Bogotá’s GDP cycle and its impact on Colombian GDP cycle: A negative impact example through the mayor dismissed

Recently the Bureau of Statistics in Colombia (DANE) broadcast the quarterly data for Bogotá’s GDP; the span of this data is from year 2000 to 2012, so it is room to calculate Bogotá’s GDP cycle. This type of data is so important to take economic decisions; for instance, when public servants can take public resources to improve economic performance. It is desirable that this type of data will be calculated for other 32 regions in Colombia. This note shows the Bogotá’s GDP cycle, and it is compared with Colombia GDP cycle; the result is impressive, they move as one; it means as the Bogotá’s GDP cycle moves up, Colombian does also, and the other way around is true also. Moreover, there is an application of this result through the impact on Colombia GDP cycle due to Bogotá’s GDP cycle faces a negative shock; the impact is a decline in Colombia GDP growth rate between 0.5% and 1.0% in 2014. This negative shock can be because of Bogotá’s mayor dismissal.

Author: Humberto Bernal,  

Economist,

e-mail: zhumber@gmail.com

Twitter: Humberto_Bernal

It can be download @ PDF

Bogotá is the capital city of Colombia with 7.7 million of inhabitants, so it is the 17% of total population in Colombia. Bogotá’s Gross Domestic Product (GDP) per-capita was US$11.3 thousand per year in 2012; it is the highest in Colombia if one takes out the regions that produce crude oil and coal. Moreover, Bogotá shows better income distribution than Colombia as a whole; its GINI coefficient was 0.497 in 2012 while Colombia had a GINI of 0.539 in 2012. However, the Bogotá’s unemployment rate has shown a tiny decline in the last year from 8.6% in 2012 to 8.3% in 2013; it is a issue that local authorities have to deal in the next months. Bogotá’s GDP has shared in Colombian GDP in 26% in the last 12 years, so it is important to pay attention to Bogotá’s economic performance to improve national performance. Recently, the Bureau of Statistics of Colombia (DANE) broadcast the quarterly data for Bogotá’s GDP; this data was calculated for the period between years 2000 and 2012. Therefore, this note shows the importance of Bogotá’s economic performance in Colombian economic performance; to make this point clear, the Bogotá’s GDP cycle is taken and compared with Colombia GDP cycle; moreover, through a randomly shock on Bogotá’s GDP cycle such as dismissal of mayor of Bogotá, one realizes that its impact in Colombian GDP cycle is negatively relevant.

Bogotá’s GDP cycle goes along Colombia GDP cycle. When Bureau of Statistics broadcast the Bogotá’s GDP data in quarterly span, it took researchers attention because of it is the first time that this type of regional data is broadcast; it is important that this data can be broadcast for other 32 regions in Colombia. Through Hodrick-Prescott filter, the Bogotá’s GDP cycle and Colombian GDP cycle is calculated as figure 1 shows. the result is impressive, the Bogotá’s GDP cycle path is so close to Colombia GDP cycle; they have same ups and downs trajectories. The main conclusion from this result is Bogotá’s GDP cycle drives Colombia GDP cycle, so if Bogotá faces a negative shock such as weakening of democracy, its impact is negatively important in Colombian economic performance.

Figure 1. GDP cycle for Bogotá and Colombia

(normalized quarterly data 2000-2012)

Source: Own calculations. Stata 12.1.

The impact of negative shock on Bogotá’s GDP cycle is a negative impact on Colombia GDP cycle. Because of Bogotá's GDP contribute in 26% in Colombian GDP, any negative shock on it will bring negative outcomes on Colombia GDP. If one takes the cycle data for Bogotá and Colombia into a VAR time series model lagged in four quarters, one can make examples of impulse response; therefore, if Bogotá’s GDP cycle faces a negative shock of US$1 million, then Colombian GDP cycle will face a decline between US$50 million and US$112 million in the next two years after the shock as figure 2 shows, this huge impact is because of multiplicative effect on Colombia GDP. Therefore, per each US$ 1 million that Bogotá miss, Colombia will face a decline in her GDP growth rate between 0.05% and 0.1%. For example, if the cost of Bogotá‘s mayor dismissal is US$10 million, so Colombia will face a decline of her GDP growth rate in about 1.0% for 2014. This US$10 million are a lower value, it can be more if one calculates the cost to go back the public programs started with his public administration. 

