...

towards sustainable peace, poverty eradication, and

by user

on
Category:

government

6

views

Report

Comments

Transcript

towards sustainable peace, poverty eradication, and
TOWARDS SUSTAINABLE PEACE,
POVERTY ERADICATION, AND
SHARED PROSPERITY
Colombia Policy Notes
September 2014
TOWARDS SUSTAINABLE PEACE,
POVERTY ERADICATION, AND
SHARED PROSPERITY
Colombia Policy Notes
September 2014
© 2014 International Bank for Reconstruction and Development / The World Bank
1818 H Street NW, Washington DC 20433
Telephone: 202–473–1000; Internet: www.worldbank.org
Some rights reserved
1 2 3 4 17 16 15 14
This work is a product of the staff of The World Bank with external contributions. The findings, inter- pretations, and conclusions expressed in this work do not necessarily reflect the views of The World
Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not
guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and
other information shown on any map in this work do not imply any judgment on the part of The World
Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries.
Nothing herein shall constitute or be considered to be a limitation upon or waiver of the privileges and
immunities of The World Bank, all of which are specifically reserved.
Rights and Permissions
This work is available under the Creative Commons Attribution 3.0 IGO license (CC BY 3.0
IGO) http://creativecommons.org/licenses/by/3.0/igo. Under the Creative Commons Attribution license, you are free to copy, distribute, transmit, and adapt this work, including for commercial purposes,
under the following conditions:
Attribution—Please cite the work as follows: World Bank. 2014. Colombia Policy Notes: Toward Sustainable
Peace, Poverty Eradication and Shared Prosperity. Washington, DC: World Bank. License: Creative Commons
Attribution CC BY 3.0 IGO
Translations—If you create a translation of this work, please add the following disclaimer along with
the attribution: This translation was not created by The World Bank and should not be considered an official World Bank
translation. The World Bank shall not be liable for any content or error in this translation.
All queries on rights and licenses should be addressed to the Communications Associate, María Clara
Ucros, World Bank, Bogotá, Colombia; fax: (57–1) 326–3480.
Graphic design: Robert Reineke
CONTENTS
Acknowledgements.............................................................................................. xi
Acronyms.......................................................................................................... xii
An Overview of World Bank Policy Notes for Colombia...........................................xvii
Three development objectives.......................................................................................xviii
Transition to sustainable peace............................................................................................. xviii
Fast poverty reduction but persistent inequality........................................................................... xx
Recent economic growth has brought shared prosperity. Is it sustainable?...................................... xxi
Nine policy areas............................................................................................................xxiii
Organizing the territory........................................................................................................xxiv
Improve rural areas first.......................................................................................................xxiv
Make cities more connected and productive..............................................................................xxvi
Manage disaster risks better................................................................................................xxviii
Strive for environmental sustainability.................................................................................... xxx
Marshalling all forms of capital: infrastructure, finance and innovation.....................xxxii
Close the infrastructure gap................................................................................................. xxxii
More and better financial services for all................................................................................xxxv
Make innovations thrive.....................................................................................................xxxvii
Empowering people and localities..............................................................................xxxvii
Tools for an integrated Social Protection System...................................................................xxxviii
Improve the decentralization process..........................................................................................xl
Common threads............................................................................................................ xlii
Part One – Background Notes
Chapter 1. Supporting Colombia’s Transition to Sustainable Peace
and Development................................................................................ 1
Main Messages................................................................................................................... 2
The dynamics of armed conflict in Colombia .................................................................. 3
What does sustainable peace mean? ......................................................................................... 5
Understanding armed conflict and the transition to peace............................................... 6
The transition to sustainable peace and development.................................................................... 7
Policies and programs for the three transitions............................................................................. 9
Challenges for the Colombian government in the transition period............................... 13
iv
CONTENTS
Political transition ............................................................................................................... 14
Security transition................................................................................................................. 15
Development transition.......................................................................................................... 16
Endnotes.......................................................................................................................... 17
Chapter 2. Toward Shared Prosperity in Colombia................................................23
Main Messages................................................................................................................. 24
Building the foundations of shared prosperity in Colombia:
Recent trends in poverty, shared prosperity, and inequality..................................... 25
A decade of impressive poverty reduction ................................................................................. 25
Who and where are the poor in Colombia?............................................................................... 27
More shared prosperity with reduction in inequality toward the end of the decade......................... 30
The drivers behind the observed changes in poverty and inequality............................... 32
Evaluating the dynamics of sources of income.......................................................................... 34
Understanding the sources of poverty reduction......................................................................... 37
Understanding the sources of changes in inequality................................................................... 39
Projecting future poverty incidence rates.................................................................................... 39
Final remarks.................................................................................................................... 41
Endnotes.......................................................................................................................... 42
References........................................................................................................................ 43
Annex 1: Decomposing poverty reduction—The intra-sectorial effect versus
the inter-sectorial effect............................................................................................. 45
Annex 2: Typology of economic classes in Colombia..................................................... 46
Annex 3: Figures.............................................................................................................. 47
Annex 4: Main differences in methods for measuring poverty in Colombia................... 50
Chapter 3. Structural Changes – Implications for Growth, Productivity, and
Competitiveness................................................................................51
Main Messages................................................................................................................. 52
Structural changes and growth dynamics........................................................................ 54
Growth decomposition and productivity dynamics...................................................................... 56
Growth at the regional level.................................................................................................... 62
Structural changes in international trade.................................................................................. 64
Macro implications and risks........................................................................................... 67
Endnotes.......................................................................................................................... 71
Part Two – Theme 1: Developing the Territory
Chapter 4. Agriculture and Rural Development Policy Note....................................75
Main Messages................................................................................................................. 76
The agricultural sector in Colombia: opportunities and challenges................................ 77
Causes of underperformance in the rural economy........................................................ 79
Rural development........................................................................................................... 80
Challenge #1: Adopt a territorial approach to rural development................................................ 81
Challenge #2: Overhaul rural institutions and rural policy-making processes............................... 82
Challenge # 3: Tackle the land problem.................................................................................. 84
CONTENTS
Implementation modalities: immediate next steps....................................................................... 86
Policy recommendations.................................................................................................. 87
Restoring rural livelihoods...................................................................................................... 87
Getting agriculture going........................................................................................................ 88
Supporting territorial development........................................................................................... 90
The road ahead: rebalancing public and private roles.................................................... 91
Endnotes.......................................................................................................................... 93
Chapter 5. Urban Sector.....................................................................................95
Major Messages............................................................................................................... 96
Background...................................................................................................................... 97
Knowledge....................................................................................................................... 98
The System of Cities in Colombia.......................................................................................... 98
Challenges at the city level.................................................................................................... 100
Policy Recommendations............................................................................................... 102
Endnotes........................................................................................................................ 104
Bibliography................................................................................................................... 105
Chapter 6. Disaster Risk Management in Colombia............................................. 107
Key Messages................................................................................................................. 108
Background.................................................................................................................... 110
Knowledge..................................................................................................................... 112
Policy recommendations................................................................................................ 116
Endnotes........................................................................................................................ 118
Chapter 7. Environmental Sustainability............................................................ 121
Major Messages............................................................................................................. 122
Background.................................................................................................................... 124
Is economic growth in Colombia environmentally sustainable?.................................... 125
Priority issues on the environmental agenda through the lens
of sustainable growth.............................................................................................. 127
Priority environmental challenges through the lens of shared prosperity:
environmental health.............................................................................................. 132
The OECD accession creates an impetus for green growth.......................................... 135
Policy recommendations................................................................................................ 136
Endnotes........................................................................................................................ 140
References...................................................................................................................... 141
Theme 2: Marshalling Human, Financial and Physical Capital
Chapter 8. Transport Infrastructure.................................................................. 143
Main Messages............................................................................................................... 144
Background.................................................................................................................... 145
Knowledge..................................................................................................................... 147
Policy Recommendations............................................................................................... 152
Endnotes........................................................................................................................ 156
v
vi
CONTENTS
Chapter 9. Financial Sector............................................................................... 159
Main Messages............................................................................................................... 160
Background.................................................................................................................... 161
Financial sector structure..................................................................................................... 162
Main challenges............................................................................................................. 164
Oversight of the financial sector............................................................................................ 164
Development of capital markets............................................................................................ 165
Financial inclusion............................................................................................................. 167
Recommendations......................................................................................................... 168
Improve oversight of financial sector...................................................................................... 168
Development of capital markets............................................................................................ 168
Support financial inclusion................................................................................................... 170
Endnotes........................................................................................................................ 171
Chapter 10. The Urgent Innovation Agenda—Governance, Knowledge, and Firms..... 173
Main Messages............................................................................................................... 174
Background and context................................................................................................ 176
Challenges...................................................................................................................... 177
Governance of the Colombian National Innovation System...................................................... 177
Challenges to factor accumulation and allocation.................................................................... 178
Demand-side challenges....................................................................................................... 180
Challenges to the supply of skills and knowledge.................................................................... 180
Policy recommendations................................................................................................ 183
Recommendations for improving the governance of the NIS...................................................... 183
Recommendations for improving factor accumulation and reallocation........................................ 184
Recommendations for the demand side................................................................................... 185
Recommendations for the supply side..................................................................................... 187
Endnotes........................................................................................................................ 190
Theme 3: Empowering People and Localities
Chapter 11. Moving Toward a Social Protection System......................................... 193
Main Messages............................................................................................................... 194
Background: Colombia’s Social Protection “System”—Strengths and Areas for
Improvement.......................................................................................................... 195
Challenges......................................................................................................................... 198
System fragmentation reduces the effective and efficient use of social protection programs.............. 199
Insufficient or unbalanced coverage leaves large segments of the population vulnerable
to certain risks........................................................................................................... 200
Limited information for system functioning............................................................................. 201
Global Evidence to Move Colombia Toward a true SPS.............................................. 202
Transition from a static set of social protection programs to a dynamic SPS............................... 202
Policy Options to Reduce System Fragmentation, Improve Coverage, and Close
Information Gaps................................................................................................... 203
Strengthen SPS tools to overcome inefficiencies created by system fragmentation and
to reach uncovered populations..................................................................................... 203
Build the labor sub-system by creating information for policymaking and program purposes......... 205
CONTENTS
Modernize the health sub-systems by developing a new health care model for
Colombia with stronger internal management and control............................................... 205
Endnotes........................................................................................................................ 208
Chapter 12. National and Subnational Public Finances and Governance................... 211
Main Messages............................................................................................................... 212
Background.................................................................................................................... 213
Progress.......................................................................................................................... 215
Challenges...................................................................................................................... 217
Stronger decentralization framework and better institutional coordination................................... 218
Stronger capacity of SNGs................................................................................................... 219
Policy recommendations................................................................................................ 219
Stronger decentralization framework and better institutional coordination................................... 219
Stronger capacity of SNGs................................................................................................... 223
Endnotes........................................................................................................................ 223
Bibliography................................................................................................................... 225
List of Boxes
Box 2-1:
Multidimensional Poverty in Colombia........................................................................... 26
Box 2-2:
Growth of Colombia’s Middle Class was Positive but Lagged Other LAC Countries.... 28
Box 2-3:
Equity Implications of Fiscal Policy Changes in Colombia............................................. 33
Box 2-4:
Persistently High Levels of Non-Monetary Inequality.................................................... 35
Box 3-1:
Recent Demographic and Labor Markets Dynamics...................................................... 59
Box 3-2:
How vulnerable Is Colombia’s External Sector to Oil Price Fluctuations?..................... 69
Box 7-1:
Wastewater Treatment Has High Social and Economic Returns:
The Example of Río Bogotá............................................................................................. 129
Box 7-2:
The Bio Carbon Fund in Colombia—Initiative for Sustainable Forest Landscapes
(ISFL).............................................................................................................................. 131
Box 11-1:
Building a System for Social Protection: Cero a Siempre................................................... 187
Box 12-1:
Government’s Transfers to SNGs: SGP and SGR......................................................... 217
Box 12-2:
Technical Assistance to Boost Local Capacities: Specific Elements............................... 221
List of Figures
Figure 1-1: Violence in Colombia......................................................................................................... 4
Figure 1-2: Vicious Cycles of Violence ................................................................................................ 6
Figure 1-3: Three Transitions Toward Sustainable Peace.................................................................... 8
Figure 1-4: Timeline for a Transition to Sustainable Peace in Colombia............................................. 8
Figure 1-5: Repeated Cycles of Action to Bolster Institutional Resilience........................................... 9
Figure 2-1: Moderate Poverty Reduction............................................................................................ 25
Figure 2-2: Extreme Poverty Reduction.............................................................................................. 25
Figure 2-3: Less Poor, More Middle Class, but More Vulnerable to Falling Back into Poverty......... 28
Figure 2-4: Poverty Incidence Across Areas........................................................................................ 29
Figure 2-5: Measures of Shared Prosperity Between the Early and Late Parts of Decade................ 30
Figure 2-6: Robust Department-level Improvements in the SPI over the Decade............................. 31
Figure 2-7: LAC Inequality................................................................................................................. 32
Figure 2-8: 2002–12: A Period of High Inequality and Low Mobility............................................... 32
Figure 2-9: Concentration and Gini Coefficients............................................................................... 34
vii
viii
CONTENTS
Figure 2-10:
Figure 2-11:
Figure 2-12:
Figure 2-13:
Figure 2-14:
Figure A3.1:
Figure A3.2:
Figure A3.3:
Figure 3-1:
Figure 3-2:
Figure 3-3:
Figure 3-4:
Figure 3-5:
Figure 3-6:
Figure 3-7:
Figure 3-8:
Figure 3-9:
Figure 3-10:
Figure 3-11:
Figure 3-12:
Figure 3-13:
Figure 3-14:
Figure 3-15:
Figure 3-16:
Figure 4-1:
Figure 4-2:
Figure 4-3:
Figure 4-4:
Figure 4-5:
Figure 5-1:
Figure 5-2:
Growth and Redistribution Components of Changes in Poverty and Middle Class....... 37
Components of Changes in Extreme and Moderate Poverty Reduction 2002–13......... 38
Stagnation of Total Inequality is Due to Stagnation of Labor Income........................... 39
Explaining Changes in Income Inequality, 2002–12....................................................... 40
Can We Expect Extreme Poverty to be 3 Percent or Less by 2030?................................ 41
Multidimensional Poverty Mapping................................................................................. 47
Income Shares by Income Quintiles and Over Time...................................................... 48
Growth Incidence Curve of Per Capita Income, 2008–13.............................................. 49
Growth Performance in Past Decades (%)....................................................................... 54
Colombia’s Per Capita Income Gap (%).......................................................................... 54
Counterfactual GDP Per Capita (US$)............................................................................ 55
Sectorial Decomposition of GDP.................................................................................... 55
The Changing Composition of GDP Growth................................................................. 56
Commodity Intensity/Dependency................................................................................. 56
Income Per Capita as % of Bogota.................................................................................. 63
Education and Income Across Departments, 2010 (OECD 2013).................................. 63
Quality of Roads at Department Level, 2009 (OECD 2013).......................................... 64
Evolution in Poverty Rates............................................................................................... 65
Recent Trade Dynamics................................................................................................... 66
Export Values vs Volumes................................................................................................ 66
Colombia as % of World exports..................................................................................... 66
Changes in Export Composition...................................................................................... 67
Concentration in the Export Basket................................................................................. 67
Concentration in Export Destinations............................................................................. 67
Production of Principal Food Crops in Colombia, 1990–2012....................................... 77
Projected Impacts of Climate Change on Coffee-Growing Areas in Colombia.............. 79
Agriculture and Rural Development Spending in Colombia........................................... 81
Current and Potential Land Use...................................................................................... 84
Land Distribution Inequality............................................................................................ 85
Distribution of the Bottom 40 Percent in Colombia, 2002–12........................................ 97
Sectorial Budget, Ministry of Housing, City and Territory (Million US$),
2000–2014...................................................................................................................... 101
Figure 5-3: Sources of Funding for Municipal Investment Expenditures........................................ 102
Figure 6-1: Disasters Events and Losses in Latin America, 1961–2011........................................... 110
Figure 6-2: Area and Population Exposed to Earthquakes, Landslides, and Floods in Colombia... 112
Figure 6-3: Loss of Life and Destroyed Housing per 100,000 Inhabitants, 1970–2011.................. 113
Figure 6-4:Destroyed Housing and Loss of Life per 100,000 Inhabitants,
by Municipal Population, 2001–10................................................................................ 114
Figure 6-5: Correlation Between Poverty and Natural Disasters in LAC, 2009............................... 115
Figure 6-6: La Niña and El Niño Phenomena vs Annual Registered Losses.................................... 115
Figure 6-7: Total Investments in Disaster Risk Management at National, Department,
and Municipal levels....................................................................................................... 116
Figure 7-1:Adjusted Net Savings, Including Particulate Emission Damage, 1990–2012................ 125
Figure 7-2: Gross National Savings, Education Expenditures, and Natural Resource
Degradation and Depletion, 1990–2012........................................................................ 126
Figure 7-3: Environmental Health Costs in Colombia and in the Region (% of GDP)................... 133
Figure 7-4: Total Natural Resource Rents and Environmental Expenditures (% of GDP).............. 136
CONTENTS
Figure 8-1:
Figure 8-2:
Investment in Transportation Infrastructure.................................................................. 145
Transport Infrastructure Quality Rating According to the World Economic
Forum 2013.................................................................................................................... 145
Figure 8-3: Logistics Performance Index, 2014................................................................................ 146
Figure 8-4: High Cost of Importing and Exporting......................................................................... 146
Figure 8-5: Quality of the National, Secondary, and Tertiary Roads.............................................. 148
Figure 9-1: Financial Sector Structure (as a percentage of GDP 2012)........................................... 161
Figure 9-2: Comparison of Access to Finance Indicators in Latin America.................................... 162
Figure 9-3: Percentage of Assets of the Subsidiaries of Colombian Banks Abroad
as of Dec 2013............................................................................................................... 163
Figure 9-4: Annual Issuance in the Capital Markets........................................................................ 163
Figure 10-1: Colombia’s Deficient R&D Performance....................................................................... 176
Figure 10-2: Schematic of the National Innovation System............................................................... 177
Figure 10-3: Support Systems for Firms across Age and Level of Sophistication.............................. 178
Figure 10-4: Differences Between Cities in Colombia........................................................................ 179
Figure 10-5: New Business Density, 2012........................................................................................... 179
Figure 10-6: Startup Financing Cycle................................................................................................. 180
Figure 10-7: Mapping of Colombian SME Investment Funds.......................................................... 181
Figure 10-8: Productivity and Managerial Differences in Colombia.................................................. 182
Figure 10-9: Managerial Quality in Colombia................................................................................... 182
Figure 10-10: Private Sector Opinion on the Quality of Scientific Research and Degree of
Collaboration with Universities...................................................................................... 183
Figure 11-1: Colombia’s Social Protection System is Fragmented, with Significant
Coverage Gaps............................................................................................................... 195
Figure 11-2a: Affiliation with Health System....................................................................................... 196
Figure 11-2b: Out-of-Pocket Health Expenditures, 2012..................................................................... 196
Figure 11-3: Social Expenditure and Inequality................................................................................. 198
Figure 11-4: Infant Neonatal Mortality.............................................................................................. 198
Figure 11-5: Perception of the Health Care System........................................................................... 199
Figure 11-6: Current Vision of the Colombian Social Protection System......................................... 202
Figure 11-7: Colombia’s SPS when Applying a Systems Approach................................................... 202
Figure 12-1: Regional Disparities........................................................................................................ 215
List of Tables
Table 1-1:
Goals for Colombia’s Transitions..................................................................................... 10
Table 1-2:
Pace of Political Transitions............................................................................................. 10
Table 2-1:
Inequality in Colombia.................................................................................................... 31
Table 2-2:
Assumed Rates of Growth in Per Capita Income............................................................ 40
Table 3-1:
Growth Accounting Exercise............................................................................................ 57
Table 3-2:
Growth Decomposition: Contribution to Total Growth in Value Added
Per Capita, Colombia 2001–13 (%)................................................................................. 62
Table 3-3:
Royalties and Regional Convergence (Lopez–Calva, Castelã,
and Enamorado 2013)...................................................................................................... 65
Table 6-1:
Events and Losses by Decades........................................................................................ 113
Table 7-1:
Summary of Environmental Health Costs in 2010....................................................... 133
Table 8-1:
Road Network in Colombia 2013.................................................................................. 149
Table 10-1: Ease of Doing Business Rank (Doing Business Report, 2014)....................................... 178
ix
x
CONTENTS
Table 12-1:
Table 12-2:
Fiscal Decentralization................................................................................................... 213
Policy Challenges and Recommendations...................................................................... 222
List of Maps
Map 5-1:
Distribution and Concentration of Jobs in Colombia...................................................... 98
Map 5-2:
The 18 Urban Agglomerations........................................................................................ 99
Map 5-3:
The System of Cities........................................................................................................ 99
ACKNOWLEDGEMENTS
This set of policy notes was produced by World Bank experts working in the Colombia Country Team.
Chapter 1 was drafted by Dorly Castañeda, Marcelo Fabre, Margarita Puerto Gomez, and Markus
Kostner. Chapter 2 was produced by Carlos Rodríguez Castelán, Lea Giménez, and Daniel Valderrama
under the general guidance of Louise Cord. Chapter 3 was produced by Barbara Cunha with inputs from
Konstantin Wacker, German Galindo and Diana Marcela Carrero Rivera. Chapter 4 was authored by
Michael Morris with inputs from Laurent Msellati, Natalia Gómez, Holger A. Kray, Carole Megevand,
Victoria Stanley, Enrique Pantoja, Luz Berania Diaz Rios, Diego Arias Carballo, Juliana Castaño Isaza,
Erick C.M. Fernandes and Daniel M. Sellen. The authors of Chapter 5 are Angelica Nuñez and Jose
Luis Acero with inputs provided by Anna Wellenstein, Catalina Marulanda, Augustin Maria, Camila
Rodriguez, and Mauricio Cuellar. Chapter 6 was prepared by Eric Dickson, Claudia Lorena Trejos,
Daniel Sellen, and Diana Marcela Rubiano Vargas. Chapter 7 was prepared by Irina Klytchnikova under the general guidance of Emilia Battaglini, with research assistance by Anna Lena Sauer and helpful
comments from Ernesto Sanchez-Triana, Carole Megevand, Juliana Castaño, Rita Cestti, Greg Browder,
Daniel Sellen, Franka Braun, Daniele La Porta and Todd Johnson. Chapter 8 was drafted by Mauricio
Cuellar, Leonardo Canon, Shomik Mehndiratta, Carlos Murgui, Daniel Pulido, and Marcela Silva.
The author of Chapter 9 is Patricia Caraballo, with inputs and contributions received from Eva M.
Gutierrez, Catiana Garcia-Kilroy and Rekha Reddy. Chapter 10 was prepared by Javier Botero, Wendy
Cunningham, Eva Gutierrez, Robert Hawkins Leonardo Iacovone, Esperanza Lasagabaster, and William
Maloney. Chapter 11 was produced by Alejandra Corchuelo, Ana María Oviedo, Antonio Giuffrida,
Ronald Gomez, Joana Silva and Wendy Cunningham. Chapter 12 was drafted by a team led by Pedro
Arizti, including Eguiar Lizundia, Jorge Luis Silva, Barbara Cunha, Carlos Rodríguez Castelán, German
Galindo, John Gonzalez, Mónica Peñuela, Manuel Fernando de Castro, and Azul del Villar.
Peer reviewing was provided by Augusto de la Torre, Issam Abousleiman, Mathew Stephens, Gabriel
Demombynes, Emily Sinott, John Nash, Peter Ellis, Joaquín Toro, Juan Gaviria, James Seward, Jose
Guillerme Reis, Truman Packard, Alberto Leyton and Emilia Battaglini. Consultations were also held
with representatives of Ministerio de Hacienda and Dirección Nacional de Planeación, who provided rich
insights and knowledge of priority issues in Colombia.
The overview as well as coordination of the set of policy notes was led by Samuel Freije, with inputs
and support from Domoina Rambeloarison and German Galindo. Editorial reviews and translations
were by Robert Reineke, Richard Galm, Juan Carlos Liceaga and Manuel Gómez. Adminsitrative support was provided by Beatriz Elena Franco, Elsa Coy and Lorena Bustos. Overall supervision was provided by Gloria Grandolini and Gerardo Corrochano (World Bank Directors for Colombia) and Issam
Abousleiman (Country Manager for Colombia).
ACRONYMS
4G
Fourth Generation of Concession
Program
AFP
Administradoras de Fondos de
Pensiones y de Cesantía
Pension Fund Administrator
ANI
Agencia Nacional de Infraestructura
National Infrastructure Agency
ATM
Automated Teller Machine
BID
Banco Interamericano de Desarrollo
Inter-American Development Bank
BVC
Bolsa de Valores de Colombia
Colombia Stock Exchange
CAR
Corporación Autonoma Regional
Autonomous Regional Corporation
CAT-DDO
Catastrophe Risk Development
Loan Deferred Drawdown Option
(World Bank)
CB
Commercial Bank
CEDLAS Centro de Estudios Distributivos,
Laborales y Sociales
Center for Distributive, Labor and
Social Studies
CEPAL Comisión Económica para América
Latina y el Caribe
United Nations Economic
Commission for Latin America and
the Caribbean
CGR
Comptroller’s General Office
Contraloría General de la República
CIAT
Centro Internacional de Agricultura
Tropical
International Center for Tropical
Agriculture
CNA Consejo Nacional de Acreditación
National Accreditation Council
CONACES Comisión Nacional Intersectorial
de Aseguramiento de la Calidad de la
Educación Superior
National Intersectorial Commission of
Quality Control of Higher Education
CONPESConsejo Nacional de Política
Económica y Social
National Council on Economic and
Social Policy
COP
Colombian Peso
COP
Conference of the Parties to the
Convention
CORPOICA Corporación Colombiana de
Investigación Agropecuaria
Colombian Corporation on
Agricultural Research
CPI
Consumer Price Index
CSA
Climate Smart Agriculture
CSO
Civil Society Organization
DALY
Disability Adjusted Life Years
DANE National Bureau of Statistics
DB
Doing Business
DNP
Departamento Nacional de Planeación
National Planning Department
DPS
Departamento para la Prosperidad
Social
Department for Social Prosperity
DRM
Disaster Risk Management
ECLAC Economic Commission for Latin
America and the Caribbean
EIA
Environmental Impact Assessment
EITI
Extractive Industries Transparency
Initiative
ELN
Ejército de Liberación Nacional de
Colombia
National Liberation Army
ENCV Encuesta de Calidad de Vida
Quality of Life Survey
ACRONYMS
ENDS
Encuesta Nacional de Demografía
y Salud
National Demography and Health
Survey
EPA
Export Promotion Agency
EPS
Entidad Promotora de Salud
Public Health Agency
FAG
Agricultural Guarantee Fund
Fondo de Garantía Agropecuria
FAO
Food and Agriculture Organization
FARC
Fuerzas Armadas Revolucionarias
de Colombia
Revolutionary Armed Forces of
Colombia
FDI
Foreign Direct Investment
FDN
Financiera de Desarollo Nacional
National Development Bank
FEDEGAN Federación Nacional de Ganaderos
National Rancher Federation
FINDETER Financiera de Desarollo Territorial
Territorial Development Finance
Company
FONADE Fondo Financiero de Proyectos de
Desarollo
Financial Fund of Development
Projects
FSAP
Financial Sector Assessment
Program
FTA
Free Trade Agreement
GDP
Gross Domestic Product
GEF
Global Environment Fund
GEIH
Gran Encuesta Integrada de
Hogares
Large Integrated Survey of
Households
GNI
Gross National Income
HCS
Health Care System
HHI
Herfindal-Hirschman Index
HOI
Human Opportunity Index
IAP
Indoor Air Pollution
ICFES
Instituto Colombiano para el
Fomento de la Educación Superior
Colombian Institute for the
Promotion of Higher Education
ICRG
International Country Risk Guide
ICT Information and Communications
Index
IDC
Índice Departamental de
Competitividad de Colombia
Department Competitiveness Index
IDEAM
Instituto de Hidrología,
Meteorología y Estudios
Ambientales
Institute of Hydrology,
Meteorology and Environmental
Studies
IDP
Internally Displaced Person
IGAC
Instituto Geográfico Agustín
Codazzi
Agustin Codazzi Geography
Institute
ILO
International Labor Organization
IMAN
Impuesto Minimo Alternativo
Nacional
National Alternate Minimux Tax
IMF
International Monetary Fund
INCODER Instituto Colombiano de Desarrollo
Rural
National Institute for Rural
Development
INTOSAI International Organization of
Supreme Audit Institutions
INVIAS
National Road Agency
Instituto Nacional de Vías
IP
Intellectual Property
IPO
Initial Public Offering
IPSAS
International Public Sector
Accounting Standards
IQ
Intelligence Quotient
ISFL
Initiative for Sustainable Forest
Landscapes
IT
Information Technology
LAC
Latin America and the Caribbean
LAPOP
Latin American Public Opinion
Project
LAVCA
Latin America Private Equity and
Venture Capital Association
LCSSO
Latin American and Caribbean
Social Development
LEADER Liaison Entre Actions de
Développement de l’Économie
Rurale
Links between Actions for Rural
Development
xiii
xiv
ACRONYMS
LOOT
Ley Organica de Ordenamiento
Territorial
Territorial Management Organic
Law
LSE
London School of Economics
M&E
Monitoring and Evaluation
MADR Ministerio de Agricultura y Desarollo
Rural
Ministry of Agriculture and Rural
Development
MADS Ministerio de Ambiente y Desarrollo
Sostenible
Ministry of Environment and
Sustainable Development
MESEP Misión para el Empalme de las Series
de Empleo, Pobreza y Desigualdad
Mission for the Splicing of
Employment, Poverty and Inequality
Series
MHCP Ministerio de Hacienda y Crédito
Publico
Ministry of Finance and Public Credit
MHCT Ministerio de Vivienda, Ciudad y
Territorio
Ministry of Housing, City and
Territory
MICT Ministerio de Comercio, Industria y
Turismo
Ministry of Commerce, Industry and
Tourism
MILA
Mercado Integrado Latinoamericano
Integrated Latin American Market
MMR
Mild Mental Retardation
MEN
Ministerio de Educación Nacional
Ministry of Education
MPI
Multidimensional Poverty Index
MTMedium-term
NBFI
Non-Bank Financial Institution
NGO
Non-Governmental Organization
NIS
National Innovation System
OCYT Observatorio Colombiano de Ciencia
y Tecnología
Colombian Observatory for Science
and Technology
OECD Organization for Economic
Cooperation and Development
PE
PEFA
Private Equity
Public Expenditure and Financial
Accountability
PES
Payment for Environmental Services
PISA
Programme for International Student
Assessment
POMCA Plan de Manejo de Cuencas
Watershed Management Plan
POS
Plan Obligatorio de Salud
Mandatory Health Plan
POS
Point of Sale
POT
Plan de Ordenamiento Territorial
Territorial Organization Plan
PPA-PDA Programa Agua para la Prosperidad
Water for Prosperity
PPP
Purchasing Power Parity
PPP
Public Private Partnership
PPSAM Programa de Proteccion Social al
Adulto Mayor
Social Protection Program for Adults
PyME
Pequeña y Mediana Empresa
Small and Medium Enterprise
R&D Research and Development
RC
Régimen Contributivo
Contributory Regime
REDD+ Reduced Emissions from Deforestation
and Forest Degradation
REDI
Recent Economic Developments in
Infrastructure
RS
Régimen Subsidiado en Salud
Subsidized Regime
RUAF
Registro Único de Afiliados
Unique Register of Affiliates
SAVER Saneamiento para Vertimientos
Sanitation of Wastewater Discharge
SEDLAC Socio-Economic Database for Latin
America and the Caribbean
SENA
Servicio Nacional de Aprendizaje
National Training System
SFC
Superintendencia Financiera de
Colombia
Superintendency of Finance
SGP
Sistema General de Participaciones
SGR
Sistema General de Regalías
SGSSS Sistema General de Seguridad Social
en Salud
ACRONYMS
General System of Social Security in
Health
SINA
Sistema Nacional Ambiental
National Environmental System
SISBEN Sistema de Selección de Beneficiarios
de Programas Sociales
System for Selecting Beneficiaries of
Social Programs
SME
Small and Medium Enterprise
SNG
Subnational Government
SNPAD
Sistema Nacional para la Prevención
y Atención de Desastres
National System for Disaster
Prevention and Response
SNR
Superintendencia de Notariado y
Registro
Superintendence of Notaries and
Registry Offices
SNS
Superintendencia Nacional de Salud
National Superintendence of Health
SPI
Shared Prosperity Indicator
SPS
Silvo-pastoral systems
SPS
Social Protection System
SRO
Self-Regulatory Organization
STShort-term
TA
Technical Assistance
TC
Titulizadora Colombiana
TFP
Total Factor Productivity
TTO
Technological Transfer Office
UAESPE
Unidad Administrativa Especial del
Servicio Publico de Empleo
Special Administrative Unit for the
Public Employment Service
UAP
Urban Air Pollution
UK-DECC United Kingdom Department of
Energy and Climate Change
UNFCCC United Nations Framework
Convention on Climate Change
UNGRD Unidad Nacional para la Gestión del
Riesgo de Desastres
National Unit for Disaster Risk
Management
UNICEF United Nations Children’s Fund
UPC
Unidad de Pago por Capitación
URB
Unified Registry of Beneficiaries
VAT
Value Added Tax
VC
Venture Capital
WAVES
Wealth Accounting and Valuation of
Ecosystem Services
WBG
World Bank Group
WDI
World Development Indicator
WDR
World Development Report
WEF
World Economic Forum
WHO
World Health Organization
WSH
Water, Sanitation and Hygiene
WTI
West Texas Intermediate
WWTP
Wastewater treatment plant
xv
An Overview of World Bank
Policy Notes for Colombia
xviii
OVERVIEW
For its client countries, the World Bank provides
incoming presidential administrations with a selective diagnostic of current challenges and an
independent set of policy recommendations to
contribute to the nation’s development process. In
the case of Colombia, the inauguration of a new
administration for 2014–18 is the occasion for a
new set of policy notes.
The World Bank has been a long-time partner of
Colombia’s development process. For years, World
Bank experts have studied the Colombian economy and provided diagnoses and policy recommendations, some of which have contributed to the discussion and implementation of important reforms.
Recent sets of published policy notes have been
“Colombia: The Economic Foundation of Peace”
in 2003 and “A Window of Opportunity” in 2007.
Progress brings new challenges. Colombia’s recent
advances in economic and social policy demand a
focus on more sophisticated solutions to new questions or to intractable old problems. These new
policy notes are based on the current involvement
of World Bank experts in Colombia and their insights on which policies could help sustain peace,
eradicate poverty, and share prosperity. Today,
these three development objectives—sustainable
peace, poverty eradication, and shared prosperity—seem within realistic reach for the first time in
Colombian history.
This overview summarizes the current status of
the three development objectives and the proposed
policies to achieve them in nine areas: rural development, urban development, disaster risk management, environmental sustainability, infrastructure,
financial markets, innovation, social protection,
and subnational governments. These policy areas
are interrelated—i.e., advances in one are necessary for successes in others. For instance, building
infrastructure is necessary for rural and urban development, but infrastructure requires sound financial markets and efficient local governments. All of
those factors will not be enough to increase productivity if firms and universities do not make innovation thrive. In the end, increased productivity
provides the means for a more encompassing social protection system, and both productivity and
social protection are necessary for poverty eradication and sustainable peace. Notwithstanding these
intricate connections, and only for ease of exposition, we discuss these three objectives and nine
policy areas separately. After discussing the evolution and status of the objectives, the following
sections group policies into three general themes:
(i) organizing the territory; (ii) mustering physical,
financial, and human resources; and (iii) promoting people and localities.
Three Development Objectives
Colombia faces three fundamental development
objectives. Attaining higher levels of well-being for all Colombians will necessarily involve
achieving sustainable peace, eradicating poverty,
and sharing prosperity. Without peace, the country would not fully secure the most fundamental
human rights. With poverty, many would be deprived from the most basic needs. Without shared
prosperity, only a few would enjoy the benefits of
economic growth. These three objectives are necessary conditions for Colombians to realize their
full development potential. Recent trends indicate
they are within reach.
Transition to sustainable peace
Achieving sustainable peace is currently a
Government priority and an utmost aspiration
for Colombian society. More than fifty years of
violence have affected at least three generations
of Colombians at the national, subnational, community, and individual levels. Between 4.7 million
and 5.7 million people were internally displaced
between 1985 and 2012. In the same period, an
estimated 220,000 people were killed, 27,000 were
kidnapped, 25,000 disappeared, and 6,421 children were recruited by illegal armed groups. The
causes of this protracted conflict have evolved over
time with cycles of violence, instability, and weak
governance, impacting not only on human lives
but also economic development. It is estimated
An Overview of World Bank Policy Notes for Colombia
that without the armed conflict, Colombia’s annual growth rate would be 1.5 percentage points
higher and poverty rates would be half what they
are now. The Government has moved forward on
several fronts to attain sustainable peace. Under
the Ley de Justicia y Paz (Justice and Peace Law) and
the Ley de Víctimas y Restitución de Tierras (Victims and
Restitution Law) of 2011, the Government has set
a framework for reintegrating ex-combatants, returning land to people displaced by conflict, and
providing reparations to enable families and communities to resume their livelihoods. In the past decade, the Government has made strenuous efforts
to reduce violence and increase state presence.
The country is no longer considered high risk for
investment; it has increased its capacity to guarantee basic citizens’ rights; crime and murder rates
have declined; and even drug production, one of
the main drivers of conflict, has been significantly
reduced. Furthermore, the ongoing peace process
can lead to consolidation of a sustainable peace.
However, cycles of violence and entrenched conflict
persist in some regions and against some groups.
Since the early 2000s, Colombia has seen substantial declines in the number of new internally
displaced people (IDP), politically motivated homicides, victims of land mines, and the homicide rate
(related not only to the conflict but to general criminality). However, occasional peaks show the continued risk of bursts or cycles of violence. The national trends disguise regional differences. Violence
is more prevalent in regions with weak local institutions, high revenues from natural resources extraction, and the presence of illegal armed groups.
Arauca, Casanare, Caquetá, Meta, Nariño, and
Valle del Cauca are among the departments with
a larger share of violent events. In addition, specific population groups are overrepresented among
victims of armed conflict—for example, rural, afro-Colombian, and indigenous populations.
This time and space variability, observed in the
international experience as well as in Colombia,
leads to three main changes to the understanding
of armed conflict and peace, outlined in Chapter 1
of these policy notes (Supporting Colombia’s Transition
to Sustainable Peace and Development). First, “post conflict” may be a misleading term because a period of
conflict followed by reduction of tensions or even a
peace agreement can be followed by a new cycle of
violence. Peace should be seen as a process rather
than the end of peace negotiations or military policy. Second, conflict is territory specific. Building
peace at the national level implies distinct policies
based on local dynamics and their relationship to
the central government. Third, the sustainability
of the peace-building process implies that policies
aimed at preventing violence are multi-sectorial. A
deep understanding of institutional capacity is essential for transforming vicious cycles of violence
into virtuous cycles of institutional transformation.
The ongoing peace process with the FARC has
become a central government priority, offering
an opportunity to end the country’s repetitive cycles of violence. Nonetheless, sustainable peace
in Colombia will depend on the results of a collective effort of envisioning the country at peace
and building it. While the Colombian transition to
peace is unique, lessons from other countries can
be useful for policy makers. Global experiences
show that the main challenge in peace processes
is to prevent cycles of violence from recurring in
order to allow society to build a sustainable peace.
Chapter 1 uses international evidence to identify
three main transitions Colombian society must undergo to build sustainable peace. First, a security
transition from violence to respect of human rights
and international humanitarian law—the aim is
to prevent the recurrence of violence. Second, a
development transition from a war economy to a
peace economy—the aim is to create a more inclusive economy, with a legal option for ex-combatants and victims to participate while promoting
economic recovery, rebuilding financial systems,
and enhancing basic service delivery. Third, a political transition—the aim is to create conditions
conducive to a participatory democracy.
These transitions involve implementation of a
complex set of security, judicial, and socio-economic policies at the national and local levels. For
xix
xx
OVERVIEW
instance, when peace and stability return to rural areas affected by civil conflict, there will be
an urgent need to resettle displaced populations,
give them secure access to land for their livelihoods, provide them with the means to resume
productive activities, and restore their voice in
the national policy dialogue (Chapter 4 on rural development provides diagnostics and policy recommendations in this regard). In addition,
subnational governments could play a critical role
in the transition process. Because the risk of violence is greater in departments or municipalities
with weak institutions, building capable and legitimate institutions at the local level will be key
to breaking Colombia’s cycles of violence (Chapter 12 on subnational governments elaborates on
this). Some policy options are summarized as policy recommendation later in this report, and others are extensively discussed in the accompanying
policy notes.
Fast poverty reduction but persistent
inequality
In the past decade, Colombia has reduced poverty faster than ever before, but income inequality
and vulnerability to poverty remain at unacceptably high levels. Chapter 2 of these policy notes
(Toward Shared Prosperity in Colombia) provides a detailed analysis of Colombia’s poverty and inequality trends over the past decade. Between 2002 and
2012, Colombia decreased its moderate poverty
headcount rate from 49.7 percent to 32.7 percent
and its extreme poverty headcount rate from 17.7
percent to 10.4 percent. The multidimensional
poverty rate—defined as the percentage of people
deprived in at least five well-being indicators—
declined from 49 percent in 2003 to 27 percent
in 2012. This rapid decline in poverty has been
accompanied by an increase in the share of the
population in the middle class from 15.1 to 27.2
percent; however, the share of the population vulnerable to poverty also rose, becoming the largest
group in Colombia at 37.7 percent. This rising
vulnerability to poverty is, on the one hand, the
consequence of recent decline in poverty. People
escape poverty but still remain close to the poverty
line and are likely to return to poverty if macroeconomic conditions were to worsen (Chapter 3
on economic growth discusses the main macroeconomic risks). Vulnerability is also associated, on the
other hand, to environmental risks: natural disasters and pollution (Chapters 6 and 7 examine these
sources of vulnerability).
Inequality, as measured by the Gini coefficient, fell
from 0.57 in 2002 to 0.54 in 2012, but it remained
above the regional average and much higher than
the OECD average. The persistence of high levels of inequality can be linked to several factors,
including insufficient access to higher education,
pensions, and affordable housing. However, these
factors have shown slight improvements in recent
years. The exception is the unremitting inequality
across regions. The gap between the departments
with the highest and the lowest poverty rates has
increased over the decade. In 2002, the difference
in poverty rates between Huila and Bogota D.C.
was 37.8 percentage points; in 2012, the Choco
and Bogota D.C. poverty rates were 56.4 percentage points apart. The promotion of social policy
and economic growth in Colombia’s vulnerable
regions is fundamental for reducing inequality
(Chapter 4 on rural policy and Chapter 12 on
subnational government management have policy
recommendations to pursue this goal).
