Geo-economics of the Ukrainian crisis.

Author: Giovanny Cardona Montoya

Translator: Andrés Fernando Cardona Ramírez

Spanish version:


I had the pleasure of living seven years in Ukraine, one in Kharkov and six in Kiev. I remember the industrial Kharkov and wonderful university and cultural city: Kiev. But many things have changed since that beautiful time. Beautiful, despite the huge scare that we got from the Chernobyl accident in 1986; just 141 km from the nuclear reactor.

Short historical review of Ukraine

The union of nations between Russia and Ukraine is historically so strong that the first was born in Kiev, the capital of the second. The Kievskaya Rus was over a thousand years ago, the cradle of the Slav peoples of Russia, Belarus and Ukraine.

The history of Europe is full of wars, and Ukraine is not immune to this reality. In this context, the country has been divided and re- united more than once over the centuries.

In the eighteenth century, under the Partitions of Poland, Eastern Ukraine was annexed to the Russian Empire and the West to Austria. In 1917, after the disappearance of the Russian Empire, Ukraine became independent but divided into two: the axis of which was the city of Lvov, and which had the capital Kiev. In 1918, the Eastern Ukraine came to be part of the nascent Soviet Union,  and the one which had as its axis Lvov was annexed by Poland.

This division persisted until 1939, as a result of the Secret Pact between Hitler and Stalin, the Soviet Union annexed Lvov and the Ukrainian territories that were part of Poland. In 1954, the Soviet Republic of Ukraine was defined by the current borders, including the Crimea, axis of the near attempto of war between Russia and Ukraine in the beginning  of March 2014.

 The Ukrainian economy

Ukraine is a country of 45 million habitants and a GDP of 340 billion dollars ( 2012). Although the service sector is the largest employer ( 58 % in 2012 ), its exports focus on the foundry industry (steel) and agriculture . Ukraine has land that is fertile and easy to machine , and is dedicated to the production of wheat, barley and maize , the latter with a growing share of rural GDP.

On the side of mining are important reserves of coal, iron , uranium and gold. At the industry level, in addition to the steel foundry, Ukraine has produced chemicals and many shipyards. The legacy of the Soviet Union industry ( aircraft production , tools, arms) is rather inefficient and costly from the perspective of energy consumption. Its challenge is to enable the industry to diversify its productive apparatus.

 Ukraine: between the European market and the Russian fuel.

Although many analysts name the cultural differences of the Ukrainians to explain the current crisis ( a Catholic Western Ukrainian language and Ortodox Russophile East) , and fractures caused by political corruption in this Slavic country , it is legitimate to suggest geopolitics and geo-economics help explain much of the current problems and risks ahead.

The current crisis in Ukraine suggests two potential risks. For starters, a possible armed confrontation between Russia and Ukraine is explained, not by the intention of Putin to protect the integrity of the Russian population of Crimea, but especially for the defense of its Black Sea Fleet, quartered in the region. This military enclave is supported by an agreement between the two nations, in which the base is rented to the Russians until 2042 in exchange for 40 billion dollars in discount gas prices for 10 years.

The other risk is a new division of Ukraine, maintaining an eastern region, centered on Kiev, allied with Russia and a western that would enter the European Union. On this point it should be noted that the Geo-economics is a central argument.

In aggregate terms, Russia is the largest trading partner of Ukraine (21 % of exports and 28 % of imports). On the one hand, Ukraine depends on Russian fuel supply, 3 /4 of the oil and gas and 100% of nuclear energy consumed are imported from Russia. On the other, Russia´s need of the foundry and agricultural products Ukraine provides. Recall that in the era of socialism, Ukraine produced 25 % of the grains of the Soviet Union.

While Ukraine’s trade relations with Western Europe are not significant (Germany is the major supplier and Turkey is the second market) it is clear that Ukraine´s potential would not be negligible for the future of the European Union: abundant labor, laborious and low cost, a potential 45 million people market, fertile soils, coal reserves and metal foundries, are attractive for any economy looking to get out the long crisis which has lived in the Eurozone since 2008.

