Column by engineer Ramiro Rueda in collaboration with Proindustria.

The expression “industry” refers to the set of activities carried out to transform an input into a product. In all cases there is a physical process of modification of raw materials that incorporates added value to produce more wealth.

In turn, industry is synonymous with production for economists, who summarize it as the creation of any good or service that someone is willing to buy.

This definition excludes financial, banking, insurance and other businesses that do not involve the physical transformation of inputs. Instead, these businesses derive their income from the recirculation of existing capital flows. No matter how large their profits may be, there is not a single additional peso of new wealth creation.

| You may be interested in: Climate change: hottest week so far, earth’s temperature may rise even higher

As stated by Juan Esteban Jacobo, in his article El Capitalismo según Petro published in the magazine Cambio on July 3, 2022, the growth of these businesses can only be explained by an increase in income from non-productive activities, inflates national accounts and does little to improve the general economic well-being of the people.

Two phrases summarize this reality and point the way forward on this issue.

The first is from the economist Dr. María Fernanda Valdés, “Industry is not just another sector, but a mechanism for generating value, which should be defined as something larger than manufacturing industry, of great importance because it manages to produce value (wealth) and work”.

The second, that of his colleague Dr. Mateo Hoyos, “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 have not. The importance of industrialization is therefore paramount, so that the country can acquire the status of a developed”, sustainable and truly industrialized country.

The Context

• The level of development of any society is determined by its degree of industrialization, the technology it uses and the incorporation of most professions into production activities.

• Many studies show a high positive correlation between the capacity to create wealth and the level of industrialization of the society.

• Colombia is going through a difficult economic juncture, in the midst of the current uncertainty of the government of CHANGE and as a consequence of the increasingly reduced national demand, the subsequent continuous decrease in industrial production capacity with idle production capacity and the almost total absence of exportable supply other than mining and energy raw materials.

• For decades, the country concentrated all its efforts on obtaining foreign currency based on exports of goods from the mining and energy sector in order to acquire abroad all types of goods, including those that were previously produced locally, such as those of the basic food chain and all types of manufactured goods such as clothing, footwear and leather goods, among others.

Let us remember the minister who supported his economic development by affirming that the important thing was to have dollars to buy the cheapest production from the world, or the one who promoted the mining and energy locomotive as the basis for our development.

• In Colombia, the indiscriminate reduction and elimination of tariffs on imported products, even with countries without free trade agreements (FTA) and more favorable conditions for them, are part of the perfect formula to wipe out local production. The result was the exodus of multinational companies to other countries with better conditions and the closure of local companies that have no possibility to relocate, for example Mazda, Gillette, Hernando Trujillo, Coltejer, etc.

• The economic opening and the unfocused signing of FTA’s, which are limited to reducing and eliminating import tariffs, have led to the progressive deindustrialization of the country, handing over the domestic market in exchange for nothing.

• Foreign investment has the possibility of choosing the country that offers better conditions with respect to our rules and expenses on taxation, electricity costs, public services, transportation, raw materials, financial, physical security, legal stability, labor resources and regulations to produce.

| You may also be interested in: Workday reduction begins in Colombia: here’s how it works

The practical result of disregarding these observations was that many multinational companies abandoned their industrial activities in Colombia, retaining their commercial network in order to distribute their imported product locally without tariffs, recirculating money without adding value.

In the current circumstances in which Colombia is moving, it is impossible to expect a spontaneous industrial development as a consequence of a rearrangement of global markets through the simple signing of free trade agreements, always negotiated to the disadvantage of the country as it has been pretended.

It is therefore necessary, without delay and without delay, an explicit purpose accompanied by the political will to generate the conditions that promote this development.

It is here where the need arises to ask ourselves if we want to be a viable and sustainable country in the midst of an energy transition to move towards the country we all dream of, with education for all, reasonable public services, equal justice for all, decent and stable housing and jobs, with clean rivers and air, etc.

If so, then there is an urgent obligation to develop a national reindustrialization public policy for the promotion and development of the local manufacturing industry in the midst of the energy transformation, for which we consider it important to take into account the following considerations.

To take the firm and decisive decision to turn the country into a truly industrialized nation, correcting the mistakes of the past and laying the new foundations to develop and promote an industrial sector that generates development, knowledge and decent and stable employment, knowing that this is a process that requires guidance, resources and time.

The question arises then, what type of industries should be chosen to develop in Colombia? The answer, apparently contrary to what is proposed by the current government, is “all of them”.

