Environment at a Glance in Latin America and the Caribbean

Introduction - Latin America and the Caribbean

Latin America and the Caribbean (hereafter “LAC”) is composed of 48 separate administrative units including 33 countries and 15 dependent territories with various governance and political systems. The region spans approximately 20 million square kilometres (km²), about 15% of the global land area (FAO, 2023[1]). It covers two hemispheres, three oceans and a multitude of ecosystems.

With 660 million inhabitants of European, African, Asian and Indigenous descent (about 8.3% of the world’s population), the region boasts a diverse cultural and ethnic heritage (ECLAC, 2022[2]). Shared cultural understandings and a close link to the environment have built a common identity.

Economic development and social wellbeing are closely connected to the natural environment and the resources and ecosystem services it provides. The region is highly vulnerable to climate change that affects the lives and livelihoods of millions of people. Governments of LAC countries need to mitigate emissions while ensuring the climate transition considers the most vulnerable population groups and the protection and sustainable management of ecosystems.

Economic development

In 2021, the economy of the LAC region represented about 7% of global gross domestic product (GDP) (OECD, 2023[3]). Most LAC countries were severely affected by the COVID-19 pandemic and the global economic downturn. GDP plunged by 8.2% in 2020, compared to a decrease of 4.2% in the OECD and 3.2% globally (IMF, 2023[4]).1 High energy prices, repercussions of the economic slowdown in China, a key trading partner of the region, and structural issues affect growth prospects; the region is not expected to resume the high levels of economic growth experienced in the 2000s.

The socio‑economic consequences of COVID‑19 linger, with high levels of poverty and income inequality (OECD et al., 2022[5]). Income levels vary considerably across countries, with Chile, Panama and some Caribbean islands having the highest income levels, and Nicaragua, Honduras and Haiti the lowest. In 2021, average GDP per capita was USD 17 383, less than half the OECD average of USD 43 115 (at 2015 prices and PPP) (Figure 1) (OECD, 2023[3]).

The region’s economy is largely based on activities that use and process natural resources. In 2020, industry2 contributed to 27.7% of value added, compared to an OECD average of 23.9% (OECD, 2023[6]). Manufacturing industries alone accounted for 13% of the LAC region’s GDP (CEPALSTAT, 2023[7]). Automotive and electronics industries (such as large-scale solar panels and televisions) play a key role in large countries such as Brazil and Mexico – the latter having a significant maquila industry associated with the North American Free Trade Agreement and other trade arrangements across Central America.

Mining and energy are important sectors, as the region is endowed with valuable mineral resources and significant oil and natural gas deposits. Venezuela alone owns 24% of the world’s oil reserves (OPEC, 2022[8]) and around 4% of global natural gas reserves (US EIA, 2023[9]). Nevertheless, hydropower is the main source for electricity in the region (54% in 2020) (IEA, 2022[10]). The region has an important copper and lithium production, more than a quarter of the world’s lithium production, with Chile accounting for 26% of the total global mine production in 2020 (USGS, 2022[11]).

Agriculture accounts for a larger share of value added (6.6%) than in OECD countries (1.8%) (OECD, 2023[6]). Fertile soils and mild climates have made it a major economic and social activity. The region’s cash crops include coffee and cacao, as well as industrial crops such as corn, soya and wheat. Grazing animals such a sheep, llamas, alpacas, and vicuñas are bred for meat and for wool that is used in high quality textiles exported worldwide. The Pampa’s vast pastures feed South America’s livestock. Due to the Humboldt current coming from Antarctica, fisheries are an important economic activity along LAC’s Pacific coast and many coastal communities rely on subsistence fisheries. Catch volumes are, however, declining due to over-fishing and unsustainable resource management that led to the depletion of many fish populations. Forestry is a major economic activity in the Amazon River basin and the south of Chile, which is an important exporter of wood chips, plywood and paper pulp. Timber production from naturally regenerating forests (non-cultivated timber extraction) is increasing as a source of income growth in several countries such as Brazil and Chile.

Trade plays an important role with exports and imports accounting for 27% and 28% of GDP respectively in 2021. Main exports include petroleum, ores, soya beans and motor vehicles, that together account for more than a fourth of total exports. Main imports are intermediate goods (65%). This reflects the region’s strong industrial base that is however concentred in a few large countries (CEPALSTAT, 2023[7]).

Tourism generates significant income, particularly in Central America and the Caribbean. In 2018, inbound tourism expenditure contributed to more than half of GDP in Caribbean islands such as Turks and Caicos (77%), Aruba (72%), Antigua and Barbuda (60%), Montserrat (55%) and Saint Lucia (51%). In Central America, the highest shares are found in Belize (25%), followed by Panama (11%), Costa Rica (6%), El Salvador (5%) and Nicaragua (4%). South America derives less than 5% of its GDP from tourism (CEPALSTAT / WTO, 2022[12]).

Most LAC countries base their economic development on natural resources or ecosystem services. Therefore, the region is particularly vulnerable to climate change. Impacts associated with climate-related hazards will have serious consequences for activities such as agriculture, tourism, forestry, fisheries and hydroelectric capacity. Furthermore, given the high dependence of some economies on fossil fuels and manufacturing, the expected energy transition will also have a significant impact, particularly in countries such as Venezuela, Ecuador and Colombia, that are dependent on fossil fuel exports, and in Central American countries that are dependent on the maquila industry.

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Social conditions

The population of LAC is predominantly urban (81% in 2020). In South America 85% of the population lives in urban areas, followed by Central America (75%) and the Caribbean (67%) (CEPALSTAT, 2023[7]). Population density is highest in the Caribbean with an average 300 inhabitants per km² in 2021; it is much lower in Central America’s (106 inhab/km²) and very low in South America (25 inhab/km²) although this masks a high population concentration in big cities (Figure 2). The high urbanisation rate generates considerable environmental challenges. Many people live in urban centres where air pollution is concentrated, and islands with high population density are more exposed to climate-related hazards.

