1. Latin America’s Missing Middle: Rebooting inclusive growth
The Dialogue
May 22, 2019

2. GDP per capita (constant PPP), indexed to OECD average
Latin America’s GDP per capita gap to developed economies has not narrowed, while other emerging economies have caught up
GDP per capita (constant PPP), indexed to OECD average
100
OECD
Import substitution industrialization
Commodity supercycle
Lost Decade
Liberalization 50 45 40
Middle Income
Benchmarks 35
Latin America 30 25 20 15 10 5
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
Source: The Conference Board Total Economy Database™ (Original version), November 2018, McKinsey Global Institute analysis

3. The region needs to fill in two missing middles to restart the virtuous cycle of growth
Productive and well-paying jobs
Demand
Supply
Government enablers
A. Missing middle of firms
B. Missing middle of consumers
Latin America needs to expand the pool of modern, globally competitive firms to raise productivity and increase the number of high-wage jobs.
More productive jobs with higher wages and rising middle-class prosperity increase demand and spur new investment.
New investment to meet demand

4. A. Latin American economies have fewer large and mid-sized firms than faster growing peers
Over $500 Mn
$100 Mn to $500 Mn
$50 Mn to $100 M
Firms per $1 Tn GDP in Latin America and other EM indexed to Benchmarks
Index, Total is share of firms compared to Benchmark average, average
Firms
Number (‘000)
Avg Revenue
$ Million
Latin America
average
Benchmarks
average
Indonesia 27
1.1
370
Chile 45
0.5
561
Brazil 48
3.8
309
Argentina 50
1.3
200
Turkey 56
2.0
207
Philippines 56
0.7
257
Mexico 62
3.0
344
China 70
34.4
364
India 74
7.3
237
South Africa 82
1.1
590
Peru 86
0.7
178
Colombia 97
1.2
202
Thailand
121
2.2
280
Poland
153
3.2
182
Malaysia
174
2.2
213
Russia
187
11.2
188 65
100
Source: McKinsey Corporate Performance Analytics database; WB WDI; McKinsey Global Institute analysis

5. B. Modest productivity gains have not fed through to higher wages in Mexico, whereas in Brazil average wages rose strongly but not sustainably
Components of growth, income view
contribution to GDP growth, %
Employed labor share4
All other income
∆ Average Wage
∆ Employees at constant wages
Profits, mixed income, VA taxes
Peru
5.2
Latin America
2.8
Colombia
4.2
Chile
3.9
Advanced
1.6
Argentina
2.5
Other EM
4.8
Brazil
2.4
Mexico
2.1
China
0.3
4.7
9.5
Source: GGM; World Bank WDI; INEGI; IBGE; DANE; The Conference Board Total Economy Database™ (Original version), November 2017; McKinsey Global Institute analysis

6. % of total consumption by region and income percentiles, 2017
B. As a result, Latin America’s consumption share from the bottom 50 percent and bottom 90 percent of the population remains the lowest in the world.
% of total consumption by region and income percentiles, 2017
1-50th percentile
51st-90th percentile
91st-100th percentile
Latin America and Caribbean
100%
Sub-Saharan Africa
100%
North America
100%
South Asia
100%
East Asia and Pacific
100%
Middle East and North Africa
100%
Europe and Central Asia
100%
Source: World Data Lab, McKinsey global institute analysis

7. What is needed to expand the missing middle and accelerate the virtuous growth cycle?
Productive and well-paying jobs
Build competitive capabilities and expand number of modern firms:
Create conditions to attract investment and technology with a priority on policy stability and building out the value chain with local spillover
Create competitive markets through more competition, innovation, access to land and finance, and ease of doing business
Leapfrog economic development through a sound digital industrial policy
Raise income and purchasing power for the bottom 90
Design flexible labor policies to keep wage growth in line with productivity and reduce non-wage labor costs
Proactively skill the future labor force through better coordination among public, private, and university systems and on-the-job training
Empower economic participation of marginalized populations by improving public service delivery in health, education, childcare, energy, transportation
Demand
Supply
Government enablers
Make inclusive growth a national priority
Unite public and private efforts for inclusive growth with a clear objective and a communication plan to galvanize public support
Prepare for delivery by establishing new collaborative and adaptive governing mechanisms with a mandate for inclusive growth
New investment to meet demand

8. Digital spring provides an opportunity to reboot reforms
Billion dollar startups (unicorns) and firms that went public or were acquired by global firms
Source: CBInsights “The Global Unicorn Club”, LAVCA, online search

9. Thank you
Link to our report from the McKinsey Global Institute website: