese business leaders in Cancún, includingGuo Shuqing, Chairman of China Construction Bank,the second largest state-owned Chinese commercialbank, and a Co-Chair of the World Economic Forumon Latin America, was evidence of China’scommitment to deepen ties. China’s FDI in LatinAmerica is currently about US$ 20 billion but couldincrease to US$ 110 billion in ten years, said YangKaisheng, Vice-Chairman of the Industrial andCommercial Bank of China (ICBC), the largest statecommercial bank, in one session. “We are herebecause of Latin America’s economic developmentand social progress,” Guo said at a press conference.With the Chinese economy expanding rapidly to the



point of overheating and China looking to invest moreabroad to provide an outlet for excess liquidity, LatinAmerica is a natural partner for the Chinese as theyaddress the mounting challenges of food and energysecurity and rising inflation, he explained.

For now, Asia-Latin America relations remain based onexports from West to East of raw materials,manufactured products heading in the other direction(see Figure 1). Brazil is one country that has takenpole position in the race to connect with the Chinesemarket, establishing what Beijing’s leaders call a“strategic partnership” in trade on a heavy flow of ironore and soybeans to China. Chile and China signed afree-trade agreement (FTA) in 2005, agreeing in April

Source: WTO

Figure 1: Exports to China

$35

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2000 2004200320022001 2005 2006

CAGR: 28%

CAGR: 24%

CAGR: 46%

Manufactures

Agricultural products

Fuels andmining products

Latin America's exports of fuels and mining productsto China up nearly tenfold in six years

to expand it to include certain service sectors by earlynext year. Santiago launched a preferential trade pactwith India in 2006 and proposed turning that into anFTA during the recent visit of Indian President PratibhaPatil to Chile (see Figure 2). These are encouragingsigns that some Latin American political and businessleaders want closer commercial connections withAsia.

“We are here because of LatinAmerica’s economic development andsocial progress.”

Guo Shuqing, Chairman, China Construction Bank, People's

Republic of China; Co-Chair of the World Economic Forum on

Latin America


But there remains lingering unease. Mexico, forexample, tends to view China’s rise with concern, asinvestment is lured away from manufacturing plantsjust south of the US border. Yet Chinese automakersare eyeing opportunities to make cars in Mexico forexport to the US and other markets. Ironically, as Guopointed out, “Mexico is relatively open but many of theother countries [in Latin America] are not.” Heobserved that the region seemed to be relatively moreglobalized before the 20th Century than it is now.“Latin America was very globalized and changedChina’s economy,” he reckoned.

There is of course another concern on Latin Americanminds as they weigh the implications of closer tieswith Asia, particularly China. It would perhaps be tooeasy to fall into a tempting dependency relationship,with the continent’s resource-rich economies relyingheavily on trading raw materials to feed the hungryChinese giant. China needs to keep growing at a highrate to maintain social stability and create necessaryjobs. “If China keeps on growing, Latin America will dowell,” said Ricardo Hausmann, Director of the Centerfor International Development and Professor of thePractice of Economic Development at HarvardUniversity’s John F. Kennedy School of Government.

But the slowdown in the US and the global economycould pose risks. Some Latin American countries,such as Chile whose exports match China’s importrequirements, will perform well in the short term, whilethose whose exports compete with China’s, such asMexico, may run into some trouble, Hausmannwarned. Huang Haizhou, Managing Director of ChinaInternational Capital Corporation (Hong Kong),wondered “whether Chinese demand will be enoughto support commodity prices” and keep LatinAmerican economies buoyant during this globaleconomic slump.

Figure 2: Exports to India

Source: Government of India, Ministry of Commerce & Industry, Department of Commerce

Chile now accounts for nearly one-third of Latin American exports to India

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2004 20052003 2006

Other

Mexico

Chile

Argentina

Brazil

More than 200,000 people around the world joined thediscussions at the World Economic Forum on Latin Americathrough video debates hosted on YouTube. Viewers sent intheir responses to the Latin America Question: “What keyaction do you think countries, companies or individualsshould take to make Latin America a better place in 2008?”

The presidents of Guatemala, Costa Rica and the PrimeMinister of Trinidad and Tobago were among 70 participantswho also added their voice to the open dialogue about thefuture of the region. “The interaction via YouTube’s videoplatform offered us a unique possibility to open our debatesto a global audience,” said Emilio Lozoya Austin, Head ofLatin America and Global Leadership Fellow at the WorldEconomic Forum.

