Industrialization in Colombia: when was it lost, and how to recover it?

“There has been no industrial policy in Colombia for decades,” said President Gustavo Petro in early August, having just arrived at the Casa de Nariño in a meeting with industrialists.

Although there have been talks about the country’s deindustrialization for some time, the issue has been back on the table.

THE DEINDUSTRIALIZATION OF THE COUNTRY IN FIGURES

But why is it said that Colombia has deindustrialized? According to the Minister of Finance, José Antonio Ocampo, “Colombia has suffered a premature deindustrialization process, associated with a low investment in research and development”.

DANE figures, presented by the Ministry of Finance in August at an Anif event, indicate that in 1975 the manufacturing industry weighed 20.5% of GDP; in 1997, it dropped to 13.6%, had a slight rebound in 2007 with 16.2%, and in 2021 it reached 11.5%.

THE REASONS FOR THE INDUSTRIAL BLACKOUT

Although the deindustrialization of the country is something that needs to be worked on, this process has not only been experienced by Colombia but also by many other countries in the world, naturally produced by the increased participation of new services and sophistication of inputs, says César Pabón, director of macro analysis at Fedesarrollo, highlighting studies by Juan Esteban Carranza, of the Banco de la República.

“His figures show that the manufacturing industry is not so small and has not fallen as much in the country, as some believe,” comments Pabón, adding that “by including the entire manufacturing value chain in the measurement, Carranza finds that it represented around 40% of the country’s economic activity in 1990 and continued to represent more than 30% in 2015.

“Moreover, in absolute terms, since 1990, manufacturing activity only fell during the 2008 global crisis and the 2020″ pandemic.

For Mateo Hoyos, a Ph.D. candidate in economics at the University of Massachusetts Amherst, there is a factor common to developed and underdeveloped countries.

It is that “as the income level of countries grows (as has happened in Colombia), citizens demand more services, and therefore the tertiary sector expands more proportionally than the rest (and industry loses participation)”.

However, although it is clear that deindustrialization is not only a Colombian process, what is happening “in a country like the United States is not equivalent to that of a country like ours.

“In the first case, the country has already industrialized and developed, while neither one nor the other is here. That is why deindustrialization in countries like Colombia has been called premature”, Hoyos points out.

Despite the above, for César Pabón, “what is relevant is not to talk about a reindustrialization agenda but productive development.

“There is no consensus on the hypothesis of the deindustrialization of our economy, which, in addition to generating differences in the conclusions, may divert attention from what is important”.

From the point of view of María Fernanda Valdés, vice-minister of business development of the Ministry of Commerce and Industry, the loss of participation of the industrial sector concerning the country’s total GDP “has been accompanied by a loss of jobs in this sector compared to total employment”.

There are several reasons behind this deindustrialization, says Valdés.

“The first is, in fact, the lack of an effort to stop this process because it was never seen as a problem; there are even people in this country who still think that this is not a problem; another reason is undoubtedly the bet on an economic model that materialized with the opening of the 90s”.

On this point, Hoyos adds that “in countries like Colombia, the deindustrialization of the last 30 years coincides with the economic opening and with the application of free trade agreements, or more simply, the industry has withered prematurely due to greater competition from foreign production”.

On the other hand, the Vice Minister of Commerce also explains that “there are other more structural reasons that are associated with our dependence on natural resources, which causes the Dutch disease that makes our products uncompetitive at the international level in the face of high commodity prices”.

HOW TO REINDUSTRIALIZE COLOMBIA, AND WHY DOES IT MATTER?

“What is important is a productive development policy because it is undeniable that the stagnation in productivity during the last decades, added to a poor international insertion, have limited the production potential of goods and services of our economy,” highlights Pabón, from Fedesarrollo.

The think tank’s expert adds that “it is on this phenomenon that we should all concentrate, with a clear focus on improving the environment for business initiatives, boosting innovation and enhancing the country’s productive structure.

“That can include strengthening industry, but it can also be agriculture, services, renewable energies, among many other sectors that are globally sought after”.

Given the country’s deindustrialization, the Petro Government has been working “on some guidelines for a reindustrialization policy that will serve as input for the preparation of the National Development Plan”, said Vice Minister Valdés.

She adds, “this work is being prepared by a group of national and international consultants led by economist Katz. In a few weeks, we will be presenting these guidelines”.

“The characteristic that differentiates rich countries from poor countries, developed from underdeveloped countries, is that the former have industrialized and continue to do so, while the latter has not.

“The importance then is capital. The importance of industrializing is that the country can acquire the status of developed,” said Mateo Hoyos.

“Industry is not just another sector, but a mechanism for generating value. Industry, which should be defined as something bigger than the manufacturing industry, is important because it manages, among other things, to produce value and work,” complements Vice Minister Valdés.

According to César Pabón, “an active, productive development policy is essential for the country’s development, and is becoming even more important in the current situation”.

Finally, before becoming president in October 2021, Gustavo Petro tweeted that industrialization implies several conditions:

• Intelligent and gradual protection of imports.
• Development of the domestic market with agrarian reform.
• Democratization of credit, land, connectivity, and knowledge from the popular economy.
• Development of associativity and cooperativism.
• Reduction of costs by State action: financial, energy.
• Develop Latin American integration, starting by revitalizing the Andean and Caribbean Pact.
• Promote exports with the help of the State of the productive branches with added value.

Although there are already some ideas, it remains to be seen what will be the Government’s concrete proposal to advance the reindustrialization of Colombia, what goals they have, and how it would help the country’s growth and development.