But, surely, it´s the mixture of Geopolitics and Geo – economics that best highlights the confrontation between the West and Russia for their leverage over Ukraine. To begin let’s say that the West European powers have extended their zone of influence up to Moscow. With the exception of Ukraine and Belarus, the western border of Russia has migrated to the European bloc.

From the Russian perspective , there is an additional interest : its pipelines. Ukraine depends not only on supply but is a supplying pipeline route to Western Europe. Keeping Ukraine as an ally, allows Russia to handle trading strategies with their Western customers. History has shown that the European Union is vulnerable when Russia gets “tough” negotiating gas supply … especially if it is winter.



Colombia does a development model or a drift boat?

Translator: Andrés Fernando Cardona Ramírez

Spanish version:

The twentieth century was largely a protectionist century. In this context, Latin American countries, including Colombia, conducted an import substitution policy seeking to promote the nascent industry. In the 1960s, this policy was supplemented by export promotion strategies to diversify the offer and sell the world other goods than mining and agriculture.

However, for emerging economic trends in late twentieth century, to the academy and to those in power, the ECLAC economic model ran out. In its place, neoliberalism substantiated opening strategies to modernize the economy, liberalizing trade and attracting foreign investment. However, a quarter century later, there are reasons to wonder where Colombia is going in terms of economic development.


The twentieth century protectionist model gave way to a significant light industry, with progress in production of household appliances, electrical instruments and vehicle assembly. Parallel to this, exports diversified, reducing dependency on coffee and increasing the production of other goods, especially in the agribusiness and textile sectors. However, the paradigm of competitive advantage was imposed on the world; therefore, the door was opened to competition, new suppliers and investors to create conditions for modernizing the economy.

As shown on the map of Sciences Po, most world trade is within the North blocks (circles) and between them (thick arrows). This is because they involve manufactured products with high level of technological sophistication, and in these, few Latin circuits are involved, Colombia included: we must create competitive advantage.

Consequently, from the beginning, economic liberalization was expected to make foreign investment modernize our production, make our production more sophisticated, foreign competition would oblige our fledgling industry to get better in order to compete. these pillars expected to be the base for a new economy centered on the creation of competitive advantage for firms.


However, although some companies have modernized, overall figures indicate that Colombia does not advance in this direction. According to studies by the Bank of the Republic, until the beginning of economic liberalization (1990), coffee represented between 50 and 70% of exports. In the 1990s, exports other than coffee and oil and became almost 50% of the total export supply. But this does not mean that the manufacturing industry had been the major enhancer, although some of it if was: Venezuela was mainly, within the frame of CAN, a big market for assembled vehicles, apparel and agribusiness.

However, the balance of the first decade of the twenty first century states that what little progress had been made in diversification has been waning. While we do not depend significantly on coffee exports, unprocessed mining products have come to occupy this privileged position. Between oil, coal, ferronickel and gold do we find the axis of Colombian sales abroad, which are complemented by a light industry that does not evolve: apparel, bananas and flowers. According to the Private Competitiveness Council, 88% of our exports are raw materials or low-tech goods.

Consequently, we are in an ambiguous situation: we started a model of economic opening, inspired by the principles of Competitive Advantage, which means science, technology and innovation. But the sophistication of our industry and agriculture is not happening. We have better communications a more internationalized banking, higher education offer, but we still export raw goods. We are not doing something right.


we have become a mining economy. Coal and oil have become our main source of foreign exchange, exports and attracting foreign investment. However, this situation is a determinant (while not exclusive) of the revaluation of the peso. Consequently, the mining boom is causing part of the weakness of other industries with aspirations to participate in international markets. The makers, flower coffee and banana growers lose competitiveness as a result of an unfavorable exchange rate. We are experiencing symptoms of Dutch disease. Is this sustainable?:

According to the data of the company BP, worked by Nelson Hernandez, 10 countries possess 80% of world oil reserves, but Colombia is not among them. Therefore, a mining development model, based on the oil industry does not seem sustainable in the long run for Colombia. There are no signs that we can sustain the long-term model derived from the investment currency and oil exports, while manufacturing and other industries, agricultural and depress as a result of the revaluation of the first causes.

