Women prostitutes :between own decision and obligatory option, Colombia case

Colombia as many other countries deals with women prostitution. Prostitution is a women own decision but in some cases socioeconomic environment push them to work on it. This note deals this issue and highlight potential solution to reduce prostitution for those women who do not want to do it. For instance, an universal free health system and the right to get a pension ( at least take prostitutes inside health programs and pension system) are the basic rights. There are other socioeconomic variables to work on such as more opportunities to afford secondary school and high education; less families under poverty line; better income distribution; and low violence indicators through professional Police department. Colombia had 52,967 prostitutes in 1975 and 9,744 in 2010, it means a decline annual growth rate of 4.9%. However, prostitution decision increases as economic crisis appears, from economic view means a countercyclical relation between prostitution decision and economic growth, from society view means lack of government decisions and opportunities to get out them of poverty state, mainly for young prostitutes (older than 17).

Colombian Police Department does great job collecting data about this issue, hopefully they will go through prostitution census on 2011 and 2012 

Author: Humberto Bernal,  

Economist,

e-mail: zhumber@gmail.com

It can be download @ PDF

Prostitution comes since 18th century B.C, this activity born before other economic issues such as unemployment, income distribution and economic growth, then the question is why do prostitutes do it?. My hypothesis is these adult women (older that 17) work in this profession because there are not other opportunities available for them such as be lawyers, bankers, economists, chefs and so. Afford these studies carry spending on transport, food, rent and in most of cases the payment for education service. In addition, some of these women (not all) enjoy her job and the payment is high (in Colombia this payment goes from US$15 to US$1,000). This note deals with prostitution in Colombia, the data come from colombian Police Journal Review Criminality and from colombian Bureau of Statistics (DANE), the data was picked up from tolerance zones in Colombia.

Prostitution is legal in Colombia but regulated, it means there are special places where prostitutes can work, these places are called tolerance zones. Figure 1 shows the number of prostitutes in Colombia since 1965, one can take this data as prostitutes that say they work on it, it can be women who work in the “balck marke” (those who prefer not say their profession, they are mostly escorts). The number of prostitutes showed a negative trend, from 52,967 women who worked in 1976, nowadays there are 9,744 approximately, it means a decreasing annual rate of 4.9% between 1976 and 2010. 

Figure 1. Prostitution in Colombia 1965 2010

(number of women)

Source: Colombian Police Data. (Criminalidad Review. 2008. Vol 50, Issue I, and following Volumes).

This negative trend can be explained by better secondary education coverture, higher income per capita payed in other professions, better country security and government programs to get out families from poverty state, nevertheless these economic indicators are poor still to give real opportunities for those young women who want to leave this activity. Table 1 shows the effect from socioeconomic variables on woman decision to follow prostitution activity (Place of birth of prostitutes). One can summarize this table as more coverture in secondary education (1.0% better), then prostitution decision shows a reduction about 3.46%; as more people (families) are in poverty (1.0% more), there is an increase of prostitution decision about 2.29%; as Gross Domestic Product per capita (taken out oil and mining production) increases (1.0% more), then prostitution decision declines about 0.32%, this last result is low due to income distribution in colombia is high (about GINI=0.54), it means there is a big slice of GDP taken by few wealthily rich people. 

Table 1. Why prostitutes do it?, economist view

(panel data by regions in Colombia 2008-2010)

	Place of birth	Place of work
Secondary education	-3,46%	-0,80%
Poverty line	2,29%	1,66%
GDP no oil (PPP) per capita	-0,32%	0,54%
Homicide rate	-0,86%
GINI		0,94%
Hausman test	P-value = 0,002 Model: Fixed effects	P-value = 0,058 Model: Random effects

 Source: Colombian Police Data. (Criminalidad Review. 2008. Vol 50, Issue I, and following Volumes). 

Own calculations STATA 12.1.

