Friday, April 20,
2018 09.44 AM / Proshare Research
Introduction: Hand in Hand Economics
There is an urgency to achieve a
broad-based growth that is accommodative of more social inclusion.
Therefore, in one of the several series to come, we take on the hard nut on how
best to achieve prosperity again.
Economists are more inclined to look at specific
countries like Brazil, Chile, Mexico, Columbia and Argentina to shape their
opinion. On the broader macro position of the Latin America, after all they
make up 66.7% of the gross domestic product of the region.
Trend has shown that systematic risk that occurs
in countries like Brazil and Mexico engulfs the region; eventually triggering
decoupling effects on the region. Such brings to mind the Mexican peso crisis
and the Brazilian debt crisis of 1995.
Therefore, it was not surprising to see the region
in recent times reel from the Brazilian recession, forcing foreign direct
investment to decline sharply.
However, Uruguay has shown resilience even in the
face of cross-symmetric shock: Especially with the
continuous upward trajectory in foreign direct investment, in
contrast to most part of South America.
Sadly, the economic structure of Latin America put
a country like Uruguay in a position to be less spotted by the market nor
After all it doesn’t take much for a
country with a population of 3.5 million and a GDP of $52.4 billion to get lost
in the shadow of regional giants.
Uruguay a nation lauded consistently for its “’hand
in hand economics”’. A combination of free market and pro-poor policies
dialled towards human development.
Considered to be a small open economy that has
fully repaired the social well-being of its citizenry: after the duo of the
argentine crisis of 2002 and the global recession of 2008.
Evidently the feat achieved by this nation makes it worth
Fig 1: Growth Dynamic in the Region
Source: World Bank
Moreover, it provides a unique opportunity on how
best to create the necessary pre-conditions for prosperity through effective
Political Leadership and Growth:
The twist and turns of history leaves us at awe,
more importantly when it comes from the most unexpected places. In the
wake of the pink tide, Jose Muscilca, popularly referred to as Pep became the
Uruguayan president in 2010.
Unlike fellow left leaning Presidents in
Venezuela, Bolivia, Ecuador Argentina and Brazil, that bolstered government
size, escalation in public debt, spurred consumption through pro-poor policies
and eventually tilted in to a closed economy.
Pep took a different approach by further improving
the ease of doing business, strengthening institutions and
fine-tuning pro-poor policies towards human development: Like
placing emphasis on early education and pre-school.
For some Pep had become a prodigal son as he
favoured free markets, ahead of his initial socialist base. Well to
others he was more than just a new convert to the free market scion, he was an
“angel at home ‘’
Although pep never strayed away from activist
economics but the manner at which it was employed to improve human
capital and expand the social nets differed from other left tendencies in
Besides who says a little bit of Keynes kills? Just ensure it
doesn’t become an opium that gradual underpins macro prudential and weigh down
Fig 2: Pro-Poor Polices
Such action provided a window to reduce both
inequality adjusted HDI and income inequality, eventually allowing both growth
and social inclusion to go on hand in hand. Something that remains
largely elusive in the current Nigeria.
Fig 3: Human DevelopmentSource; UNDP
The ability to strengthen institutions especially
the nation’s Central Bank, Bank Del Central Uruguay further cemented the bank’s
autonomy and widened the bank supervisory powers. The icing on the cake
followed when the Uruguayan Peso was floated in 2013.
In addition to the establishment of a public
–private partnership framework in 2011, sustaining the existing debt management
strategy, improving transparency and accountability in the public sector and
creating a mining legislation that support large scale mining.
The ability to improve compliance with regards to
value added taxes, pruned down evasion to one of the lowest in Latin
Thereby the wiliness to continue with reforms led
to a consistent accretion in foreign direct investment.
Uruguay reaffirms once again, the ability to
create the right pre-conditions for growth hinges deeply on the kind of
There is nothing more beautiful, than to have a
political leadership that understand their economics and are consistently
prudent with the existing social trust of the
Economic Structure: Expanding the
In most circumstances, the external conduit of
most developing economies is shaped by their inherent natural resources.
However, the ability to improve human capital and
allow a consistent inflow of foreign direct investment did not just smoothen
out income but expanded Uruguay production possibility frontier.
For instance, critical investment in human capital
has made Uruguay one of the major producers of renewable energy and a
destination for software start-ups in the region.
The ability to make the appropriate investment and
widen private participation in infrastructure has contributed to reducing the
nation export concentration to o.21.
The effort has widely diversified the exports of
Uruguay compared to countries like Chile and Columbia.
Concurrently the expansion in the formal sector
provided more leg- wind for domestic revenue mobilization, at the same creating
some containment to public debt.
Fig 4: Export Concentration
Thereby, the Uruguayan case study clear point out
the reality, Nigeria cannot reach it optimum capacity without making the right
investment in human capital and providing the right incentives to attract
It is inevitable; the greatest legacy handed over
to incoming generation by any nation is the quality of education coupled with
the opportunities made available to them. Shocking both are
products of the kind of investments carried out at any point in
The decision to stick with the existing policy
path enhanced the reputation of Uruguay ahead of the likes of Argentina,
Ecuador and Venezuela with regards policy clarity and sustainability.
At the same time allowed it to boost its
competitiveness and avoid caught up in the 2016 cyclical
Moreover, the ability to ensure political
stability and public transparency in government owned enterprises compare to
its neighbour Brazil certainly made it an attractive investment destination,
eventually rubbing positively on its tourism sector.
On the long run, the choice of policies created
the needed balance and steered Uruguay from the structural inefficiencies,
rising bureaucracy and price distortions that have riddled most of Latin
Fig 5: Index
Ranking in Latin America
( Transparency international)
(world justice project)
World Governance indicators
Source; World Bank, EIU
Even though we must admit that Uruguay do have
certain flaws such a relatively high Public debt to GDP, coupled with a narrow
financial sector compared to most part of south America and high vulnerability
to Dollarization. Certainly coming from a monetarist there is still a
lot of rocks to throw at this particular bin.
Thus, an urgent need for a hand in hand economics
in Nigeria is inevitable, so as to repair the social well-being of the
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