Foreigners’ contribution to Colombia economy: their monetary value

Technology in service to improve global security is a tool that let thinking in human free mobility around the World; countries in European Union and other main countries are working hard to achieve this target. INTERPOL is the international agency in charge to guarantee high security standards around the World. Colombians have faced high restriction on free mobility around the World, but things are changing in favor of colombians because of technology improvements. However, Colombia contribution to this target is poor; there is not a clear colombian policy for asking VISAS, there are huge foreigners in Colombia without clear status because lacking of immigration offices around Colombia, and many government paper to fill out; moreover, there are null researches on foreign contribution to Colombia economy. This note gives the starter of quantification of foreigners contribution to Colombia economy. 

Author: Humberto Bernal,  

Economist,

e-mail: zhumber@gmail.com

Twitter: Humberto_Bernal

It can be download @ PDF

International free human movement around the World is taking the attention of politicians around the World, and it is fair because free human mobility around it improves our welfare. Fortunately, we are living in a World where technology lets knowing who is who, and it lets working on getting a better World Society. However, this type of technology has to be dealt carefully to achieve better social status. From my point of view, The International Criminal Police Organization (ICPO, INTERPOL) is the organization in charge of keeping World security in high levels as we deserve. Colombia contributes to reach this achievement giving the welcome to INTERPOL strategies as last week was evidenced in the INTERPOL General Assembly in Cartagena (Colombia). From economic point of view, there is a social myth that free human mobility around the World will bring permanent lower salaries and reduction in society welfare; for instance, one can see social protest agains it, and some politicians without strong economic evidence who point restrictions on free mobility. This note, on the other hand, highlights the benefits that foreigners have given to Colombia society; therefore, it is a call for Colombia government to review her immigration policies in order to give a second step to achieve a free World human mobility; the first step was the welcome to INTERPOL strategies.

Foreigners in Colombia and their status

Foreign immigration in Colombia has increased indeed in the last 8 years, but there are many foreigners who do not have status of residents because of lacking of local information, many official papers to fill out and low government coverture to record them. According to last population Census (2005) and colombian residences given in the last 7 years, there are approximately 147,839 foreigners who were living in Colombia in 2012; however, as the net flow of immigrants (arrivals menus departures) is taking into account, there are approximately 622,708 foreigners living in Colombia in 2012; they are under status of tourist, students, short business visit and temporary work. Figure 1 shows the stock of immigration in Colombia from 1925 to 2012; there has been an important increase of foreigners in Colombia in the last years; most of them come from Venezuela, Ecuador, the United Estates, Asia and Europe respectively. This increase can be explained by fair salaries during 1950-1980; the real wage showed an annual average growth of 18% between this period; moreover, better security conditions that are evidenced by low foreigners kidnapped; there were years between 1995 and 2005 that the number of foreigners kidnapped were dozens; nowadays, there are kidnappings, but they are few per year, and they are released in short time. The bulk of these foreigners live in Bogotá, Medellín, Cali, Pereira, Barranquilla, Cartagena, Cúcuta and cities that face low rates of kidnapping; there are few that live outside of these main cities. Finally, there is an important issue that is taking researchers attention and is the emigration of foreigners from countries that used to be attractive for them; for instance, according to World Bank Data, the number of foreigners residents in Brazil, Argentina and in less volume Paraguay show a decline while foreigners has found more attractive Chile and Colombia although the last country face poor security indicators in some regions still. 

Figure 1. Foreign immigration to Colombia 1925 - 2012

(thousand of people, stock of people)

Source: Palgrave International Historical Statistics; Bureau of Statistics Colombia; DAS and Immigration Office Colombia.

The impact of foreigners resident in Colombia

There are huge literature about immigration impact on economies; for instance a good summary was done by Borjas (1995), (1999) and (2008). These researches point that foreigners bring external positives effects on economies, and salaries in local economy can increase because it; it means new foreign skills in production learned by natives let high salaries; however, these researches point also that at the beginning of immigration there is a pressure to reduce salaries, but this effect disappears so quickly because external positive effects take room. Figure 2 shows the foreigners surplus in a economy (green area) under external positive effects; this surplus is the contribution to the economy after foreigners payments; it is from a theoretical point of view, see Borjas (1999).

Figure 2. Foreigners surplus under positive externalities

(Theory perspective)

Vertical axis: real wage,

Horizontal axis: volume of labour,

N: local labour supply,

M: foreign labour supply,

L: total labour supply,

Source: Adapted from Borjas, G (1995) (1999) (2008).

