Colombia is passing through her second Dutch Disease, the first one was in 1960-1980, the second one started in 2003 and it will come to the end in 2021, the happy or sad ending depends on government decisions taken today. Nowadays, these decisions are in doubt to get the happy ending, government is spending without economic productivity criteria until point to give free housings to lower income people, economic subsides for coffee growers and signing FTAs without real economic cost and benefits analysis, these actions can be called populism without economic criteria. These type of decisions are given the sad results, Colombia showed an illusory GDP growth of 4.0% where the main sectors that contributed to these growth were crude oil and mining sector; financial sector; and nontradable goods. Unfortunately manufacture sector (tradable goods sector) contributed in a negative figure of 0.1%. If things goes same, we can say Colombia is still in the group of Banana Republics.
Author: Humberto Bernal,
Economist,
e-mail: zhumber@gmail.com
The end of Colombian high economic growth is close to the end. The last year (2012) Colombia had a high economic growth, her Gross Domestic Product (GDP) showed a growth of 4.0%. The news and government broadcasted and celebrated this achievement. Of course, for many citizens this economic growth is enough to say Colombia is through the right path. However, the fact is the other way around, when one checks the main components of GDP growth, one realized that this economic growth is an illusion from crude oil and coal production. This illusion can be called Dutch Disease, Colombia showed a negative growth in manufacture sector, a positive growth in mining sector (including crude oil), positive growth in real estate sector and other nontradable goods as figure 1 shows. Then, those sectors that work hart to export will have hard times due to cheaper products imported through Free trade Agreements (FTAs) and US dollar cheaper.
Figure 1. Colombia GDP growth by sector 2012
(%)
What does Colombia expect from this Dutch Disease?. The Colombia’s GDP cycle is starting her downturn path as figure 2 shows (red dashed line), then Colombia can have a lower growth at the end of 2013, it can be around 3.5% and 3.8%. Nowadays colombians do not have to worry about economic crisis, there are lot of resources from crude oil and mining sector to spend, government is doing her job through spending on real estate sector until point to give free housings for population in lowest income line. Therefore, there is income to spent as in a huge party where hosts do not pay attention to the hangover. After eight years (2021), when crude oil comes to the end, Colombia society will be really sick, the tradable goods sector will be lagging, Colombia will face a huge current account deficit and the external debt will take the few reserves that Colombia has.
Figure 2. Colombia GDP cycle 1977-2013
(quarterly data )
How can Colombia avoid this economic meltdown?. Colombia government has to spent crude oil and mining resources in a cleaver way. The spending that lets go out from this crisis is in real estate that improve productivity for those tradable goods; making easier the purchase of new technology for tradable goods sector (not free), for intense making agreements with high technology agencies from abroad and local ones to teach local factories how to improve their productivity; and spending that improves employees productivity such as public transport such as railways and Metros.
Unfortunately Colombia is not importing capital to improve her productivity, Colombia imports just 13.3% of high quality capital, the other products are cheap raw inputs and final consumption goods such as TVs, laptops and so. Figure 3 shows the main merchandise that Colombia imported in 2012 as one can see, the volume of capital goods to improve productivity were few, 13.9% of total imports (merchandise only).
Figure 3. Colombia imports 2012
(% of total imports, just merchandise)
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