 Innovation and Sustainable Development:

the exchange rate is not the only thing that affects manufacturing and the agro Colombians. This country has very bad indicators for innovation, development, education and science. According to optimistic data, Colombia could be spending just under 0.5% of GDP on R & D processes, while successful East Asian countries are investing in this area about 4%. Neighbors such as Brazil and Chile, invest more than 1%. Our lack of vision translates into fewer patents and lower business innovation. It is no coincidence that one of the few companies that is patented in Colombia is Ecopetrol.

When it comes to education, although there are changes in the quantitative-more coverage, more masters, less illiteracy-, there are still significant shortcomings found in the qualitative: universities do little research and lack advancements in their approach to the big issues the country faces, particularly to the sophistication of our production capacity. There is little interest in the study of basic sciences and we are still seriously behind in bilingualism.

Finally, the country is having a big debate on mining. In this context there is serious concern about the poor relationship between the pursuit of a modern mining and sustainable development in Colombia: not only agriculture can be affected but, in general, it can cause irreparable environmental damage if the theme of “sustainable mining” is not clarified. Many interests are at stake and there is little legal and executive clarity .

 To close:

while the present belongs to mining, the future is uncertain. Neither the economic liberalization started a quarter century ago, nor mining numbers are arguments to indicate that the country is headed in one direction or another. We are a rudderless ship signing FTA’s with everyone without thinking what it is that we will offer our partners in the future. As we have said in previous articles: to export hydrocarbons is not required to sign agreements … We have lost the compass!

Expansion of Mercosur: will CAN disappear?

Versión en castellano:

Autor: Giovanny Cardona Montoya

Translator: Andrés Fernando Cardona Ramírez

What are we talking about?

Since the establishment in 1960 of LAFTA (ALALC), renamed LAIA (ALADI) in 1980, in this region there has been a plan to create a Latin American economic bloc, or at least South American. From the framework of LAIA emerged AC (CAN)  and Mercosur, two integration projects seeking, each in its own way, the consolidation of a sub-regional customs territory equivalent to a Customs Union (CU). Therefore, the agreement CAN-Mercosur could be understood as a bridge between two subgroups that were born to blend into one.

Is CAN crumbling?

However, the signing of the FTA between Colombia and the United States five years ago-and the political crisis by Paraguay in mid-2012, have been the detonators of a significant change in the structure of the two South American blocs. Venezuela’s withdrawal from the CAN, accompanied by their subsequent entry into Mercosur seems to be just the beginning of an expansion of this and the deterioration of the Andean bloc, since there is talk of adding Bolivia and Ecuador to the block that Brazil leads.

With the withdrawal of Venezuela from the CAN fell one of the most significant trade routes of the bloc: exports from Colombia to Venezuela. However, although intra-Andean trade represents only 7% of exports of the 4 countries of the bloc, it should be noted that almost ¾ of it are manufactured goods, and this is very significant for mono-export economies, which depend heavily on the mining markets.

According to official statistics, Venezuela came to represent more than 50% of intra-Andean purchases, being the world’s 2nd largest market for Colombian exports. In 2008, Venezuela imported to the CAN goods worth more than 8 billion dollars, while the rest of the bloc purchased just over seven. In 2011 – and without Venezuela-, Ecuador and Bolivia represents almost 40% of intra-bloc imports. Therefore, a possible entry into Mercosur by Bolivia and Ecuador is a very relevant issue for companies in Peru and Colombia, the Andean survivors.

 ANDEAN BLOC: Export of Merchandise according to Economic Zone, 2008-2011 (Millions of dollars)

 ECONOMIC ZONE     2008              2009            2010         2011

WORLD TOTAL         93,654           77,680           98,003     131,626

 ANDEAN                      7,005               5,774              7,810          9,187

Bolivia                              479                   535                 636             714

Colombia                      2,456                2,116              3,063       3,428

Ecuador                        2,491                 1,586              2,127        2,770

Peru                               1,579                  1,538             1,984        2,275

MERCOSUR               5,516                  3,578              5,517        7,462

Chile                               4,284                 2,328             3,187         5,130

Mexico                          1,037                     865             1,034        1,272

Venezuela                   8,080                  5,449             3,174       4,335

Rest of World          25,528                 23,791          30,394     41,489


 Will Mercosur be the future of Colombia?