Where do prostitutes do it?. Prostitutes work where there is poor education, bad income distribution and good payment. Table 1 shows the main socioeconomic variable that prostitutes take into account to decide the place to work (Place of work). They go where secondary education coverture is low, for instance if a place shows an increase about 1.0% in secondary education coverture, prostitution activity shows a reduction about 0.80% (the other way around is true also, when secondary education decreases); if place shows an increase in poverty line in 1.0%, the prostitution activity arises in 1.66%; moreover if GDP per capita increases, prostitution activity increases about 0.54%, this result is due to high concentration in income distribution; finally if income distribution worse, prostitutes activity increases about 0.94%. The main places where prostitutes work in Colombia are showed in figure 2. One can see that main region are Risaralda with 19.2% of total prostitutes in Colombia in 2010, Valle (14.8%), Antioquia (10.1%), Caldas (7.1%) and Bogotá (7.0%), these regions show high GINI coefficients, high poverty, high violence and poor education.

Figure 2. Prostitution according to place of work 2010

(regions in Colombia, total prostitutes: 9,744)

Source: Colombian Police Data. (Criminalidad Review. 2008. Vol 50, Issue I, and following Volumes).

Prostitution cycle and economic activity (GDP cycle)

Prostitution can be taken as economic leader indicator. As it was pointed, prostitution showed a declined trend since 1976 and young women decide to take this activity when income is difficult to get, therefore there are periods when prostitution decision activity (women who decided work on it) increases and periods when it decreases. Figure 3 shows the prostitution cycle (blue line) and GDP cycle (red line), one can say that these series are countercyclical (correlation coefficient is -0.26), it mean as economy is in crisis (meltdown scenario), then women under “poor condition” decide to take prostitution as an option to life on (increases prostitution cases). These correlation is valid in Colombia, for instance 1982, 1999, 2009 economic crisis brought more prostitutes. Therefore under poor secondary education, high poverty line indicator and high income distribution coefficient GINI, then Colombia will had women who take prostitution as obligatory option to life on.

Figure 3. Prostitution cycle and GDP cycle Colombia 1971-2010

 (annual data)

Source: Colombian Police Data. (Criminalidad Review. 2008. Vol 50, Issue I, and following Volumes). 
Own calculations STATA 12.1. Though Hodrick-Prescot filter.

Banana Republic part III: free housings and manufacture sector negative growth in Colombia, calling the sad ending of Dutch Disease

Colombia is passing through her second Dutch Disease, the first one was in 1960-1980, the second one started in 2003 and it will come to the end in 2021, the happy or sad ending depends on government decisions taken today. Nowadays, these decisions are in doubt to get the happy ending, government is spending without economic productivity criteria until point to give free housings to lower income people, economic subsides for coffee growers and signing FTAs without real economic cost and benefits analysis, these actions can be called populism without economic criteria. These type of decisions are given the sad results, Colombia showed an illusory GDP growth of 4.0% where the main sectors that contributed to these growth were crude oil and mining sector; financial sector; and nontradable goods. Unfortunately manufacture sector (tradable goods sector) contributed in a negative figure of 0.1%.  If things goes same, we can say Colombia is still in the group of Banana Republics.

Author: Humberto Bernal,  

Economist,

e-mail: zhumber@gmail.com

It can be download @ PDF

The end of Colombian high economic growth is close to the end. The last year (2012) Colombia had a high economic growth, her Gross Domestic Product (GDP) showed a growth of 4.0%. The news and government broadcasted and celebrated this achievement. Of course, for many citizens this economic growth is enough to say Colombia is through the right path. However, the fact is the other way around, when one checks the main components of GDP growth, one realized that this economic growth is an illusion from crude oil and coal production. This illusion can be called Dutch Disease, Colombia showed a negative growth in manufacture sector, a positive growth in mining sector (including crude oil), positive growth in real estate sector and other nontradable goods as figure 1 shows. Then, those sectors that work hart to export will have hard times due to cheaper products imported through Free trade Agreements (FTAs) and US dollar cheaper. 