Figure 2. Impact on Colombian GDP cycle because of negative impulse on Bogotá’s GDP cycle

(US$million, quarterly data for 16 quarters)

Source: Own calculations. Stata 12.1.

In conclusion, The quarterly data for regions lets getting important public policies. For instance, if Colombia faces antidemocratic impact such as Bogotá’s mayor dismissal, the Colombian GDP growth rate will be lower. The other statement is true also; if Colombia promote democratic actions, her GDP growth rate and economic development will be higher.

Cigarettes, cocaine and government: the battle for getting the market

Colombian cigarettes market is driven by two big firms: British American Tabaco Colombia and Phillips Morris International Colombia (Coltabaco). These firms share the local market in 55%-45% respectively. Moreover, the gross profits in colombian cigarettes market reached US$236 million in 2012, and they show economies of scale. However, cigarettes firms are worried because of per-capita consumption of cigarettes has shown an important decline since 2008. There are many researches that point the smuggling as a cause of it, but this note shows that the main causes are the government Law enforced in 2008 and the increase of narcotics consumption in local population. The Law bans the smoking in bars, restaurants and public rooms, and its impact is an annual reduction of cigarettes consumption in about 2.5%. In addition, the cocaine price reduction, and the increase of its consumption push down the cigarettes demand in about 0.41% as the cocaine price decreases in 1.0%. On the other hand, the economies of scale brings a new government issue concerned with substitution between new technology and employees; it means unemployment increases. Cigarettes production has economies of scale that means reduction of employees; in 1992 these firms had 2,997 positions in Colombia, but in 2012 these firms declined job positions to employ just 911 positions. Therefore, government has a challenge to sort out this situation; some answers to solve it come from Switzerland society that wants to give an universal salary to everybody no mater their job status, and it has to be afforded by big firms through increasing taxes.

Author: Humberto Bernal,  

Economist,

e-mail: zhumber@gmail.com

Twitter: Humberto_Bernal

It can be download @ PDF

The annual cigarettes market equilibrium in Colombia used to be 64 packages of 20 cigarettes per capita in 2003 (people between 15 and 65 years old), but now it is 34. Moreover, the number of big cigarette firms in Colombia showed a decline from 12 in 1992 to 4 in 2012. Nowadays, they are British American Tabaco Colombia, Phillips Morris International Colombia (Coltabaco), Samkas International E.U and Procesadora Nacional Cigarrillera; nonetheless, these firms have increased their gross profits from US$24.7 million at 2012 prices in 1995 to US$236.0 million in 2012; the 99% of these profits come from British American Tabaco and Phillips Morris International Colombia where they share these profits in 55% and 45% respectively. Although the cigarettes business in Colombia is good in  terms of profits because of active population is growing, these firms have been interesting on reduction of market in per-capita terms; it means they are taking care of their business in the long run. This issue was worked by many researchers supported by private firms and government bodies, and these results go to point the smuggling as a cause of this reduction, so they claim that registered data does not take the total consumption; moreover, they claim that government is missing taxes revenues because this smuggling. However, through this note is shown that the main causes of this reduction in per-capita terms are the Law 111 of 2006 that was enforced through Resolution 1956 of 2008, and the increase of narcotics consumption such as cocaine in Colombia. 

Figure 1. Annual cigarettes packages per capita in Colombia 1992-2012

(annual data, packages of 20 cigarettes)

 *Per-capita: People between 15 and 65 years.

Source: Bureau of Statistics Colombia (DANE-EAM) and own calculations.

