ACF - Luis Alberto Moreno Remarks

The Americas Competitiveness Forum

Altanta, Georgia

June 11, 2007

“The State of Competitiveness in the Western Hemisphere”

Luis Alberto Moreno, President, Inter-American Development Bank

As Prepared

I want to congratulate Secretary Gutierrez for putting together this impressive forum and for generously inviting me to participate. It is a pleasure to share the stage with my friends Hernando de Soto, Eduardo Solorzano and Ana Vilma de Escobar.

There is a paradox about competitiveness in Latin America today. As many of you know, the region’s economies generally rank low when it comes to technology, innovation and new product development.

But at the same there are islands of excellence, even in the most unlikely places. In recent years Latin American multinationals have shown the capacity to dominate their regional markets and move into the home turf of the world’s leading companies.

Just a few weeks ago JBSofBrazil, Latin America’s leading meatpacker, made headlines when it bought out Swift&Co, a company that was once a symbol of Anglo-American dominance of international commerce. As a result JBS is now world’s largest beef and pork processor. It is in an excellent position to take on giants like Tyson Foods and Cargill, not only here in North America but also in Asia, where meat consumption is rapidly expanding.

This is not just a consequence of high liquidity in international capital markets or a weaker U.S. dollar, although such conditions certainly don’t hurt. JBS plans to earn profits by processing animals more efficiently, controlling transportation costs and delivering new varieties of finished food products to supermarkets. In other words, it plans to add know-how and innovation to a company that had lost ground in recent years.

There are other cases:

Mexico’s cement giant Cemex is has made an $11 billion bid for Australia’s Rinker, in a move to gain better access to China. Already the world’s third biggest cement producer, Cemex now is the leading supplier of ready-mix concrete in the United States.
Brazil’s Gerdau has become the fourth largest steel producer in the United States by buying old mills, fitting them with new technology, hammering out deals with labor unions and injecting much-needed fresh capital.
Argentina’s Techint has built a network of plants around the world that dominates the market for steel tubes for the oil industry. Its companies operate successfully in countries where major energy corporations have stumbled.

What do these “multilatinas” have in common? Most of them were founded by visionaries who knew every aspect of their industries and excelled at adapting to harsh local circumstances. These companies also have deep pockets to invest in their operations and recruit and retain talented managers and employees

Not only to they compete with first world companies. Now they can also buy them.

These companies form the elite of Latin American business. They can easily tap capital markets. They have instant access to the most senior officials in their governments. And if the local electricity service is unreliable, they can simply build their own generation plants.

But successful enterprises can also be found in the most unexpected places, and they do not necessarily involve billions of dollars in sales or battalions of MBAs:

Haiti , Latin America’s poorest country, has become the world’s leading producer of vetiver, an extract used in expensive perfumes, as well as of bitteroranges used in liqueurs. These unlikely cases of success can also be traced to visionary entrepreneurs who had good knowledge of their markets.

So the question for Latin American governments and for people in the business of development is how can the excellence achieved by these star corporations be spread to medium and small-sized companies and producers?

A big part of the answer involves problems of business environment and informality. Hernando de Soto, the world’s leading authority on these issues, is also on this panel, so I’ll leave that discussion to him.

Instead let me mention very briefly some of what the IDB is learning about how to make smaller businesses more competitive.

First, there is plenty of evidence that value chains, where large companies are linked with smaller suppliers, can produce very positive results.

A case in point is Hortifruti, Central America’s largest distributor of fresh fruit and vegetables. Hortifruti supplies the supermarkets of that region’s leading retailer, Wal-MartCentroamericana, by working closely with hundreds of micro, small and medium-size farmers in Costa Rica, Honduras and Nicaragua.

Farmers who work with Hortifruti gain access to technical assistance, modern production and post-harvest technologies, food safety tests, supplier credit and reliable payments. Just as important, they obtain information on when and what to plant. In return, Wal-Mart Centroamericana supermarkets can rely on a diversified network of suppliers who meet their quality and safety standards.

Our Research Department is also undertaking a major project that looks at very specific cases of export success or failure in 13 of the region’s countries. This October we will be publishing a fascinating study on the lessons learned in the region’s most dynamic productive sectors.

For now I’ll mention just two examples:

In Brazil, exports by the wooden furniture industry were almost non-existent in the 1990s, but by 2005 they had grown to nearly $1 billion. Our research indicates that three factors came together to make this possible.

First, there was the presence of producers with deep experience in the domestic market
Second was the emergence of a furniturecluster that allowed close coordination between local lumber suppliers, skilled carpenters, designers and marketers
And third, there were visionary companies that invested in new technology to bring quality up to international standards.

Few people realize that Mexico is now a major producer of medical equipment. Despite intense competition from China, Mexico’s medical equipmentexports more than doubled between 2001 and 2005, to $3 billion per year.

In this case, the success factor was a willingness by hundreds of maquiladoras to invest in better training, so that low-paid workers could produce increasingly sophisticated equipment.
It also helped that these maquilas have access to inexpensive raw materials and ready access to hospitals and markets in the United States.

I could mention even more surprising cases, such as sturgeon farmers in Uruguay who are exporting caviar to the U.S., consumer electronics assembly plants in St. Kitts, or the booming market for Argentine yachts and speedboats.

The studies make clear that there is no shortage of talented and visionary business people in Latin America. What these entrepreneurs need is government policies that:

Provide macroeconomic stability and better infrastructure to lower transport costs
Fewer bureaucratic obstacles and less interference in pricing issues
Smart subsidies that enable pioneering firms to benefit from innovation, and
The kind of clear, stable, and well-coordinated industrial policies that encourage risk-taking.

At the IDB we are helping our member governments on all these fronts. Since only 10% of the region’s small enterprises have ready access to financing, we are placing a major emphasis on expanding microcredit. We’ve set ourselves a goal of tripling the volume of our support for microcredit institutions in Latin America and the Caribbean within five years.

We see American companies and investors as vital partners, both in terms of innovation and financing. We also count on you to continue supporting free trade and greater economic integration across the Hemisphere.

Thanks for your interest and support.