In this article, we take a look at the 15 least developed countries in Latin America. You can skip our detailed analysis of the Central and South American economic outlook and go directly to the 5 Least Developed Countries in Latin America.
Latin America comprises South and Central America. It is an economically maturing region with varying levels of development in different countries.
Economic Problems in Latin America
The region suffers from structural economic problems that have kept economic growth low in the region despite high potential. For instance, informality is a huge problem with economies in Central and South America. In fact, it's so pervasive that 60% of the workers in the region work in the informal economy, as noted by the World Economic Forum.
Informal companies tend to remain small and less productive relative to their formal counterparts. This comes down to informal companies’ lack of access to formal credit markets and investment capital, and limited access to formal contract enforcement mechanisms among other factors.
Other issues include limited diversification of the economies, inefficient provision of credit and reliance on commodity exports, as well as poor state of infrastructure. All in all, Latin American countries have been unable to tap their full potential and benefit from globalization as much as other regions like Asia have.
Deglobalization and Emerging Opportunities
Deglobalization is largely being driven by the ongoing decoupling between the US and the Chinese economy. It was further accelerated in the wake of the supply-chains collapse during the pandemic, with countries increasingly starting to prefer resilient supply chains even if it means more cost.
In this regard, the US is increasingly moving its supply chains to Latin America, especially Mexico. Even before the pandemic, the US was in the process of shifting its supply chains from China as part of the trade war. The Chinese exports to the US dropped by 17% in 2019, as the US shifted some of its outsourcing to other countries, with Mexico gaining 16% from China’s lost share, bringing Mexico’s total share in the overall US imports to 15%, the highest after China.
Another indicator that shows pre-pandemic pressures to shift outsourcing from China to Mexico is the labor cost. Wages in China superseded Mexican wages during 2014-2015, as noted by professor of International Affairs, Dr. Noel Maurer.
Latin America offers other reinforcing advantages as well, as the US moves ahead with the Executive Order 14057 - an initiative to transition to electric vehicles (EVs) by 2035 - which is set to exponentially increase the demand for electric vehicles.
In this regard, Argentina, Bolivia and Chile - the ‘lithium triangle’- are sitting over half of the global lithium reserves, a critical ingredient for EV batteries. All these trends show a great outlook for Latin American economies in the coming years. However, problems with infrastructure and limited market reforms in these countries can prove to be challenging to overcome.
A positive sign is that increasing number of US companies have been opening facilities in Latin American countries. Some of these include General Motors Company (NYSE:GM), International Business Machines Corporation (NYSE:IBM) and 3M Company (NYSE:MMM).
We have defined the ‘least developed countries in Latin America’ as ones that have low human development and per-capita income, but a relatively big population size. For this purpose, we’ve excluded Latin American countries with population sizes below 1 million, as they’re insignificant from the standpoint of economic potential.
For this list, we first picked Latin American countries with lowest values on the Human Development Index (HDI) as of 2021-22. We then picked Latin American countries with lowest GDPs per capita. We then assigned two rankings to each country; one based on their HDI and the other based on GDP per Capita in a descending order of low development. Finally, we ranked the countries on our list based on the averages of the two rankings.
15. Dominican Republic
HDI Ranking: 22
GDP Per Capita Ranking: 13
Average Ranking: 17.5
The Dominican Republic is located in the Caribbean. It is one of the poorest countries in Latin America, and there are several reasons for its impoverishment. These include high crime rate, low-quality education, unemployment, natural disasters, corruption and political instability.
The Dominican Republic also suffers from environmental degradation, which has dented the country’s capacity in food production, with 15% of the country’s population in a serious food-insecurity crisis, since late 2022. The Dominican Republic has a GDP per Capita of $8,477 as of 2021
14. Mexico
HDI Ranking: 19
GDP Per Capita Ranking: 15
Average Ranking: 17
Mexico is located south of the United States. While it is certainly more developed than most of the other countries on the list, it still suffers from considerable underdevelopment, and has a GDP per Capita of $10,046 as of 2021.
The factors contributing to this growth drag include the presence of cartels, corruption, income inequality, lack of access to quality education, as well as infrastructure that needs overhaul, given that the US is moving its supply chains closer to home. Mexico is ranked 53rd on the Logistics Performance Index.
Other, deeper issues with the Mexican economy have had a hugely negative but silent effect. These comprise informality in the economy, poorly working credit markets and warped supply of non-traded inputs.
However, Mexico has recently made reforms to address these problems in order to attract investment. Companies like General Motors Company (NYSE:GM), International Business Machines Corporation (NYSE:IBM) and 3M Company (NYSE:MMM) have facilities operating in Mexico, with more and more companies moving in the country.