The cigarettes market in Colombia

The reduction of smoking in Colombia is because of enforced Law in 2008 and increase of cocaine consumption. The cigarettes market in Colombia went from 45 packages of 20 sticks in 1992 to 34 packages in 2012; there were two picks in 2003 and 2008 with 64 packages per capita as figure 1 shows.  After 2008, the reduction of this consumption was because of Resolution 1956 of 2008, so this Resolution banned the smoking inside of public rooms such as bars, restaurants, malls, hotel lobbies and so. Moreover, there are many taxes on cigarettes consumption that came with this Resolution also. The impact of this Resolution on cigarettes demand can be calculated in annual reduction of 2.5% of total volume of packages of cigarettes sold per year as table 1 shows; this reduction can be taken as the minimum percentage. There are other causes that pushed down the smoking in Colombia, and they are the consumption of cocaine. The cocaine consumption in Colombia shows an important increase; people who tried cocaine in Colombia were 1.2% of total population in 1996 and more than 2.4% in 2012, so the number of people who “enjoy” cocaine is more than twice that in 1996. The increase of local cocaine consumption is because its local price has shown a decline to reach US$2.5 per gram in 2012, so there is a trade off between cigarettes packages of 20 sticks that has a public price of US$2.0 in 2012 and cocaine gram that shows a price of US$2.5 in 2012. This impact of more cocaine consumption on cigarettes market can be measure as the price of cocaine shows a reduction of 1.0%, the packages of cigarettes demanded decline in about 0.41% as table 1 shows. It is true, smuggling has a negative impact on cigarettes local supply, and it is an annual decline of 0.06% of total local production; therefor it is low compared with Law impact and increase in consumption of cocaine.

Table 1. Cigarettes demand and supply in Colombia

(annual data, under model of type 3SLS)

Variable	Demand	Supply
Price per package (20 cigarettes)	-2.14%	-0.51%
GDP per-capta	6.24%
Cocaine Price Colombia	0.41%
Ban and Taxes	-2.5%
Labour productivity		0.75%
Smuggling		-0.06%
R2	0.72	0.99

Source: Bureau of Statistics Colombia (DANE-EAM). Own calculations Stata 12.1.

Economies of scale in cigarettes production

The cigarettes production shows economies of scale. The cost of package of 20 cigarettes declines as the volume increases; this statement is validated through a negative supply slope as table 1 shows (red number); moreover the number of job positions in cigarettes firms declined from 2,297 in 1992 to 911 positions, and their profits increased in huge (more than 9 times between 1995 and 2012). This type of technology lets cigarette firms reduce job positions. In most of cases, labour production shows diseconomies of scale and employees are sacked and replaced by new technology. Figure 2 shows the decreasing labour productivity for cigarettes firms; it shows as the number of employees increased, so the production per-employee takes a reduction. Therefore the rational decision is to cut the number of employees in order to maximize profits. To solve this unemployment issue can be through an universal salary as Switzerland society wants; it can be financed through higher taxes for big firms that show huge profits.

Figure 2. Packages per worker in Colombia 1992-2012

(annual data, packages of 20 cigarettes)

Y-axis: Average production per employee. X-axis: number of employees in cigarettes firms.

Source: Bureau of Statistics Colombia (DANE-EAM). Own calculations.

CO2 production in Colombia: between reduction and populism

The World is getting more CO₂ production each year. In 2012, the CO₂ production was 33 billion of tons, so it means 4.7 tons per World inhabitant. Colombia produced 60 million of tons in 2012, so it means 1.5 tons per colombian. If we follow with this behavior, at the end we have to wear masks and live under black clouds!. Unfortunately, colombian central government is not aware of it; her public policies taken in the last months gave incentives to produce more CO₂; for instance, they did an important reduction in gasoline price to get populism. This note shows the impact of this policy in environmental terms (increase of CO₂ production in Colombia); it means as the gasoline price shows a decline in 1.0%, Colombia increases the CO₂ production between 0.05% and 0.1% per year. This result takes the increase of the number of vehicles in Colombia as instrument to produce more CO₂ in Colombia because of they depend on reduction in gasoline price. Therefore, it is important that government realizes that increasing gasoline price is a tool to reduce CO₂ production, but this instrument has to be used along better public transport as trains and metros in main cities and between cities. Moreover, this better public transport will give more populism and contribute to better environment.

