CAF Corporación Andina de Fomento : Advances in the development of Latin America in 2016

Overview of the most outstanding aspects of the development of Latin America in 2016; from climate agreements to the urban mobility summit, or the improvements that are necessary for human capital

At an economic level, 2016 was not a good year for Latin America. For the second consecutive year the region continued in recession mainly due to variations in the prices of raw materials and the volatility of international markets. Among other results, there was a slight increase in unemployment and a stagnation of workers' real salaries.

However, not everything was bad news, The year 2016 will go down in history as the year in which the Paris climate agreements started to be implemented. These should lead to a significant reduction of carbon emissions and a planet that is less dependent on fossil fuels.

There were also advances regarding urban mobility. Quito hosted the Habitat III, an international summit that achieved a commitment from all countries to convert citizens in protagonists of the global urban agenda. Another aspect that stands out this year is the consensus between experts and governments regarding the need to innovate, both at an entrepreneurial and technological level, to establish the basis of sustained growth, which is not too dependent on raw materials.

Following we summarize the most outstanding advances of the year regarding development:

• Latin America, pioneer in the implementation of the Paris climate agreements: from November 7th to 18th the international community met in Marrakesh to advance in the measures to reduce greenhouse gas emissions to slow down climate change. The first Meeting of the Parties of the Paris Agreement (ratified on November 4th of 2016) took place here. In Latin America and the Caribbean, 32 countries presented their NDC intentions, including emission reduction goals and, in most cases, goals for adaptation to climate change. In this respect, CAF and the Green Fund for Climate signed an agreement to develop resilient and low in carbon emissions projects in Latin America. It is estimated that by 2020, 30 percent of CAF's portfolio will be green projects and by 2050 the percentage will increase to 50 percent.
• Seeking to preserve social advances in a low growth scenario: the reduction of global demand, reduction of prices of raw materials, and of the entry of international capital, have limited the growth of Latin America and posed a threat for the social achievements conquered between 2003 and 2011. It is expected that in 2017 the region will emerge from the recession, albeit with a weak growth of around 2 percent; one of the pillars of this more vigorous growth has to do with the reinforcement of the labor markets, which in 2016 experienced a visible setback. In several countries of the region unemployment increased and employment became more precarious with the increase of informality and self-employment; real salaries also experienced a setback in the face of price increases associated to the depreciation of the currency and some idiosyncratic supply shocks.

• Habitat III in Quito, new solutions for traditional urban problems: the United Nations Habitat III Summit was held in Quito from October 17th to the 20th. This forum defined the New Urban Agenda for the next 20 years, Developed by all the UN countries, it has three structural Axis: promote an inclusive, equitable, and accessible urbanism; promote sustainable urban economies; and promote the capacity of cities to adapt to climate change.

• Improved skills for Latin American Human Capital:According to CAF's Economy and Development Report (RED 2016), to pick up the growth of the past decade, it is essential to have better trained workers that are capable of successfully performing the tasks required by the labor market. To do this, the region must overcome serious obstacles: currently, only one half of Latin American youths complete secondary education; two out of three students do not have the basic math skills; 20 million youths, which represent 20 percent of the total, do not study or work; almost half of those employed work in the informal sector. This deficit of quality human capital prevents growth in the region with all its potential, and limits the aspirations of social mobility.

• Innovation to diversify the economy: in 2016, experts and governments coincided that the region needs more innovation. In fact, the lack of innovation leads companies to grow less than their peers in more advanced regions, and they do not produce as much either. Another consequence is that our companies do not generate sufficient quality employment, and many continue to offer low paying jobs and informal jobs that reduce the fiscal capacity of the States. In 70 percent of the OECD countries investment in innovation comes from companies, whereas in Latin America it represents 40 percent. To reach the productivity levels of the OECD countries, the region will have to invest four times more than it currently invests in innovation, and its companies will have to invest 10 times more that they do now.