If we reduce the subject to a customs matter, then, we must highlight some key issues:


– Mercosur protectionism is higher than that of CAN. Therefore, entering the Mercosur would increase our barriers, which would break an economic model that has positioned openness in trade policy in Colombia for the past couple of decades. Are we ready for it?

– Between 2006 and 2012, the average tariff in Colombia has dropped from 12% to 6.2%. However, most imports are taxed additionally with a VAT, and in the case of agricultural system an Andean Price Band is used.

– Colombia already has FTAs with the United States and the European Union, a fact that does not occur in any of the nations of Mercosur.

– All this leads us to conclude that neither Peru-which also has a model of economic opening-, or Colombia, could potentially be full members of Mercosur, should they so wish. The coherent and viable position would now have a trade agreement with Mercosur, without being full members of it. Something similar to the Chilean model.

But, if we take the issue beyond customs, then, are more questions than answers:

Not having a strong regional bloc (ex.  Andean Customs Union) weakens our ability to negotiate with countries in other regions. Such is the case of our less than active participation in scenarios WTO negotiation.

– The entry into Mercosur of Andean countries reduces the potential regional market for Colombian manufacturing. The loss of the Venezuelan market was notorious for Colombian trade in recent years, if so with Ecuador, the impact will also be significant. It is clear that Argentina and Brazil can take advantage of trade diversion impacts or preference erosion of Colombian Andean countries, moving as their main suppliers.

– Remember that the Chilean strategy of having agreements with everybody, but barely penetrating a bloc that restricts their autonomy customs policy, has been accompanied by economic development policies that have led to a great diversification of their markets: East Asia, North America, Latin America and Western Europe are major markets for exports of southern country. The Colombian case is very different, we have a large concentration of the export market in North America and the European Union, with mineral product sectors or low complexity technological merchandise.

Final thought: the most critical aspect of this situation is not that our neighbors seek shelter in Mercosur, the really serious problem is that Colombian trade policy is not being defined in our country, but will have to be a reaction to the active strategies of other nations.

The CAN and Mercosur has had an active rhetoric but a weak drive. Both projects have tried to create blocs with significant supranational level that does not materialize. However, while they are latent, can be a source of public goods to encourage domestic development and to strengthen the capacities of negotiation with industrialized countries and blocs of the world.

Does Colombia know where it is going in foreign trade? Are we clear about what our horizon looks like? I’m afraid not.

National Competitiveness Policy: good intentions rosary

Autor: Giovanny Cardona Montoya

Spanish version:

Translator: Andres Fernando Cardona Ramírez


Over 20 years ago, Colombia, like most Latin American nations, renounced the development model inspired by ECLAC and enrolled in the liberalization model derived from the Washington Consensus. This change led to a reduction in state involvement in economic dynamics, enterprise privatization, unilateral trade liberalization and the spread of regional trade agreements (RTAs) with neighbors and nations around the world.

To provide a framework that legitimizes the new political and economic direction the country has been endowed with documents such as the Monitoring Report, also 20 years ago, and a dozen CONPES that have claimed to be the beacon to follow to a safe harbor. But time passes and the balance is not yet satisfactory. Despite being, for decades, one of the most stable nations in the region in macroeconomics, to achieve significant export growth and prove an attractive nation for foreign investment, especially in recent years, developing data-that is not synonymous with growth- indicates that the country is not moving in any direction.

The compass:

In 2006 passed the Conpes 3439 which created the National Competitiveness System. This system established a Vision for the future of the country:

“In 2032 Colombia will be one of the three most competitive countries in Latin America and will have a high level of income per person, equivalent to an upper middle income country, through an export driven economy of goods and services with high added value and innovation, with a business environment that encourages local and foreign investment, fosters regional convergence, better formal employment opportunities, raises the quality of life and substantially reduces poverty levels. ”

But time is handing us the bill for missed tasks. In 2006, the Global Competitiveness Indicator World Economic Forum, which measures 142-nations, our country stood at the 65th place among 125 countries. In 2011, Colombia was ranked 68th and in 2012 at 69. If we compare ourselves with our Latin American neighbors, the scenario is not better: we fell from the 5th to the 8th place.

