Economy

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42% earn less than minimum wage

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Nearly half of Colombia`s work force earn less than the minimum wage, according to figures released by the Labour Ministry last December.

8.8 million Colombians, many of whom work informally or in “rebusque”, live on salaries below 300 US dollars a month. Surprisingly, as little as 6 per cent of the work force is paid the legal low.

Meanwhile, pension firms have revealed the “vast majority of Colombians” (according to Semana magazine) earn just 1-2 times the minimum; or between 300 and 600 dollars a month.

Every new year, the government enters into negotiations with leading businessmen and unions to fix the rate at which the minimum wage will increase.

President Santos this week heralded an “historic” 4.5% rise for 2014.

Those on the left and the right criticised the announcement, however. Former President, Alvaro Uribe – on the right – argued for 6% while Clara Lopez – on the left – said the increase amounted to less than 50 cents or 1,000 pesos a day, “not enough to buy a bag of milk”.

Of course some argue the minimum wage as an idea is counter-productive, while others would like to see a truly historic rise or a “living wage” as has been proposed in other nations.

But the question we have is that if just 6 per cent earn the minimum wage, isn`t focusing debate on a rise here a distraction?

Shouldn`t the government be directing efforts and policies on making it attractive for workers to leave “informality”?

Shouldn`t the government be looking to resolve the structural imbalances in the economy?

Perhaps it`s unfair to say they aren`t.

Santos’ administration has certainly reformed the tax codes and looked – or at least has said has looked – to diversify the nation`s output.

The problem is, as with much of the work of the current government, the rhetoric appears to outpace the reality.  GDP growth is still healthy – pretty good, actually – and foreign investment continues year on year to break records.

Good news!

But this macro-level activity tells just one side of the story. Long term, the government must focus on how it can make Colombians wealthier, to earn more and ultimately spend more.

When I had lunch with left-wing firebrand Jorge Robledo last year he told me that Colombia was a “pre-capitalist” country. His argument was that industry and business doesn`t function because corruption and “la rosca” (nepotism) distorts an immature, “pre-modern” market, as he called it.

Now I think Robledo exagerates, of course. But almost any economist will tell you that for a nation to develop it needs to build a strong middle class with real purchasing power.  Colombia has a middle class, and she is progressing better than many of her regional neighbours.

However, she clearly has a long way to go if nearly half the work force earns less than 600,000 pesos.

Category: Comment, Economy
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Colombia`s infrastructure; one of Latin America`s worst

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Colombia’s infrastructure is one of the worst in Latin America, according to the World Economic Forum.

Of the top twelve economies in the region, Colombia has the tenth poorest provision of vital infrastructure; this, despite the promise by President Juan Manuel Santos to make the issue a priority of his administration.

In Santos`first year in office he created the National Infrastructure Agency (ANI) to push through the works identified as catalysts for economic growth.

Last week the president defended his track-record:

“In three years we have invested 22 billion peso ($11.7 million) in infrastructure development. That shows the magnitude of the efforts that we have made,” insisted Santos.

Despite slow progress, the ANI last Wednesday received nine bids as part of the “Fourth Generation” (4G) investment programme.

4G promises much. It is Colombia’s largest ever public investment project, designed to “improve connectivity between the principle centres of production and exportation to make Colombia a more competitive country and overcome the historical drag in transport infrastructure”.

According to the ANI, the project will provide an estimated investment of 44 billion peso ($23.2 million) under a public – private partnership scheme:

“With this initiative, the length of roads throughout the country is expected to nearly double, from 6,000 km to 11,000 km in the next six years.”

Undoubtedly good news if these promises are delivered. Few disagree that the current lack of infrastructure in Colombia is a major threat to the country’s economic competitiveness, domestically as well as internationally.

Colombia needs better roads, railroads, ports and airports. Cities are poorly connected to both internal and external markets, largely because of the extreme topography of the country.

Cutting transport costs is crucial to the country’s manufacturers, especially the coffee farmers, who continue to struggle from significant production costs. Crucially, it is key to overcoming the isolation at the root of the country’s socio-economic inequalities.

According to financial analyst James McKeigue, the 4G investment project should boost the country’s GDP by 1% per year, with a further 0.5% coming from a multiplier effect. The planned works will create approximately 200,000 direct jobs across Colombia, with a further 250,000 indirect ones. Importantly, many of these will be created in the remote areas where jobs are most needed.

But infrastructure improvements will bring security improvements as well as economic benefits.