The best videos submitted to the site were screened in theclosing session of the World Economic Forum on LatinAmerica. Watch answers to the Latin America Question inEnglish (http://youtube.com/latinquestion), Spanish(http://mx.youtube.com/preguntalatina) and Portuguese(http://br.youtube.com/questaolatina). Watch plenarysessions on the Forum’s channel on YouTube athttp://youtube.com/worldeconomicforum

The Latin America Question builds on the Davos Questionlaunched for the World Economic Forum Annual Meeting2008 in Davos, which has been watched by over 8 millionpeople on YouTube.

The Latin America Question


The critical question, however, is not whether China’shigh demand for commodities keeps Latin America’seconomies humming. The key issue is how LatinAmerican economies each come to terms with China’slong-term economic rise. The stress of the globaleconomic slowdown could prove a catalytic test. Thehard times may prompt those economies that aremore challenged by China’s emergence to pursuevaluable and necessary restructuring, putting them ina better position in the long run to compete withneighbours who may weather the storm but couldlapse into complacency as a consequence.

As Daniel Servitje, Chief Executive Officer of GrupoBimbo of Mexico, pointed out, the challenge for LatinAmerican countries is to get into the “fast lane” to Asiaas Chile and Colombia have managed to do.Governments should raise awareness of theopportunities that China and India hold and not dwellon perceived threats. The rise of China and India, aswell as the other Asian economies, should make LatinAmerican economies want to become better andmore competitive and not to take cover. “We are usedto looking at the national league, not the World Cup,”Servitje concluded. But now “we must overcome ourcomplacency.”

From left to right: Wang Jinzhen, Vice-Chairman, China Council for the Promotion of International Trade (CCPIT), People's

Republic of China; Juan Quirós, Vice-President, Fiesp, Brazil; Daniel Servitje, Chief Executive Officer, Grupo Bimbo,

Mexico; Daniel J. Brutto, President, UPS International, UPS, USA


“Biofuels are not going to be asubstitute for petroleum – not at theamount that would be needed in thenext 50 years.”

José Sergio Gabrielli de Azevedo, President and Chief

Executive Officer, Petroleo Brasileiro Petrobras, Brazil; Co-Chair

of the World Economic Forum on Latin America

“Looking ahead to 2030, according toIADB data, aggregate energy demandin Latin America will increase by 75%and electricity generation capacity willneed to increase by 144%. Are wegoing to be able to meet thischallenge?”

José Miguel Insulza, Secretary-General, Organization of

American States (OAS), Washington DCLatin America finds itself at the forefront of many ofthe global debates over environmental issues likeclimate change, alternative energy, deforestation andthe multiple challenges facing megacities. Once limitedto the dichotomy of development vs conservation, thediscussion is becoming more complex, subtle andsophisticated. With advances in greenhouse gas(GHG) emission reductions, carbon credits, biofuels,ecotourism and certification of origin, to name a fewexamples, business people are beginning to deviseways to make money from green products andpractices. And many ecologists are beginning toaccept and even advocate market-based solutions toenvironmental problems. Regarding climate changeinitiatives towards a robust post-2012 regime,according to participants' votes, business would mostlike to be involved in: a) cutting direct GHG emissions;b) investing in R&D on future technologies; c) raisingawareness among employees and consumers; and d)looking to build political support for stronger efforts.

At this World Economic Forum on Latin America, thenewfound mainstream status of the environment wasevident in the way it popped up in places that wouldhave seemed odd just a few years ago. Until recently,any debate over infrastructure development wouldhave either ignored the environment or lambastedgreens as obstructionists. In Cancún, “environmentalsustainability” became a consensus choice as aprerequisite for successful infrastructure development.The war on drugs also received a green makeover.The rain forest is threatened, not only by the illegallogging, but also by the depredations of cocaproducers, said Alvaro Uribe Velez, President ofColombia. As a result, the nation’s efforts to halt thedrug trade have an environmental as well as a socialfacet, he said.



Nowhere were the more nuanced deliberations moreapparent than in the session on biofuels. Once toutedas a clean and renewable panacea, then derided as avillain, stealing tortillas from the poor and land from therainforests, biofuels received a level-headed hearing atthe meeting. The discussion delved into complexitieslike water usage – suggesting that consideration begiven to whether biomass crops need large amountsof water, whether natural rainfall is sufficient in placeschosen for cultivation and, if irrigation is needed, in ananalysis of the energy expended in pumping.