Figure 1. Colombia GDP growth by sector 2012

(%)

Source: Bureau of Statistics (DANE).

What does Colombia expect from this Dutch Disease?. The Colombia’s GDP cycle is starting her downturn path as figure 2 shows (red dashed line), then Colombia can have a lower growth at the end of 2013, it can be around 3.5% and 3.8%. Nowadays colombians do not have to worry about economic crisis, there are lot of resources from crude oil and mining sector to spend, government is doing her job through spending on real estate sector until point to give free housings for population in lowest income line. Therefore, there is income to spent as in a huge party where hosts do not pay attention to the hangover. After eight years (2021), when crude oil comes to the end, Colombia society will be really sick, the tradable goods sector will be lagging, Colombia will face a huge current account deficit and the external debt will take the few reserves that Colombia has.

Figure 2. Colombia GDP cycle 1977-2013

(quarterly data )

Source: Bureau of Statistics (DANE). Own calculations. STATA.

How can Colombia avoid this economic meltdown?. Colombia government has to spent crude oil and mining resources in a cleaver way. The spending that lets go out from this crisis is in real estate that improve productivity for those tradable goods; making easier the purchase of new technology for tradable goods sector  (not free), for intense making agreements with high technology agencies from abroad and local ones to teach local factories how to improve their productivity; and spending that improves employees productivity such as public transport such as railways and Metros.

Unfortunately Colombia is not importing capital to improve her productivity, Colombia imports just 13.3% of high quality capital, the other products are cheap raw inputs and final consumption goods such as TVs, laptops and so. Figure 3 shows the main merchandise that Colombia imported in 2012 as one can see, the volume of capital goods to improve productivity were few, 13.9% of total imports (merchandise only).

Figure 3. Colombia imports 2012

(% of total imports, just merchandise)

Source: ONU Data.

Tertiary education as opportunity to reach a better society

Tertiary education is the education that comes after high school, for instance university education and technological education. This type of education is important to make society aware of the importance of productivity and remember us the importance of the human being. Country which highlight for high tertiary education are South Korea, The United States and Finland with a School Enrollment Tertiary Indicator no less that 90%. Unfortunately Colombia shows a low indicator, this indicator is 39.1% that means that 39.1% of people are enrolled in tertiary education (this indicator takes into account people who must be at tertiary education, they are between 16 and 30 years old). In economic terms, more people with tertiary education let reaching more variety of manufactured merchandise to local consumption and to export.

Autor: Humberto Bernal,

Economista,

e-mail: zhumber@gmail.com

It can be download @ PDF

Tertiary education (higher education such as university degree and technological degrees) must be a public good, it means it has to be affordable by everybody, easy access and no discrimination (either through lack of money or malfunction system, for instance discrimination). Countries which have been done the proper job in education are South Korea, the United States, Finland, Slovenia and new Zealand with a School Enrollment Tertiary Indicator above of 80.0% (it means 80% of people who must be at tertiary school, they are). Figure 1 shows this indicator for many countries, if country is brown dark, it means the country has a proper tertiary education coverture, as one realizes those countries in Africa show the lowest level of coverture; and Wester Europe and North America have the highest coverture. 

Figure 1. School enrollment, tertiary

(% gross, latest value since 2005 to 2012)

Source: World Bank DATA and WolframAlpha map.

Unfortunately Colombia does not show a high tertiary education coverture, this indicator is 39.1% (the yellow color in the map). Colombia has 5,746,848 of active people who has reached a tertiary degree in 2011 (people who finished the tertiary education) as figure 2 shows, the average annual growth rate is 3.74% between 2000 and 2012 and they share in 23.4% of people older than 24 years old in 2011. (Colombia has  24.5 million of people older than 24 years old in 2011 and a total population of 45 million in 2011). To improve this indicator, tertiary education coverture has to be spread through whole Colombia, regions where School Enrollment Tertiary Indicator is  low are Chocó with a indicator of 5.3%; Vaupés with 5.7%, Amazonas with 7.3% and Putumayo with 9.2%. Goverment and private sector have to improve this indicator through better tertiary schools, high quality teaching and professors who look for real development instead to reprobate students as measure of teachers’ knowledge. 