In addition to regional differences, another important aspect of poverty and inequality concerns
disadvantaged groups—i.e., internally displaced
people (IPDs), indigenous people, and afro-descendants. Ethnic minorities face high rates of poverty. Indigenous households have both the highest
rate of multidimensional poverty (58 percent in
2010) and the lowest reduction from 2003 to 2010.
Among these disadvantaged groups, the IDPs face
enormous barriers. In 2010, their poverty rate was
96.7 percent. Their extreme poverty rate was 66.4
percent, implying that at least one out of four people in extreme poverty was an IDP in 2010. These
numbers are based on standalone reports, but
more systematic data are needed draw a precise
profile of poverty and inequality among these disadvantaged groups.
An Overview of World Bank Policy Notes for Colombia
The rapid reduction in national poverty rates is a
consequence of two forces: faster economic growth
and expansion of social protection programs. The
growth of employment and earnings driven by economic growth explain more than 60 percent of the
reduction in extreme poverty from 2002 to 2012.
Public transfers, mostly due to the Familias en Accion
and Adulto Mayor programs, account for the remaining 40 percent. Labor incomes, either through an
increase in earnings per worker or workers per
family, represented 73 percent of the total reduction in moderate poverty between 2002 and 2012.
An additional 16 percent of the reduction in moderate poverty came from transfers. Interestingly, access to housing represented a further 7 percent of
moderate poverty reduction, but it had no impact
on extreme poverty, hinting at the need for a policy
to provide affordable housing for the poor.
Colombia’s social assistance and social insurance
programs have grown and won international recognition in recent years. The General System of
Social Security in Health (Sistema General de
Seguridad Social en Salud, or SGSSS) was created by the Law 100 of 1993 and guided the rapid
expansion in coverage, financial protection, and
equity of the health system. Colombia’s health insurance program is globally applauded for its universal coverage. In response to the 1999 economic
crisis, Colombia created the conditional cash transfer program Familias en Acción, which has grown into
its largest social assistance program. Numerous impact evaluations have found the program improves
human capital outcomes of children. In 2006, the
Government created Banca de las Oportunidades to
support financial inclusion through a combination
of policy actions, including regulatory reforms, financial capability initiatives, and incentives for
providers to meet low-income consumers’ demand
for banking services. The Government has also promoted the opening of bank accounts for the vast
majority of Familias en Acción beneficiaries. In 2006,
Colombia also created the Red Juntos program (now
called Red UNIDOS), a one-stop-shop to help the extreme poor to access this variety of social programs.
This agglomeration of programs, however, suffers
from fragmentation and coverage gaps in the social
protection system. Chapter 11 on the social protection system in Colombia explains how this system
can be made more effective and inclusive through a
series of coordination and modernization policies.
Along with rapid poverty reduction, economic
growth has brought shared prosperity. The World
Bank’s Shared Prosperity Indicator (SPI) measures
whether economic growth is shared with those who
are relatively less well-off—the bottom 40 percent
of the population in terms of income. In Colombia
from 2002 to 2012, the annualized growth rate of
real income per capita among the bottom 40 percent grew at a slightly higher rate (4.4 percent) than
the annualized growth rate of per capita income of
the whole population (3.4 percent).
If it continues in coming years, this pattern of
inclusive growth can lead to the eradication of
extreme poverty within a decade. Assuming
Colombia maintains the rates of growth and poverty reduction observed during 2008–13, extreme
poverty will be below the 3 percent mark—the
World Bank’s global goal of poverty eradication—
by 2013. This depends on enhancing the effectiveness of social protection programs and, more
fundamentally, maintaining the healthy growth
rates of recent years. Can these rates of inclusive
growth be sustained in the near future?
Recent economic growth has brought
shared prosperity. Is it sustainable?
Colombia sustained historically high growth rates
in the past decade, supported by sound macro policies, commercial integration, and favorable external conditions. Significant structural reforms since
the early 1990s, combined with important trade
agreements, have led to a modernization of the
economy. Prudent macroeconomic management
has also helped improve resilience. Colombia
weathered the international financial crisis of
2008–09 remarkably well and consolidated its
position among the fast-growing Latin American
(LAC) economies. Finally, favorable terms of trade
and international financing conditions helped attract investment, accelerate economic activity, and
xxi
xxii
OVERVIEW
increase trade. As result, the Colombian economy
sustained an average GDP growth of 4.8 percent
in the past decade, more than 1 percentage point
above the average for the previous three decades
(3.5 percent). In per capita terms, the difference is
also large—around 3 percent in the past decade,
compared with 1.7 percent in previous decades. In
the past four decades Colombia has been continuously closing its per capita income gap with other
LAC countries. In 1970, LAC’s per capita income
was 2.1 times Colombia’s income; by 2012 the difference was reduced to 1.6 times.
Colombia’s long-term economic growth has
been heavily based on factor accumulation; productivity growth was almost nil for most of the
period, although it recovered in the last decade.
Chapter 3 (Structural Changes — Implications for
Growth, Productivity, and Competitiveness) describes
Colombia’s sources of economic growth over
several decades. Per capita GDP growth since
1960s has relied mostly on factor accumulation.
Total factor productivity (TFP) contributed only
0.1 percentage point to the almost 2 percent average annual growth between 1961 and 2011.
This does not differ much from the rest of Latin
America. However, an interesting pattern emerges when looking at high-growth Asian economies:
Their rate of human capital accumulation does
not differ much from Colombia’s. The difference in per capita GDP growth is explained by
Colombia’s lower accumulation of physical/financial capital and lower rates of TFP productivity growth. In 2001–11, average per capita
GDP growth increased to 2.8 percent, similar to
the Latin American average, but still below the
3.9 percent in high-growth Asian economies. In
this decade, Colombia has even managed to accumulate human capital faster than high-growth
Asian economies, but capital accumulation and
productivity growth still lag in comparison, explaining the recurrent difference in per capita
GDP growth compared to the Asian economies.
This indicates that convergence requires reforms
to accelerate capital accumulation and productivity growth. Chapter 8 on building infrastructure,
Chapter 9 on financial markets, and Chapter 10
on the innovation system elaborate policy recommendations towards these ends.
A closer look at sources of growth by economic activity indicates that productivity gains were
uneven and largely influenced by labor reallocations. Almost all sectors had increases in productivity—measured by output per worker—in the
past decade. These gains are the result of a combination of factors: capital accumulation, employment reallocations, and total factor productivity
TFP gains. Interestingly, non-tradable activities
have generated more than 50 percent of the new
value added and productivity gains in the decade.
On the other hand, tradable activities (i.e., agriculture, mining, and manufacturing) have lost share
of total employment, despite gains in output per
worker, particularly in the mining sector. In the
end, the long-term trends of output in Colombia
show the combined share of output in agriculture
and manufacturing declined from 9.7 and 18.1
percent to 6.2 percent in 1976 and 12.0 percent in
2012. This long-term pattern is common to many
countries, but it calls attention on the need to accelerate productivity growth in tradable activities
to avoid wideining productivity differentials across
sectors.
While economic activity remains relatively diversified, Colombia’s exports are among the world’s
most commodity-dependent. Various indicators
can be used to analyze commodity intensity/dependency. Considering primary sector (agriculture
and extractives) value added as a share of GDP,
Colombia at 14.2 percent appears to be less commodity-intensive than both LAC (25 percent) and
Asian economies (18 percent). However, this changes when fiscal and export dependency are considered. Commodity-related revenues represent
17.6 percent of Colombia’s government revenues.
This figure is larger for the LAC region (approximately 30 percent) but lower for Asian economies
(approximately 14 percent). Colombia’s commodity exports as shares total exports (70.2 percent) trail
only Venezuela and Bolivia among LAC countries; they are well above the averages for the region (51 percent) and Asian countries (19 percent).
An Overview of World Bank Policy Notes for Colombia
In contrast, commodity exports as share of GDP
(11 percent) are much lower and in line with the
LAC (11.7 percent) and Asian (12.3 percent) averages. This is mainly due to the fact that Colombia is
relatively closed when compared to its peers.
Trade growth and, in particular, export growth
have benefited significantly from high commodity
prices during the past decade. Colombia’s export
value grew an average of 13.6 percent a year,
largely driven by increases in the international
prices of Colombia’s main export commodities.
Favorable prices helped increase Colombia’s
share of world exports from 0.2 percent in 2002 to
almost 0.4 percent in 2012. The gain was almost
entirely driven by extractive exports. Without
them, Colombia’s exports remain almost constant
as share of the world’s total.
Colombia’s resource boom has been a blessing in
many dimensions, but it poses social and economic
policy challenges. The boom has boosted foreign
investment, economic growth, and government
revenues. However, the rising terms of trade and
related capital inflows may lead to appreciation of
the exchange rate, undermining the competitiveness of other sectors. Fuel sales increased to almost
two-thirds of total exports, while manufacturing’s
share of total merchandise shipments declined
significantly. In addition, extractive activities are
often highly capital intensive, do not create many
jobs, and generate large rents, which may harm
the income distribution. Finally, the relatively large
share of extractive activities trade and government
revenues increases macroeconomic exposure to
price fluctuations and volatility. Volatile revenues
and associated pro-cyclical spending could have
real costs for growth.
Commodity production and natural resources
abundance do not necessarily hinder growth.
The associated increase in oil export revenues
brings along certain opportunities for Colombia
because—if well-managed—it might serve as
a financing source for economic development.
There are many examples of countries rich in
natural resources that managed their resources
well and achieved high growth while diversifying their economy beyond commodities—such as
Norway, Chile, Botswana, Indonesia, Malaysia,
or Thailand. In contrast, many commodity-rich
countries are lagging in development, supporting
the ideas that a “curse” can emerge if resources are poorly managed. Examples might include
Nigeria, Venezuela, or Algeria. On top of fiscal
considerations of how to manage commodities
and natural resources, important environmental
considerations also need to be addressed. Chapter
7 on environmental sustainability gives an account
of these issues for Colombia.
Colombia has taken important steps to mitigate
the risks associated with the commodity boom,
but lessons from other economies suggest that
more can be done. Given the macroeconomic
framework, Colombia seems well-equipped to
counter near-term risks and achieve structural
shifts into non-commodity sectors. The public
sector is characterized by modest debt levels, and
the fiscal deficit has been on a downward path.
The legal framework has been reformed with a
fiscal rule to facilitate counter-cyclical policies, a
decreased reliance on commodity revenues, and
a reform to widen the tax base. Furthermore, the
central bank has earned considerable credibility
in the market and operates independently under
a sound framework of flexible inflation targeting. While the fiscal rule helps limit fiscal volatility from commodity cycles, it does not per se
resolve the problem of how to transfer resources
from commodity industries to other sectors of the
economy. Sector specific policies for comprehensive rural and urban development (as explained in
Chapters 4 and 5) can help balance the patterns
of economic growth in Colombia.
Nine Policy Areas
Achievement of the development objectives described in the previous section can be advanced
through a set of policies. Although referring to
a given sector and instrumented by specific policy actors, these policies are interrelated and have
xxiii
xxiv
OVERVIEW
links to different sectors as well as effects upon
more than one objective. The order in which they
are presented involves proximity of subject and
method of analysis, not ranking or prevalence.
Organizing the territory
Colombia is one of the world’s richest countries
in terms of biodiversity, and it is generously endowed with forests, water, and mineral resources.
Located in northwest South America, Colombia is
one of five “megadiverse countries” or biodiversity
hotspots; i.e., countries that possess an exceptional
wealth of plant and animal species. One reason for
this wealth of biological resources is the wide variety of landscapes across Colombia. The country
has 311 different types of ecosystems—61 million
hectares covered by different kinds of forests, 10
million hectares of natural savannas, and about
two million hectares of páramos. In addition, the
country has six million hectares of varied marine
and coastal ecosystems.
This immense diversity is accompanied by wide
differences in living standards from one region to
another, growing exposure to the risk of disasters
and environmental degradation, and a still unrealized potential for multi-modal connectivity
and inter-regional convergence. For Colombians,
this territory poses a wealth of opportunities and
challenges.
Improve rural areas first
Violence and illegality are concentrated in rural
areas. In recent decades, these parts of the country have endured the most serious and persistent
conflict: violence, illegal crop plantations, drug
trafficking, land concentration, and displacements.
Colombia’s rural areas have the highest incidence
of poverty. Their main economic activities—agriculture, fishing and forestry—have shrunk and
underperformed. Consequently a large number of
locals—between four and six million, depending
on the source—have left vast rural areas underpopulated, the people struggling to get by in large
urban centers. CODHES estimates the amount of
land abandoned between 1980 and 2010 at 6.65
million hectares (CODHES, 2012).
Despite the significant decline in the incidence of
poverty at the national level, both moderate and
extreme poverty remain significantly higher in rural areas. In 2012, extreme poverty in rural areas
was 22.75 percent, compared with 6.59 percent
in urban areas. For moderate poverty, rural areas
were at 46.8 percent and urban areas at 28.4. These
rates represent significant gains from 2002, when
rural areas had extreme poverty of 33.11 percent
and moderate poverty of 61.7 percent, compared
with urban area rates of 12.24 percent in cities and
45.45 percent in the countryside. While moderate
poverty reduction was impressive in both urban
and rural areas, the gap between them increased
from 1.35 to 1.64, suggesting that urban areas
were more effective at lifting Colombians out of
poverty. Half of the population in extreme poverty
live in rural areas. Over all, the evidence suggests
that poverty reduction been slightly biased towards
urban areas. Eradicating extreme poverty implies
paying special attention to rural areas.
The rural sector in general and agriculture in particular have considerable untapped potential for
wealth creation and poverty reduction. Both feature many unutilized and underutilized resources.
For instance, only 5.3 million of 22 million hectares of arable land are currently cultivated, and
38.8 million hectares are characterized by extensive pasture systems with an average stocking rate
of less than one animal per hectare. Despite this
considerable potential, the agricultural sector has
underperformed. For the decade 1994–2004, agriculture managed average annual growth of 1.1
percent, while the economy grew at a 2.2 percent
rate. For 2004–13, growth rates were 2 percent for
agriculture and 4.7 percent for the economy. After
years of lagging, the agricultural sector has shrunk
as a share of the Colombian economy, going from
9.7 percent in 1976 to 6.2 percent in 2012.
The decline of the agricultural sector reflects years
of public neglect and a lack of incentives for farmers to invest in productivity-enhancing technology.
An Overview of World Bank Policy Notes for Colombia
The underperformance can be traced to three basic causes. First, institutions have been weak and
ineffective. The public institutions charged with
delivering services to Colombia’s rural sector are
fragmented, understaffed, and inconsistently managed. Responsibility for key functions is distributed across multiple agencies, responsibility remains
highly centralized, and local capacity has generally
been weak. Second, policies have been inappropriate, inconsistent, or inconstant. Agricultural policies have differed over the years in terms of focus
and approach, but a common feature has been a
recurring reliance on special initiatives, programs,
and projects to provide immediate solutions to
pressing crises. Third, public investments have
been ineffective. Government spending has resulted in wide gaps in the allocation of public goods
and services between rural and urban areas, disadvantaging the rural population in terms of opportunities. This rural disadvantage has undermined
the incentives for private investment in farm and
non-farm activities. Public investments directed to
the rural sector very often have had little impact
beyond the very short term, partly because they
have tended to subsidize inputs and support prices received by private producers while neglecting
to finance the public goods and services needed
to improve overall competitiveness. Between 2010
and 2014, for example, the Ministerio de Agricultura y
Desarollo Rural (MADR) invested COP 7 billion in
direct subsidies and COP 13 billion in subsidized
credits to agriculture producers.
However, rural development is more than agricultural development—it encompasses everything that
contributes to improved livelihoods of rural populations, including infrastructure, health, education,
technology, connectivity, and social protection.
Rural development requires significant investment
in public goods and services, rather than direct
subsidies to private goods and services. In an age
of budget constraints, rural development efforts
should focus primarily on areas where poverty is
high and where the presence of the state is lacking.
The development of this “new rurality” will have
to overcome three main challenges. First, it must
articulate and adopt a territorial approach to rural development. Efforts to promote rural development have often been less effective than anticipated because they have consisted mainly of
sector-specific interventions. Instead, a territorial
approach is characterized by: (i) multiple goals
and objectives; (ii) sector interactions that optimize synergies; (iii) respect for the interests of local
communities; (iv) adaptive planning and management; and (v) collaborative action and comprehensive stakeholder engagement. The ongoing Misión
Rural initiative represents a movement toward such
an approach.
Second, such development must overhaul the institutions charged with implementing rural development policies and programs and introduce a
new policy-making process. The institutions that
currently hold the mandate for rural development
in Colombia are poorly suited for implementation
of an integrated territorial approach. Effective implementation of a territorial approach will require
re-thinking the way services are delivered to rural
areas. It will be necessary to build a new institutional
architecture consisting of centralized policy-setting
and financing agencies, decentralized coordination
mechanisms, and strong local implementation capacity. If a territorial approach to rural development
is to take hold in Colombia, it will require a rebalancing of the relationship between the center and
the periphery. Chapter 4 elaborates on the roles that
Ministry of Agriculture and Rural Development, its
Vice Ministry of Rural Development, the National
Institute for Rural Development (INCODER), and
local agencies can play in a successful implementation of a territorial approach in Colombia.
Third, rural development must tackle the land
problem. Colombia’s unequal distribution and
inefficient use of land stands as the single largest obstacle to rural economic growth, social and
political stability, and durable peace. Colombia’s
land resources are underutilized and inequitably
distributed in ways that incur significant costs for
society through unrealized agricultural growth potential, environmental degradation, poverty, conflict, and social dislocation. Regardless of its other
xxv
xxvi
OVERVIEW
features, one thing is certain: to succeed, any new
rural development strategy will have to begin by
tackling the land problem. Three priorities stand
out: formalize land tenure, build a national land
administration system, and correct land use inefficiencies through policy reforms.
What needs to be done to reverse decades of underperformance in Colombia’s rural economy
and unlock agriculture’s potential to contribute
to broad-based, sustainable growth? Chapter 4
(Agriculture and Rural Development) identifies three sets
of actions for immediate implementation, with
considerable potential to help set the rural economy on the path to sustainable growth.
The first action will be to resettle displaced populations and provide people with the means to resume
productive activities and restore their livelihoods.
As peace and stability return to rural areas, the immediate priority will be to secure rural households
access to land, to the productive inputs needed to
re-launch agricultural activities, to the information
and knowledge needed to use those inputs effectively, to the financial resources needed to pay for
them, and to the infrastructure needed to deliver
surplus production to the market. Needed interventions in the short to medium term include:
(i) securing access to land; (ii) distribution of physical inputs for agricultural production as well
as technical assistance, to ensure that recipients
make effective use of the resources they receive;
and (iii) affordable small-scale rural infrastructure,
including affordable irrigation technologies (both
gravity systems and pump-driven systems), community-level processing and storage facilities, and
physical markets.
The second action will be to turn agriculture into a
profitable activity for small-scale family farmers as
well as large and medium-sized commercial farmers. This will require a two-pronged approach because agriculture has two distinct sub-sectors—a
relatively large sector composed of small-scale
family farmers, who produce mainly for home
consumption and are poorly integrated to markets,
and a relatively small but growing sector composed
of commercial farmers who produce mainly cash
crops for domestic and export markets. For the
first group, efforts will be needed to transition from
subsistence-oriented farming to more commercial
farming. The second group will need to modernize
production methods so they can compete in an increasingly globalized economy. Needed interventions include: (i) revitalizing technology generation
and transfer systems through public private partnerships and commercial alliances for production
of commercial crops; (ii) developing programs for
silvo-pastoral systems (SPS) through a mix of financial incentives; and (iii) reducing deforestation
and forest degradation rates while stimulating investments in commercial forestry systems that are
technically efficient, economically profitable, socially inclusive, and environmentally friendly.
The third action focuses on making policies sustainable by safeguarding them against economic
instability, weather variability, and environmental
degradation. Over the longer term, the health and
well-being of the rural sector will depend on the
Government’s ability to successfully implement a
territorial approach to development. Interventions
in this realm include: (i) a new institutional architecture to manage territorial development at both
national and local levels; (ii) an institutional framework to manage agricultural risk; and (iii) implementation of National Climate Adaption plan,
with appropriate monitoring.
Make cities more connected and
productive
Today 75 percent of Colombians live in cities, but
this share is expected to grow to 85 percent by
2050—an increase of 20 million new urban dwellers. While commodities have been an important factor in Colombia’s growth, the urban economy has
contributed more than 50 percent to GDP growth
rate in the past four decades. Moving forward,
strengthening the role of cities may help mitigate
the inherent risks of commodity-intensive economies. An efficient urban system will be necessary
to support the transition from a commodity-driven economic system to a stronger resource-based
An Overview of World Bank Policy Notes for Colombia
manufacturing structure and then to more knowledge-intensive industries and services.
Cities will also play a major role in continued poverty reduction. Despite lower rates of moderate
and extreme poverty than rural areas, cities have
larger shares of the moderate poor (more than
70 percent). Moreover, policies and investments
that facilitate (through planning and land availability) and promote (through increased investment) access to city-level services—such as water,
sanitation, affordable housing, health, education,
urban transport, and public and recreational spaces—will be essential for country-wide poverty
reduction. This is particularly apt for reductions
in the multidimensional poverty index, which responds not only to incomes but also to services
characteristic of city life.
Colombia’s urban areas can be analyzed at two
levels. First, the system-of-cities level studies the
functioning of the largest urban agglomerations
and inter-connected cities as a whole. Second, the
city or urban agglomeration level focuses on locality-specific problems of urban planning, service
delivery, and public finance.
Expensive inter-city connectivity burdens
Colombia’s system of cities, which include
18 urban agglomerations and 28 nodal cities.
Large physical and economic distances separate
Colombian cities. To move goods from one city to
another often requires transport over the Andes
and navigating altitude differences in excess of
2,000 meters, exacerbating economic distances
and increasing logistical costs. Unlike many vibrant cities across the globe, Colombian cities are
at a distance from ports and other cities in the urban portfolio. Bogota and Medellin are more than
500 kilometers from a port. In contrast, Shenzhen,
Mumbai, and Bangkok are port cities that connect
their countries to world markets. To reach major
ports, goods coming from Colombian cities must,
on average, be transported about three times further than in Brazil and Chile, and six times further
than in Argentina, the Republic of Korea, and
China. Better connecting cities would increase the
urban system’s economic efficiency and allow for
cities to specialize and perform specific functions
within the system. In sum, Colombia would benefit
from an increased integration and connectivity of
its system of cities through transport and logistics
infrastructure, which would encourage specialization and increase competitiveness in international
markets.
At the city level, there are three general challenges.
First, within-city coordination of service provision
needs to improve. In many cities, water, sewerage,
solid waste management, electricity, and transport
networks frequently span several administrative
boundaries, yet metropolitan planning and coordination has been limited. There is a need to foster and enhance coordination at a regional and
metropolitan scale, recognizing the need to adjust
to the functional relationship between small and
medium-sized cities. Second, the cities need to
take advantage of agglomeration economies to increase their economic potential. High population
densities have not been matched by high economic densities. For instance, a comparison of actual
building densities with legally permitted densities
in such cities as Bogota shows considerable underuse of available land. In 2010, 63 percent of
commercial space, 53 percent of residential space,
and 54 percent of industrial space in Bogota were
underused. This is probably a result of several factors, but information asymmetry between market
participants likely plays a large role. Low economic
densities hamper the ability of cities to enable economic interactions that help create markets and
promote innovation and investment
Third, cities need to diversify and enhance their
sources of financing. Small and mid-sized cities
must strengthen their fiscal fundamentals, while
mid-sized and large cities must continuously innovate with fiscal instruments. Municipal tax collections have increased with decentralization and administrative reforms across all categories of cities.
However, small and mid-sized cities have not kept
pace with larger cities in their ability to increase
local revenues. Real tax revenues show a positive
correlation with the cadastral system’s accuracy.
xxvii
xxviii
OVERVIEW
Large cities have more comprehensive land cadasters. Bogota, for example, has attained 100 percent
land registration. In comparison, only 43 percent
of all rural areas in Colombia are included in the
system. Only Bogota, Medellin, and Cali have independent cadaster offices; all others are handled
at the national level. A strong push is required to
strengthen the fiscal fundamentals for small and
mid-sized cities. This might be done through capacity-building in municipal fiscal management,
strengthening local cadastral systems, and structuring fiscal and performance incentives in the national transfer system.
Chapter 5 (Urban Sector) has detailed policy recommendations for the system of cities and cities.
At the system-of-cities level, the following actions
would be recommended. The country needs to develop and adopt a national urban policy that recognizes and defines its system of cities. To achieve
this, the following actions are recommended in the
short term: (i) implement the CONPES on Urban
Policy to define the system of cities, instructing the
National Statistics Department (DANE) to generate
data at metropolitan, agglomeration, and regional
levels and instructing the ministries to mainstream
and apply the system-of-cities analysis within their
sectorial policies; (ii) mainstream the system-of-cities concept in the National Development Plan
2014–18; and (iii) promote an institutional reform
within the Ministry of Housing (MHCT) to move
from a housing-centered agenda toward a territorial approach to development in coordination with
other relevant sectors, including urban planning
and economic activities, water and sanitation,
waste management, urban transport, social facilities, and urban amenities.
At a city level, the Government needs to foster and
enhance coordination at a regional and metropolitan scale, recognizing the need to adjust to the
functional relationships between small and medium-sized cities. To achieve this, the following actions are recommended in the short term: (i) define
and promote the most convenient systems of coordination, taking into account the Colombian legal
framework, which allows the creation of multiple
institutions, has not proven effective in promoting
metropolitan coordination in the long term; (ii) define and promote the most convenient incentives
in terms of technical assistance, funding, financing, and guarantees to foster metropolitan projects;
and (iii) formulate and support creation of Public
Services Master Plans (water, sanitation, and solid
waste management).
Manage disaster risks better
Latin America is experiencing an increase in the
number of reported disasters—a trend likely to
continue because 20 LAC countries have more
than 50 percent of their GDP exposed to two or
more natural hazards. Annual expected economic
losses for the region amount to more than US$5
billion, and most of these losses are associated with
damage to public sector assets in health, education, water, transport, and infrastructure sectors or
damage to private houses. In addition, significant
losses are often concentrated in the agricultural
sector, impacting production, markets, government
tax revenues, and trade balances. Nonetheless,
rapid urbanization, with its growth of city populations and assets in combination with poorly or
unplanned development, is the main driver of the
costs associated with disasters in the region.
Colombia has the world’s 10th highest economic
risk of two or more hazards, according to the World
Bank’s natural disaster hotspot study. In Colombia,
84.7 percent of the population and 86.6 percent
of the assets are located in areas exposed to two or
more natural hazards. The exposure includes both
low-frequency/high-impact events, such as earthquakes, Pacific tsunami, volcanic eruptions, and
occasional Atlantic hurricanes, and high-frequency but lower impact events, such as floods and landslides. Many researchers expect climate change to
exacerbate flooding and landslides in large parts of
the country. Colombia has Latin America’s highest rate of recurrent disasters triggered by natural
events, with an average of more than 600 reported
disasters each year. Colombia’s main challenge in
disaster risk management is reducing some of its
extremely high levels of vulnerability.
An Overview of World Bank Policy Notes for Colombia
Increasing climate variability in Colombia, most
commonly associated with the cyclical occurrence
of El Niño and La Niña phenomena, contribute to
growing losses. Between 1950 and 2011, El Niño
impacted the country 15 times and La Niña 13
times. While the nationwide flooding and landslides associated with La Niña 2010–11 produced
one the largest economic losses as a result of rainfall, other episodes such as La Niña 2008–09 had
similar economic impacts in terms of the number
of municipalities affected and the types of principal losses (agrarian, housing, transport). The
tendency for greater weather variation in specific
areas of the country cannot lead to the conclusion
that these regional changes have directly increased
the country’s disaster risk.
Broadly speaking, scientists and politicians recognize climate change’s potential negative impacts;
however, disaster risk in Colombia is notably exacerbated by additional factors. The increase of
disaster risk can be attributed to a combination of
climate variability and the population’s heightened
vulnerability as a result of economic, social, and
environmental drivers.
The growth in exposure of people and assets, combined with inadequate land-use planning, explains
growing economic and social impact of disasters.
In geographical terms, 36 percent of the national
territory (960 municipalities, including those with
the largest populations) is exposed to high seismic
hazards, predominately in the Pacific and Andean
regions. Similarly, 18 percent of Colombia faces
high landslide risk (most frequently attributed to
heavy rains), and 12 percent of the national territory is located in areas with increased vulnerability to floods. The share of the population at high
risk is 28 percent for earthquakes, 32 percent for
landslides, and 38 percent for flooding. Moreover,
Colombia faces a particularly regressive distributional impact in terms of who bears the greatest
burden of risk. Small and low-income municipalities do not necessarily have the greatest economic
losses in absolute terms, but they are socio-economically the most vulnerable to natural hazards
and they have least capacity to recover. As a result,
better resource and risk management would have a
direct impact upon poverty and regional inequality.
Four factors contribute to the accumulation of
disaster risk. First, conceptual advances in the relationship between disaster risk management and
sustainable development have not been incorporated into government policy or made an integral part
of public administration, allowing risk conditions
to grow. Second, risk is constantly accumulating in
cities and rural areas due to ineffectual municipal
land-use planning policies and instruments and
deficient watershed management. Third, the inadequate application of disaster risk management
policies in sectorial planning threatens the sustainability of investments, both in goods and services
sectors, contributing to rising levels of exposure
and vulnerability. Fourth, in the absence of a clear
policy on government responsibility for responding to disasters and the associated losses, citizens
and the private sector are implicitly discouraged
from assuming proactive roles in risk reduction and
management, resulting in greater fiscal costs.
To reverse this situation, six policy recommendations are proposed—with further elaboration
into short and medium-term actions in Chapter
6 (Disaster Risk Management in Colombia). First, implement the National Disaster Risk Management
Law. This recommendation focuses on the regulation of Law 1523 and adoption of the National
Disaster Risk Management Plan (according to
Decree 1974/2013). It is also necessary to move
forward in the operationalizing funding mechanisms for local and sectorial disaster risk management initiatives. Second, increase effectiveness and
efficiency of disaster risk management investments,
strengthening the mandatory incorporation of disaster risk management criteria in public projects
and the adoption of a strategy for monitoring responsibilities and investments. This recommendation also includes the development of land-use
planning instruments, with investment plans to advance effectively in disaster risk reduction. Third,
strengthen subnational capacity in the design and
application of planning instruments to reduce the
causes and accumulation of disaster risk. This
xxix
xxx
OVERVIEW
recommendation promotes the review of local
and regional capacity for disaster risk assessment
and responds to the demand for risk knowledge in
land-use and development planning. It would also
support the formulation and implementation of a
national policy on at-risk settlements.
Fourth, systematically reduce flood and landslide
risk to minimize associated impacts. This recommendation centers on improving the understanding of disaster risk and its links to environmental
policy, development, and adaptation to climate
change. It entails assigning responsibility for management of rivers and water bodies to a single national entity and establishes the roles and coordination mechanisms for the associated agencies. It
aims to adopt regulations for flood and landslide
control and management and to develop a strategy for implementation, monitoring, and control.
Fifth, reduce disaster risk and associated impacts
through policies and sectorial action plans. This
recommendation can be achieved through appointing a unit responsible for disaster risk management
in each sector and the implementation of sectorial
policies for risk management in each ministry. The
strategy also seeks to support the adoption and
implementation of sectorial and inter-ministerial
action plans in risk management. And sixth, assign
public and private responsibilities in risk management and strengthen the Government’s policies
for reducing fiscal vulnerability. This final policy
recommendation addresses the adoption of clear
policy guidelines on the level of protection that the
national government and local authorities offer to
those affected by disasters. It suggests adjustment
of regulations to clarify the private sector’s responsibility and reduce fiscal contingencies resulting
from the needs expressed by the affected population. It also promotes strategies to increase local
and sectorial awareness of risk management and
improve capacity in risk management strategies.
Strive for environmental sustainability
Natural resources are important to the Colombian
economy. In 2012, agriculture, forestry, and fishing represented 6.2 percent of GDP, mining and
quarrying contributed 7.7 percent, with electricity,
gas, and water adding 3.6 percent. However, the
genuine net savings indicator, a measure of environmental sustainability, shows that Colombia’s
gross national savings, after subtracting the costs
of pollution and depletion of minerals and natural resources, fluctuate around zero, far below
OECD and regional averages. Furthermore, environmental degradation has high costs for the
economy, estimated at 3.7 percent of GDP by the
2007 World Bank study. These salient facts give
rise to environmental challenges typical of a middle-income country with high income growth, a
rich endowment and high dependence on natural resources, and a high concentration of urban
population. Chapter 7 (Environmental Sustainability in
Colombia) highlights two areas that merit specific attention: pollution management and environmentally sustainable growth.
Pollution management is the main priority on
Colombia’s environmental agenda, including air
pollution, water pollution, and solid waste management. As the economy and urban population
have grown, the annual costs of urban air pollution have increased dramatically to an estimated
1 percent of GDP, matching the contribution of
the minerals sector or coal. Together with other
environmental health problems—indoor air pollution from solid fuel used for household chores and
inadequate access to improved water sources and
sanitation—annual environmental health costs
reach 2 percent of GDP. Without considering the
cost of natural disasters, this makes urban air pollution the biggest environmental problem—ahead
of water supply, sanitation, and hygiene.
Investment in wastewater treatment and solid-waste
management needs to keep up with the growing urban areas. Only around a quarter of Colombia’s
wastewater is treated, with the rest discharged directly into water bodies and marine estuaries. Many
of the rivers passing through Bogotá, Medellin, Cali,
and other urban areas are heavily polluted, and
coastal cities such as Cartagena and Barranquilla
experience water quality problems in estuary and
near-shore areas. Solid waste management and the
An Overview of World Bank Policy Notes for Colombia
management of hazardous waste are other areas
that require greater policy and investment efforts.
One-fifth of Colombian municipalities, located
predominantly in rural areas, do not have adequate
waste disposal, and around one-third of the country’s sanitary landfills are not properly managed
and do not comply with environmental regulations.
Reducing pollution will require efficient and sustainable water utilities; partnership building at the
local, national, and international levels; proper policies; greater institutional planning; and adequate
financial arrangements.
Urban air pollution causes three times as many
deaths as inadequate water supply, sanitation,
and hygiene, and five times as many deaths as indoor air pollution. Despite considerable progress
in environmental management over the past decade, a recent assessment reveals that Colombia’s
population still faces significant adverse impacts
from exposure to urban air pollution (UAP), inadequate water, sanitation, and hygiene (WSH),
and indoor air pollution from solid fuel use (IAP).
The total health cost attributable to these three
factors amounted to about COP 10.2 trillion annually, or about 2 percent of GDP in 2010. In
terms of mortality, about 7,600 premature deaths
a year can be attributed to these environmental
factors. About 5,000 deaths are associated with
UAP, around 1,600 with inadequate WSH, and
1,000 with IAP. In terms of the burden of disease—measured in terms of lost disability adjusted life years (DALYs)—the pattern is similar:
nearly 70 percent of DALYs are attributable to
UAP, around 20 percent to WSH, and around
10 percent to IAP. The relative burden of health
costs from these three factors are at the same level
as 2002, but the overall magnitudes of the costs
has changed, reflecting population and income
growth, better access to improved sanitation, and
growth in Colombia’s urban population. Health
costs in the three sectors are moderate compared
to other countries in the region, and the share of
air pollution costs is high.
Colombia’s economy is vulnerable to risks associated with its natural resource richness; they can
be minimized by strong governance and effective
public spending on other productive sectors of
the economy and education. Countries well-endowed in natural resources often do not develop
highly diversified economies, and they are at risk
of developing weak institutions—a phenomenon known as “the resource curse.” But recent
empirical evidence reveals that possessing commodity wealth does not necessarily compromise
a country’s growth. The risks can be overcome
by: (i) prudent management of natural resource
rents; (ii) replacement of whatever natural wealth
that is extracted with other forms of durable capital; and (iii) efficient public spending fueled by
windfall rents from natural resources. In a contrary case, total wealth will decline and growth
will not be sustainable, and some evidence suggests that is happening in the LAC region.
Because of unproductive choices, countries with
high resource rents tend to end up with lower
genuine savings rates. This has been happening
in Colombia, where the adjusted net savings—a
measure of savings after subtracting the costs of
natural resources extracted and the costs of pollution—have lingered around zero and far below
the regional average. This indicator suggests that
the Colombian economy has a very low rate of
savings, and growth is not sustainable from an environmental perspective.
Regarding environmentally sustainable growth,
it is also important to consider that the peace
process, a renewed focus on agricultural development, and the planned investment in roads infrastructure may expand the deforestation frontier.
The measures to promote forest and biodiversity
conservation and address deforestation pressures
will need to be closely connected with policies
that support sustainable agriculture. Promoting
sustainable forestry and land-use practices will
require: (i) strengthening the technical assistance programs through rural extension services;
(ii) supporting agricultural research and innovation to improve agriculture’s resilience to climate
change; (iii) slowing the advance of the deforestation frontier by measures that promote a shift
from extensive cattle farming, notably through
xxxi
xxxii
OVERVIEW
greater security of land tenure; and (iv) improving the management of protected areas. In intensive agriculture, incentives for more efficient use
of fertilizers and pesticides would help improve
farmers’ profits while reducing soil and water
pollution.
The formidable and complex environmental challenges facing Colombia require a comprehensive
and ambitious agenda. This agenda, spelled in
more detail at the end of Chapter 7, can be summarized into five general areas. First, enforce environmental regulations, such as monitoring and
enforcement of environmental standards for landfills and developing economic instruments for the
hazardous waste sector as stipulated by the 1993
Law 99. Second, strengthen data and information
systems. This includes the creation of real-time
air quality alert systems to reduce exposure during
peak pollution times, strengthening of data and
systems measuring fertilizer consumption by type
of crop and optimum use and providing technical
assistance to farmers through extension services,
and, more generally, developing a national policy
on green environmental accounting, with guidance on information provision and coordination
across agencies and the public. Third, increase
investments that foster environmental protection—wastewater treatment, vehicle fleet renewal
(e.g., junking programs for the old bus fleet and
programs to retrofit the most polluting vehicle
classes), and integrated urban planning with alternative transportation systems (e.g., scaling up
Bus Rapid Transit). Fourth, enhance institutional
coordination. It is necessary to build in-house capacity for environmental analysis among district
environmental authorities, the Department of
National Planning (DNP), the Ministry of Health,
and the Ministry of Environment and Sustainable
Development—in partnership with the academia,
local universities, and other stakeholders. Fifth,
promote green growth and meet international standards for environmental protection. This
includes developing a national Green Growth
Strategy and pursuing Colombia’s proposal for
achieving the OECD’s body of environmental
instruments.
Marshalling All Forms of Capital:
Infrastructure, Finance and
Innovation
As a percentage of GDP, capital investment in
Colombia has been growing for several consecutive
years: from 14.9 percent in 2000 to 24.6 percent
in 2013. This ratio is now among the highest in
the region. Furthermore, foreign direct investment
has reached record levels lately, making Colombia
one of the region’s preferred destinations of international investors. And yet, productivity gains
are meager and convergence to higher living standards is too slow. The fruits of recent efforts will
be seen in the near future. Colombians need to
enhance these efforts by making more and better
investments.
Close the infrastructure gap
Colombia’s infrastructure gap is particularly acute
in road transport—shown by the high logistics
costs compared to similar economies around the
world. A host of studies and benchmarks highlight Colombia’s transport infrastructure bottlenecks. For instance, Colombia ranks 69th among
144 countries in the World Economic Forum’s
competitiveness ranking (2012–13 and 2013–14
reports), pulled down mainly by the quality of
its combined transport, supply, and telecommunications infrastructure (ranked 92nd) and the
quality of its institutions (ranked 110th). In the
World Bank’s 2014 Logistics Performance Index,
Colombia ranks 97th among 160 countries, making
it one of the worst performers relative to regional
peers. The country ranks 93rd among 185 economies in the World Bank’s 2013 Doing Business
indicator related to Ease of Cross Border Trade, which
predominantly highlights the country’s high inland transportation costs and time in performing
a foreign trade transaction. In particular, more
than 65 percent of the exporting/importing costs
in Colombia are associated with inland transport,
and these costs are more than double the LAC
and OECD averages. Furthermore, an analysis of
An Overview of World Bank Policy Notes for Colombia
Colombia’s infrastructure gap by transport mode
finds the largest deficiency in road infrastructure,
where Colombia ranks 130th out of 148 countries
in WEF’s competitiveness ranking for 2013–14. A
2013 study by Fedesarrollo estimates that reducing
Colombia’s gap in road infrastructure would require at least 25 percent more roads (approximately 45,000 kilometers) and 30 percent more paved
roads (approximately 8,000 kilometers). The gaps
in port and airport infrastructure are less significant, although most facilities are already operating
at maximum capacity, and this will only worsen
with increased trade and passenger demand.
Closing the Colombian infrastructure gap involves
a series of challenges. These include: (i) lack of
long-term strategic planning in the sector and a
fragmented institutional and regulatory framework; (ii) limited local and national capacity to
manage the decentralization of the road network
and other decentralized functions; (iii) an unprecedented increase in the number of road concessions
demanding contract management capabilities;
(iv) weak frameworks to address transport sector externalities, such as road accidents, transport-related
greenhouse gas emissions, and resilience to climate
change-related events; and (v) slow diffusion of multimodal transport corridors and improved logistics
practices. Chapter 8 (Transport Infrastructure) elaborates on policy recommendations to address each
of these. What follows summarizes the the main
diagnostics and policy actions.
First, the transport sector has been characterized
by inadequate policy and planning capacity, the
lack of a multimodal policy, a short-term and reactive vision and management, and a shortage of
technical personnel in key agencies. The recent administration’s reform package is a step in the right
direction for overcoming some of these shortcomings. Yet, the new institutional set-up also raises
some concerns, such as delegation of some core
functions of the Ministry of Transport to other recently created transport agencies and the proliferation of project structuring agencies. The changes
may help create a pipeline of transport projects in
the near future, but eventually competencies and
boundaries will need to be better defined to achieve
more efficient and specialized interventions, particularly with regard to the decentralization process.
It will then be necessary to clarify and strengthen
the competencies and roles of various transport
agencies at the national level. First and foremost,
the Ministry of Transport needs to overhaul its
technical capacities to strengthen its policy-making functions and move away from a short-term
and reactive vision and management, strengthen
its policy-making functions, and link them with a
concrete long-term infrastructure investment plan.
Second, the new institutional set-up emerging at
the national level calls for a broad exercise to clarify the roles of various transport sector agencies in
a coherent and coordinated manner and to make
sure that the capacities are being developed to fully discharge the responsibilities established by the
new institutional framework.