With a programme dating to the 1970s and nearlyideal conditions in terms of climate and landavailability, Brazil became the world leader for the firstgeneration of biofuels, using ethanol refined fromsugar. Colombia was another early adopter, andsimilar incentives are being implemented in the United

Figure 1: World’s Largest Biofuels Producers

Source: "Renewables 2007: Global Status Report", Ren21

Brazil and Colombia both among the world's top-10 producers of biodiesel and fuel ethanol

Share of top-10 countries' biofuels* production, 2006

* Includes biodiesel and fuel ethanol

ChinaChina

GermanyGermany

FranceFrance ItalyItaly

SpainSpain

IndiaIndia

ColombiaColombia

CanadaCanada

BrazilBrazil

OtherOther

USUS

States, Mexico, Central America and other parts ofthe Americas (see Figure 1). Technological barriers arelower than generally recognized, said Luiz FernandoFurlan, Chairman of the Board, GALF Empreendimentos,Brazil. Brazilian gasoline refineries use ethanol as anadditive in the nation’s petrol, to the tune of 22%, andeven imported cars run well. Brazilian-made cars haveflex-fuel engines which allow them to use 100%ethanol as fuel.

As the so-called first generation of fuels struggles toattain a critical mass of distribution, second generationfuels are already being developed. They include butanol,which has a higher energy density than ethanol anddoes not absorb water, thus reducing corrosion on carengines. Another promising branch of new research canbe found in cellulose enzyme technology that producesethanol or butanol from bagasse, the heavy pulp leftover after sugar has been extracted from cane.

Douglas Albrecht, President, Celulosa Argentina,predicted that oil prices will remain high, which willfurther boost the demand for biofuels. But José SergioGabrielli de Azevedo, President and Chief ExecutiveOfficer, Petroleo Brasileiro Petrobras, Brazil, a Co-Chair of the World Economic Forum on Latin America,urged caution in the short term. “Biofuels are notgoing to be a substitute for petroleum – not at theamount that would be needed in the next 50 years,” hesaid. “But they will play a more important role. There willbe a diversification of sources. There are limitationsnow. The second and third generation technologieswill be important, but the third generation technologyprobably won’t come in less than five years.”


ENERGY VISION

UPDATE 2008

Solving the Energy

Puzzle through

Innovation

World Economic Forum

in partnership withCambridge Energy Research Associates

Tapping the full potential of Mexico’s oil and gas resourceshinges on overhauling the controls governing their extraction.A controversial energy reform bill presented by PresidentFelipe Calderón to parliament is a big step in this direction.The proposals aim to give Mexico’s state-owned oilcompany, Pemex, greater freedom in operating, budgetaryand investment decisions, as well as greater freedom towork with third parties. Without reform, the state monopoly isconstrained to operate alone and Mexico may well forgoconsiderable economic opportunities and face declining oilproduction.

Mexico lags behind other oil-producing countries like Norwayand Brazil that have reformed their upstream sector, progressPemex and Calderón could draw from in the process ofdefining Mexico’s “winning” model. “Without privatizingPemex, the reform grants it access to state-of-the-arttechnology and complementary investment to multiply itsexecution capacity, as other national oil companies havealready done,” Calderón warned.

Stimulating cross-learnings was high on the agenda ofseveral private and public energy sessions at the WorldEconomic Forum on Latin America. Participants expandedtheir discussion to look at the role of innovation to help solve

the growing energy dilemma facing the world: how to deliversecure, affordable, low carbon energy to a global populationthat is expected to grow from 6.4 billion today to more than8 billion by 2030.

The World Economic Forum’s report, Solving the EnergyPuzzle through Innovation, which addresses this questionhead on, formed the basis of the discussion.

High energy prices combined with concerns about energysecurity and climate change are stimulating the mostwidespread drive for innovation the energy sector has everseen. Investment in renewable energy and energy efficiencyexceeded US$ 110 billion in 2007. However impressive theinvestment in clean technology may be, it is only a fraction ofannual investments in energy. Therein lies both a tremendouschallenge and a tremendous market opportunity. Innovativecompanies will capitalize on these opportunities. How manyof them will come from Latin America?

