Over the past, Colombia has been faced with violence and conflict largely occasioned by drug trafficking and guerrilla groups. The impact of this violence has spelt a negative growth in the economic prospects of the Latin American country. Regardless of the misgivings, however, Colombia has achieved incredible economic growth as is evidenced by the consistency and stability of the economy. This growth is however, not to say that the country has not faced its share of challenges. Rather, good management and leadership of the country especially since 2000 has led to the positive gains achieved. The fight against guerrilla groupings and the improvement of security is one of the leading factors to the positive economic growth witnessed in the recent years. In addition, a change in policy and the enactment of supportive legislations are attributed to the positive growth of the economy. Particularly, the National System for Competitiveness (NCC) that banks of the private sector to spur economic growth is important in this regard.
The country’s geographical location is an indirect contributor to the economic growth of the country. At a time when the country was faced with drug traffickers that threatened the legality of the administrations, it helped that Colombia had diverse ecosystems. The advantage of this is that tourism thrived at higher rates than in any other Latin American country. The topography of the land varies from plains, flat costal lands and high mountain ranges in Los Andes (Ramirez & Porter, 2013, pp 1). In addition, the country has a large share of the Amazon rainforest which is a rich source of biodiversity. In fact, Colombia is among the top five countries in the world in terms of biodiversity accounting for about 10% of the entire world’s biodiversity. This fact ensures that the country has a rich tourism both for leisure and for scientists who visit the country to study biological sciences.
The political structure of the country is also a contribution factor to the economic stability that the country enjoys to date. The country is the oldest democracy in Latin America and brags of a long term state of constitutionality. From the 17th Century, the country has witnessed the least of military dictatorships in the entire Latin American region. Before the new constitution of 1991, the country had two political parties that were in constant violence against each other. However, with the amendment of the constitution in 1991, smaller parties grew in stature thus weakening the two political parties. The new constitution further improved the three arms of the government and decentralized most of the power unlike in the past when most functions were centralized (Ramirez & Porter, 2013, pp 3). The effect of this decentralization was that more resources were expanded to the people through the sub national governments created by the new constitutional order.
Agriculture and the highlands in Colombia account for a large share of the economic development that the country enjoyed. From the nineteenth century, when Colombia began to export coffee and tobacco, there was an economic boom. The highlight of this boom was in the years from 1913 to 1929 when growth rates hit a high of 6% per annum. From the late 19th century to early 20th century, coffee exports shot from 5% to 75% of the total exports from Colombia (Ramirez & Porter, 2013, pp 4). The boom in the coffee exports had a ripple effect on the entire economy of the country. Immediately, there was development in the communication and transportation sectors as the need for the coffee to reach the destinations in time drove the development. In fact, due to the coffee export the country was insignificantly affected by the Great Depression as it recorded growth rates of 4 percent from 1929 to 1945. To spur the economic prospects further, the banana cluster began in the country in the early 20th century. This development saw large companies establish large plantations in the country’s northern and pacific regions.
The ability of the country to prosper during the times of “The Violence” is also commendable and led to the great economic prospects of the country. The period started in 1946 when violent protests were staged against the assassination of a liberal party leader who was very popular. The violence lasted for seven years and accounted for more than 180,000 deaths of Colombians. In fact, the violent protests only came to a halt when General Gustavo Rojas established a military regime through a coup d’état. However, the military regime only lasted four years and paved way for a coalition called the “National Front” in 1957. During the period of the coalition, the infrastructure between provinces improved thereby allowing for more competition between companies at the national level. The large accessible market provided by the Bogota, Cali and Medellin areas attracted establishment of more companies in the area. Rapid economic development was witnessed at the centre of the country with Bogota experiencing the biggest economic development.
The economic policy during the years of violence and eventual peace was anchored on the international Economic Commission for Latin America and the Caribbean. There was an emphasis on the emulation and replacement of foreign companies by domestic firms. The government provided much support towards this achievement in a bid to ensure that local goods could be traded in the international and local markets. The government enacted the requisite legislation by imposing high import tariffs as well as quantitative import restrictions to dissuade imports for goods that were produced locally (Ramirez & Porter, 2013, pp 7).
