Tuesday 27 September 2022

The New South America

What if Mercosur and the Pacific Alliance joined forces?

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27 September 2022 - At The Banks - BCCR

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Latin America is taking giant leaps towards becoming a global superpower. Treasury Ministers Rodrigo Valdés and Nicolás Dujovne from Chile and Argentina respectively highlighted the importance of advancing towards the process of regional integration in order to the strengthen both economies.

The most important topic, they denoted, is how both nations will continue to lead its own international alliance within Latin America. Chile leads the Pacific Alliance, the group of nations where Colombia, Peru, and Mexico are members of, while Argentina leads Mercosur, the alliance that hosts Brazil, Uruguay, and Paraguay.

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The main argument for a macro-integration inside Latin America resides in the substantial expansion of its middle class and the regional consumer market. The awakening of South American governments towards the importance of public policies oriented to improve the work and quality of life through public spending have reduced overall poverty in the region.

A massive trend of urbanization aims to decrease the strong correlation that the southern American hemisphere has with the primary sector. As a result, the regional GINI Index has been reduced from 0.547 in 2002 to 0.496 in 2012 and urban unemployment averages 6.05%.

The second argument in favor of the regional integration has to do with the abundant reserves of strategic minerals. Global trends indicate that lithium will be a central element of the future economy given that crude is being substituted; the rise of electric cars is undeniable. Other precious metals can be found in the region such as bauxite, mine copper, refined copper, gold, silver, iron, molybdenum, and zinc.

Alongside with precious metals, Latin America concentrates 52% of the global production of soy, 16% of the corn and meat production, and 11% of the world’s milk. South America possesses 33% of the global reserves of fresh water, a phenomenon that is closely tied to the fact that 17 countries in the territory are considered to be megadiverse.

Nevertheless, challenges also surge from the idea of a regional alliance. The high dependency on local extraction and outsourcing of logistic processes has made the region uncompetitive in its exports sector. Latin America only accounts for 5-6% of the global exports as only 1% of the total companies in the region are aimed at said market.

The biggest challenge that a unified South America would face is the lack of insertion in the knowledge economy. Latin America and the Caribbean concentrate only a little more than 2% of the global patents presented worldwide. This phenomenon is explained by an average investment of 0.84% of the summed GDP for Investigation and Development.

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Brazil destines only 1.21% of its GDP towards science, which hides the fact that most nations in the area invest less than 0.5% in intellectual development.

Latin American challenges do not outweigh its potential, but these points are key for an efficient generational and open transition towards a more equal and sustainable future.

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"Rico" is the crazy mind behind the Q media websites, a series of online magazines where everything is Q! In these times of new normal, stay at home. Stay safe. Stay healthy.

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