13. Peru
HDI Ranking: 20
GDP Per Capita Ranking: 11
Average Ranking: 15.5
Peru is one of the least developed countries in Latin America, with a GDP per Capita of $6,622 as of 2021. Peru is plagued by many of the same problems as other underdeveloped Latin American economies.
It is, in most part, reliant on commodity exports, with not enough diversification. Further, nearly half of its economy is informal, with estimates suggesting a figure of 42%, representing $279 billion of GDP in PPP terms.
Other factors hindering development in Peru include lack of access to quality education, corruption, income inequality, poor healthcare, and lack of proper infrastructure, especially in rural areas.
12. Brazil
HDI Ranking: 18
GDP Per Capita Ranking: 12
Average Ranking: 15
Despite its huge GDP of $1.60 trillion, Brazil is one of the least developed countries in South America. There are a myriad of factors why this is the case. Brazil has a low productivity rate. Between 2003 and 2014, the country’s productivity per worker increased by only 21%, even as minimum and real wages grew by 68% and 38%, respectively, as shown by the World Bank.
This discrepancy has been traced to excessive government regulation resulting in lack of private investment, as well as the tax system and problems with the infrastructure. The country has also seen a rise in unemployment, with the number rising from 7.6 million unemployed people in 2012, to 13.4 million in 2019. Other factors include Brazil’s struggle with fiscal discipline, land reforms and corruption.
Despite Brazil’s situation, it has a huge economy and cheap labor costs in the country have been attracting companies like 3M Company (NYSE:MMM), General Motors Company (NYSE:GM) and International Business Machines Corporation (NYSE:IBM) among others.
11. Colombia
HDI Ranking: 17
GDP Per Capita Ranking: 10
Average Ranking: 13.5
Colombia has a GDP per Capita of $6,104 as of 2021, making it one of the least developed countries in the Americas. One of the biggest problems in the country is poverty, whose levels jumped to 42.5% in 2020 during the pandemic, as reported by Borgen Project.
Colombia has also been mired in internal conflicts, and crime, with the country dominated by armed groups, resulting in it being one of the most dangerous countries in the world. It also suffers from a huge lack of infrastructure, with 81% of homes in Colombia’s rural areas having no access to piped water network.
10. Ecuador
HDI Ranking: 15
GDP Per Capita Ranking: 9
Average Ranking: 12
Ecuador is another country on the list with a huge informal economy, whose size is estimated to be 37.2% of its GDP. Apart from informality, many other problems contribute to Ecuador’s underdevelopment.
The country’s economy is heavily regulated with virtually no fiscal discipline. Further, the economy is not diversified either, with Ecuador largely relying on revenue from oil export, which makes it vulnerable in the face of demand shocks. The country’s legacy of political instability does not help the situation either.
9. Venezuela
HDI Ranking: 7
GDP Per Capita Ranking: 16
Average Ranking: 11.5
Venezuela is located on the northern coast of South America. It is underdeveloped due to several political, economic and structural reasons.
Venezuela’s economy is almost entirely dependent on oil, which comprises 98% of its exports and makes up 25% of the country’s GDP. This lack of economic diversification leaves the country vulnerable to fluctuations in the oil price and shaves off much of the potential growth that comes from a diversified economy.
Other factors include extreme centralization of the economy and US sanctions. The combined effect of the two factors have excessively devalued the Venezuelan Bolivar, adding to the country’s problems.
8. Paraguay
HDI Ranking: 12
GDP Per Capita Ranking: 8
Average Ranking: 10
Paraguay is a landlocked country in South America. It has a GDP per Capita of $5,891.5 as of 2021. The country remains underdeveloped primarily because of its agrarian economy, that is based on internal consumption and exports to neighboring countries.
7. Jamaica
HDI Ranking: 9
GDP Per Capita Ranking: 7
Average Ranking: 8
Jamaica is another Caribbean country on the list. It has a GDP per Capita of $5,184 as of 2021. The country is underdeveloped due to several reasons. These include the legacy of military rule, corruption, bureaucratic inefficiencies and economic mismanagement. By far, the biggest reason for Jamaica’s underdevelopment is that the economy largely relies on tourism, leaving little room for diversification.
6. Bolivia
HDI Ranking: 8
GDP Per Capita Ranking: 4
Average Ranking: 6
Bolivia has a GDP per Capita of $3,345 as of 2021. It suffers from roughly the same issues as other Latin American countries that are underdeveloped. One exception is that the country is far worse off in infrastructure than most other Hispanic countries. It is ranked 136th out of 167 countries on the Logistics Performance Index. It is also worse off in child mortality, education and other development indicators.