Second, the majority of secondary and tertiary
roads are under subnational jurisdiction, and they
are largely unpaved and in poor condition. It is a
clear indication of limited institutional capacity
of local governments in planning, structuring, financing, and project management. This challenge
calls for improvements in the institutional set-up
for managing the secondary and tertiary road network and bolstering capacities at the subnational
level. There is a need to mesh long-term planning
for the national, regional, and local road networks.
In addition, it will be important to bolster project
structuring and project management capacities at
the subnational level. The ultimate goal is to avoid
fragmented and atomized public investments by
prioritizing the structuring and implementation of
subnational projects that have regional or national
impact and are conceived within a long-term infrastructure master plan.
Third, implementation of the 4G concession program will result in 40 new projects for the construction of 8,100 kilometers of national roadways over
the next eight years, generating new investments
of approximately USD$26 billion. By the end
of 2014, executing the 4G program as expected
xxxiii
xxxiv
OVERVIEW
would double the 25 road concessions from previous generations of public-private partnership
(PPP) programs. This tremendous increase in projects under management will put significant pressure on contract management functions and will
call for an important institutional effort. Research
and experience indicate that concession agreements are subject to a high incidence of renegotiation, and the Government must be in a strong position to manage incumbent operators and enforce
contracts that are inherently complex and involve
a wide variety of legal, financial, and technical obligations on the part of private operators that must
be continuously monitored.
Colombia needs to enhance the Government’s
PPP contract management capacity and reinforce
the planning, structuring, and project evaluation
filters in the PPP project planning cycle. The 4G
program’s unprecedented increase in the number of road concessions will demand an important institutional effort in contract management.
In this respect, setting up adequate governance
and technical competencies in the Transport
Regulatory Commission to respond to its chartered
responsibilities is critical. The Agencia Nacional de
Infrastructuras (ANI) contract management functions also need to be revamped. In terms of improving the planning and structuring capacities of
transport PPPs, the Government could also consider designing and implementing a capacity-building
program on PPPs for public structuring agencies.
Refining the PPP project cycle and establishing
more detailed guidelines and procedures is also key.
Fourth, the ever-growing number of casualties and
fatalities on the road network has made road safety a prominent issue at all levels of government.
In Colombia, road fatalities are the second cause
of death overall, and the leading cause of death
among children and early youth (the 5- to 14-year
cohort). In terms of resilience to climate change,
the meteorological phenomenon known as La Niña
proved the road sector’s lack of preparedness in
2010 and 2011 and demonstrated the need for
mainstreaming environmental management and
disaster risk policies in the transport sector.
The recommendation is to mainstream road safety
and environmental management in the transport
sector policy agenda. The Government needs to
continue in an aggressive and decisive manner to
design and implement an integrated, multi-disciplinary, and results-focused approach to road safety. In this respect, moving forward with the creation of the Road Safety Lead Agency with a Safe
System approach based on technical and independent criteria is crucial. These concerted efforts to
improve road safety should ultimately be measured
and monitored against the United Nations goal for
the Decade of Action—reducing by 50 percent the
deaths by road accidents in 2011–20. In terms of
environmental management, Colombia needs to
revamp its adaptation, mitigation, and resilience
strategies to manage the climate change risks and
vulnerabilities on transport infrastructure. This
will require collecting and continuously updating
information on high risk areas as well as designing
and implementing disaster risk assessment policies
and associated prevention and mitigation measures in the transport sector.
Fifth, road transport dominates a sector characterized by low diffusion of multi-modal and logistics
practices. The overall modal split in Colombia’s
freight transportation clearly shows road transport’s
dominance, with 70 percent of total freight volume
moved by truck. Railroads account for 27 percent
and are used almost exclusively to move coal from
mines to maritime ports for export. Inland navigation represents 3 percent of freight, with flows concentrated on the Rio Magdalena and mainly used
to transport oil and its derivatives. Commercial
navigability for other products could be feasible
but would require development of intermodal facilities and dredging to ensure all-season navigability. Under these conditions, modern multimodal
transport is virtually non-existent in Colombia, and
all freight except for coal and oil moves by road.
The policy recommendation centers on promoting
the adoption of multimodal transport in trade and
private participation in logistics services. Colombia
can expect a significant expansion of freight
transport as a result of new trade agreements. In
An Overview of World Bank Policy Notes for Colombia
response to this increased pressure in its transport
networks, the adoption of multimodal transport
strategies should emerge from an integrated and
strategic planning exercise focused on key trade
corridors and guided by economic rationales—
cost-efficiency criteria, distances to be travelled,
type of cargo to be transported, etc. In addition,
logistics platforms must be planned to optimize
flows from production centers to multimodal integration centers, taking into account that logistics
activities put additional strain on the already congested urban road networks. In this sense, the most
important task for the Government is to provide
the enabling environment and regulations for the
private sector to develop these complementary logistics services (logistics centers, transfer centers,
and cargo consolidation facilities).
More and better financial services for all
Leaving behind the crisis of 1999, Colombia’s
banking system is today much better supervised
and resilient, a fact demonstrated during the recent global financial crisis. Colombia has become
a pioneer within the region in adapting macroprudential policies and Basel III standards. At the
same time, Colombia’s capital markets have been
rapidly expanding in size, and they are now among
the most developed in Latin America. Banking
and insurance sector intermediation is comparable to countries of similar per capita GDP, size,
and demographics—but capital market intermediation to the private sector remains below potential.
Assets of the supervised financial system reached
75 percent of GDP at the end of 2013, with the
banking sector accounting for more than half of
all financial system assets. Credit to the private sector has recovered to its pre-1999 crisis levels, doubling from a low of 20 percent of GDP in 2003 to
40 percent in 2003. Pension Fund Administrators
are the most important non-bank financial institutions, holding assets equal to around 21 percent of
GDP in 2013. Insurance premiums are still small
at 2.4 percent of GDP, but they have been growing. Meanwhile, mutual funds are slowly growing
to be the second largest player of the capital markets, with assets of 6.8 percent of GDP. Despite
high equity market capitalization, investors buy
and hold, limiting turnover. In addition, the size
of domestic private sector issuance is very small
compared to peer countries.
Despite their recent progress, financial markets can
still do more for equity, growth, and resilience in
Colombia. Current challenges include: (i) reforming an oversight architecture that has not adapted to the new financial structure; (ii) further developing government debt and non-debt markets
and broadening the investor base; (iii) expanding
financial inclusion, particularly in rural areas, by
increasing the population’s financial literacy and
creating financial products to enhance access to
credit for small and medium enterprises (SMEs).
A list of diagnostics and actions—derived from
Chapter 9 (Financial Sector Policy Note)—follows.
First, Colombia’s financial oversight architecture
was designed more than a decade ago and has not
adapted to the new financial sector structure. The
definition of financial intermediation, focused exclusively on collection of resources for the public,
is both strict and unclear in interpretation, creating
grey areas for supervision, such as provision of funeral insurance or issuance of pre-paid cards. Some
financial cooperatives that collect resources from
members are now bigger than some of the banks
subject to full prudential oversight. The formation
of cross-border conglomerates and the development of capital markets have put increased demands on prudential and conduct supervision (discussed below). In addition, new intermediaries are
being created, such as issuers of electronic deposits,
expanding the universe of supervised institutions.
The existing financial sector oversight architecture should be revised to accommodate the new financial sector structure. A first-best option would
involve a comprehensive review of the definition
of financial intermediation as well as the mandates of all institutions with responsibilities for
financial sector oversight. Such a review should
take into account international experiences in
countries with similar financial sector structures
as well as the comparative advantages of existing
xxxv
xxxvi
OVERVIEW
institutions in Colombia. A comprehensive evaluation would involve changing several laws, but
a more modest review could involve the heavy
burden the law puts on the Superintendencia
Financiera de Colombia (SFC) for conduct supervision. At the minimum, authorities should rethink the structure of SFC. An alternative worth
considering would be a “Twin Peaks” structure,
with SFC retaining responsibilities for prudential
supervision of all institutions and conglomerates
and a new institution in charge of conduct supervision across all markets and the creation of
a more collegiate decision structure. It is also recommended that authorities continue to develop
the integrated risk measurement tools necessary
for monitoring conglomerates’ increasingly complex risk structure. While the Colombia groups’
recent expansion abroad is positive for the system, it requires close monitoring and improved
risk management tools to better gauge trends and
risks overseas. Moreover, the increased complexity of Colombian capital markets calls for new
approaches for regulatory oversight. SFC would
benefit from updating the supervisory framework
to ensure that supervisors have access to all information necessary to assess a conglomerate’s intraparty risks and its exposure to new jurisdictions.
In addition, it could take further steps to enhance
protection of minority shareholders’ rights and
investor protection, especially for collective investment vehicles.
Second, Colombia needs to develop financial markets, particularly for investments in housing and
infrastructure. Government bond markets are well
developed, representing 22 percent of GDP as of
December 2012. However, the non-government
debt market is small at 5.9 percent of GDP, and it
is dominated by financial institutions. Equity market capitalization has seen a substantial increase
over the past several years, but it is highly concentrated among a small number of issuers. The number of new IPOs or secondary offerings is also very
small. Furthermore, the capital markets’ investor
base is dominated by pension funds, with an incipient mutual fund industry and a small presence of
insurance companies and foreign investors.
The policy recommendations span several activities: (i) improve the liquidity of the government
bond market yield curve from short- to long-term
tenors; (ii) support development of an institutional
and regulatory framework that promotes financing for housing and infrastructure through capital
markets; (iii) develop policy and regulatory changes to support a more diversified institutional investor base for long-term financing; (iv) continue the
process of phasing out double taxation on foreign
investors as well as the complex administrative
and registration procedures for accessing foreign
exchange and the domestic securities market; and
(v) promote the development of options for hedging minimum wage risk and increase competition
in the annuities industry.
Third, fostering access and usage of financial services, particularly in rural areas, is a key challenge in
Colombia. Progress has been made in the number
of access points, but low product use reduces the
benefits of inclusion. Colombians have difficulties
using financial products in the informal economy
because of consumers’ lack of knowledge concerning the financial products available, the benefits of
using those products, and the institutions that provide them. Even as financial services become more
physically accessible, many Colombians need to
increase their comfort level with formal financial
institutions. A recent World Bank survey found that
more than two-thirds of the Colombian population
could not do a simple interest rate calculation, and
they were never taught to manage money, making
it difficult for them to analyze the terms and conditions of financial products. A similar lack of formal
financial knowledge was found in other developing countries in Latin America, such as Mexico.
Finally, credit for SMEs, particularly microcredit,
remains limited. The 2013 Gran Encuesta PYME
(GEP) survey indicated that more than 50 percent
of SMEs reported no access to the financial sector;
in particular, SMEs cannot access sufficient longterm financing to modernize their operations, and
they lack alternative non-bank financing sources.
Colombia needs to ratify a comprehensive financial
inclusion strategy, with a strong inter-institutional
An Overview of World Bank Policy Notes for Colombia
coordination mechanism. This strategy should include: (i) well-designed financial education interventions for promoting responsible use of financial
services; (ii) legal and regulatory improvements
to continue promoting the regular use of financial services, with an emphasis on mobile banking
and other technological innovations that facilitate
transactions; and (iii) the effective implementation
of the new Guarantees Law (1676) and creation
of an enabling framework for factoring to support
the Government’s objective of easing SMEs’ credit
access.
Make innovations thrive
Poor growth performance in Colombia is largely
explained by lackluster productivity, associated to
low innovation levels. Measured by TFP growth,
productivity has averaged a low 0.5 percent over
the past 60 years, climbing to 1 percent between
2003 and 2010—a rate that is still slow even by
LAC or Asian standards. An extremely large number of Colombian companies are too far from the
frontier to proactively respond to increasing external competitive pressures. At 0.18 percent in 2011,
national research and development (R&D) expenditures as a share of GDP are roughly half the expected rate for a country at Colombia’s level of
development. Other resource-abundant countries
like Canada and Australia invest approximately
2 percent of GDP in R&D, with South Africa at
0.93 percent and Malaysia at 0.63 percent. For
Colombia, the decline in R&D from 0.25 percent
at the end of the 1990s is entirely explained by the
collapse in private sector R&D—from a peak of 12
percent in 1997 to under 0.04 percent in 2006–10.
According to the National Innovation Survey IV
(2007–08), only 11.8 percent of Colombian firms
with more than 10 workers innovate in product or
process, compared to 30 percent on average for
countries at Colombia’s level of development.
The national innovation system is a conceptual framework integrated by three pillars: supply,
demand, and governance. On the supply side,
innovation requires sources of ideas and quality human capital across the spectrum relevant to
the needs of firms and farms. The demand for
innovation comes from companies and entrepreneurs. There can be little productivity growth if
they lack the capacity to innovate or if the competitive and trade context offer few incentives to
innovate. Most important, the governance of the
innovation system includes the institutions that define policies and programs to promote innovation,
the rules for their coordination, and the incentives
to accumulate and reallocate physical and knowledge capital to enhance and promote productivity
growth. Innovation contributes little to Colombian
economic growth because the innovation system is
weak in all three components.
Supply of skills and knowledge in Colombia requires increased quality and relevance. Colombia is
not producing students with enough 21st Century
skills. At the primary and secondary levels of education, Colombia continues to underperform in
math and science. In the most recent results from
PISA 2012, Colombia scored significantly below the averages for both the OECD and similar
middle income countries in Latin America. The
National Training System (SENA) absorbs vast resources yet gets mixed reviews from the private sector on relevance and quality. Studies suggest little
or no impact of technical education. Enrollment in
tertiary education fails to attract and retain talent.
Finally, agricultural extension needs an overhaul,
and universities and research centers are weakly
connected to private sector demand.
Demand for innovation among Colombian firms
is lacking because of the weak quality of management, which generates low technological “absorptive capacity.” A recent LSE-World Management
Survey, undertaken jointly by World Bank and
DNP, revealed that Colombian firms are among
the worst measured to date in management quality. Strikingly, the survey also suggests that managers have the largest gap between “perceived performance” and “real performance.”
Finally, governance of the Colombian innovation
system is fragmented, overlapping, and inefficient. At
present, Colombia does not have a coherent system
xxxvii
xxxviii
OVERVIEW
to encourage increasing productivity and sophistication of firms over time. Many different elements of
the support system are scattered across poorly coordinated ministries. SENA, for instance, operates basic start-up support as well as sophisticated technological parks (“technoparque”). COLCIENCIAS and
InnPulsa are also charged with higher-end support
to innovative firms. In fact, Colombia has at least 56
different programs to support improvements within
existing firms, spread across multiple agencies that
are often overlapping and underfunded. The recent
review performed by the Comite Tecnico Mixto
shows that many of these programs are small and
underfunded, with 90 percent receiving only 20 percent of the total resources.
Recommendations in Chapter 10 for improving
governance of the national innovation system involve moving toward a clear division of roles, specialization, and coordination so that it becomes
an integrated system. In this context, one agency
would focus on the supply of higher level human
capital and research; another one, with close connections to private sector, would focus more on the
demand side and raising firms’ capacity for innovation. Another one would specialize in technical
training, with a strong regional and local presence.
Finally, the activities of these specialized agencies
could be monitored and reviewed from a central
institution that would have no responsibilities in
the specific implementation of concrete programs
and activities. A coordinating body at the highest
level—a presidential body—is necessary to implement these recommendations and to engage
in ongoing oversight of the system and long-run
planning.
Recommendations for strengthening firms’ demand for innovation require identifying specific needs and targeting programs. SMEs and less
advanced firms constitute the great majority of
Colombian businesses and require specific programs that help them close the productivity gap
with more advanced companies. These programs
require adequate design, piloting, implementation and evaluation. The recommendations include: (i) technological extension programs to im-
prove the quality of firm management along a
range of dimensions—production and operations,
quality control, strategy, logistics, human resource
management, the environment, continuous improvement, lean manufacturing, Six Sigma, 5S,
etc.; (ii) agricultural extension; and (iii) targeted
programs for micro-entrepreneurs that support a
“group” of local entrepreneurs (like post-conflict
regions targeting re-integration of youth at higher
risks of participating in illicit activities).
Recommendations for improving the supply side
are the most complex to implement and longest to
mature. These involve: (i) establishing targets for
improving the quality of primary and secondary
education, with a focus specifically on science and
math outcomes; (ii) developing and implementing
a plan to upgrade universities to ensure alignment
with the needs of industry; (iii) ensuring development of a supply of technical skills of high quality and aligned with the needs of industry; and
(iv) consolidating and upgrading research centers.
Empowering People and Localities
People are not only the direct beneficiaries of development but, more important, the main agents
of developmental change. When people have
access to health, education, and protection from
vulnerabilities and risks, they will be able to fully participate and guide the development process.
This participation occurs predominantly in the localities where people live. Having capable people
and effective localities is a prerequisite for successful development. The next two sections refer to an
integrated social protection system and to efficient
subnational governments (departments, municipalities) as development mechanisms that promote
people and localities.
Tools for an integrated Social Protection
System
Over the past 20 years, Colombia has developed
a rich array of social security, social assistance,
and labor-market programs to support the needs
An Overview of World Bank Policy Notes for Colombia
of vulnerable populations. Approximately 80 national programs are operating to manage a range
of social risks, and some programs have achieved
substantial coverage. Coverages offered to those
who pay into the system of contributory social
security schemes are: pensions, health insurance,
occupational hazard insurance, and a set of other
benefits (via Cajas de Compensación, workers’ clubs
that provide services ranging from unemployment insurance to sports clubs); these programs
are intended to protect against income shocks
and help smooth consumption over the life cycle.
To reduce poverty and promote greater human
development, Colombia has a range of social
promotion (assistance) interventions, many of
which provide the same services as the contributory system but to a population that does not pay
into the system. The objective of these programs
is to “graduate” the poor to the social security
programs and to protect them against shocks.
These are rounded out by several labor market
interventions that promote employability, provide
job training (mostly through SENA), and protect
workers against economic shocks.
In spite of the development and expansion of social programs and institutional realignment, the
results are not as strong as hoped. Social expenditures increased 50 percent over the past decade,
one of the region’s fastest rates of growth, and
poverty rates fell. However, the record isn’t entirely encouraging. The Gini indicates inequality remains among the highest in Latin America. Health
outcomes are average—or below average in some
cases. Maternal mortality has been stagnant since
2009; infant neonatal mortality (11.2 per 1,000
live births in 2012) is higher than in neighboring
countries with similar development levels; so is the
prevalence of diabetes. As discussed in Chapter 2,
cash transfers to the poor, namely Familias en Acción,
were responsible for significant declines in rates of
extreme poverty (28 percent) and moderate poverty (19 percent), but declines were much smaller in
rural areas, where Familias is most prevalent.
The disappointing outcomes can be traced to various factors that create bottlenecks in converting
investment to results, including (i) system fragmentation, (ii) coverage gaps and overlaps, and
(iii) limited information. First, the social protection
system (SPS) is fragmented along many dimensions. Multiple programs address the same risk,
partly due to financing mechanisms. For example,
Colombia is in the process of developing its fifth
program to provide cash to the elderly population.
Multiple programs are also a result of several ministries or directorates developing their own programs for sub-sets of the population. For example,
multiple entrepreneurship programs target women,
extreme poor, rural populations, micro-enterprises,
indigenous groups, and youth, all of which provide
a combination of skills development, entrepreneurial training, and stipends or loans.
System fragmentation makes the SPS inefficient as
a means of managing social risks. The ad hoc collection of programs by institutions at the national
and subnational level does not create a pathway
out of the risk. Even if it did, the target populations have little awareness of which programs they
are eligible for and which programs can best raise
their living standards. Administrative fragmentation also creates unnecessary costs and confusion.
The two health insurance regimes unified their
benefit packages, but they still maintain different
sources of financing, follow different methodologies for the calculation of insurance premiums, use
different insurers, and follow different sets of rules
and regulations. This produces costs that could be
avoided with increased harmonization between
the two regimes.
Second, in spite of a large number of social programs and considerable overlap, Colombia faces
two coverage issues: insufficient coverage of some
risks and insufficient coverage of some populations. In health, the risk of poverty from illness is
effectively mitigated by health insurance that covers around 92 percent of the population—but the
risk of illness is not well covered. The health insurance model focuses on individual and specialized
health services, rather than providing wider-reaching public health, prevention, and health promotion activities and addressing health problems at
xxxix
xl
OVERVIEW
the primary-care level. Labor risks are also insufficiently covered. Programs for the more than two
million unemployed are limited to job training,
largely through SENA, with a smaller number accessing labor intermediation services. The elderly population is well covered, but the benefits are
insufficient. Nearly half of the 2.4 million people
over age 60 are poor; among the 30 percent who
receive pensions, most are not poor.
Third, although social expenditures in Colombia
are on par with the Latin America region, improved
information collection and management could
lead to efficiency gains. For instance, the health
sector could better manage information to improve
beneficiaries’ use of the system and the quality of
services. The National Superintendence of Health
(SNS) has a mandate for the inspection, surveillance, and control of more than 9,000 providers
and insurers across the country, but it lacks the financial and human resources to effectively collect
information and act on it to improve health care
quality. Similarly, the labor sub-system has severe
information gaps that lead to policy and program
inefficiencies. Colombia does not have a unified information database about labor market trends.
Three policy recommendations—developed in
more detail in Chapter 11 (Moving Toward a Social
Protection System)—are offered as responses to these
challenges. First, strengthen SPS management
tools to overcome inefficiencies created by system fragmentation and reach uncovered populations. In the long run, Colombia can converge
to an interconnected and articulated SPS with a
set of risk-focused program streams that are easily identifiable and accessible by the population,
complemented by a series of sub-systems similarly functioning in an articulated and client-focused
manner. Through planning, coordinating what is
already there, and introducing new tools in a gradual yet high-quality way, Colombia can achieve
an effective SPS and the efficiency gains and improved outcomes that come with it.
Second, build the labor sub-system by creating information for policymaking and program
purposes. A labor sub-system is necessary because
labor risks are insufficiently covered in a country
with high informality and unemployment rates.
Two main recommendations are: First, create an
inclusive, comprehensive employment service,
providing the population with information about
job search and training opportunities. This system would replace the more limited service offered by SENA to its graduates. Second, articulate and strengthen regional labor observatories
to provide consistent information for policy-making and decision-making.
Third, modernize the health sub-systems by developing a new health-care model with stronger internal management and controls. The main idea
is to reduce administrative fragmentation through:
(i) creation of a new health care model that would
focus on managing the health risks of the population living in specific geographical areas and
enhancing the coordination between local health
administrations and insurers; (ii) develop more sophisticated and effective tools to manage health
financing processes—from payment systems to
technology assessments and price regulations for
pharmaceuticals; (iii) enhance the regulatory capacity of the Superintendencia de Salud, through
new functions and upgrading its technical and human capabilities; and (iv) conduct public outreach
to improve the image of the SGSSS during this
period of reform as a means of collecting and
disseminating information and addressing public
concerns.
Improve the decentralization process
In decentralizing, Colombia has aimed to find
the right balance between central authority
and local autonomy, equity in resource distribution, and higher efficiency in public spending.
Colombia is a unitary country, divided into 32
departments (regional governments) headed by
popularly elected governors and departmental
assemblies. Composed of locally elected representatives, the assemblies are responsible for,
among other things, approving the departments’
budgets. In addition, there are just over 1,100
An Overview of World Bank Policy Notes for Colombia
municipalities with elected mayors and municipal councils. According to the IMF, subnational
governments (SNGs) collectively account for a
large share of public spending in Colombia—8.1
percent of GDP in 2011. Departments and municipalities raise about 3 percent of GDP in tax
revenues, with the remainder provided by the
General Participation System (Sistema General de
Participaciones, or SGP), central government transfers, and other funding sources, such as non-tax
revenues and royalties on natural resources. Small
municipalities tend to be poorer than larger ones.
In municipalities with populations of less than
50,000, 46 percent of the inhabitants have at least
one unmet basic need, compared with 29 percent
nationwide. The country as a whole has a keen
interest in the decentralization framework and
SNGs’ efficiency and effectiveness because of the
high incidence of poverty in small municipalities
and the resources managed at the local level and
their impact on service delivery and national development goals.
Fiscal decentralization has substantially advanced
in Colombia over the past two decades. Today,
SNGs execute the vast majority of the national
budget. Table 0.2 shows this move toward fiscal
decentralization; the share of subnational expenditures represented by total government expenditures grew in more than 10 percentage points from
1995 to 2009.
However, the current fiscal and governance framework for SNGs has not led to rapid regional convergence. Although Colombia has seen steady
but slow convergence in per capita income across
regions, the overall fiscal system (taxes and transfers) shows a limited redistributive capacity, even
compared with other countries in LAC region.
The SGP, which provides central Government
transfers to the SNGs based on poverty variables
(among other factors), has had little impact in reducing differences among departments and municipalities. Similarly, it is unclear whether the
comprehensive tax reform recently approved by
Congress will do anything to address disparities
across regions. By contrast, the Sistema General de
Regalías (SGR) reform appears to be a step in the
right direction. World Bank projections suggest
poor departments will grow faster than richer ones
under the new framework. In sum, while the new
royalties system will help reduce disparities, more
efficient execution of SGR resources and bolder
reforms are needed to increase the pace of regional convergence.
Critical gaps across Colombia’s regions, departments, and municipalities remain an impediment
to regional competitiveness and are closely related to services delivered by SNGs. Educational
achievement shows significant regional variance.
Regional disparities in competitiveness, as measured by levels of economic performance, infrastructure, human capital, and science and technology, have broadened during the past decade.
Furthermore, SNGs have significant shortcomings
in the overall management of resources. The evidence suggests that SNGs lack the capacities, the
systems, and the data to properly manage, monitor, control, evaluate, and report on the use of resources affecting service delivery.
Broadly, the functioning of Colombian SNGs faces two types of challenges. The first relates to the
decentralization framework and institutional coordination. There are three issues: (i) poor coordination between central and subnational government, (ii) distortions to the incentives framework,
and (iii) inconsistent long-term strategic planning.
In Colombia, the breadth of programs, funding
sources, agency responsibilities, and SNG priorities challenge the central Government’s ability to
coordinate interventions. Moreover, the incentive
structure for improved SNG performance has
been distorted by frequent changes in the policy
environment and the limited range of fiscal incentives or disincentives from the central Government
to effectively reward or sanction performance.
Finally, the strategic planning mechanisms of the
Government and SNGs are only weakly linked.
The available information does not permit expression of sector and regional priorities that would
promote the development of long-term planning
strategies.
xli
xlii
OVERVIEW
The second type of challenge is related to the
capacity of SNGs. Two issues are prominent—
(i) not enough attention to broadening local
revenue sources and (ii) weak local capacity to
manage new decentralized systems. At 1.5 percent of GDP for 2010, Colombia’s property tax
collections are now above the Latin American
average (0.8 percent of GDP) and slightly below
the OECD average (1.8 percent). However, this
revenue represents only 20 percent of the overall local tax collection, and most municipal tax
administration authorities (except those in the
large cities) have weak management and control
capacity.
Chapter 12 (National and Subnational Public Finances
and Governance) provides a set of five policy recommendations in response to these challenges.
First, improve coordination among levels of government and key central Government agencies.
The three critical levels of government (central,
departmental, and municipal) and key central actors, such as DNP, Ministry of Hacienda (MHCP),
the Ministry of the Interior, and Contraloría General
de la República (CGR), require closer collaboration and synchronized action. The agencies need
standardized and coordinated approaches to core
public management functions and processes, such
as accounting and public financial management as
well as procurement rules and standards. Second,
enhance subnational control and its monitoring
and evaluation (M&E) framework. The central
Government should emphasize improving and
integrating the control and M&E instruments
of the agencies directly involved, such as DNP,
MHCP, and CGR. Institutionalizing evaluation
is key to identifying and tracking SNGs’ performance. Evaluation will generate regular feedback
loops to guide SNGs’ management and strengthen the central Government’s role in tracking
SNGs’ progress. Third, implement an effective
incentives framework for SNGs. It is critical to
define performance indicators and information
tools to measure SNGs’ management capacity, set
out standards and good practices in subnational
public management performance, and implement an incentives framework to reward superior
or outstanding performance or assist underperformers in achieving sustained performance. It is
also necessary to make operational the incentives
that are already attached to the SGP and SGR
institutional frameworks.
Fourth, review and adjust the decentralization
framework after an independent evaluation, particularly the SGP, the SGR, and the role of the
departments. In the first place, the Government
should undertake an in-depth analysis of the
SGP and SGR to independently determine what
is working well and what is not. The findings
could lead to changes (operational rather than legal) that increase the system’s efficiency, probably
by merging the SGP and SGR funds into a single
budget, control, and M&E framework. In addition, it would be advisable to review the impact of
the current formulas for resource allocation. The
Government should also continue working on clarifying and enhancing the role of the departments,
including proposals for a new organic law (Ley de
régimen departamental). Such proposals should outline the departments’ competencies, their role as
coordinators/supporters of small municipalities,
and their control and M&E functions in resource
use, evaluating results, and municipal fiscal and
management performance.
Fifth, sustain technical assistance to SNGs through
new management and IT tools. Capacity-building
activities should focus on solving problems that
prevent the adequate delivery of services or the
sustained improvement of service outcomes. The
new technical assistance delivery approach should
aim at (i) creating management tools for SNGs,
especially in core management areas—planning,
investment, procurement, financial management,
local tax administration, and civil service; and
(ii) ensuring technical continuity through a low
turnover of trained staff.
Common THreads
This overview of the World Bank policy notes for
Colombia concludes with a listing of common
An Overview of World Bank Policy Notes for Colombia
threads that weave through all the chapters. As
mentioned at the beginning, the various recommendations are inter-connected and impact one or
more of the development objectives. These common threads are evidence of regularities that pervade Colombia’s most pressing development challenges. Making them explicit helps define guiding
principles for developmental change in Colombia.
First, not surprisingly, almost all policy notes call
for more and better capital investment, particularly in infrastructure but also in other forms of capital accumulation. Be it in rural roads, multi-modal
transportation, watershed systems, wastewater and
landfill plants, there are multiple calls for modern
projects. Moreover, the policy notes’ support for
better universities, research centers, capital markets, and long-term financing mechanisms make
the point that Colombia also needs more mature
financial and knowledge capital.
Second, and related to the first point, the policy
notes support a subtle re-examination of subsidies
vis-a-vis investment in public goods. A case in point
is the detrimental impact on investment in rural development from the excessive concentration of subsidies within the budgets of Government agencies
attending rural areas. Policies to increase private
participation in infrastructure, land-value capture
mechanisms as a tool for local government financing, and enforcement of land and safety regulations
are all signs of a need to reconsider explicit or implicit subsidies that drag public finances and hinder, or plainly prevent, investments in public goods.
Third, the policy notes recognize the utmost importance of enhanced subnational governments
for policy implementation. Subnational governments are seen as a vital agents of policy implementation—from their role as enforcers of local
environmental regulations and their responsibility
in delivering basic social services to their participation in urban planning, investment in rural development infrastructure, and managing municipal
finances. However, the notes also recognize that
local governments leave a lot to be desired in terms
of capacity, incentives, and means to address these
responsibilities. Strengthening and empowering
subnational governments is a regular plea through
these policy notes.
Fourth, and related to the third point, coordination
through levels of government and across agencies
is deemed paramount. All areas under analysis in
these policy notes indicate the need for a better
institutional framework. Development of a territorial approach to rural development, national
urban policy and metropolitan plans, national infrastructure plans, a national innovation system,
social protection system—all these areas require
better institutional coordination and, in some case,
redesign. These policy notes diagnose overlapping
agencies’ mandates, population coverage gaps,
conflicting authorities, and limited planning and
implementation capacity. Overcoming these institutional limitations is a task that will lead not only
a more effective administration but also to a better
direction in the development process.
Fifth, quality databases, information systems, and
M&E protocols face growing yet unmet demand.
Labor and health databases, air pollution information systems, the Sistema Integrado de Información
Financiera, timely census data, and rural and urban
land cadasters are just a few examples of information requirements mentioned in various policy notes. These data are needed for better policy
planning and implementation. Without the data,
problems cannot be diagnosed, programs cannot
be monitored, and solutions cannot be confirmed.
Information and M&E protocols are indispensable
for modern economic and social progress.
These five common threads, and the multiple and
diverse analyses and policy recommendations from
which they are derived, intend to contribute to the
understanding of Colombia’s current development challenges. They testify to the commitment
of World Bank experts in Colombia and their desire to help, in some small way, the country achieve
its higher development goals.
Colombians and their institutions have a fruitful
experience in implementing development policies,
xliii
xliv
OVERVIEW
and their current advanced challenges are proof
of the many successes they have achieved in recent
years. These advances have put them within close
reach of achieving fundamental development
goals: sustainable peace, eradication of poverty,
and shared prosperity.
PART ONE
BACKGROUND NOTES
CHAPTER 1
Supporting Colombia’s Transition
to Sustainable Peace and Development
Main Messages
This background note proposes a framework for understanding the transition from armed conflict to
sustainable peace in Colombia. The first section describes the general characteristics of the conflict
in Colombia. The second section introduces the overall World Bank approach to armed conflict as a
development challenge, then draws implications for Colombia, discussing the transition from war to
peace and the linkages between the security, development, and political transitions. Finally, the third
section analyzes Colombia’s current policies and the main challenges involved in the transition period.
The topics covered by the peace dialogues in Havana are interrelated and address conflict stresses—such as land concentration, inequalities among population groups, the rural/urban gap, deficient
justice, unemployment, and lack of opportunities for young people. However, implementation of the
agreement will be decisive in advancing the transition toward sustainable peace and development.
Challenges loom at every level: at the individual and family level, with the trauma and psychosocial
effects of the armed conflict on various generations; at the community level, with high levels of mistrust
(among citizens, communities, and vis-à-vis the state) and a culture of illegality; at the subnational level,
with deficient capacities of local government institutions and lack of civilian state presence in conflict-affected areas; and at the national level, with the top-down policies and difficulties in inter-sector
coordination.
An agreement resulting from the peace dialogues will accelerate political, security, and development aspects at the national level and in specific regions. However, insecurity may rise as a result of
negotiations because armed actors will try to fill spaces left by FARC, and the guerrilla’s dissidence
will try to grow. As insecurity rises, public support for the negotiations may wane in regions affected by violence and in cities where the benefits of peace will not be tangible. Like other countries
in the aftermath of peace negotiations, the Colombian government’s greatest challenge in ensuring
the agreement’s success will be guaranteeing a minimum level of stability after the negotiations while
strengthening current institutions and transforming those that perpetuate cycles of violence. Policies
and programs from different sectors should share the common objective of preventing cycles of violence from recurring, and they should be designed to reinforce the three transitions to peace—political, security, and development.
There is a great risk that local power-holders will either violently resist implementation of
peace-agreement measures or adapt to them without necessarily transforming the institutional framework. To mitigate the risk of national policies’ instability or perverse effects, it is important to have
regional information and design policies in a differentiated way according to each area’s capacities,
needs, and challenges. In addition, a clear road map establishing short-, medium-, and long-term actions and objectives is essential to supporting transitions at the local level. Finally, policy processes can
build confidence on the peace outcome prior to deepening the institutional transformation with the
purpose of reducing inequalities among people and among regions.
The Dynamics of Armed Conflict
in Colombia
Colombia can be seen as a country with two seemingly incompatible profiles. On one hand, it is a
stable formal democracy, immune to the authoritarian and populist tendencies that have negatively
impacted other South American countries. With a
per capita GNI of US$11,380 for 2012,1 it is also
an upper middle-income country, representing one
of Latin America’s most dynamic economies. It is
well integrated in the global economy, with OECD
standards within its reach.
On the other hand, Colombia has been trapped
in repeated cycles of violence, where inequality,
poverty, and weak institutional capacity reinforce
armed conflict and vice-versa.2 To date, attempts
to end the armed conflict through peaceful or
military means have not succeeded. Starting in
the early 1940s, the violence arose from ideological confrontations between two main political
parties.3 During the Cold War, east-west polarization shifted the center of gravity of violence
to asymmetrical, low-intensity warfare between
communist insurgencies and government forces.
During the 1980s, the armed conflict became
a protracted confrontation of multiple actors,
including drug-trafficking cartels, insurgency
movements, and paramilitary forces with multiple, overlapping forms of violence. Since the
1990s, these illegal armed groups have regularly
attacked infrastructure, undermined state legitimacy, and used violence and terror against civilians, dispossessing them from their lands, creating forced displacement, and damaging the social
fabric.4 Fifty years of violence have affected at
least three generations of Colombians at the national, subnational, community, and individual
levels (see Figure 1-1). Between 4.7 million and
5.7 million people were internally displaced between 1985 and 2012. During the same period,
an estimated 220,000 persons were killed, 27,000
people were kidnapped, 25,000 disappeared, and
6,421 children were recruited by illegal armed
groups.5
In the past decade, the Government has made
strenuous efforts to reduce Colombia’s violence
and poverty levels and increase state presence. The
country is no longer considered a high risk for investment, and it has increased its capacity to guarantee basic citizens’ rights. Even drug production,
one of the main drivers of the conflict, has been
significantly reduced. Despite this progress, the two
incompatible profiles of Colombia still coexist, and
violence continues to take a heavy toll on society.
Some economic analysis even goes so far as to
suggest that if the country had been at peace for
the past 20 years, per capita income would be 50
percent higher today.6 Furthermore, it is estimated
that without the armed conflict, Colombia’s annual
growth rate would be 1.5 percentage points higher.7
An institutional framework, or a set of tacit rules, among stakeholders and entities preserves the coexistence of the two profiles of
Colombia—the formal democratic upper middle-income country and the conflict-affected
one. This institutional framework impedes the
functioning of democratic institutions, leaving
behind regions and population groups. For instance, violence is greatest in regions with weak
local institutions,8 high revenues from natural resources extraction,9 and the presence of illegal
armed groups. In addition, specific groups, such
as rural, afro-Colombian, and indigenous populations, are overrepresented among victims of
the armed conflict. Education is also deficient on
the Pacific and Caribbean coasts and in other areas where conflict is intense, which has negative
implications for future generations and increases
the development gaps with the rest of the country.10 Furthermore, the government’s capacity
varies across sectors and public entities; for example, government entities such as the Ministry
of Finance, the Central Bank, the Planning
Department, and the Ministry of Defense are
better equipped, more efficient, and have more
stable and qualified staffs than average line ministries. As a result, central government policies
may be unable to reach violence-affected areas
and may even have perverse effects.11 In some
Supporting Colombia’s Transition to Sustainable Peace and Development
3
PART ONE
|
CHAPTER 1
FIGURE 1-1: Violence in Colombia
Political Violence
120
Homicides of mayors
and former mayors
Homicides of unionized
teachers
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
Displaced population per year
Victims of Antipersonal Land Mines
700
700
500
600
400
500
300
400
200
300
100
200
Number of cases of massacres
2012
2011
2010
2012
2011
2010
2009
2008
2007
2006
2005
2004
Wounded military
Dead military
2003
2012
2011
2010
2009
0
2002
Wounded civilians
Dead civilians
2008
2007
2006
2005
2004
2003
100
2002
0
Homicides of city councillors
Homicides of other
sectors' union leaders
Homicides of journalists
Number of Massacres and Victims of massacres
800
600
2009
0
2008
0
100,000
2007
20
200,000
2006
300,000
40
2005
400,000
60
2004
500,000
80
2003
Number of homicides
Number of people
600,000
100
2002
Internal Displaced Populations
700,000
Number of victims/casualties
Victims of massacres
Displaced people
Received people
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
1985
IDPs registered
Before 1985
4
Declared people
Source: Data from the Observatory of Human Rights and International Humanitarian Law of the Vice-presidency of Colombia, 2014.
(continued on next page)
Supporting Colombia’s Transition to Sustainable Peace and Development
FIGURE 1-1: Violence in Colombia (continued)
2013
2010
2007
2004
2001
1998
1995
1992
1989
1986
1983
1980
1977
1974
1971
1968
1965
1962
1959
1956
1953
1950
1947
1944
1941
90
80
70
60
50
40
30
20
10
0
1983
Homicide rate per 100,000
Homicide Rate per 100,000 population in Colombia, 1938–2013
Year
Source: DANE.
regions, key democratic institutions such as the
division of powers, free elections, and freedom
of expression are respected: in others, the scope
of central state policies is very limited.
The subnational areas where the institutional
framework is weak are not well prepared to handle
external and internal stresses. The external stresses can come from factors stemming from regional
and global dynamics, none of which are under
government control. They include instability of
neighboring countries like Venezuela, price fluctuations of primary goods on international markets,
global drug trafficking and cartel strategies, illegal
trafficking of natural resources. Internal stresses
can come from factors normally under the control
of individual states, including the presence of illegal armed groups and their strategies to control
territory or populations (landmines, confrontations with other groups, threats), illegal economic
activities, polarization of society, mistrust of the
government, corruption, limited access to justice
and participation, high income inequality, unemployment, and difficulties in accessing the means
of production such as land and credit.
Central government policies like the peace process
with the FARC offer an opportunity to end the cycles of violence. The preliminary agreements from
Havana recognize the importance of addressing
subnational needs in the peace-building process,
which implies that a potential final agreement can
be more than an “elite pact” among holders of
political, economic, and military power. For this
to happen, an understanding of stakeholders at
the local, national, and international levels is essential for guiding the design and implementation
of policies. National stakeholders include state
actors such as the Congress, army, and local authorities, and non-state actors like illegal armed
groups, the private sector, civil society (including
ethnic groups), opposition groups, and the media.
It should also be recognized that the FARC is only
one of the multiple stakeholders in the armed conflict, and that the risk of increased violence is high
in the aftermath of the peace agreements.
The transition from war to sustainable peace and
development will require a particular equilibrium.
On one hand, it will involve short-term strategies for
stability built upon coalitions with some stakeholders. On the other, it requires long-term institutional
transformations that will lead to the integration of
parts of the territory and excluded populations into
the national political, social, and economic life.
What does sustainable peace mean?
The definition of a peaceful Colombia will depend on the results of the peace negotiations and a
5
6
PART ONE
|
CHAPTER 1
collective effort of envisioning a country at peace.
According to Sergio Jaramillo, the Colombian
High Commissioner for Peace, signing a peace
agreement with the FARC signifies the start of a
transition process toward peace.12 The peace process is a means to end the violence while defining
solutions to five core issues in Colombian society
that need to be resolved independently of political
and ideological affiliations. These core issues are:
(i) rural development and land reform, (ii) political participation, (iii) cessation of conflict, (iv) addressing the problem of illegal drugs, and (v) victims’ rights. Thus, a peace agreement will define
“what to do” without arms as an obstacle, while
Colombian citizens in each region will decide
“how” this will occur, or in other words, how to
transition from war to peace.
Global experiences show that the main challenge
in the aftermath of a peace agreement is preventing the recurrence of cycles of violence, allowing
society to implement the necessary and agreed-upon changes.13 Part of this challenge also lies on the
way in which society as a whole is to be engaged
in the implementation of the agreements. Part of
Colombian society challenges current views and
development of the peace talks and agreements
and the country requires coming to terms with
these. The following section outlines a global perspective for understanding conflict as a development challenge and a framework for a transition to
sustainable peace and development, and it identifies policy options that have been effective in other
contexts to prevent recurring cycles of violence.