Solving the Energy Puzzle



With a few exceptions, notably infrastructure, LatinAmerica doesn’t need to throw more money at itsproblems. Instead it needs to free up sources ofcapital and invest more wisely. In addition to the nowperennial call for better education at the WorldEconomic Forum on Latin America, participantsadvocated reforms designed to increase transparencyand openness in labour and financial markets. Theydefended tax and regulatory changes to decrease theincentives for small and medium sized enterprises(SMEs) to take refuge in the informal sector –legendary for its low productivity.

“What do we need to compete with China?” was therhetorical question posed by Alejandro Baillères, ChiefExecutive Officer, Grupo Nacional Provincial, Mexico, aCo-Chair of the World Economic Forum on LatinAmerica. His answer: “Productivity. And that will onlycome with structural reforms.”

Such mundane proposals run counter to thepredominate “big idea” syndrome in the region,according to which messianic leaders have historicallytaken it upon themselves to pursue populist andideologically-loaded solutions with enormous negativeconsequences on some of the nations and theirpeople. Against that backdrop, a healthy dose ofpolitical realism is refreshing. “It isn’t a question ofwhat would be the ideal reform for PetroleosMexicanos [Pemex] or labour legislation, but whatwould be the next possible step that you canrealistically take,” pointed out Baillères.

For starters, the business, government and civilsociety leaders in Cancún repeated the nowcommonplace mantra of better education, which trailsOECD countries for instance (see Figure 1). “It is thenumber one issue,” said Oscar Arias Sánchez,President of Costa Rica, noting the low proportion ofteenagers who go on to university. “If we don’teducate people, it will be very difficult to haveprogress.” He added: “The quality and amount ofeducation we have does not allow us to escape fromthe feudalism where a lot of Latin Americans still live.”

“This is an opportunity to exchangeideas with interested people from LatinAmerica and all over the world to seehow we can help the region to develop.We see a lot of potential for people tocome and invest and get good returns.”

José Antonio Fernández Carbajal, Chairman and Chief

Executive Officer, FEMSA, Mexico; Co-Chair of the World

Economic Forum on Latin America

“What do we need to compete withChina? Productivity. And that will onlycome with structural reforms.”

Alejandro Baillères, Chief Executive Officer, Grupo Nacional

Provincial, Mexico; Co-Chair of the World Economic Forum on

Latin America

The once generic discussion of education seemedmore focused this time around. There was consensuson the need to build a “values and skills-driveneducational system”. In practical terms, this translatedinto specific calls to encourage university students totake more practical courses and for public schools toreward good teaching. The lack of students majoringin the hard sciences hinders economic growth inMexico, said Julio A. de Quesada, President, ConsejoEjecutivo de Empresas Globales (CEEG), Mexico. Headded: “We have too many bankers and lawyers andnot enough engineers.” (See Figure 2.) Baillères citedmerit pay for teachers as a potentially achievable goalthat would help improve the quality of education.

Source: OECD (2007)

Figure 1: Educational Performance

600

500

400

300

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Argentina BrazilColombia Mexico Uruguay Chile OECDaverage

Latin America trails behind OECD countries in math and reading skills

Mat

hem

atic

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Building Cities

Participants explored the complex challenges facingthe growing urban areas in the region, which includethree of the world’s megacities: Buenos Aires, MexicoCity and São Paulo. They broke into six workinggroups to develop recommendations for mechanismsand initiatives that promote urban development reformand environmentally, socially and economicallysustainable patterns of settlement:

• Establish an institutional technical body independentof elected political officials that has the authority andresources to create long-term plans (10 years andmore) and policies for urban development

• Establish strong legislative frameworks, which arekey to guide and monitor public and private sectorcollaboration and investment in urban projects

• Develop public policies that modify per capitaconsumption of water and other resources throughmarket mechanisms with the aim to educate citizensas to the importance of conservation efforts

• Maintain essential networks and services. Suchmaintenance requires coordination and cooperationamong all federal, state and city authorities

• Explore new and creative ways to slow immigration tothe urban areas. This will inevitably require significantinvestment in and attention to rural populations

• Explore the feasibility of establishing small-scalenetworks or “cells” of citizens in city neighbourhoodsthat would take on the responsibility of maintainingwater, transportation, recycling and energy systemsusing alternative, sustainable methods where possible

• Instil civic values and an understanding ofsustainability and the lifestyle changes it may requirethrough public education and especially the use ofthe media



Several sessions touched on the deleterious effects ofthe informal sector on the larger economy, and theyextend far beyond the oft-decried loss of tax revenuesand unfair competition for firms that play by the rules.For instance, the working poor often do not enjoypension benefits because they either work for enterprisesthat pay no tax or benefits or work for legal companiesbut negotiate not to pay pension contributions, saidPamela Cox, Vice-President, Latin America and theCaribbean, World Bank, Washington DC. This translatesnot only into personal hardship when people retire, butreduces the consumer base among seniors. Chile andMexico are forecast to carry the largest burden ofageing populations in the region (see Figure 3).Informality also inhibits the growing efforts bydedicated banks and divisions of larger financialinstitutions to provide microfinancing to small companies.