The Colombian government has never been able successfully to control all of her territory. The majority of the population lives in the country’s largest three cities, Bogota, Medellin and Cali.

Outside of these major areas, a combination of jungles and mountain plains remain largely uninhabited, with limited infrastructure, resulting in a weak state presence in and around surrounding regions.

The resulting economic inequality throughout rural Colombia is severe, in part explaining the conditions which helped spawn criminal organisations known as BACRIM, and guerrilla groups, such as the FARC and ELN.

These groups fight for control of lucrative resources such as oil, gold, marijuana and coca.

Without significant infrastructure development throughout the regions where the conflict rages, the government cannot begin to solve the underlying problems of inequality and lack of development.

Indeed, any peace accord with FARC guerrillas would be vulnerable as illegal armed groups will seek to fill the vacuum left by the rebels in areas lacking state presence.

Photo, Colombia Noticias

Category: Economy, News Review
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UN: ´Colombia`s urban rich poor gap worsening´

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Colombia`s cities are Latin America`s most unequal, according the United Nations.

The UN claim Medellin is the city with the largest gap between the rich and poor, and that despite government claims to the contrary, the situation is worsening.

A report on urban equality in Latin America whose results were revealed yesterday, shows that inequality in Colombia`s urban centres grew by 15% between 1990 and 2010.  Worse still, inequality is growing faster in Colombia than in any other of the 18 Latin American countries studied by the UN.

To preview the report`s official launch, in an interview with the newspaper El Espectador, the report`s director Eduardo Lopez Moreno claimed, “Colombia is the only Latin American country where inequality is growing in all of its cities”.

Consecutive Colombian governments have heralded record economic expansion over the past decade, pointing to annual GDP growth figures north of 4 per cent. But Lopez Moreno claims this has been “in no way pro-poor”.

Lopez appears to propose Colombia change its economic model; something Colombia Politics has long argued for both in the TV studios and on this website.

Lopez claims Colombia`s economy is run by “monopolies”, “oligarchs” whose hands so tightly grip the levers of business that the poor (and let`s be honest, the middle class too) are kept out of the game. According to Lopez, Colombia`s  “markets work under the logic of hoarding or restricting (money and opportunities)”. In Medellin, he says, “the oligarchy continues to control the economy in the region, preventing wealth from reaching the poor.”

The comments seem to echo conclusions reached by Havard Professor, James Robinson in this year`s publication, “Another Hundred Years of Solitude” :

“Rich people in Colombia mostly make their money from monopolies in protected sectors that are created and shielded by the government”

Colombia Politics view

Robinson, like Lopez see Colombia`s economy as dysfunctional – almost pre-capitalist, even mercantile.

In this context any fight against poverty will fail. Colombia desperately needs to encourage the growth of more small and medium-sized businesses, to de-regulate and to establish a proper monopolies commission.

In private conversations accountants, politicians and small business owners have all told me that things are getting worse under the Santos administration. At the end of last year, the government introduced a new finance bill which reformed the tax code. All terribly boring stuff, but the key for many is that far from making things easier for the little guy – as we believe he should – Santos is rewarding the multi-nationals with cuts, at the expense of independent and start-ups on whom a greater tax burden has fallen.

Anecdotal perhaps, but it is an issue that unites many on the right with many on the left.  Over lunch with the high-profile left-winger, Senator Jorge Robledo, I asked the campaigning firebrand whether he thought the anti-market measures used by socialist governments across the Americas would work in Colombia. He laughed and said that if he were in power the first thing he would do would be to move Colombia towards capitalism. His argument is that there is no competition in the market, that it is run by “combos” (code for mafia). The monopolies and oligarchical figures that rule the roost mean Colombia must be seen as a “pre-modern” and “pre-capitalist” society, he asserts.

Robinson, you feel, would agree:

“The richest men in Colombia have monopolized different sectors—Carlos Ardila Lülle, soft drinks and sugar; Luis Carlos Sarmiento,banking and financial services; Julio Mario Santo Domingo, beer.”

There are many succesful businessmen and women in Colombia, there are plenty of start-ups and entrepreneurs. The time has come however, for real reform, real competition and real capitalism.

Under the current rules, “the poorest 10 per cent of Colombians pay 8 per cent of their income in taxes, the richest 10 per cent pay just 3 percent” (Robinson).

Step forward a pro-business pro-change presidential candidate.

Picture, The Guardian.

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Colombia, Panama kick start free trade era

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Colombia signed a free trade agreement with Panama on Friday. The agreement was signed in Panama City by Colombia’s Minister of Trade, Industry and Tourism Sergio Diaz Granados and Panama’s Minister of Trade and Industry Ricardo Quijano. Negotiations for the free trade agreement began in 2009.

