Nearshore Americas

Lack of Infra Investment is Hurting LatAm Growth: IDB

A lack of investment in infrastructure is undermining labor productivity in several Latin American countries, in addition to draining the precious earnings of people on the lower rungs of the economic ladder.

The poor are the hardest hit, as they are spending more of their income on infrastructure services, according to a study by the Inter-American Development Bank (IDB).

The study looks at energy, transportation, telecommunications, water and sanitation sectors in six countries: Argentina, Bolivia, Costa Rica, Chile, Jamaica, and Peru.

Poor infrastructure is estimated to have cost these countries approximately 1 percentage point of forgone GDP growth.

“The cost rises to 15 percentage points in forgone growth if the gaps persist over 10 years,” the bank estimated.

This is the equivalent of around US$900 billion based on the current GDP levels for the entire region.

“The impacts vary across countries depending on economic structures,” said IDB Principal Economic Advisor Andrew Powell, one of the report’s editors.

According to the report, households in the lower 40 percent of income distribution will lose 11 percentage points of real income over a 10-year period.

The infrastructure investment gap in the region is estimated at around 2.5% of GDP, or around US$150 billion per year.

However, well-chosen infrastructure investments in Brazil, Argentina, Chile, Colombia and Mexico could boost growth in the region by 0.5% per year, the IDB says.

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“If countries can increase investment levels in these infrastructure sectors enough to close the gaps with developed OECD countries, then the economy-wide productivity growth could increase by 75% with respect to the historical average. This means the region’s ‘per capita income’ could double in almost half the time.”

Narayan Ammachchi

News Editor for Nearshore Americas, Narayan Ammachchi is a career journalist with a decade of experience in politics and international business. He works out of his base in the Indian Silicon City of Bangalore.

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