Author: Humberto Bernal,  

Economist,

e-mail: zhumber@gmail.com

Twitter: Humberto_Bernal

It can be download @ PDF

The annual CO₂ emissions around the World is close to 33 billions of tons in 2012; it means a per capita annual production of 4.7 tons. By 1971, this per-capita production was 3.7 tons as International Energy Agency says; it means a per-capita annual average growth rate of 0.6% between 1971 and 2012. Therefore, we are close to live under black clouds and wearing masks, what sad destiny!. Colombia is not far away of this data; the total annual production of CO₂ in Colombia was 14 million of tons in 1960 and 68 million of tons in 2012; it means an annual production of 1.5 tons per capita in 2012. Although Colombia produces few volume of CO₂, 0.2% of total World production, her volume has shown an important increase; figure 1 shows the colombian CO₂ production per capita since 1960; there is an increase from 1960 to 2000, but from this year the volume started to decrease because Colombia improved her public transport in cities such as Bogotá, Cali, Medellín and Barranquilla. However, since 2009 the production of CO₂ started to increase again because of price of vehicles has declined so much to pull up the Gross Domestic Product (GDP). Therefore, economic policies such as lower prices of vehicles and lower price of gasoline to improve the economic growth go in contradiction with environmental public policies. Punctually, this note shows that a lower gasoline price in Colombia will increase the volume of vehicles in the market, and it will increase the growth rate of CO₂ production. Therefore, if Colombian central government tries to apply this popular policy to get votes for reelection, its cost will be a contribution to get a worse environment to live.

Figure 1. CO₂ emission per capita in Colombia 1960-2012

(tons of CO₂  per capita)

Source: World Bank data and International Energy Agency.

Colombia has increased the number of vehicles in her market because of better salaries, better technology and central government policies. The number of vehicles in Colombia went from 5 thousand in 1923 to 4.4 millions in 2012; it means 208 vehicles per 100 thousand of active people (people between 15 and 60 years old) in 1923, and 18.7 thousand of vehicles per 100 thousand of active people in 2012 as figure 2 shows. Although this increase can be explained by better real salaries, Colombia faces poor income distribution still; Therefore, the average annual growth rate of real salary in Colombia is 7.1% between 1923 and 2012; between 1970 and 1980 there was an important increase; after this year the real salary increased few points above inflation. Moreover, through econometric model one finds that an increase of real salary in 1.0% lets an increase of vehicles in 1.1% as Table 1 shows. It is important to highlight that the volume of vehicles showed an important increase after 1999 and again after 2009, and it is because central government took this sector as principal one to pull up the GDP after economic crisis; therefore, there were economic crisis in 1999 and 2009 in Colombia, and the volume of vehicles showed important increase. The public policy for vehicles is based on getting ways to give vehicles to people at lower prices through lower tariff rates for vehicles’ parts imported and few cases through subsides in Free Trade Zones.

Figure 2. Vehicles per hundred thousand of active people in Colombia 1923-2012*

(annual data)

*Active people: people between 15 and 60 years old.

Total vehicles=passenger cars plus commercial vehicles.

Source: International Historical Statistics, Fasecolda and ANDI.

Although there is an important increase in vehicles in Colombia in the last 90 years, the increase of gasoline price has blocked a higher growth of this volume of vehicles. The price of gasoline in Colombia shows a positive trend after 1999 as figure 3 shows. This price’s dynamic can be explained by crude oil price; before 1999, the crude oil price showed a negative trend; the crude oil barrel cost was US$17 at 2012 prices in 1998, but after this year the crude oil price has increased in huge until reaching US$111 in 2012.  If one takes this information into an econometric model, the result is as gasoline price faces an increase of 1.0%, the volume of vehicles in Colombia shows a reduction of 0.2%; it means lower vehicles in the market because of higher gasoline prices as table 1 shows.

Figure 3. Gasoline price in Colombia 1980-2012

(US$ per gallon, chained prices of 2012)

Source: Ecopetrol and Mines Government Department Colombia.