Diaz Granados called the agreement, “the most important milestone in the history of relations” between the two countries. Quijano added that the agreement would “open the doors to trade and legal security”.

The agreement brings Panama one step closer to joining the Pacific Alliance, an important Latin American trading bloc comprising Chile, Colombia, Mexico and Peru. The conditions of membership of the Pacific Alliance require each new member to maintain bilateral free trade agreements with existing member states. Panama now only lacks a free trade agreement with Mexico.

Before it takes effect the agreement will need to be ratified by the Colombian congress. This will occur in the coming weeks, according to Diaz Granados. The agreement represents a significant step in the Santos government’s program of trade liberalisation, which includes the free trade agreement signed between the United States and Colombia in May of this year. “Colombia continues to deepen its presence in international markets through commercial agreements that will bring possibilities for growth and the generation of employment”, added Diaz Granados.

Colombia and Panama presently trade 2.8 billion US dollars of goods and services annually.  The agreement is sure to increase this amount.

Colombia Politics view

Following the national farmers´ strike in August, Colombians appear to be turning off Free Trade Agreements. Erroneously many lay the blame for the crisis in Colombia´s agriculture sector squarely at the feet of the new free trade pacts with the US and Europe. Although the crisis in the campo runs a lot deeper, Colombian society has developed a critical eye against the policies which Santos at the beginning of his premiership heralded as a panacea for record-breaking economic growth.  Santos has unsurprisingly been a little more reticent about the new agreement with Panama.

Colombia Politics is a champion of the principle of free trade. The devil is always in the detail, however, and most accept that Santos – and Uribe – Governments dropped the ball in their negotiation of the deal with the US. Free trade is fine, but Colombia must negotiate on her terms.

Category: Economy, News Review
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Colombia OECD, a place at the top table awaits

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Colombia has begun accession talks on entering the prestigious Organisation for Economic Co-operation and Development (OECD), it was announced Thursday. Ministers from each of the 34 member states agreed to invite Colombia to begin negotiations during the annual meeting of the organisation in Paris.

It means that Colombia is set to join the elite club of 34 of the most economically developed liberal democracies in the world, including the United States, Germany and the United Kingdom. Colombia will be the third country from Latin America after Mexico and Chile to join the organisation which was originally set up in 1961.

President Santos was in jubilant mood speaking after the announcement:

“It means that we will increasingly improve the quality of our public policies, and now they’re going to measure ourselves with the highest standards. It means that it will further increase the confidence of investors in our country, which translates into more jobs, more competitiveness, and better living conditions for all Colombians.”

He proclaimed: “Only the best are invited, and Colombia, fortunately, is one of them”.

Current members of the OECD spoke out in favour of the decision, including Spain which expressed its “full support” for the decision, and the United Kingdom which claimed that Colombia had the “dedication” and “political will” to succeed as a member.

The Secretary-General of the OECD, Angel Gurría said that Colombia “will make a valuable contribution to enrich our collective experience and strengthen OECD as a source of effective and innovative public policies.”

Colombia Politics view

President Santos set membership of the OECD as a central aim of his presidency as soon as he entered the Casa de Nariño. This is an evident success for the government. With this move Colombia continues to move away from her neighbours who appear to continue to follow a path towards economic illiberalism and authoritarianism.

Will this mean anything for the “man on the street”? Probably not, at least in the short term. Nevertheless, government policy is already been set with the OECD´s “rules” in mind. The tax reform law which came into effect early this year is widely recognised as a major nod to the OECD´s positions on treasury revenue rasing methods, and job creation.

Category: Economy, News Review
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Santos urges Pacific Alliance to “think big”

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Colombian President Santos has outlined a bold vision for the future of the Pacific Alliance claiming it “is much more than a free trade agreement” and that it is “set to be the most important integration process in Latin American history”.

Santos was speaking ahead of the bloc’s key summit in Cali which formally began today and sees Colombia assume the rotating presidency.

Security is tight in the city with a reinforced military presence drafted in to protect the esteemed delegations from the three other member states of the Pacific Alliance, Chile Mexico and Peru, as well as those from a number of other observer states including Spain, Canada and Costa Rica.

In his speech, Santos was keen to emphasise the values he believe underpin the Alliance:

“Wshare a faith in democracy, we share our belief in the separation of powers, in human rights, fundamental freedoms, and believe in the benefits of free trade, foreign investment and generating employment and stability”

In addition to this he pointed out the credentials of the bloc, with the four countries together constituting the eighth largest economy of the world and over one third of the GDP of Latin America.

As Colombia Politics has reported before, the early success that this organisation has enjoyed is largely down to the similarities in political orientation of the four countries involved. The accomplishments in securing the removal of tariff barriers and restrictions in the movement of citizens between the nations are only the first stage.

An important challenge that the bloc will face in the coming years is to fulfil one of the objectives set out when the group was formed – to forge greater links with – and increase their influence over – the economically vibrant Asia-Pacific region.

Speaking to Colombia newspaper El Espectador Javier Diaz , the CEO of Analdex, Colombia’s National Association of Foreign Trade,  was enthusiastic about the Alliance:

“Colombia needs it. It is important to integrate with Asia Pacific, accelerate this process and make a bloc with those who already have alliances with them, such as Mexico, Peru, and Chile, partners in the Alliance.”

However not all are embracing the bloc with such fervour. Colombia’s textiles industry could lose out should Colombia open up links to Asia Pacific which currently dominates the clothes manufacturing industry.

Speaking also to El Espectador, Carlos Eduardo Botero of textiles company Inexmoda posed the difficult question:

“How much are we gaining from all these treaties being signed with the rest of the world? In 2012 we had a negative trade balance in textiles is the first time in history“

A quandary indeed, but it seems as though the train as already left the station and the opening up of trade in the bloc is unlikely to be reversed any time soon. The success of integration is something to keep any eye out for.

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Santos announces stimulus package

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In what might be judged as a cynical vote-winning exercise, President Santos unveiled his PIPE – Promotion Plan for Productivity and Employment – on Monday.

The PIPE is an economic stimulus package which he hopes will help revitalise some of the ailing areas of Colombia’s economy. In particular, Santos hopes it will breathe some life into Colombia’s industrial sector which is failing to keep pace with overall growth patterns. The President attributed the difficulties this area of the economy, which includes oil refining, acrylic, paper and cement production, down to the strength of the Colombian peso, and the break this has on exports. The agricultural sector too was marked as stuttering.

Santos´PIPE package is also a pitch to the middle classes, with the government proposing a subsidy on the interest on mortgages for houses costing between US$43500 and USS108000 (similar to that seen in the UK Government´s budget a few weeks ago). The government believes this will benefit around 35,000 initially, as well as boosting the housing market.

The measures reflect a growing concern in the Santos administration that in spite of the relatively healthy GDP growth figures in recent years, the Colombian economy is still underachieving – and that the trends in certain sectors are towards downward revisions. Perhaps more salient though is the fact that the coming year will see a hotly contested presidential election.

These measures are difficult to separate from the short term electoral interests of the government. Particularly so given the areas at which the stimulus package is aimed – crucial groups of voters.

Supporting the industrial and agricultural sectors as well as assisting people to buy their own homes will give the Santos campaign some concrete successes that it can pitch to voters in the coming year when the question will be “what have you done for Colombia during your four years as President?”

The campaign is well and truly under way.

Category: Economy, News Review
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Colombia´s outlook positive despite January trade deficit

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For the first time in three years Colombia’s balance of trade figures for January saw a deficit with export figures of US$4.948 billion outweighing imports of US$4.735 billion, according to Colombia’s national statistics agency DANE.

For an export-led economy such as Colombia’s such figures could be cause for concern. However, looking at the overall numbers for the past 12 months, a healthier picture emerges with Colombia’s exports remaining strong.

Indeed, a balance of trade surplus in 2012 of US$5 billion and exports of $60 billion – a figure almost double that of three years ago – demonstrate continued growth of Colombia’s export industries. Traditional export industries that have contributed to this growth include petroleum, which rose $3.2bn in 2012, and ferronickel, up US$58m in 2012.

Perhaps unsurprisingly in light of the recent strikes, Colombia’s coffee industry saw a decline in 2012 against a background of plummeting global prices in the commodity in recent times.  Disconcertingly though, figures from DANE released recently showed that in spite its status as the fourth largest coffee producer in the world, 80% of the coffee consumed in Colombia is in fact imported – mostly from Ecuador and Peru.

As such, the decline in exports is unlikely to be offset by the domestic market, heaping more misery onto coffee farmers who already find it virtually impossible to make a decent living growing the product.

The coffee industry aside though, should the trends seen in 2012 continue this year then Colombia can look forward to another year of healthy economic growth.

Category: Economy, News Review