They may be useful for the Colombian case and its
conflict dynamics, stresses, and stakeholders.
Understanding Armed Conflict
and the Transition to Peace
The understanding of conflict dynamics has
changed considerably since the Cold War. An inter-state perspective has evolved to an intra-state
one that considers the correlation between poverty, inequality, lack of governance, and violence.
Subnational conflicts like the Colombian one can
be analyzed as dynamics of violence and conflict
embedded in a stable state, geographically concentrated, but with implications for the whole country.
Based on recent analysis of researchers and practitioners, the World Bank 2011 World Development
Report (WDR) proposes a view of conflict as cycles of violence, arguing that many countries and
subnational areas face cyclical violence, instability,
and weak governance that have a significant impact
on levels of human development. For instance, 40
percent of countries that have experienced civil
war revert back to conflict within a decade.14 In
addition, new types of violence and conflict have
arisen in the form of interlinked criminal activities, rebel groups, and global movements. This
view of conflict emphasizes not only its repeated
and interlinked effects but also its regional and
global repercussions. External factors (e.g., price
shocks, climate change, international disputes) and
internal factors (e.g., corruption, youth unemployment, discrimination) act as stresses that can cause
violence to spiral if the institutional framework is
not strong enough to address them. Countries and
subnational areas with the weakest institutional legitimacy and governance are the most vulnerable
to violence and instability and the least capable of
responding to internal and external stresses.15
FIGURE 1-2: Vicious Cycles of Violence
Weak Institutions
not Transforming
New Pact
New Stress
VIOLENCE and
FRAGILITY
Source: 2011 WDR.
Supporting Colombia’s Transition to Sustainable Peace and Development
This perspective on conflict entails three main
changes in the understanding of armed conflict
and peace. First, post-conflict may be a misleading
term because periods of conflict ended with peace
agreements can actually be followed by new cycles
of violence (see Figure 1-2). In this regard, peace
should be seen as a process rather than a stage to
which a peace process or a military policy may
lead. Second, conflict is territory specific, and a
country can simultaneously endure multiple cycles
of violence depending on subnational contexts.
Therefore, building peace at the national level implies distinct policies based on local dynamics and
their relationship to the central government. Thus,
a clear understanding of local stakeholders and
stresses—both internal and external—is essential.
Third, the sustainability of the peace-building
process implies that policies aimed at preventing
violence are multi-sectorial and should address institutional transformation and good governance in
the long term. Consequently, a deep understanding of institutional capacity is essential for transforming vicious cycles of violence into virtuous
cycles of institutional transformation in a gradual
and systemic manner. Just as violence repeats, efforts to build confidence in the peace outcome and
transform institutions follow a repeated pattern.
The transition to sustainable peace and
development
Three main transitions for building
sustainable peace
In the peace-building literature, the overall transition from war to peace is made up of multiple
transitions that happen simultaneously at the local,
subnational, and national levels. Considering that
peace means more than simply the non-existence
of violence, the literature identifies three main transitions that a society must undergo to build peace:
(i) a security transition from violence to the respect
of human rights and international humanitarian
law, with the objective of preventing the recurrence
of violence; (ii) a development transition from a
war economy to a peace economy, aimed at creating a more inclusive economy with a legal option
for combatants originating in both statutory and
non-statutory forces and victims to participate while
promoting economic recovery, rebuilding financial
systems, and enhancing basic service delivery; and
(iii) a political transition, aimed at creating conditions conducive to a participatory democracy.16
The three transitions—security, development, and
political—are a simplification of the multiple challenges faced by a society in building sustainable
peace based on democratic principles. For instance,
different aspects of the justice transition are part of
the three transitions. The successful disarmament of
ex-combatants, the process of truth and judgments
of mass atrocities, and the guarantee of non-repetition for victims will support the security transition.
The transformation of an illegal armed group to a
political party able to participate in the national life
is part of the political transition, while sustainable
reparation for victims is part of the development
transition. In addition, the social transition is often
referred to as the reconciliation process between
members of the society polarized by ideology, religion, social classes, or ethnicity. In our perspective,
reconciliation and inclusion are at the same time
outcomes and underlying process of each transition,
the final purpose of which is a redefinition of the
social pact.17 As they are interdependent and simultaneous, policies tend to overlap them. The utility
of the framework is that it allows policies to reduce
the risk of reinforcing cycles of violence by carrying
out actions for each transition while taking into account implications for the other transitions. Such a
risk has been extensively analyzed in the literature
about countries emerging from war.18 It also allows
for the prioritization of those actions that reinforce
the three transitions—in graphic terms, actions at
the intersection of security, economic development
and political actions (see Figure 1-3).
Even though the transitions should occur simultaneously, launching recovery and reconstruction
programs requires minimum security conditions.
In addition, strong economic recovery in the short
term significantly reduces the risk of recurring
violence, and political transformations towards
a strong participatory democracy underpin both
7
8
PART ONE
|
CHAPTER 1
FIGURE 1-3: Three Transitions Toward
Sustainable Peace
Security
Development
the medium term corresponds to the time frame
set at the negotiation table for the implementation of the final agreement, which is 10 years.
Figure 1-4 illustrates the time frame for building
sustainable peace.
Prioritizing policies for transforming
institutions and preventing a
recurrence of violence
Political
. Security transition from violence to the respect
of human rights and international humanitarian law
. Development transition from a war
economy to an inclusive peace economy
. Political transition from sub-national
fragility to a participatory democracy
economic and security gains.19 Governments face
multiple trade-offs because they need to ensure
that the political and security objectives prevail
over other goals, including good macroeconomics
that require a degree of flexibility in the short term
and clear growth goals in the long term. 20
The time frame for a transition toward
sustainable peace and development
The long-term perspective of a transition towards
sustainable peace is at least one generation, while
the short-term perspective corresponds to four to
seven years following the conclusion of a peace
agreement. Based on international experiences, the
2011 WDR estimates that achieving functioning
bureaucratic quality takes a minimum of 20 years,
and bringing corruption under reasonable control
takes 27 years. The fastest institutional transformations of the 20th century took one generation—
in Portugal and South Korea.21 According to an
OECD econometric study by Hoeffler, economic
recovery occurs slowly and is strongest during the
fourth, fifth, and sixth years following the signing
of a peace agreement.22 In the Colombian case,
Transition periods can create either mistrust
among stakeholders who lack confidence in the
government’s promises or capacity to transform
the situation, or high expectations of rapid change
that cannot be delivered by existing institutions.
Moreover, since there are winners and losers in
terms of the reforms agreed upon in a peace process, losers can become spoilers and increase instability to resist change. Governments are therefore
under pressure to demonstrate commitment to
peace in the short term without causing instability
and, at the same time, prepare the necessary reforms for long-term peace.
In this regard, the 2011 WDR proposes a framework to deal with the trade-off between short-term
stability and the long-term goals of transformation. Considering that there is a limit to the degree
of change that society can absorb at any one time,
the WDR proposes prioritizing policies and introducing gradual changes. Priority should be given
to policies aimed at transforming institutions that
have a direct role in the prevention of repeated cycles of violence—such as justice, citizen security,
FIGURE 1-4: Timeline for a Transition to
Sustainable Peace in Colombia
Short term
4–7 years for increasing
absorptive capacity
Long term
One generation
(20–30 years)
Medium term
10–15 years for implementing
the peace agreements
Supporting Colombia’s Transition to Sustainable Peace and Development
and job creation. However, many reforms need to
build trust and create capacity before being implemented. Thus, the first phase before institutional
transformation involves restoring confidence by
developing collaborative, inclusive-enough coalitions, using signals and commitment mechanisms
to build support, and delivering early results.
unique, lessons from other countries can be useful
to policy makers. Drawing on key lessons from the
2011 WDR, this section discusses the three transitions for Colombia in the short, medium, and long
term. The next section will focus on the current
Colombian government policies and key challenges for the transition to peace.
The second phase involves institutional changes in
the security, economic, and political spheres that
focus on citizen security, jobs, and justice, sectors
that stand at the crossroads of the three transitions.
The two phases help to mitigate the risk of a new
cycle of violence by increasing resilience to external and internal stresses. Figure 1-5 shows the two
phases of policy design as repetitive loops meant to
prepare profound transformations while working
on the stability of the short term.
The main goal of all of the transitions is to prevent
recurring violence. Table 1-1 summarizes the specific goals of each transition over the short, medium, and long terms.
Political transition toward a
participatory democracy
Policies and programs for the three
transitions
As highlighted in the case of Northern Ireland and
the democratic transitions in Chile and Portugal,
successful political transitions have taken place
through a series of actions undertaken over a decade or more (see Table 1-2).23
The 2011 WDR analysis of transitions to peace
in the 20th century found that some policies and
programs have proven to be more effective than
others in preventing cycles of violence from recurring. While the Colombian transition to peace is
In Colombia, the scope of the political transformation will be determined by the peace agreement.
In any event, for any reform aimed at improving
the quality of a democracy to succeed, the relationship between the state and its citizens must be
FIGURE 1-5: Repeated Cycles of Action to Bolster Institutional Resilience
Citizen
security,
justice,
and jobs
External
stress
for m in g
ins
io
it u
t
Source: 2011 WDR.
ns
ut
t it
tio
ti
Violence and
Fragility
ins
ins
tu
for ming
sf o r m i n g
ce
fiden
con
ing
Tr a n
Res
to
r
dence
onfi
gc
rin
T ra n s
Re
sto
fidence
con
ing
Trans
Res
tor
ns
External support
And incentives
ti o
ns
9
10
PART ONE
|
CHAPTER 1
TABLE 1-1: Goals for Colombia’s Transitions
Transition
Short-term priority
Medium-term goal
Long-term goal
Political-democratic
participatory
Justice services provided at
the local level
Political participation and
reconciliation
Dialogues with guerilla
groups initiated, reduction of
corruption and impunity
Institutional architecture is
inclusive; local governments
redeployed and strengthened;
transitional justice measures fully
implemented
Security-citizen security
Citizen security programs
launched at the local level
Reforms of security forces carried
out
Peaceful coexistence and
respect for human rights
Development-inclusive
development
Jobs creation programs
established and early service
delivery in subnational critical
areas initiated
Recovery and (re)integration of
Inclusive economy and human
people and regions in the national development
economy; education and health
reforms
strengthened, and participation must be reinforced
at the local level. The policy dilemma becomes apparent in the short term because local coalitions
are crucial in preventing violence, but dismantling
patronage systems occurs only over time. In this
regard, the 2011 WDR suggests a two-step process
to find a balance between stability and change:
first, build trust in the transition to peace by implementing policies that signal a break from the
past and instill trust that the new direction will
not be reversed; second, encourage institutional
transformations in different sectors, with priority
on providing justice in critical regions. Through
such a process, the institutional architecture that
preserves inequalities among the population and
regions is gradually transformed.
Short-term priority: justice and participation. In the early stages of the transition to peace,
sending signals of changes in the rules of the
TABLE 1-2: Pace of Political Transitions
Years to threshold at
pace of...
ICRG indicators
1985–2009
fastest 20
fastest ever
Bureaucratic quality
20
12
Corruption
27
14
Military in politics
17
10
Gov. effectiveness
36
13
Source: 2011 WDR
political game can be extremely beneficial in building confidence in the peace outcome. According to
the 2011 WDR, these signals include reducing injustice and impunity, increasing the transparency
of information, implementing visible anticorruption measures, and defining credible and feasible
approaches and timelines toward political reform.
Parallel to the security strategy, there should also be
provision of local-level justice services, reinforcement of ombudsmen offices, and a matching of increased police force capacity with courts, prison systems, and witness protection programs. In addition,
the aftermath of a peace agreement should open
participation spaces (with facilitators) at the local
level in which civilian stakeholders (civil society organizations (CSOs), the private sector, local authorities, churches, ex-combatants) can conduct a safe
dialogue about common projects for their region.
Transitional justice measures start in the short term
but are fully implemented in the medium term.
They have the potential to reinforce recognition of
victims, promote civic trust, and contribute to the
democratic rule of law—if they are truthfully implemented, which means that they are encouraged
by the national government with an institutional
framework at the local level.24 To operate properly, for instance, local peace committees for truth
and reconciliation programs require financial and
human resources, including third-party mediation.
At the same time, community-driven approaches
Supporting Colombia’s Transition to Sustainable Peace and Development
aimed at reintegrating ex-combatants appear to be
an important part of the process. To be completely
reintegrated, ex-combatants have reported that it
is important to them to feel like an active part of
their communities.25
For these participatory spaces to be effective, it is
important to increase and, in some cases, create
the capacity of local institutions, particularly in
conflict-affected regions, by providing human resources, training, and technology. Furthermore,
citizens should learn their rights and ways to hold
local institutions accountable, reporting noncompliance with agreements.
Strong strategic communication of the signals of
change is important. The media plays a key role
in sending these signals, building trust in the peace
outcome, and ensuring public accountability.
Experience shows that this capacity needs to be developed in a coordinated manner, so that the media
can support the transition to peace without losing its
autonomy.26 In this regard, basic skills and journalistic training are as essential as establishing professional standards and strict regulations concerning
false information and stigmatization. In Colombia,
for instance, there seems to be a social sanction
that favors victims and punishes perpetrators, creating disincentives for ex-combatants. This could
negatively impact reintegration and the transition
to peace.27 Media and communication policies can
help reduce resistance toward reintegration.
The medium-term goal in the transition to a participatory democracy involves enabling the institutional architecture to integrate isolated regions and
making elections and deliberative spaces accessible
to all. The long-term outcome is achieved when
political participation is possible and reconciliation
is achieved. It also implies that the social pact has
been rebuilt.
According to the 2011 WDR estimates, the end of
the early period of political transition should be
conducive to carrying out other reforms, such as
education and health. At that stage, the capacity
of local institutions would be improved, but efforts
would still be necessary to maintain service delivery
and guarantee citizen participation. To encourage
institutional strengthening and participation, policies can combine state and non-state actors as well
as top down and bottom up approaches, with the
participation of local CSOs, the private sector, and
authorities.
In Colombia, it is expected that ex-combatants
would be integrated into political life in the medium term. If the security strategy and the transitional justice measures are carried out, political
parties should be able to organize, and the guerrillas’ institutional structure will be absorbed in the
legal political sphere.
The security transition toward the
end of armed confrontations, respect
for human rights, and reduction of
perceived insecurity28
Policies designed to encourage the security transition aim to achieve specific goals in each period
and can: (i) restore confidence in the peace outcome within security forces and civilian populations, demonstrate a break from the past, and help
to build collaborative coalitions with key stakeholders to prevent spoilers from taking actions that
would negatively impact the peace agreement and
(ii) gradually transform security institutions.
The short-term priority of the security transition
is to consolidate and coordinate security services
to ensure a comprehensive security approach that
reduces objective insecurity as well as perceptions
of insecurity.
According to the 2011 WDR, the conditions to
allow for the right-sizing of the military may not
be appropriate in the short term, but civilian oversight of the security forces is required to prevent
abuses and increase public trust. Security forces,
the police, and the military can reinforce their legitimacy by: (i) increasing the dialogue with political leaders from different ideological backgrounds
to discuss the mission of the security forces in supporting national objectives, such as reconciliation;
11
12
PART ONE
|
CHAPTER 1
(ii) increasing the dialogue with local authorities
and communities to define “community safety
plans” with an emphasis on violence prevention;
and (iii) increasing the participation of women in
police and military forces, which may reduce mistrust toward security forces, particularly concerning sexual abuse.29 The experience of Haiti’s police
reform is an example of progress in basic functions
and state-society trust in security institutions.30
It is important for the military to commit to improvements in accountability and human rights
without undermining their engagement in the
transition to peace. In this regard, choices need to
be made about the institutions where dismantling
covert, abusive, or corrupt networks will occur. It
will be important to identify the positions within
those institutions that will be subject to screening
and the types of abuses that will be prioritized.
Even a small but visible transformation can send
a strong signal of a real break with the past and
persuade stakeholders to work collaboratively.
outcome is to reduce violence while ensuring that
people can coexist peacefully, with respect for human rights and justice available to all.
Development transition from a war
economy to an inclusive peace economy
Programs and policies supporting the development
transition can prevent violence from recurring while
encouraging virtuous cycles in the short, medium,
and long term. Policies can help to: (i) build trust
in the peace outcome by increasing service delivery
and job opportunities through better performance
of public institutions and an improved operating
environment for the private sector and (ii) gradually
transform the institutional framework at the local
and national levels to avoid the perpetuation of inequalities and the exclusion of people and regions.
At the local level, early delivery of results include
concrete actions, such as demining, that are needed
not only to reduce deaths, but also to allow people
to move freely and without fear and to enable public services to be delivered. In addition, it is essential to protect social leaders, human rights activists,
and leftist groups. These actions will allow for the
efficient implementation of important policies for
the economic and political transitions, such as land
restitution, victims’ return, and service delivery in
isolated areas.
Short-term priority: job creation and early
service delivery. According to the 2011 WDR,
survey evidence from Colombia, the Democratic
Republic of the Congo, Gaza, Mali, Sierra Leone,
and Cote d’Ivoire suggests that unemployment
and idleness are the main reasons that young people join rebel groups and gangs.31 In Colombia, the
Government’s challenge is to encourage job creation and economic growth at a time of potential
fiscal deficits. At the same time, authorities cannot
lose sight of other important goals—sound macroeconomic management in the long term, maintaining low inflation, facilitating access to credit,
and encouraging private sector investment with a
social perspective (responsible entrepreneurship).
The medium-term goals of the security transition
are reforming the main security institutions and
continuing to reduce insecurity, real and perceived.
Police and military reforms include professionalization of forces under civilian oversight and the
redefinition of incentives. Instead of targets based
on the number of rebels or criminals captured or
killed, the goals can include freedom of movement
and citizen trust in particular areas. The main purpose of the security forces would be enhancing
national unity and effective state-society relations
while addressing criminal violence. The long-term
Programs include emergency job creation projects
designed to meet local communities’ (not particular population groups’) needs, with local inputs,
priorities, and ownership. The focus should be
on conflict-affected areas, where reconstruction
projects can create employment in the short term
and promote regional development through community clean- up and reconstruction of bridges,
schools, health centers, churches, sanitation facilities, oil pipelines, and energy towers. 32 Broad
community-based programs may also be more
conducive to stability and tailored to facilitate the
Supporting Colombia’s Transition to Sustainable Peace and Development
reintegration of youth.33 For instance, projects can
increase livelihoods with farm and fishery rehabilitation, small business support through microcredit, training, and market assistance. A mixture
of state and non-state, bottom-up and top-down
approaches can also serve to underpin long-term
institutional transformation. In this regard, it may
be useful to examine the experiences of India and
Mozambique in community-based public works.34
Kosovo and Rwanda35 offer interesting lesson related to value-chain projects, access to finance, and investments to bring producers and markets together.
Nonetheless, short-term measures should be market-sensible, and market-sensible development
must be conflict-sensitive.36 Encouraging development of the local private sector is necessary for
creating sustainable jobs and transforming informal and illegal economies into formal and legal
ones. The national and local private sectors, as
well as foreign investors, can play an important
role in building trust among population groups by
supporting the peace process and its implementation at the local level. In Northern Ireland, support from the Confederation of Business Industry
helped increase the government’s communication
capacities through nationwide media and public
campaigns.37 In South Africa, the Consolidated
Goldfields organized the dialogue between the
African National Congress and the Afrikaners.38
In the Philippines, La Frutera Inc. and Pglas Corp.
promoted reconciliation and religious tolerance at
the workplace in a marginalized area by employing
Muslims and Christians, including ex-combatants.
In Sri Lanka, chamber of commerce members
from across the country promoted joint initiatives
between Muslims, Sinhalese, and Tamil businesses.39 Foreign investors and diaspora can play an
essential role by investing in conflict-affected areas, creating jobs directly, and by supporting local
private sector business through “buying local” and
encouraging value-chain development.
Early service delivery will help the government
send signals of its good intentions to people at the
local level and demonstrate its ability to deliver on
promises and withstand pressure from influential
groups. In this regard, development policies can
be designed in a way that brings different actors
together for legal economic purposes, reinforcing
inclusive coalitions. The experiences of Indonesia
and Liberia show the importance of being present
at the local level to regain citizens’ confidence in the
state’s capacity to provide a better quality of life,
create employment opportunities for youth in the
short-term, and generate a positive climate for investment and growth.40 Foreign Direct Investment
companies, particularly those operating in the primary sector, can be encouraged to support the processes of service delivery as a way gaining a “social
license” to operate by following Global Compact
guidelines. In Afghanistan, for example, the communication firm Roshan engaged extensively with
local communities in extremely violent areas while
expanding the country’s mobile network. Mobile
services increased people’s access to information,
finance, and accountability mechanisms.
The medium-term goals of the transition from a
war economy to an inclusive peace economy are
stabilizing the labor market for better livelihoods
and making local economies more dynamic and
better connected to the national economy. Both
serve the objective of reintegrating ex-combatants,
internally displaced people (IDPs), and victims
into society. This implies an improved operating
environment for the private sector, including access to finance, clear property rights, land registers, business-friendly taxes, and the delivery of
essential services (electricity, water, justice). The
long-term outcome includes reduced inequality among population groups and regions and
increased social cohesion. In addition, areas that
have been previously isolated and adversely affected by violence reach national levels of human development, and gain in shared prosperity.
Challenges for the Colombian
Government in the Transition
Period
Recent decades have seen seven attempts to end
Colombia’s armed conflict through dialogue. At
13
14
PART ONE
|
CHAPTER 1
the end of 1990s, the failure of peace negotiations between the Government and the country’s
largest guerrilla group, the FARC, was a hard lesson for Colombian society41 and the international
community. As a result, the current peace process
in Havana is viewed with considerable skepticism by Colombian society, and multilateral actors have not yet been called upon to participate.
Nevertheless, the process could represent a real opportunity for sustainable peace—if it is followed by
a coherent transition to peace. In this regard, the
role of international partners may prove essential
in supporting the implementation phase of the potential agreements and restoring confidence in the
peace outcome and the transformation of institutions perpetuating cycles of violence.
Through an examination of the current Colombian
government’s main policies, this section discusses
the main challenges in launching the transitions in
the aftermath of a peace agreement.
Political transition
The peace dialogue represents the main step toward peace because it opens the way to a political transition that reinforces the development and
security transitions. Two main transformations
have been undertaken by the current administration of President Juan Manuel Santos. The first
transformation, already accomplished, is recognition of the armed conflict, its correlation with
poverty, inequality, and exclusion, and its impact
on vulnerable populations and the country’s development. The second transformation is embedded in the policy framework designed to reinforce
the peace agreements, which includes the Victims
Reparation and Land Restitution Law, the Judicial
Framework for Peace, and the Rural Mission and
Agrarian Pact. The potential Havana agreements
will scale up current government efforts in many
regions and offer the possibility of transforming
institutions that have long perpetuated cycles of inequality, exclusion, weak governance, and violence.
Two characteristics of the Colombian institutional framework constitute the main challenges for
political transition. The first characteristic is the
existence of the two profiles of the country, the
democratic upper-middle income profile and the
conflict-affected one profile. This characteristic
can make the transition smoother than in other
upper middle income countries affected by armed
conflict (Iraq, Lybia, Lebanon) because a considerable part of the state is efficient, democratic, and
able to collect domestic resources. It could be enlarged to increase its presence and capacity in the
conflict-affected parts of Colombia, particularly
rural areas. However, Colombia’s two profiles can
also make the transition more challenging. Moving
beyond conflict implies breaking the equilibrium
between the two profiles, which has benefitted
some population groups. Resistance from these
groups can inhibit the institutional transformation
necessary for building an inclusive country. The
implementation of current central government
policies—such as victims’ reparations and land
restitution processes—shows the scope of the challenge of overcoming the two profiles of Colombia.
These policies need to be reviewed to increase
their efficiency and improve judicial procedures42
because their success can be a strong signal of
commitment to peace.
The second characteristic of Colombia’s transition
would be the subnational dynamics determined by
local contexts. Each region has to be understood
on its own as well as in terms of its links with the
national dynamics. For instance, dialogues with illegal armed groups operating in some conflict-affected regions—notably, the ELN guerrillas—may
be necessary at the national or local levels for political transition to advance. Colombian regions
draw lessons from transitions in other armed-conflicts. For example, the Indonesian central government’s role in integrating subnational areas like
the Aceh region, where the Free Aceh movement
was active, after the 2004 tsunami and earthquake
might be interesting. Areas of Colombia affected
by isolated conflict could also learn from Liberia, a
low-income country considered fragile, where the
government managed to capitalize on donor programs to visibly deliver public goods and restore
confidence in state institutions.43
Supporting Colombia’s Transition to Sustainable Peace and Development
Colombian citizens’ perception of corruption is
another challenge for the Government. According
to the LAPOP survey, Colombians’ perception of
corruption levels has increased since 2008; in 2012,
it was the highest of the LAC region (82/100).44
Changing these perceptions is going to be crucial to
building trust in the capacity of the state to engage a
transition toward sustainable peace by sending signals of real change in politics and policies (as indicated in the CONPES No. 167, “Estrategia Nacional
de la Política Pública integral anti-corrupcion”).
The experience of the Philippine program of promotion of good local governance through a “Seal
of Good Housekeeping” and the “Performance
Challenge Fund” may give some insights on how to
incentivize anticorruption measures and accountability at the municipality and department levels.
Indicators of governance become key determinants
of access to resources and programs.
The political transition will be crucial for the development transition, and it will be shaped by the
security transition. The redefinition of the rural
institutional framework, particularly concerning
land titles, is essential for economic development
to take place, a linkage recognized in the preliminary Havana agreement on rural development.
However, current policies for titling rural land,
updating cadasters, and registering land-use information have been difficult to implement even on a
small scale. Land restitution programs have faced
challenges at the administrative and judiciary level; so far only 16,700 restitutions have been made,
or less than 2 percent of potential claims. In addition, the programs have faced challenges at the
security level due to the violent opposition of local
power-holders, displayed through the assassination
of social leaders and threats to civilian population.
In a post-agreement scenario, transitional justice
measures can speed up processes for victims’ reparation and land restitution if coordinated with the
security transition.
Security transition
Despite the new approach to armed conflict in
Colombia and current efforts aimed at a negotiated
resolution, the Government has continued its traditional approach to security. Indeed, over the last
decade, the approach to security has been dominated by the counterinsurgency logic reinforced by the
war on drugs. The objective has been to defeat the
guerrillas militarily, eliminate their sources of revenue, and regain state control over territories. Since
2012, the Government’s main counterinsurgency
plan has been the Espada de Honor under which military attacks on the FARC have led to the killing of
the organization’s main leaders. In addition, during
the last 12 years, the Government has also professionalized the military forces, increased police and
military presence throughout the country, and involved civilians in intelligence operations. While security levels have improved considerably, especially
for main roads and urban centers, the war on drugs
has been controversial—a conclusion repeatedly
emphasized by President Santos in international forums. Based on aerial spraying of coca crops with
the chemical glyphosate and manual eradication,
this policy has had a modest effect on drug trafficking.45 Researchers and civil society organizations
have also emphasized the devastating effect of glyphosate on the environment and health.
The peace process can be an effective way to end
armed confrontations, but current security policies
will need to be rethought. If a peace agreement
is reached, a cease-fire, disarmament, demobilization, and reinsertion will follow, and the defense
and security doctrine will have to shift from counter-insurgency logic towards a strategic conversion
to a new force structure based on the definition of
new missions and assignments for both the military and police.
Concerning the reformulation of policies, it is
essential to take into account lessons from past
governments’ main inter-institutional efforts for
consolidating security gains—the National Policy for
Territorial Consolidation and Reconstruction. The lessons
will help to complement top-down policies with
bottom-up approaches and to facilitate a greater
presence of the civilian state in pacifying selected regions and guaranteeing fundamental rights
for everyone. For instance, the program has been
15
16
PART ONE
|
CHAPTER 1
unable to impact the whole state, although it increased expectations in the seven regions where it
operated. According to program impact evaluations, the main obstacles involved (i) the top-down
character of the program that left local authorities
passive, (ii) difficulties in promoting inter-institutional coordination (for instance, essential roads
were not built); (iii) the ambitious goals of the program, which were to be achieved in a short period,
sacrificing citizen participation, trust-building, and
accountability; and (iv) the dominance of patronage networks and weak institutions in the local political sphere. In 2014, for example, most of the
areas targeted for consolidation were considered
extremely high risk for elections due to high levels of corruption and fraud. Citizen mistrust the
justice system, mayors’ offices, and police.46 Thus,
the security-driven consolidation policy faces the
challenge of restoring confidence at the local level
and transforming institutions in the political and
development spheres.
Development transition
Another characteristic of Colombia’s transition to
peace is the country’s current positive growth cycle
and its macroeconomic stability, which represents a
major opportunity for reaching and implementing
a peace agreement. A dynamic economy is conducive to integrating regions and population groups
excluded from national life and launching a process
of institutional transformation without experiencing a massive disequilibrium or aid dependence.
The objectives of the government’s development
plan can reinforce security and political transformation. Until now, the national plan’s goals have
emphasized increasing growth, balancing the fiscal deficit, and reducing unemployment. Of the
five priority sectors, mining and housing have advanced, but infrastructure, agriculture, and infrastructure for land transport in rural areas47 have
lagged national levels.48 Therefore, although the
general goals of the plan have been fulfilled, the
fact that those three sectors lag behind have affected regions historically excluded and geographically isolated from the national economy.
Development dynamics can reinforce the security
and political objectives of the transition to peace
by addressing conflict stresses like inequality, unclear rules, and uneven access to information in
the short, medium, and long terms. In the medium
term, it is expected that implementation of agreements on rural development—including land titling, infrastructure, and access to land, credit, and
services—would be fully under way. If potential
stresses from the free-trade agreements are identified in the short term and the institutional framework is prepared to handle them, international
markets can offer good opportunities to integrate
rural areas into national and global economies.
Transitional arrangements facilitating market access for products coming from conflict-affected
areas for a trade agreement’s first 10–15 years
can boost incentives for local economies. In this
regard, the experience of Haiti and Mozambique
can be useful.49
The private sector has an essential role to play once
the state is engaged in strengthening regulations
and institutions, rebuilding basic infrastructure,
and providing security. For instance, Colombia’s
reintegration programs based on public-private
partnerships can be enriched with local stakeholders’ participation and reconciliation objectives.50
In addition, partnerships between the public
and private sectors, donors, and civil society can
help to rebuild markets and investor confidence,
leading to new employment opportunities. Value
chains can also connect farmers with the private
sector and FDI, and spark innovation and employment growth. Eventually, targeted programs
can be transformed into employment creation in
the private sector.51 Colombia is ranked 43rd in
Doing Business,52 well above the regional average,
revealing the dynamism of the country’s private
sector. Public policies may consider drawing on
the private sector, both national and international,
to support short-term actions in conflict-affected
areas to develop formal local economies in the
medium and long term. Colombia’s national investment promotion agency can play a key role in
supporting investors and informing them about
risk-mitigation options.
Supporting Colombia’s Transition to Sustainable Peace and Development
Endnotes
1
2
3
4
5
GNI Per capita, PPP (current international prices),
World Development Indicators (see http://databank.
worldbank.org/data/views/reports/tableview.aspx).
Recent political economy literature examines the
consequences of weak state capacity for economic
growth and welfare as well as the effects of armed
conflict on state capacity. Acemoglu, Ticchi, amd
Vindigni (2006) argue that elites may have incentives to choose inefficient state institutions to limit
redistribution. A similar argument is developed by
Besley and Persson (2011) for explaining why politicans make inefficient fiscal choices. Besley and
Persson (2008) have documented a negative correlation between internal conflict and the capacity
of the state several decades later. Cardenas, Eslava,
and Ramirez (2013) apply the model for Colombia
and show how internal conflict deteriorates state capacity in Colombian municipalities. Acemoglu, D,
Ticchi, D, and Vindigni, A (2006), “Emergence and
persistence of Inefficient States,” Journal of the European Economic Association, 9, 177–208. Besley,
T and Person, T (2011), Pillars of prosperity, Princeton University Press. Cardenas, Besley, T and Person, T (2008), “Wars and State capacity,” Journal of
the European Economic Association.
An intensively violent period (1948–1958) known
as la Violencia was characterized by political violence
between the Colombian Conservative Party and the
Colombian Liberal Party.
World Bank, SIDA (2000), “Colombia. Essays on
Conflict, Peace and Development.”
Source: Centro Nacional de Memoria Historica, informe general “Basta Ya”, 2013. Statistics about victims are controversial, see Chapter 1 of the report, p.
52. The NGO CODHES estimates 5,712,506 IDPs,
while the Government registered 4,744,000 IDPs
since 1985, the date established by law for recognizing
the status of victim. The Commission for Historical
Memory estimates 218,094 deaths by violent conflict
from 1958 to 2012, including civilians and combatants. In January 2014, the website of the Unit for Integral attention and Victims’ Reparation registered a
total of 5.9 million victims demanding reparations.
6
7
8
9
10
According to WB Country brief 2008.
Daniel Mejia, quoted by The Economist, 2012. A
literature review on quantitative studies of the costs
of violence on economic growth in Colombia was
done by Riascos, A, Vargas, J, (2011), “Violence and
growth in Colombia: a review of the quantitative literature,” Universidad del Rosario, Serie Documentos de Trabajo, No 102.
Acemoglu, Robinson, and Santos quantitative analysis shows the equilibrium of a Colombian democratic central state with non-democratic regions by
studying the incentives for the legislative and executive to tolerate paramilitary presence and control
over some regions. Acemoglu, Robinson, and Santos (2013) “The Monopoly of Violence: Evidence
from Colombia,” Journal of the European Economic Association, January, 11 (S1).
Dube and Vargas demonstrate how a rise in the international price of natural resources (oil, coal, gold)
increases conflict in the Colombian regions where
those resources are exploited. Cardenas, Eslava,
and Ramirez analyze how violence erodes state capacity for collecting taxes and providing public services. Since the lack of state presence increases illegal actors’ presence and control over the regions,
the perverse cycle is completed: weak institutions, violence, poverty, and inequality. Dube, O, Vargas, J
(2013), “Commodity price shocks and civil conflict:
evidence from Colombia,” The Revue of Economic Studies Advance Access (February). Cardenas, M,
Eslava, M, Ramirez, S (2013), “Why internal conflict deteriorates state capacity? Evidence from Colombian municipalities,” CEDE, Universidad de
Los Andes, Documento 59 (December).
The Fundacion Compartir study (2014) shows the
lower level of education for teachers in the Pacific,
Caribbean, and Amazon regions, and its direct relation with attacks from illegal armed groups, displacement, and poverty. Also, the level of teachers’
education determines the level of student performance. Fudacion Compatir (2014), “Tras la excelencia docente. Como mejorar la educacion de todos
los colombianos” (January).
17
18
PART ONE
11
12
13
14
15
16
17
18
|
CHAPTER 1
See the negative correlation between political competition with murders of politicians in municipal
elections, Sanchez, F, Palau, M, (2006), “Conflict,
decentralization and local governance in Colombia: 1974–2000,” CEDE, Universidad de Los Andes, Documento 2006–46.
Jaramillo, S, Alto Comisionado para la Paz (2013),
“Transicion en Colombia ante el proceso de paz y la
justicia,” El Tiempo, May 14.
Conflcits are not one-off events; they are ongoing
and repeated. In the 2000s, for instance, 90 percent of the civil wars occured in countries that had
experienced a civil war in the past 30 years. Additionally, many countries that have negotiated political and peace agreements face high levels of crime
and violence—for example, El Salvador, Guatemala, and South Africa. Hewitt, Winkelfeld, Gurr et
al (2012), Peace and conflcit 2012, Center for International Development and Conflict Management. See
World Bank (2011), Conflict, Security and Development,
World Development Report 2011. Referred to as
2011 WDR.
Collier et al. (2008),” Post-conflict risks,” Journal of
Peace Research, 45 (4).
2011 WDR, p. 7.
Castaneda (2014) proposes defining peacebuilding as
the crossroads of these three transitions, based on the
literature and practitioners debates on peacebuilding.
Castaneda, D (2014), The European Approach to Peacebuilding. How the EU used civilian tools for peace in Colombia and beyond, to be published, Palgrave. David (1999)
summarizes the common elements of the peacebuilding approaches. David, C, (1999), “Does peacebuilding build peace? Liberal (mis)steps in the peace
process,” Security Dialogue, Vol. 30, No. 1.
After a peace agreement, many other transitions are
taking place, including justice and social transitions.
However, the three main transitions encompass the
others. Countries like Vietnam went through the
economic and security transitions but the political
one was not based on democratic principles. Eastern Europe’s transition involved political and economic transformations but in most cases not the security one nor the social consequences of long-term
armed struggle.
For instance, economic policies that encourage development of a specific industry or sector can trig-
19
20
21
22
23
24
ger conflict among populations that do not have access to the opportunities generated by the sector
or armed actors capable of taking the production
means by force. By the same logic, a security action
that leaves local population without a sustainable
livelihood can spur mistrust, increase youth unemployment, and open the way to illegal economies. In
addition, elections and decentralization carried out
in non-secure environments where other political
rights are not guaranteed and inequalities are rampant can make competition for power a source of
violence. Del Castillo, G (2008), Rebuilding war-torn
societies: the challenges of post-conflict reconstruction, Oxford University Press. Ball (2001), “The challenges
of rebuilding war-turn societies,” in Crocker, Chester et al. (eds), Turbulent Peace: The challenges of managing international conflict, USIP. Cousens, E, Kumar, C,
(eds) (2001), Peacebuilding as poltics: cultivating peace in
fragile societies, Lynne Rienner. Siegle, J, O’Mahony,
P, (2006, “Assesing the merits of descentralization
as a conflict mitigation strategy,” prepared for USAID’s Office of Democracy and Governance as a
supporting study to the revision of the Decentralization and Democratic Local Governance Programming Handbook.
Collier et al. (2008).
Del Castillo (2008), Economic reconstruction of
war-torn societies: the role of the international financial institutions,” Seton Hall Law Review, Vol 38.
2011 WDR, p. 108.
Hoeffler, A, (2012), “Growth, Aid, and Policies in
Countries Recovering from War”, OECD-DAC,
WP 1/2012.
Portugal and Chile transformed insitutions during
their transitions from dictatorship (1974, 1990).
Transformation included reducing military control
over politics, achieving a functioning bureaucratic
quality, bringing corruption under reasonable control, and undertaking land reform, WB (2011), p.
13, p. 109. South Korea’s transition after the Korean War (ended in 1954) offers an example of transforming institutions to rebuild the country and foster development finaced by U.S. funds. After the
war, land reform took place.
De Greiff, Duthie (2009), Transitional Justice and Development, International Center for Transitional Justice and Social Sciences Research Council.
Supporting Colombia’s Transition to Sustainable Peace and Development
25
26
27
28
29
30
31
32
In Colombia, 97 percent of ex-combatants reported
that they needed to feel like an active part of their
communities to be completely reintegrated. But reception communities fear them and jealousy increased with demobilization benefits. Kaplan and
Nussio (2013) argue that well-organized communities may support participation of ex-combatants,
protecting them from remaining armed groups, better than non-organized communities. Security conditions are not determinant in the integration processes. Guerrilla ex-combatants are more likely to
participate in community organizations than paramilitaries (and less than civilians).
WB (2011), WDR, p. 124.
Cardenas, Casas, Mendez,
Wills et al. found that perceived insecurity in rural
Colombia affects the levels of subjective well-being
of individuals and communities. Interestingly, a reduction of violence does not necessarily reduce perceptions of insecurity, while the social capital can reduce the perception of insecurity and mitigate its
effect on well-being. Wills, E, Orozco, L et al. (2011),
“The relationship between perceptions of insecurity, social capital and subjective well-being: Empirical
evidence from rural areas of conflict in Colombia,”
Journal of Socio-Economics, 40.
The police in Nicaragua have given priority to
“gender perspective,” one of their nine institutional principles and values. Nicaragua. Mobbeck,E
(2010), “Gender, Women and Security Sector Reform,” International Peacekeeping, 17 (2). UN-Women,
“Gender-Sensitive Police Reform in Post-Conflict
Societies.”
2011 WDR, p. 153. In five years, Haiti’s national
police transformed from the least to the most trusted institution of the state.
Boas, Tilnes, and Flat (2010), “Comparing the Cases,” Background paper for WDR 2011. Neumayer (2003), “Good Policy Can Lower Violent Crime:
Evidence form a cross-national Panel on Homicides
Rates 1980–97,” Journal of Peace Research 40–6.
USAID strongly recommends: Job creation should
not single out population groups by ex-combatants,
victims, and ethnicity because this could rekindle or
perpetuate problems. USAID (2006), “Job Creation
in Postconflict Societies,” Issue paper No. 9, January, p. 2.
33
34
35
36
37
38
39
WB (2011), Jobs, World Development Report, p. 195.
McLeod and Davalos (2008), “Post-Conflict Employment Creation for Stabilization and Poverty reduction,” UNDP. Wilson (2002) “Reopening Mozambique: Lessons Learned from the Feeder Road
Program,” ILO, UNDP, SIDA, Maputo. Del Ninno, Suabarao, Milazzo (2009), “How to Make Public Works Work: A Review of Experiences,” Social
Protection Discussion Paper 905, WB.
Coffee in Rwanda is a good example of value chains
creating jobs and increasing social cohesion. See
Boudreaux and Jutta (2009), “The Role of Entreprenourship in conflict reduction in the Post-Genocide
Rwandan Coffee industry: Quantitative Evidence
from Field Study,” Working paper 09–24, Mercatus
Center, George Mason University. For Kosovo dairy
products and other examples of value chains, see
Parker (2008), “A Synthesis of Practical Lessons from
Value Chain Projects in Conflcit-Affected Environments,” Micro Report 105, USAID. The 2002 “bulldozer initiative” in Bosnia and Herzegovina (and the
subsequent “guillotine” initiative) can be an example
of a program meant to simplify business regulations,
eliminating bureaucratic impediments to private sector growth. Herzber (2004), “Investment Climate
Reform: Going the Last Mile, The Bulldozer Initiative in Bosnia and Herzegovina,” Policy Research
Working Paper, 3390, WB. Rwanda’s experience in
how to overhaul its contract enforcement regime,
cosnidered an impediment to investment, is an example on how to increase domestic business registration and encourage investment. Biz CLIR (2007),
“Overhauling Contract Enforcement: Lessons from
Rwanda,” BizCLIR Issues Paper 17, USAID.
Bold, C (2009), “The Importance of Private Sector
Development in Conflict-affected Countries,” IFC
Smart Lessons (November).
International Alert (2006), “Local Business, Local
Peace: the Peacebuilding Potential of the Domestic
Private Sector.”
Gerson, A (2001), “Peacebuilding: the private sector’s Role”, in the American Journal of International Law,
Quoted by Porter Peschka (2011).
Porter Peschka, M (2011), “The Role of the Private Sector in Fragile and Conflcit-Affected States,”
WDR 2011, Background paper, July 2010 (updated April 2011).
