Jorge Arbache
Vicepresidente de Sector Privado, CAF -banco de desarrollo de América Latina y el Caribe-
As the world considers more sustainable forms of economic growth, countries and companies are positioning themselves for the emerging green economy from different perspectives. One is manufacturing.
To fulfill the net-zero commitment in 2050, it will be necessary to implement the most profound and rapid change of economic structure in history to convert steel production to green steel, plastic production to green plastic and so on. It is estimated that annual investments of at least US$ 3.3 trillion will be required until 2050 to promote that conversion. To green manufacturing, several enabling factors must be in place, the most crucial being the availability of green, safe, cheap and abundant energy for use in production chains.
Green manufacturing is in line with increasingly stringent environmental regulations and sustainability goals set by various governments and international organizations. By meeting these requirements, manufacturers ensure regulatory compliance and gain easier access to markets, expanding new business opportunities.
Manufacturers who invest in sustainable technologies have access to state-of-the-art equipment, advanced control systems and process optimization tools, resulting in greater operational efficiency, reduced waste and increased productivity. The use of clean energy also reduces energy costs in a context where renewable energy is already cheaper than fossil energy. And all this becomes a competitive advantage.
But sustainable manufacturing goes beyond compliance and operational efficiency – the technologies to adopt enable companies to be environmentally responsible, economically resilient and socially aware. Sustainable production also enhances the company's brand reputation and stakeholder engagement. In the end, all this leads to the occupation of new market spaces.
There would be the main reason for the fierce global race for leadership in green manufacturing, with the use of a kind of “anything goes”, as represented by legislation recently approved by the United States and Europe, which promote an unprecedented set of subsidies, discrimination and protectionism in favor of green manufacturing.
The shift towards green manufacturing presents an opportunity for many countries to establish themselves as leaders in sustainable practices and technologies. Among these, China stands out as a strong competitor due to its already established and proven capabilities in manufacturing and ambitious renewable energy targets. But China faces challenges, including the need to still carry out a broad conversion of the electricity matrix and having to face complex geopolitical issues that impact trade and market access.
The United States and Europe pursue highly ambitious industrial policies to establish themselves in green manufacturing. But, in line with China, both still have to face a long and costly journey to green the electrical matrix, are exposed to geopolitical issues and start from a disadvantageous situation in terms of size and integration of the industrial park, since manufacturing no longer occupies an important space in the respective economies.
Latin America and the Caribbean (LAC) could also contest a share of green manufacturing and the main reason is the huge availability of green energy. In fact, several countries in the region already have mostly green electricity grids and are expected to green them even more in the next few years. This condition gives the region a great advantage in terms of investment time and cost and allows it to provide value chains with the possibility of low-emission production, a unique competitive advantage. This is what powershoring is all about.
In addition, the region is protected from complex geopolitical issues, has a privileged location and should be part of the new global geography of investments, which seeks to diversify the location of industrial plants based on resilience.
But the benefits that the region offers go far beyond. Several countries have plenty of water, huge reserves of critical minerals such as lithium, nickel, copper, rare earths and high-grade iron ore, and a particularly rich biodiversity that can play a distinctive role for sustainable manufacturing and the carbon market. They also have vast forests and agricultural land that offer ample opportunities for the supply of important industrial raw materials. The region is also engaging in commitments to environmental preservation, which is key to attracting investors and consumers who prioritize responsible production. All this positions the region as a reliable supplier of sustainable manufactured products.
Leading sustainable manufacturing requires, however, a comprehensive and proactive approach, including establishing a strong commitment to sustainability; identify funding sources; focus on green product development; ensure the expansion of clean energy; implement energy efficiency measures; promote the carbon market; optimize efficiency in the use of resources; foster a culture of innovation; collaborate and involve stakeholders; invest in training and professional education with the knowledge and skills needed for the green economy; and communicate sustainable initiatives. It will also be important to consistently demonstrate environmental leadership and take a leading role in a sustainable future.
It is likely that we will witness a change in the current global manufacturing landscape. Many incumbent sectors from countries with comparative and competitive advantages may be late in converting to green, the conversion costs may be prohibitive, or even, they will not have many of the requirements to succeed, suggesting that they may lose market space. All of this contributes to LAC's ambition to participate in the green economy through the front door, and not just as a supplier of green commodities, which will allow it to transform its economy and solve its greatest wounds, which are poverty and inequality. However, this will require a lot of ambition, determination, objectivity and the ability to coordinate, execute and implement policies.
