The latest in our series based on SAFIRE, a proposed system using foresight to develop policy for Research and Innovation relationships for the EU, is a review of Central and South America. The original Report published in autumn 2021 is available via the link here, We continue to monitor developments and trends in each of the ten Regions.
Introducing the Region
The major countries in the Region are (by size, population and GDP) Brazil, Argentina, Colombia, Chile and Peru – of these Chile has the highest GDP per capita. Each has faced similar challenges of economic instability, high levels of inequality resulting in occasional civil unrest, and political upheaval. A worryingly high level of political corruption seems to be endemic, even as leaderships change. However, the integrity of national borders is secure and cross-border tensions relatively few.
The EIU Democracy Index registered a fall for a sixth consecutive year, the biggest downgrade recorded by any region since the Index was launched. Only Uruguay and Costa Rica are rated as “fully democratic”, with most of the larger countries described as “flawed democracies”.
Smaller countries, especially those in Central America, are still struggling to develop sound economies, and some have been at risk of collapse. Costa Rica is an exception having further developed its ecosystem services and exploited its unique biodiversity, developing a world-class model of sustainable tourism. Venezuela remains in the grip of an autocratic regime, failing to take advantage of its oil reserves.
An enormous proportion of South America’s economy is informal — 55% of workers — and those people lack the social safety nets of the formal sector.
What might drive change? What are the recent forces acting on the countries?
Politics and Relationships
The region used to be regarded as the USA’s “backyard”, but in 2040 it has transitioned to being more reliant on China. The dynamics of the USA/China relationship affect the region substantially but are volatile and unpredictable. There is increased geo-political tension in the region, with some countries being more wary of Chinese influence than others. Cultural connections with ex-colonial countries remain strong, despite a higher proportion of the population now being of African descent due to differences in birth-rates.
Regional free trade agreements link key groups of countries:
- Mercosur members are Argentina, Brazil, Paraguay, and Uruguay; in 2020, the EU and Mercosur signed a trade agreement designed to anchor important economic reforms and modernisation and uphold standards of food safety and consumer protection.
- The Pacific Alliance covering Chile, Colombia, Mexico, and Peru is moving toward complete freedom in the movement of goods, services, capital and people between the four member states.
- Central America Integration System (SICA) links several Central American countries,
Left-wing politicians have recently won power in several countries in the Region – Bolivia, Peru, Honduras and Chile; others – notably Brazil and Colombia – show signs of moving that way. In contrast, mid-term elections in Argentina were won by a centre-right coalition “Together for Change” against the incumbent Peronists, with both far-left and far-right groups also making advances.
The new officeholders are constrained by debt, lean budgets, and limited access to credit so radical change seems unlikely. However, anti-US policies and closer relationships with China do seem to be on the cards.
Environment and Climate
Climate change impacts in the Region are growing. Large parts of Central America are low-lying and at risk of flooding and are vulnerable to any increase in the number of hurricanes; drought has driven many to try to migrate to the US.
In January, Argentina suffered historically highs temperatures of 40°C across the country (some areas reaching 45°C), leading to black-outs in Buenos Aires, failure of grain crops and challenges to its valuable beef industry.
In Brazil, the Amazon has changed from being a carbon sink become a net emitter of carbon dioxide. This was mainly due to fires caused by forest clearance projects enabled by President Bolsonaro. Fewer trees means less rain and higher temperatures, making the dry season even worse – a very negative feedback loop. Trade data already shows a fall in coffee exports (a major foreign currency winner), and Arabica production is expected to drop by 30% this year,
On the other hand, increased rainfall in some areas is making them more suitable for agriculture, and the wine-making industry is looking to expand its geographic scope substantially.
Brazil’s President Bolsonaro’s Trump-like handling of the pandemic led to high death rates and is contributing to his poll ratings lagging behind Lula of the Worker’s Party.
After early set-backs with Chinese medicines, Chile has the highest level of COVID vaccinations in South America and, at a rate of almost 90%, one of the best in the world. This is due to a very successful model of community healthcare, with family healthcare centres in every neighbourhood.
The Region’s economies were the worst hit by the pandemic, and their recoveries are the weakest globally. Caribbean countries were hit particularly hard (falls of around 20%); Brazil and Chile performed better than the Regional average (4%/5% declines); Argentina and Peru worse (around 11% down).
International Labour Organization estimates suggest that Latin America and the Caribbean and was among the regions where declines in working hours in 2020 were particularly large.
Reductions in fertility have caused the population at working ages (25-64 years) to grow faster than at other ages, creating an opportunity for accelerated economic growth – a “demographic dividend”. The share of the population aged 65 years or more has almost doubled since 2020. And as the population is now beginning to peak, aging will accelerate. Urbanisation continues, with São Paulo being one of the world’s largest cities.
The Region has long been described as the “Coming Continent” due to the advantages conferred by its natural resources and range of habitats, a demographic dividend (at least for some years) and well-regarded universities in the region, notably in Ecuador, Colombia and Brazil. Observatories and space facilities are also prominent. This is reflected in our “Bamboo” scenario. However, these opportunities have yet to be seized and currently, overall, the Region remains firmly in “Oak”, mired in corruption.
Participants at the November 2019 workshop were not optimistic and suggested that the Region would move only slowly towards an inclusionary approach from its current position in Oak.
The effect of the pandemic on the Region’s economies will inhibit radical change. Whether the leftward drift of major countries within well-structured trade agreements offers the opportunity to reduce inequality and crack down on corruption remains to be seen.
Written by Huw Williams, SAMI Principal
The views expressed are those of the author(s) and not necessarily of SAMI Consulting.
Future-prepared firms outperform the average by 33% higher profitability and 200% higher growth. SAMI Consulting brings 30 years of experience delivering foresight, futures and scenario planning – enabling companies and organisations make “robust decisions in uncertain times”. Find out more www.samiconsulting.co.uk.