19
20
PART ONE
40
41
|
CHAPTER 1
After the tsunami of August 15, 2005, the Helsinki
peace agreement ended the 30-year conflict in Indonesia. The Ministry of Home Affairs and the Aceh
and Nias Rehabilitation and Reconstruction Agency
(BRR), with funding from the World Bank, adopted
the community-driven development approach to alleviate poverty in rural areas, improving local governance by helping communities plan their own development, develop basic community infrastructure, and
enhance social development and livelihood opportunities. Goovaerts, Piet; Gasser, Martin and Belman
Inbal, Aliza, “Demand-driven Approaches to Livelihood Support in Post-War Contexts: A Joint ILO/
WB Study,” the WB Social Development Papers,
Conflict Prevention and Reconstruction Series–CPR
No. 29. The signing of the Accra Comprehensive
Peace Accord on August 18, 2003, and the subsequent departure of ousted President Charles Taylor
ended the civil war in Liberia. Rule was turned over
to the National Transitional Government of Liberia
on October 14, 2003. A short-term employment creation program, called Roads-with-UNMIL, helped
prevent youth reinsertion in illegal armed gorups by
improving their livelihoods. This measure reinforced
stability in the short term, allowing for later adoption
of classical development instruments, such as public works and private-sector involvement. Giovine,
Krech, Ionkova, Bach (2011), “Holding on to Monrovia. Protecting a fragile peace through economic governance and short-term employment,” Background paper for the WDR 2011, WB.
Around 70 percent of the population in conflict
areas support the current peace process, compared
to a national average of 58 percent, according to
the Observatorio de la Democracia, Los Andes
University (http://obsdemocracia.org/). There is
a high level of mistrust in rural and urban areas
concerning FARC intentions. For instance, 82 percent consider the guerrillas a criminal band and
less than 20 percent believe they have political ideals (according to the Centro Nacional de Memoria
Historica’s 2012 survey on Colombian perceptions
of the guerrillas and the paramiliry demobilization
process). Encuesta Nacional. “Que piensan los Colombianos después de 7 años de Justicia y Paz?’
September 2012.
42
43
44
45
46
A 2014 OAS report 2014 assesses the challenges in
implementing the victims’ reparation and land restitution law. Among them, there is low institutional
articulation (returns are done without the support of
the military or an increased presence of the state),
consultation and participation spaces are weak (territorial tables for dialogue do not have a budget), information does not circulate, victims have disproportionate costs for making claims, and risks for
victims’ leaders are high. See OEA/ Sec Gr (2012),
“Decimo octavo informe Semestral del Secretariado General al Consejo Permanente sobre la Misión
de Apoyo de la Organización del Estados Americanos al proceso de Paz en Colombia (MAPP/OEA),”
November 4.
See Giovine et al. (2011). After the Accra Agreement in August 2003, the international community supported the transition to peace by (i) preventing full state capture by corrupt elites in advance of
elections (2006) and (ii) securing a peace dividend
for the vulnerable groups that could most directly threaten peace (young ex-combatants and refugees). Two innovative instruments were used: (i) an
anticorruption scheme called Governance and Economic Management Assistance Program (GEMAP),
involving such measures as expatriate co-signing authority and (ii) a short-term employment-generation
scheme now known as—Roads-with-UNMIL.
Rodriguez Raga, Sellison (2013), Cultura política de la
democracia en Colombia y en las Américas, 2012: Hacia
la igualdad de oportunidades, Barometro de las Americas, p. 113.
Mejia, D (2010), Politicas anti-droga bajo el Plan Colombia: costos, efectividad y eficiencia, Universidad de los Andes, April 15. Isacson, A (2013), Time to Abandon Coca
Fumigation in Colombia, WOLA, October 7.
Econometria, SEI S.A. (2010), “Evaluar el Esquema
Operativo y Funcional del Plan Nacioanl de Consolidacion Territorial frente a lo establecido en la
directiva presidencial, levantar línea de base de los
beneficiarios y formular recomendaciones,” Evaluation for DNP and PNC. CIP, “Waiting for Consolidation: Monitoring Colombia’s U.S.-aided Counterinsurgency and Development Program,” Report by
Abigail Poe, Adam Isacson, Yamile Salinas, Nancy
Sánchez, February 1, 2012.
Supporting Colombia’s Transition to Sustainable Peace and Development
47
48
An OECD study on transport points out the insitutional difficulties in making a coherent policy for
transport in Colombia with bottlenecks due to the
lack of co-ordination between agencies and ministries and national and subnational levels as well as
the lack of fiscal and institutional capacity at the
subnational level. Nieto-Parra, Olivera, and Tibocha (2013), The politics of transport infrastructure policies
in Colombia,, OECD Development Centre.
See Policy Notes analysis.
49
50
51
52
Porter Peschka, M (2011).
For a detailed analysis of the reintegration programs
in Colombia, see Thorsell (2013), “Towards People-Centred Economic Reintegration? An Analysis
of the Economic Reintegration Strategy of Demobilised Combatants in Colombia,” Colombia Internacional, Enero-Abril 2013.
WB (2011), p. 195.
See Doing Business: http://www.doingbusiness.
org/data/exploreeconomies/colombia.
21
22
PART ONE
|
CHAPTER 1
Toward Shared Prosperity in Colombia
CHAPTER 2
Toward Shared Prosperity in Colombia
23
24
Main Messages
PART ONE
|
CHAPTER 1
Between 2002 and 2013, Colombia experienced strong, sustained economic growth. Real GDP per
capita grew at an annual average of 3.3 percent, more than 1 percentage point above the Latin American and Caribbean (LAC) average. Colombia also managed to weather the 2008 global financial crisis,
maintaining positive growth throughout 2008–13—in fact, the average growth rate during this period
was similar to the pre-crisis average. Growth was more “pro-poor” in the post- than pre-crisis years,
with the population at the lower end of Colombia’s income distribution reaping greater growth-related
benefits than the average population. Colombia also achieved impressive reductions in the share of the
population facing extreme, moderate, and multidimensional poverty. Extreme poverty fell from 17.7
percent in 2002 to 9.1 percent in 2013, while moderate poverty fell from 49.7 percent in 2002 to 30.6
percent in 2013. Colombia also achieved a significant decrease in the Multidimensional Poverty Index
(MPI)—from 49 percent in 2003 to 24.8 percent in 2013.
Nevertheless, poverty levels in Colombia remain high. Almost one in three households is considered poor; and, in addition, a little more than another third of households is considered vulnerable,
which means that a sizable segment of the population is at risk of falling back into poverty. Both moderate and extreme poverty rates remain significantly higher in rural areas than urban ones and, in fact,
the moderate poverty gap between the two areas widened in 2002–13. Only one in four households
is considered middle class, putting Colombia behind other LAC countries, such as Argentina, Brazil,
Chile, and Mexico.
In the past decade, poverty reduction was driven primarily by an increase in labor income, greater labor market participation by household members, and the expansion of public transfers. In addition, the
observed poverty reduction associated with transfers coincided with the expansion of conditional cash
transfer programs. For example, Familias en Acción increased its coverage from around 514,000 households in 2005 to approximately 2.86 million in 2013, or nearly 25 percent of Colombian households.
Despite their relatively small contribution to total income, transfers were a key driver in reducing
Colombia’s income inequality, particularly in 2008–13. However, Colombia remains one of the most
unequal countries in the region. Even after the past decade’s robust economic growth and decreasing
poverty rates, the share of total income going to the bottom 10 percent of the population continues
to be around 1.1 percent, while the top 10 percent receives more than 42.3 percent. Overall, the
analysis suggests that Colombia’s poverty would have declined further had the country experienced
more equitable economic growth, indicating that reducing inequality remains a relatively unexploited
source of further welfare gains.
In 2010, the Government introduced the Prosperidad para Todos development plan. In addition to
sustainable economic growth, the plan calls for positive distributional and social effects. Under the Prosperidad para Todos umbrella, the December 2012 tax reform focused on changing the distributional
impact of the tax system and reducing informality in the labor market. Further inequality reductions
would necessitate additional tax reforms and more generous and better-targeted social transfers, and
sustained efforts to increase access to high-quality education and to basic services for the less well off.
Building the Foundations of
Shared Prosperity in Colombia:
Recent Trends in Poverty, Shared
Prosperity, and Inequality
A decade of impressive poverty
reduction
should be noted that extreme poverty continues to
be significantly higher in rural areas (Figure 2-1).
Along with poverty reduction expressed in monetary terms, Colombia also achieved a significant
decrease in the Multidimensional Poverty Index
(MPI) (see Box 2-1).
Colombia has made impressive strides in reducing
poverty. Extreme poverty fell from 17.7 percent
in 2002 to 9.1 percent in 2013, an average annual drop of 0.78 percentage points (Figure 2-1).
Moderate poverty fell from 49.7 percent in 2002 to
30.6 percent in 2013, an average annual drop of
1.73 percentage points (Figure 2-2).1 The decline
in moderate poverty translates into an absolute decrease in 5.97 million poor people—from nearly
19.96 million in 2002 to about 13.99 million in
2013. The rate of poverty reduction was comparable across urban and rural areas; however, it
More households in Colombia are now middle
class and fewer are living in poverty, yet a substantial number of them remain vulnerable to falling
back into poverty (Figure 2-3). Currently about
one in three Colombian households is considered
poor and one in four households is considered
middle class. Moreover, with about one in three
households classified as vulnerable, a substantial
percentage of the population runs the risk of falling back into poverty. During 2002–12, Colombia
managed to increase the size of its middle class by
12.1 percentage points, a gain of 80 percent.2 By
2011, the vulnerable class surpassed the poor; according to conservative estimates, the middle class
FIGURE 2-1: Extreme Poverty Reduction
FIGURE 2-2: ModeratePoverty Reduction
70
33.1
60
25
50
National
Rural
Urban
Source: World Bank staff calculations based on DANE-MESEP data. These
data are publicly available, and can be accessed at: http://formularios.dane.
gov.co/pad/index.php/catalog#_r=&collection=&country=&dtype=&from=
1993&page=2&ps=&sk=&sort_by=titl&sort_order=&to=2013&topic=
&view=s&vk=.
Note: Poverty estimates based on the official poverty line. The MESEP
committee decided that reporting data/statistics for 2006 and 2007 would
not be prudent given the methodological changes that took place in those
years. In other words, only the statistics reported for the 2002–05 and the
2008–13 series are comparable.
National
Rural
2013
2012
2011
2010
0
2009
10
2008
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
0
2002
5
26.9
20
2007
9.1
6.0
2006
12.2
10
30.6
30
2005
19.1
42.8
45.5
2004
17.7
49.7
2003
15
40
61.7
2002
20
Percentage
30
2013
Percentage
35
Urban
Source: World Bank staff calculations based on DANE-MESEP
data. These data are publicly available, and can be accessed
at: http://formularios.dane.gov.co/pad/index.php/catalog#_
r=&collection=&country=&dtype=&from=1993&page=2&ps=&sk=&sort_
by=titl&sort_order=&to=2013&topic=&view=s&vk=.
Note: Poverty estimates based on the official poverty line. The MESEP
committee decided that reporting data/statistics for 2006 and 2007 would
not be prudent given the methodological changes that took place in those
years. In other words, only the statistics reported for the 2002–05 and the
2008–13 series are comparable.
Toward Shared Prosperity in Colombia
25
PART ONE
|
CHAPTER 2
should also surpass the poor by 2015.3 Despite the
progress, it is important to note that Colombia’s
poverty remains high, and the size of its middle class still lags other LAC countries, such as
Argentina, Brazil, Chile, and Mexico (see Box 2-2).
Colombia has failed to close the regional gaps in
social mobility. According to Angulo et al. (2012),
Colombia’s inter-generational social mobility
increased when measured by physical assets or
by years of educational attainment—but it remains lower than in such comparable countries as
Mexico and Chile. In particular, the authors estimate that a Colombian from the lowest 40 percent
of the physical assets distribution (where three out
of four people are poor) has a 5 to 7 percent probability of transitioning to the richest 20 percent of
the distribution. Similarly, Ferreira et al. (2013) analyze long-term intra-generational mobility between income classes (poor, vulnerable, and middle class) and find that Colombia’s poor have a less
than 1 percent probability of moving out of poverty and into the middle class in one generation (17
years), a relatively low mobility rate shared by 10
of the 18 LAC countries they considered.
In recent years, Colombia’s average rate of poverty
reduction surpassed the LAC average, narrowing
BOX 2-1: Multidimensional Poverty in Colombia
In 2011, the Government adopted a multidimensional measure of poverty. To be classified as multidimensionally poor, a person must be deprived in at least five of 15 designated welfare indicators. These
key measures are: educational achievement, illiteracy, school attendance, educational gap, access to
childcare services (health, nutrition, care), child labor, long-term unemployment, formal employment,
healthcare access, healthcare access when needed, access to drinking water, access to sanitation, quality
of floor in the housing, quality of wall, and critical overcrowding.
The MPI for Colombia declined from 49 percent
in 2003 to 24.8 percent in 2013, indicating that
49.0
50
the country halved the share of its population
that is multidimensionally poor. In contrast to
40
monetary poverty, the changes in the MPI were
35.0
30.4
larger during the pre-crisis period, when the
29.4
30
27.0
MPI decreased on average by 2.8 percentage
24.8
points whereas between 2008 and 2013 the
20
MPI decreased on average by 2 percentage
points. These differences between the MPI and
10
monetary poverty are likely due to the universal
coverage of some of the MPI indicators.
0
2003
2008
2010
2011
2012
2013
Regarding the spatial distribution of multidimensional poverty, most of the population unSource: DANE) for MPI 2010–2013, DNP (2011) based on Encuesta de
Calidad de Vida (DANE) for MPI 2003–08.
der this condition lives in the largest cities although the incidence is higher in smaller municipalities (see Figure A3.1 in Annex 3).
MULTIDIMENSIONAL POVERTY REDUCTION
Percentage
26
Since being adopted as an official poverty measurement, the MPI declined from 30.4 percent in 2010
to 24.8 percent in 2013; this decline translates into approximately 2.13 million Colombians being lifted out of multidimensional poverty in three years. The key drivers behind the MPI’s decrease were
(continued on next page)
Toward Shared Prosperity in Colombia
the gap with its regional peers. World Bank poverty
estimates based on the regional US$4-a-day poverty line show that moderate poverty in Colombia
decreased an average of 1.54 percentage points a
year between 2002 and 2008. Between 2008 and
2012, it decreased at a much faster 2.28 percentage
points a year. This acceleration in poverty reduction
contrasts with the rest of the region. The LAC rate
of moderate poverty reduction was higher during
the 2002–08 period (1.92 percentage points) than
in subsequent years (1.39 percentage points through
2012). Nonetheless, Colombia has yet to regain its
2002 moderate poverty ranking vis-à-vis other LAC
countries. It should also be noted that Brazil and
Mexico achieved comparable poverty reduction
with relatively smaller rates of GDP growth.
Who and where are the poor in
Colombia?
Compared to the vulnerable and middle-class
populations, the poor in Colombia have lower
levels of educational attainment, are less likely to
work (both men and women),4 have more members per household, and are more likely to live in
female-headed households. Poorer households also
have higher dependency ratios due to larger numbers of children under 14 years of age and elderly
BOX 2-1: Multidimensional Poverty in Colombia (continued)
improvements in the health and education dimensions. In particular, there have been declines of 3.9
percentage points in the number of individuals with no health insurance, 3.8 percentage points in the
number of individuals with low educational attainment, and 3.4 percentage points in the number of individuals with an educational gap. Critical overcrowding, informal employment, and no access to healthcare services when needed are more than 3.5 percentage points away from the targets set for 2014.
Otherwise, all of the indicators are likely to reach their respective targets on time. Nevertheless, no access
to health care services when is needed, long-term unemployment, and no access to sanitation deserve
particular attention; they have experienced setbacks or little improvement over the three-year span.
MPI (%) 2010–13
No health insurance
Low educational achievement
Educational gap
Informal employment
Critical overcrowding
Poor access to childcare services
Illiteracy
Child labour
No adequate external walls
Low school attendance
No adequate floors
No access to drinking water
Long-term unemployment
No acess to sanitation
No access to healthcare services when needed
–5
–4
–3
–2
–1
0
1
2
3
4
Percentage points
Distance to the goal
Source: Dane 2013, based on Encuesta de Calidad de Vida (ECV).
Progress 2010–2013
5
6
27
PART ONE
CHAPTER 2
|
FIGURE 2-3: Less Poor, More Middle Class, but
More Vulnerable to Falling Back Into Poverty
60
Percentage
above 70 years of age. Although the dependency
ratio declined for all three socio-economic groups
in 2002–13, it remained significantly higher for the
less well-off relative to the middle class.5
51.5
50
40
37.7
32.9
27.2
32.1
30
20
The elderly and ethnic minorities face high poverty rates. A recent press release by Colombia’s
National Bureau of Statistics (DANE) reports that
the incidence of moderate poverty among households headed by senior citizens (older than 65 years
old) was 27.6 percent in 2012—but it was much
higher in rural areas (42.7 percent). According
to a recent study by Angulo et al. (2011), indigenous households have both the highest rate of
multidimensional poverty (58 percent in 2010) and
the smallest MPI reductions in 2003–10. Income
15.1
Poor
Vulnerable
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
0
2002
10
Middle class
Source: World Bank Staff calculations using SEDLAC data (CEDLAS and the
World Bank). Poor are individuals living in households for which the average
per capita income is less than US$4 PPP, vulnerable are those with average
per capita incomes between US$4 and US$10 PPP, and middle class those
with average per capita incomes between US$10 and US$50 PPP.
BOX 2-2: Growth of Colombia’s Middle Class Was Positive but Lagged Other LAC Countries
In the past decade, the Latin American middle class grew at a faster pace than in the 1990s. Despite significant variation across countries, the region achieved overall positive growth of the middle class from
2002 to 2012 (see figure below). The year 2011 was the first time the LAC region had more people
in the middle class than in poverty (World Bank 2013), and 2012 saw a continuation of the trends of
declining poverty and a growing middle class.
When it comes to transitioning the poor and the vulnerable into the middle class, Colombia was similar
to its regional peers with comparable middle class populations in 2002— e.g., Bolivia and Ecuador.
However, a number of countries outperformed Colombia—e.g., Costa Rica, Brazil, Chile and Peru. By
2012, Colombia had the fifth smallest middle class in LAC.
THE RISE OF MIDDLE CLASS IN LAC (CIRCA 2002–12)
60
50
Percentage
40
30
20
Circa 2002
LAC
Guatemala
Honduras
El Salvador
Dominican
Republic
Colombia
Mexico
Ecuador
Bolivia
Paraguay
Peru
Brazil
Chile
Costa Rica
0
Argentina
– urban
10
Uruguay
– urban
28
Circa 2012
Source: World Bank staff calculations based on the Socio-Economic Database for Latin America and the Caribbean (CEDLAS and The World Bank).
Note: Circa 2002 denotes other years for Argentina (2004), Chile (2003), Guatemala (2000), Ecuador (2003), Paraguay (2003), and Peru (2004); circa 2012
denotes other years for Chile (2011), the Dominic Republic (2011), Guatemala (2011), Honduras (2011), and Paraguay (2011). The definition of middle class is
based on Ferreira et al. (2013).
Toward Shared Prosperity in Colombia
In terms of regional poverty, the large historical
disparities between urban and rural areas persist.
Despite the significant decline in the incidence of
poverty at the national level, both moderate and
extreme poverty levels remain significantly higher in rural areas (Figures 2-1 and 2-2). From 2002
to 2013, rural areas’ extreme poverty rates fell
from 33.11 to 19.1 percent; in urban areas, they
fell from 12.24 to 6.0 percent. During the same
period, moderate poverty in rural areas declined
from 61.7 to 42.8 percent, while urban areas saw a
drop from 45.45 to 26.9 percent. Moreover, the rural-urban ratio in the poverty headcount increased
from 1.35 to 1.59 percent, suggesting that urban
areas were more effective than rural areas at lifting
Colombians out of poverty.
While large historical disparities between urban
and rural areas persist, the incidence of poverty varies considerably when comparing the 13
main metropolitan areas with other urban areas
(Figure 2-4). In 2013, the poverty rate in the medium and small urban areas (40.4 percent) was 2.3
times greater than the main metropolitan areas
(17.5 percent). In fact, the rate for the medium and
small urban areas was not far below the rural poverty rate of 42.8 percent. Between 2002 and 2013,
the share of the poor population living in medium and small urban areas increased by 5.9 percentage points; by contrast, the percentage of the
poor living in the main urban areas decreased by
6.3 percentage points. The urban rate was only 10
percent lower than the other urban rate in 2002.
By 2013, it was nearly 40 percent lower.
Moderate poverty declined at the national level, but
differences at the department level became more
Millions of inhabitants
FIGURE 2-4: Poverty Incidence Across Areas
25
20
15
10
5
0
2002
2008
2013
2002
2008
Extreme poor
2013
Poor
Headcount ratio
70%
61.7%
59.2%
60%
Percentage
comparisons based on ethnicity encounter some
biases related to the large share of non-market incomes for specific ethnic groups (Cárdenas et al.
2012); however, it is important to note that the unconditional family per capita income is 59 percent
lower for Afro-Colombian households than for
households in a different ethnic group, suggesting
that the prevalence of monetary poverty among
Afro-Colombians is likely to be significantly higher.
50%
40%
33.1%
32.6%
20%
19.2%
19.5%
10%
7.6%
5.6%
30%
0
2002
2008
Rural
36.2%
19.1%
10.3%
3.0%
2013
Extreme poor
Other urban areas
56.6%
52.6%
2002
42.8%
40.4%
27.0%
17.5%
2008
2013
Poor
Main urban areas (13 A.M)
Source: World Bank staff calculations using DANE-MESEP (2002–12).
pronounced. In 2002, the gap between the department with the highest poverty rate (Huila) and the
lowest poverty rate (Bogotá D.C.) was 37.8 percentage points; in 2013, the difference was about 52.85
percentage points, with Choco displacing Huila as
the department with the highest poverty rate.
The findings suggest that poverty reduction in
2002–13 was biased toward main urban areas and
high-income departments (see Annex 1). In particular, about 57 percent of the total poverty reduction occurred in high-income departments and
Bogotá, home to approximately 50 percent of the
population. The low-income departments, home
to approximately 20 percent of the population, accounted for only 13.9 percent of this period’s total
poverty reduction.
Socio-demographic factors were also significant
in the 2002–13 patterns of poverty reduction (see
Annex 1). A decline in the share of households
with less than 25 percent labor force participation
29
30
PART ONE
|
CHAPTER 2
FIGURE 2-5: Measures of Shared Prosperity
Between the Early and Late Parts
of Decade
8
6
4
2
0
2002–2008
2008–2013
2002–2013
National
Annualized growth rate mean income bottom 40%
Annualized growth rate mean income
Source: World bank Staff estimates based on MESEP-DANE (2013).
accompanied an almost equal increase in the share
of household with more than 50 percent labor force
participation; this shift was associated with a 29 percent reduction in poverty. Similarly, when considering household composition, there was a decline in
the share of households with three or more children
and an increase in the number of households with
less than two children; this shift was associated with
a 27.6 percent of the observed reduction in poverty. Lastly, the decline in the number of households
headed by an individual with less than primary education was linked to a 22.4 percent of the observed
reduction in poverty.
40 percent—i.e. the SPI—grew at 2.7 percent,
below the mean growth rate of about 3.1 percent
(Figure 2-5). Between 2008 and 2013, however,
the bottom 40 percent of Colombia’s income distribution fared better. The SPI rose to 6.6 percent,
significantly higher than the 4.1 percent growth in
average income per capita. Over the 11-year period, the SPI was 4.5 percent per year, slightly higher than the 3.6 percent for the general population.
Over the same period, department-level improvements in the SPI were robust (Figure 2-6). Between
2002 and 2008, the annualized growth rate of per
capita mean income was generally higher than the
SPI. The reverse was true during the latter part of
the period (2008–13), resulting in a narrowing of
the income gap between the less well-off and the
average person across departments.
The World Bank’s Shared Prosperity Indicator
(SPI) measures the annualized growth rate of average income among the bottom 40 percent of the
population. It gives an indication of how well prosperity is shared with those who are relatively less
well-off while keeping a focus on overall economic
growth (Basu 2013).6
Colombia’s income distribution remains among the
most unequal in the world. Real income per capita
growth patterns in 2002–13 are consistent with the
inequality measures (Table 2-1). For example, the
ratio of per capita income of the richest 10 percent
to the bottom 10 percent to the income distribution declined slightly—from 13.36 in 2002 to 12.1
in 2013. However, the ratio between the richest 75
percent and the bottom 25 percent of the income
distribution remained virtually unchanged, going
from 3.62 in 2002 to 3.61 in 2013. Similarly, the
Gini coefficient and the Theil index remained practically stagnant during the earlier part of the period,
and declined only marginally during the latter part
of the period.7,8 With comparable or higher levels
of inequality at the beginning of 2002–12 period,
regional peers (e.g. Bolivia and Brazil) achieved
better results in reducing income inequality over
the 10-year span. Moreover, Colombia’s Gini coefficient remained higher than the regional average in 2012, placing Colombia among the
three most unequal countries in LAC, one of the
most unequal regions of the world (Figure 2-7).
Over time, some qualitative differences emerge
in the distribution of economic prosperity’s benefits in Colombia. In the pre-crisis period of 2002
and 2008, real income per capita of the bottom
Low mobility accompanies Colombia’s high
and persistent inequality. Some income redistribution took place in 2002–12 (bottom panel of Figure 2-8), driven primarily by persistent
More shared prosperity with reduction
in inequality toward the end of the
decade
Toward Shared Prosperity in Colombia
Annualized growth rate of bottom 40%
FIGURE 2-6: Robust Department-level Improvements in the SPI over the Decade
12%
11%
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
–1%
–2%
–3%
Boyacá
Sucre
Magdalena
La Guajira
Antioquia
Bolívar
Huila
Cundinamarca
Cesar
Risaralda Cauca Valle del Cauca
Bogotá D. C.
Cauca
Santander
Norte
de
S.
Quindío Caquetá
Nariño
Meta
Caldas
Chocó
Santander
Córdoba
Cundinamarca
Boyacá
Bogotá D. C. Tolima
Nariño
Huila
Tolima Antioquia
Atlántico
Córdoba Bolívar
Caldas Meta
Sucre
Norte de S. Quindío
Valle del Cauca
Magdalena
Cesar
Chocó
Cauca
La Guajira
–3%
–2%
–1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
Annualized growth rate of percapita mean income
2002–2008
2008–2012
Source: World bank Staff estimates based on MESEP-DANE (2012).
declines in the income held by the top quintile
and increases in the income held by the middle
class. However, the gap between the highest quintile and the bottom 40 percent of the population
remained large at the end of the period. In 2013,
the year with the lowest level of inequality, the
richest 20 percent of the population held about 58
percent of total income, while the bottom 40 percent held around 10 percent of total income (top
panel of Figure 2-8). Moreover, while the income
share of the bottom 40 percent increased over
the period, it did so only marginally. However,
the redistribution process taking place during the
latter part of 2002–13 can be described as “propoor”; in particular, between 2010 and 2013,
when Colombia experienced the largest decline
in inequality, the redistribution of income benefited the poorest half of the population and the
vulnerable class more than during the pre-crisis years (bottom panel of Figure 2-8). Overall,
persistently high levels of inequality limited the
growth’s effect on poverty reduction.9
TABLE 2-1: Inequality in Colombia
2002
2008
2010
2013
Gini
0.572
0.566
0.560
Theil
0.692
0.651
0.641
p90/p10
13.4
14.4
13.0
p75/p25
3.6
3.8
3.7
0.539
0.586
12.1
3.6
Annualized changes
Gini points
–0.099
–0.325
Theil points
–0.674
–0.528
p90/p10
0.174
–0.675
–0.680
–1.832
–0.325
p75/p25
0.038
–0.074
–0.046
Source: World Bank staff calculations based on DANE-MESEP (2002–2013).
31
PART ONE
CHAPTER 2
|
FIGURE 2-7: LAC Inequality
The redistributive capacity of Colombia’s tax system was limited during the period. Lustig et al.
(2013) compare Colombia with other countries
in Latin America. They find that pre-tax income
inequality in Colombia and Brazil was almost
identical—0.575 and 0.574, respectively. After
taking into account each country’s existing tax,
subsidies, and cash and in-kind transfer structures,
Colombia’s Gini coefficient is only marginally reduced (to 0.535) whereas Brazil’s declines significantly (to 0.439).
0.60
0.55
0.50
LAC
Bolivia
Mexico
Brazil
Peru
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
0.40
2002
0.45
Colombia
Uruguay
Source: LAC Equity Lab tabulations of SEDLAC (CEDLAS and the
World Bank).
FIGURE 2-8: 2002–12: A Period of High
Inequality and Low Mobility
70
61.7
58.3
60
Percentage
50
40
30
20
10
0
2.9 3.2
Poorest
quintile
6.5 7.2
Q2
10.811.8
Q3
2002
1
0.3
0.6
19.5
18.1
Q4
Richest
quintile
2013
2
Percentage points
32
1.0
–1
–2
–3
–3.3
Poorest
quintile
Q2
2002–2008
Q3
Q4
In sum, as noted earlier, high inequality hampered
economic growth’s impact on poverty reduction (see
Box 2-4). Simulation results show that poverty in
Colombia would have declined more had the country experienced more equitable economic growth.
The Drivers Behind the Observed
Changes in Poverty and Inequality
1.4
0
–4
It is clear that the redistributive capacity of the
Colombian system of taxes (see Box 2-3) and social transfers can be improved. In particular, the
effect of social transfers in Colombia, when netted
out of the tax system, shows a weak effect on income inequality. In Figure 2-9, social programs on
the right-hand side are only relatively progressive
compared to initial distribution (including indirect
subsidies, spending on tertiary education, and indirect taxes), while the social programs on the lefthand side are progressive in absolute terms (such
as the conditional cash transfer program Familias
en Acción, subsidies to the elderly through the Adulto
Mayor program, now Colombia Mayor, and spending
on health and elementary education).10
Richest
quintile
2008–2013
Source:World Bank staff calculations using on DANE-MESEP (2002–2013).
As a first step in understanding the main drivers of Colombia’s improvement over time, this
section examines the trends for each underlying component of income and decomposes the
distributional changes in income from 2002 to
2013. The insights taken from this analysis are intended to build the evidence base for Colombia’s
future policy making. It must be noted, however,
Toward Shared Prosperity in Colombia
BOX 2-3: Equity Implications of Fiscal Policy Changes in Colombia
In December 2012, the Government passed tax reforms designed to improve fiscal policy’s impact on
inequality and poverty reduction. These reforms focused on various elements of the tax code. A key
component is the new income tax system, Impuesto Minimo Alternativo Nacional (IMAN), which aims
to increase income taxes for the top 0.6 percent of the population while decreasing them for the rest of
Colombians. Prior to the 2012 tax reform, the population was divided into four different tax brackets
based on income levels. IMAN creates more tax brackets to increase the progressivity of the direct tax
system. The introduction of the new income tax system was expected to drastically improve the distribution of wealth within the country. While lowering income tax rates for 99.4 percent of the population,
the Government sought to maintain revenues with tax-system changes that were revenue neutral.
THE IMPACT OF THE COLOMBIA TAX REFORM ON THE GINI COEFFICIENT AND ON TAX REVENUES
Scenarios
Gini – status quo
Gini – Tax bill
Gini – Approved reform
Gini Coefficient
Tax revenue (1,000,000,000 COP)
0.58634
0.57827
0.57901
4.9
4.8
4.8
Source: World Bank staff calculations based on GEIH 2011 and administrative data 2010.
Note: Coefficient is estimated for all workers reporting labor income.
The World Bank conducted a series of analyses to measure the impact of these reforms on inequality
and tax revenues. The first analysis, which examines the impact of IMAN, is based on data from administrative tax records and household statistics from the Gran Encuesta Integrada de Hogares (GEIH).
The two sources of data allow constructing a pseudo-income distribution, correcting the problem of
underrepresentation of high-income households that is typical of household surveys. The results reveal that the Gini coefficient decreases from 0.586 to 0.579. The estimated impact of the reform is not
trivial, considering that the average yearly reduction of Latin American countries’ Gini over the past 10
years was 0.51 percentage points.a
The analysis also shows that the introduction of IMAN leads to a slight decrease in government revenues of approximately 100 million COP. However, it is important to note that this analysis only accounts for changes in the income tax (IMAN) and does not include the introduction of the corporate
(CREE) and luxury taxes or the changes in the VAT structure.
GINI COEFFICIENT AND TAX REVENUE (CONSUMPTION)
Scenario
Gini – status quo
Gini – Tax bill
Gini – Approved reform
Gini Coefficient
Tax Revenue (1,000,000,000 COP)
0.50968
0.50881
0.50895
16.1
15.7
16.2
Source: World Bank staff calculations based on LATAX simulator and ECV 2011.
The second analysis, based on consumption data from the ENCV (Encuesta de Calidad de Vida), follows the LATAX microsimulation technique and focuses on the effect of the changes to the VAT on income distribution and tax revenues, assuming individuals’ purchasing habits remain the same. Because
this analysis only considers changes to the VAT code, consumption (vis-à-vis income) is used to determine the proportional impact of cash gains and losses. The analysis shows that Colombia’s 2012 tax reform yields a modest reduction in the consumption Gini from 0.50986 to 0.50895. The result is in line
with the IMAN analysis. With regard to tax revenues, the corresponding simulation yields an increase
in tax revenues from 15,700,000,000 to 16,200,000,000 COP.
a
Calculated using SEDLAC (Center for Distributive, Labor and Social Studies and the World Bank) harmonized data for 2001–11.
33
34
PART ONE
|
CHAPTER 2
FIGURE 2-9: Concentration and Gini Coefficients
–0.422
Familias en Acción y Adulto Mayor
Net market income Gini
Post-fiscal income Gini
Disponsable income Gini
Final income Gini
Final income* Gini
Housing
Indirect taxes
Tertiary education spending
Other conditional cash transfer
Indirect subsidies
Education
Secondary education spending
Pre-school education spending
Primary education spending
Health
Market income Gini
–0.6
–0.314
–0.308
–0.269
–0.166
–0.126
–0.4
–0.2
0.051
0.113
0
Concentration index
0.285
0.361
0.2
0.4
0.527
0.534
0.535
0.568
0.569
0.574
0.575
0.6
0.8
Gini
Source: Lustig et al. 2013, based on data from ECV 2010.
that the analysis does not identify causal effects;
however, it does help focus attention on the factors that quantitatively are most important in describing recent changes in poverty and inequality.
Evaluating the dynamics of sources of
income
The observed changes in Colombia’s levels of
poverty and inequality can be attributed to,
among other things, changes in household demographic characteristics (age composition,
fertility, labor market participation), changes
in the share of occupied adults (access to labor
markets), changes in labor income (rewards and
distribution of skills), and changes in non-labor
income (transfers, housing, pensions, and other
non-labor income). Understanding the relative
importance and the dynamics of each of these
factors may help to shed light on the main drivers of changes in poverty and inequality from
2002 to 2013. This section examines the trends
for each underlying component of income.
Changes in labor income likely led to significant
changes in the overall income distribution. The
data show that labor income constitutes a major
part of total income both over time and across all
quintiles of the income distribution. In 2013, for
example, labor income accounted for 65.15 percent of total income of the lowest quintile (the
poor) and 71.3 percent of total income of the
highest quintile (the rich). Between 2008 and 2013,
moreover, the labor income share increased across
all quintiles, except for the bottom one.
Over the years, income from transfers increased
considerably for the poor, suggesting that transfers
played an important role in the observed reduction
in extreme poverty. The increase in the relative
size of income from transfers coincides with the
expansion of conditional cash transfer programs.11
In particular, transfers accounted for 5.7 percent
of income for the bottom quintile of the income
distribution in 2002, rising to 17.2 percent in 2013.
Above the lowest two quintiles (that is, for the third
quintile and higher), however, transfers increased
only slightly, remaining a relatively negligible
source of income throughout the period.
The remaining sources of income are unlikely to
have been important drivers of poverty reduction. The results corresponding to other sources
of household income shows that capital, pensions,
and other types of income generally account for
relatively small shares of total household income
Toward Shared Prosperity in Colombia
BOX 2-4: Persistently High Levels of Non-Monetary Inequality
Ferreira (2012) estimates that inequality of access to basic services, as measured by the Human
Opportunity Index (HOI), explains more than 20 percent of Colombia’s total inequality. The HOI is a
scalar measure that synthesizes two factors: the average coverage rate of a basic good or service for the
population under study and the relative measure of equality of opportunity, adjusted for differences
in access to basic services between individuals based on their circumstances (Paes de Barros et al.
2009).a Regarding the dynamics of the HOI, Molinas et al. (2012) show that Colombia’s HOI registered
clear improvements between 1997 and 2008, increasing by 17 percent. Colombia also did well compared to other countries, placing above the LAC average and near the HOI level of top performing
countries in the region (chart below). However, the country still shows important gaps in equality of
access to basic services (water, sanitation, internet, and education), and the main circumstances explaining the inequality are parental education and geographical location.
Columbia’s recent progress in educational attainment has been slower than its regional peers (World Bank
2013). Moreover, the dispersion or inequality in years of education increased substantially in Colombia,
while it decreased in LAC. This dispersion contributed to increasing labor income inequality in Colombia,
diminishing the reduction in income inequality gained by changes in returns to skills (Azevedo et al. 2013).
HUMAN OPPORTUNITY INDEX (CIRCA 2012)
100
HUMAN OPPORTUNITY INDEX IN COLOMBIA
(2012)
100
93.8
93.1
80
79.7
80
60
60
55.5
HOI
Percentage
91.5
87.5
40
40
20
Cellphone
Internet
Sanitation
Water
Electricity
Completion of 6th
grade on time
Source: World Bank (2014).
Note: The overall HOI is a simple average of the HOI computed for each
opportunity. Argentina, Dominican Republic Guatemala, Nicaragua and
Panama do not have the same number of opportunities in the overall HOI.
For more details about the circumstances, years selected for the circa and
the opportunities that are not present in the overall HOI please see World
Bank (2014).
0
12.5
School
enrollment
0
Uruguay
Chile
Costa Rica
Argentina
Panama
Brazil
Ecuador
Colombia
Mexico
Peru
LAC
Dominican R.
Paraguay
Bolivia
Guatemala
Honduras
Nicaragua
El Salvador
20
Source: World Bank (2014).
Note: The circumstances used in this analysis are the gender of the child,
parents’ education, family per capita income, number of siblings, presence of
both parents, gender of the household head, and urban or rural residence.
Turning to the quality of education, the 2012 PISAb scores reveal a pending task because Colombia had
below-average performance in all three subjects tested—math, reading, and science (OECD 2014). The
standardized scores can also be used to assess access to quality education in the LAC countries that
participated in the assessment (see charts below). Colombia shows consistently low levels of access to
quality education relative to other LAC nations in basic math (27 percent), reading (50 percent), and
science skills (45 percent). Similarly, Colombia finds itself among the countries with the lowest PISA HOI.
(continued on next page)
35
PART ONE
|
CHAPTER 2
BOX 2-4: Persistently High Levels of Non-Monetary Inequality (continued)
These findings have important implications for equity and shared prosperity in Colombia, where education is often found to inhibit inter-generational mobility. Estimating the effect of inequality of opportunities on the inequality outcomes in Colombia, Ferreira and Melendez (2012) find that 18 to
24 percent of inequality in adult labor outcomes (labor income or per capita household income) is
explained by characteristics that are beyond an individual’s control; the most important is parental education. Similarly, Ferreira et al. (2013) find that 3.5 additional years of parental education in Colombia
are, on average, associated with more than 2.5 additional years of schooling in the next generation.
Peru had the highest education persistence among the countries studied, with slightly over three years
of schooling in the next generation, and Ethiopia had the lowest education persistence, with less than
0.5 years of schooling. The study also reports that Colombia ranked seventh among 42 countries—rich
and poor—in the correlation of education attainment across generations.
Costa Rica
Chile
Trinidad and
Tobago
Chile
Trinidad and
Tobago
Mexico
Uruguay
Costa Rica
Argentina
Brazil
Colombia
0
Peru
10
Mexico
20
Uruguay
30
Brazil
40
Argentina
80
70
60
50
40
30
20
10
0
50
Peru
60
Panama
Basic Skills in Reading
Colombia
PISA HOI
Basic Skills in Math
Panama
Basic Skills in Science
70
60
50
HOI
40
Access
30
20
Chile
Costa Rica
Mexico
Trinidad and
Tobago
Uruguay
Argentina
Brazil
Colombia
0
Panama
10
Peru
36
Source: http:\\worldbank.org\visualizeinequality.
Note: Access in this case refers to the percentage of students who demonstrate the basic competencies in math, reading, science, respectively, if above
level 2 according to OECD. The HOI is computed as in Molinas et al (2012).
Overall, the empirical evidence suggests further improvements in education are likely to translate into
significant reductions in inequality, generate large welfare-enhancing impacts among the less well-off,
and produce positive spill-over effects on health outcomes.c
Barros et al. (2009) define circumstances as: “personal, family or community characteristics that a child has no control over, and that, for ethical reasons,
society wants to be completely unrelated to a child’s access to basic opportunities.” Children are used to calculate the index because they are less likely to
have any control of their circumstances.
b
The Programme for International Student Assessment (PISA) evaluates student skills in math, reading, and science for students roughly between 15 and 16
years of age in more than 65 countries.
c
For instance, higher education among household heads leads to increases in total household income that are the largest for the lowest quintile and
decrease moving up the income ladder (Zuluaga 2007).
a
Toward Shared Prosperity in Colombia
(Figure A3.2, bottom panel). One exception is the
relative share of pensions in the top quintile, which
represented about 10 percent of these households’
income throughout the period. Overall, the observed changes in household income over time are
related to the relative growth of labor income, the
growth in transfers at the lower end of the income
distribution, and the relative stagnation of capital,
pensions, and other sources of income.
Understanding the sources of poverty
reduction12
This section delves into the most important drivers of poverty reduction and the rise of the middle
class in Colombia between 2002 and 2013. First,
it analyzes the extent to which the changes in poverty levels and the middle class are due to increasing mean income (holding constant the income
distribution prevailing in 2002) and the extent to
which the changes are due to shifts in the distribution of income (holding constant the mean level
of income prevailing in 2002). Observed changes
in total household income are then decomposed
into different parts that can be attributed to changes in household demographic characteristics (age
composition, fertility, labor force participation),
changes in the share of occupied adults (access to
labor markets), changes in labor income (rewards
and distribution of skills), and changes in non-labor income (transfers, housing, pensions, and other
non-labor income).13
Consistent with the trends in poverty and inequality,
the Datt and Ravallion (1992) decomposition, which
breaks down the changes in poverty headcount into
its growth and redistribution components, suggests
qualitative differences in the underlying drivers of
poverty reduction between the earlier and the latter
parts of the period. In 2002–08, the reduction in
the poverty headcount ratio was mostly explained
by the growth component (Figure 2-10). In particular, 95 percent of the reduction in moderate poverty
was due to growth, and redistribution accounted for
only 5 percent. In the same period, the redistribution component had a negative effect on the reduction of extreme poverty headcount. Between 2008
and 2013, however, the redistribution component
explained nearly half of extreme poverty reduction
and 28.7 percent of moderate poverty reduction.
