London, 5 March 2014Central American Business Council

Logistics and Competitiveness in Central America

UK-Central America Business Conference

Sebastian Nieto ParraOECD Development Centre

Perspectivas económicas de América Latina

Competitiveness and Productivity in Central America1

Contents

Policies to boost logistics in Central America 2

3

La contribución de la región al proceso de reequilibrio de la riqueza es relativamente modesta

Contribution to global GDP (1990-2011)(in percentages)

Source: Authors’ calculations based on data and regional aggregates from IMF (World Economic Outlook).

The region’s contribution to shifting wealth is relatively modest

50%

19%

8%

4%

1%

18%

1990-1995

32%

41%

9%

6%

3% 9%

2005-2012

46%

27%

7%

7%

3% 10%

2000-2005

59%20%

8%

5%

2%6%

1995-2000

Advanced economies

Emerging Asia

Latin America

Middle East and North Africa

Sub-Saharan Africa

Rest of the world

4

Una transformación estructural impedida

Net barter terms of trade (2000 = 100)

Source: World Bank World Development Indicators

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 201180

90

100

110

120

130

140

150

160

South America Central America

The structure of Central American economies differs in comparison with South American economies: different policies to boost productivity

5

Una transformación estructural impedida

Note: Productive capabilities index. Higher values in the variable let a country produce a more sophisticated range of goods. At any given moment, the capacity variable depends on the level of connectivity of the network of products, which is why it is normalised. Thus a value equal to 0 implies capability levels equal to the worldwide average. A value of 1 (-1) indicates capabilities one standard deviation above (below) that average.

Source: Authors’ calculations based on data from COMTRADE and Feenstra, R. C., R. E. Lipsey, H. Deng, A. C. Ma y H. Mo (2005), “World Trade Flows: 1962-2000”, NBER Working Paper Nº 11040.

Productive capacities indicator (1990 and 2009)

An impeded structural transformation: challenges remain for Central American countries

-1.5

-1

-0.5

0

0.5

1

1.5

2

2.5

1990 2009

6

Source: Authors’ calculations based on World Bank,“World Development Indicators” and CEPALSTAT data.

While in Asia the productivity gap has decreased, it has expanded in most Central American countries

Changes in productivity gaps between selected Asian and Latin American countries and the United States (1980-2011)

(as percentages, annual growth rates in GDP per worker)

China

India

Indone

sia

Thailan

d

Republic

of Kore

a

Malaysi

a

Singapo

reChile

Hong Kong

, Chin

a

Dominic

an Repu

blicJap

an

Panama

Uruguay

Argentin

aCuba

Costa R

icaMexi

coBraz

il

Colombia

Venezue

la (Bol.

Rep. of

)

El Salv

ador

Peru

Philippi

nes

Guatem

ala

Hondura

s

Ecuador

Paragua

y

Bolivia (

Plurinat

ional S

tate o

f)

Nicarag

ua-4

-3.5

-3

-2.5

-2

-1.5

-1

-0.5

0

0.5

1

Other Latin American countriesAsia Central America

7

Total Factor Productivity: signs of improvements should be permanent

Total factor productivity index, 1960 = 100

Source: Calculations based on Penn World Tables

1961

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

60

70

80

90

100

110

120

130

140

Costa Rica

1961

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

80100120140160180200220240260

Panamá

Perspectivas económicas de América Latina

Competitiveness and Productivity in Central America1

Latin American Economic Outlook 2014

Policies to boost logistics in Latin America2

9Source: Authors’ work based on The Conference Board Total Economy Database, World Bank (LPI), Comtrade.

Improved logistics performance could boost labor productivity in Latin America by 35%

Logistics and economic performance: Partial correlations(Values, 2012)

-1 -0.5 0 0.5 1 1.5-40000

-30000

-20000

-10000

0

10000

20000

30000

40000

50000

60000

OECD Other countries Latin America

Labo

ur p

rodu

ctivit

y not

exp

laine

d by

GDP

per

capit

a

Logistics performance not explained by GDP per capita

10Source: Based on World Bank data (Logistics Performance Index).

