Study identifies 6 indispensable conditions for improving Colombia’s competitiveness
Can you imagine our country competing in exports with the United States or China? For that to be even imaginable, it is necessary to increase Colombia’s competitiveness.
A recent publication by the Center for Labor Studies (Cedetrabajo) examines the minimum structural measures that must be taken to improve competitiveness.
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According to the study, there are at least 6 structural measures that must be taken to increase Colombia’s competitiveness. These include issues such as taxes, public services and MSMEs. According to the research, the active participation of the State is required to guide these changes.
To improve Colombia’s competitiveness, the different modes of transportation must be articulated
The research found that “there is an underutilization of port and rail capacity”. In addition, almost half of the port contracts are not operating and 63% of the rail network is inactive.
For this reason, improving transportation efficiency is essential to boost Colombia’s competitiveness. Effectively articulating road, river and rail transport must be a priority in the productive transformation.
However, the outlook is worrisome. The implementation of the Intermodal Transportation Master Plan requires an investment of approximately 208 billion pesos until 2035 and, if the current trend continues, it would barely reach 120 million pesos, according to Cedetrabajo.
Modernization of public services
High utility tariffs are hampering Colombia’s competitiveness. Cedetrabajo cites a 2018 study, according to which the country ranks fourth in South America in utility costs. Each Colombian spends on average $73.3 dollars a month on utilities, only surpassed by the inhabitants of Chile, Uruguay and Argentina.
In addition, inflation in this sector is more pronounced in Colombia than in other countries, which affects the competitiveness of the economy. Thus, the prices of electricity, gas and water grow more in Colombia than in Chile, Brazil and Costa Rica, explains Cedetrabajo’s publication.
Promoting financing for MSMEs
Access to credit for small and medium-sized enterprises (MSMEs) in Colombia is limited, affecting their growth and competitiveness. The World Economic Forum’s Global Competitiveness Report 2021 ranks Colombia 106th out of 144 countries in terms of access to financing.
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According to Cedetrabajo, it is essential to strengthen the regulatory framework to promote the financial inclusion of MSMEs. This includes fostering competition in the financial market, establishing guarantee programs to reduce risk, improving financial education, and promoting financial technologies.
Diversification of production and complex goods
To increase Colombia’s competitiveness in international trade, it must evolve from an economy centered on a few raw materials to the production of diverse goods, favoring the most complex ones.
The expansion of production should focus on goods with high added value and that use the most developed technology, according to Cedetrabajo’s research. The petrochemical industry and agribusiness can play a key role in this diversification.
In addition, sectors such as chemicals, petrochemicals, plastics, electronics and metallurgy are important because of their productive linkages. Hence, an increase in one of them will pull the rest of the economy. Greater productive diversity will increase Colombia’s competitiveness.
Strengthening production with the domestic market
In Colombia, the productive apparatus has adapted to the requirements of foreign demand. Although in principle this seems to be the key to produce more, it has been overlooked that there are some strategic activities on which Colombia’s competitiveness depends, explains Cedetrabajo’s publication.
For example, cotton, a fundamental input for the fashion industry, has been neglected. Likewise, the current context of Ukraine evidenced the need to have a robust national energy sector to guarantee the continuity of production.
In addition, a dynamic economy strengthened by the domestic market will make the country more competitive in international trade. In this sense, the research speaks of the domestic market as a “development engine”.
Smaller taxes for MSMEs
For an economy to be competitive, there must be different agents that compete with each other. Monopolies put an end to a country’s competitiveness. Hence, the existence of a multiplicity of companies should be supported, as explained by Cedetrabajo’s research.
However, in Colombia, MSMEs have a short life expectancy, which reduces competition and fosters unemployment and informality. Cedetrabajo proposes the creation of a differential rate for corporate income tax. That way, the smaller the company, the more tax relief it would have. This would improve the survival of MSMEs and increase Colombia’s competitiveness.
Support for research and science
Increasing Colombia’s competitiveness must be based on research and innovation. A key factor is budget allocation in areas such as education, research and science.
Good examples are China and Thailand, according to Cedetrabajo’s publication. Thailand increased its investment in research and innovation from 0.1% to 1.2% of GDP between 1997 and 2019, and aims to reach 4% by 2032. China, meanwhile, raised its investment from 0.7% in 1990 to 2.1% in 2018. Meanwhile, Colombia invests only 0.3% of GDP in research and innovation.
