Bogotá — After several international bodies and local experts revised up their economic forecasts for Colombia for 2021, the country’s Treasury latched onto the optimism and has also changed its forecasts, projecting that the economy will not grow by 6% or 8.5% as previously predicted, but by 9.7%.
Such an expansion would mean “record growth in the last 100 years” in 2021, according to Colombia’s Treasury Minister José Manuel Restrepo, following Colombia’s sharpest economic decline in history in 2020 (of 6.8%), due to the Covid-19 pandemic.
And although better than expected economic growth is positive, and which could reach 10% this year, such historic growth does not represent an improvement in per capita GDP however.
This is made more clear by the fact that, between 2019 and 2021, Colombia’s economy grew by 2.24%, according to the Treasury, while population growth was 3.34%, according to data from the country’s statistics agency DANE, which means GDP per capita is now one percentage point below 2019 levels.
How can the population’s wellbeing be improved?
Given the latest forecasts for economic growth, Bloomberg Línea consulted a number of analysts to find out how economic growth can be further boosted, in line with expectations or above its potential, so that this translates into an improved standard of living for Colombians.
For Sergio Olarte, chief economist at Scotiabank Colpatria, there are various strategies that can be employed to achieve this, but the main one is significant investments in infrastructure and technology, above all with a much more specialized economy in mind, and with long-term sustainability.
And Olarte added that the economy must be opened up more to foreign trade, “in an attempt to take advantage of all the resources at hand to become an exporter of agri-industrial goods, taking into account that the country is on the equator, which gives it a strategic geographical position”.
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The formalization of employment is also key, Olarte says, because it will allow for a qualified and productive labor force, “and which produces a virtuous circle, because consolidating greater investment in infrastructure and in the aforementioned sectors reduces costs, generates more production, increases the demand for labor and, with greater employment, there is an increase in families’ revenues, who can then consume more, which drives demand for greater production, and that virtuous circle is created”.
According to María Fernanda Valdés, who holds a PhD in economics and is the coordinator of the Friedrich Ebert Stiftung Foundation in Colombia, the country needs to invest more in science, technology and innovation. “Theory tells us that technology changes and the capacity to permanently create new, dynamic activities are essential for growth”.
But investment in Colombia in these areas “is among the lowest in the OECD and Latin America, and there is therefore so much to do in this field”, Valdés says.
According to Treasury data, 413 billion pesos ($103.1 million) of the 2021 budget were allocated to this field, while the figure for 2022 has fallen to 331 billion.
Valdés says that in order for growth to be sustained and inclusive, Colombia needs to work not just on a policy of productive development, but also on a social and fiscal policy to reduce the country’s excessive levels of inequality.
For his part, Germán Machado, an economy professor at the University of the Andes and a former advisor to the Treasury, says the only way that per capita GDP can be increased is if economic growth outpaces population growth. “That is why it is so important to recover the country’s economic growth rate that, despite the good news of the recovery in 2021, will be much lower from 2022″.
Machado adds that the the government’s official figures indicate that potential economic growth will be close to just 3.2% annually, lower than during the previous decade, and way below what it was at the turn of the century, when it was calculated at 4.5% annually.
Machado says that in order to achieve more than 4% annual growth, the most important thing is to raise productivity. However, while that is achieved it is vital to take a series of additional measures, such as reducing the cost of starting a company in Colombia and which, according to the World bank, is four times the average cost of OCDE countries.
In addition to making changes to the tax structure, Machado says it is also key to facilitate access to working capital for micro businesses operating in the country, of which 95% are informal, and develop national infrastructure aimed directly at foreign trade.
And lastly, the recalled that “economic growth is a necessary condition, but not sufficient, to improve people’s wellbeing. Colombia has a profoundly unequal structure, in which earnings from greater GDP are not adequately distributed, and where 10% of the highest earners receive more than half of the country’s total earnings”.