The logistics gap remains high, especially due to the poor performance of transport infrastructure

Logistics performance gap to the best-performing OECD country (2012)

LPI Infrastructure Customs Logistics quality Tracking and tracing Timeliness International shipments

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

OECD LAC7 LAC OECD country with lowest GDP per capita in 1990

Policy control areas

11

ChileBraz

il

Mexico

Argentina

Uruguay

Peru

Panam

a

Colombia

Guatemala

Ecuad

or

Costa Rica

Dom. Rep

.

Bolivia

El Salv

ador

Honduras

Venezu

ela (B

ol. Rep

. of)

Paragu

ayCuba

Haiti0

0.5

1

1.5

2

2.5

Customs Infrastructure Logistics quality LPI

Source: Based on World Bank data (Logistics Performance Index).

However, there is variation in logistics performance within the region

Logistics performance gap to the best-performing OECD country (2012)

12

Nicarag

ua

Guatemala

Panam

a

Paragu

ayBeli

ze

Argentina

Brazil

Costa Rica Chile

Peru

El Salv

ador

Bolivia

Dominican Rep

.

Ecuad

or

Jamaic

a

Colombia

Uruguay

Mexico LA

COEC

D0

10

20

30

40

50

60

70

80

90

100

Logistics-intensive Time-sensitive

Note: Logistics-intensive sectors include mining, forestry and logging, wood manufacturing, paper publishing and printing. Time-sensitive sectors include agriculture, fisheries, food and drink manufacturing, clothing and horticulture. Latin America and the Caribbean (LAC) consists of 18 countries.Source: UN COMTRADE.

The Latin American production structure implies that a high proportion of exports are sensitive to logistics

Time-sensitive, logistics-intensive exports (2010)(% of total exports)

13

Costa Rica Chile

Peru

Colombia

Panam

a

Venezu

ela (B

ol. Rep

. of)

Dominican Rep

. LA

C

Mexico

Uruguay

Brazil

Argentina

OECD

Total

- world

Europe

ASEAN

South Asia

0

10

20

30

40

50

60

70

Source: Based on data from the U.S. Census Bureau.

To boost trade, it is essential to reduce transportation costs

Ratio of freight costs to tariffs (2012)

14

Venezu

ela (B

ol. Rep

. of)

Brazil

Sub-Sa

haran Afri

ca

East A

sia an

d Pacific

Latin Ameri

ca an

d Caribbea

n

Costa Rica

Dominican Rep

.Peru

Panam

a

Mexico

Colombia

Middle East

and North

Africa

Uruguay

Argentina

Chile

South Asia

OECD high

-inco

me sele

ction

Europe a

nd Centra

l Asia

0

2

4

6

8

10

12

14

16

18

20

Average Manufacturing sector

na.

Note: Data not available for the manufacturing industry in Panama. Latin America and the Caribbean (LAC) consists of 27 countries.Source: World Bank Enterprise Survey.

The logistics lag can affect the development of international trade. Example: customs formalities

Number of days needed to clear direct exports through customs (2011)

15 Source: World Bank (Logistics Performance Index) and World Economic Forum (Global Competitiveness Index), 2012.

The use of ICTs: Contribute to improved logistics performance

Access to technology and logistics performance: Partial correlations (2012)

-2 -1.5 -1 -0.5 0 0.5 1 1.5 2-1

-0.5

0

0.5

1

1.5

OECD Other countries Latin America

Logis

tics p

erfo

rman

ce n

ot e

xplai

ned

by G

DP p

er ca

pita

Technology availability not explained by GDP per capita

16

Improvements in infrastructure are essential for logistical development

1. More and better investment

2. Implementation of appropriate regulations and a better institutional framework for the planning phase of the policy process

3. Expansion of intermodal connectivity and development of transportation modes other than road

4. Finding appropriate mechanisms to maximize private investment in infrastructure

17

However, reducing the infrastructure gap takes time, and in the short term “soft” solutions can be found

Maximizing the infrastructure of existing transport:

1. Greater coordination between agents involved in logistics and a move toward a comprehensive policy.

2. Simplification of customs procedures.

3. Promotion of competition in the transport sector.

4. Appropriate use of ICTs to simplify procedures and facilitate the tracking and delivery of goods.

Thank you!

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