Two old guerilla movements, FARC (Revolutionary Armed Forces of Colombia) and ELN (National Liberation Army) together with M-19 emerged in this period. During this period, Colombia had joined the Andean Community (CAN) which was a trade block for countries in the Latin American sphere. However, the trade block achieved little success due to border and political conflicts amongst the member nations. Driven by this failure, Colombia changed its economic strategy to one that focused on export promotion through government subsidies and the management of the exchange rate. The success of this strategy was witnessed during the global recession of 1980s when many Latin American countries fell short of financing their foreign loans. In contrast, Colombia overachieved at that time and had a growth rate of 2.6% in these years. Eventually Colombia met its debt obligations thus guaranteeing itself from the hyperinflation characteristic of other Latin American countries at the time.
The government reforms spearheaded by President Barco in the late 1980s were a force in defeating the drug cartels that had slowed economic development. The reforms also decentralized government operations and called for the involvement of the community in public affairs. The municipal governments were charged with the responsibility of providing the basic services of water, roads, sewers, education, welfare and health. The election of mayors and governors that headed the municipal governments was by popular vote. This change in the political structure ensured more accountability to the people as opposed to the former years where the mayors and governors were appointed.
In 1991, the constitution was amended to include improvements in the judicial system, protection of civil rights and the decentralization of government. The central bank was also given its independence and its objective specified to be the maintenance of purchasing power for the local currency. Moreover, the president opened the country’s economy to foreign competition by dismantling restrictions to trade and the lowering of import tariffs from 43.7% to 11.7%. Monopolies and oligopolies, both private and public, were regulated by the government. In addition, the ports were opened to private investment thereby improving their efficiency. The result was an increase in the value of imports plus exports as a percentage of GDP from 24% to 33%. In addition, tariffs among the neighboring countries were reduced thereby easing business between the neighboring countries. Nevertheless, conflict still continued to affect the country leading to emergence of new paramilitary groups in remote parts of the country.
In the year 2007, Colombia’s growth rate reached a peak of 8.2% with total investment increasing to 27.8% of the GDP in the same year (Ramirez & Porter, 2013, pp 13). Moreover, its risk spread reduced to 107 basis points from 1066 basis points in 2002. The foreign direct investment increased by 7 billion dollars from 2002 to 2007. In the next year, the government produced the National Competitiveness Policy (NCP) which sets the goals of the country up to 2032. The policy stipulates the measure necessary in driving the country to middle income status by the year 2032. Despite criticism about the effectiveness of the policy, it provides a chance for the country’s economy to develop sustainably over the future years.
The policy’s emphasis on industry collaboration and product innovation is a sure way of upgrading the various sectors of the economy to world class sector. In addition, the policy is very ambitious in the education sector and relies on technological advancements to achieve sustainable development. The emphasis is put on training Colombians to respond to the dynamic needs of the private sector. The policy also provides for stronger technical education systems that can analyze the labor market more efficiently. The fourteen policy areas identified in the National Competitiveness Policy have a sustainability approach and are based on long term strategies for growth.
What are the most important challenges that Colombia has for the future?
The National Competitiveness Policy sets Colombia on an ambitious development path that leads to the prospect of attaining middle income status by 2032. The hope for better economic growth for the country is welcome and is in fact achievable. However, Colombia, just like other countries, needs to rise against challenges that are impediments to the growth and development of world economies. While some of these challenges are unique to Colombia, others are universal and continue to face countries all over the world. It is important that the government provides the requisite goodwill so that the dream of a more prosperous Colombia is achieved.
The incidence of crime and theft is one of the main challenges that Colombia faces in its bid to achieve more economic growth. Just like in the past, guerilla groups are still rife and they continue to exploit peasant farmers in the rural areas. The presence of these groups presents a big challenge in improving food and agricultural production across the country. In addition, the presence of drug cartels is a major impediment to the achievement of economic growth in the country. These cartels operate as parallel governments that continue to exploit the citizens. The country cannot embark on a journey of economic prosperity without first solving the drug crisis in the country.
Colombia has in the past been identified as a source and transit country of hard drugs. Although the state has improved over the recent past, there is a potential that the drug crisis may escalate to unmanageable levels in the future. Moreover, the youths who are most productive are the worst hit as they are rendered useless by the continuous use of the drugs. The problem of drugs is not an isolated case for Colombia but the country is among the worst hit. The government must initiate programs to rehabilitate the youth and educate them on the dangers of drug abuse. Further, the government needs to enforce strict legislation to deal with the drug barons.
Another challenge to the economic development of Colombia is the aspect of corruption both in the public and private sectors. There is an entrenched culture of stealing government finances among the public officials. Corruption is a major impediment to economic growth as it channels money meant for development projects into individual pockets. In addition, corruption may lead to low quality service delivery as ineffective companies are awarded contracts that should have been awarded to better performing companies. Although the levels of corruption in Colombia are relatively lower than in most Latin American countries, it is still high going by international standards. The country ranks 70th out of 180 countries in the Transparency International’s corruption perception index (Ramirez & Porter, 2013, pp 7). This ranking is despite government efforts to fight corruption in the preceding years.
