Colombia has faced two waves of industrialization since her independence, the first one started in 1820 when foreigners brought technology to extract gold and silver, brought technology to build ships and produce beer, sugar and chemicals, it finished in 1905. The second one started in 1933 when urban population demanded finished products such snacks, clothes, refrigerators, paper and so, it can be taken as the golden period of Colombia industrialization, many foreign firms came to Colombia, it ended in 1976. After this year globalization points the path to follow, in this case is to work hard in economies of scale and variety of production, each country has to produce those goods that face economies of scale and the variety is the clue, engineering and marketing play an important role in market mechanism and society welfare. Developed economies and some developing economies are ready to take this challenge but others are not. Colombia is in the last group, her socioeconomic path since 1948 ignored globalization duties and benefits. Nowadays, Colombia faces her previous decisions with an old local industrial sector that does not have many goods to offer to the World. Moreover, policies to avoid globalization through deny Free Trade Agreements is to contribute to underdevelopment, instead an industrial agenda is required to bring economies of scale where wages are fair.
Author: Humberto Bernal,
Economist,
Twitter: Humberto_Bernal
1880-1900
Colombia showed her first steps in serial production after her independence. Most of industrial production through XIX was artisanal, for instance beer, hats and sandals. Nevertheless through foreign immigration Colombia started to develop this sector through iron production in the hardware stores called Pacho, La Pradera and other hardware stores locates in Cundinamarca and Antioquia mainly, they were managed by english and french engineers and supported by foreigners and locals. Production of chemicals such as sulfuric acid, hydrochloric acid, nitric acid and sulfate were made by foreigners from Spain and France, these chemicals were taken to extract gold and silver and massive production of batteries used by local government in communications. There were other sectors that faced important advances such as production of ships to surf Magdalena river, this company was managed by Bernardo Elbers a Germany guy; massive production of beer through Cervecería Alemana (nowadays Bavaria) and sugar production through La Manuelita, these firms were set up with foreign capital and managed by foreigners. However, most of these firms became bankrupt due to internal war conflicts, difficult access to inland due to colombian geography, spread of tropical diseases, poor financial (banking) sector and low demand due to low income and low population, Colombia counted with 2.3 million of people in 1851 and 3.8 million in 1900, most of them were farmers. Industrial Gross Domestic Product (GDP) shared with 15.0% at the end of XIX century, her 20 years annual average growth rate was 1.3% and there were 3 big foreign firms in Colombia as figure 1, 2 and 3 show.
Figure 1. Industrial GDP Colombia 1900-2012
(%, as a share of total GDP Colombia)
Source: Oxford Latin American Economic History Data and Bureau of Statistics DANE.
1901-1930
During internal war 1899-1902, Colombia faced bloody scenarios in most of the country but mainly in Santander and Costa Atlántica regions, industrial sector faced a deep decline in textile production, nevertheless in some places such as Valle the sugar factory La Manuelita opened a big factory. The separation of Panama from Colombia in 1903 was a big hit that brought a xenophobia environment that decreased foreign immigration. Since the beginning of XX century Colombia traced her economic tendency for primary products such a coffee production, banana production, sugar production and minerals extraction. The coffee started to take place in Colombia economy and international prices hit colombian economy in 1920 along the WWI, industrial sector was on second place, most of finished products were imported and few were made in Colombia such as some type of textiles, matchsticks, tiling, glass and easy machines to produce sugar and coffee. Crude oil production was the business since 1916 and took attention of government, the main firm was Standard Oil New Jersey through Topical Oil company, at the end of 20’s Colombia exported crude oil to USA. It is right to point that WWI brought lack of imported goods, therefore local industry started to supply similar goods but as soon as it ended, then foreign goods were cheaper than local ones. Industrial GDP shared with 8.6% in total GDP in1930, her 20 years annual moving average growth rate was 1.2% in 1930 and there were 9 big foreign firms in Colombia.
1931-1950
The crash of 1929 hit international prices, income from coffee production and crude oil production, moreover Colombia faced high foreign debt that took through 20’s. These facts brought a Balance of Payments Crisis between 1930 to 1932 that were sorted with foreign transaction taxes and exchange rate regulations. Colombia was not absent of external debt default in this period. Industrial sector took these events to produce cheaper goods that were imported before, moreover the real estate investment was high during 20’s and let reducing internal transport cost and there were more urban population who demanded manufactured goods, Colombia counted with a population of 7.8 million in 1935. Period between 1931 and 1950 can be taken as the golden period of Colombia industrialization, for instance big firms in this sector were 28 in 1900 while 1,945 in 1946, foreign big firms were 3 in 1903 and 26 in 1946. Colombia citizens started to enjoy massive products made in Colombia such as snacks, soft drinks, drugs and she produced intermediary products such as tires and cars’s parts. However, there were a bloody event in 1948 that took Colombia economy few steps back, it was the murder of democratic politician Jorge Eliécer Gaitan, this unfortunately event brought the beginning of violence period in Colombia, foreign capital flew to source countries and local capital flew also to avoid confiscation. The Industrial GDP shared with 17.0% in total GDP and her 20 years annual moving average growth rate was 8.0% in 1950.
Figure 2. Industrial GDP growth in Colombia 1900-2012
(% annual moving average 20 years)
Source: Oxford Latin American Economic History Data and Bureau of Statistics DANE.