As in LAC (World Bank 2013), poverty reduction
in Colombia was driven primarily by labor market changes, such as increases in labor income and
a greater labor market participation of household
members. Figure 2-11 shows the decomposition
FIGURE 2-10: Growth and Redistribution Components of Changes in Poverty and Middle Class
a. Extreme Poverty
b. Moderate Poverty
40
20
Percentage
0
–20
–40
28.7
–71.3
–60
–43.8
–56.2
–80
–27.1
–72.9
–5
–28.7
–95
–71.3
–15.9
–84.1
–100
–120
2002–2008
2008–2013
2002–2013
2002–208
Extreme poverty
2008–2013
Moderate poverty
Redistribution
Source: World Bank staff calculations based on DANE-MESEP (2002–2013).
Note: Figure reports the results of a Datt and Ravallion (1992) decomposition.
Growth
2002–2013
37
PART ONE
|
CHAPTER 2
moderate poverty decrease is related to changes
in labor market income and participation.
of observed changes in total household income
into parts that can be attributed to changes in
household demographic characteristics, changes
in the share of occupied adults, changes in labor
income, and changes in non-labor income. The increase in labor income explains 43 percent of the
decline in moderate poverty, with higher female
earnings responsible for 13.6 percent and male
earnings responsible for 29.4 percent. Moreover,
the share of occupied household members explains 28.3 percent of the variation for moderate poverty and 20.7 percent for extreme poverty. In other words, more than 70 percent of the
The expansion of well-targeted public transfers
proved effective in terms of reducing poverty in
Colombia. The change in poverty associated with
transfers was –16.8 percent for moderate poverty
and –39.7 percent for extreme poverty; the corresponding changes in LAC were –13 percent and
–23 percent (World Bank 2013). These patterns
suggest that the safety-net expansion that took
place in 2002–13 was both effective in reducing
poverty—in particular extreme poverty—and
FIGURE 2-11: Components of Changes in Extreme and Moderate Poverty Reduction 2002–13
Percentage
Moderate poverty
0
–5
–10
–15
–20
–17
–25
–30
–35
–40
–46
–45
–50
Share of
occupied
–3
–11
Extreme poverty
5
0
–5
–10
–15
–20
–25
–30
–35
–40
–45
–50
–14
–25
–3
Labor
income
–29
Share of
occupied
Labor
income
Transfer
Women labor
Capital
–11
–23
Pension
Housing
+Other
non labor income
Non labor income
0
–10
–6
–17
–29
Men labor
Percentage
38
–2
–3.70
–11
–22
–33
–40
Share of
occupied
Labor
income
Men labor
Share of
occupied
Labor
income
Women labor
Transfer
–45
Capital
Pension
Housing
+Other
non labor income
Non labor income
Source: World Bank staff calculations based on DANE-MESEP (2002–2013).
Note: Figure shows contributions of changes in income per capita from 2002 to 2013 to poverty reduction (%). For details on the underlying methodology, see
Azevedo et al. (2012). Other non-labor income includes income from capital, housing, and non-workers income. Share of occupied refers to gains attributable
to increases in the number of employed household members.
Toward Shared Prosperity in Colombia
Pension and capital income (which is considered
regressive) do not account for a significant proportion of Colombia’s income inequality. Figure 2-12
illustrates the level of inequality of each source of
income as measured by the pseudo-Gini coefficient. Pension and capital income, being primarily
held by those in the higher income deciles, have
a pseudo-Gini coefficient of around 0.75. Despite
the unequal distribution, pensions explain only 8.5
percent of the observed level of income inequality
in 2002–13 and capital income only 4.3 percent.14
Labor income accounted for 54.8 percent of the
observed reduction in inequality in Colombia
(Figure 2-13). However, it is important to note
that the highly unequal distribution of labor income, coupled with the fact that labor income
represented more than two-thirds of total income
throughout 2002–13, explains Colombia’s persistently high level of inequality. For instance, like
the Gini of total income, the pseudo-Gini corresponding to labor income declined only marginally, decreasing from 0.567 in 2002 to 0.526 in
2013, primarily during the latter part of the 11year period.
Transfers were a surprisingly important driver of
reduced inequality. Representing less than 5 percent of total income throughout 2010–13, transfers
0.766
0.758
0.738
0.6 0.567
0.5
0.545
0.536
0.456
0.4 0.406
0.420
0.796
0.786
0.765
0.752
0.543
0.544
0.504
0.526
0.491
0.462
0.3
Capital
Labor Income
2012
2011
2010
2009
2008
2007
2006
2005
2004
0.2
0.257
2013
0.7
2003
Understanding the sources of changes in
inequality
0.8 0.756
2002
Compared to the LAC region as a whole (World
Bank 2013), the contributions of pensions to poverty reduction in Colombia were low. In particular,
the change in poverty associated with pensions in
Colombia was –2.8 percent for moderate poverty
and 0.1 percent for extreme poverty: the analogous numbers for LAC were –13 percent and –15
percent (Figure 2-11). This is not surprising given
Colombia’s “pay as you go” pension system, which
has 1.4 million beneficiaries who are almost exclusively at the upper end of the income distribution.
FIGURE 2-12: Stagnation of Total Inequality
is Due to Stagnation of Labor
Income
Pseudo Gini
well-targeted (see the evolution of transfer shares
across quintiles in the Annexes).
Housing+Others
Pensions
Transfers
Source: World Bank staff calculations using on DANE-MESEP (2002–2013).
are linked to a 28.6 percent decline in inequality
(Figure 2-13). Two factors contributed to this relatively high elasticity of inequality to changes in
transfers. As noted earlier, transfers not only grew
at a high rate relative to other sources of income
during 2008–13, but they also benefited those at
the lowest end of the income distribution the most
(see Figure A3.2 and Figure A3.3). As a result, the
pseudo-Gini of transfers declined by more than
50 percent over 2002–13—from 0.536 to 0.257.
Overall, the growth in transfers combined with
their “pro-poor” redistribution effects had a positive and relatively large impact on the reduction of
income inequality over the past decade.
Projecting future poverty incidence rates
To reach the extreme poverty target of 3 percent
by 2030, defined by the World Bank, Colombia
must reduce its poverty level by an average of
0.36 percentage points a year, equivalent to a cumulative reduction of 6.1 percentage points over
the corresponding 17 year period. The suggested
pace of poverty reduction is lower than the one
the country has experienced since 2002 (annual
reduction of extreme poverty of 0.77 percentage
39
PART ONE
|
CHAPTER 2
FIGURE 2-13: Explaining Changes in Income
Inequality, 2002–12
0
–5.5
–10
Percentage
40
–2.1
–9.0
–20
–30
–28.6
–40
–50
–60
–54.8
Labor
income
Transfers Pensions
Capital
Housing
+Others
Source: World Bank staff calculations using on DANE-MESEP (2002–2012).
points). Assuming that population growth remains
constant, achieving this target implies moving 2.23
million people out of extreme poverty by 2030.
Based on Colombia’s recent poverty reduction performance, three different methodologies are used
to project the future performance of the country to
its goal of extreme poverty eradication.
Poverty projections presented in this section are
based on different methods and assumptions on
changes in income growth and growth elasticity of
poverty (Table 2-2). Three projection methods are
used, all of them based on the recent trends of economic growth and poverty reduction in Colombia.
The first method projects future poverty assuming
a constant rate of poverty reduction based on the
recent growth of per capita GDP and the corresponding growth elasticity of poverty. Given that
the growth of per capita GDP usually differs from
household income growth, the second method uses
the 2010–13 mean household per capita income
growth (from household surveys) and simulates future income distributions departing from the 2013
distribution. Finally the third method is similar to
the second but unlike the latter it assigns different
growth rates to each income decile (following the
concept of growth incidence curve).
According to the above discussed methods,
Colombia will reach the target of 3 percent extreme
poverty rate before 2030 (Figure 2-14). The first
method projects an extreme poverty rate of 3 percent by 2024. The second and third methods, project
a 3 percent extreme poverty rate by 2030 and 2022,
TABLE 2-2: Growth Rates and Poverty Elasticities Parameters Used in Poverty Projections.
Assumptions based on short term trends 2010-13
Method
Growth
Moderate
Extreme poverty
poverty elasticity elasticity
Per-capita GDP growth
Annualized growth rate of GDP per-capita
Static elasticity
Static elasticity
3.7
–1.7
–2.5
Annualized growth rate of mean household percapita income
Dynamic elasticity.
Dynamic elasticity.
–1.5
–1.7
Dynamic elasticity.
Dynamic elasticity.
–1.7
–1.5
Household per-capita
income growth
3.5
Household per-capita
income growth by income
decile
Annualized growth rate of mean household percapita income by income decile.
Growth first decile: 6.8
Growth second decile: 6.0
Growth third decile: 5.7
Source: Authors’ calculation based on GEIH-MESEP (2010-2013) DANE for poverty measures and DANE National Accounts for GDP.
Note: Growth of incomes and poverty elasticities correspond to annualized growth rates between 2010 and 2013. Static elasticity is equal to the ratio between
annualized growth rate of moderate (extreme) poverty and annualized growth rate of GDP per-capita. Dynamic elasticity means that the annualized growth rate
was applied to the 2013 income distribution, thus the value of elasticity depends on the percentile of the income distribution selected and the growth rate
applied, the numbers above for the dynamic elasticities are the average elasticity on each year.
Toward Shared Prosperity in Colombia
FIGURE 2-14: Can We Expect Extreme Poverty to Be 3 Percent or Less by 2030?
60
20.0
17.7
50
15.0
40
12.5
9.1
10.0
30.6
30
7.5
20
11.9
2029
2026
2023
2020
2017
2014
4.5
2011
2029
2026
2023
2020
2017
2014
2011
2008
2005
2002
Observed
Per-capita GDP growth
0
10.1
2008
3.2
1.7
1.4
2.5
10
2005
5.0
0.0
49.7
2002
17.5
Household per-capita income growth by income decile
Household per-capita income growth
Source: World Bank staff calculations using on DANE-MESEP (2002–2012).
respectively. The estimates also suggest that moderate poverty will be cut by half (about 15 percentage
points) sometime around 2021 and 2026, depending
the method that is used (Figure 2-14). Moreover, following recent trends in growth and poverty reduction, by 2030 it is expected that the moderate poverty will be between 5 and 10 percentage points. All of
these projections suggest that if unemployment rate,
labor income growth and non-labor income growth
continue its recent performance (2010–13), poverty
headcount in Colombia will achieve the current levels of countries with relatively low poverty rates like
Argentina and Uruguay.
However, important challenges remain. Poverty
levels in Colombia are relatively high and the size
of the middle class continues to lag behind other
LAC countries. Moreover, a sizable segment of the
population—more than one out of three households—remains vulnerable to falling back into
poverty. Large historical disparities between urban
and rural areas also remain. More important, inequality in Colombia remains high. The share of
total income going to the bottom 10 percent of the
population continues to be around 1.1 percent,
while the top 10 percent of the population receives
more than 42.3 percent.
Final Remarks
To address these challenges, the Government
introduced a national development plan called
Prosperidad para Todos in 2010. In addition to sustainable economic growth, the plan calls for positive distributional and social effects. This plan represents an important step toward attaining shared
prosperity; nevertheless, the results from this note
show that the associated fiscal reforms are expected to have only a moderate impact on inequality.
Further poverty and inequality reductions would
require sustained growth, deeper fiscal reforms,
more and better targeted social transfers, and sustained efforts to increase access to high-quality education and to basic services for the less well-off.
From 2002 to 2013, Colombia experienced strong
economic growth along with impressive declines in
moderate, extreme, and multidimensional poverty.
More households in Colombia are now classified
as middle class, and conservative estimates show
the middle class should surpass the poor in size by
2015. Notwithstanding qualitative differences between the earlier and the latter part of the period,
Colombia’s less-well-off people benefited more
from growth than the average person, signifying
progress toward greater shared prosperity.
41
42
PART ONE
|
CHAPTER 2
Endnotes
1
2
3
4
5
6
7
Between 2008 and 2012, moderate poverty decreased an average of 2.33 percentage points a year,
whereas between 2002 and 2008, moderate poverty decreased at a much slower pace (1.27 percentage
points per year). Declines in the $1.25 a day (PPP)
poverty rate were similarly impressive, going from
11.7 percent in 2002 to 6.6 percent in 2012.
Estimations by Angulo et al. (2013) for 2002–11 show
similar trends and levels. The authors use the middle class definition of Lopez-Calva and Ortiz-Juarez
(2011), who argue that the central characteristic of
the middle class is vulnerability to poverty. Under
this definition, US$10 PPP a day is an absolute lower bound for the middle class, and this coincides with
a less than 10 percent probability of falling into poverty. The lower bound for the vulnerable class is the
official poverty line of US$4.06 PPP a day.
The forecast is derived by, first, taking the average
of the annualized growth of per-capita income from
two periods—2008–13 and 2010–13—and then applying the estimated average annualized growth to
per capita household income.
Male and female labor force participation increased
among the middle class and the vulnerable; among
the poor, it declined for men and remained practically stagnant for females.
For more details, please refer to Annex 2.
In April this year, World Bank Group President Jim
Yong Kim announced a twin strategy for the World
Bank going forward: (1) to end global extreme poverty by 2030 and (2) to promote “shared prosperity,”
a sustainable increase in the economic well-being of
the poorer segments of society, defined as the poorest 40 percent of the population.
Between 2010 and 2013, the Gini index declined 2.1
points, from 56 to 53.9, and the Theil index declined
5.5 points from 64.1 to 58.6. This four-year decline
in inequality coincided with the acceleration in the
average rate of poverty reduction in Colombia.
8
9
10
11
12
13
14
Moreover, the decomposition of the Theil index
by region reveals that within country inequality
also remained practically stagnant in 2002–12, explaining around 10 percent of the period’s overall inequality.
Simulation results show that poverty in Colombia
would have declined more had the country experienced a more equitable economic growth. For instance, substituting Colombia’s income redistribution
Brazil’s and holding Colombia’s per-capita income
growth at the actual level in 2002–12 results in a counterfactual reduction from Colombia’s observed poverty headcount of 4.1 percentage points in moderate
poverty and 1.3 percentage points in extreme poverty.
This does not, however, reflect quality issues in access to basic services.
According to Escobar and Olivera (2013), public
transfers as a portion of public spending increased
significantly between 2003 and 2010, going from
10.3 percent in 2003 to 13.6 percent in 2010. Similarly, during the latter part of the 11-year period,
there was a large expansion of social programs, such
as AIS and Familias en Acción. The coverage of the
latter increased from around 514,000 households
in 2005 to about 2.86 million households in 2013
(nearly 25 percent of households in the country).
For the purpose of benchmarking, Colombia’s experience to that of LAC, this section uses SEDLAC
harmonized data and the World Bank poverty lines.
For details, see Annex 4.
For details on the underlying methodologies used in
this section, see Datt and Ravallion (1992) and Barros et al. (2006).
The observed income inequality refers to that measured by the Gini coefficient; the Gini coefficient is
calculated as the weighted sum of the pseudo-Gini
coefficients corresponding to different income components, weighted by the relative contribution of
each to total income.
Toward Shared Prosperity in Colombia
References
Angulo, Roberto, Yadira Díaz Cuervo, and Renata Pardo Pinzón. 2011. “Índice de Pobreza
Multidimensional para Colombia (IPM-Colombia) 1997–2010.” Archivos de Economía
009228, Departamento Nacional de Planeación, Bogotá, Colombia.
Angulo, Roberto, Alejandro Gaviria, Gustavo
Nicolás Páez, and João Pedro Azevedo.
2012. “Movilidad social en Colombia.”
Documentos CEDE 010323, Universidad de
los Andes-CEDE.
Angulo, Roberto, Alejandro Gaviria, and Liliana
Morales. 2013. “La década ganada: evolución
de la clase media y las condiciones de vida en
Colombia, 2002–2011.” Documentos CEDE
No. 50, October.
Antón, Arturo, and Julio Leal. 2012. “Aggregate
Effects of a Universal Social Insurance Fiscal
Reform.” IDB Working Paper Series No.
IDB-WP-429, Inter-American Development
Bank, Washington, DC.
Azevedo, João Pedro. 2013. “From Noise to Signal:
The Successful Turnaround of Poverty
Measurement in Colombia.” Economic
Premise Note, No. 117, World Bank,
Washington, DC.
Azevedo, João Pedro, María Eugenia Dávalos,
Carolina Diaz-Bonilla, Bernardo Atuesta,
and Raul Andres Castañeda. 2013a. “Fifteen
Years of Inequality in Latin America: How
Have Labor Markets Helped?” Policy
Research Working Paper 6384, World Bank,
Washington, DC.
Azevedo, João Pedro, Gabriela Inchauste, and
Viviane Sanfelice. 2013b. “Growth without
Reductions in Inequality.” Mimeo, LCSPP,
World Bank, Washington, DC.
Azevedo, João Pedro, Carlos Rodriguez-Castelan,
and Viviane Sanfelice. 2012. “How do climate change impact intergenerational mobility? Identifying the effects of weather shocks
on weight at birth in Colombia.” World Bank,
Washington, DC.
Basu, Kaushik. 2013. “Shared Prosperity and
the Mitigation of Poverty: In Practice and in
Precept.” Policy Working Paper WPS 6700,
World Bank, Washington, DC.
Cárdenas, Juan Camilo, Hugo Ñopo, and Jorge
Luis Castañeda. 2012. Equidad en la Diferencia:
Políticas para la Movilidad Social de Grupos de
Identidad. Misión de Movilidad Social y Equidad.
Documentos CEDE No. 2012–39. Bogotá,
Colombia: Centro de Estudios sobre Desarrollo
Económico (CEDE), Universidad de los Andes.
Datt, Gaurav, and Martin Ravallion. 1992.
“Growth and Redistribution Components
of Changes in Poverty Measures: A
Decomposition with Applications to Brazil
and India in the 1980s.” Journal of Development
Economics 38 (2): 275–296.
Escobar, Andrés, and Mauricio Olivera 2013.
“Gasto Público y Movilidad y Equidad
Social.” Documentos CEDE No. 2012–39.
Bogotá, Colombia: Centro de Estudios sobre
Desarrollo Económico (CEDE), Universidad
de los Andes. http://EconPapers.repec.org/
RePEc:col:000089:010550.
Ferreira, Francisco H. G. 2012. “Inequality of
Opportunity Around the World: What Do We
Know So Far?” Inequality in Focus 1 (1): 8–11.
Ferreira, Francisco H. G., and Marcela Meléndez.
2012. “Desigualdad de Resultados y
Oportunidades en Colombia: 1997–2010.”
Bogotá, Colombia: Centro de Estudios sobre
Desarrollo Económico (CEDE), Universidad
de los Andes.
Ferreira, Francisco H.G., Julian Messina, Jamele
Rigolini, Luis-Felipe López-Calva, Maria
Ana Lugo, and Renos Vakis. 2013. Economic
Mobility and The Rise of the Latin American Middle
Class. Washington, DC: World Bank.
López-Calva, Luis F., and Eduardo Ortiz-Juarez.
2013. “A Vulnerability Approach to the
Definition of the Middle Class.” The Journal
of Economic Inequality, online version.
43
44
PART ONE
|
CHAPTER 2
Lustig, Nora, Carlos Hurtado, and Marcela
Meléndez, 2013. “Gasto Social, Impuestos
y Redistribución del Ingreso en Colombia.”
Commitment to Equity Assessment (CEQ), Draft.
Molinas, José, R., Ricardo Paes de Barro, Jaime
Saavedra, and Marcelo Giugale, with Louise
J. Cord, Carola Pessino, and Amer Hasan.
2012. Do Our Children Have a Chance? A Human
Opportunity Report for Latin America and the
Caribbean. Washington, DC: World Bank.
Organization for Economic Cooperation and
Development (OECD). 2013. PISA 2012
Results in Focus: What 15-year-olds know and what
they can do with what they know. Paris: OECD.
———. 2014. Revenue Statistics in Latin America. InterAmerican Center of Tax Administrations,
ECLAC, Santiago, Chile.
Paes de Barros, Ricardo, Francisco H. G. Ferreira,
Jose R. Molinas Vega, and Jaime Saavedra
Chanduvi. 2009. Measuring Inequality of
Opportunities in Latin America and Caribbean.
Washington, DC: World Bank.
Ravallion, Martin. 2004. “Pro-poor growth: A
primer.” Policy Research Working Paper
Series 3242, World Bank, Washington, DC.
———. 2007. “Economic Growth and Poverty
Reduction: Do Poor Countries Need to
Worry about Inequality?” 2020 vision briefs
BB08 Special Edition. International Food Policy
Research Institute (IFPRI),Washington, DC.
World Bank. 2013b. “Shifting Gears to Accelerate
Shared Prosperity in Latin America and the
Caribbean.” World Bank, Washington, DC.
World Bank. 2014. “Social Gains in the Balance: a
fiscal policy challenge for Latin America and
the Caribbean.” World Bank, Washington,
DC.
Zuluaga, Blanca. 2007. “Different Channels of
Impact of Education on Poverty: An Analysis
for Colombia.” Discussion Papers ces0702,
Center for Economic Studies, Katholieke
Universiteit Leuven, Leuven, Belgium.
Toward Shared Prosperity in Colombia
Annex 1: Decomposing poverty reduction—The intra-sectorial effect
versus the inter-sectorial effect
Components
of intrasectoral
2002 2013
effect
Distribution
Household Characteristics
Intrasectoral
effect (%)
Intersectoral Interaction
effect (%) effect (%)
Departments where live by level of GDP – per capita
Bogota D.C
16.2
16.7
18.3
High level of income
33.8
31.7
38.7
Medium level of income
29.9
30.9
28.2
Low level of income
20.1
20.7
13.9
99.0
0.8
0.2
73
29
–2
98.1
2.1
–0.16
73.8
27.6
–1.3
102.2
0.5
–2.8
85.6
22.4
–7.91
97.4
2.3
0.3
Participation of ocuppied inside the household
Occupied less than 25% of household members 33.2 22.7
22.6
Between 25% and 50% of household members
50.1
50.1
42.2
More than 50% of household members
16.7 27.2
8.2
43.8
41.8
Number of occupied of the household
None or one occupied
41.6
Two occupied
32.8
35.2
29.2
Three or more occupied
23.3
23.3
27.2
22.7 30.5
12.9
Children and youth among the household
Withouth child or youth
With one or two child or youth
49.5
52.3
39.6
With three or more children or youth
27.8 17.2
21.3
Male
77.1 68.4
84.4
Female
22.9 31.6
17.8
56.4 46.2
61.3
Secondary education
32.3
36.4
24.0
Tertiary education
11.4 17.4
0.3
Urban
74.2
76.7
72.1
Rural
25.9
23.3
25.7
Gender of household head
Education of household head
None or primary
Zone
Source: World Bank staff calculations based on DANE-MESEP (2002–2013).
45
46
PART ONE
|
CHAPTER 2
Annex 2: Typology of economic classes in Colombia
Poor
Vulnerable
Middle Class
2002
2013
2002
2013
2002
2013
2.2
2.5
6.3
6.8
19.7
20.2
Number of members with ages 0–14
2.5
2.2
1.4
1.3
0.8
0.7
Number of members with ages 15–22
0.9
0.8
0.8
0.7
0.5
0.4
Family per-capita income
Household Characteristics
Demographic characteristics
Number of members with ages 23–69
2.3
2.1
2.4
2.3
2.3
2.2
Number of members older than 70
0.2
0.1
0.2
0.2
0.2
0.2
Total number of household members
5.8
5.2
4.7
4.5
3.8
3.5
Primary education
1.9
1.4
1.3
1.1
0.5
0.5
Education characteristics
Secondary education
1.4
1.4
1.7
1.5
1.2
1.1
Tertiary education
0.1
0.2
0.4
0.5
1.3
1.2
Total Number of adult household members
3.3
3.0
3.4
3.1
3.0
2.9
Male participation rate (%)
73.4
66.8
76.8
76.2
76.3
79.4
Female participation rate (%)
42.4
42.0
51.9
54.5
59.3
62.9
Total Participation rate (%)
57.3
53.7
64.2
65.2
67.8
71.2
Male unemployment rate (%)
16.0
11.5
11.2
7.3
7.7
4.9
Female unemployment rate (%)
29.6
22.1
17.5
13.4
9.9
6.6
Unemployment rate (%)
21.2
15.9
13.8
9.9
8.7
5.6
3.7
3.5
2.6
2.5
2.1
1.9
31.0
31.9
44.1
46.5
53.0
59.2
67.8
67.4
77.8
76.1
85.3
86.8
Female household head (%)
22.5
35.1
23.5
30.1
23.2
30.1
Primary education (%)
70.6
63.3
50.9
47.7
23.1
27.5
Secondary education (%)
26.7
32.3
38.9
41.0
35.2
35.7
1.8
4.3
8.8
11.3
41.0
36.8
Labor Characteristics
Dependence rate of the household
Proportion of occupied members in the
household (%)
Geographic Characteristics
Urban (%)
Household head characteristics
Tertiary education (%)
Source: World Bank staff calculations based on DANE-MESEP (2002–2013).
Note: Lopez-Calva et al. (2013) estimate the threshold of Middle Class between US$10–US$50 (2005 ppp) daily per-capita. This threshold minimizes the
probability of falling again into poverty defined as US$4 (2005 ppp) daily per-capita. A person is considered poor if his/her monthly per-capita income falls
below the national poverty line; a person is considered vulnerable if his/her monthly per-capita income falls above the national poverty line and below the
income level that corresponds to the lower bound used to define the middle class.
Toward Shared Prosperity in Colombia
28 Toward Shared Prosperity in Colombia
Annex
3: Figures
Annex 3: Figures
Figure
A3.1. Mapping
Multidimensional Poverty Mapping
FIGURE A3.1: Multidimensional
Poverty
Source: World Bank staff calculations base don Dirección de Ingreso Social, Departamento para la Prosperidad Social (DPS), Bogotá, Colombia.
Source: World Bank staff calculations base don Dirección de Ingreso Social, Departamento para la Prosperidad Social (DPS), Bogotá, Colombia.
28
47
PART ONE
|
CHAPTER 2
90
80
70
60
50
40
30
20
10
0
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Percentage
FIGURE A3.2: Income Shares by Income Quintiles and Over Time
Poorest quintile
2
Share labor income
3
Share transfer
4
Richest quintile
Share housing
14
12
Percentage
10
8
6
4
2
0
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
48
Poorest quintile
2
Share pensions
3
Share capital
4
Richest quintile
Share other non-labor income
Source: World Bank staff calculations based on DANE-MESEP (2002–2013).
Note: Housing refers to imputed rent;a transfers include both public and private transfers.
a
In particular, housing refers to the flow of income that families living in their own dwellings implicitly receive and which is equivalent to the market value of the
service that the use of their dwelling represents for them. For details on the construction of the income measure please refer to http://sedlac.econo.unlp.edu.ar/
eng/methodology.php.
Toward Shared Prosperity in Colombia
Anual growth rate
FIGURE A3.3: Growth Incidence Curve of Per Capita Income, 2008–13
16
14
12
10
8
6
4
2
0
–2
15.1
10.1
5
10
8.4
15
7.8
20
7.3
25
6.9
30
6.7
35
6.5
40
Anual growth rate
Labor income
16
14
12
10
8
6
4
2
0
–2
1.7
5
–0.4
10
6.3
45
6.2
50
5.9
55
Transfers
5.7
60
2.7
2.9
3.2
3.4
3.6
3.6
3.8
4.0
4.0
15
20
25
30
35
40
45
50
55
60
Transfers
65
5.5
70
5.2
75
Other incomes
2.5
Labor income
5.6
4.1
65
4.6
4.3
3.7
3.0
80
85
90
95
100
4.1
4.0
3.4
85
90
95
Total
4.1
4.2
70
75
Other incomes
4.9
4.4
80
2.3
100
Total
Source: World Bank staff calculations based on DANE-MESEP (2002–2013).
Note: The figure shows the annualized average growth rate of real per capita income. Nominal values are deflated using Colombia’s average Consumer Price
Index (CPI) by year.
49
50
PART ONE
|
CHAPTER 2
Annex 4: Main differences in methods for measuring poverty in
Colombia
Poverty
measures
Monetary poverty – World Bank
Monetary Poverty – Official measure
Moderate poverty: proportion of the
population whose family per capita income is
below the moderate poverty lines officially set by
LAC governments.
Moderate poverty: proportion of the population
whose family per capita income is below the total value
of the food and the non-food baskets.
Extreme poverty: proportion of the population
whose family per capita income is below the
extreme poverty lines officially set by LAC
governments.
Poverty lines
Extreme poverty: proportion of the population
whose family per capita income is below the value of the
food basket.
Moderate Poverty Line:
Moderate Poverty Line:
US$4.00 PPP (2005) per capita per day or
US$4.06 PPP (2005) per capita day line or
198,926 pesos per capita per month (2012).
202,083 pesos per capita month line (2012).
Extreme Poverty Line:
Extreme Poverty Line:
US$2.50 PPP (2005) per capita per day or
US$1.83 PPP (2005) per capita per day or
124,329 pesos per capita per month (2012).
91,207 pesos per capita per month (2012).
Measured by per capita family income, which
considers: labor income, transfers, pensions,
imputed rent and capital income.
Measured by per capita family income, which considers:
labor income, transfers, pensions, imputed rent, and
capital income.
Considers only observed income in the survey.
Considers observed and non-observed (imputed)
income in the survey.
Conversion to
real values
Uses national CPI and conversion factor from
pesos to USD in 2005 PPP to deflate the income
aggregate.
Uses regional food (general) CPI of the poor population
to convert the value of extreme (moderate) poverty line
to current values.
Data source
• SEDLAC harmonized data (World BankCEDLAS) based ECH (2002–2005) and GEIH
(2008–2013) from DANE.
• ECH (2002–2005) and GEIH (2008–2013) from
DANE.
Welfare
measure
• Observations from third quarter of each year.
• Observations of whole year.
Structural Changes – Implications for Growth, Productivity, and Competitiveness
CHAPTER 3
Structural Changes – Implications for
Growth, Productivity, and Competitiveness
51
Main Messages
Colombia’s sound macro policies and commercial integration, aligned to favorable external conditions,
helped sustain historically high growth and low volatility in the past decade. The growth helped to
close the per capita income gap with top LAC economies (LAC6) and high income peers (OECD), but
it was not enough to catch up with the fast-growing Asian economies. Colombia’s economic growth
has been historically based on factor accumulation. While productivity growth increased in the past
decade, it remains well below the Asian and high-income economies.
Despite its positive performance, Colombia still faces bottlenecks to achieving high and sustained
growth. While accumulation of labor (expansion of labor force participation), physical and human has
played an important role in economic growth, Colombia still lags with respect to physical capital, particularly infrastructure, and human capital. In addition, low productivity is an impediment to sustained
growth and convergence. Low productivity growth has been linked to several factors, including lack of
adequate skills to assimilate new technologies and consistently innovate, relatively low levels of international trade and integration, and decades of armed conflict. Addressing these issues is a necessary
step in Colombia’s convergence path.
Growth only had a minor impact on Colombia’s regional disparities. Colombia’s growth performance
brought a small reduction in per capita income disparities across regions, but differences in standards
of living remain significant. In particular, differences in poverty rates, access to services, and quality of
institutions have been stubbornly persistent.
Economic growth was accompanied by important changes in the structure of production and exports,
with the extractive sector playing a larger role over the past decade, fueled by high international
prices. GDP composition experienced small changes, with an increase in the participation of extractive
industries and a reduction in the role of manufacturing. However, economic activity remains relatively
diversified by regional standards, with services representing the largest share of GDP. High international commodity prices, together with trade integrations efforts, fostered an expansion in Colombia’s
international trade, both as a share of GDP and as a share of the world’s trade. Export expansion has
been associated with an increasing participation of extractive commodities and a high concentration
of Colombia’s export basket. Exports of non-commodity products had a more modest performance
due to factors such as competition from Chinese producers and weak economic performance in destination countries, such as Venezuela. At the same time, export expansion has brought more diversification in trading partners.
Colombia’s resource boom has been a blessing in many dimensions, but poses social and economic
policy challenges. The boom has boosted foreign investment, economic growth, and government
revenues. However, changes in the terms of trade have contributed to a concentration of exports and
appreciation of the exchange rate, potentially undermining the competitiveness of other sectors. In
addition, extractive activities are often highly capital intensive, do not create many jobs, and generate
large rents. If not well invested or redistributed, these rents may increase income inequality. Finally,
the relatively large share of extractive exports and government revenues increases macroeconomic
exposure to price fluctuations and volatility. Without adequate management, volatile revenues and
associated pro-cyclical spending could inhibit growth.
Colombia has taken important steps to mitigate the risks associated with the commodity boom, but
lessons from other economies suggest more can be done. Colombia has decreased its reliance in
commodity revenues by building a strong macroeconomic framework with moderate debt levels and
pursuing a fiscal consolidation aimed at facilitating counter-cyclical policies. Furthermore, the central
bank operates under a sound framework of flexible exchange rate and inflation targeting. While these
tools help limit volatilities driven by commodity cycles, they do not per se resolve the problem of how
to transfer resources from commodity industries to other sectors of the economy. Development funds
could also support diversification through well-targeted domestic investment. “Sustainable investment
tools”1 can help allocate the resources of such funds, taking into account long-term development goals
and project-based cost-benefit considerations.
Structural Changes – Implications for Growth, Productivity, and Competitiveness
53
PART ONE
|
CHAPTER 3
Structural Changes and Growth
Dynamics
Colombia’s historically high growth rates of the
past decade have been supported by sound macro policies, commercial integration, and favorable
external conditions (Figure 3-1). Significant structural reforms since the early 1990s, combined with
important trade agreements, have led to modernization of the economy. Prudent macroeconomic
management has also helped bolster resilience.
Colombia weathered the financial crisis remarkably well and consolidated its position among the
fast growing Latin American (LAC) economies.
Finally, favorable terms of trade and international financing conditions helped attract investment,
accelerating economic activity and trade. As a result, the Colombian economy sustained an average GDP growth of 4.8 percent in the past decade,
more than 1 percentage point above the average
for the previous three decades (3.5 percent). In per
capita terms, this difference is also large—around
3 percent in the past decade, compared with 1.7
percent in the previous decades.
to lag fast-growing Asian economies (Figure 3-2).3
In the past four decades, Colombia has been continuously closing the per capita income gap4 with
other LAC countries. In 1970, LAC’s per capita income was 2.1 times Colombia’s; by 2012, this difference was reduced to 1.6 times. The income gap
with OECD5 countries progressed in a nonlinear
way. In 1970, OECD countries had an average per
capita income that was 8.8 times Colombia’s; it increased to 10.9 in 2000 and fell back to 8.7 in 2012,
driven by both Colombia’s strong performance and
the crisis faced by many high income countries.
Colombia’s income growth was not strong enough
to close its income gap with top Asian economies.
The average per capita income for fast-growing
Asian economies was similar to Colombia’s in
1970; by 2012, it was more than three times higher.
Growth helped close the per capita income gap
with top LAC economies (LAC6)2 and high income peers (OECD), but the country continues
Achieving high—and sustained—growth is critical to shaping a country’s development process
and fostering convergence to high income levels.
Sustaining slightly higher growth rates for long periods can significantly affect the pace of convergence. A simple counterfactual exercise illustrates
what Colombia’s per capita income would look like
today had the country followed different growth
paths since 1960 (Figure 3-3). If Colombia’s per
capita income growth over the past decade had
persisted since 1960, it would add 0.6 percentage
FIGURE 3-1: Growth Performance in Past
Decades (%)
FIGURE 3-2: Colombia’s Per Capita Income
Gap (%)
12
10
8
Average GDP per cap./
Colombia's GDP per cap.
54
6
4
2
0
–2
–4
–6
1974–1983
1984–1993
Avg
1994–2003
Max
Min
Source: Authors’ calculations using IMF and WDI data.
2004–2013
10.9
10
8.8
8.7
8
6
4
2
0
3.4
3.2
2.1
1.7
1.0
1970
LAC6
1.6
2000
ASIA
Source: Authors’ calculations using IMF and WDI data.
2012
OECD
Structural Changes – Implications for Growth, Productivity, and Competitiveness
FIGURE 3-3: Counterfactual GDP Per Capita (US$)
Counterfactual Per Capita GDP
Per capita GDP current US$
25000
Korea
20000
15000
Chile
10000
Turkey
Colombia
5000
2.1 (actual)
2.75 (recent)
3.5 (intermediary)
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
1962
1960
0
4.25 (Asia)
Source: Authors’ calculations using IMF and WDI data.
point to actual performance, raising income
growth to around 2.7 percent instead of the actual
2.1 percent. Under this scenario, Colombia would
now have a per capita income level 50 percent
higher, similar to Turkey’s. If Colombia had been
able to sustain an average growth rate similar to
the 4 percent of fast-growing Asian economies, it
would now have three times its current per capita
income, rising to the level of high-income countries like Korea and Greece.
Colombia’s growth was accompanied by important changes in the structure of production, with
increased participation of the extractive sector
during the past decade. From a sector point of view,
growth was consistently driven by non-tradable
services. Oil and mining have played an increasing role, while manufacturing has gradually been
losing significance as an engine of growth. These
patterns brought small composition changes in the
Colombian economy over time. Extractive activities increased from 2.2 percent of GDP in 1976
to almost 8 percent in 2012, and manufacturing
fell from 18 percent to 12 percent (Figure 3-4 and
Figure 3-5). Composition changes in exports (discussed later in the note) were much more significant.
While economic activity remains relatively diversified, Colombia’s exports are among the most
commodity-dependent. Commodity intensity/
dependency can be analyzed through different dimensions (Figure 3-6). Considering value added as
a share of GDP in the primary sector (agriculture
and extractives), Colombia (14 percent) appears to
be less commodity intensive than both the LAC
(25 percent) and Asian economies (18 percent).
However, this changes when fiscal and export dependency are considered. Commodity-related revenues represent almost 18 percent of Colombia’s
FIGURE 3-4: Sectorial Decomposition of GDP
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0
–0.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
1981–1990
Services
Transport, storage
and communicantions
Construction
1991–2000
2000–2012
0
Electricity, gas and water
Manufacturing industry
Mining & quarrying
Agriculture, forestry and fishing
Source: Authors’ calculations using IMF and WDI data.
55
56
PART ONE
|
CHAPTER 3
FIGURE 3-5: The Changing Composition of GDP Growth
Composition of GDP Growth (%), 1976
13.9
9.7
15.1
2.2
18.1
18.1
5.8
Composition of GDP Growth (%), 2012
10.7
7.4
6.2
12.0
19.7
3.7
7.7
7.3
3.6
6.5
11.9
Agriculture, forestry, and fishing
Electricity, gas, and water
Transport, storage, and communicantions
Mining & quarrying
Construction
Financial intermediation, and insurance
Manufacturing industry
Business, restaurants, and hotels
Communal and personal social services
Source: Authors’ calculation using WDI and IMF data.
government revenues, less than the LAC average
(approximately 30 percent), but more than the average for Asian economies (approximately 14 percent). Colombia’s commodity exports as a share of
total exports (70 percent) is the third largest in LAC,
behind Venezuela and Bolivia, and well above the
regional average (51 percent) and the average for
Asian countries (19 percent). In contrast, commodity exports as share of GDP (11 percent) is much
lower and in line with the regional averages (11.7
FIGURE 3-6: Commodity Intensity/
Dependency
80
70
60
50
40
30
20
10
0
Primary
sector
(%GDP)
Commodity
revenues
(% revenues)
COL
Commodity
exports
(% exports)
LAC
Source: Authors’ calculation using WDI and IMF data.
ASIA
Commodity
exports
(% GDP)
percent for LAC and 12.3 percent for Asia). This is
mainly due to the fact that Colombia is relatively
closed compared to its peers.
Growth decomposition and
productivity dynamics
Colombia’s economic growth since the 1960s was
based heavily on factor accumulation; productivity
growth was almost nil for most of the period, although it recovered in the past decade (Table 3-1).
Despite many caveats, growth accounting exercises can provide some intuition about an economy’s
growth patterns.6 For Colombia, per capita GDP
growth since the 1960s has relied mostly on factor
accumulation. Of the almost 2 percent average annual growth between 1961 and 2011, total factor
productivity (TFP) contributed only 0.1 percentage
point. Physical capital accumulation contributed
1.4 percentage points, and the combined effect of
employment growth and human capital accumulation contributed another 2.6 percentage points.
The higher speed of population growth partly
compensates for employment and human capital
expansion (–2.1 percentage points). Starting in the
1980s, average per capital GDP growth dropped
to 1.6 percent and the TFP contribution became
negative due in part to Colombia’s weak economic performance in the early 1980s and late 1990s.
1.54
0.72
1.76
1.63
1.42
1.76
1.26
1.68
0.95
1.17
2.34
2.59
2.06
1.89
2.87
2.34
1.60
2.51
2.29
2.89
0.95
1.93
Brazil
Bolivia
Chile
Costa Rica
Mexico
Panama
Peru
Paraguay
Uruguay
Venezuela
Asia
China
Hong Kong
(SAR)
Indonesia
Korea
Malaysia
Philipines
Singapore
Thailand
Taiwan
US
Japan
L*H
0.69
1.28
2.25
1.78
3.09
2.51
2.99
2.53
2.25
2.91
2.27
2.51
2.59
1.04
2.87
2.31
2.60
2.90
2.91
2.09
2.52
2.53
2.45
2.63
TFP
1.83
0.82
1.88
2.44
1.79
–0.17
1.05
1.67
1.05
1.22
2.77
1.52
–0.46
0.24
–0.41
–0.08
1.29
–0.36
0.07
0.15
–0.40
0.51
0.06
0.07
0.59
1.04
1.52
1.83
2.25
2.52
2.41
1.36
1.79
1.65
1.44
1.86
2.68
0.58
2.42
2.13
2.25
2.17
2.52
1.57
2.17
1.97
2.05
2.12
N (–)
3.86
2.01
5.50
4.69
5.14
1.41
3.97
5.71
3.40
4.54
6.19
4.50
0.61
1.65
1.71
1.36
3.39
1.79
2.09
2.43
0.67
2.61
1.85
1.99
Y p.c.
Japan
US
Taiwan
Thailand
Singapore
Philipines
Malaysia
Korea
Indonesia
Hong Kong
(SAR)
China
Asia
Venezuela
Uruguay
Paraguay
Peru
Panama
Mexico
Costa Rica
Chile
Bolivia
Brazil
LAC
Colombia
K
1.07
0.80
2.40
1.89
2.33
1.44
2.37
2.76
2.33
1.80
3.04
2.26
0.68
0.83
1.47
1.18
1.59
1.12
1.33
1.74
0.75
1.05
1.20
1.43
Source: Authors calculations using Penn World Table 8.0 and ILO.