The country may fail to achieve its goal of attaining middle income status due to high inflation and foreign debt. There is a direct relationship between not paying foreign debt and high inflation in a country. In 2009, Colombia had a foreign debt of 45 billion dollars accounting for 26% of its GDP. While this might seem like a low figure at face value, it poses risks of high inflation if not paid. For instance, the inflation in the years 2007 and 2008 averaged at 5.7% and 7.2% respectively. While the increase cannot directly be linked to the foreign debt at the time, there is cause to worry due to the ambitious plans that Colombia has in place. The heavy development that Colombia anticipates must be driven by foreign funding and this will thus increase the foreign debt of the country.
With the high levels of corruption in the country, it is likely that most of the money will not be channeled to development projects but will instead go into people’s pockets. The possibility of such occurrences is a cause of worry for the economic development of the country. Obviously, misappropriation of the foreign funding will result in a failure by the government to pay the loans in time thereby leading to higher inflation rates in the country. The impacts of a high inflation rate are largely felt by the common citizens that cannot cushion themselves against the increased cost of living. The result is compound as it may result to demands for higher pay thus crippling industries and other companies. Moreover, people may reduce their expenditure thereby reducing the sales by many companies and their eventual collapse.
The poor infrastructure in the country may be a challenge in the development of the country as it affects such vital processes of communication and transportation. Most of the road network in the country is either unpaved or single lane roads. The unavailability of an efficient transportation system may lead to poor connections to the main ports of entry thus affecting the country’s exports and imports. Moreover, the rail transport is underdeveloped due to negligence in favor of road transport. Poor infrastructural development is an impediment to a country’s growth. With the high investments expected in the agricultural sector, the government anticipates surplus prediction that will be offset through exportation. This may however not be possible if the transportation network is not improved. In its current form, the transportation network may imply delays in delivery of goods to the ports thereby affecting the exports and the ability of the country to trade internationally.
The low quality of the education system in Colombia presents another challenge in economic growth and development. In South Africa, about 8.6% of the population had no education and only 12.1% had higher education training. In Colombia, the government spent % of its GDP on education (Ramirez & Porter, 2013, pp 20), a relatively higher percentage compared to other Latin American countries. However, the quality of education was generally poor and only about 31% of the total students were absorbed into colleges. Despite having 190 universities, graduates were perceived as poorly trained for the economy. For a country that banks on technological advancements and product innovativeness in achieving growth in the economy, education is vitally important. Without high quality education, the government’s goal of being among the top three countries in Latin America is only practical in paper. There would be no technological advancements without high absorption rates into higher education classes. Moreover, the industries that Colombia banks on to achieve economic development require huge investments in higher education. The government must therefore invest on research and development if its goal of having the best products is to be achieved.
Another challenge is the growing population in Colombia. The country has a population of about 47 billion and is the second highest in the region after Brazil. Moreover, the country has an annual growth rate of 1.2%, also the second highest after Costa Rica’s 1.4%. High populations and population growth rates are a challenge to emerging populations because it means that the resources have to be distributed to many people. To worsen the situation further, of the all the people in Colombia, 74% live in urban areas thereby congesting the urban centers further. With the country’s population projected to growth further, it is expected that more people will move to the urban centers in search of employment opportunities. The challenge of feeding the high population is an impediment to the country’s economic development as it means there is less surplus in food production. In addition, the government allocates more money to cater for the population thereby reducing the money available for development projects in the country. The investment on healthcare and education is also affected as more money are channeled to these causes.
Unemployment and poverty also provide a big challenge to the prospects of Colombia’s economic development. In 2008, the unemployment rate in Colombia was at 11.2% of the total population. The poverty index was also high averaging at 17.7% and was only rivaled by Peru. These percentages are bound to increase in the next few years due to the increasing population and the low job creation rates in the country. The lack of education among the unemployed further compounds the situation as most of the people cannot be absorbed into the available job opportunities. Moreover, there is unequal economic distribution with gap between the rich and the poor increasing every coming year. These factors may slow down Colombia’s ambitious development trajectory. It remains to be seen if Colombia will overcome these challenges and achieve the goal of economic development.
RAMIREZ-VALLEJO, J., & PORTER, M. E. (2009). Colombia: organizing for competitiveness. Boston, MA, Harvard Business School.
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