The reduction in vehicles in Colombia because of higher gasoline prices has a deep impact in CO₂ production. As we realized, there is an increase of CO₂ production because of society has more vehicles, and there is more vehicles because of vehicles price and gasoline price show reductions. Therefore, it is not good idea or it is not a proper public policy to reduce vehicles price trough lower tariff or local subsides, and it is not a proper public policy to reduce gasoline price through government Law. In quantitative terms, as the volume of vehicles increases in Colombia in 1.0%, there is “negative” impact in CO₂ production; it means an increase of CO₂ production; therefore, the CO₂ production shows a permanent increase between 0.018% and 0.024% per year as figure 4 shows. Moreover, If  gasoline price decreases in 1.0%, the volume of vehicles increases between 0.01% and 0.02% per year, or the other way around is true also; it means, if gasoline price increases in 1.0%, the volume of vehicles in the market shows a decline between 0.01% and 0.02% per year and in the long run it can be 0.2% as figure 5 shows. Therefore, at the end a decline in gasoline price lets an increase of CO₂ production between 0.05% and 0.1% per year, or an increase of gasoline price in 1.0% lets getting a decline in CO₂ production between 0.05% and 0.1% per year.

Figure 4. Impact on CO₂ due to increase in vehicles volume in 1.0%

(CO₂ increases in %)

Source: Own calculation VEC model Stata 12.1.

Figure 5. Impact on Vehicles due to increase in gasoline price in 1.0%

(Vehicles increases in %)

Source: Own calculation VEC model Stata 12.1.

In conclusion, Colombia has to work in reduction of CO₂ production to get a better World, and a way is increasing gasoline prices along better public transport for people. This public policy has two indirect positive impacts on society welfare; first, politicians get populism for their elections, and second people enjoy living in a better World. There is a media myth about the price of gasoline in Colombia; they said that Colombia has the highest prices of gasoline in the World, but it is not true; as one see these prices, one realizes that Colombia takes the place 34 out of 145 countries where the first one is Venezuela that has a gasolines price of US$0.1 per gallon in 2013 and the last one is Norway that has a price of US$10.5 per gallon as My Travel Cost says; Colombia shows a price of US$4.4 per gallon in 2013, so colombian government has huge room to increase the gasoline price to contribute to CO₂ reduction.

Table 1. Impact in vehicles

(%, model of type GLS)

Variable	Impact on vehicles
Wage Index	1.1%
Gasoline price	-0.2%
R2	0.99

* Results are statistically significative at 0.05.

Source: Own calculation Stata 12.1. 

Source of deflation in Colombia: A lower Aggregate Demand

Colombian government has worked on improving the Aggregate Supply through spending on infrastructure, free houses for low income people, subsides for agricultural suppliers and subsides for manufacture suppliers, and it has improved the economic growth. However, the deflation (negative inflation) faced by Colombia in the last two months takes the attention because of this effect can pull down the favorable economic expectation for 2013. This note shows that the source of this deflation is because of lacking of stimulus on Aggregate Demand variables. It means Colombia has been facing an inefficient government spending (government spending is concentrated in few private hands); low growth in suppling money, and high interest rates for consumption. Moreover, if this deflation follows in the next months, it can reduce in deep the GDP growth rate for 2013 and 2014. This fact lets me conclude that my forecast for GDP growth rate in 2013 is between 3.1% and 3.5%; it is below of government and private researchers do; they forecast a GDP growth rate between 3.5% and 4.5%. The challenge for the next months and years to improve colombian economic development is to work on money supply’s channels to improve Aggregate Demand; these channels have to support the supply of public goods such as pensions and health. Finally, it will be interesting the poor economic growth in 2013 and the lower expectations for 2014 under presidential elections.

Author: Humberto Bernal,  

Economist,

e-mail: zhumber@gmail.com

Twitter: Humberto_Bernal

It can be download @ PDF

In the last two months Colombia has shown negative values in her inflation; in October, it was -0.26% and -0.22% in November. The last time that Colombia had negative values in two months consecutively was in 2009 and 2010; by that time, the Gross Domestic Product (GDP) grew in 1.7% and 4.0% respectively; however, there is a big difference in this year (2013), and it is that Colombia inflation can be the lowest ever; it can be around 2.0%, and it is bad news for increasing the employment. This note shows the deflationary (negative inflation) sources and the likely economic scenario that it brings; this economic scenario is below of government and private researchers’s expectations who point an economic growth between 3.5% and 4.5% in 2013. I still believe that Colombia will get an economic growth rate between 3.1% and 3.5% in 2013.