Note: K stands for capital; L for employment; H for human capital; N for population; and Y for output.
1.39
LAC
K
1.42
Colombia
1961–2011
TABLE 3-1: Growth Accounting Exercise
0.48
0.86
1.66
1.88
3.06
2.22
2.84
1.79
2.10
1.38
1.79
2.08
1.99
1.04
3.10
2.14
2.72
2.42
2.61
2.57
2.74
2.63
2.38
2.28
L*H
0.48
1.01
1.61
1.53
1.16
–0.59
0.45
1.91
0.71
1.60
4.73
1.46
–0.69
0.39
–1.70
–0.43
0.36
–1.16
–0.04
0.12
–0.87
–1.14
–0.50
–0.31
TFP
1981–2011
0.28
1.00
0.87
1.23
2.47
2.26
2.37
0.83
1.52
1.11
1.02
1.52
2.17
0.48
2.32
1.71
1.95
1.65
2.26
1.40
2.04
1.55
1.76
1.80
N (–)
1.76
1.66
Japan
US
Taiwan
Thailand
4.08
Philipines
Malaysia
Korea
Indonesia
Hong Kong
(SAR)
China
0.31
0.64
1.25
0.88
1.69
1.38
1.52
1.75
1.84
1.15
3.67
1.68
0.75
Asia
Venezuela
1.03
1.48
2.06
1.09
1.77
2.16
0.99
0.90
0.69
1.28
0.90
Singapore
4.80
K
1.49
Uruguay
Paraguay
Peru
Panama
Mexico
Costa Rica
Chile
Bolivia
Brazil
Argentina
LAC
Colombia
4.08
0.81
3.29
5.64
3.63
3.66
8.54
4.28
–0.18
1.78
0.54
1.18
2.72
0.72
1.64
3.03
0.58
1.00
1.33
1.60
Y p.c.
0.01
0.31
1.27
2.18
3.08
2.00
2.04
1.27
1.71
1.03
1.14
1.75
1.77
0.91
2.55
2.05
3.14
1.73
2.32
2.60
2.37
2.24
1.38
2.12
2.42
L*H
0.29
0.60
1.29
0.98
0.64
1.18
0.96
1.01
1.65
1.86
5.04
1.62
0.63
1.34
0.32
2.07
1.30
–0.85
0.13
–0.52
0.52
0.33
2.56
0.68
0.35
TFP
2001–2011
0.06
0.93
0.40
0.87
2.55
1.86
1.90
0.46
1.16
0.44
0.55
1.13
1.73
0.17
1.88
1.17
1.72
1.26
1.70
1.03
1.77
1.09
0.90
1.33
1.51
N (–)
Y
0.55
0.61
3.40
3.17
2.85
2.70
2.62
3.56
4.05
3.60
9.30
3.92
1.43
2.98
2.02
4.44
4.79
0.71
2.52
3.21
2.12
2.38
3.73
2.75
2.75
Structural Changes – Implications for Growth, Productivity, and Competitiveness
57
58
PART ONE
|
CHAPTER 3
Finally, in the past decade (2001–11), average per
capita GDP growth increased to approximately
2.8 percent, with a larger TFP contribution (0.4
percentage points). Factor accumulation patterns
remained similar to the previous decades, but the
contribution of population growth (–1.5 percentage points) was much lower than employment and
human capital (2.4 percentage points).
Colombian productivity growth is in line with the
LAC average but significantly lower than the averages for Asian economies, the U.S., and Japan.
Low, and sometimes even negative, TFP growth
has affected most LAC economies, with the exception of Panama. Regional performance improved
in the past decade with the rise of other high productivity countries, such as Peru and Uruguay.
However, LAC remains well below the fast-growing Asian economies. The latter grew at an average
rate of 4.3 percent between 1961 and 2011, with
TFP growth accounting for 1.5 percentage points.
This corresponds to almost all the difference in
per capita income growth between Colombia and
Asian countries. In the same period, the U.S. averaged TFP growth of 0.8 percent, while Japan was
at 1.8 percent.
Despite the importance of factor accumulation to
growth, Colombia still lags with respect to physical
capital, particularly infrastructure. Colombia has a
large infrastructure gap. The country ranks 117th
out of 148 countries in infrastructure quality,7 more
than one point below the world average. This gap is
the largest in the transport sector, where Colombia
is ranked well below Latin American peers and
other emerging economies (Perrotti and Sánchez,
2011; WEF, 2012). Both the quality (i.e. paved roads
out of total roads) and quantity (i.e. length of roads
per square kilometer) of roads are low (Calderón
and Servén, 2010). Road length scaled by land
area is less than a tenth of the OECD average. The
length of the rail network is also limited. As a result of limited network and service bottlenecks, the
country’s costs of internal freight transport are one
of the highest in the world, with important consequences on competitiveness. Despite sustaining
investment rates in roads and railways above the
regional average, Colombia’s transport infrastructure gap has increased over time (OECD 2013),
suggesting that a critical challenge for Colombia is
investing more effectively.
Colombia also lags with respect to human capital—in particular, educational outcomes.
Education plays a key role in developing human
capital. Colombia’s total spending on education
as a share of GDP (7.6 percent in 2011) is higher
than the OECD average (6.2 percent) and the average in most emerging economies (OECD 2013);
however, spending per student is significantly lower—15 percent of per capita income vs 23 percent
for the OECD (WDI 2011). Overall educational
outcomes remain poor. While Colombia has made
progress in primary and secondary educational
attainment and achievement, it was among the
lowest ranking countries in the PISA 2012, confirming underperformance relative to the country’s middle-income status. Enrollment rates in
pre-school and tertiary education also remain well
below the OECD average and even some regional
peers, such as Argentina and Chile. Only half of
students aged 17 to 21 who have completed high
school pursue tertiary education; among those
who do, 45 percent drop out, mostly during the
first semester because they are not academically
prepared (OECD 2013). In addition to affecting
growth, inadequate skill formation has social and
equity implications. Low-skill individuals are more
likely to be unemployed or underemployed, with
significantly lower expected incomes.
While Colombia’s labor market outcomes improved considerably in recent decades, contributing to overall economic growth, unemployment
and underemployment rates are high, preventing
further gains from demographic dividends (see
Box 3-1). Following the LAC trend, the Colombian
labor market conditions have improved over the
past three decades: labor participation has more
than doubled, while the urban unemployment
rate has declined to single digits. Despite these advances, Colombia’s unemployment and informality rates remains among the region’s highest, with
half of the employed people working informally in
Structural Changes – Implications for Growth, Productivity, and Competitiveness
BOX 3-1: Recent Demographic and Labor Markets Dynamics
Labor market conditions have improved considerably in recent years: however, the unemployment
rate remains high both by OECD and LAC standards, and formal job creation remains constrained by
high labor costs. Following the LAC trend, the Colombian labor market has improved in the past three
decades: labor participation has more than doubled, while the urban unemployment rate has declined
to single digits. Despite these advances, Colombia’s unemployment rate remains among the region’s
highest (below only Barbados, Jamaica, and The Bahamas) as well as above the OECD average. In addition, half of employed individuals work in the mostly low-productivity informal sector.
Colombia is currently under a “demoraphic dividend” that represents a window of opportunity to
increase living standards. Between 1960 and 2000, the country completed the transition from a largely
rural agrarian society to a predominantly urban industrial one, with low fertility and mortality rates.
During this period, the age profile of the country shifted from high concentration of young people
(more than 63 percent of the population was younger than 25 in 1960) to a more balanced one
(47 percent of the population was younger than 25 in 2010). As a result, the labor force temporarily
grew more rapidly than the population dependent on it. Periods with decreasing dependency ratios
are known as demographic windows or windows of opportunity. During this period the share of net
savers relative to net consumers tend to increase, freeing up resources for investment in economic
development. The dependency rate declined from 74 percent of working-age population in 1984
to 60 percent in 2000 (Figures below). Dependency ratios are expected to continue decreasing until
2025–30, when Colombia’s demographic window of opportunity will start closing.
LABOR FORCE PARTICIPATION RATE
DEPENDENCY RATIO
Labor Force Particpation Rate (WDI)
Dependency Ratio (WDI)
90
80
85
75
80
75
70
70
65
65
60
60
55
50
55
Colombia
Chile
LAC
Mexico
Peru
Colombia
Chile
LAC
Mexico
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1984
40
1986
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
50
45
Peru
Women have driven the increase in labor participation, and the labor force composition has shifted
toward workers with higher educational levels. Between 1984 and 2013, labor-force participation increased from 54 percent to 67 percent. Female participation almost doubled since 1984, explaining
most of this trend. Meanwhile, the 25- to 55-year age group increased the most. Furthermore, labor
participation of Colombians with more than 12 years of education rose 8.7 percent between 1991
and 2012, compared with an increase of 4.9 percent from those with less than 12 years of education.
(continued on next page)
59
PART ONE
|
CHAPTER 3
BOX 3-1: Recent Demographic and Labor Markets Dynamics (continued)
National unemployment fluctuated significantly during the past three decades, but it has been decreasing steadily since the 2008 global crisis. The national unemployment rate spiked in the second
half of the 1990s, reaching its all-time high amid the 1998 recession. After this episode, the rate continued to fall until the 2008 global economic crisis, when it rose again to 12 percent. Since then, unemployment decreased to 9.6 percent in 2013. Women’s unemployment decreased from an all-time
high of 24 percent in 2000 to 14 percent in 2013, while men’s declined from 17 percent to 8 percent
in the period. Unemployment dynamics differed considerably between cities. Bogota saw a decrease
from 18 percent in 2001 to 9 percent in 2013; Cali’s decrease was more modest—from 18 percent to
14 percent. Finally, employment opportunities are consistently better for educated workers in urban
areas throughout the whole period.
Despite increasing wages, wide wage dispersion persists between formal educated and informal
non-educated workers. The size of the national informal sector has remained above 40 percent since
1984. Moreover, informal workers’ relative income has decreased, reflecting the low productivity of
the Colombian labor force. Colombia’s institutional set-up led to a 21 percent real increase in the minimum wage between 1998 and 2010. However, two-thirds of informal workers earn less than the minimum wage. This fact is exacerbated by the differences in educations and skills. Given the high minimum
wage, formal workers tend to be educated and enjoy legal protection and good labor conditions,
while informal workers tend to be less educated and subject to lower-quality jobs.
80
70
60
50
40
30
20
10
0
NON-WAGE LABOR COSTS AS SHARE OF TOTAL
LABOR COSTS
60
55
50
45
40
35
30
25
20
15
10
5
0
Korea
Chile
Mexico
United States
United Kingdom
Turkey
OECD average
Norway
Portugal
Spain
Colombia
Sweden
France
Germany
Italy
Belgium
RATIO OF MINIMUM TO AVERAGE WAGES
Mexico
Russia
India
United States
China
Greece
Korea
Spain
Turkey
Poland
OECD
Brazil
Portugal
Australia
Slovenia
France
Colombia 2007
Colombia 2011
60
Several investigations point to restrictive labor regulations, particularly the high minimum wage and
non-labor costs, as the main cause of this segmentation in the labor market. In 2011, Colombia’s minimum wage stood at 71 percent of the average wages, up from 58 percent in 2007 and one of the highest in the world (Figure above to the left).a Regional differences in incomes are high, and the uniform
national minimum wage is at or above median incomes outside the capital. High non-wage labor costs
compound the effects of the minimum wage on formal employment. At 82 percent of wages (formal
(continued on next page)
Structural Changes – Implications for Growth, Productivity, and Competitiveness
BOX 3-1: Recent Demographic and Labor Markets Dynamics (continued)
and informal), these costs are high by OECD standards (Figure above to the right), contributing to the
high informality, particularly in the poorer regions of the country.
Although the 2012 tax reform reduced non-wage labor costs, plenty of space remains for creating the
right incentives to increase formal employment and realize the gains from Colombia’s demographic
dividend. The Government has recently moved forward in addressing constraints to formal job creation. In its 2012 tax reform, payroll taxes were reduced from 29.5 percent to 16 percent for employees with salaries below 10 minimum wages (which represent the bulk of all employees). According to
official estimates, this reduction could create between 400,000 and 1 million new jobs in the formal
sector. Nonetheless, the country could still do more to reduce labor costs, improve job creation, and
improve the matching between workers and firms.
a
The salary is determined by a tri-party negotiation process at the end of the year, and it is against the law to decrease it.
low-productivity jobs. So far, these outcomes have
prevented Colombia from taking full advantage of
its demographic dividends (decreasing dependency ratios). Addressing them would help accelerate
economic growth and convergence during the
remaining 10 to 15 years of this favorable demographic window.
Historically, many factors have contributed to
Colombia’s slow productivity growth, including particularly low levels of innovation. First,
Colombia’s low levels of human capital have implications for productivity. Those with little or no
education are predominantly employed in less
productive activities in the informal sector. In addition, quality education helps develop advanced
skills that are crucial for assimilating new technologies and consistently innovating. In fact, innovation
rates are low and Colombia’s management practices are among the worst in the region.8 According
to the National Innovation Survey IV (2007–08),
only 11.8 percent of Colombian firms with over 10
workers innovate in product or process, compared
to 30 percent on average for countries at its level
of development. At 0.18 percent in 2011, national research and development (R&D) expenditures
as a share of GDP are roughly half the expected rate for a country at Colombia’s level of development. Second, Colombia remained relatively
closed until the early 1990s. The economic literature has identified positive productivity spillovers
from competing with, buying from, selling to, and
receiving investment from foreign firms. By limiting trade and investment for decades, Colombia
has restricted opportunities for technology adoption. In fact, Colombia’s improvements in TFP
growth coincide with a continued effort to open
the economy.9 Finally, decades of armed conflict
had important consequences for economic activity and regional disparities (discussed in more details in the next section). The conflict imposes high
direct and indirect costs, hindering investment in
physical assets, destroying human capital (injuries
and deaths), and creating distortions that affect
overall productivity, such as violation of property
rights, disruptions and public services and institutions. Estimated growth losses associated with the
conflict range from 0.6 percentage point to 1.77
percentage points a year.10
Productivity growth was uneven across economic sectors, and it was largely influenced by labor
reallocation across sectors. An alternative growth
decomposition exercise can help illustrate labor
productivity and labor reallocation dynamics
across sectors (Table 3-2).11 Labor productivity
gains, measured by valued added per worker, accounted for 63 percent of the overall per capita
output growth between 2001 and 2013 (1.8 percentage points of the 3 percent annual growth
rate); changes in the employment rate (21 percent) and labor force as a share of the population
61
62
PART ONE
|
CHAPTER 3
TABLE 3-2: Growth Decomposition: Contribution to Total Growth in Value Added Per Capita,
Colombia 2001–13 (%)
Contribution
of within sector
changes in output
per worker (%)
Contributions
of Inter–sectoral
Shifts (%)
Total (%)
–7.07
4.63
6.52
4.07
0.38
5.88
1.14
7.41
–0.75
5.63
–0.27
4.61
Electricity, gas and water
0.21
0.23
0.78
1.22
Construction
4.67
6.56
0.75
11.98
Contribution
of changes in
Employment (%)
Sectoral contributions
Agriculture
Mining and hydrocarbons
Manufacturing
Commerce, hotels, restaurant
9.90
7.75
–2.15
15.49
Transport and comunication
6.32
3.07
0.13
9.52
9.96
–10.51
18.44
17.89
–2.39
13.52
1.00
12.13
26.33
84.31
Financial services and real state
Communal, social and personal services
Change in capital per worker
24.85
TFP
Subtotals
11.91
21.23
36.76
Demographic component
15.69
Total
100.00
Annual % change in value added per
capita 2001–2013
(16 percent) account for the rest. Labor productivity and gains can be decomposed into changes
in labor productivity within sector and employment and labor reallocation across sectors, while
employment gains can be decomposed by sector.
In Colombia, the first component of labor productivity accounted for 60 percent of the gains
(37 percent of the overall growth) and the second
accounted for the remaining 40 percent (26 percent of the overall growth). In almost all sectors,
within-sector productivity gains contributed to
aggregate productivity gains. The exception was
financial services, where employment grew faster
than the sector’s value added. Labor reallocation
impacts vary across sectors. For example, labor
shifts out of agriculture, a sector with relatively low
labor productivity, positively contributed to overall
productivity growth. At the same time labor shifts
out of manufacturing, a high productivity sector,
had a negative impact on aggregate productivity.
Labor shifts into commerce, a low productivity
3.08
sector, decreased aggregate productivity, while
large employment shifts into financial services, a
highly productive sector, had the largest positive
impact on aggregate productivity.
Growth at the regional level
Colombia’s growth performance contributed to a
small reduction in per capita income disparities,
but differences in living standards remain significant. Per capita income in most states increased
relative to the benchmark of Bogota, with the
biggest gains in states with lower relative income
(Figure 3-7). Researchers find mild convergence12
during the 2000s.13 However, Colombia’s differences in per capita income among regions are
still large when compared with the regional differences in OECD economies (OECD, 2013).
Most of the regions’ GDP per capita gap with respect to Bogotá is due to low labor productivity.
This dispersion across departments has remained
Structural Changes – Implications for Growth, Productivity, and Competitiveness
FIGURE 3-7: Income Per Capita as % of Bogota
Income per capita as share of Bogota's income per capita (%)
350
300
250
200
150
100
2000
Chocó
Vaupés
Cauca
Nariño
Caquetá
Putumayo
Magdalena
Amazonas
Guainía
Vichada
Guaviare
Córdoba
FIGURE 3-8: Education and Income Across
Departments, 2010 (OECD 2013)
20
15
10
322
312
302
292
282
272
262
252
242
0
232
5
222
Regions with low productivity suffer from the same
bottlenecks that explain Colombia’s lag with respect
to Asia and high-income countries. In addition to
violence, which has been especially intense in poor
regions, low access to education and subpar student performance have been identified as the main
bottlenecks hindering regional GDP per capita
growth and productivity14 (Figure 3-8). In addition
to traditional education, these regions lag behind
in entrepreneurial training during secondary, tertiary, and continuing education (OECD, 2012b).
Furthermore, the quality of transport infrastructure differs greatly across regions (Figure 3-9).
High regional discrepancies in the quality of roads
suggest significant opportunities to raise competitiveness through mere rehabilitation and maintenance of existing roads in low- performing regions
(Ramírez and Parra-Peña, 2010). These differences are reflected in the Department Competitiveness Index, which measures basic services, efficiency, sophistication, and innovation. The index is
2012
GEF Infrastructure Score
almost constant over the past decade. The main
exception has been commodity-producing areas, where highly productive commodity sectors
have emerged, although they have created little
employment.
Norte Santander
Cesar
Caldas
La Guajira
Tolima
Quindío
Risaralda
Huila
Bolívar
Atlántico
Boyacá
Cundinamarca
San Andrés y Prov.
Valle
Antioquia
Meta
Santander
Bogotá D. C.
Arauca
0
Casanare
50
GDP Per Capita current
closely correlated with per capita income, except
for oil-producing regions.
Historically, institutions have also played a role in
per capita income disparities across regions, but if
well implemented recent reforms might help alleviate this issue. The 1991 constitution sought to promote regional expenditures yet failed to reduce inequalities. Sub-national authorities began to receive
63
PART ONE
|
CHAPTER 3
FIGURE 3-9: Quality of Roads at Department Level, 2009 (OECD 2013)
100%
80%
60%
40%
20%
Poor and unpaved
much larger public resources (especially those
linked with oil production) but their capacity to effectively manage and invest them was not raised.
As a result, the vast royalties from natural resources
extraction have been ineffective (Olivera and Perry,
2009) or misused. Between 2000 and 2012, close to
a third of the sanctions in the public administration
(national and sub-national) were applied to mayors
and local councilors (OECD, 2013). The 2011 royalties reform is expected to alleviate this problem.
It aims to distribute revenues more equitably across
regions, with the share allocated directly to commodity-producing regions reduced from 80 percent
before 2011 to 10 percent after 2014. Most of the
resources will be spent on infrastructure projects (40
percent) and on a science, innovation, and technology fund (10 percent). In fact, non-tax revenues and
transfers seem to be negatively associated with per
capita income growth at departmental level. Based
on the model prior to the reform, royalties are also
negatively associated with growth; when the reform
is considered, royalties become positively associated
with regional growth (Table 3-3, based on LopezCalva et al., 2013), i.e. they are expected to become
a convergence factor. It is worth keeping in mind
that potential implementation challenges—for example, the capacity to design, select, and execute
infrastructure and innovation projects—are not
considered in these estimates.
Intermediate
Atlántico
Bolivar
Valle del Cauca
Quindio
Caldas
Casanare
Tolima
Cesar
Guajira
Cordoba
Sucre
Antioquia
Santander
N. Santander
Nariño
Risaralda
Huila
Caquetá
Magdalena
Boyacá
Cundinamarca
Meta
Putumayo
Cauca
0%
Chocó
64
Good
While per capita income across regions suggests
a slow convergence, differences in poverty rates
and access to services are stubbornly persistent.
Colombia’s moderate and extreme poverty rates
(monetary poverty) have dropped significantly over
the decade. However, regions that already had lower poverty rates had larger poverty reduction than
regions with higher poverty rates (Figure 3-10).
As a result, differences across regions were maintained and, in some cases, even amplified. A similar pattern arises when multidimensional poverty
is taken into account. This indicator reflects access
to key public services. While the indicator is only
available for recent years, it suggests little change
in regional disparities.
Structural changes in international trade
International trade as a share of GDP has increased steadily, rising from 21 percent in the early
1970s to 32 percent in 2012, but Colombia is still
among the LAC’s most closed economies. Between
1980 and 2012, goods exports increased from 7.6
percent to almost 16 percent of GDP, while goods
imports rose from 13.5 percent to 16 percent of
GDP. Despite the increase, Colombia’s trade as a
share of GDP remains lower than the LAC average (39 percent) and much lower than the average for fast-growing Asian economies (75 percent).
Structural Changes – Implications for Growth, Productivity, and Competitiveness
TABLE 3-3: Royalties and Regional Convergence (Lopez–Calva, Castelã, and Enamorado 2013)
Fixed Effects Estimates of Conditional Convergence, 2012–2016
Real Income at t–1
No Reform
(1)
Reform
(2)
–0.02366***
–0.03444***
(0.00412)
(0.00063)
0.02081***
0.01046***
(0.00255)
(0.00037)
0.00043
0.00040***
Taxes at t–1
Non Tax Revenue at t–1
(0.00091)
(0.00011)
Regalias at t–1
–0.00015**
0.00119***
(0.00007)
(0.00004)
Transfers at t–1
–0.03518***
–0.03151***
(0.00362)
(0.00047)
0.59363***
0.82186***
(0.04808)
(0.00845)
0.716
0.983
Constant
R–squared
Number of Observations
154
154
Notes: Dependent Variable: Growth rate, Per Capita Income; Fixed effects estimates weighted by population size; Robust Standard Errors within parentheses; All
monetary measures are expressed in logs and real terms 2005; *** p<0.01, ** p<0.05, * p<0.1.
In the LAC, Colombia is the second most closed
economy after Brazil (21 percent of GDP).
from high commodity prices. Colombia’s export
value grew an average of 13.6 percent a year
during the past decade. This growth was largely driven by increases in the international prices
of Colombia’s main export commodities. When
Trade growth, and in particular export growth,
during the past decade have benefited significantly
FIGURE 3-10: Evolution in Poverty Rates
80
1.0
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
–
70
60
50
40
30
20
2002
Drop in poverty
Bogotá D.C.
Risaralda
Valle del Cauca
Meta
Santander
Caldas
Quindio
Antioquia
Total Nacional
Atlántico
Cundinamarca
Caquetá
Tolima
Cauca
Cesar
Bolivar
Magdalena
Cordoba
Nariño
Boyacá
La Guajira
Chocó
Sucre
Huila
–
Norte de Santander
10
65
PART ONE
CHAPTER 3
|
FIGURE 3-11: Recent Trade Dynamics
34
190
32
180
170
30
160
28
150
26
140
130
24
120
22
20
110
1999
2000
2001
2002
2003
2004
2005
Trade (%GDP)
2006
2007
2008
2009
2010
2011
100
2012
Terms of trade
Source: Authors’ calculations using IMF and WDI data.
FIGURE 3-12: Export Values vs Volumes
FIGURE 3-13: Colombia as % of World Trade
600
0.40
0.35
500
0.30
400
0.25
300
0.20
0.15
200
0.10
100
Export value ind
Export volume ind
Import value ind
Import volume ind
Exp(%)
Exp except extractives (%)
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
0
1999
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
0
0.05
2000
66
Imp(%)
Source: Authors’ calculations using IMF and WDI data.
Source: Authors’ calculations using IMF and WDI data.
measured in volumes, export growth fell to an
average of 6 percent per year (Figure 3-12). For
imports, this difference was 14 percent growth in
values and 10.6 growth in volumes, further exposing Colombia’s external balance to commodity-price fluctuations. However, favorable prices
helped raise Colombia’s exports as a share of
the world total from 0.2 percent in 2002 to almost 0.4 percent in 2012. This effect is almost
entirely driven by extractive activities. Excluding
extractive exports, Colombia’s exports remain almost constant as a share of the world’s exports
(Figure 3-13).
Export expansion has been associated with an increasing participation of extractive commodities
and a high concentration of Colombia’s export
basket. Colombia experienced significant changes
in export composition during the past decade. In
the mid-1990s, manufacturing goods accounted
for the majority of exports (62 percent), followed
by extractives (28 percent) and agriculture (10 percent). By 2012–13, the roles have been reversed,
with extractive exports accounting for 58 percent
and manufacturing (38 percent) and agriculture
(4.5 percent) falling significantly (Figure 3-14).
While high oil and mining prices account for a
Structural Changes – Implications for Growth, Productivity, and Competitiveness
large portion of this change, other factors were
also at play. For example, the economic crisis
in Venezuela, one of the main destinations of
Colombia’s manufactured products, contributed
to a weak performance of this sector. Changes
in the structure and composition of exports led
to a much higher level of concentration15 in
Colombia’s export basket (Figure 3-15).
In terms of export destinations, Colombia is more
diversified than it was at the beginning of the
FIGURE 3-14: Changes in Export Composition
100
90
80
70
60
50
40
30
20
10
0
Macro Implications and Risks
37.9
61.8
57.5
28.1
10
4.5
1995–1996
2012–2013
Agriculture
Extractive
Industrial
Other
Source: Authors’ calculations using IMF and WDI data.
FIGURE 3-15: Concentration in the Export
Basket
Colombia’s resource boom has been a blessing in
many dimensions, but poses social and economic
policy challenges. The boom has boosted foreign
investment, economic growth, and government
revenues. However, changes in the terms of trade
and related capital inflows have contributed to the
appreciation of the exchange rate, undermining
the competitiveness of other sectors. As previously
FIGURE 3-16: Concentration in Export
Destinations
0.50
0.30
0.45
0.25
0.40
0.35
0.20
0.30
0.25
0.15
0.20
0.10
0.15
0.10
Source: Authors’ calculations using IMF and WDI data.
Note: HHI stands for Herfindal-Hirschman index.
HHI exp partners
Source: Authors’ calculations using IMF and WDI data.
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
HHI exp products
0
2000
0.05
0.05
0
decade. New countries arise as important destination partners. For example, China did not appear
among the top 20 export destinations at the beginning of the decade; now, it is the third largest consumer of Colombia products. Mexico also gained
importance as an export destination. In contrast,
Venezuela, the third largest destination at the beginning of the decade, is now in 10th position.
Overall, these changes made Colombia’s exports
less concentrated16 with respect to destination markets (Figure 3-16). The changes in destination markets are associated with the change in export composition. The new partners are net commodity
importers and net manufacturing exporters, while
old partners like Venezuela are net manufacturing
importers.
67
68
PART ONE
|
CHAPTER 3
discussed, fuel sales increased to almost two-thirds
of total exports, while manufacturing’s share of
total merchandise exports declined significantly. In
addition, extractive activities are often highly capital intensive, do not create many jobs, and generate
large rents, which may harm income distribution.
Finally, the relatively large share of extractive activities in trade and government revenues increases
macroeconomic exposure to price fluctuations and
overall economic volatility.17 Volatile revenues and
associated procyclical spending could have real
costs for growth.
Commodity production and natural resources
abundance do not necessarily hinder growth. The
increase in oil export revenues brings certain opportunities for Colombia because—if well-managed—they might serve as a financing source for
economic development. Norway, Chile, Botswana, Indonesia, Malaysia, and Thailand are examples of countries rich in natural resources that
managed their resources well and achieved high
growth rates, diversifying their economies beyond
commodities. In contrast, many commodity-rich
countries are lagging in development, supporting
the idea that a “curse” can emerge if resources are
poorly managed. Examples in this group might include Nigeria, Venezuela, and Algeria.
One of the potential challenges associated with
large commodity booms is the “Dutch disease.”
Natural resources generate large profits (economic rents) in places where they are abundant—that
is, where they can be produced at a marginal cost
below levels that prevail elsewhere. This has two
major effects on the economy’s relative incentives.
First, to the extent the resources are exported, the
inflow of foreign exchange appreciates the real exchange rate— that is, it raises the price of non-tradable goods relative to tradable goods. Second, it increases the returns to production of the resource
relative to other tradable goods. Both of these effects reduce the incentive to invest in production of
other tradable goods, resulting in a production and
export structure dominated by the resource.
Colombia’s recent economic dynamics indicates
some initial symptoms consistent with the Dutch
disease, but it is too early for conclusions. Over
the past decade, Colombia’s real exchange rate
appreciated by almost 40 percent vis-à-vis trading partners.18 This has made the country’s export
goods more expensive for foreigners, decreasing
the international competitiveness of Colombian
goods with high price elasticities, such as manufactured goods. In fact, manufacturing exports fell
as a share of total exports, and overall production
has been sluggish. The strong exchange rate also
lowered domestic costs of imports, and Colombia
has run slightly negative trade and current account
balances. In particular, the current account deficit
has not been positive in a single quarter since 2001
(see Figure 3-2). While these facts are consistent
with the Dutch disease, it is important to be circumspect because other factors might be involved.
In the case of manufacturing performance, factors
such as the crisis in Venezuela, and competition
from China seemed to have been much more important than exchange-rate appreciation (Griffin,
2014). Manufactures might have also been affected
by sluggish external demand of high income partners such as the U.S. and Europe.
A large fraction of the current account deficit
is financed by abundant FDI flows, which have
been relatively stable over time.19 Nevertheless,
FDI flows can still be challenging; for instance,
Colombia receives a considerable amount of FDI
in the commodity sector, which is usually prone
to sudden capital flow reversals (see Figure 3-3).
For this reason, the current account deficit could
create some pressures in the medium term if the
investment flows were to reverse—especially with
official reserves that are low compared to other
resource-rich emerging economies.20 Box 3-2 discusses the potential repercussions for Colombia of
a sudden drop in oil prices. Over the longer run,
a structural current account deficit implies that
it will be paid off in the future. The ability to do
so will depend on sustaining growth and export
competitiveness.
Structural Changes – Implications for Growth, Productivity, and Competitiveness
In addition to external prices, commodity booms
depend on the internal production capacity.
Although the commodity boom is likely to continue, considerable uncertainty surrounds its length
and intensity. Colombia’s proven oil and gas reserves are estimated to last seven to eight years.
Oil production is expected to peak in 2018 at 1.14
million barrels a day and then decrease slowly to
less than 0.8 million barrels a day in 2035. The
expected life of commodity resources in Colombia
is, however, difficult to estimate because exploration in much of the country has barely started. Uncertainty about future discoveries is large.
Similarly, forecasts for commodity prices and
terms of trade have wide error margins. While
commodity prices may decline as new sources of
supply emerge, their levels may well remain relatively high based on growing demand from Asia.
BOX 3-2: How Vulnerable Is Colombia’s External Sector to Oil Price Fluctuations?
Colombia’s high reliance on oil exports—about two-thirds of exports are fuel—and its persistent current account deficit raise questions about the external sector’s vulnerability to oil price fluctuations.
Movements in oil prices are quite substantial: in the past 20 years, yearly declines of 60 percent and
monthly declines of 20 percent were not uncommon.a For our analysis, we assume an annual price decline of a third.b Considering estimated net petroleum exports of 240 million barrels per yearc and an
oil price of US$100 per barrel, a one-third decline could potentially translate into a US$8 billion loss of
export revenues. The current account deficit of US$12 billion would increase by two thirds.
However, this back-of-the envelope calculation neglects that foreign demand does respond to oil
price changes. It is often said that demand for oil is fairly inelastic, but this assumption is certainly too
restrictive. To better assess the vulnerabilities of Colombia’s current account to an oil price shock, we
calculate a short-run price elasticity of total oil exports of approximately 0.3, meaning that the value of
oil exports decreases by about one-third of the percentage shock to prices. Considering this effect, the
current account deficit would only increase by an estimated 20 percent. In practice, of course, many
other effects are at work (e.g., the exchange rate, domestic demand, and capital flows). If we estimate
the effect of oil prices on the overall current account balance in a simple reduced-form model, we
hardly find any significant effect at all.
Considering these results, we assess Colombia’s risk exposure to oil price fluctuations as modest.
However, it should be noted that considerably larger oil price shocks might occur and calculations
with data from “normal” times are usually not a good guide for such singular events. In such a bust
environment, Colombia’s vulnerability to shocks will depend more on factors like global capital flow
patterns or the perception of investors—which in turn will be influenced by long-run development
perspectives—and the capacity of the macroeconomic framework to accommodate such shocks in the
short run (e.g. international reserves which are currently at a largely adequate leveld). In any case, what
will probably matter most is not the short-run fluctuation of the oil price by itself but a development
outlook predominantly based on oil (and other commodities).
a
This magnitude is calculated as the lower quartile value minus 1.5 times the inter-quartile range for WTI:
Q1 – 1.5 x IQR
b
Note that declines by 60 percent from the year before might not be uncommon for a given month but this is often mitigated over the whole year. In the
past two decades, the largest price decline measured over a full calendar year was 45 percent (2009), followed by 35 percent (1998). We thus consider a
shock of a third a reliable downside magnitude.
c
www.eia.gov.
d
See Endnote 20.
69
70
PART ONE
|
CHAPTER 3
Sound fiscal management and reforms have increased Colombia’s overall resilience to shocks,
but the fiscal account is still exposed to a sudden
drop in oil prices. Colombia has implemented
important reforms in the past decade, including two comprehensive tax reforms that helped
increase non-oil revenues and a fiscal consolidation rule and medium-term fiscal framework
that gradually reduces the structural deficit to 1
percent of GDP by 2020. The rule shielded the
government’s fiscal target from oil price fluctuations and determined that a part of the savings
in favorable cycles should be dedicated to an oil
sovereign fund. Sound management also led to
a reduction in central government debt from 45
percent of GDP in 2003 to 37 percent in 2013,
reducing fiscal risks. Nevertheless, a sharp decline in oil prices could temporarily affect fiscal
outcomes as oil-related revenues represent 16
percent of total central government revenues. A
US$10 decline in the per barrel oil price reduces central government revenue by approximately
0.4 percent of GDP (with a one year lag). If a
large shock occurs before the sovereign fund is
fully funded, Colombia will have to rely on other
tools to avoid real implications to the economy,
such as the renewed US$5.8 billion IMF flexible
credit line.
Besides short-term risks from macro-financial linkages,21 overreliance on commodity production has several adverse
structural implications. One of them is the
pass-through of commodity price volatility to
the rest of the economy. Macroeconomic volatility has long been an impediment to growth
and poverty reduction in Latin America.22 While
Colombia’s fiscal framework reforms have introduced some buffers against oil price swings (see
below), economic diversification could further
contribute to stability. It would also broaden the
tax base, which is important because Colombia’s
revenue collection as a share of GDP is relatively
low. A broader tax base is important for investments in training, education, and infrastructure as
well as for progressive redistribution, all of which
are important to sustaining the current economic
growth trajectory and avoiding typical “middle
income traps.” Finally, broadening the tax base
would increase social ownership in public expenses: as more public expenditures are financed from
general taxes, taxpayers will have an incentive to
monitor the efficiency and effectiveness of these
expenses more closely.
Colombia has taken important steps to mitigate
the risks associated with the commodity boom,
but lessons from other economies suggest more
can be done. Given the macroeconomic framework, Colombia seems well-equipped to counter
near-term risks and achieve structural shifts toward non-commodity sectors. The public sector is
characterized by modest debt levels, and the fiscal
deficit has been on a consolidation path. The legal
framework has been reformed, with a fiscal rule
designed to facilitate counter-cyclical policies and
decrease the reliance in commodity revenues and
a tax reform to widen the tax base. Furthermore,
the central bank has earned considerable credibility in the market and independently operates under
a sound framework of flexible inflation targeting.
While the fiscal rule helps limit fiscal volatilities
driven by commodity cycles, it does not per se resolve the problem of how to transfer resources from
the commodity industries to other sectors of the
economy. Supporting this transition through budget expenses would be one option. Alternatively,
development resource funds that exist in many
countries, such as the United Arab Emirates or
Kazakhstan, do not necessarily have to invest in
foreign assets but could also support diversification through well-targeted domestic investments.
“Sustainable investment tools”23 can help allocate
the resources of such funds. They combine the
rationale of saving resource revenues abroad with
the benefits of investing them domestically, considering bottlenecks and lacking absorptive capacity
in the domestic economy, thus taking into account
long-term development goals and project-based
cost-benefit considerations. Such tools have been
parameterized for other resource rich countries
but could be adjusted for the Colombian case and
could further refine the county’s elaborate fiscal
framework.
Structural Changes – Implications for Growth, Productivity, and Competitiveness
Endnotes
1
2
3
4
5
6
7
8
9
10
11
See Berg, A., R. Portillo, S.C. Yang, F.F. Zanna
(2013). “Public Investment in Resource-Abundant
Developing Countries,” IMF Economic Review,
61(1): 92–129.
Argentina, Brazil, Chile, Peru, Mexico, Venezuela.
Korea, Singapore, China, Thailand, Indonesia, and
Malaysia.
Measured by GDP per capita at constant 2005 US$.
Considering only high income OECD countries.
It is worth to keep in mind that results can be sensitive to assumptions about measures of human capital, estimated return on human capital, capital depreciation, labor force, etc. We chose to adopt the
Penn World Table assumptions to ensure consistency across a large number of countries. This assumption might differ from other country specific studies.
Infrastructure Quality Index, World Economic Forum 2013–14.
World Bank (2013).
Eslava, Haltiwanger, Kugler, Kugler, (2012).
A. Saavendra (2013), M. Santa Maria, N. Rojas, G.
Hernandez (2013).
The methodology adopted uses Shapley decomposition to link changes in particular components to
changes in total per capita GDP by taking into account the relative size of each economic activity
as well as the magnitude of the changes. This approach gauges the marginal effect on a variable of
interest (in this case, output per capita) of the sequential elimination of each of its contributory factors (in this case, the national working age population, employment rates and output per worker in
each economic activity). Since there are several possible sequences of elimination, the method assigns
to each factor the average marginal contribution of
all possible elimination sequences. The decomposition was produced using the Job Generation and
Growth Decomposition Tool from the World Bank’s
Employment Lab. For a full description of the method and a simulation toolkit, visit: (http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/
EXTPOVERTY/EXTEMPSHAGRO/0,,contentMDK:22042518~menuPK:2743902~pageP-
12
13
14
15
16
17
18
19
20
K:148956~piPK:216618~theSitePK:2743783,00.
html)
Both beta and sigma convergence.
Lopez-Calva, Castelã, and Enamorado (2013), Aguirre Tobón (2005), Branisa and Cardozo, (2009),
Royuela and García (2010).
CEER, 2007.
Measured by the Herfindahl–Hirschman Index.
Measured by the Herfindahl–Hirschman Index.
Commodities and extractive commodities in particular have higher short-term price volatility than
other goods. Price fluctuations, regardless of their
effect on investment, create volatility in foreign exchange earnings and government revenues (World
Bank 2010).
In addition to commodity revenues, capital inflows
from industrialized countries during a period of
loose global financial conditions also put appreciation pressures on the exchange rate. The exact degree of appreciation in the real effective exchange
rate depends on the underlying method used to
construct the trade weights. The JP Morgan method leads to lower appreciation (close to 30 percent);
IMF IFS data indicates a stronger appreciation
(above 50 percent).
WBG staff calculations based on IFS data. Furthermore, almost the whole FDI position is financed by
equity and investment fund shares, not debt instruments. The latter are considered as more volatile.
Flows in recent years, however, were very debt-intensive.
By the end of 2012, Colombia’s official reserves
covered 5.1 months of imports. This is a magnitude similar to other commodity exporters, such as
Angola (7.1), Malaysia (6.6), Indonesia (6.1), Nigeria (5.7), Chile (4.5) and Venezuela (3.9). However, it is considerably less than, for example, Algeria (34.8), Bolivia (14), Peru (12.5), and Botswana
(12.2). Source: WDI. Accumulated reserves, however, increased since early 2012. For an assessment of
optimal reserve holdings, see Calvo, G. A., A. Izquierdo, R. Loo-Kung (2012): “Optimal Holdings of
International Reserves: Self-Insurance against Sud-
71
72
PART ONE
21
22
|
CHAPTER 3
den Stop,” NBER Working Paper 18219. According
to their calculations (for 2010), Colombian reserve
holdings were too small.
Potential risks in this aspect include inter-linkages
between such phenomena as the build-up of debt
in pockets of the market not on the supervisory authorities’ radar screen, currency mismatches on balance sheets, overvaluation in segments of the equity
market, the possibility of a drop in capital inflows,
and the interplay of these factors that might lead to
a vicious downward spiral with asset price declines
and credit defaults.
See e.g. Inter-American Development Bank (1995),
“Overcoming Volatility in Latin America.” Report
on Economic and Social Progress in Latin America.
Gavin, M., R. Hausmann, R. Perotti, and E. Talvi
(1996), “Managing Fiscal Policy in Latin America
and the Caribbean: Volatility, Procyclicality, and
Limited Creditworthiness.” IADB Working Paper
326. Crespo-Cuaresma, J., S. Klasen, and K.M.
23
Wacker (2013), “Why We Don’t See Poverty Convergence: The Role of Macroeconomic Volatility.” Courant-Research-Centre: Poverty, Equity, and
Growth. Discussion Paper 153.
See Berg, A., R.Portillo, S.C. Yang, F.F.Zanna
(2013). “Public Investment in Resource-Abundant
Developing Countries,” IMF Economic Review,
61(1): 92–129.
Structural Changes – Implications for Growth, Productivity, and Competitiveness
PART TWO
THEMES
73
74
PART ONE
|
CHAPTER 3
Structural Changes – Implications for Growth, Productivity, and Competitiveness
CHAPTER 4
Agriculture and Rural Development
75
76
PART ONE
|
CHAPTER 4
Main Messages
Rural areas of Colombia, long home to high levels of poverty and lagging development, are at risk
of falling even further behind the country’s urban areas. Decades of civil conflict have taken a heavy
toll on the rural economy. Security deficiencies and neglect of the rural population have led to the
displacement of hundreds of thousands of households and the abandonment of countless farms and
small enterprises. The result has been a slowing of productive activity in many rural areas, accompanied
by increasing instability. Agricultural growth, once a leading driver of overall GDP growth, has faltered.
