Latin American cities falling behind in attracting investments

Fifty percent of the world’s population lives in urban areas. It may not seem a lot, but when we realize that this World Bank figure conceals enormous regional disparities, our mental image changes. Countries such as Peru and Mexico have around 80% of their population congregated in urban environments, while extreme cases such as Uruguay exceed 90%.

As we approach the year 2025, in our region, the urban world will grow at a rate of 11%, while rural will grow at 1%. We are at a time when living conditions in these environments, marked by profound digitalization processes and changes in the labor reality produced by the COVID-19 pandemic, represent an opportunity to adapt to new ways of life. These are new labor formats driven by the growth of de-territorialized industries, whether of the start-up type or consolidated companies, which are looking for talent around the world.

Competitiveness between cities to attract investment

With municipal electoral processes in different Latin American countries, an issue of vital interest for future mayors is how to turn the Latin American city into a hub that attracts talent and allows boosting the new digital entrepreneurship economy. In this context, a key issue in the search for this transformation is the indicators of success, an aspect often forgotten in any city management.

According to the city competitiveness index of the consulting firm KPMG, a good way to compare localities is to distribute the competitiveness of a city in terms of dimensions. It is clear that Brazil and Mexico are the only countries considered in the study, and their main outstanding dimension is the cost of labor.

Tijuana, Monterrey, Guadalajara, Mexico City, and São Paulo are much cheaper to hire than any other city in, for example, North America, such as Quebec, Vancouver, or Toronto in Canada. Mexico and Brazil also have cities where the cost of hiring qualified personnel is, on average, less than half the cost.

Latin American cities, on the other hand, are far behind North America in other relevant aspects such as tax payment. In São Paulo, for example, the average taxes to set up a business operation are even higher than in New York. Likewise, Mexican cities are considerably more expensive when it comes to paying taxes than Canadian cities, and are on a par with the U.S. cities such as Chicago and Portland.

In the cost of energy and utilities, Latin Americans are not competitive either. In São Paulo the cost of electricity and water is higher than in New York, for example, and Guadalajara is more expensive than Seattle. In transportation costs, this asymmetry with respect to northern cities is even more marked, due to the high costs of transporting goods in the region.

This year, Mexico and Peru held subnational elections. Of these two countries, only Mexico appears in the aforementioned ranking of competitiveness in cities. However, it is striking that a city like Lima, the capital of Peru, with more than 11 million inhabitants, cannot offer the world any specific dimension that would give it a competitive edge. The virtually elected mayor, Rafael López Aliaga, went viral during the campaign with the slogan “Lima, a world power”. Nothing could be further from reality. It would be necessary to ask him which indicators he will address to fulfill this vision.

North American and European cities are among the most competitive in the world today and are likely to retain their advantage until 2025, despite concerns about aging populations, infrastructure, indebtedness, and slow growth.

Latin America is unlikely to change this situation, beyond the cost of hiring personnel, if it does not undertake public-private projects to obtain improvements in other aspects desired by companies to hire in our cities. In this framework, it is striking that any mayors propose, for example, an ambitious training program in programming skills or other related to it, together with the cooperation of the national government or private companies interested in generating conditions for strengthening the skills of the local workforce, beyond the specific benefit of one of them.

Escaping from the middle-income trap implies changing the basis on which the economy of our cities lies. That base is the skills of our economically active population, which should be trained in the qualifications that today’s world requires such as programming, automation of processes through algorithms, and development of artificial intelligence, among others. The task is immense and time is passing, which takes us away from the window of opportunity to improve our position.

*Translated from Spanish by Janaína Ruviaro da Silva

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