Following Borjas (1999) methodology, the annual foreigners contribution to colombian economy is about 0.005% of Colombia Gross Domestic Product (GDP) between 1925 and 2012; this surplus is without external positive effect. However, as external economies take room, the foreigners contribution increases to achieve about 0.6% of colombian GDP; figure 3 shows the annual foreigners contribution on Colombia economy between 1925 and 2012; for instance, in 2012 the annual foreign per-capita surplus was US$7,818. There were periods when this per-capita surplus was lower; for instance, through decade of 1980 because general salaries showed a low positive rates, and the increase of terrorism in Colombia; the economic crisis of 1999 pushed down this per-capita foreign contribution also; this economic crisis was deep as the 1929 crisis. Therefore, foreigners contribution to Colombia economy is positive; moreover, they bring external positive effects on local productivity, so they deserve more attention from economic and immigration government authorities. 

Figure 3. Foreigners surplus in Colombia 1925 - 2012

(per-capita foreign surplus, US$ at 2012 prices)

Source: Palgrave International Historical Statistics; Bureau of Statistics Colombia; DAS and Immigration Office Colombia. Own Calculations.

References

Borjas, G. 1995. “The Economic Benefits from Immigration”, The Journal of Economic Perspectives, Vol. 9, No.2, pp. 3 - 22.

Borjas, G. 1999. “The Economic Analysis of Immigration”, Handbook of Labour Economics, Vol 3,  Chp 29. Elservier Science.

Borjas, G. 2008. “ International Immigration”, The New Palgrave Dictionary of Economics, Second Edition.

France et sa contribution au développement économique de la Colombie

France, belles et merveilleuses femmes de ce pays!!. French have contributed in huge to Colombia development. French women came to Colombia to improve the education and health in XIX century, and they are working and doing an important job around Colombia still. The Religious Sisters of Charity teach around Colombia through 15 offices. French were part of Simon Bolivar’s troops to achieve the Colombia independence also. Moreover, they designed important buildings around Colombia such as Liévano Palace in Bogotá. Nowadays, there are 3,900 French in Colombia where 49% are females, they settled down in Bogotá, Pereira, Medellín and Cali mainly. There are important French firms in Colombia that contribute with economic development such as L’Oreal, Sodexo and Schlumberger. The international trade has shown a decline because of globalization, WWI and WWII, but Colombia exports a bunch of products as France does also. However, there is an issue to sort out where France can contribute in deep; it is a better income distribution in Colombia as in many other countries also. Of course, this issue is in the Millennium Goals; the idea is to reduce the unfair income distribution to the lowest level ever, and global public policies are the tool to achieve this goal.

Author: Humberto Bernal,  

Economist,

e-mail: zhumber@gmail.com

Twitter: Humberto_Bernal

It can be download @ PDF

French in Colombia started to come to Colombia before her independence, and they have contributed to economic development. Many French came to Colombia before her independence because they heard about El Dorado Gold Legend; they came to search adventures and wealth also. French supported Colombia independence at the beginning of XIX century through soldiers and scientists. The principal Simón Bolívar doctor was Próspero Révérend; he worked for Republican troops.  At the end of XIX century, they invested huge economic resources for extracting gold and silver from Antioquia mines and Chocó mines; some of these mines were Guarino and Timbiquí. French invested huge economic resource in Panama Canal also, but they did not finish this project; they invested FR$2 billion in Panama Canal (US$10.6 billion at 2012 prices) and invested FR$6 million between 1875-1904 in extraction of gold and silver in Colombia (US$24 million at 2012 prices).

There were few immigration from France to Colombia at the beginning of XX century, but those who came to Colombia improved geography science; they designed many important buildings in Colombia such as Liévano Palace under direction of Gastón Lelarge; this French was so important  in designing many other buildings in Colombia such as National Capitol and the San Pedro Claver church.

French women have had an important role in Colombia development; they came during XIX and they are working  so hard in Colombia still. These Religious Sisters of Charity have contributed with Colombia education and health. Nowadays, they have about 15 local communities around Colombia. 

French citizens in Colombia have increased from 163 in 1843 to 3,900 in 2010 as figure 1 shows. There was an important immigration during Second World War (WWII); after it, the volume of French in Colombia did not show an important increase until 2000; from this year, French have found Colombia enjoyable because the security has improved. The volume of French kidnapped went from 27 cases registered between 1980 and 2000 to 7 between 2001 and 2008. In 2012, there were a French journalist that was kidnapped, but it was released in short time because government and guerrilla have been in a peace process. 