The sources of deflation from classical economic theory view: Colombia case

The deflationary effect come from movements of Aggregate Demand (AD) and Aggregate Supply (AS). In Colombia case, one can point a backward movement of AD (red dashed lines figure 1) and forward movement of AS (blue dashed lines) as the source of this deflation; it means colombians feel pessimist to buy goods and services because of high interest rates, lack of money to buy their stuff (short M1 in the economy), inefficient government spending (government spending is concentrated in few private hands), and households’s negative expectations about economic environment for next months and years. However, the forward movement of AS can mitigate this low economic growth, and deflation effect is kept; as the AS moves forward, it causes higher supply of goods and services, and lower prices; it means negative inflation also. This AS movement comes from lower unemployment rate and higher volume of capital; these facts are shown in colombian economy although unemployment rate is so high still. The AS resources in Colombia are taken by Real Estate activities and to make non tradable goods supported by government mainly. Therefore, Colombia deflation comes from a narrower Aggregate Demand and higher Aggregate Supply, and its result is a low economic growth; from E₁ to E₂ as figure 1 shows.

Figure 1. Aggregate demand and supply under deflationary effect  

Aggregate Demand and Aggregate Supply an econometric model for Colombia

The AD and AS for Colombia show the classical slopes, so the momentary policy and efficient government spending are the instruments to mitigate the deflationary effect and low economic growth in Colombia. When one takes economic data from 1924 to 2012, the results are the classical slopes for AD and AS for Colombia; the AD shows negative slope, and the AS shows a positive slope as table 1 shows (green results). Therefore, to mitigate this deflationary effect and the low economic growth, monetary authorities have to increase the monetary supply growth rate through suppling public goods such as pensions and health; if monetary supply increases in 1.0%, it can bring an increase of 0.20% in colombian GDP. Moreover, if central and local governments increase the efficient public spending in 1.0%, it can bring an increase of 0.34% in colombian GDP as table 1 shows.

Table 1. Aggregate demand and supply for Colombia* 1924-2012

(Annual Data, in logarithms, under 3SLS)

Variables	Aggregate Demand	Aggregate Supply
Price-Col(CPI)	-0.41%	0.15%
Money supply-Col(M1)	0.20%
Gov. Spending-Col	0.34%
Exchange Rate (Col$ per US$)	0.14%
GDP-USA	0.13%
CPI-USA	0.55%
Capital-Col		0.53%
Working population-Col		0.10%
R2	0.99	0.99
Observations	89	89

*Aggregate demand and aggregate supply is the GDP at constant prices.

All variables are significative under 0.01 significance level except GDP-USA which is under 0.1 and Working population-Col.

Source: Stata 12.1. Own calculations.

Deflationary effect on Colombian GDP growth (an equilibrium analysis)

The continuous deflation causes a decline in Colombian GDP growth rate. If the equilibrium values from inflation and GDP growth rate are taken into a time series model called VAR, the result of negative impact on inflation rate brings negative impact on GDP growth rate as the figure 2 shows. It means that one deflation shock of 1.0% causes an annual reduction of GDP growth in about 0.01% for next five years (ceteris paribus). If deflation follows in next months and years, this negative effect on GDP growth rate is higher. Therefore, it is a challenge to economic authorities for improving the economic variables related with AD to avoid this sad scenario of lower economic growth for the next years.

Figure 2. GDP growth response from single negative shock on colombian inflation*

(Annual Data 1924-2012, under time series model VAR)

*Dashed lines are the confidence interval under 0.95%.

Source: Stata 12.1. Own calculations.

