Unravelling Political and Economic Misconceptions About Latin America

by Mario Merino

Many times when people think of Latin America they think of instability or conflict. To the contrary, over the last 20 years, this region has seen unprecedented economic and political stability. Despite what we see in popular media, there are many reasons to invest in the region. In this post, we will prove that Latin America is statistically safer, more prosperous and more politically sound than many developed nations and an obvious choice for investment and your outsourcing needs.

Political Stability

Throughout the 21st century, most Latin American nations have seen a decline in internal conflict and relatively free and fair democratic elections. Following the Cold War, with the exception of Cuba, almost every country in the region transformed into a nation with a civic environment and protected civil liberties. According to the Freedom Survey, which measures essential components of freedom in a nation (i.e. vote freely in legitimate elections, participate freely in the political process, etc), Chile, Uruguay, Costa Rica, Belize, Panama and Argentina all score above 80 out of 100 on the scale, with Cuba the only nation scoring low and “not free”. According to Transparency International: The Global Coalition Against Corruption, Uruguay ranked as the 21st most transparent country in the world, Chile 23rd and Costa Rica 40th. Most of Latin America scored much higher than Eastern Europe and Asia in the survey, as Ukraine ranked 130th, China 83rd and India 76th.

Furthermore, The Institute for Economics and Peace recently released their Global Peace Index rankings for 2016 and many Latin American countries ranked far higher than the United States in terms of peacefulness. The U.S. came in at 103rd out of 168 countries, while Chile ranked 27th, Costa Rica 33rd, Uruguay 35th and Panama 49th. According to Quandle, a database of Financial and Economic Data, and The World Bank in their surveys of Estimated Political Stability by Country, Costa Rica scored higher in terms of stability, than the United States, France, the United Kingdom and Italy.

The New Economics Foundation even found that Costa Rica is the happiest, greenest country in the world. For this reason, Costa Rica is the headquarters for the Inter-American Court of Human Rights and also the United Nation’s University for Peace.

Costa Rica, in particular, often scores higher in these surveys than many developed nations because the country has not had a standing military since 1948 and has many protected ecological zones. To read more about why Gorilla Logic chose Costa Rica as our nearshoring location, please see my blog post here.

Finally, it’s extremely important to keep in mind the friendship Latin America and it’s neighbor, the United States, have historically held. Any growth of hostility and political uncertainty in the region immediately raises a threat to the security of the Panama Canal and U.S. bases in Puerto Rico and Cuba. Due to this, the United States continues to invest in a politically stable Latin America.

Economic Stability

Although Latin America suffered from hyperinflation in the 1980’s and 1990’s, the region benefited from years of economic expansion in the 2000’s due to a commodity boom fueled by emerging economies like China. High commodity prices saw a drop in inequality, higher living standards and higher consumer spending that remains to this day. According to the World Economic Forum’s Global Competitiveness Rank, Chile ranked 34th most competitive nation in the world, while Panama ranked 40th and Costa Rica ranked 54th.Costa Rica, in particular, has continued to climb in the past 5 years and is expected to only grow stronger due to its open economy, strong institutions, high-quality education, highly skilled workforce, business sophistication and technological adoption. Costa Rica has a large, professional middle class, with a relatively equal distribution of wealth on par with many developed nations.

Costa Rica has even been termed the “Silicon Valley of Latin America” due to its reputation for attracting technology investment. According to the World Bank’s World Development Indicators, Costa Rica is Latin Ameria’s #1 high-tech exporter and the fourth highest tech importer in the world, with the country’s foreign direct investment reaching more than $1.5 billion.

Although countries like Venezuela, Brazil and Argentina have recently struggled economically and politically due to the fall in commodities and many news outlets are warning of an economic bust in the region, it is important to look at overall economic progress. Even though a few countries have been less responsible than others, many have been able to manage public finances without triggering a downward spiral of inflation and devaluation. “Latin America saved and invested more of its windfall than in the past”, says Alejandro Werner, the IMF’s leading official for Latin America. Much of the region has accumulated reserves and the banking systems that are less dollarised in the past. This allows for independent central banks to float exchange rates and adjust their own currencies to effectively target inflation. Although growth has been low to moderate in many regions, it is important to remember that growth has been relatively stable. For example, Mexico’s GDP grew 2.4% a year from 2000–2015 and employment remaining better than the European Union.

Free trade agreements have also continued to grow throughout the region. The Pacific Trade Alliance, which includes Chile, Colombia, Mexico, Peru and soon Costa Rica, is the world’s ninth-largest economy, with a population of 200 million people. Even through the recent recession, the economies in the Pacific Trade Alliance continued to lower trade and investment barriers, integrated their economies, improved their business climates, supported competitiveness and ensured stronger banking systems and better access to global capital markets. The IMF and other experts believe “…these countries have the access to international capital markets and the fiscal and financial health to weather potential global headwinds, and to make continued progress on development for their people.” The World Bank’s chief economist for Latin America, Augusto de la Torre, also explains “that the investment rate in the region, at almost 25% of GDP, has at last caught up with that in South-East Asia.” To read more about how Latin America stacks up compared to traditional offshore locations, please see my previous post here.

—

Even if you are not convinced from this article alone, we hope your eyes are open to considering this region seriously as a reputable place of investment. If you have any questions about Latin America, Costa Rica, nearshoring or software development don’t hesitate to contact us here.

At Gorilla Logic, we hire only the best nearshore and onshore software developers for your outsourcing needs. Subscribe to our blog and read our developer’s posts about software tutorials, trends and best practices.