Source: NSF Science and Engineering Indicators 2008

Figure 2: Engineering Graduates

400

300

200

100

0Num

bero

feng

inee

ring

grad

uate

s,20

04(t

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)

China

Note: Latin America includes 15 nations in South and Central America for which data are available, most recent year

LatinAmerica

SouthKorea

EuropeanUnion

UnitedStates

Latin America produces more engineers than the United States

Mexico

Rest ofLatin

America

A study conducted of his bank’s clients revealed thattwo factors – the absence of working capital and hightaxes – account for 40% of SME failures, reportedRicardo Villela Marino, Chief Executive Officer, ItaúLatin America, Brazil. Microfinancing is designed tohelp address the first problem, but entrepreneurs areoften ineligible for any bank loans because they taketheir firms into the informal sector to evade the taxburden. “Governments should lower taxes on SMEs toreduce the incentive for those companies to go intoinformality,” said Villela Marino. Joaquim Levy,Secretary of Finance, State of Rio de Janeiro, Brazil,argued that state officials can reduce informality bysimplifying tax systems. Simplification can jump start avirtuous cycle to bring more working poor into thepension system and boost tax revenues.

Regulatory reform of the capital markets could alsohelp SMEs access much needed cash, offered ManuelJ. Balbontin, Founder and President, Compass Group,USA. “Capital market reforms are not rocket science,”he noted. “What we need are different mechanisms sothat we can build a highway between the large poolsof capital in the region and SMEs.”

Many sessions highlighted the need for regulatorychanges aimed at creating more transparency andcompetition. Roberto Teixeira da Costa, Member ofthe Board, Sul America, Brazil, noted that althoughBrazil is a regional leader in many aspects of capitalmarkets, the country shares at least one importantchallenge with its neighbours – unpredictability.“Unpredictability is the name of the game in LatinAmerica,” he said. “We have been working towardsmore transparency, which is important for domestic andforeign investors. Most important is good governance.”

In host country Mexico, the most notable deregulationproposal on the table is President Felipe Calderón’sproposed liberalization of the public monopoly in thepetroleum sector. Eduardo Sojo Garza-Aldape,Secretary of the Economy of Mexico, outlined a lesscontroversial but no less ambitious effort theadministration is pursuing in partnership with theOrganisation for Economic Co-operation and

Source: United Nations (2007)

Figure 3: Old-age Dependency Ratios in Largest Latin American Countries

40%

35

30

25

20

15

10

5

0

Old

-age

depe

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Peru Venezuela ArgentinaColombia ChileMexicoBrazil

Burden of ageing populations to be greatest in Chile and Mexico

2008

2050

1950

“While current levels of annualinvestment in [Latin America andCaribbean] infrastructure are around2.5% of GDP, it is estimated that theregion needs to invest 4-6% of GDP forthe next 20 years to achieve demandgrowth and maintain existing services.”

Luis A. Moreno, President, Inter-American Development Bank,

Washington DC


Development that will analyse the Mexican economysector by sector to define policies to improvecompetitiveness and productivity. Already thegovernment has made piecemeal but significantchanges in port regulations and the liquid natural gasmarket, he pointed out. “The country has movedforward with reforms, but one aspect has beenoverlooked – microeconomic reforms,” he said.“These would mean moves to create morecompetition and deregulation.”

Most of the above-mentioned proposals can beimplemented without significant outlays of public orprivate money. The exception to that rule isinfrastructure development (see Figure 4). For manyobservers, infrastructure is the lifeblood ofcompetitiveness. The problem of crumbling andinsufficient infrastructure has been at the top of allregional business agendas for several years.Governments have taken note and started devotingsignificant efforts to boost private investment and arepledging more public funds. However, Latin Americarepresents only about 3% of global infrastructuredemand. This means investment has started toincrease, but not at the rate needed to close the gapbetween needs and investment.

Participants discussed the potential for public-privatepartnerships and what is needed to attract privateinvestment for infrastructure development. Ideasincluded: (1) using Mexico’s ambitious infrastructureprogramme, and its expertise in crafting concessionagreements, as a model; (2) creating social legitimacyfor infrastructure development by avoiding collateraldamage, reducing cost overruns, accepting the needfor transparency and insisting on environmentalsustainability; (3) encouraging governments to providestable regulatory environments for investors; and (4)pushing companies to practise corporate socialresponsibility, for instance by adhering to labour lawsand using local suppliers when feasible.

Source: "Connecting to compete: Trade logistics in the global economy", World Bank (2007)

Figure 4: Latin America's Competitiveness in Logistics

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Only Argentina is among the world's 50 top countries in terms ofthe ease and a!ordability of arranging international shipments

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“You need the participation of the statebut it is a strategic role so that all canbenefit from the market.”

Eduardo Sojo Garza-Aldape, Secretary of the Economy of

Mexico


Enhancing Innovation in Business

and Social Issues

Latin America doesn’t need a Next Big Thing butrather should focus on replicating, supporting andimplementing all the little ideas that have beenpercolating to make real changes on the local andnational levels. “For the first time we may have accessto solutions for most of our problems of economicinsecurity,” said Martin Burt, Founder and ChiefExecutive Officer, Fundación Paraguaya, and a SocialEntrepreneur.

Burt’s comment reflected the sense of optimism thatpervaded the World Economic Forum on LatinAmerica. This optimism engendered confidence thatthe region can finally address some of its long-standing and deeply rooted problems. Participantsaddressed a broad range of issues related toeconomic inclusion, income distribution and socialwelfare, and several key themes emerged: (1) theprofit motive is part of the solution rather than part ofthe problem; (2) companies, governments and civilsociety organizations must work together; (3)institution building is key, both at the macro

society/government level and the micro level withinfirms; and (4) the chronic problem of bad qualityeducation must be tackled.

The upbeat nature of the meeting stemmed partlyfrom the near euphoria over the region’s recentmacroeconomic performance, which has been aboutas good as it has ever been since the dawn ofsystematic statistical analysis. Paul Rice, Presidentand Chief Executive Officer, TransFair, USA, a SocialEntrepreneur, reminded participants that today’s goodnews is part of a continuum dating back decades: 30years ago, brutal and corrupt military dictatorshipslorded over much of the region, armed conflict wascommonplace and politicians customarily meddled inmarkets. Today the landscape has improvedconsiderably, he noted. Throughout most of theregion, democracy reigns and press freedom hasbeen established, free trade is the norm, civil society isstronger, the middle class is bigger and environmentalconsciousness has taken hold.

“If there is a lack of security, peopledon’t invest. We have decided to get ridof terrorism, this scourge of 40 years –and we have to do it.”

Alvaro Uribe Velez, President of Colombia

“If we don’t educate people, it will bevery difficult to have progress. Thequality and amount of education wehave does not allow us to escape fromthe feudalism where a lot of LatinAmericans still live.”

Oscar Arias Sánchez, President of Costa Rica


Yet amid all that good news lie some harsh realities.Political unrest, involving sometimes violent streetprotests, is growing in many countries. Murder ratesare higher than other parts of the world (see Figure 1).It is surprising, noted Moisés Naím, Editor-in-Chief,Foreign Policy Magazine, USA, “how good theeconomy has been in Latin America and how bad thepolitics have been. If the politics have been bad whenthe economy has been good, it is interesting to imagine– if you think there will be a slowdown – what thepolitics will be like when the economy is bad.” AddedRice, “We have a lot to celebrate, but the trickle downapproach does not work,” as social problems andpoverty stubbornly refuse to go away. He commented,“there has been a backlash against free trade, the riseof so-called socialism and increasing social unrest. Isuggest that time is short. Many of the advances ofthe last 20-30 years could be reversed.”

Source: CTS

Figure 1: Homicide Rates

Murders per 100,000 population (most recent year)

US

Philippines

Thailand

Uganda

Murder rates in many Latin American countries high compared to other parts of the world

6

8

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Latvia

Sri Lanka

Mexico

Kazakhstan

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Guatemala

El Salvador

Venezuela

Jamaica

South Africa

Rather than reverting to the old and what he calledineffective approaches of aid and governmentintervention, Rice suggested support of socialentrepreneurs as the standard bearer for a new-styleanti-poverty campaign. “Social entrepreneurship existsin every community,” he said. “There is a lack ofcritical ingredients but not a lack of will.” Key elementsof the approach would include: (1) improved access tomarkets, including those for value-added productsand niche markets like organic foodstuffs; (2) betteraccess to capital for small and medium enterprisesthat have progressed beyond the micro-financingstage; and (3) increased capacity building services,including helping small firms develop organizationaland managerial skills and create value-addedproducts.

