Many public servants broadcast the positive features of Colombia, they recite those facts learned at secondary school: Colombia is border by two oceans and her global position is unmatched around the World. They also broadcast facts such as the low salary payment for workers and “good” indicators about the assessment of internal war to improve FDI inflows and economic activity. Nowadays Colombia government is going to set up a New Agenda for Industrial development. I try to point out some issues that this agenda has to deal in order to get a fair industrial development. 1. Work hard to get a country in pace. 2. Locals and foreigners investors have to invest in new projects that add real value to the economy through industrial sector, it is time to finish the foreign investment type of enclave (banana, crude oil, coal, flowers, beer, etc...), Colombia has to look for real development projects. 3. Financial sector (private and public) have to work to develop industrial sector through fair interest rates. 4. It is time to change the management models of Department of Trade and Industry; and exports and FDI promoting agencies, they have to work to improve industrial sector. In this note I work on some of these issues.
Author: Humberto Bernal,
Economist,
e-mail: zhumber@gmail.com
Twitter: @Humberto_Bernal
Nowadays the globalization as positive fact is going to everywhere through economic, political and cultural issues. From economic subject, the most important issue is the Free Trade Agreements (FTAs) that take into account zero tariffs, fair labor market, environmental issues and Foreign Direct Investment (FDI) protection. Therefore, there are tools to reach high economic development if countries work hard on it. The last economic globalization (one can count about 3 since1850) started at the end of 1980 decade and Colombia took it at the beginning of 1990’s, since them Colombia has showed short steeps toward fair economic development. This low development can be explained by ignorance about proper uses of globalization tools, internal war conflict that has taken lot of human lives (more than 500 thousand), lot of public resources to fight against terrorism (6% of GDP and not less of 15% of government budget), lack of good government economic decisions and excessive bureaucratic decisions. This note shows the backward motion of industrial sector in Colombia due to above facts. Promptly, this negative motion can be explained by lack of local private and public investment in new project, poor work in promoting local products abroad and average work in attracting FDI inflows for new industrial products. The lack of candid work let getting poor economic growth till point to face a negative grow rates into industrial sector in 2012 when most of countries in the region enjoy a fair economic rates such as Peru, Brazil and Chile.
Lack of investment in local projects
Colombia main economic sectors since beginning of XX century are agriculture and mining sector through sugar, banana and coffee production, extracting activities such coal, gold, emeralds and crude oil are important also as figure 1 shows. Therefore, Colombia depends on first line products, it is good as society invest the surplus from these activities in added value activities but it is not the case, the surplus from these activities are managed as enclave economy. To argue this point, one can see figure 1, this figure shows the industrial added value as percentage of Gross Domestic Product (GDP) in Colombia. Colombia had a positive trend in industrial percentage between 1925 to 1974, then this percentage started to show a decline till reaching 11.9% in 2012. But it was not lack of proper surplus investment just. There are other issues such as the internal war and lack of government and businessman’s economic projections. Most of public servants started to work in favor of cocaine cartels until point to get a president charged by getting economic resources from cocaine cartels to promoting his presidential campaign in the 90’s. The businessmen who wanted to work under legality were placed aside by terrorist attacks such as bombs, kidnappings, murders and so, then the new businessmen pop up, they worked in the illegality and it brought underdevelopment to Colombia.
Figure 1. GDP by sector 1925-2012
(%)
Nowadays, Colombia is starting to get the right path through international help and few local governments work. However, I have to point out a new issue called bureaucracy (corruption) that shows average results to take Colombia to the right economic development deserved. This pool of bureaucrats work in order of their own benefits through high salaries afforded by taxes while people who want to work for social benefit are taken out of the system, it can be called corruption that will bring higher cost in Colombia development.
This new problem called corruption or average results from government bodies are evidenced through few department chiefs in jail, few mayors of main cities in jail, lot of bureaucrats who fire good employees without justification and so. These facts are showing results in economic activity, for instance the industrial sector shares in low percentage in economy activity, it was 11.9% of GDP in 2012; the industrial sector missed share in total merchandise exported as figure 2 shows, it went from 42.4% of total merchandise exported in 2001 to 18.7% in 2012; coal, gold and crude oil extraction shares in big percentage in total economy activity, these extractive activities are taken as enclave economies due to most of royalties were taken without economic cost-benefits analysis.
Figure 2. Colombian exports by sector 1908-2012
(%, just merchandises)
The FDI in Colombia, poor promoting agencies work
Most of FDI inflows has came to crude oil and mining sectors since the beginning of XX century (first were mining activities: gold, silver and emeralds, then crude oil and finally coal and ferronickel), the total FDI as stock in mining and crude oil sector reached 47.0% of total FDI as stock in 2012, there was 35% in agriculture, wholesale and retails sales, unfortunately the FDI as stock in industrial sector was 18% in 2012 with a negative trend as figure 3 shows (blue area). Therefore Colombia is not intensive in producing industrial products, this fact is caused by poor infrastructure, lack of economic environment to develop industrial projects (it means high rates of homicide, kidnappings and murders). Moreover the lack of proper FDI promotion pushes down industrial FDI inflows, this fact is due to bureaucracy that characterises FDI and exports promoting government agencies, these agencies do not have a proper program to attract productive FDI into Colombia, for instance people who work abroad have lack of awareness about Colombia development and those who work in local offices in Colombia do not pay attention about industrial activities where foreigners can invest new capital and profits.
Figure 3. FDI as stock by sector 1900-2012
(%)
Figure 4 shows the foreign enterprises profits in Colombia at prices of year 2011, from this amount just 30% is reinvested in Colombia and the 70% is taken to source countries. Moreover, most of these profits come from crude oil and mining sector (35-40% of total profits) and this extractive foreign firms take 98% of their profits to their source country, what sad indicator!! for police-makers in Colombia. Moreover, promoting agencies and Department of Trade and Industry in Colombia broadcast the “positive“ achievements on FDI results and the industrial activity but the reality is the other way around: Colombia reached FDI inflows of US$15,822.9 million at current prices in 2012, this amount can be classed as table 1 shows. The poor indicator come from new FDI investment projects into Colombia (other than crude oil and mining extraction), it was US$3,217.6 million!!!, it is too low compared with other countries in the region.
Figure 4. FDI profits 1946-2012
(US$million, prices of 2011)
Finally, the results from industrial sector both local and foreign enterprises was a negative growth rate of 0.7 in 2012. My opinion, it is time to rethinking the management of Government entities such as Department of Trade and Industry and FDI and export promoting agencies.
Table 1. FDI inflows in Colombia 2012
(US$million, current prices)
Type of FDI
|
Amount US$ million at current prices
|
Profits reinvested (not repatriated)*
|
4,988.8
|
New projects in crude oil and mining sector
|
7,616.5
|
New projects other sectors
|
3,217.6
|
Total FDI inflow
|
15,822.9
|
Total foreign profits were US$15,888.4 at current prices.
Source: Central Bank of Colombia.
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