1. LATIN AMERICA INTEGRATING OR DIVERGING? MARIO LÓPEZ ROLDÁN HEAD OF THE INTELLIGENCE OUTREACH UNIT, CABINET OF THE SECRETARY GENERAL, OECD January 2015) Drawing by Pepe Ramírez (6 years )

2. INTRODUCTORY WORD OF CAUTION “Everything you say about Latin America, the opposite is also true.” Partho Ghosh Photo: Mirage (Google Images) It’s so difficult to talk about Latin America as if it was a single entity or a coherent bloc. Keep this in mind.

3. LATIN AMERICA: A PLETHORA OF INTEGRATION INITIATIVES 70+ IN 6 DECADES

4. LATIN AMERICA: HOWEVER: LOW LEVELS OF TRADE INTEGRATION

5. LATIN AMERICA: COMPARATIVE TRADE INTEGRATION INDICATOR Source: OECD DEV-WTO Statistics Database. 2012 Nearly 80% of Latin American exports don’t go to Latin American countries.

6. LATIN AMERICA: INTEGRATION TURBINES SLOWING DOWN Source: UNCTAD secretariat calculations, based on UNCTADstat.

7. WHY is regional integration so low ?

8. Low quality and expensive logistics’ services are hindering Latin America’s trade and integration capacity LATIN AMERICA 2014: INTEGRATION CHALLENGES 1.POOR LOGISTICS Latin America: Ratio of Freight Costs to Tariffs (units, 2012) Calculations based on imports from the US market. The figures show the ratio of freight cost to tariffs on imports to the region. Source: OECD’S Development Center, Latin American Economic Outlook 2014 LOGISTICS represent 18 to 35% of the product’s value in LAC. (8% average in OECD countries) Brazil and Colombia have some of the world’s highest domestic costs per container for international transport and handling. CULTURAL CHALLENGE; PUBLIC PROCURMENT; CORRUPTION.

9. The number of days to clear exports from customs through Latin American borders is particularly high LATIN AMERICA 2014: INTEGRATION CHALLENGES 2. SLOW CUSTOMS Source: World Bank Group. Enterprise Surveys 2014 LATIN AMERICA 157

10. The large majority of Latin American SMEs don’t participate in export activities. LATIN AMERICA 2014: INTEGRATION CHALLENGES 3. LOCALLY ORIENTED SMEs Source: OECD Development Center, with Data from the World Bank, 2013. LEO 2013, p.165 Firms that export (directly or indirectly) by size and by region (2009-2010) (percentage) 5% In LAC countries, SMEs account for less than of total exports In Italy: close to 50% In Holland: close to 45% Only about 10-11% of Latin American SMEs export Most of exporting SMEs in EU member states export to other EU states (76% of SMEs in EU15, 83% of SMEs in EU12). EU INTEGRATION ENGINES

11. LATIN AMERICA: INTEGRATION CHALLENGES 4. LOW INTEGRATION SYNERGIES THROUGH FDI Most FDI inflows go to services and natural resources: 64% of total FDI in 2013 (ECLAC, 2014) An important part of FDI in manufacturing goes to Mexico and Central America to re-export to the US. Trans-Latinas increasingly important but: only about 14% of FDI inflows to Latin America. Source: ECLAC, 2013

12. LACs export specialisation still greatly focused in natural resources With a few exceptions, Latin America has not been very successful in inserting itself into Global Value Chains (GVCs). LATIN AMERICA 2014: INTEGRATION CHALLENGES 5. LOW INTEGRATION TO GVCs Latin America’s Pattern of Export Specialisation Source: OECD Development Centre, Latin American Economic Outlook 2014, Data from 2011. Only about one fifth

13. Latin America has made important progress combating extreme poverty and reducing inequality, but POVERTY, VULNERABILITY and INEQUALITY are still very important challenges. LATIN AMERICA 2014: INTEGRATION CHALLENGES 6. POVERTY & INEQUALITY Source: 67% = World Bank Group, Shifting Gears to Accelerate Shared Prosperity in Latin America and the Caribbean, World Bank Document No. 78507, June 2013. Graph: OECD Factbook 2014, p. 65 67% Trends in income inequality Gini coefficient in the mid-80s, mid-90s and around 2010s RATIO OF AVERAGE INCOME OF RICHEST 10% TO THE POOREST 10% Chile: 27 times (OECD) Mexico: 31 times (OECD) Argentina: 31 times (UNDP) Brazil: 50 times (OECD) Bolivia: 93 times (UNDP) OECD average 10 times (OECD) LIVE IN POVERTY OR VULNERABILITY EARNING LESS THAN $10 A DAY (WB)

14. Education plays a key role in integration: THE HYDRA OF LAC LATIN AMERICA 2014: INTEGRATION CHALLENGES 7. EDUCATION Source: LOW QUALITY EDUCATION SYSTEMS: 8 LAC countries among the last in PISA. WEAK HIGHER EDUCATION: No Latin American university among the world’s top 100. LAC INTEGRATION IN CURRICULA: Low presence of LAC Integration in higher, postgraduate and MBAs education programmes. A LATIN AMERICAN “ERASMUS”: Latin America needs to develop stronger exchange programmes for students geared towards promoting LAC economic integration. Student performance in PISA 2012 (mathematics)

15. Let’s not forget these three key factors: GEOGRAPHY: A huge region: Distance from Mexico City to Buenos Aires = Paris to Kathmandu; 106 hours drive from Brasilia to Bogota. IDEOLOGY MIRAGE: CULTURE: LATIN AMERICA 2014: INTEGRATION CHALLENGES 8. GEOGRAPHY, IDEOLOGY, CULTURE & LAW RULE OF LAW: ONE OF THE CENTRAL CONCERNS FOR BUSINESS IN THE REGION. THE MARKET ORIENTED VS. STATE ORIENTED BLOCS DISCUSSION CAN BE DECEIVING SIZE OF STATE IN THE ECONOMY: Public spending: Brazil 40% of GDP; Argentina 44%. Canada 40%; the UK 48%; Denmark about 60%; EU about 50% (average).

16. LATIN AMERICA: TO CONCLUDE: SIX GOOD NEWS FOR INTEGRATION The region is expected to invest at least US$1.5 trillion in infrastructure projects over the next decade (IDB) The come back of Bachelet to Chile is starting to build a link between Mercosur and Pacific Alliance. FDI by Trans-Latinas is growing strongly and most of these investments go to countries of the region. In contrast with developed economies, most adults in Latin America believe their children will have a better life than theirs. Expectations count! Mexico’s success approving 11 structural reforms is having positive spillovers in other LAC countries where similar reforms are on track. OECD growing engagement with the region in a myriad of policy areas through inclusive initiatives that bring the different blocs together..

17. LATIN AMERICA INTEGRATING OR DIVERGING? Probably none of the above! THANK YOU. MARIO LÓPEZ ROLDÁN HEAD OF THE INTELLIGENCE OUTREACH UNIT, CABINET OF THE SECRETARY GENERAL, OECD Drawing by Pepe Ramírez (6 years )