Microfinancing is of course still useful forentrepreneurs at early levels of development. And inLatin America it is shedding an image as a novel formof assistance to become a service offered bydedicated banks and divisions of larger financialinstitutions. Microfinance institutions not only provide

“The world economy is being testedand is at risk. We are not asking fordonations but short-term lines of creditfor food and energy. Eitherglobalization is a trick – or it is anopportunity.”

Manuel Zelaya Rosales, President of Honduras


loans to the poor, but they offer savings accounts tocustomers that regular banks won’t touch. Theminimum deposit at Mexico’s Banco Azteca, part ofthe Grupo Salinas, is five dollars, thus providing areasonable and more secure opportunity for peoplewho would otherwise stuff cash under the mattress,said Ricardo B. Salinas Pliego, Chairman, GrupoSalinas, Mexico. Many banks also give theircustomers debit cards, thus further integrating theminto the mainstream of society.

As the segment grows, regulators are beginning toexamine its practices – especially the interest rates itcharges, which are far higher than those levied bytraditional banks for conventional customers. Giventhe idiosyncratic nature of its business and coststructure, micro-bankers argue that regulators shouldtreat them differently from traditional institutions. “Itisn’t apples and oranges,” said Salinas. “It is applesand pineapples, way more different.” AddedChristopher Rodrigues, Executive Chairman,International Personal Finance, United Kingdom: “Badregulation should be avoided at all cost. But wedefend supervision. Good supervision drives badpractices out of the market.” When critics raise ethicalquestions about higher interest rates for the poor,noted Carlos Danel, Co-Chief Executive Officer, BancoCompartamos, Mexico, a Young Global Leader, “Thequestion they are really raising is not about interestrates but whether it is ethical to profit from the poor.

To me it sounds like discrimination. It is the same kindof exclusion and discriminatory practices that havekept people in poverty.”

Other innovative best practices received an airing inCancún. For instance, the CEO of a large rum distilleryin one of the most violent states in Venezuelarecounted his company’s experience with gangswhich continually assaulted employees inneighbouring communities. His company devised an“admittedly risky programme” of providing work toviolent gang members. To their surprise, scores ofgang members presented themselves for training andwork. The company eventually brokered a peacebetween rival gangs and, in a relatively short time, thecrime rate in the county dropped 90%. “We all knowthe importance of family but we didn’t understand thefact that gangs are families, providing the identity,sense of belonging and discipline when society fails toprovide these needs.”

Education: The Cornerstone of Latin America’s Future

Business, government and civil society leaders identifiedthe need to construct values and skills-driven educationsystems as the top priority for Latin America to achievesustainable development. “It is the number one issue,”said Oscar Arias Sánchez, the President of Costa Rica,noting the low proportion of teenagers who go on touniversity. “If we don’t educate people, it will be verydifficult to have progress.”

The “entry level skills gap” in education was a topic ofin-depth discussion in Cancún. Educators, labour leadersand government ministers are struggling with the huge– and widening – gap between the need for techniciansand engineers and the availability of suitable newgraduates. Demographics are working against bridgingthis gap: engineers are ageing and retiring while studentsare choosing more “glamorous” careers such as law.

From the business perspective, the “perfect engineer”must understand local and international standards andcodes, be equipped with hands-on experience,understand the balance between the commercialrealities of the private sector and the public good, as wellas have a well-rounded education in the softer subjects.From the academic perspective, business must becomecreatively involved if institutions are to turn out graduateswith suitable entry-level skills. Participants debatedwhether today’s shortcomings stem from the basiceducation system, and agreed that a lack of learningskills is pervasive across the region. Employees’ capacityto learn and to solve problems is key if companies –and Latin America – are to boost competitiveness.

In a vote, participants identified the most importantinitiatives to be implemented in the next 20 months tobridge this gap and make the next decade morepromising for academic institutions:• Complement technical skills with problem solving andattitude skills as subjects – 35%

• Encourage the joint design of curriculum planning byacademia and business – 20%

• Design partnerships with companies for on-the-jobtraining as part of the curriculum – 20%

• Brand new schools to attract top students – 10%• Partner with major corporations to bridge the skillsgap – 10%

• Support faculty/teachers spending time incompanies – 5%

The most important initiatives to be implemented in thenext 20 months to make the next decade morepromising for business include:• Become more involved in basic education to promotethe quality of education – 31.8%

• Compensate in order to motivate professionals andbook job satisfaction at the workplace – 18.2%

• Motivate executives to spend more time inacademia – 18.2%

• Develop training programmes as a means to reducecosts on human resources turnover – 13.6%

• Encourage meritocracy through initiatives – 9.1%• Make engineering more glamorous for youngprofessionals – 4.6%

• Encourage recent engineering graduate students’repatriation – 4.6%



Acknowledgements

Strategic Partners

AlcoaArcelorMittalAudiBombardierThe Boston Consulting GroupBTCACisco SystemsDuPontGoldman SachsInfosys TechnologiesKudelski GroupManpowerMerck & Co.Merrill LynchPepsiCoPricewaterhouseCoopersRenault-NissanUPSVolkswagenWPPZurich Financial Services

Regional Partners

Banco HipotecarioCambridge Energy Research Associates (CERA)

Meeting Supporters

FEMSAIberia Group

The World Economic Forum wishes to thank the Government of Mexico for serving as host countryto the third World Economic Forum on Latin America, and in particular ProMexico, the Mexicanagency for export and foreign investment promotion.

The World Economic Forum also thanks Canal Once, Mexico, in collaboration with ProMexico, thehost broadcasters of this event, and The Coca-Cola Company for providing beverages.

The World Economic Forum wishes to recognize the support of the following companies as Partners orSupporters for the World Economic Forum on Latin America:


Contributors

Emilio Lozoya Austin is Head of Latin America and a Global Leadership Fellow at the WorldEconomic Forum. The World Economic Forum on Latin America was under his directresponsibility.

Julio Estrada is Associate Director, Latin America. Jacques Marcovitch is Professor, University ofSão Paulo, Brazil, and Senior Adviser at the World Economic Forum. Paula Verholen is SeniorCommunity Relations Manager, Latin America. Antonio Human is Community RelationsManager, Latin and North America. Rosanna Mastrogiacomo is Senior Event Manager, and wasthe meeting Coordinator.

Report WritersAlejandro ReyesWilliam HinchbergerSamantha Tonkin, Senior Media Manager at the World Economic Forum, worked with them toproduce this report.

Editing and ProductionKamal Kimaoui, Associate Director, Production and DesignFabienne Stassen Fleming, Senior Editor

PhotographerSergio Ochoa

The World Economic Forum would like to express its appreciation to the summary writers fortheir work at the World Economic Forum on Latin America. Session summaries are available onour website at: www.weforum.org/latinamerica2008/summaries

The World Economic Forum would like to recognize the support of PricewaterhouseCoopers incompiling data and statistics for this report.


This publication is also available in electronic form on the World Economic Forum’s website at the followingaddress:

World Economic Forum on Latin America Web report:www.weforum.org/pdf/summitreports/latinamerica2008 (HTML)

The electronic version of this report allows access to a richer level of content from the meeting, includingphotographs and session summaries.

The report is also available as a PDF:www.weforum.org/pdf/summitreports/latinamerica2008.pdf

Other specific information on the World Economic Forum on Latin America in Cancún, Mexico,on 15 and 16 April 2008, can be found at the following links:

www.weforum.org/latinamerica2008www.weforum.org/latinamerica2008/programmewww.weforum.org/latinamerica2008/partnerswww.weforum.org/latinamerica2008/summarieswww.weforum.org/latinamerica2008/regionalupdatewww.weforum.org/latinamerica2008/privatewww.weforum.org/latinamerica2008/essayswww.weforum.org/latinamericaprivate/knowledgeconcierge2008www.pbase.com/forumweb/latin_america_2008www.youtube.com/latinquestion

The World Economic Forum is an independentinternational organization committed to improvingthe state of the world by engaging leaders inpartnerships to shape global, regional andindustry agendas.

Incorporated as a foundation in 1971, and basedin Geneva, Switzerland, the World EconomicForum is impartial and not-for-profit; it is tied tono political, partisan or national interests.(www.weforum.org)

world economic forum on latin america 2008

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