The United States and Colombia have long economic and political good relations. For instance americans added value in gold and silver extraction through Pato Mines, they added valued in Crude oil extraction with Standard Oil New Jersey and OXY, they aded value in production of massive products through 3M and Quaker and added value through english teachers in universities. Alliance for Progress under Kennedy administration and Plan Colombia under Bill Clinton administration are evidence of political agreements to get socioeconomic progress in Colombia. Nowadays there are at most 74,757 american residents in Colombia they work in many economic activities, moreover big business between these two countries reached a Foreign Direct Investment as stock in Colombia of US$18,530 million in 2012 and a trade balance in favor of Colombia of US$7.5 billion in 2012. However, Colombia exports to the United States mainly basic products such as crude oil, coal, fruits, coffee and flowers, therefore FTA signed in 2012 has not brought the expected results yet, then Colombia has to improve her industrial sector through a bunch of variety products and improve technology to achieve economies of scale. There are other issues in the United Sates and Colombia’s agenda, for instance the strategy to fight against cocaine production, as one realizes military strategy shows a decline while socioeconomic investment to improve alternative crops and improve basic needs from Indigenous group has increased, nevertheless corruption and cocaine production let getting a difficult socioeconomic environment in whole Colombia, one tempts to think on cocaine production under monopoly market legalization.
Author: Humberto Bernal,
Economist,
e-mail: zhumber@gmail.com
Twitter: Humberto_Bernal
The USA citizens started to come in massive volume around 1843, they came to trade with Colombians and work in mining activity. Americans as a residents in Colombia went from 83 in 1843 to 1,607 in 1928. Business that took their attention were textiles trade such as native hats (Jipijapa hats), fruit such as banana, coffee, silver, gold, sugar, cotton and tobacco, a main international trade firm was G. Amisink from New York. The main american firms by those days were the United Fruit Company that invested about US$4 million in Colombia between 1899 and 1912 (US$105 million at 2012 British Petroleum chained prices) and the Pato Mines Ltd located in Antioquia region (it was a subsidiary of Oroville Dredging Company of California) at the end of XIX century. The big issue through these years was the Separation of Panama in 1903 that blocked the immigration of americans to Colombia due to adverse socioeconomic environment. After 1912 Americans were interested in crude oil in Santander region, they worked hard to get the The Mares Concession through Tropical Oil Company (affiliate of Standard Oil New Jersey). They started to export crude oil on 20’s when Colombia faced huge volume of coffee production and the USA payment due to Separation of Panama. In 20‘s there were important americans such as Edwin Kemmerer that helped to set up the Colombian Central Bank and other government bodies. American residents in Colombia increased to reach 9,025 in 1970 as figure 1 shows. From 1935 to 1970 americans worked with locals and other foreigners to develop the industrial sector in Colombia, they brought massive consumption through Quaker S.A, 3M, AT&T, IBM and others. From 1970 to 2000 Americans as a resident showed an increase to reach 15,062 people in 2000, nevertheless the immigration rate was lower than years before, it can be explained by colombian internal war conflict but this trend changed since 2000 due to better security condition achieved, this secure environment can be reached thanks to international help, the United States has played an important role to get this result through Plan Colombia, it is fair to point that these resources have changed through years, at the beginning were given to reduce narcotics trade, then to fight against terrorism and nowadays they are mostly taken to support alternative crops and improve living conditions in regions where cocaine is grown. Plan Colombia is not the only support from USA, the Alliance for Progress under Kennedy administration was important in Colombia also, there are blocks in Bogotá named Kennedy due to the uses of these resources.
Figure 1. Americans in Colombia 1843-2011*
(number of people)
*2011: with preliminary information from migration office.
Source: Colombia census, World Bank and Colombia migration office.
Nowadays there are at most 74,757 americans as a residents in Colombia, they can be a bit less. Most of them live in Bogotá with 30.5% of total american residents in Colombia, they like Medellín, Pereira, Cali, Maicao, Barranquilla, Chía and San Andrés as figure 2 shows. Of course, there are few americans in other places in Colombia. Most of americans in Colombia are single with 82.8% of them, those married are 14.5%, separated 1.3% and widower 1.4%. Most of americans are men with 52.7% of total americans as residents in Colombia and they are young, those between 33 and 45 years old are 29.9% of total american residents. Unfortunately there are 42 americans who are in trouble with Colombia justice in 2013, most of them are charged by cocaine traffic. Americans work in most of economic activities in Colombia but the main one is in education as a english teachers. One can find americans as managers in hotels or enterprises and as employees in crude oil companies or universities. Americans are a big foreign group in Colombia after Venezuelans and before Ecuadorians. This information come from public access information: 2005 Census sample, local migration office and INPEC.