Figure 2. People who have tertiary education in Colombia 2001-2011

(million of people)

Source: Government Bureau of Statistics (Dane and Department of Education).

Benefits from getting high School Enrollment Tertiary Indicator are people who values the life (it is not a secret that Colombia is one most violent countries around the World with a 35.9 homicides per 100 thousand of people) and through better education Colombia will export more variety of manufactured products as figure 3 shows, this figure is the relation between School Enrollment Tertiary Indicator and manufactured exports for 87 countries in 2010, this relation is positive as the straight line shows, therefore tertiary education let getting a better society and productive country that can be competitive in this global economy. Colombian society hopes SENA (government education institution) and other public and private education institutions can improve this indicator nearly to 70% in the next two years through income tax called CREE and crude oil and mining royalties.

Figure 3. Manufacture Exports and  School Enrollment Tertiary 2010

(87 countries)

Source: World Bank Data.

The myopic grade from international rating agencies

Fitch is an international debt rating agency that improved Colombia’s grade from BBB to BBB+, it means that Colombia government has a good credit quality for her long run external debt. However, this agency as many others some times are myopic as it was evidenced in 2008 global crisis, in this case it appears that Fitch did not pay attention to main indicators to evaluate the Colombian external long run debt, for instance the exponential external long run debt growth and the lack of international reserves to meet the total public external debt and Colombian imports, in the first case the ratio public external debt and international reserves was 1.02 in 2011 and the second case the ratio total imports (goods and services) and international reserves was 2.50 in 2011, therefore Colombia doest not have enough reserves to meet her duties if an economic shock happens, for instance  a crude oil and mining labor force strike (both commodities share in about 60% of total exports). Moreover the colombian Current Account faced a deficit in 2011 in about US$9,955 million, Current Account deficits has been permanent in Colombia since 2001 and before. 

Author: Humberto Bernal,  

Economist,

e-mail: zhumber@gmail.com

It can be download @ PDF

The last 6th of March the international rating agency Fitch improved the public long run debt for Colombia, this grade came from BBB to BBB+ (good credit quality), therefore Colombia is a place below of A- (high credit quality). This improvement is the result of illusion from Colombia GDP growth, one has to pay attention to GDP as flow and external debt as stock: while the flow goes, the stock stays. There are things that can be improved to  deserve this grade. Figure 1 shows the colombian real external debt from 1923 to 2011, as one can see Colombia increased her external debt in an exponential way mainly in the last 4 years, therefore Colombia has not taken the Col$ appreciation to reduce her long run external debt as must be, of course central government through a clever movement took a long term credit abroad at lower rate and they used it to pay old external credit that faced high interest rates, this movement took place at the beginning of 2013. Therefore, the first thing is reduce external debt.

Figure 1. Colombian external debt 1923-2011

(US$ million of  2005 prices through USA GDP deflator index)

Source: Colombian Central Bank and  Bureau of Economic Analysis USA.

The Colombian external debt reached US$32,934 millions in 2011 that means 9.1% of GDP, this percentage showed a declining trend in the last 10 years, it reached 25.3% in 2002. If one takes into account the local and external debt, both of them share about 40.0% of GDP. The issue is when GDP shows low growth rate as in 2012, then local and abroad debt will share in a higher value in the GDP due to external debt and local debt grow exponentially. Therefore, government has to take into account the real growth instead of external debt as a share of GDP to broadcast that the external debt shows a decline.

