Investment in infrastructure in Latin American countries, where it is presumed that the development of the sector, is 20 years behind China, will allow the continuation of economic growth in the region. At the same time, the boom in raw materials begins its decline.
This is an emphatic statement by financial leaders, but it shows the opportunities that investment in infrastructure will generate for both parties. Randall Castillo Ortega, the founder of SME backer RACO Investment in Costa Rica and Panama, explains why infrastructure investments are important for Latin America’s growth.
Many of the countries in the region, under the legal frameworks, are preparing different important investment projects to achieve the infrastructure they need and to remain competitive in the future. The entire region really has great potential, with an approximate figure of about $200 billion in infrastructure investment in the region in the coming years.
According to the Development Bank of Latin America (CAF), the region needs to increase its investment in infrastructure from 3% of GDP to 6%. States Castillo, “The impulse to develop infrastructures in the region is something that Latin America wants and needs, and China has already been considering and for which it has developed financing options. The lack of good infrastructure to develop the region quickly is the main challenge it has.”
Despite the global slowdown, economic activity in Latin America in the last decade has managed to reduce poverty from 48% to 29% and increase its middle class by 50% (from 103 million people to 152 million). However, to continue its economic take-off, it needs to reduce the infrastructure gap, such as transport, telecommunications, water and energy.
There is a lack of rails, airports, ports, subway stations, buses and power plants, which need to be developed. Governments are beginning to realize that if they want their economies to continue growing, they need to support the sector, and this is a great opportunity. It was a difficult decision for governments, which was sometimes opposed by interest groups, but it had to be done and in the long run, it would also bring new opportunities for those groups.
The hundred most important and urgent infrastructure projects for Latin America and the Caribbean, whose average growth was 3% last year and is expected to reach 3.5% in 2023, require an investment of about $250 billion. Much of that will focus on digital investment.
The Internet and telephone communication facilitate access to employment information and educational resources, which contributes to people being able to get out of the cycle of poverty. A 1% increase in total investment in telecommunications leads to a reduction in the poverty rate, measured as a percentage of the population subsisting on less than $1.90 per day, by 0.0132 percentage points. Of this, most correspond to investment in mobile technology. According to the multilateral organization, by investing an additional $21.7 billion in such infrastructure, all individuals living on less than $1.90 a day could be lifted out of poverty.
Similarly, digital infrastructure and technologies related to the Internet of Things contribute to agricultural sustainability and improve food security. A 1% increase in total investment in telecommunications and, especially in mobile telephony, leads to a reduction in the percentage of undernourished people by 0.011 percentage points.
According to estimates, malnutrition could be reduced by up to 2.8% with the investment of an additional $56.8 billion. In addition, it contributes to raising life expectancy. To reach the OECD average life expectancy of 79.7 years, countries would need to invest a total of $81.3 billion in telecommunications infrastructure.
The increase in annual investment in Chile, Costa Rica, Ecuador, Panama and Mexico for poverty elimination, and Argentina, Chile and Mexico for zero hunger is less than 10%. Undoubtedly, these increases in investments are significant and substantial, but they would be more easily achievable with solid economic regulation and a promotion in the demand for telecommunications services.