Figure 1. French population in Colombia 1843-2010

(number of people)

Source: Census, World Bank Data and France Embassy.

French in Colombia have settled down in Bogotá with 53.6% of total French in Colombia, Pereira with 10.1%, Medellín with 4.4%, Cali with 2.9% and many others such as Barranquilla and Filandia; figure 2 shows the main French distribution in Colombia. Their age distribution is 25.4% for those French between 1 and 15 years; 56.5% for those between 16 and 65 years old; and 18.1% for those older. Those French females are 48.6% and the others are males. Most of French that live in Colombia reached their university studies; they account 49.3%, and most of them work in education sector. Finally, there are 42.7% that are employees at important firms in Colombia. Unfortunately there are 6 French that are in troubles with Colombia Law. This information come from Census 2005, Immigration Office in Colombia and INPEC.

Figure 2. French in Colombia by municipality 2005-2010

(share of total French %)

Source: Bureau of Economic of Statistics Colombia (DANE).

Big business between France and Colombia

Big business between these two countries started since Colombia independence, and they have brought an important development in Colombia. The Foreign Direct Investment (FDI) as stock went from US$2.8 million at 2012 prices in 1900 to US$1.5 billion in 2012 as figure 3 shows.  The main investment from France in Colombia was the Canal of Panama, but Panama took her path in 1903. However, France invested in gold and silver extraction during last and first years of XIX and XX century; this type of extraction was learned by locals. After this investment,  French invested few resource, but her contribution was mainly in infrastructure and agriculture. After the WWII, they set up important firms in Colombia such as Rallye in 1950 (nowadays through Casino Group in retail sales); Parenco in 1971 (this firm invested huge economic resources in 1993 in crude oil sector); L’Oreal in 1993 (Make up sector); Carrefour in 1997 (in retail sector, but unfortunately this firm left Colombia in 2012-13); and Sodexo Pass 1994 (in eating places). 

Figure 3. FDI as stock from France in Colombia 1900-2012*

(US$ million at chained prices of 2012)

 * The FDI in Panama Canal is not taking into account in this figure. It was about FR$2,000 million in 1887 (US$10.6 billion at 2012 prices).

Source: United Nations. 1965. External Financing in Latin America; Rippy. 1948. French Investment in Latin America; De Lombarde. 1997. La Inversión Extranjera en Colombia; Central  Bank Colombia.

Nowadays, the most important French firms in Colombia are Hocol (Crude oil sector) based in Bogotá; Schlumberger (Electric power sector); and Sofasa (Renault, auto-parts). There are 35 big firms from France in Colombia at the end of 2012; they are located mainly in Bogotá, Medellín and Barranquilla respectively.

In terms of international trade, there are an important contribution to economic development between these two countries, but the trade shows a declined trend. Figure 4 shows that at the end of XIX century the trade between France and Colombia was higher, but the globalization, the WWI and WWII pushed down this trade. It is satisfactory to know that Colombia contributed with France reconstruction after WWII, the value exported was US$103 million when Colombia used to export as much US$7 million (it is the peak of 18.3% in figure 4, this number can be overvalued, but come from official data in 1949). The trade balance between these countries has been in favor of France since 1953. By 2012, the trade balance was US$847.9 million in favor of France. The main exports from Colombia to France are mineral fuels such as coal and crude oil; fruits, flowers and few textiles are important also. Colombia imports from France crude oil refined, machinery for industrial production and organic chemicals. One can say that the trade between these counties is mixed, so they trade high added goods and low added goods.

Figure 4. Trade index France-Colombia 1885-2012

(%, trade indicator*)

Source: United Nations; Urrutia. 1970. Own calculations. Compendio de estadísticas de Colombia.

The economic cycles between France and Colombia has changed. Before 1991, they showed a cyclical movement, so as France faced an economic growth, Colombia followed this path; however, in the last years this common movement changed to be contra-cycle. It is expected that France shows an important positive change in her GDP cycle; her cycle can finish 2013 with an upward tendency.

Figure 5. France and Colombia GDP cycle 

1977 - 2013

(quarterly data normalized)

Source: FED ST. Louis and Bureau of Statistics Colombia (DANE). Own calculations Stata 12.1.