Netherlands and Colombia close relation in many issues

Netherlands and Colombia have been dealt many issues since XIX century. For instance, there were many economic transaction between Colombia, Netherlands Antilles, Curacao and Netherlands where Colombia exported raw products and Netherlands exported finished products. Dutch people in Colombia have business in trade firms, manufacture firms, and they work in education as professors and volunteers to eradicate Colombia violence. Moreover, this relation is narrow through political advices to finish the internal political war, fact that we really thanks. However, although the number of Dutch that live in Colombia have increased in the last years, the big economic business have declined. In addition, although Colombia has gotten a positive trade balance, the 90% of exported goods are non-renewable resources. There are issues that Colombian government has to work on in the next years; for instance, take an active actions to avoid the outflow of Dutch FDI (in 2012 there was an outflow of US$ 1.9 billions, what’s going on?!!!); second, to give incentives to diversify colombian exports (not just minerals). Nonetheless, the GDP cycle has been Contra-Cycle in the last 8 years, it means good news for Dutch investors in Colombia; they can invest in Colombia and sent their profits to Netherlands to improve their activities in headquarters. Finally, it is right to remember that in Cuba there is a girl called Tanja from Netherlands that is part of guerrilla group to achieve the Peace in Colombia. This note briefs the Dutch status in Colombia during XIX, XX and XXI century.

Author: Humberto Bernal,  

Economist,

e-mail: zhumber@gmail.com

Twitter: Humberto_Bernal

It can be download @ PDF

Netherlands has invested human and economical sources to improve Colombia development through XIX, XX and XXI centuries. Dutch people started to immigrate to Colombia after second half of XIX century. They trade with Colombians tobacco, indigo, spirits, textiles and so; it was a mutual benefit; fact that helped to get an important trade was the closeness of Colombia with Netherlands Antilles and Curacao. By 1843, the number of Dutch people recorded in Census of 1843 were 93, most of them lived in Barranquilla and cities located close to Atlantic Costs such as Cartagena, Santa Marta, Maicao, Sincelejo and Rioacha. However, they showed a decline to achieve 89 in 1851 as figure 1 shows; it was because of hot weather in Caribbean Costs and deep culture differences at the beginning, so they decided to come back to Netherlands. By 1951, the Dutch population in Colombia increased due to WWI and WWII that pushed people to find better life conditions. Some of Dutch people who decided to take Colombia as a home were Jan Gerbrand Slagter and Aukje Mobach who had 8 decedents (sons and daughters);  others with surname De Hart, Van Houten, Slagther and Esbra as Odette (2012) says. After 1951, Dutch decided to emigrate from Colombia because of internal political conflict started to take high level of violence; by 2000, the number of Dutch were 287 in Colombia. Nonetheless, by 2011 the number of Dutch increased to 836 because of better economic environment compared with european, and better political environment because of meetings in Havana between Government and Guerrilla. These foreigners have contributed to improve education, trade, health and voluntary work in Colombia. 

Figure 1. Dutch population in Colombia 1843-2011

(number of people)

Source: Censos, World Bank, Colombia migration department.

Dutch enjoy living in Colombia. Nowadays, according to census information, Dutch enjoy living in Bogotá with 47% of total Dutch who live in Colombia; there are others who like living in Cali with 10%, Manizales with 10% and Santa Marta with 10%; there are other municipalities with low Dutch such as Puerto Colombia with 3% and El Playón with 3% as figure 2 shows. One realized that they are located in main cities, and it is because of security issues; this cities do not face high violence as rural areas, but nowadays rural security is improving; therefore, they can travel around Colombia. Dutch in Colombia are young; those who are between 0 and 19 are 36% of total Dutch in Colombia; most of them have Colombian nationality also, so most of them born in Colombia; 57% are between 20 and 60 years; and 7% are elderly people. Dutch women are about 50% of total Dutch in Colombia. Most of Dutch are single; they are 47% of total Dutch in Colombia; there are 43% that are married, and the others are separate and widower. Most of them have high education such as university studies; there are few that just have primary studies; most of them are young. Dutch come to Colombia to give employ; from 100%, there are 37% that work as employers, and 13% work as employees. They work in Real Estate (13% of total Dutch in Colombia), Trade (10%), Services (teaching and voluntary jobs, 3%), Agriculture (3%) and Truism and Food (3%). Unfortunately, there are 13 Dutch that are in troubles with Colombia Law in 2013. Moreover, since 1975, there have been 16 kidnappings of Dutch in Colombia where 2 cases were in 2011 and null in 2012. This information come from colombian census, INPEC and government organisations.