For equity reasons, it is not convenient to support one sector at the expense of another, among other reasons because only time will tell if the selection was correct.

What can and should be encouraged is the creation of industries that promote the growth of others in the production chain (suppliers of components or service providers such as maintenance, etc.), developers of multiple value chains, those that through horizontal integration generate and develop other companies to which they transfer and demand technological improvements, design, quality, productivity and prices, factors that radiate to all sectors of the economy.

| You may also be interested in: Withholding tax 2023: What is it and how is it calculated?

It is necessary to invite foreign industries with this consideration, which should be required to contribute and transfer technology and knowledge along with quality employment, in order to reduce the current gap towards economic and social welfare with more equity.

It is, or was with well-negotiated FTAs, a matter of attracting these companies by offering them the local market and conditions equivalent or better than those offered by other countries, but with serious considerations of job creation, technology and knowledge in the long term and certain verifiable and auditable performance requirements such as a percentage of exports of goods or services, incorporation of a certain degree of national content, decent remuneration, local training, etc.

Some manufacturing sectors that can be mentioned as potential technology contributors are: petrochemicals, aeronautics, pharmaceuticals, hard technology, automotive, electronics, hardware and software, and clean technologies, with a view to manufacturing the machinery to support them.

On the other hand, local or mixed technology should be used to promote the development of the already existing and overburdened domestic industry, such as the textile, footwear, leather goods, metal-mechanic and household appliance chains.

Construction inputs have a broad universe of components and technology that can be improved collaterally with the promotion of industries that develop these sectors.

Recommendations for reindustrialization

1. Separate the Ministry of Industry, Commerce and Tourism and create a Ministry of Industry for the promotion and development of manufacturing, which is capable of acting as a business incubator.
2. Review and renegotiate FTAs.
3. Achieve the installation and permanence of companies that promote the development of others for at least 20 years.
4. Raise awareness of the high cost of the country to take it into account as the burden it is for exposure to competition with foreign companies.
5. Ensure the efficient and competitive supply of energy and public services.
6. Promote increased investment in Science, Technology, Innovation, Research and Development from government and business.
7. Give priority to high quality training in engineering and promote them among the study alternatives.
8. Strengthen the public procurement policy to support local production and establish requirements for minimum national content in production.
9. Stimulate industries that add value, and privilege the consumption of resources in local transformation, instead of using them for raw material exports.
10. Grant income tax benefits to companies in proportion to the value added and the qualified employment they generate with stability in LP.
11. Establish incentives and performance requirements for foreign investment in order to promote local content, employment generation and technology transfer.
12. Encourage and protect domestic production of machinery for manufacturing transformation.
13. Use tariffs as a State tool to temporarily protect and promote strategic production sectors.
14. Supervise and control the application of technical standards, control, surveillance and sanitary control of imported products.
15. Evaluate the results of trade agreements in terms of investments, tax, legal, intellectual property and trade balance to promote their urgent revision, without delay and using the options established and permitted therein.
16. Strengthen long-term support programs for the development and promotion of new exports.
17. Make the reallocation of resources from less productive sectors to those with higher productivity more flexible.
18. Promote the circular economy so that reindustrialization goes hand in hand with the adoption of its principles so that products and materials are reused, recycled or given a residual value. This reduces dependence on natural resources and waste generation, contributing to environmental and economic sustainability.
19. Support entrepreneurs in their commitment to develop a minimum number of new products and enter new markets every two years.
20. To support the government in increasing the competitiveness of micro, small and medium-sized enterprises (MSMEs) and domestic consumption-oriented industries, reconciling industrial development with environmental protection, labor and energy transformation.
21. To develop high quality training programs for the labor force aligned with the needs demanded by the national industry, mainly oriented towards applied technical careers.
22. Seek collaboration and knowledge sharing among key countries in decarbonization.

Successful countries have participated in international agreements, such as the Paris Agreement, and have shared good practices and lessons learned with other nations. International cooperation makes it possible to learn from the experiences of other countries and accelerate the transition to a low-carbon economy in a joint manner with the contribution of substantial non-reimbursable resources.

Finally, it is very important to note that each country faces unique and specific challenges according to its strengths and weaknesses and there is no single solution for decarbonization and reindustrialization.

However, there are lessons and experiences from other countries facing similar challenges in terms of economic and technological backwardness, such as ours, that can provide useful insights and approaches for those seeking to move forward in reducing emissions and transitioning through reindustrialization to a more sustainable economy.

Colombia will lose more money: This is what nobody tells you about the clean energy projects in La Guajira