This indicator shows that our relative position has not improved. Now, to achieve this goal it is necessary to make progress with other indicators related to production and income:

– According to the Privy Council on Competitiveness, between 2006 and 2010, income per person in Colombia has been growing at an average rate of 4.4%. However, the Council believes, if we are to meet the goal of being one upper middle income country by 2032, it should reach growth rates between 6% and 7% per year on average.

– At the beginning of the last decade of the twentieth century, Colombia depended heavily on exports of coffee, some oil and other agricultural or agro-industrial exports, mainly. After the discovery of oil in Cusiana and global coffee crisis, Colombia became more dependent on mining. In 2006, Colombian exports with low levels of innovation amounted to 83% of the total, by 2012, this figure reached 90%. Are we back? All signs point to yes.

Is it bad to grow depending almost exclusively mining?

No, not bad. First we can say that a country with sufficient reserves for decades can finance the dynamics of its development projects, even leverage those to generate new industries (manufacturing, services, etc..). But Colombia has not substantially increased its oil reserves. These are on average 2,200 million barrels, a low figure compared to other Latin American countries such as Ecuador which produces 6,200 million to 11,400 million or Mexico or Venezuela that reach almost 300,000 million.

So in addition to the fact that we need the resources of the “oil boom” to be used to build capacity (infrastructure, education, CT + I, etc…) We also require that explorations increase the reserves so that we have the cushion to finance the industrial conversion of our economy.

But, despite the relative and sustained macroeconomic stability, the mining export boom and the increasing flow of foreign investments the country preserves some burdens that do not allow us to move towards a more competitive economy:

- Weaknesses in the education system. In addition to the low coverage -25% of adults are high school graduates, less than 40% of high school graduates enter higher education and only half of these graduate, there are serious quality problems: the career of teachers (graduates) is not chosen by the best graduates, there is little demand for agricultural careers-an industry that has great potential, while young people show little interest in training in mathematics, physics, chemistry or biology, key disciplines for innovation and the development of new products, processes and services;

- Absence of a state policy on infrastructure. For decades in this country there’s been talk about the need for a interoceanic canal, tunnels to facilitate traffic through so many mountains, a new railway, a project for navigation through the Magdalena river, another port in the Pacific, etc… However, most of these proposals are still on paper and those under construction are years behind.

- High laboral informality. What is handled as a strategy to reduce labor costs, informality, is in actuality a drag that does not us to modernize our economy: there are workers who do not contribute to social security, worker cooperatives exist that threaten stable pay, there’s jobs that are performed through contracts to provide services rather than indefinite term labor linkages, etc. This worsens the fiscal deficit-SISBEN-, weakenes revenue base of households and thus the purchasing and debt, stagnates the domestic market.

- Abandonment of the rural sector. The field is not the supplier of raw materials for the city and, therefore, is not a strong market for the purchase of industrial goods and services. Although the armed conflict is a determinant factor of this abandonment, rural informality, and extensive landlordism “fattening”, accompanied by unproductive fragmentation, do not facilitate the transition to a competitive field.

- Colombia: a country that does not invest in R & D. This is evident: our exports of high and medium technology amount to barely 9%, and we are a country without patent path. While successful emerging markets spend several points of GDP to CT + I, Colombia spends just under 0.3%.

Although a new System of Science Technology and Innovation has been defined, and Colciencias has been given the status of Administrative Department, at the same time considerable resources have been approved for research and innovation, there are indications that the political prey resources will prevail over the long term aspirations of this country.

All these shortcomings show that we are far from a new project Country, in other words, that Colombia 2032 is an ode to the flag … and nothing else.

Higher Education Reform in Colombia: What is at stake?

Versión en español:

Traductor: Andrés Fernando Cardona Ramírez.


Colombia is a country that occupies unremarkable places in of the two indicators measuring global Welfare: Competitiveness and Income Distribution.

When referring to competitiveness, our country is noted weaknesses in infrastructure, innovation and legal environment. Regarding income distribution, Labor Minister, Rafael Pardo, pointed out that 14 million Colombians do not have a decent job. In addition to this, the Colombian minimum wage is among the lowest in South America and education coverage is far from the average level of developing countries like ours.