Figure 2. Dutch population in Colombia by municipality 2005-2011

(% of Dutch people in Colombia)

Source: Censos and Colombia migration department.

Big business between Netherlands and Colombia

Foreign Dutch capital in Colombia showed and important volume until 2006, but after this year it has shown an important decline. Foreign Direct Investment (FDI) from Netherlands into Colombia started to come since the end of XIX century through trading companies, but the bulk started to come since 1953 as figure 3 shows. The first Dutch big firms that came to Colombia were IMS Netherlands Holding B.V and Koninklijke Vopak N.V. Nowadays, Dutch FDI goes to Trade sector with 58 firms in 2012; these firms have Dutch capital of type Mixed, Fusion and Acquisition or Greenfield. Some of them are Makro and Diaego (United Kingdom and some Netherlands capital). In manufacture sector there are approximately 47 big firms with Dutch capital such as Provimi, Parmalat, Tetra Pak, Friesland, Unilever and Coltabaco (mixed capital). In Real State there are 13 firms; some of them are in hydroelectric sector and firms that give services in architecture. In financial sector are important firms such ING and Sudameris Bank. However, ING sold an important share to colombian firm called Protección in 2012; Shell have been sold colombian branches also. It means that Dutch capital have been going out since 2006. It is important to highlight that Dutch capital as stock in Colombia achieved US$2.5 billion at 2012 prices in 2006 as figure 3 shows, but after this year it started to decline to reach US$2.0 billion in 2011 and US$60 millions in 2012!!!; this huge decline in 2012 in about US$1.9 billion is because of most of European firms are fitting their portfolios due to 2008 international meltdown; for instance, Carrefour (from France and few Dutch capital), ING, Shell and Micheline (Icollantas Colombia) and so; these firms have taken their capital out from Colombia since 2006. Moreover, in 2006 there were 307 Dutch big firms in Colombia, but in 2012 this number declined to 163.

Figure 3. Dutch FDI as Stock 1953-2012

(US$ million of chained 2012)

Source: De Lombarde. 1997. La Inversión Extranjera en Colombia; Central  Bank Colombia.

International trade between Netherlands and Colombia

Netherlands and Colombia have traded since XIX century, but it has been declined as a share of total Colombia trade since 1968. Colombia has exported raw goods to Netherlands since XIX century; for instance tobacco, indigo, gold, silver, crude oil, coal, iron, steel, fruits, flowers and coffee; nowadays, these products are the main ones still. On the other hand, Netherlands has been exported to Colombia finished products such as technology, pharmaceutical products, fertilizers, ships’ parts, medical technology and so. Although the trade balance has been in favor of Colombia since 1954, the trade index shows a decline as figure 4 shows.  Nonetheless, this index (exports plus imports between Netherlands and Colombia divided in total Colombia trade) increased since 2001, but most of goods exported are minerals. Therefore, although FDI from Netherlands showed a huge decline, the trade has increased in the last 8 years; it makes an economic compensation, but the products exported by Colombia are 80% crude oil, coal and ferronickel; 10% iron and steel. It means high dependence of non-renewable resources. 

Figure 4. Trade index Netherlands-Colombia 1951-2012

(%, trade indicator*)

Source: United Nations.

Economic cycle between Netherlands and Colombia

The Gross Domestic Product cycle between Netherlands and Colombia is Pro-Cyclical with a correlation coefficient of 0.3; it means that these two economies show similar cycles as figure 5 shows. However, this cycle is changing after 2008 crisis, so while colombian cycle goes upward, the Dutch goes downward or the other way around. This fact can be an advantage for Dutch investors to keep their long run capital in Colombia while Dutch economy change her tendency. They can make profits in Colombia and send them to Netherlands to improve their headquarters dynamic. It is expected that Dutch GDP cycle change her tendency through 2014, and reach a positive economic growth.

Figure 5. Netherlands and Colombia GDP cycle 

1977 - 2013

(quarterly data normalised)

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