The Paradox That is Colombia
By Dr. Roger Morefield —-
Welcome to the “New Colombia” (Read this post in Spanish)
Based on its per-capita Gross National Income (GNI), Colombia meets the World Bank criteria for classification as an upper middle income country. But it still has many of the earmarks of a low-income developing country, including its high poverty rate (33%), high infant mortality (17 deaths per 1000 live births), and lower life expectancy (75 years) than other upper middle income countries. Colombia’s under-5 mortality rate is 4.8 times greater than Western Europe and 2.4 times greater than the US. The capital city, Bogota, contains one-fifth of Colombia’s population, which is typical of the “urban giantism” of low-income countries. Colombia’s income inequality is acute, with the lowest decile of households receiving 0.8% of household incomes, while the highest decile receives 45%. This results in a Gini coefficient of 56, the tenth highest in the world. The paradox is that while Colombia’s per-capita GDP and GNI place it in the World Bank’s upper-middle income country category, its poverty, income inequality, infant mortality rate, under-5 mortality rate, and other socioeconomic indicators look very much like those of a low-income country. How can Colombia address its disproportionate poverty levels and income inequality as it strives to rise from upper-middle income to high-income status?
STEREOTYPES AND REALITY
Today many people when thinking of Colombia still think of drug lords, cocaine, and coffee. This is an outdated and very small picture of the reality of Colombia today. The cocaine trade in Colombia was 6.3% of GDP in 1987, but more recently has fallen to less than 1%. Factors in this decline include the drug interdiction policies and crackdown on guerilla activities of President Alvaro Uribe, who served from 2002-2010. In addition, higher commodity prices, especially for coffee, have given growers incentives to switch to the production of legal goods. But Colombia is lagging in agricultural productivity overall, as 17% of its labor force works in agriculture to produce about 7% of its GDP. The remainder of the labor force is employed in industry (21%) and services (62%). In the labor market, high non-wage costs imposed on employers have driven the majority of the labor force, about 55%, into the informal sector. Colombia is rich in minerals and metals, which include petroleum, natural gas, coal, iron ore, nickel, gold, copper, emeralds, and platinum. Although its arable land area is only about 1.8% of the total, the fertile soil produces coffee, bananas, cotton, sugarcane, palm oil, tobacco, potatoes, beans, grains, flowers, and temperate-zone fruit and vegetables. But Colombia’s most valuable resource is it human resources. Colombian workers have a very strong work ethic and cheerfully work long hours in the farms, factories, and retail businesses.
Coffee is only about 3% of the value of Colombia’s exports. This is much less than crude oil and petroleum products, which comprise 49% of exports. Coffee even trails gold at 5.4%, and is just ahead of cut flowers at 2%. As an exporter of mostly commodities, Colombia would benefit from a change in its export mix to more high-value services and manufactured goods.
Speaking of exports, Colombia has “exported” some interesting people to the United States. Pop singer Shakira and television star Sofia Vergara are natives of Barranquilla. The brand-new Music Director of the Houston Symphony, Andrés Orozco-Estrada, is a native of Medellin.
THE GOOD NEWS
The good news is that, after decades of oppression by guerilla warfare, drug cartels, kidnapping, violence, and murder, a new Colombia is emerging. Although the illegal drug problem is far from over, it is a fraction of its earlier levels. The murder rate in Colombia declined from 72/100,000 in 1995 to 31/100,000 in 2011, but needs to decline more to reach the high-income country typical rate of 10 or less. Real (inflation-adjusted) GDP per capita grew more than 61% from 1990 to 2013, and the International Monetary Fund forecasts that the GDP growth rate will remain at a robust, but sustainable 4.2% into 2015.
Colombia is currently enjoying a growing reputation as a center of high-tech startups. Medellin, Colombia’s second-largest city, was once known as a murder capital (380/100,000 in 1991) and headquarters of Pablo Escobar’s notorious drug cartel. It has recently been transformed into a city where fear has been replaced by entrepreneurialism. News organizations enthusiastically report on the “Medellin Miracle.” But other Colombian cities, most notably Bogotá, are seeing similar activity. The internet access enjoyed by 53% of Colombians (compared with the US at 84%) is providing opportunities for online sellers of good and services and providers of all types of web-based services to flourish. Colombians are eager to innovate, learn, work, and consume.
In its external sector, Colombia has worked hard to liberalize trade, having entered into a number of free trade agreements in the last two decades. Total foreign direct investment in Colombia grew from $2.53 billion in 2001 to $16.82 billion in 2013, an increase of 650%. Colombia’s exports grew from $12.3 billion in 2002 to $58.7 billion in 2013 (official exchange rate dollars). As mentioned earlier, Colombia needs to change its export mix to include more services and manufactured goods relative to the commodities it now mainly exports.
WHAT’S THE NEXT STEP?
The “New Colombia” is a place where national pride, combined with greater applications of technology and an eagerness to innovate and produce, is transforming the economy and the society. However, many obstacles remain. Income growth driven by economic growth needs to be more evenly distributed, rather than mostly benefitting the highest decile of income receivers. This is much easier said than done. Colombia’s infrastructure needs are almost overwhelming. Intercity highways are substandard, making the drive or bus trip between major cities an unsafe and uncomfortable ordeal. Colombia’s road density, in kilometers of road per square kilometer, is one-fifth that of the US. Its railway density, in kilometers of railroad per square kilometer, is one-thirtieth that of the US. Colombia needs to connect its 32 states (departmentos) with a highway system similar to the US Interstate Highway system. But given the mix of mountainous terrain, coastal plains, and tropical rainforest jungle that is Colombia, such a network of highways would be extremely expensive. As for airports, Colombia has about 40% as many airports per million population as the US, even though many small towns aren’t easily accessible except by small plane. Colombia should study the possibility of planning and building airport cities, called aerotropolises, near some of the cities in the poorest departmentos.
CONCLUSION
Does Colombia need any advice from this writer? Not really, since the Colombian officials I have observed in action and have personally met are highly-educated, articulate, and quite knowledgeable about what is needed. The best that can be said here is that the vast majority of the 46.3 million people in Colombia are God-fearing, law-abiding, hard-working people with strong family values. For their sake and the sake of their families and future, we hope that the Colombian economy stays on track with healthy economic growth, low unemployment, and price stability. Colombians are good people, and they deserve it.
Roger Morefield, Ph.D.
Associate Professor of Economics