Moreover, the external debt is higher than external reserves as figure 2 shows (green line above 1), of course there were periods when external debt were lower than external reserves but in the last 14 years the case is the other, Colombia had US$32,934 million as external debt in 2011 and her reserves were US$32,303 million in 2011. Colombian government has to increase their reserves to deserve this grade.

Figure 2. Colombian external debt as a share of international reserves1923-2011

Source: Colombian Central Bank.

Fortunately there are other international rating agencies that keep Colombia’s grade as table 1 shows. To improve these grades Colombia has to promote exports through high value added products to reduce the risk from crude oil and mining sector revenues, moreover she has to reduce the nominal value of external debt.

Table 1. Foreign colombian long run debt grade from global rating agencies

2013

Institution	Sovereign foreign debt mark	Date of grade
Standard and Poor’s (S&P)	BBB- (Investment grade)	Last revision 16th of March of 2012
Moody’s	Baa3 (Investment grade and moderate risk. Prime 2-Prime 3)	Last revision 31th May of 2011
Fitch	BBB+ (Good credit quality)	Last revision 6th of March of 2013

Sources: S&P, Moody’s and Fitch webpages.

Colombia Central Bank and her bluffing strategy

Monetary authorities start to broadcast randomly information about monetary supply increasing in the next days, they say that there is room to increase monetary supply but this information was broadcast without any support about the way and channels to do it. Through economic indicator called cycles one can point that this call can be taken as a bluff. First monetary supply depends on society liquidity preference coefficient and reserve bank coefficient, therefore Central Bank does not have total control on them, moreover the monetary supply cycle starts her downturn path, then it will difficult to reach a “real” monetary supply expansion. In addition, Central Bank and Superintendencia Financiera (government financial control institution) appear to work with ideal data, they do not care about financial coverture and fair income distribution due to difference between lending and borrowing rates is huge, about 8.6%, what sad work of these public institutions.

Author: Humberto Bernal,  

Economist,

e-mail: zhumber@gmail.com

It can be download @ PDF

Colombian Central Bank’s targets are to keep inflation rate low according to well economic development (Colombia Constitution Art. 371). The first target was reached successfully, inflation rate reached 2.44% at the end of 2012, however the second target is in doubt, Colombia faces an unemployment rate of 12.1% and unfair income distribution as many weekly notes have pointed. The unemployment rate is a structural problem, Colombia has a long run unemployment rate of 10.0%, it appears that Central Bank does not do her duties properly, the point is colombian Central Bank should look for well economic development and she does not. Moreover, monetary authorities broadcasted a local monetary expansion as must be but it appears that monetary authority forgot the coordination with private financial sector to make this monetary expansion works. This note points the problems due to lack of coordination between Central Bank and Private Financial sector. 

Colombia has 68 financial institutions where 11 are public, all of them have many branches around Colombia and abroad. This financial institutions make easier profits through difference between lending and borrowing rates, this difference is about 8.6% that means a net profits of US$3.7 billions in 2012 (it takes into account private and public banks just, it does not take into account financial corporations and second floor public banks). Through this information it appears that private financial system in Colombia is taking by fools monetary authority and colombian society, they charge high interest rates while Central Bank reduces her lending rate, nowadays it is 3.75% while private banks charge a minimum rate of 12.35% for those preferential clients and 31.22% for those that face low income without reference letters. 

Now one can be tempted to think that Colombia Central Bank is working with ideal data, they do not take real information about interest rates in Colombia and society financial’s needs. To calm down the serious situation they broadcast that they will increase the money supply but they do not care about saving preference cycle, money supply cycle and private banks intermediation. In the first case Colombians are in the cycle path where they start to save money as figure 1 shows, when the cycle goes up, then colombians save more money, this path started in 2012, then it put in doubt the effectiveness of monetary supply expansion.

Figure 1. Liquidity preference cycle in Colombia 1994-2012

(monthly data)

                                                                            Source: Colombian Central Bank.

