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Friday, August 23rd, 2019

How small countries can dream big: Uruguay

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by September 2, 2016 General

Why is it that some small countries fall by the economic wayside, and others hit the highway? What does it take to create a transformational political economy that lifts all boats and gives rise to sustained growth?

Jamaica has watched in wonder as Panama has leapfrogged from being a basket case banana republic to the Singapore of Central America in under a generation. But another lesser known success story is that of tiny Uruguay, formerly the poor cousin of neighbouring Argentina, and now often heralded as the Switzerland of South America.

This little nation of just three million boasts a proud past of creole struggle: first against the Spanish, then the Portuguese,the English, the Brazilians, and finally the Argentines. Eventually, they settled into a robust democracy, save for an unfortunate period of civil unrest and repressive military rule that began in the 70s and ended in 1985.

It is no small thing that in 2009, Uruguay elected octogenarian Jose Mujica to the presidency. Mujica was a former Tupamaro guerrilla, who had been shot six times, tortured, and jailed by the former military junta for 13 years. His election was strong testament to the political maturity of a system that is open to reconciliation and above all, to change. While in office, Mujica donated 90 per cent of his salary to charity, drove his own 30-year-old VW Beetle, and set an inspiring generational agenda for his people.

Energy independence, agro-industry, logistics nodes, laptops for every child, nationwide wireless, and ganja liberalisation were just some of his ambitious agenda items. But perhaps Mujica will be best remembered for his ability to inspire, to steer a new course, and to bring a renewed sense of hope for the future.

Contrast this with Argentina next door: a nation of immense wealth and untapped potential, long locked in a cycle of political turmoil and economic chaos. An air of melancholy pervades this once proud nation that has lost its greatness, and which remains lost along the way. To the north, giant Brazil has also gone off the rails after decades of political corruption. Big countries, enormous problems.

But big problems for big countries often breed real opportunities for nearby small countries.

Uruguay’s offshore financial sector, tech-savvy workforce, excellent infrastructure and mellow lifestyle have long drawn Argentines and Brazilians to save and invest in this safe haven.

So how does Jamaica fit into the mix? What interventions are necessary to jump-start the national pulse and get real economic traction, like Uruguay did?

In a nutshell, economic triage, political resolve, and national outreach.

In choosing energy independence, Uruguayans accepted higher fuel costs and embraced energy conservation. It came with a high current cost, but with huge future value.

In prioritising childhood digital literacy, its greatest assets will now have unlimited potential.

In choosing niche cultural tourism, they avoided enclave tourism and stimulated the trickle-down dollar effect.

Similarly, the application of technology to agriculture has been a game changer for producer and consumer alike.

The liberalisation of ganja has seeded biomedical research and agro-tourism.

And uniquely, investment incentives are graded by the level of new technology transfer and creative value added.

Uruguay has made some clear choices; financing those choices to their full potential has resulted in a hefty 22 per cent GCT rate, but a stable political hierarchy has steered a common course to equitable growth. The poverty rate has been cut from 33 per cent in 2006 to under five per cent in 2016 — the result of a decade of five per cent plus GDP growth, unmatched in Latin America save for Panama, while extreme poverty has been virtually eliminated.

Some may say Uruguay doesn’t have Jamaica’s debt or crime issues. True, but pick the chicken or pick the egg — neither of these endemic problems will be resolved without sustained economic growth. Which is why, after the recent IMF unshackling, leadership and vision are now so utterly vital, and why Uruguay remains an object lesson for Jamaica’s political economy.

Jamaica starts the race to the future with some big advantages. It’s a geographically situated gem, with a wealthy diaspora, a young population, it speaks English, respects contracts, has a vibrant culture, and a sophisticated banking system. Its notable deficiencies have been in the area of economic mismanagement, political tribalism, under-resourced education, and energy dependence…all tough but mostly fixable problems.

The national call to action must start at the top with an inspirational agenda wedded to technocratic state management and national engagement. Choose your winners, place your bets, and foster unity with a shared vision.

Technocracy with neither enagagement nor vision best describes Jamaica’s recent embrace of the IMF…that dance is done, and it’s high time for some new music.

Agriculture, energy, education, infrastructure, ICT, logistics, finance, tourism, ganja; those were Uruguay’s choices for the way forward, and perhaps they might also be Jamaica’s.

Both are small nations with finite resources and big neighbours, and both have a long history of economic struggle, but only one has turned the corner…it is leadership, or lack of it, that has made the real difference in their respective stories.

Michael Manley dreamt big, and Edward Seaga thought big. Since their time, partisan politics has delivered both technocrats (Patterson) and populists (Portia), but nobody who has been willing or able to break the old mould. Jamaicans have in turn responded with electoral disaffection and institutional distrust.

However, the early evidence suggests that in its newly rebalanced political state, a glimmer of confidence is returning to Jamaica after decades of economic stagnation. It’s an auspicious moment to eschew party gridlock in favour of political wedlock, to chart an ambitious economic path forward, and to focus on the game changers that will best impact a small nation with big dreams.

Roger Brown is the founder and managing director of Panama-based Risk Control SA, which provides investment advisory, asset protection, and offshore financial services to international clients. Through Professionally Panama, its business concierge platform, Risk Control also provides custom corporate, health, and hospitality services.

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