Latin America should bet on industry over commodities-UN

MEXICO CITY Mon Aug 27, 2012 6:14pm EDT

MEXICO CITY Aug 27 (Reuters) - Latin American countries must boost investment in technology, skills and value-added industries in the face of a widening gap with faster-growing Asian economies, a United Nations agency said on Monday.

The UN's regional economic body for Latin America, ECLAC, said governments should provide incentives for investment in high-productivity, manufacturing industries rather than relying on booming, commodity prices to support economic growth.

Many economies in Latin America, a leading producer of soy, copper and grains, have thrived as a result of rising demand from China for their metals and energy exports. But ECLAC said diversification was vital to protect against external shocks and overcome high rates of poverty and inequality.

Weak data out of China so far this year have already fanned fears about a dangerous dependency on the Asian powerhouse and its role in boosting commodity prices.

In a report presented at its biennial meeting in El Salvador on Monday, ECLAC said the average 3.8 percent economic growth in Latin America between 2001 and 2010 lagged the rates seen in peers in East Asia, South Asia and Sub-Saharan Africa.

Between 1996 and 2009, developing Asia invested three times more in research and development than South America and six times more than Central America as a share of gross domestic product, ECLAC said.

As a result, productivity had nearly tripled in East Asia's so-called 'tiger' economies between 1980 and 2010 while it rose only slightly in Latin America over the same three decades.

"History suggests that developing countries that have succeeded in converging with the more advanced countries have done so through the accumulation of technological capacity, innovation and knowledge, not on the basis of rents from natural resources," ECLAC said.

The report said relatively unproductive small- and medium-sized firms accounted for more than half the region's employment, while the sectors with the highest productivity rates accounted for only 20 percent of jobs. (Reporting by Krista Hughes; Editing by Leslie Gevirtz)