It is not usual that economists mix up cocktails, it is a great job for bartenders, however there is an attempt to make it. The ingredients are cocaine, coal, crude oil, a sprinkle of government defense spending and the final secret touch called banana. The mix of all them since 1971 gave as a result an exotic tropical drink that was enjoyed and well tasted by few greedy people but a hangover for Colombian society of GINI index of 0.548; corruption place on 94; unemployment rate of 9.6%; population in poverty state of 34.1% of total population and homicide rate of 36 per thousand of inhabitants. To avoid the hard hangover, private sector and government have to work on legalizing production and consumption of cocain under well thinking scheme of monopoly; high taxes (royalties and taxes on profits for primary economic sectors) and strong justice sector for those who abuse of Human Rights.
Author: Humberto Bernal,
Economist
e-mail: zhumber@gmail.com
This note deals with the main products that take Colombia towards conflictive society, it means an income distribution measure through GINI coefficient of 0.548 in 2011; a corruption place on 94 out of 174 in 2012 where the most corrupted is Somalia on 174 place; unemployment rate of 9.6% in 2012; population in poverty reached 34.1% of total population in 2011 (Colombia has 48 million of people); 61.9% of total population asked for subsides through social program called SISBEN in 2011; and a homicide rate of 36 per thousand of inhabitants in 2011. The following products can be mixed as a cocktail and the final result is the above social indicators with a bitter flavor and painful hangover.
Cocaine production
Colombia is one of main producers of cocaine around the World, the others are Peru and Bolivia mainly. Colombia went form 2 tonnes of production in 1971 to 695 tonnes in 2001 and 345 in 2011 as figure 1 shows, it means an annual average growth of 15.3% per year. This cocaine production used to share 1.7% of Gross Domestic Product (GDP) in Colombia in 2000 and nowadays it shares 0.4% of colombian GDP. Cocaine value chain is around Colombia: production is mainly in 4 regions out of 33 in Colombia: Cauca, Nariño, Valle and Chocó but the consumption has been spreading in deep around whole Colombia since 1995, therefore cocaine production is a profitable business either local and abroad (cocaine can be taken as monopoly market with price discrimination according to city, for instance in Colombia is cheaper than in Europe or USA).
Figure 1. Cocaine production in Colombia 1971-2011
(annual metric tonnes)
The attractiveness of cocaine in this cocktail is the power to take out colombians producers from poverty state in few years. However, there is a hangover due to drink it, the consumption is dangerous for health till point to pass away. Therefore, there is an economic-medical problem that must be sorted through education, monopoly production through government supervision, legal doses according to medical research and legal distribution through boots and nigh clubs.
Coal and crude oil production
Colombia has 7 years of crude oil reserves (the rate of extraction was about 900 thousand of barrels per day in 2011-12); 14 years of natural gas reserves; and 79 years of coal reserves (the extraction was 86 million tonnes in 2011 as figure 2 shows). Crude oil and coal are exported mainly through foreign firms such as Pacific Rubiales, OXY, Petrtobras, Drumond, Cerro Matoso (bnpbilliton) and the local one Ecopetrol. The crude oil, gas and coal’s value added is about 9.0% of GDP in Colombia. The big issue is most of their profits are repatriated and Colombia does not get the benefits from making final products made of crude oil or mining products. Moreover the government taking from this activities is low, in crude oil is about 40% of total income and firms profits is about 36% of total income, the expected share is 15% as a profits and 61% as government taking.
Figure 2. Coal production in Colombia 1971-2011
(annual thousand of tonnes)
The attractiveness of mining sector in this cocktail is the power to take out economic resources without fair distribution, moreover a sprinkle of local government corruption let getting high unfair income distribution, high poverty and high unemployment.
Government defense spending
Colombia spends high resources in defense, most of them are taking to fight against the guerrilla called FARC and cocaine cartels in the pacific region. The amount of economic resources can be counted in 3.6% of GDP in 2011, one can see on figure 3 the increasing trend in defense spending as a share of Colombia GDP, moreover the defense administrative spending was not counted in this percentage, if one takes into account this spending, the total defense spending doubles the value, it meant about 6.5% of GDP in 2011.
Figure 3. Defense government spending in Colombia 1971-2011*
(% GDP)
The attractiveness of defense spending in this cocktail is the power to kill colombians with poor education and young. Colombia reached 36 homicides per thousands of people in 2011.
The secret touch, Banana production
Colombia was the second exporter of bananas around the World after Ecuador in 2011. The volume exported was 229 thousand of tonnes in 1971 and 1.9 million of tonnes in 2011 as figure 4 shows, it means an annual average growth rate of 4.7% between 1971 and 2011. Banana production in Colombia can be taken as enclave economy due to firms who grow bananas used to pay low salaries; make their own law till point they abuse Human Rights (for instance in years 1928 and 2004); taxes to government and the added value to economy are low. One waits that this sector invest in technology to develop other activities in Colombia, for instance development in energy sector, public transport such as underground and aircrafts and so.
Figure 4. Banana exported by Colombia 1971-2011
(thousand of tonnes)
The attractiveness of banana sector in this cocktail is the power to abuse of Human Rights and unfair income distribution.
Then, there is the economic cocktail made of cocaine, coal, crude oil, defense spending and the secret touch called banana that Colombian enjoy every day without government attention on its hangover.
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