Produced by the Organisation for Economic Co-operation and Development (OECD) in collaboration with various United Nations organizations, the report provides recommendations on how Colombia can advance its economy in line with its National Development Plan 2018 - 2022.
“In the last decade, the country underwent a major transformation underpinned by the pacification process, which ended half a century of conflict. This has boosted investor confidence while the country has been looking to re-brand itself as a nation open to business and innovation.”
The report was released this week at an event in Bogota hosted by the country’s National Planning Department (DNP).
Colombia is the fourth biggest economy in Latin America after Brazil, Mexico and Argentina and the third most populous country in the region with a population of 45.5 million.
According to the OECD, it is “a growing and relatively stable economy” with an annual average growth rate of 4.3% between 200 and 2017 - almost double the growth rate for the whole LATAM region, which sat at around 2.6% over the same period.
The OECD puts much of this growth down to capital investment and the expansion of the labor supply.
Between 2000 and 2017, per capita Gross Domestic Product (GDP) increased by 50% from US$9,400 to US$14,900.
The middle class now accounts for almost one-third of the population although poverty remains a major problem. Despite having nearly halved in the past decade, Colombia has a poverty rate of around 28% compared to 20% in Peru and Chile’s 12%.
Despite these achievements, Colombia’s economy still suffers from structural weaknesses that are hampering future advances, the report notes.
Its economy is increasingly reliant on natural resources - primary production and mining accounted for 80% of exports In 2017, a 10% rise on 1991 - and despite a relatively long tradition of manufacturing, the sector is becoming “less relevant and less competitive”.
A major barrier to growth is lack of investment – Colombia’s R&D expenditure as a percentage of GDP sits at around 0.25% which is well below Brazil’s 1.2%, writes the OECD. However, the government is making efforts to address this.
It set up iNNpulsa in 2012, a government agency that supports start-up development and business innovation while last month, it passed a law transforming Colciencias, the Colombian Institute for Science and Technology into the Ministry of Science, Technology, and Innovation.
OECD said this was an important step in kick-starting innovation in the country but warned its success would be dependent on adequate collaboration between the new Ministry and the Ministry of Industry and Commerce, and it having “a proper budget”.
The government said the Ministry of Science, Technology, and Innovation will have a budget of COP$356 billion - around US$113 million - a 13.56% on 2018.
This year the government reformed the country’s tax code to boost business growth, allowing, for instance, agri-food entrepreneurs to enjoy a 10-year exemption from income tax if they meet certain requirements.
Ignacio Gaitán, president of iNNpulsa Colombia said: "It is time for Colombians, with their talent, creativity, and capacity to innovate, to become protagonists in a new future, one where the country grows economically in an equal way. For this reason, we welcome the new tax framework, which is the result of the national government’s commitment to entrepreneurs.”
The food industry is one of the sectors that boasts a growing number of ‘multilatinas’ – Latin American companies that have outgrown their home markets and become multinational.
In order to increase the competitiveness of the agri-food industry further, however, the country needs to both develop the value chain and better manage its natural resources, the report suggests.
Colombia exploits only 4% of its almost 45 million hectares of agricultural land, for instance, while Chile uses 8% of its almost 16,000 hectares, according to 2018 FAO data.
Agri-food success stories: Cenicafé and Cenicaña
Another barrier to growth is the existence of silos, with only 3% of firms in Colombia co-operating with academia and only 0.5% doing so with government and private research institutes.
The report points to two exceptions bucking this trend, however, both of which are agri-food players: Cenicafé and Cenicaña.
A privately-funded research institute that was created in 1938 by the National Federation of Colombian Coffee Growers (FNC), Cenicafé invests in research and technology that helps both small and large coffee producers.
Inspired by Cenicafé’s success, Colombia’s sugar cane industry established Cenicaña in 1977.
Both Cenicaña and Cenicafé conduct projects co-funded by public entities such as Colciencias (now the Ministry of Science, Technology, and Innovation).
“Reinforcing [such] public-private partnerships could unleash the potential for innovation in other sectors in Colombia,” write the OECD authors.
The report recommends that Colombia further capitalize on its large companies’ culture and propensity to innovate to fast track technology adaption and creation in the whole economy.
“Colombia is well positioned to move forward,” the report concludes. “The country can leverage both established and credible planning capacities and a set of well-established private sector institutions to help mobilize private sector investment for innovation and competitiveness.”