Colombia’s Fragile and Obtuse Business Model

The Colombian trade balance has always been on permanent alert, with a tendency to register a negative balance and with the constant risk of dependence on practically a single product that sustains the country’s income, as has been the case for more than 20 years, we depend on oil, a resource that is being depleted and that in the near future will gradually been replaced  in the world by other “greener” and more sustainable sources.

According to DANE, between January and May 2021, the country received US$14,995 million dollars in exports, which shows an increase of 16.4% compared to 2020, but at the same time, a decrease of 12.8% compared to the same period of 2019. Of this total revenue, 45% comes from oil and extractive industries.

On the import side, during the same period, the country bought goods for a value of US$21,729 million dollars, maintaining the trade balance shortfall, likewise, it should be noted that what we buy the most are manufactured goods, which correspond to 76% of imports.

Thus, every time we review our trade balance it is as if we were looking at a photograph, that is, a static image that does not change over time, that is how our trade moves, always the same situation, buying more than we sell, with the same trading partners and sustaining a large part of our exports in a single product: oil, which is a good with low technological integration and the does not generate much added value.

This image also shows us a country with little diversification, with a productive sector incapable of competing in foreign markets, with governments that have not had the capacity to promote public policies to dynamize and encourage new sectors such as agribusiness where we could have significant competitive advantages.

This not very encouraging outlook is ratified by the trade balance, between what we buy and sell in manufactured goods, where we have a shortfall of 13,526 million dollars only for the period from January to May 2021. Thus, it is very difficult to think that the country can enter

into a path of development, employment generation, economic growth and social welfare extended to the majority of the country’s population.

The worst part of this scenario is that our leaders refuse to accept the reality of the serious dangers of continuing to depend on commodities such as oil, mining, energy and unprocessed agricultural products such as coffee and bananas. The obstinacy and desperation to maintain this same economic model is leading the current government to introduce the dangerous technique of fracking, which has devastating consequences for the environment, in order to find new deposits of oil or gas.

In the country, exports are made by a very small group of companies, according to Analdex, there are around 11,000 companies registered as exporters in Colombia, of which 9 account for 50% of exports, which shows that it is not an easy matter and that there is no support for those who wish to undertake this task.

According to the Export Access portal, the main obstacles to exporting are ignorance of export mechanics and regulations, excessive bureaucracy, tariff measures, non-tariff measures, ignorance of the market, transportation costs, miscalculation of the price of a product to be exported, ignorance of trade agreements and impatience, bearing in mind that exporting is a long road and takes a long time to see the results.

The Covid-19 pandemic has only highlighted the dangers and vulnerability of this model, for this reason and more than ever at the current juncture of the collapse of world trade, we need the inexhaustible capacity for creativity and work that we have. If we cannot compete and sell our manufacturing in international markets, we must then sell our services, our talent, we must attract foreign investment to the country, according to Procolombia, foreign sales of knowledge-based services grew 27% in 2020 compared to 2019.

Opportunities such as those mentioned by ANDI should be considered in the current processes of transformation of global value chains, where Colombia can play a very important role in the region, with the reshoring and nearshoring rearrangements that are taking place in various manufacturing sectors.

We insist on the potential to promote the development of agribusiness, the figures of the DANE Agricultural Census show that we have a sector that is too untapped: Colombia has 23 million arable areas of which only 7 million are used and of these, 52% are destined for self-consumption. With regard to technification, only 18.1% of the rural population has an irrigation system, 16.6% owns machinery and 10% has had technical assistance, while only 11.1% has had access to agricultural credit.

Likewise, we need to take advantage of the opportunities that can be generated with the FTAs, we have to stop seeing them as potential threats and start generating the necessary capabilities and tools to compete, because in order to take advantage of all these scenarios, we need governments that do not also look like old photographs, we need leaders who can promote public policies that give dynamism and diversification to our economy, that their actions are not petty and are limited to protect the traditional sectors that are the only ones favored by our weak and limited economic model.

Fernando Merchán Ramos Partner at López & James

Executive Director NGO Adelante Colombia August 09, 2021