Income inequality and urban-rural disparities have been historically high. Income inequality quantified by the Gini coefficient averaged 0.46 in 2021 in LAC, (CEPALSTAT, 2023[7]) compared to an OECD average of 0.34 (OECD, 2023[13]).3 Differences across countries are considerable; the Gini coefficient ranges from 0.40 in the Dominican Republic and Uruguay to 0.54 in Brazil (CEPALSTAT, 2023[7]).

Poverty is a major concern, particularly in urban areas. About 32% of the urban population lived in extreme poverty in 2021, compared to 13% of the rural population (CEPALSTAT, 2023[7]). While this gap has narrowed since the early 2000s, little progress was made in the past decade and the economic crisis following the pandemic has aggravated the situation.

During the COVID-19 pandemic, the region experienced one of the highest mortality rates in the world due to the high population concentration in urban areas and unequal access to health services. Brazil, Peru and Ecuador were especially affected. The region lost 2.9 years of life expectancy at birth between 2019 and 2021 (CEPALSTAT, 2023[7]). The vulnerability of the region’s health systems and the high public debt –on average 65% of GDP in 2020 and over 100% in some countries (CEPALSTAT, 2023[7]) – limit its capacity to deal effectively with the impacts of climate change that are likely to affect large vulnerable groups of the population.

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Geography and land use

LAC has a wide variety of climatic conditions, ranging from tropical, to temperate, and arid. This is due to differences in elevation across the region – from lowlands in Mexico and Brazil, to Andean peaks just under 7 000 metres – and the impact of warm currents from the Atlantic Ocean and cold currents from the Pacific Ocean. This varied climate and physical geography facilitates a range of biomes and ecosystems, including close to 4 million hectares of permanent snow and glaciers, over 4 million hectares of mangroves, and over 70 million hectares of Ramsar-designated wetlands (CEPALSTAT, 2023[7]). It makes the region the home of about 50% of the world’s biodiversity and one-third of global freshwater resources (OECD et al., 2022[5]). According to the UN Environment World Conservation Monitoring Centre (UNEP-WCMC) six Latin American countries are considered to be mega-diverse (out of 17 in the world), namely Brazil, Colombia, Ecuador, Mexico, Peru and Venezuela.

LAC is home to 23% of the world’s forests, including the Amazon, the world’s largest rain forest which is shared by eight countries. South America has the largest forest cover (48% of its land area in 2020) (OECD, 2023[14]), owing to countries such as Suriname, Guyana, Brazil, Peru, Colombia, Venezuela and Ecuador, where forests cover more than half of the land area. In Central America forests represent 36% of the land area and in the Caribbean 35% (Figure 3). Many high-value tree species, such as mahogany and rosewood, are native to the rainforest. However, forests are under threat. Between 1990 and 2020, the proportion of regional forest cover decreased from 53% to 46% of total territory (CEPALSTAT, 2023[7]). With the exception of Chile and Costa Rica, all LAC countries have suffered a significant net loss in forested areas.

Agricultural land, including meadows and pastures, arable land and permanent crops, spans over 650 million hectares. Brazil has the largest area in absolute terms (over 236 million hectares). The area of arable and cropland varies across sub regions. It covers 30% of the land in the Caribbean, 12% in Central America and 8% in South America. Countries with the highest share of agricultural land include Uruguay, Haiti, Cuba, El Salvador, the Dominican Republic and Mexico (Figure 3). Organic agriculture has developed across the region over the past 15 years. Countries with high proportions of agricultural area under organic farming include Uruguay (20% in 2020), French Guiana (11%), Dominican Republic (5%) and Argentina (4%) (CEPALSTAT, 2023[7]). Land use policies need to consider the role that agricultural systems play as an important source of income, employment and food for the region and the world (ECLAC, 2021[15]).

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Vulnerability to climate change

Due to its reliance on natural resources and ecosystem services, high inequalities and levels of poverty, LAC is one of the most vulnerable regions in the world to climate change. The region’s economy and the population’s well-being are affected either directly, through the exposure to changing climate and climate-related hazards, or indirectly, through the impacts on economic activities associated with the energy transition. Rising temperatures, fluctuating rainfall patterns, melting glaciers, and the increased occurrence of extreme weather events pose risks to the Latin American hydroelectric power system. Increasing temperatures and droughts exert pressures on the agricultural sector and forestry activities, and increase wildfire risks. Many tourist areas will be affected by rising sea levels and climate-related hazards.

Climate change impacts are already challenging the fiscal sustainability of the region when natural disasters strike; in the longer term, key economic sectors will be increasingly affected. Domestic and international policies to mitigate climate change through reduced fossil fuel consumption may also reduce the region’s financial resources, many LAC countries being major exporters of fossil fuel and agricultural products.

The transition to less carbon intensive economies also creates opportunities, generating new economic activities. Growing demands for renewable energy sources, lithium and copper and other key minerals, as well as the potential to implement nature-based solutions suggests that structural changes could help the region move towards a more sustainable, resilient and inclusive development model (EUROCLIMA, 2022[16]). This model should help close the existing social, economic, institutional and environmental development gaps and avoid generating new ones.

Notes

← 1.  Before the COVID-19 pandemic, GDP growth of the LAC region was already more modest (at an annual average of about +0.4% between 2010 and 2019) than in the OECD (about +2.0%) and globally (+3.4%).

← 2.  Including mining, manufacturing, construction, electricity, water, and gas.

← 3.  A value of 0 would represent perfect equality (every person receives the same income), and a value of 1 would represent perfect inequality (a single person receives all of the income).