The second fact is the monetary supply expansion threat, from the point of view of serious monetary policy, this expansion is not credible, as one can view on figure 2 (red line), the monetary supply cycle is going to start the downturn path, then how can one believe the monetary authority’s broadcasts?, they can be bluffing just, what sad in this case, they take colombians as fools. 

Figure 2. Money supply cycle in Colombia 1994-2012

(monthly data)

                                                                          Source: Colombian Central Bank.

The last issue is the passive reaction from Central Bank and Superintendencia Financiara (government control financial office) about difference between lending rate and borrowing rate, this gap is unfair to reach a real income distribution, from my point of view this gap must be regulated as maximum value of 3%. Figure 3 shows the gap from these two interest rates, to highlight the authorities’ indifference about the rates difference since 1995.

Private and Central Bank lending rate in Colombia 1994-2013

(%, monthly data)

                                                                    Source: Colombian Central Bank.

Colombia Free Trade Agreements cost: the short run case

Colombia signed many Free Trade Agreements (FTAs) in the last years, for instance the FTAs with Mexico, Chile, Canada and The United States. Local government broadcast the potential benefits from these FTAs as the economic theory pointed, the government speech is Colombia will increase her exports in those products that show competitive advantage such as textiles, fruits, meat  and other low added value goods. But public authorities do not broadcast the FTAs costs. As everybody knows, when a country faces FTAs, she has to be ready for employees migration from those low productive economic sectors  to those high productive sectors that can be competitive in this global economy. This transition will take time and its cost can be measured in people under unemployment state. Through econometric model called Vector Autoregression (VAR) one can forecast the cost of FTAs in about 4,000 unemployed in the next 4 years that means a total unemployment of 2.3 million in the next 4 years. To make this transition soft, Colombia can invest in no tradable goods such as infrastructure and public transport such as underground for main cities while manufacture sector fix their cost through investing in technology to be competitive in this global economy.

Author: Humberto Bernal,  

Economist

e-mail: zhumber@gmail.com

It can be download PDF @ click

Colombia has signed many Free Trade Agreements (FTA) in the last years, some of them are with European Free Trade Associations (EFTA) enforced in 2011, North Triangle Countries enforced 2009-2010, Canada enforced in 2011, Chile enforced in 2009, Mexico enforced in 1995 to 2006 and The United States enforced in 2012. The colombian exports' value to these countries was US$27.1 million in 2011 that meant 48.7% of total exports, moreover exports to The United Estates was US$21.9 million that meant 38.5% of colombian exports. Colombian imports from these countries reached US$29.5 million in 2011 that meant 54% of total colombian imports, therefore Colombia showed a trade deficit with her main trade partners in 2011.

Main goods exported, imported and imports cycle

As it was pointed above, Colombia imported more than she exported in 2011 from her main trade partners. Through the FTAs Colombia will export crude oil, coal, minerals, coffee, plastics (mainly polymers), flowers, sugar and fruits (mainly bananas), these goods show a competitive advantage due to low local cost of production, high volume of mineral resources and geographical location, moreover the value of these products reached 83.8% of total colombian exports in 2011 where crude oil, coal and other minerals shared with 71.2% of total colombian exports. On the other hand, Colombia will import through FTAs computers, cars, machines, mineral processed, aircrafts, plastics and organic chemicals, these goods shared with 55.2% of total colombian imports in 2011. As one can see Colombia exports low added value goods while she imports high valued goods. 

Figure 1 shows the colombian imports cycle and the main dates according to economic crisis, as one can see Colombia increases her imports after economic crisis and these imports showed a higher pick as time pass. The main conclusion is Colombia does not take crisis time to improve her industrial sector as it has to be, the point is business men and entrepreneurs have to invest in new technology while economic crisis is and they have to take advantage of the learned process while economic boom is. 

