Columbia is one of the most commonly named countries when talking about business and commerce in South America. It has become synonymous with advancement, success, innovation, and economic growth. Colombia is currently one of the most attractive business destinations in Latin America.
The factors are many. The major ones include access to a highly-skilled workforce, excellent infrastructure, a welcoming business environment, and more. It is interesting to note that Colombia has always striven to stay way ahead of its neighbors in terms of economic development. Let us explore its intriguing economic history below.
Development of Columbia’s Industrial Sector
Columbia’s industrial sector rapidly expanded after World War I. The country speeded up this process by using the abundant resources it accumulated in the nineteenth century thanks to the revenue from the booming coffee and tobacco industries. This upsurge lasted well into the 1970s, when it halted for a while, only for Columbia to experience another revival in the mid-1980s.
The import substitution strategy
Like most countries in Latin America, Colombia too followed the import substitution strategy throughout the Great Depression. To summarize, this model stipulated that domestic needs should be met by local production as opposed to imported goods. It also focused on consumer rather than capital goods.
While this may not be a perfect economic model, the import substitution strategy did not affect Colombia as negatively as it did other countries. The reasons mainly included the fact that Colombia was not as closed off politically and economically as many of its counterparts and – until the 1950s – was not very heavy on industrialization.
Yet, at some point, the import substitution strategy began to take its toll. The Colombian government had no choice but to start working in favor of an export promotion strategy. Thankfully, both the country’s society and economics were flexible enough to tune in fast and embrace the new approach.
Private entrepreneurs and the government alike saw a great opportunity in the export promotion system and worked in sync to improve the overall business climate. At that time, Colombia developed significantly in the field of capital goods. Yet, consumer goods remained the primary focus of the domestic business. The country experienced massive growth in the period from 1967 to 1975.
The main tools Columbia used to advance its export strategy were the establishment of the Export Promotion Fund (Fondo para la Promoción de las Exportaciones), also known as the Proexpo, and the adoption of a “crawling peg” exchange rate system. The goal of the Proexpo was to effectively market Colombian goods abroad. At the same time, the newly-implemented exchange rate system consistently devalued the peso against the other major currencies to ensure the local goods were traded at reasonable prices abroad.
However, while in 1976 Colombian GDP reached 24.2%, the following years brought a few unexpected obstacles. The late 1970s and the early 1980s were rough on the local economy. The exported goods devalued, and the manufactured output fell significantly. This downturn resulted from a variety of reasons, such as tax policies, lack of investment, insufficient diversification, excessive dependence on domestic demand, and too much focus on consumer goods.
The coffee boom
Of all the misfortunate factors, however, the greatest ones were the appreciating currency exchange rate and the disproportionate relocation of funds to the agricultural sector. The latter was the result of the so-called “coffee boom” and once again proved how dependent Colombia’s economy was on the production of coffee.
The coffee boom caused the country to undergo the infamous “Dutch disease.” The term is used to describe an economic situation where a sudden growth in the primary export sector affects unfavorably the rest. The situation caused an avalanche of negative consequences. As foreign exchange increased, the value of the peso grew, and so did the prices of domestic goods, thus making them less competitive internationally. The situation was exacerbated in 1984.
Lessons learned
Fortunately, the Colombian government learned the lesson albeit the hard way, and was better prepared for the next coffee boom in 1986. It took several steps including tax and domestic spending restraints and price increase prevention measures. The “Dutch disease” did not recur, thus validating the new governmental strategy.
As a result, 1984 saw substantial growth, and the trend continued throughout the late 1980s. The success of the new strategy was largely due to the efforts to support diversification and export. The industrial output increased, but the country continued to rely heavily on import, as the local industries were unable to produce enough items.
The latter gave a strong push to several industrialization areas: Bogota, Medellin, Cali, and Barranquilla. The cities of Boyacá, Magdalena, Nariño, and Santander also saw significant growth and became homes to many small and medium-sized enterprises.
At the end of the 1980s, Columbia became fairly industrialized. The country mainly produced foods and beverages, oil, construction materials, ceramics, tools and machines, clothing and shoes, and different types of wooden and leather items.
Massive industrial conglomerates formed around the more developed regions. However, small and medium-sized businesses continued to thrive, employing about half of the country’s labor force. Later on, Columbia also joined the automotive industry by collaborating with companies like Mazda, Renault, Chrysler, Suzuki, Honda, Kawasaki, and Yamaha.
The Future
In the last 30 years, the country grew economically at a steady pace without experiencing any major concussions. Today, Columbia is a modern, technologically developed destination. Its capital Bogota was recently selected as the world’s top business tourism destination.
The main city is also rivaled by other highly developed locations. For example, the city of Medellin has become a magnet for digital entrepreneurs and enthusiasts from both around the continent and the world. The place that was once known as the kingdom of Pablo Escobar and the capital of his notorious drug cartel is now a modern urban center for technological innovation, where bright minds from around the globe gather to generate groundbreaking ideas.
Columbia has also received continuous praise from world-renowned authorities regarding the quality of human talent, education, infrastructure, and more. The country has become one of the top business hotspots in South America, and this trend will most probably grow in the years to come.