Macondo is Colombia’s nickname due to Gabriel García Márquez’s book called One Hundred Years of Solitude. A very short summary of this book is a municipality that repeats same mistakes aging and again under political conflict. This note deals with royalties to municipalities from natural resources in Colombia. Royalties distribution is unfair, there were municipalities that got US2,240 per capita in 2011 with a population of 8,524 such as Castilla La Nueva in Meta while other municipalities such as Villa Rica in Cauca got US0.32 per capita in 2011 with a population of 15,413, there were other municipalities that got nothing from royalties. This fact comes from many years ago, data is available from 2007 to 2011 and broadcast a GINI in royalties distribution in not less than 0.810. Moreover, 80.8% of municipalities are in fiscal problems according to Fiscal Grade made by Central Government. Finally, according to media royalties are taken by illegal armed groups to make terrorism. Therefore, Society wait for proper royalties distribution that takes into account population density in each municipality, productive projects and penalization due to high homicide rates and presence of illegal groups in municipalities. One can say that in the first year of this Central Government, the royalties management was poor, nevertheless Central Government passed the Law 1530 at the beginning of 2012 that works on some issues above but they forgot the issue of financing illegal groups and violence through royalties. This issue is so important in Peace Process that Colombia works on, royalties spending through municipalities budget have to be supervised in detail and penalized if it is due.
Author: Humberto Bernal,
Economist,
e-mail: zhumber@gmail.com
Twitter: Humberto_Bernal
Colombia produces about 12 commodities that give her royalties, the most important are crude oil, gas, coal and ferronickel. These royalties shared in 1.3% of Colombia Gross Domestic Product in 2011. Previous notes I pointed the unfair rates charged to these extractive firms, for instance an ideal government taking from crude oil extraction is 65% of total firms’ income, it includes royalties and all type of taxes, but nowadays it is about 55% due to low charges according to Law benefits. The royalties collection is one side of the coin, the other side is the distribution. Royalties distribution is done by government agencies, they collect the royalties and then distribute them. Royalties distribution is unfair through whole Colombia, Colombia can be divided in 33 Regions (Departamentos, included Bogotá) and 1,123 municipalities (Municipios). Royalties to regions were 45.9% of total royalties collected in 2011; 38.8% went to municipalities in 2011; and 17.3% went to Central Government Royalties Fund and other government bodies such as Environmental Corporations. This note shows the inequality royalties distribution in municipalities and its unproductive uses.
The annual royalties per capita distribution in municipalities in 2007 is showed in figure 1. The distribution is unfair, there were municipalities that did not get any revenue from royalties such as Guarne in Antioquia (first municipality and then Region) with a population of 41,146; Linares in Nariño with a population of 11,461; and Villa Rica in Cauca with population of 14,853. The total municipalities with royalties revenue less than US429 per capita in 2007 were 1,084 out of 1,123. Moreover there were 26 municipalities that there was not information, most of them did not get any revenue from royalties. Municipalities that got more than US1,000 per capita were Cantagallo in Bolivar with a population of 8,069 and Castilla La Nueva in Meta with a population of 7,543 in 2007.
Figure 1. Royalties distribution in Colombia by municipality 2007
(US per capita)
Source: Bureau of Statistic (DNP). Own calculations Stata 12.1.
According to Central Government, they are working to make a fair royalties distribution in Colombia, they passed the Law 1530 last year (2012) where pointed the four main targets: saving for the future, equity, working in competitiveness, and no corruption. Although the Law was passed in 2012, it is fair to point the state of royalties distribution in the first year of this Central Government. Figure 2 shows the royalties distribution in municipalities in 2011, as one realizes, the state was worst than 2007, there is more concentration in few municipalities such as those pointed above and Orocue in Casanare with a population of 8,121, Puerto Gaitan in Meta with a population of 18,089 and Tauramena in Casanare with a population of 19,614 in 2011. Therefore one can conclude from this figures the unsuccessful royalties distribution in the first year of this Central Government.
Figure 2. Royalties distribution in Colombia by municipality 2011
(US per capita)
Royalties distribution in municipalities has been unfair since data is collected and before, data is available from 2007. A proper measure of this unfair distribution is the Lorenz Curve and GINI coefficient for royalties distribution between municipalities. Figure 3 shows the results, as one can see, the Lorenz Curve is far away from equity line (45o). One can add the GINI coefficient in order to see the concentration grade, for instance in 2007 the GINI coefficient was 0.817, it means as this coefficient is far from zero, the royalties distribution between municipalities is worst (unfair). This coefficient has not been less than 0.817, in 2011 it was 0.830 that means no change in royalties distribution.
Figure 3. Royalties distribution concentration in Colombia 2007-2011
(Lorenz curve and GINI* coefficient)
Source: Bureau of Statistic (DNP). Own calculations Stata 12.1.
Structural problem to reach a fair income distribution and political conflict solution
The Law 1530 of 2012 works on making royalties spending productive but there are two issues to take into account. The first one is the lack of awareness from municipalities government heads to use royalties revenues in a proper productive projects. Central Government broadcast an indicator called Fiscal Grade (Indicador de desempeño Fiscal) that gives information about proper uses of public revenues, it goes from 0 to 100 where 100 is taken as great job. However results were poor in 2011, there were 216 municipalities out of 1,123 that got a grade above of 73.5, it means that 19.2% of total municipalities can make a proper job with royalties, the remaining 80.8% was in a critical fiscal situation or close to reach it, the royalties can go to debt financing, figure 4 shows these results. Therefore, royalties distribution has to go with a proper productivity projects according to population density and high fiscal grade.
Figure 4. Fiscal grade in Colombia by municipality 2011
(coefficient* 0-100)
Source: Bureau of Statistic (DNP). Own calculations Stata 12.1.
The last issue is the real destination of royalties. Sometimes royalties go to illegal armed groups, with approval of municipality government head, this illegal groups take royalties to afford their terrorism, therefore royalties distribution has to be penalized in municipalities where homicide rate is high and presence of illegal armed groups are as Semana publication broadcast.
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