Figure 1. Colombia imports cycle 1977-2012

(quarterly data)

Source: Government Bureau of Statistics. (DANE and DNP) .

FTAs and short run unemployment

Colombia faces a chronic (long run) unemployment issue as figure 2 shows, the blue line is the unemployment rate and the red line is its trend, as one can see Colombia has faced an unemployment rate between 6.9% and 20.5% since 1977 (quarterly data), therefore there is an economic policy issue to sort out through infrastructure investment and social programs investment such as education, health and better technology for basic services as water, thought these  investments the chronic unemployment rate can be face a decline.

Figure 2. Colombia unemployment rate and its trend 1977-2012

( % quarterly data)

Source: Government Bureau of Statistics. (DANE and DNP).

Now, if one pays attention to short run unemployment rate issue, it means unemployment rate reached by economic crisis and economic openness (FTAs), one realizes that colombian unemployment rate will increases in the next 4 years due to economic openness in about 0.07% and 0.18%, it means the economic openness will bring a cost between 1,500 and 4,000 people in unemployment state as figure 3 shows, the total unemployed (long run plus short run unemployed) will be around 2.3 million of people in the next 4 years. After this 4 years colombian unemployment rate will come back to her long run trend that is between 7.8% and 10.0%.

Figure 3. Response on unemployment rate cycle due to imports’ shock*

(% quarterly data, 50 periods forward)

*Impulse: Imports cycle. Response: Unemployment rate cycle. 

Shaded area: maximum and minimum response value under 95%  confidence level.
VAR model with Unemployment rate cycle; PIB cycle; and imports cycle as endogenous and exogenous variables. Six lags are taken in the model.
Source: Stata 12.1 own calculations.

The conclusions are Colombia produces primary goods and imports high added value goods, moreover this country shows a trade deficit with her main trade partners and the FTAs signed in the last years will cost about 4,000 people in unemployment state. To mitigate this cost, high investments in infrastructure sector that promotes trade can be done.

Economists as bartenders: the famous colombian cocktail and its hangover

It is not usual that economists mix up cocktails, it is a great job for bartenders, however there is an attempt to make it. The ingredients are cocaine, coal, crude oil, a sprinkle of government defense spending and the final secret touch called banana. The mix of all them since 1971 gave as a result an exotic tropical drink that was enjoyed and well tasted by few greedy people but a hangover for Colombian society of GINI index of 0.548; corruption place on 94; unemployment rate of 9.6%; population in poverty state of 34.1% of total population and homicide rate of 36 per thousand of inhabitants. To avoid the hard hangover, private sector and government have to work on legalizing production and consumption of cocain under well thinking scheme of monopoly;  high taxes (royalties and taxes on profits for primary economic sectors) and strong justice sector for those who abuse of Human Rights.

Author: Humberto Bernal,  

Economist

e-mail: zhumber@gmail.com

It can be download @ PDF

This note deals with the main products that take Colombia towards conflictive society, it means an income distribution measure through GINI coefficient of 0.548 in 2011; a corruption place on 94 out of 174 in 2012 where the most corrupted is Somalia on 174 place; unemployment rate of 9.6% in 2012; population in poverty reached 34.1% of total population in 2011 (Colombia has 48 million of people); 61.9% of total population asked for subsides through social program called SISBEN in 2011; and a homicide rate of 36 per thousand of inhabitants in 2011. The following products can be mixed as a cocktail and the final result is the above social indicators with a bitter flavor and painful hangover.

Cocaine production

Colombia is one of main producers of cocaine around the World, the others are Peru and Bolivia mainly. Colombia went form 2 tonnes of production in 1971 to 695 tonnes in 2001 and 345 in 2011 as figure 1 shows, it means an annual average growth of 15.3% per year. This cocaine production used to share 1.7% of Gross Domestic Product (GDP) in Colombia in 2000 and nowadays it shares 0.4% of colombian GDP. Cocaine value chain is around Colombia: production is mainly in 4 regions out of 33 in Colombia: Cauca, Nariño, Valle and Chocó but the consumption has been spreading in deep around whole Colombia since 1995, therefore cocaine production is a profitable business either local and abroad (cocaine can be taken as monopoly market with price discrimination according to city, for instance in Colombia is cheaper than in Europe or USA). 

