Executive summary

In recent years, Uruguay has made remarkable progress in strengthening its macroeconomic management and implementing an ambitious agenda of social reforms. For over a decade, economic growth has been solid and the remnants of the economic crisis in the early 2000s have been mitigated. Stable macroeconomic policies and a favourable external environment have contributed to these accomplishments. Uruguay’s progress is also reflected in improvements across various dimensions of well-being. As one of the few high-income countries in Latin America, and with the lowest levels of poverty and income inequality on the continent, Uruguay currently benefits from above-average outcomes in areas such as life satisfaction, environmental quality, health, trust, perception of government and air quality. At the same time, there are impending challenges stemming from the country’s vulnerability to external shocks, its undiversified economic structure, and its limitations in the provision of human capital and infrastructure.

This second volume of the Multi-dimensional Review of Uruguay provides an in-depth analysis of Uruguay’s critical development constraints and makes recommendations for addressing them. Although challenging external conditions risk curbing the rapid pace of economic growth, Uruguay’s strong institutional capital should allow it to address the challenges of its relatively exposed economy. Constraints identified in the education and infrastructure sectors stress the need for a long-term perspective in implementing reforms. The high trust in government, low perceptions of corruption and well-developed social capital can support Uruguay in constructing the solid long-term policy framework required. The report identifies three main policy areas for future action to put Uruguay on a more sustainable development pathway: designing a well-functioning strategy for international integration, overcoming the barriers to infrastructure development, particularly in the transport sector and addressing the challenges within the education and skills systems that are costly from both an economic growth and a social perspective.

Towards deeper global integration

Uruguay has made important progress in its integration into the global economy, participating more actively in global production chains and creating the conditions for attracting foreign investment to contribute to the country’s sustained productivity growth. However, the current regional context and the changing nature of global demand mean that Uruguay’s integration model needs to be upgraded and reinforced. The export sector, which has doubled in size over the last decade, remains an important pillar of the economy. Although well-designed regional and plurilateral agreements can allow the country to strengthen links with its neighbours, new challenges emerge today when defining a more ambitious integration strategy and forging trade ties with commercially relevant partners outside Mercosur.

Low diversification, a rigid regulatory framework and a sub-optimal use of trade arrangements are all putting the brakes on Uruguay’s integration into global markets. The country should focus on diversifying trade across new markets and sectors, while introducing greater flexibility into its regulatory profile, especially for its service sector. Uruguay has yet to introduce modern, behind-the-border disciplines that are essential for sustaining the development of global value chains and consolidating the institutional framework for a truly “deep integration” agenda. These include addressing barriers in competition policy, intellectual property rights, investment and regulatory coherence. Finally, the regional context, in particular Uruguay’s participation in Mercosur, highlights the need for better use of current international trade and investment agreements.

Supporting trade with good quality infrastructure

Poor infrastructure can undermine Uruguay’s international integration ambitions by hindering trade and investment. With almost 97% of commercial cargo in Uruguay transported by road, poor infrastructure conditions can have a significant impact on economic activity. Uruguay’s infrastructure gap, which is more visible in its quality rather than its coverage, needs to be addressed.

Uruguay needs to upgrade a range of infrastructure development areas, from planning and management to delivery and operation. Creating a National Transport Plan, as well as a clear strategy for how the infrastructure sector should be organised, should be the first step. Project programming and prioritisation can be strengthened by improving co-ordination and clarifying responsibilities among the various bodies involved in the infrastructure cycle. Once Uruguay has adopted a holistic view for how its infrastructure sector should be planned and organised, it will be in a position to consider private participation in delivery. Current regulations, in particular for public-private partnerships, need to be extended and brought into line with a National Transport Plan. Prioritisation and procurement decisions should be carried out by separate entities to avoid potential bias. Such improvements to the infrastructure cycle will disentangle the process and execution of projects.

Building the skills required for a dynamic economy

Strengthening Uruguay’s human capital and skills remains a central challenge for the country over the coming years, with enormous potential for enhancing Uruguay’s competitiveness on the global stage. Inequalities in the access to and quality of education, particularly secondary schooling, need to be addressed urgently. Grade repetition and dropout rates are high in both secondary and higher education. Uruguay’s public expenditure on education is low for OECD standards, and socio-economic disparities in attainment and performance are significant. The country can do more to tackle the current challenges in the sector, including the inequality in learning conditions for students, the variability of student assessment frameworks, the lack of proper student support schemes and the low status of the teaching profession.

Policies focused on student support and flexibility are key to solving these problems. Redefining assessment procedures can allow schools to identify the areas in which students are struggling. In secondary schools, teaching conditions should be upgraded to improve work-time flexibility, strengthen school leadership and autonomy and enhance job security. Individualising the learning process and introducing peer-learning among secondary schools can be effective measures to improve learning outcomes. In higher education, students need a more supportive and flexible academic environment to thrive. Allowing mobility within tertiary institutions, institutionalising self-help groups as an instrument of academic preparation and improving coherence between secondary and tertiary education are recommended to improve higher education outcomes. Finally, the potential benefits of technical education should be expanded and actively involve the private sector from the beginning to better align courses with the needs of the labour market.