However, competitiveness and income distribution are not always compatible. In other words, they may not be under certain ideologically conceived points of view. These will take part in the discussion that will re-start in the country about the future of higher education.

If we talk about competitiveness, there is a variable that has a fundamental weight: entrepreneurship. The success of many of the emerging markets leading the locomotive of the world economy today is due in large part to the emergence and consolidation of new industries: new firms in knowledge-intensive sectors, companies that add value to their processes, goods and services as a central strategy for success.

In terms of entrepreneurship, the Universities are doing a lot, but achieving little. Venture has become a commonplace word in colloquial university talk, especially with the powers of administration and the like. It abounds classes of entrepreneurship, teaching how to formulate business plans and contests that reward the best formulated plans. But, at the same time, we do less and less to deepen the foundations of entrepreneurship: innovation.

The number of new engineering students is declining, which is a discouragement to deepen in mathematics, physics, chemistry and biology.  It’s not that we should all be biologists or mathematicians. But a country that wants to be competitive, or a company that claims to be innovative, requires massive think tank to patent new products, design new processes, model new products or services and register software that solves societal needs. And that is not achieved without these sciences. Even a country like Colombia, that has great power in agriculture, agribusiness and natural resources, has few resources dedicated to research, development and study in careers that deal with the rural world and the environment.

If we look at the bulk of business plans that are developed in universities, we find they are based on ideas that have to do with business or traditional industries, marketing, couture, food processing or restaurants and other venues for trade in mass consumption goods. This is not bad, but the reality is that this situation shows how narrow the entrepreneurial universe of our university students truly is, and, more critically, most of these enterprises are not based on structured processes of innovation and the proposed aggregate value tends to be superfluous.

Colombia is a country that does not invest in research and technology. We don’t excel in patents and licenses. Those who go at the head of the pack in competitiveness do: Germany, Korea, Japan, China. In fact, if we look at the research groups that COLCIENCIAS classifies, few stand out for patents, registrations of new software or products or even spin offs. It’s not bad to have books or articles published in indexed journals, fortunately some thrive on this front, but there is an imbalance in the distribution of the few resources devoted to research and innovation.

But the university is not a machine that produces skilled labor. The University is the setting in which the future of a country is outlined. And we are at a turning point in world, and national history: industrialized society, follower of a strong consumerist philosophy, is in crisis, the country is in the midst of a pivotal moment paying dues for what has been one of its biggest karmas of the past half century: armed conflict, also, after 20 years, the Colombian political system, like that of our South American neighbors, seems to be undergoing a great transition. What is the response of the Universities to address these challenges? What type of country will we build for the challenges in Human Rights, Political Participation, Environment, Competitiveness and Culture, for example?

I bring up the last point so I can ask about the ethical, aesthetic, political and humanistic formation of our collegians. The university is called to form well rounded citizens and in its core, ensure openness to diverse speech, to metaphors and political reflections. In the past 20 years, university education systems seem to have fallen into the realm of realist paradigm: individualistic pragmatism and inflexible, lacking social commitment, oblivious to the political concerns, and closed to reading alternative views.

So, if we are to reform the education system to raise our competitiveness and improve income distribution in an environment that shapes humans with faculties of grownup quality as Kant says, not just laborers, the question is how are you going to finance it?

Universal coverage on quality education is not a minor undertaking. In Colombia out of every 100 students who enter college, only 50 graduate. And out of 100 young people that complete high school, only 35 enter college. And let’s not go back any further, because even on the road between high school and elementary school, are just as many broken dreams along the way. In other words, the investment that needs to be made for this purpose is of comparable magnitude to the reform of the social security system or the law of reparation for victims of armed conflict. Because the problems facing higher education do not begin there … but take off in early childhood and pre-school.

It was not for our benefit that the U.S., during the FTA negotiations, put on the table the requirement that the Universities be profit organizations…  our partners point out a huge potential business. Although Colombia did not accept said requirement, the fact that Santos’s government, in the initial proposal, included private investments to fund the future of education, shapes an idea of ​​who have been the instigators of the reform.

Young students: back to reading Keynes, Prebisch, Marx, Ricardo and Friedman so you can participate in the debate.