South America’s economic stagnation is fueling the US migration crisis
This year, a record number of migrants and asylum seekers will try to enter the US through its southern border. About a quarter of those migrants come from South America -- one in four in October 2023. The sub-region has experienced a decade of economic stagnation, which is a significant push factor for citizens from South America migrating to the US.
South America’s decade-long economic stagnation is a factor contributing to the migration crisis from bottlenecks in the Darien all the way to the US-Mexico border. This is the most unequal international border in the world when looking at economic disparity. The proposal that migrants could stay, work and assimilate in Mexico ignores the proximity of the countries and the push factors that drove migrants to leave. Why stay in Mexico when you are so close to the US? The US has a GDP per capita of USD80,000 per year, whereas Mexico’s is only USD13,400.
Looking further south, today, more and more migrants arriving at the US-Mexico border are coming from South America. In August 2023, about one in every four migrants arriving at the border came from Venezuela, Colombia, Ecuador, and Peru. Last month, more Venezuelans than Mexicans tried to cross the border for the first time in recorded history. Most migrants coming from South America must cross the Darien Gap’s tropical jungle separating Colombia and Panama. After that, they must endure a journey through the Central American isthmus.
The 60-mile-long, mountainous Darien Gap is barely hospitable due to its closed tropical jungle. Despite multiple attempts to build the Pan American Highway through the jungle, today there is still no road connecting the two countries through this swampy terrain. This has not discouraged migrants from crossing the terrain though.
Who is crossing the Darien Gap?
The Darien became an outpost for hundreds of thousands of migrants leaving their homes in South America, eager for a better life further north. Most come from Venezuela, where roughly 7 million people have fled the country in the past two decades. These migrants have not only been trying to escape the country’s authoritarian regime but its related economic collapse. Venezuela’s economic troubles are reflected by its accumulated inflation between 2012 and 2023, which amounts to a staggering 10 trillion percent.
The United Nations’ International Organization for Migration (IOM) set up a post in the Darien Gap to assist migrants. Data from IOM’s latest monthly survey in July 2023 showed that nearly 70% of migrants crossing the region are Venezuelans, followed by Ecuadorians (18%). About 30% of migrants crossing the Darien were living outside of their native countries as foreign residents in Colombia, Peru, Ecuador, Chile, and Brazil.
According to the IOM survey, 61% of those migrants living in South America had a job. However, 82% also said that their earnings failed to cover their expenses. Most migrants — even those qualified for skilled jobs or holding a university degree — usually arrive in their new country without a safety net. They end up working in the informal job market, which often means they receive lower wages than locals do.
Additionally, the region’s high rate of informal employment means lower average productivity, fewer tax dollars, and a significant lack of state protection. Even in Chile, where informal employment is much lower than that of its regional peers, a report from the think tank Libertad y Desarrollo found that Venezuelan migrants are more likely to live under the poverty line than local workers. A World Bank report about Venezuelans in Colombia found that the average wage gap between migrants and locals is about 35%.
If South American job markets were more attractive, migrants from Venezuela and elsewhere may opt to stay in the region instead of spending their life savings or borrowing money for a potentially deadly, cross-regional journey that often involves facing organized crime scams that exploit migrants. South American economies no longer appeal to many migrants due to having low economic growth for more than a decade.
In the early 2000s, South America benefited from a positive tailwind from the international economy: rising demand for Chinese commodities. Meanwhile, US interest rates were low, with borrowing conditions for emerging markets easing. Economists agree that this so-called “commodities supercycle" lasted roughly between 2003-2013. All South American countries had larger economic growth during the 2003-2013 period than at any point in the following 10 years.
The table below shows how much each economy grew during the two periods.
Although the COVID-19 pandemic hit South America hard, the region was already dealing with economic and productivity stagnation well before the contagious disease emerged. This was due to factors including a low level of domestic savings, an unfriendly investment climate, and both social and political instability. Most South American countries’ populations are poorer today than they were at the beginning or in the middle of the past decade. In most South American countries, GDP per capita peaked many years ago: 2011 in Brazil, 2013 in Chile and Colombia, 2014 in Ecuador and Paraguay, and 2015 in Argentina.
Looking ahead
While South American countries experienced a strong recovery in the years following the COVID-19 pandemic, the International Monetary Fund (IMF) projects growth to be slower in late 2023 than in previous quarters and bottom out in 2024. That means that migrant outflow from South America is likely to continue in the short term, especially affecting Venezuela, Ecuador, and Colombia.
Some countries in the region expect bright spots in the coming year. Brazil’s agribusiness sector is thriving, and the country has been receiving a part of the Venezuelan diaspora in its southern region. This is part of a Brazilian government initiative to find formal jobs for migrants, most of whom initially arrive in the states of Amazonas and Roraima. Brazil also has the potential to be a major player in the energy transition market, due to its endowment of renewable energy sources. Lithium will be the most dynamic sector in both Chile and Argentina, while the Chilean mining and Argentinian oil and gas sectors will continue to profit from rising exports.
A new commodities boom in international markets could make South American job markets attractive for migrants again, and possibly alleviate the influx of migrants at the Mexico-US border. Yet, this is not something that would occur in the short-term; and political, security, and social instability remain additional push factors driving people to make the decision to migrate.
Some countries are likely to face lasting difficulties in their job markets. In Colombia, the number of available jobs is lower today than in 2015, showing that Colombian companies are not absorbing new workers. In both Ecuador and Peru, a mix of political uncertainty and the El Niño climate shock will harm economic activity. Ecuador is already facing power outages, and Peru’s agricultural sector has been hit by a drought. A possible new commodities boom could shift these economic dynamics by pouring more revenue into state coffers and pushing demand into service sectors comprising the largest South American employers.
South American economies share some features that would make a sustained economic growth cycle unlikely in the next few years. High interest rates and an unfriendly business environment make investment riskier and more expensive in those countries. Additionally, their governments have limited capacity to carry out state-run investment due to a shortage of state funds and the quality of projects government agencies are able to design and execute. Finally, physical security poses an additional cost for private investment, either represented by organized crime and violent protests. Promoting economic growth in South America must be a priority for both the public and private sectors as migration-related disruption in both the licit and illicit markets will continue as the US focuses exclusively on a strategy of deterrence at the border.
Whether it’s Panama, Colombia or elsewhere in Latin America, Southern Pulse has the experience, network, and relationships to simplify this challenging region with honest, direct answers to your most complicated questions.
Want to learn more? Let’s chat.
CC BY-ND
 | A guest post by
|