Figure 1. Cocaine production in Colombia 1971-2011

 (annual metric tonnes)

Source: Castillo, F. 1987; Pizarro, E. 2004; Henderson,J. 2012; United Nations. Coca survey issues from 2003 to 2011.

The attractiveness of cocaine in this cocktail is the power to take out colombians producers from poverty state in few years. However, there is a hangover due to drink it, the consumption is dangerous for health till point to pass away. Therefore, there is an economic-medical problem that must be sorted through education, monopoly production through government supervision, legal doses according to medical research and legal distribution through boots and nigh clubs. 

Coal and crude oil production 

Colombia has 7 years of crude oil reserves (the rate of extraction was about 900 thousand of barrels per day in 2011-12); 14 years of natural gas reserves; and 79 years of coal reserves (the extraction was  86 million tonnes in 2011 as figure 2 shows). Crude oil and coal are exported mainly through foreign firms such as Pacific Rubiales, OXY, Petrtobras, Drumond, Cerro Matoso (bnpbilliton) and the local one Ecopetrol. The crude oil, gas and coal’s value added is about 9.0% of GDP in Colombia. The big issue is most of their profits are repatriated and Colombia does not get the benefits from making final products made of crude oil or mining products. Moreover the government taking from this activities is low, in crude oil is about 40% of total income and firms profits is about 36% of total income, the expected share is 15% as a profits and 61% as government taking.

Figure 2. Coal production in Colombia 1971-2011

 (annual thousand of tonnes)

Source: Bureau of Statistics (UPME, DNP and Mine department).

The attractiveness of mining sector in this cocktail is the power to take out economic resources without fair distribution, moreover a sprinkle of local government corruption let getting high unfair income distribution, high poverty and high unemployment. 

Government defense spending

Colombia spends high resources in defense, most of them are taking to fight against the guerrilla called FARC and cocaine cartels in the pacific region. The amount of economic resources can be counted in 3.6% of GDP in 2011, one can see on figure 3 the increasing trend in defense spending as a share of Colombia GDP, moreover the defense administrative spending was not counted in this percentage, if one takes into account this spending, the total defense spending doubles the value, it meant about 6.5% of GDP in 2011.

Figure 3. Defense government spending in Colombia 1971-2011*

 (% GDP)

Source: Bureau of Statistics (DANE, DNP and Finance department).

The attractiveness of defense spending in this cocktail is the power to kill colombians with poor education and young. Colombia reached 36 homicides per thousands of people in 2011. 

The secret touch, Banana production

Colombia was the second exporter of bananas around the World after Ecuador in 2011. The volume exported was 229 thousand of tonnes in 1971 and 1.9 million of tonnes in 2011 as figure 4 shows, it means an annual average growth rate of 4.7% between 1971 and 2011. Banana production in Colombia can be taken as enclave economy due to firms who grow bananas used to pay low salaries; make their own law till point they abuse Human Rights (for instance in years 1928 and 2004); taxes to government and the added value to economy are low. One waits that this sector invest in technology to develop other activities in Colombia, for instance development in  energy sector, public transport such as underground and aircrafts and so.

Figure 4. Banana exported by Colombia 1971-2011

 (thousand of tonnes)

Source: Bureau of Statistics (Agronet), FAO and UN.

The attractiveness of banana sector in this cocktail is the power to abuse of Human Rights and unfair income distribution. 

Then, there is the economic cocktail made of cocaine, coal, crude oil, defense spending and the secret touch called banana that Colombian enjoy every day without government attention on its hangover.