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.