Market Power in a country under unfair income distribution: the beer industry in Colombia

The beer industry in Colombia is a prosperous business with a per-capita consumption of 87 liters per year in 2011 and a forecast of 88 liters in 2012 (just people between 15 to 65 years) and a gross profits of US$3.0 billion in 2012, but it shows high grade of Market Power. SABMiller Colombia has approximately 99% of total beer market; there are other beer firms such as Bogotá Beer Company that has low share in the market still (gross profits of US$8.7 million in 2012). An industry that shows a Market Power in a country where the income distribution is awful, it lets government rethinking economic policies in this industry. Of course, increasing taxes is not the solution because it makes undesirable market distortions such as pushing down private incentives to invest and unemployment can face an increase. However, through competition, this industry can contribute to reduce the unfair income distribution; the market that can be useful is monopolistic competition. The duty of government, in this case, is to set economic policies to increase the competition to achieve two targets: better income distribution and better consumer welfare. This note shows how much beer industry is prosperous in Colombia and its demand properties for those who are interested in this sector.

Author: Humberto Bernal,  

Economist,

e-mail: zhumber@gmail.com

Twitter: Humberto_Bernal

It can be download @ PDF

Beer production in Colombia started at the end of XIX century and nowadays is a prosperous business with a gross profit of US$3.0 billions in 2012 where SABMiller is the main player with 99% of the total market. This note shows a brief of beer production-consumption in Colombia during XX century and its demand properties.

One of the main businessman that contributed to beer industry development in Colombia was the German Mr. Kopp. After some issues that were sorted out such as losses and closing down some beer factories because at beginning colombians did not like beer as much as nowadays and the 100% of nationalization because the Second World War (WWII), the beer industry took a prosperous development. After WWII the new local owners decided to expand the business to regions where beer was difficult to supply; for instance, Santa Rosa de Viterbo (Boyacá region) and Ipiales (Nariño region). The beer production went from 984 thousand of hectolitres per year in 1946 to 1,842 thousand in 1947 as figure 1 shows; this volume of production-consumption meant an increase of consumption per capita from 33 liters per capita (just economically active population) in 1946 to 131 in 1960. Nowadays, the per-capita consumption is 87 liters per capita (just economically active people; between 15 to 65 years old).

Figure 1. Beer production-consumption 1936 - 2011

(thousand of hectoliters per year)

Source: Palgrave International Historical Statistics; Oxford Latina American Data and Bureau Of Statistics Colombia (DANE-Encuesta Anual Manufacturera).

The volume of beer is sensitive to economic crisis. One tends to think that beer demand is inelastic under economic crisis, but it is not; for instance as the income shows a reduction of 1.0% (a decline of real GDP per capita), the volume of beer demanded shows a decline between 0.3% and 1.5% (with a punctual decline of 1.0%); this result comes from an econometric model where results are controlled by supply variables such as wages and crude oil price; moreover, figure 2 confirm this result; for instance, the Balance of Payments Crisis during 1955-1960 let a lower consumption of beer; same situations were in economic crisis faced in 1982; 1999 and the last one in 2009.

Figure 2. Beer production-consumption per capita 

1936 - 2011

(liters per year, total production divided by people between 15-65 years old)

Source: Palgrave International Historical Statistics; Oxford Latina American Data and Bureau Of Statistics Colombia.

From this econometric model, one concludes that Beer Price Elasticity of Demand is elastic also. The measure of this elasticity is between 0.2 to 3.0; it means, as price shows an increase of 1.0%, the volume demanded can face a decline between 0.2% and 3.0% (with a punctual decline of 1.6%). This information can be useful for marketing professionals that are interesting in set new business in beer industry. When a product shows a demand that is elastic in price, suppliers face high risk to miss consumers because of competence. Therefore, for those young graduate students in chemistry and business management can be interesting to spend time in developing new lines of beer in Colombia.

The Measurement for Colombian Peace Meetings

The internal war conflict in Colombia is feeded by cocaine revenues. The cocaine chain has many links, and the guerrilla is in the first links. It could be possible as soon as the political internal war conflict reaches the end, the place left by guerrilla in cocaine production will be taken by other groups. Therefore, the new legal political group that will come up from the end of internal war conflict along the traditional political groups will have to deal with these new illegal groups. This will be the first challenge of the New Colombia (the Colombia after the political internal war conflict). However, it can take time; meanwhile, how can Colombia society measure the success of the end of political internal war conflict?.  It could be difficult to make a distinction between violence from cocaine fight and violence from political views. Most of the country has points where coca bushes are grown, but there are 110 municipalities in Colombia where both coca bushes have not arrived and the political violence is cruel; this region is inside of Magdalena River Region; it is divided in three regions: High Magdalena, Middle Magdalena and Low Magdalena. Therefore, if the meetings in Cuba are successful, socioeconomic indicator from these municipalities have to improve quickly. This note shows the actual state of main socioeconomic indicators in these regions. 

