Latin America Should Follow Botswana's Lead

By Andres Oppenheimer

A new international ranking showing historically poor Botswana ahead of such middle-income countries as Mexico, Brazil and Argentina makes me wonder whether Latin American countries are focusing on the wrong issue. They may be worrying too much about free trade and too little about competitiveness.

Much of Latin America is debating whether to sign a 34-country Free Trade Area of the Americas with the United States or similar deals with the European Union. Such agreements could increase the region's exports and encourage investments from companies eager to ship their goods duty-free from there to the world's biggest markets.

While the discussion goes on, few are realizing that Latin America is falling farther behind in the world's rankings of the most attractive countries to invest in. We may reach a point where Latin American countries may gain duty-free access to the U.S. market but won't be able to compete with Eastern European, Asian and African countries.

Consider the international competitiveness ranking released by the World Economic Forum last week, based on a poll of 8,700 business leaders in dozens of countries. The ranking is based, among other things, on respondents' perceptions about countries' economic environment and the quality of their institutions.

When asked to name the most attractive countries to invest in, business leaders put Latin America -- with the sole exception of Chile -- near the bottom of the list.

BRINGING UP THE REAR

The 104-nation ranking is led by Finland, followed by the United States and Sweden. From then -- except for Chile, which is ranked 22nd -- you see a long list of mostly European and Asian countries, with no Latin American nation in sight.

Estonia, Israel, Slovenia, Jordan, Lithuania, Hungary, the Czech Republic, South Africa, Tunisia, Latvia and Botswana are all ranked above such Latin American middle-income countries as Mexico, Brazil and Argentina.

Mexico, despite enjoying the fabulous advantage of being next door to the largest market in the world, is ranked 48th, Brazil 57th and Argentina 74th, just one place ahead of Gambia. Even farther behind are Venezuela, Ecuador and Bolivia.

A separate survey on the Most Attractive Foreign Investment Destinations released last week by the AT Kearney international consulting firm shows that Latin American countries are near the bottom of the study's 25-country list.

The ranking, based on responses by 1,000 executives, is led by China, the United States and India. Brazil and Mexico have fallen to the 17th and 22nd places, respectively, from their placements among the top 10 countries last year. ''Unfulfilled reforms in key areas such as telecommunications, infrastructure and energy . . . have led global investors to rethink Mexico,'' the study said.

What is Botswana doing that Latin American countries have failed to do? According to international economists, Botswana has had one of the world's highest growth rates since independence in 1966.

Its fiscal discipline and sound management have helped Botswana rise from one of the poorest countries in the world to a middle-income country with a per capita income of about $8,000 last year. That's more than Brazil's per capita income and nearly the same as Mexico's.

STABILITY MATTERS

Botswana's secret: It has not made sharp political U-turns or changed the rules of the game for domestic and foreign investors. The absence of uncertainty encourages investment.

When I called Augusto Lopez-Claros, the WEF's chief economist, to ask whether there was a mistake in the ranking of Botswana, Tunisia and most Eastern European countries ahead of Latin America's biggest economies, he stood firmly by his study's findings.

Lopez-Claros said that in his survey the business community in Botswana complained much less than those of Mexico, Brazil or Argentina about such issues as the quality of public institutions, the evenhandedness of the government in its dealings with private firms or the incidence of crime in the cost of doing business. In other words, Botswana is offering a better business climate than all Latin American countries, except Chile.

My conclusion: Perhaps Latin America shouldn't only think about whether to get preferential access to the U.S. and European markets, but also about how to create the right conditions to attract domestic and foreign investments. Otherwise, free-trade deals won't be of much use.

Source: Miami Herald