1951-1970
After 1948 there were many economic policies in short time due to Balance of Payments crisis at beginning of 50’s, for instance many types of exchange rate according to economic sector, a new foreign capital regulation where financial sector, media sector were strongly regulated and foreign capital was supervised in order to be mixed capital (it was an obligatory nationalization, not all capital but a share of 45% as minimum), most of these decisions were consigned in Law 444 of 1967 and Andean Pact Decision 24 of 1970. Industrial sector was in the government agenda but against free market environment, up to 1967 Colombia followed Imports substitution agenda through high tariff for imported goods (this strong policy started in 1931) but after this year Colombia decided to complement this policy through promoting exports under obligatory volume for foreign firms and through buying government bonds to promote industrial sector, therefore there was hard times for foreign firms mainly for those from industrial sector. Industrial sector showed low growth and its share in Gross Domestic Product was the lowest in the region. The volume and international prices of crude oil and coffee made Balance of Payment crisis affordable at the end. Although there were hard restriction to invest in industrial sector, few foreign firms decided to invest in Colombia, most of them were pharmaceuticals, firms that made rubber and paper, nevertheless they played with cost, profits and international trade to avoid taxes. The Industrial GDP shared with 20.7% of total GDP in 1970, her 20 years annual moving average growth rate was 6.5% in 1970 and there were 62 big foreign firms in Colombia in this year.
1971-1990
This period can be called the birth of new internal war conflict in Colombia. By 1970 Colombia started to produce high volume of cocaine, guerrilla pushed down government through terrorism in whole Colombia and along restrictive foreign investment, then the industrial sector started to decline as a share of GDP. In 1985 guerrilla took over the Place of Justice in Bogotá downtown. Smuggling was other headache for government, this activity contributed to erase the industrial agenda in Colombia, commodities came to Colombia through Atlantic Cost ports as smuggling, big foreign firms in industrial sector passed from 64 in 1971 to 116 in 1990. Moreover, the new mining exploitation took place in Colombia, in this case were coal and ferronickel that along with crude oil and coffee production pushed economy to the second Dutch Disease (the first one was in 20’s due to crude oil, coffee production and external debt). The last events that blocked the development of industrial sector through this period were the small financial sector evidenced with low coverture and high homicide rate around whole Colombia. The Industrial GDP shared with 19.9% in 1990 and her 20 years annual moving average growth rate was 5.0% in 1990.
1991-2012
In 1991 Colombia changed her economic model, from closed model to open economic model, the foreign investment restrictions were suppressed and it was easier import finished goods such as sneakers, lollipops, cars, clothes and so, these products were cheaper than before. Financial sector and media sector started to be attractive to foreign multinationals, nevertheless Colombia was not competitive in local manufactured commodities, there were few such as basic plastics, some types of textiles and shoes. Colombia exported basic products mainly such as banana, crude oil, coal, ferronickel and flowers. Production of coffee started to decline due to the end of international quotas in 1989 that benefited to Colombia and the low productivity that Colombia faces compared with Vietnam, Brazil and nowadays Peru. To afford these imported commodities, the basic exports played an important role but the result was a negative trade balance that meant an increase of foreign debt. This period was the worst scenario in Colombia: the homicide rate reached 77 per 100 thousand of inhabitants in 1992, the troops in guerrilla were 22,000 men in 2002, the cocaine production achieved 695 tonns in 2001 and Colombia was close to be classed as fail democratic state. Industrial sector in Colombia showed an agglomeration in “safer” places such as Bogotá, Barranquilla, Medellín, Bucaramanga, Cucuta and Cali. After support from USA that started in 1996 to fight agains terrorisms and cocaine cartels, Colombia could recover her path in 2005 when FDI increased, tourism came back and big multinationals took place again in Colombia such as SabMiller in 2005. Nevertheless, all these past facts blocked the industrial development in Colombia, therefore she was not ready to face the new economic openness that started in 2005 with Free Trade Agreements with Chile, Mexico, The United States, Canada and Europe. Moreover a main economic partner Venezuela changed her economic model where Colombia faced a closed economy to export the few competitive manufactured goods. Since 2003 Colombia faced the third Dutch Disease due to crude oil, coal and ferronickel prices, production and royalties mismanaged. The Industrial GDP shared with 11.9% of total GDP in Colombia in 2012, her 20 years annual moving average growth rate was 2.0% and there were 349 big foreign firms in Colombia in this year.
Figure 3. Foreign big firms in industrial sector Colombia 1886-2012
(Number of firms)
Source: Own calculations from official data and published papers.
1900-2010 and international perspective
The colombian industrial GDP as a share of her total GDP is located at the button in the list of countries in the region as figure 4 shows. There have been a deindustrialization since 70’s, most of countries in the region have faced a decline in their industrial sector, it can be attached to the new agenda of globalization were countries produce those goods that face lower costs and economies of scale, therefore this decline can be taken as a period of adjustment in this sector, one tends to think that there are industrial products in Latin America that face this technology such as basic plastics, pharmaceutical, some kinds of textiles and shoes, moreover these is the period of set down the variety production where engineering and marketing play an important role in market mechanism and social welfare.
Figure 4. Industrial GDP Latin America countries 1900-2010
(%, as a share of total GDP, smoothed series)
Source: Oxford Latin American Economic History Data.