Author: Humberto Bernal,  

Economist,

e-mail: zhumber@gmail.com

Twitter: Humberto_Bernal

It can be download @ PDF

Magdalena river is the main river in Colombia; it crosses Colombia from Huila-Cauca (south) to Atlántico (North); this river has a long of 1,540 kg; 6.3 million of people live around it; and it can be sailed from the start point of Magdalena Medio (Middle Magdalena) to the end of Magadalena Bajo (Low Magdalena) as figure 1 shows. As a reference point, it can be sailed from Honda town (Tolima) to Barranaquilla city (Atlántico).  This river used to be the main transport media in Colombia at the beginning of XX century; merchants of coffee, tabasco, bananas and others took this river to arrive the final cities. However, from 1970, this river started to show low uses because political internal war conflict. Therefore, the end of the political internal war conflict in Colombia will bring high development in this region; mainly in High Magdalena and Low Magdalena.

Figure 1. Municipalities around of Magdalena river

Source: Cormagdalena and Bureau of Statistics Colombia.

The cocaine production along High Magdalena and Low Magdalena is close to null, but the homicide rate because internal political war conflict is high. It is interesting that the municipalities around Magdalena river show low production of cocain bushes; it could be explained by the geographic position that does not contribute to grow this bush. However, the municipalities around Magdalena river have faced the cruel internal political war conflict; for instance the municipality called Isnos (Huila, High Magdalena) used to face a homicide rate of 68 per 100 thousand of inhabitants, but nowadays it is 19; same cases are for Barrancabermeja, Elias and Aguachica. Therefore, municipalities around Magdalena river can be taken as measure of the end of political internal war conflict; for instance, as the homicide rate and others socioeconomic indicator improve, then we can say that political internal war conflict is through the right path.

The main socioeconomic indicators to measure the success of the end of political internal war conflict in Colombia have to be taken from municipalities around Magdalena river because these municipalities show low production of coca bushes as figure 2 shows. These socioeconomic indicator are Gross Domestic Product (it is approximated through industrial taxes from these municipalities); Tertiary education, Unsatisfied Basic Needs (UBN), Homicide Rate and displaced people as table 1 shows. Through last information, one can see that these socioeconomic indicator are in critical levels; for instance there is low value added to the economy; population that finished their tertiary education and live in these municipalities is not more then 19.3%; and families in poverty state are no less than 17.7% of total families according to each municipality. 

Figure 2. Municipalities by coca bushes production and political internal war conflict

Source: United nations,  Cormagdalena and Bureau of Statistics Colombia.

From 128 municipalities that belong to Magdalena river region, there are just 18 that have been grown coca bushes as figure 2 shows (red color). The main municipalities are San Pablo (Bolivar, Middle Magdalena), Simiti (Bolivar, Middle Magdalena), Cantagallo (Bolivar, Middle Magdalena) and Rio Viejo (Bolivar, Low Magdalena). The total pure cocaine production from these 18 municipalities reached 14.7 tons out of 309 tons in Colombia in 2012.

Table 1. Main socioeconomic indicator around Magdalena river

Variable	High Magdalena	Middle Magdalena	Low Magdalena	Total Magdalena	Total Colombia
Municipalities (number in 2013)	46	15	67	128	1,123
Population (number of people in 2013)	1,366,821	591,440	4,312,552	6,270,813	47,121,089
Added value (% of total GDP 2012)	1.1	3.5	7.8	12.4	100.0
Tertiary education between* (population % in 2010)	1.1 - 14.2	2.1 - 10.8	1.3 - 19.3	1.1 - 19.3	0.2 - 28.2
Poverty UBN between  (families % in poverty in 2010)	17.7 - 71.7	22.3 - 65.9	17.7 - -81.1	17.7 - 81.1	5.4 - 90.0
Cocaine production (tons in 2012)	0	3.4	11.3	14.7	309
Homicide rate between (100,000 per inhabitants in 2011)	3 - 68	2 - 94	3 - 56	--	36.0
Displaced people (number of people between 1998 - 2011)	56,497	85,899	164,084	306,480	2,852,043

* First Low value, then High value. (Low value - High value)

Source: United nations,  Cormagdalena, Bureau of Statistics Colombia and DNP.