Figure 2. Americans residents current location in Colombia
(Share % of total americans in Colombia 2005-2011)
Source: Colombia census, World Bank and Colombia migration office.
Big business between Colombia and the United States
The big business between Colombia and the United States started in XIX century as was mentioned, the FDI as stock invested in Colombia went from US$247 million of 2012 BP chained prices in 1897 to US$18,530 million in 2012 as figure 3 shows. The main activity is extraction of crude oil under Occidental Company (OXY) located in eastern plains (Llanos Orientales) but there is a bunch of economic activities where they are such as Hilton Hotel, Delta Airlines, Forever products, Bloomberg financial services, McGraw Hill editions and so. The main activity of american big firms is in wholesales and retail sales in Colombia with 35.8% of total big firms in 2012 (there were 226 big american firms in Colombia in 2012), 22.1% of these firms are in manufacture sector and 17.3% in real estate sector. However, the number of big firms from the United States showed a decline since 2008 when there were 286. Most of american firms are located in Bogotá with 170 firms out of 226 in 2012, Medellín with 11, Cali with 7, Chía with 2 and Yumbo with 3, there are other places that have american firms such as Ibague, Cota, Cartagena, Puerto Tejada, Funza and so. There are economic sectors that american firms can take advantages in Colombia such as agroindustrial production on Colombian planes, public utilities such as energy (electricity), college education and technology in communications and transport.
Figure 3. The United States FDI stock in Colombia 1897-2012
(US$million 2012 chained British Petroleum prices)
Source: Bureau of Economic Analysis USA and specialized books.
Colombia has traded with the United State before her independence but the volume increased after her independence, the trade indicator showed an increase from 1836 to 1950 as figure 4 shows (exports plus import between Colombia and USA divided total exports plus imports from Colombia in %), the main products exported were basic ones and those imported were high added products. Since 1950 the trade indicator showed a decline due to lack of variety of products to export and restrictions to develop industrial sector in Colombia such as Law 444 of 1967 and Decision 24 from Andean Pact, nevertheless the trade indicator increase after 1991 due to economic openness but it is was through increasing in imported goods and crude oil and coal exports. The Free Trade Agreement signed in 2012 has not brought the expected benefits due to lack of modern industrial sector that can produce variety of products under economies of scale. Nowadays the main exported product from Colombia to United States are crude oil, coal, emeralds, gold, flowers coffee, bananas, basic plastics and few types of textiles. Imports from the United States to Colombia are manufactures such as gas for jets, computers, chemicals, vehicles and medical equipment. In the last 14 years the trade balance is in favor of Colombia, the value of exports menus imports was US$8.3 billion in 2011 and US$7.5 billion in 2012 both in favor to Colombia, therefore crude oil and coal support manufactured imported goods from USA. Colombia has crude oil reserves for the next 7 years and coal for the next 76 years under actual rate of extraction.
Figure 4. International trade Index* United States-Colombia 1846-2012
(% percentage)
Source: Urrutia (1970) and United Nations Data.
The United Sates’s GDP cycle and Colombian’s cycle is showed in figure 5, as one can see it is countercyclical form most of the years (the correlation coefficient is -0.14) but after 2008 it appears that cycles are aligned, same picture is evidence with United Kingdom’s cycle, therefore one can be tempted to point that 2008 brought cycles alignment (time will point the answer), meanwhile, it is fair to point that it is a great moment to americans invest in Colombia and Colombians invest in the Untied States due to cycles are going through their upward path. However these paths have to be supported with flexible monetary and fiscal policies still.
Figure 5. Colombia’s cycle and United States’s cycle
(1977-2013 quarterly normalized data)
Source: Colombian Central Bank and Bureau of Economic Analysis USA.
Plan Colombia and her accounts
Plan Colombia is a set of accounts that help to fight agains terrorism and narcotics production in Colombia. The financial support has changed in the last years according to USA budget, for instance monetary support to local Armed Forces showed a decrease from US$98million in 2003 to US$30 million in 2013 and an expected of US$28.5 million in 2014. On the other hand, the economic support has taken the path to help those local citizens who are vulnerable such as Afro-Colombians and indigenous group (see Executive Budget Summary, Function 150 & Other International programs 2014 pag 93). This is a clear evidence about the priorities in cocaine fight, the armed war decreased the cocaine production to the lowest values from 695 tonns in 2001 to 345 tonns in 2011 but its cost was too high. As I pointed in my weekly note of march 14 of 2012 and july 14 of 2013: we are close to finish internal war but there are two issues that I think we have to work on, the first one is local government corruption through efficient uses of public resources and the second one is cocaine monopoly market regulation under legality.
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