Production gains have been narrowly concentrated in a handful of export crops, while output of many
of the staple crops grown by the majority of rural households has stagnated. The lagging agriculture
performance has exacerbated what was already a wide welfare gap between urban and rural areas.
The recent sluggish performance of the rural economy poses a problem for the Government, but
it also represents an enormous opportunity. Blessed with abundant land and water resources, Colombia’s rural sector has considerable untapped potential for wealth creation and poverty reduction, but
that potential is not being realized. Many agricultural policies have been ineffective, service delivery to
rural areas remains weak, and chronic underinvestment in rural infrastructure has left many producers
unable to access inputs and isolated from markets.
With the peace talks raising prospects that security may soon be restored to the countryside, policy makers could soon be presented with an opportunity to reverse the decades-long decline in the
rural economy. The task will not be easy, however, and it will not be accomplished overnight. For that
reason, the Government will have to implement a phased approach that focuses in turn on issues that
need to be addressed in the short, medium and longer term.
As peace and stability return to rural areas, the immediate priority will be providing rural households
with the means to engage in productive activities and resume their livelihoods. This will mean ensuring
that households have secure access to land, to the productive inputs needed to resume agricultural activities, to the information and knowledge needed to use those inputs effectively, to the financial resources
needed to pay for them, and to the infrastructure needed to deliver surplus production to the market.
After measures have been implemented to restore rural livelihoods, especially in areas that have been
severely affected by conflict, a second priority will be to get agriculture going. This will be possible only
when the constraints currently inhibiting agricultural growth are overcome. These constraints include factors that contribute to low farm-level productivity, factors that reduce the profitability of agriculture, and
factors that undermine the competitiveness of Colombian producers. Overcoming these constraints will
require a comprehensive strategy of policy reforms, institutional changes, and supporting investments.
Finally, over the longer term, the health and well-being of the rural sector will depend on the ability
of the Government to implement a territorial approach to rural development. This will require a fundamental rethinking of how services are delivered to rural areas. Starting with a broad concept of the
rural sector that encompasses multiple sectors, a wide range of partners and stakeholders, and many
different economic activities, it will be necessary to build a new institutional architecture consisting of
centralized policy-setting and financing agencies working hand in hand with decentralized implementation and coordination entities, local civil society organizations, and private firms.
The rural sector in Colombia is blessed
with abundant resources. It features many unutilized and underutilized resources that, if properly exploited, could provide the basis for broadbased and sustainable growth. These include:
i. 22 million hectares of arable land, only 5.3
million hectares of which are currently cultivated (IGAC, 2012);
ii. 38.8 million hectares currently used for grazing and livestock production, largely characterized by extensive pasture systems with an
average stocking rate of less than one animal
per hectare (IGAC, 2012);
iii. 60 million hectares of forest, including 477,575
hectares currently being managed as commercial plantations (IGAC, 2012);
iv. Abundant water resources that can be exploited for energy generation, agriculture, and a
wide range of industrial uses;
v. Extractive resources (minerals and energy) that
could become an important source of income
for rural populations;
vi. Rich biological diversity, providing many opportunities to generate wealth through biodiversity and environmental services; and
vii. Attractive landscapes that could be the basis
for sustainable tourism as a source of income
generation for rural populations.
Despite its considerable potential, the rural economy has underperformed. Agriculture is the backbone of the rural economy in Colombia, yet over
the past 20 years, value added in agriculture has
risen by less than the whole economy. For the decade 1994–2004 agriculture had an average annual GDP growth of 1.1 percent whereas the whole
economy grew at a 2.2 percent rate. For the period
2004–2013 the rates were 2.0 and 4.7 percent, respectively.1 After years of lagging performance, the
agricultural sector has lost relative size within the
Colombian economy; by 2012, it represented only
6.2 percent of total GDP.
Across a wide range of sub-sectors, the trends are
not encouraging.
Food crops. Over the past two decades, production of many leading food crops has fluctuated
widely around generally flat trends (Figure 4-1).
Two notable exceptions are maize (production
increased in response to strengthening demand
from the feed industry) and wheat (production
plummeted in the face of increasingly competitive
flour imports). For food crops generally, the overall
pattern is symptomatic of a sector with little innovation and production subject to the vagaries of
weather.
Cash crops. Over the past two decades, cash
crops have suffered differing fortunes. Production
of traditional export crops, especially coffee, cocoa, and cotton, has fallen as productivity has
stagnated and competitiveness has declined.
Meanwhile, production has surged for some
non-traditional export crops, including palm oil,
flowers, and sugar cane.
FIGURE 4-1: Production of Principal Food
Crops in Colombia, 1990–2012
180
Production Index (1990–92 = 100)
The Agricultural Sector in
Colombia: Opportunities and
Challenges
160
140
120
100
80
60
40
20
0
1990
1995
Beans
Potatoes
2000
Cassava
Rice
2005
2010
Maize
Wheat
Source: FAOSTAT.
Agriculture and Rural Development
77
78
PART TWO
|
CHAPTER 4
Livestock. Livestock production, especially the
raising of cattle for meat and dairy, is an important activity, contributing 20 percent of agricultural
GDP and 1.6 percent of total GDP. The livestock
sub-sector generates approximately 950,000 jobs,
representing about 28 percent of all rural employment and 7 percent of all employment. Over onethird (34 percent) of Colombia’s total land surface
is used for cattle ranching, or about 38.8 million
hectares. According to the Livestock Sector Strategy
2019, among those 38.8 million hectares, only 19.3
million are suitable for this purpose. The remaining
land is suitable for forestry (10 million) and agriculture (9 million). The underutilization of much of the
land that is used for livestock production, combined
with unequal distribution of land, has been a major
source of conflict in many parts of the country.
Ranching is for the most part carried out in areas
with high levels of poverty, unequal income distribution, widespread illiteracy, recurrent violence,
and highly unequal patterns of land ownership.
Except for a small percentage of very large farmers, most landholdings are small and face financial
and technological limitations. Working capital and
natural resources are inefficiently used, leading to
high production costs and marginal profitability.
Average stocking rates on pastures are estimated at
less than one animal per hectare. This sub-sector is
one of the major drivers of deforestation in tropical areas, and also a main contributor to greenhouse gas emissions and soil erosion
Forestry. With more than 50 percent of its national territory under natural forests, representing
over 60 million hectares, Colombia is classified as
heavily forested. Native forests are the main source
of wood and fiber used by local communities and
local industries.
Tapping the potential of forests to contribute to
growth and poverty reduction will depend on preservation of this important resource, which will mean
slowing and eventually stopping deforestation. The
annual rate of deforestation decreased from around
238,000 hectares from 2005–10 to just under
148,000 hectares in 2011–12. While the trend is
clearly positive, many underlying drivers of deforestation continue to pose major threats to natural
forests in specific areas—the so-called “hotspots of
deforestation.” These drivers include the expansion of the agriculture frontier, concealed planting
of illegal crops, forced displacement of large numbers of people and unauthorized colonization, construction of roads and other infrastructure, illegal
logging, uncontrolled forest fires, and illicit mining.
According to IDEAM2 (2013), the expansion of the
agricultural frontier was responsible for 65 percent
of Colombian deforestation between 2005 and
2010. The lack of policies that promote commercial
reforestation and the lack of regulations and implementation of environmental standards, in particular
illegal mining, exacerbate this problem.
Climate change poses a growing threat:
Colombia is very vulnerable to climate change,
with yield declines of 10 to 20 percent projected
by 2020 for maize, soybeans, and wheat, even after taking into account adaptation efforts involving
adoption of new plant varieties and better land and
crop management practices. Colombian farmers,
particularly smallholders, will need to cope with
changing precipitation patterns, extreme weather conditions, and increased risks of droughts,
floods, pests, and fires. Studies by the Cali-based
International Center for Tropical Agriculture
(CIAT) paint a worrying scenario for coffee, with
major contractions likely by 2050 in the areas most
suitable for coffee (Figure 4-2).
The impacts of climate change will not be exclusively negative. For example, irrigated rice appears
likely to benefit from warmer, more humid conditions: rice yields are projected to increase by 10
to 15 percent between 2020 and 2050, assuming
good crop, land, and water management. In addition, a recent WBG Low Carbon Growth study for
Colombia revealed that forests, fruit trees, and other perennial crops could potentially provide good
options for crop diversification and replacement
for coffee in the medium to long term.3
A likely outcome of climate change will be more
extreme weather-related events, especially droughts
and 2050, assuming good crop, land and water management. In addition, a recent WBG Low Carbon Gr
study for Colombia revealed that forests, fruit trees and other perennial crops could potentially provide
79
and Rural Development
options for crop diversification and replacement for coffee inAgriculture
the medium
to long term. 2
Figure
Projected
Impacts
of Change
ClimateonChange
on Coffee-growing
in Colombia
FIGURE
4-2:4-2:
Projected
Impacts
of Climate
Coffee-Growing
Areas in Cauca,Areas
Colombia
Source: CIAT 2011.
Source: CIAT 2011
12.
Alikely outcome of climate change will be more extreme weather-related events, especially dro
and floods. Evidence of the impacts of such extreme events was apparent during 2010–11, when Colo
and floods. Evidence of the impacts of such exproduction credit, and fragile natural and human
experienced
severe
flooding
that
led
to
huge
losses
and bases.
steepNational
declines
in yields
several crops, suc
treme events was apparent during 2010–11, when
resource
institutions
that of
provide
coffee: ofColombia
the 3.2experienced
million people
affected
Niña to
phenomenon
2011,
agricu
severe flooding
that bythe
led to Laservices
rural producersinhave
been67%experienced
slow to relosses (BID-CEPAL,
2012),
Developing
smart
agriculture
(CSA)
practices
act
to structural
changes
in global
demandmust
for be a priorit
huge losses and steep
declines
in yields of climate
several
Colombia’s
traditional
exports—for
example,
the
crops,
such
as
coffee:
of
the
3.2
million
people
affectovercoming the projected climate impacts and providing resilient productivity growth in the face of loo
ed by the La Niña phenomenon in 2011, 67 percent
steep decrease in coffee prices following the colclimate change.
lapse of the international coffee agreement.
experienced agricultural losses (BID-CEPAL, 2012).
Developing
smart agriculture (CSA)in
practicII.
Causes
ofclimate
underperformance
the rural economy
es must be a priority for overcoming the projected
Low productivity in agriculture is reflected
climate impacts and
providing resilient
productivity
in a lack reflecting
of competitiveness.
13.
Agricultural
productivity
growth
has lagged,
years ofColombia’s
public large
neglect and a lac
growth
in
the
face
of
looming
climate
change.
domestic
market
provides
substantial
potential
for contribute t
incentives for farmers to invest in productivity-enhancing technology. A range of factors
agricultural growth in the short to medium term.
low productivity of agriculture and constrain agricultural
growth:weak research and extension serv
Once production has expanded to fully meet doCauses
of Underperformance
in
limited use
of improved
genetics and purchased
inputs, low levels of mechanization and irrigation,
mestic demand, additional growth will have to
access tothe
production
credit, and fragile natural andcome
human
resource
institutions that pro
Rural Economy
via expansion
intobases.
regionalNational
and internationservices to rural producers have been slow to react
to structural
in global
demand for Colom
al markets.
Access tochanges
these markets
is constrained,
however, by the non-competitiveness of Colombia’s
Agricultural productivity growth has
export crops. This arises from a number of factors,
lagged, reflecting years of public neglect and a
including high production costs, the difficulty of
lack of incentives for farmers to invest in producaccessing regional and global markets, a challengtivity-enhancing technology. A range of factors
ing international trade environment, and inconsiscontribute to the low productivity of agriculture
tent macro policies (e.g., foreign exchange policies
and constrain agricultural growth: weak research
that have alternately encouraged and then discrimand extension services, limited use of improved
inated against exports), and a deficient agricultural
genetics and purchased inputs, low levels of
innovation system (World Bank 2003).
mechanization and irrigation, poor access to
80
PART TWO
|
CHAPTER 4
The underperformance that has characterized the
rural economy can be traced to a number of causes related to government support to the sector.
Weak and ineffective institutions: The public institutions charged with delivering services to
Colombia’s rural sector are fragmented, understaffed, and inconsistently managed. Responsibility for key functions is distributed across multiple
ministries and agencies, so it has been difficult to
forge an overall vision for agricultural development. Responsibility remains highly centralized,
resulting in top down approaches that frequently
fail to address the priorities of rural communities. Local level capacity has generally been weak.
Finally, service delivery has been subject to elite
capture, with a disproportionate share of public
resources earmarked for agriculture going to serve
a few small but politically powerful producers of
export crops.
Inappropriate and inconsistent policies:
Agricultural policies have differed over the years
in terms of focus and approach, but a common
feature has been a recurring reliance on special
initiatives, programs, and projects to provide immediate solutions to pressing crises. Policies have
tended to change frequently with new political
leadership. Many special initiatives and programs,
while well-intentioned, have been financially unsustainable. In some cases, this has been because
agricultural policies have provided trade protection
for products in which Colombia does not enjoy a
comparative advantage in production. Policies that
protect sub-sectors deemed strategically important
have done a disservice by permitting inefficient
producers to survive, while relieving them of pressures to modernize production methods in ways
that would allow them to lower production costs
and compete effectively in international markets.4
Ineffective public investments: Government
spending has been biased against the rural sector,
resulting in wide gaps in the allocation of public
goods between rural and urban areas and disadvantaging the rural population in terms of opportunities. In addition, the anti-rural bias in public
goods and services has undermined the incentives
for private investment in farm and rural non-farm
activities. Public investments that have been directed to the sector very often have had little impact beyond the very short term, partly because
they have tended to subsidize inputs and support
prices received by private producers, rather than
financing the public goods and services needed to
improve overall competitiveness. Between 2010
and 2014, for example the Ministerio de Agricultura y
Desarollo Rural (MADR) invested COP 7 billion in
direct subsidies and COP 13 billion in subsidized
credits to agriculture producers (Figure 4-3).
Rural Development
Today, vast areas of rural Colombia suffer from
high levels of poverty and lagging development.
Four decades of civil conflict have led to the displacement of millions of households, the abandonment of hundreds of thousands of farms, the
stagnation of a once-dynamic agro-industrial sector, and the withering of many non-agricultural
rural activities (e.g., tourism).
The Government is pursuing a new vision of rural
development grounded in three principles:
• Rural development is more than agricultural
development—it encompasses everything that
contributes to improved livelihoods of rural
populations, including infrastructure, health,
education, technology, connectivity, and social
protection;
• Rural development requires significant investment in public goods and services, rather than
direct subsidies to private goods and services;
and
• In an age of budget constraints, rural development efforts should focus primarily on areas
where poverty is concentrated and where the
presence of the state is lacking.
If the incoming administration is to succeed in realizing the vision of a “new rurality,” it will have to
overcome three main challenges:
Agriculture and Rural Development
FIGURE 4-3: Agriculture and Rural Development Spending in Colombia
120
100
80
60
14.98
Science, technology and research
Other
Capitalization and financing
Incentives and compensations
5.30
2.79
6.29
2010
5.82
2009
0.01
2008
2005
2004
2002
2001
6.66
2000
0
21.44
27.38
20
2007
18.76
2006
40.79
2003
40
Agricultural health
Rural development
Source: Calculations for the National Human Development Index, 2011, based on DNP.
• It must clearly articulate and successfully adopt
a territorial approach to rural development;
• It must overhaul the institutions charged with
implementing rural development policies and
programs and introduce a new policy-making
process; and
• It must tackle the land problem because the
unequal distribution and inefficient use of land
poses the single largest obstacle to growth, social and political stability, and durable peace
in Colombia.
Challenge #1: Adopt a territorial
approach to rural development
In Colombia, as in many other countries, efforts
to promote rural development have often been less
effective than anticipated because they have consisted mainly of sector-specific interventions—in
agriculture, education, health, transport, energy,
water and sanitation, and so on. These sector-specific interventions generally failed to take into account the multi-faceted nature of rural livelihoods;
as a result, they have not been able to exploit important synergies between complementary activities. Sector-specific interventions tend to be inefficient because they do not recognize interactions
among productive activities that can be critically
important in generating and sustaining benefits at
multiple levels—individual, household, community, and territory. Furthermore, by neglecting to
fully address trade-offs associated with competing
uses of resources, they fail to incorporate the perspectives of all stakeholders and do not address the
many possible sources of conflict over resources.
The traditional fragmentation of effort can be overcome only by adopting a broader, yet at the same
time more integrated, approach to rural development—a so-called territorial approach. The distinctive
features of this strategy for rural development have
been aptly described by Caballero (2005):
The territorial approach to rural development results
from a combination of a view of the rural economy
and a policy approach to rural development. Under
this approach, the rural economy consists of: (1) a
widened concept of the rural space to include small
rural towns and links with intermediate cities; (2) a
multi-sectorial approach to the rural economy covering different economic sectors including farm and nonfarm activities; and (3) a recognition of the existence
of different territories in the rural space with different
capacities, potentials and needs.
81
82
PART TWO
|
CHAPTER 4
The policy approach correspondingly: (1) is focused
on the productive transformation of the rural economy; (2) recognizes the importance of institutional
change to bring about such transformation; (3) presupposes some territorial identity and the possibility
of building a long term collective territorial project
through participatory planning; (4) advocates for
conscious involvement and collaboration of different local actors (public, private and civil society);
(5) emphasizes territorial competitiveness (as opposed to mere product competitiveness) and making
maximum economic use of territorial assets; and
(6) favors economic synergies through the clustering of
activities around development axes to achieve critical
economic masses.5
The territorial approach to rural development has
its origins in the field of applied ecology—specifically, in the integrated landscape approaches
that are increasingly being used to guide the management of productive landscapes. Landscape
approaches tend to be characterized by five
common components that are also relevant for
territorial approaches to rural development:
(i) interventions must be designed to promote
multiple goals and objectives; (ii) ecological, social, and economic interactions must be managed to reduce negative trade-offs and optimize synergies; (iii) roles of local communities
must be acknowledged and taken into account;
(iv) planning and management of interventions
must be adaptive; i.e., they must evolve over time
as circumstances change and as experience accumulates; and (v) collaborative action and comprehensive stakeholder engagement must be encouraged and institutionalized.
While the logic of a territorial approach to rural development is easy to grasp, the practical
challenge confronting policy makers is how to
translate the underlying principles into actual investment plans. In a world of budget constraints, difficult questions invariably arise:
Which sectors to target? What actors to involve?
How much to invest? What order to follow?
Answers to these questions are necessarily elusive, partly because the optimal combination
and sequence of investments varies according to
local circumstances.
In the absence of a magic formula that can be
used to guide decision-making, the way forward
is usually to engage in some type of traditional
planning exercise involving diagnosis of the problem, identification of key constraints, elaboration
of potential interventions, and estimation of costs
and benefits. This is followed by a prioritization
exercise that takes into account the various interventions’ likely contributions—individually and in
combination with others—to the achievement of
locally relevant objectives.
The ongoing Misión Rural initiative represents the
first step in such a planning exercise. The Misión
Rural team is in the process of generating data and
analyses that will feed into a broad-based priority-setting exercise, the results of which can be used
to design a new rural development policy grounded
in a territorial approach. The Misión Rural team is
undertaking a functional review of existing policies
and service delivery bodies for rural development.
An additional effort to analyze and benchmark key
institutions’ strategy, operations, budgets, and human resources management functions will be required to derive concrete recommendations for the
new rural development strategy. Because it is being
carried out in a participatory manner, using frequent consultations with a wide range of stakeholders and partners, the Misión Rural initiative should
serve as a platform for building consensus among
public agencies, civil society organizations, and private actors in support of an inclusive integrated rural development strategy that is grounded in a longterm vision that transcends electoral cycles.
Challenge #2: Overhaul rural institutions
and rural policy-making processes
Adoption of a territorial approach to rural development will have limited impact unless it is accompanied by changes in the policies governing rural
development and the institutions charged with implementing those policies. Broadening the concept
of the rural sector to include an expanded number
Agriculture and Rural Development
stakeholders and a wider range of economic activities (both agricultural and non-agricultural),
and recognizing the importance of location in development objectives, will generate demands that
existing institutions will be unable to meet. What
will be needed, therefore, is a restructuring of the
current institutional architecture to strengthen sectorial coordination mechanisms, empower regional and local organizations, and promote public/
private synergies. This new architecture must be
able to serve as an effective platform for building
consensus among public agencies, private firms,
and civil society organizations with respect to rural
development strategy, guided by a long-term vision
that transcends the political-electoral periods.
The institutions that currently hold the mandate
for rural development in Colombia are poorly
suited for implementation of an integrated territorial approach. During the past two decades, the
institutions responsible for agriculture and rural
development activities have become steadily more
concentrated. What was once a diversified configuration featuring multiple specialized institutions whose activities were loosely coordinated by
MADR has evolved into a new structure in which
responsibility for rural development activities has
become consolidated within a smaller number of
institutions that have operated more or less independently, sometimes without much coordination
and often without a lot of resources. Meanwhile,
the rural investment budget has become more concentrated within MADR. At the same time, investments in many of the sectors that are important
in the rural space (e.g., energy, mining, education,
health, social protection, environment, and infrastructure) continue to be decided by ministries other than MADR, including many for which the rural development agenda is relatively unimportant.
The fragmentation and lack of coordination among
rural institutions is made worse by a lack of strong
accountability to local authorities. In many regions,
the political and administrative decentralization
that resulted from the 1991 Constitution has not
had the intended effect of empowering local governing bodies. As a result, they have not been able
to fulfil the important role assigned to them in making sure the goods and services provided by public
agencies meet local needs. When key public agencies approach spatial planning at different levels of
aggregation, the inevitable result is fragmentation
of effort and dispersion of resources. Responsibility
in many public agencies remains highly centralized, resulting in top-down approaches that frequently fail to address rural communities’ priorities.
Capacity at local level has eroded steadily over time,
and it is now generally very weak.
Effective implementation of a territorial approach
will require re-thinking the way services are delivered to rural areas. It will be necessary to build a
new institutional architecture comprising centralized policy-setting and financing agencies, decentralized coordination mechanisms, and strong local
implementation capacity. If a territorial approach
to rural development is to take hold in Colombia,
it will require a rebalancing of the relationship between the center and the periphery.
The recent re-organization of MADR included creation of the Vice Ministry of Rural Development,6
leaving MADR well-placed to assume the lead
role in the design and implementation of rural
development policies and strategies at the national
level. Key functions that MADR could undertake
include: (i) data collection and analysis, (ii) strategy formulation, (iii) policy and program design,
(iv) implementation of selected policies and programs, (v) coordination of policies and programs
implemented by others, and (vi) facilitation of the
relationship between the central ministries and decentralized agencies and organizations.
The new National Institute for Rural Development
(INCODER) should focus on facilitating territorial
development, leaving the land administration function that it currently performs to a new institution.
It has already been noted that effective rural development requires coordinated interventions in multiple sectors—e.g., agriculture, transport, energy and
mining, education, health, telecommunications, and
social protection. Since MADR cannot take responsibility for all activities, INCODER could coordinate
83
84
PART TWO
|
CHAPTER 4
multi-sectorial investments at the regional level and
facilitate communication between MADR and other centralized agencies and decentralized bodies operating at sub-national level.
be decided by representative regional councils,
formed from a number of key rural stakeholders,
and empowered communities will implement and
evaluate the impacts of rural development interventions at the territorial level.
INCODER would in turn need support at the local level. Rural Development Agencies—similar to
the Local Action Groups established through the
LEADER program7—could be created to implement territorial development plans at the local level. The Local Action Groups would identify and
execute local development strategies, including
making decisions about the allocation of financial
resources and managing them. Experience shows
that successful Local Action Groups bring together
public and private partners and strike an equitable
balance among the interests of the full range of
socio-economic groups present in the area.
Challenge # 3: Tackle the land problem
Regardless of its other features, one thing is certain: to succeed, any new rural development strategy will have to begin by tackling the land problem.
Colombia’s land resources are under utilized and
inequitably distributed in ways that incur significant costs for society through unrealized agricultural growth potential, environmental degradation,
poverty, conflict, and social dislocation. Several
studies have used soil maps and current land cover
and land use data to estimate what are referred to
as “conflicts of land use” (IGAC, 2003, Malagón
1998, Acción Social). The results show that 62.3 percent of Colombia’s territory presents a conflict with
its potential or biophysical best use (Figure 4-4).
More evidence-based policy-making should accompany institutional reforms, with expanded capacity to take into account the wide variance in circumstances at the local level. Policy and program
design will have to be based on comprehensive
analyses of the strengths, weaknesses, opportunities, and threats associated with the diverse territories. Implementation will need to be based on
customized sets of interventions targeting locally
relevant development challenges. Following principles of decentralized program management, the
selection of interventions for each region would
In addition to land misuse, land distribution remains
highly unequal. Empirical studies8 of Colombia’s
rural sector show that about 1 percent of the parcels cover more than half (53.8 percent) of the
available land; meanwhile, about 90 percent of the
parcels share approximately one-fourth of the land.
Furthermore, trends in land tenure indicate that
between 1984 and 1996 the largest landholdings
FIGURE 4-4: Current and Potential Land Use
80
70
60
50
40
30
20
10
0
Potential land use
Current land use
Cattle grazing
Potential land use
Current land use
Forest
Source: Presentación IGAC Sep./08: Declaración del 2009 como Año de los Suelos de Colombia.
Potential land use
Current land use
Agriculture
Agriculture and Rural Development
expanded, medium-sized landholdings contracted,
and small landholdings became further fragmented.
The Gini coefficient of land inequality is already
among the highest in Latin America and continues
to worsen (Figure 4-5).
A further difficulty is the lack of complete land records in rural areas. It is estimated that about twothirds (68.7 percent) of the land in rural areas are
held without property titles, and 44 percent of the
land in rural areas is not covered by the cadaster.
The lack of titles has posed a major challenge for
the restitution process.
The informality of land tenure in rural areas is a
contributing factor to the inequality of land distribution (high land Gini) and the on-going conflict.
Improving land governance and securing land
rights for all people is necessary for both rural development and peace consolidation to go forward
in rural areas.
What will it take to tackle the land problem in
Colombia? Three priorities stand out:
Formalize land tenure
Colombia has a strong legal framework that recognizes a broad spectrum of rights for both individuals and groups. However, weaknesses persist in the
norms, regulations, institutions, and procedures
for land administration and management. This is
a particular problem for informal or undocumented land rights—an estimated two-thirds of rural
land rights. Formalizing land tenure will require
Colombia to:
FIGURE 4-5: Land Distribution Inequality
Land Gini Coefficient
1.0
0.87
0.81
Colombia
LAC
0.65
0.5
0
Source: Ana María Ibáñez (2012) and FAO (2012).
World
• Strengthen the institutional framework by establishing a clear leader for the land sector at
the national level (including cadaster, registry,
formalization, restitution), with both the political and financial capital to make reform happen
and coordinate the many institutions involved.
• Begin systematic cadaster-registration pilot
programs that include formalization of land
rights in several areas of the country. This will
test institutional coordination, determine resource needs, and identify any needed regulatory or law changes.9
• Over the medium term, consider real institutional reform, particularly a merging of the
cadaster (from IGAC) and the land registry
(from SNR) to create a real land administration agency.
Build a national land administration
system
Colombia desperately needs a national land administration system that can work for all citizens
in all parts of the country, with services available
at least at the municipal level. This will require institutional coordination and/or reform at the national and local levels. Public awareness campaigns
can then help build a culture among citizens of
valuing property registration and keeping the system up-do-date; however, this can only work if the
system is affordable and available to all.
Correct land use inefficiencies through
policy reforms.
In urban areas, 70 to 80 percent of landowners
are identified for tax purposes; in rural areas, it is
less than 50 percent due to the level of informality
and lack of up-to-date information in the cadaster. Eighty percent of municipal tax revenues are
collected by only 28 of the 1,094 municipalities in
Colombia. Colombia’s rural land base is also undervalued and lightly taxed, which limits the scope
of local governments to increase their revenues
and acts as an incentive for speculation, land concentration, and misuse of rural land. Correcting
land use inefficiencies will require Colombia to:
85
86
PART TWO
|
CHAPTER 4
• Develop better mechanisms (institutional, legal) to coordinate the national, departmental, regional, and local plans and planning
functions. This could be done through the
articulation of the national territorial zoning
guidelines, territorial zoning commissions, and
territorial zoning plans.
• Develop guidelines and criteria to improve efficiency in land use in a consultative manner
(at both national and local levels), presenting
the strategy as support that the central level offers to municipalities to positively impact rural
productivity and employment.
• Keep tax rates current and based on up-todate values. Low tax rates can distort private
investment decisions and should be corrected
to avoid a misallocation of limited economic
resources, such as the best quality of agricultural lands. Measures can be put in place to
ensure that the poor are not economically disadvantaged, but overall taxes need to reflect
the value of the land.
Local governments have to be part of the solution—both as users of the information and as significant players in land-use planning and property
taxation. Local governments could also help support the maintenance of the cadaster. Currently,
there are limited incentives for mayors to make reforms and improve tax collections, and municipalities have limited capacity to improve on their own,
making support for local governments essential.
Implementation modalities: immediate
next steps
The Government has confirmed its strong commitment to introducing a new rural development
strategy that will set the rural economy firmly on a
path to sustained growth, poverty reduction, security, and stability.
Realizing this ambitious set of objectives will be
possible only if three major challenges can be
overcome: (i) successfully adopting a territorial
approach to rural development; (ii) overhauling
the institutions responsible for implementing rural
development policies and programs and introducing a new policy-making process; and (iii) tackling
the land problem.
Overcoming these three challenges will require
changes in the way rural development policies are
designed and implemented. In this context, the following actions should be considered for immediate
implementation:
1. Introduce participatory planning processes that recognize territorial differences. The National Planning Department
(DNP) could play an important role in supporting the collective identification of “rural
spaces” or “territories” that would form the
basis of a new territorial approach to rural
development. These “rural spaces” or “territories” would be based on clearly defined criteria—e.g., agro-environmental homogeneity,
economic dynamics, rural-urban interactions,
or socio-cultural identity. DNP could work with
sectorial ministries and territorial entities to
ensure that sector investments respond in a coordinated way to territorial development plans.
DNP could also support participatory planning
processes within the “rural spaces” or “territories” by coordinating preparation of participatory territorial plans that would be supported
by national agencies but be implemented at the
territorial level.
2. Strengthen the decentralized institutions that engage in rural development.
At the territorial level, capacity and participation will need to ensure that all rural stakeholders are able to work together effectively
in formulating territorial development plans,
participating in their implementation (through
rural development agencies), and carrying
out supervisory activities. Under the Pacto
Nacional Agrario, the Government is already
investing significant resources in an effort to
revive the Departmental and Municipal Rural
Development Councils, which could potentially play an important role in supporting territorial development planning by serving as spaces
for effective interaction among diverse groups
Agriculture and Rural Development
of rural stakeholders and the building of social consensus around territorial development
strategies.
3. Make available increased funding to support multi-sectorial activities. Colombia’s
fiscal decentralization strategy has increased
the flow of resources to the local level, but
many small and medium-sized municipalities
still do not have access to sufficient resources
to make significant investments in the public
goods and services. The fiscal decentralization
strategy needs to be accelerated, with the goal
of channeling enough resources to local municipalities to allow them to scale up their support to local rural development activities. Local
governments must be encouraged and empowered to play a larger role in land-use planning
and property taxation. Currently, mayors have
limited incentives to implement reforms and
improve tax collection, and municipalities have
limited capacity to manage the public resources that are earmarked for rural development.
Policy Recommendations
Achieving broad-based and sustainable growth
in the agricultural sector and promoting rural
development in Colombia will not be achieved
quickly. Because the challenges facing the rural
economy are numerous and varied, and because
the resources available to address the challenges
are limited, the incoming Government will not be
able to tackle all problems simultaneously. Even
recognizing that transforming the rural economy
will be enormously challenging, policy makers will
have to begin somewhere. In this context, three
sets of actions can be identified for immediate implementation, with considerable potential to help
set the rural economy on the path to sustainable
growth.
Restoring rural livelihoods
As peace and stability return to rural areas, the immediate priority will be providing rural households
with the means to engage in productive activities
and resume their livelihoods. The need will be
most urgent in areas that have been affected by
civil conflict, but other areas (i.e, those affected by
disasters) will require assistance as well. This will
mean ensuring that households have secure access
to land, to the productive inputs needed to resume
agricultural activities, to the information and
knowledge needed to use those inputs effectively,
to the financial resources needed to pay for them,
and to the infrastructure needed to deliver surplus
production to the market.
Efforts are already under way to achieve these objectives. Under the Victims and Restitution Law of
2011, the Government is restoring land to people
who were displaced by conflict, and it is providing
reparations to families and communities to enable
them to resume their livelihoods. However these
initiatives are just underway and significant additional resources will be needed to meet the nation’s
needs. Needed interventions include:
Securing access to land: Millions of households lack secure title to land used for agricultural activities and remain reluctant to make
investments needed to improve the land’s longterm productivity. Improvements in the framework governing tenure, access, and use of land
are needed, first to clarify access and use rights
for those who are returning to lands from which
they were displaced. Over the longer term, ensuring greater security of tenure will be important
not only for Colombians but also for the growing
numbers of foreign investors who are expressing
interest in commercial agriculture enterprises in
Colombia.
Land administration reform will require special attention to the needs of minority groups.
Indigenous peoples (3.3 percent of the population) and Afro-descendant communities (10.5 percent) have been disproportionally victimized by
land taking throughout the conflict period (DANE,
2005). The 1991 Constitution clearly recognizes
the special territorial rights of indigenous peoples,
and Afro-descendants’ land rights are included in
Law 70 of 1993.
87
88
PART TWO
|
CHAPTER 4
Rebuilding productive capacity: People living in rural areas, especially places heavily affected by conflict, and displaced populations
returning to these areas will require immediate
assistance to resume their livelihoods. During a
transitional period, the Government will be called
upon to distribute productive inputs—seed and
planting materials, fertilizer crop chemicals, agricultural implements, breeding stock, and veterinary supplies—to households that lack the means
to purchase these supplies. The goal should not
be to set up permanent programs that will distribute inputs on a continuing basis, but rather to
provide a one-off injection of resources that will
allow disadvantaged households to get back on
their feet.
gravity and pump-driven systems), community-level processing and storage facilities, and physical markets.
Getting agriculture going
A second priority for the Government must be
establishing the conditions for getting agriculture
going quickly. Immediate measures can serve as
a down payment on the more far-reaching interventions that will be needed over the longer term
to bring about structural changes and unleash the
enormous untapped potential of agriculture as a
driver of broad-based growth and poverty reduction. Needed interventions include:
Global experience in post-conflict situations suggests that distribution of physical inputs will have
to be accompanied by technical assistance that ensures recipients make effective use of the resources.
To the extent possible, these efforts should be oriented to integrate farmers into commercial value
chains. MADR, CIAT, and the World Bank are
currently evaluating the potential of the Productive
Alliance approach, which combines farmer organization with access to finance, markets, and technology in disadvantaged and post-conflict areas.
Preliminary outcomes suggest that the model may
be well-suited for joining livelihood restoration
and rebuilding productive capacity.
Aligning policies and programs. Reversing
years of policies that protected economically strategic or politically influential sectors, the
Government in recent years has signaled its commitment to building a competitive, export-oriented
agricultural sector by entering into more than 20
free-trade agreements. Adjusting to these agreements will require effort. The Government will
have to work to dismantle protectionist measures,
choke off the flow of subsidies going to inefficient
producers, and reorient public investment toward
the provision of public goods and services (e.g.,
infrastructure, basic research, provision of market
information) that will support tomorrow’s more
competitive commercial agriculture.
Exploiting quick wins in small-scale rural
infrastructure: Following decades of underinvestment, infrastructure deficiencies remain a
major constraint in many rural areas, particularly
infrastructure related to irrigation, processing and
storage of crops, and road transport. The widespread perception is that attacking infrastructure
constraints necessarily requires massive and sustained public investment; however, plentiful evidence indicates that relatively modest investments
in small-scale infrastructure can have rapid and
significant impacts on production. An urgent priority for the new Government will be stimulating
investment in affordable, small-scale rural infrastructure, including irrigation technologies (both
Providing market access. Arguably the most
critical constraint to agricultural development in
Colombia has been poor market access, especially outside the coffee zones and some other privileged areas, such as the Sabana of Bogotá and the
Valle de Cauca. Improving market access requires
infrastructure investments (e.g., rural roads, storage capacity, processing facilities), but it also entails market information systems, rural credit programs, and value chain integration mechanisms.
Experience in Colombia and elsewhere shows
that when market access is improved, producers
are quickly able to absorb improved technologies
and lift production systems to higher levels (Perry
2012).10 Improved market access not only increases
Agriculture and Rural Development
agricultural opportunities but more generally contributes to a more livable countryside.
Seizing opportunities in cropping systems:
In February 2013, the Government established
a Coffee Commission, with the responsibility of
developing a new strategy for the sector. It called
for a set of studies covering such critical aspects
as credit, sector profitability, exchange rate volatility, producer price stabilization schemes, coffee
institutions, and research. The studies’ results and
recommendations from the coffee commission are
expected to provide key insights on policy options,
including structural changes needed to ensure the
sector’s long-term competitiveness.
Tapping the potential of livestock: Sustainable development of the rural economy will not be
possible without the integration of livestock production into rural livelihood strategies. Because
many livestock keepers are poor, productivity gains
in the sector are likely to contribute to both growth
and poverty reduction. Improving the productivity of livestock systems would allow domestic consumption requirements to be met with a reduced
land area, freeing up unproductive pasture land
for other uses. Silvo-pastoral systems (SPS) that are
managed to take advantage of productive synergies
between improved pastures, carefully selected tree
species, and livestock offer particular promise as an
alternative livestock model. Through the alliance
led by the Federación Nacional de Ganaderos (FEDEGAN) and with financial support from the Global
Environment Fund (GEF) and the United Kingdom Department of Energy and Climate Change
(UK-DECC), the Government has launched pilot
programs designed to promote adoption of SPS
on a large-scale. The most promising approach
consists of a mix of financial incentives (such as
payment for environmental services, or PES), with
technical assistance to farmers. Lessons learned
from the on-going project are expected to help in
designing future PES schemes.
Taking advantage of forest systems: Sustainable development of Colombia’s rural economy will also require attention to forests and forest
systems. At a minimum, it will be important to
preserve the natural capital that is currently embodied in natural forests. The country needs to
pursue the progress made on the Reduced Emissions from Deforestation and Forest Degradation
(REDD+) agenda to define development trajectories that will not come at the expense of natural
forests. The Wealth Accounting and Valuation
of Ecosystem Services (WAVES) initiative, which
develops tools to more accurately measure the
full range of environmental services produced by
natural resources, could help better determine the
“true value” of natural forests—information that
would contribute to forest-policy decision making.
Preservation of natural forests can complement
development of commercial forestry systems that
are technically efficient, economically profitable,
socially inclusive, and environmentally friendly. An
important first step in developing a national commercial forestry development strategy would be to
develop a model that would allow: (i) identification
of the most promising areas for commercial reforestation, (ii) identification of the most promising
value chains, based on current and projected future demand for tree products, (iii) assessment of
the infrastructure and logistical systems needed to
deliver tree products to markets, and (iv) assessment of institutional frameworks that could be put
in place to ensure equitable and sustainable management of natural forests and the commercial
forestry sector.
Reforming agricultural innovation systems: Technology-driven increases in agricultural productivity will be needed to get Colombia’s
agriculture going. For this to happen, technology
generation and transfer systems will have to be
revitalized. While some new technology can be
generated locally, much can also be imported and
adapted to local conditions. Efforts to develop a
national innovation system focused on generating
new technologies are just a start; Colombia will
also need to encourage the emergence of small,
local innovation systems focused on technical
assistance and the application of knowledge already available. This suggests emphasis should
89
90
PART TWO
|
CHAPTER 4
be placed on encouraging public/private/NGO
partnerships and commercial alliances as vehicles
for promoting the introduction and dissemination
of innovations (Perfetti 2009).11 The Productive
Alliances Program provides a good example of
how commercial partnerships between producers
and agribusiness firms can stimulate innovation,
raise productivity, and improve competitiveness in
selected value chains.
Opportunities exist as well to strengthen extension
service delivery systems already being run by established industry organizations. For example, efforts
are under way to strengthen the role of the municipalities in providing technical assistance. They are
required to prepare agricultural extension plans,
which are required to offer free technical assistance
to small- and medium-scale producers, either by
developing capacity or by contracting with private
businesses or NGOs.
Colombia has started to put in place more decentralized systems for technology generation and
application. The Proyecto Transición de la Agricultura,
for example, managed a substantial competitive grant with considerable success. Support to
CORPOICA, the national agricultural research
organization, has also been strengthened, but the
challenge now is to stabilize support for at least 10
to 20 years. New initiatives for technical assistance
are in the pilot stage. It is time that Colombia consolidates the most promising initiatives and ensures
long-term funding for them.
Managing production risk: As agriculture becomes increasingly commercialized, it becomes
more important to ensure that producers, consumers, and investors are adequately protected from
risk. Risk management takes on added significance
because the agricultural sector of Colombia is particularly vulnerable to natural hazards. In recent
years, the lack of a comprehensive ex ante strategy
to manage the agricultural sector’s fiscal risks has
resulted in higher-than-anticipated fiscal outlays as
the Government provided emergency assistance
to uninsured farmers. In an effort to control unanticipated fiscal outlays, the Government needs
to look at ways to improve the institutional framework to manage agricultural risks. MADR has recently taken steps to create an Agricultural Risk
Management and Financing Directorate. These
initiatives need to be continued and strengthened, with the goal of identifying risk management instruments that are tailored to the needs of
Colombia’s evolving rural economy.
Promoting climate-smart agriculture: Climate change is already having significant impacts
on Colombia’s agricultural sector, as witnessed by
major flooding experienced during the 2012–13
crop season. These impacts will become more significant in the future. Analyses by CIAT researchers indicate that significant temperature rises, more
erratic precipitation, and higher pest and disease
prevalence are likely by 2050. By 2050, the expected average increase in annual mean temperature is
estimated at 2.5 degrees C, and precipitation is likely to rise by 2.5 percent. Without accelerated adaptation, climate change is likely to translate to: (i) soil
degradation and organic matter losses in Andean
hillsides; (ii) flooding along the Caribbean and Pacific coasts; (iii) niche losses for coffee, fruit, cocoa,
and bananas; (iv) changes in the prevalence of pests
and diseases; and (v) melting of glaciers and water stress. To address the extensive socioeconomic
implications of these effects, the Government must
prioritize adaptation, investing in regionally-based
assessments, research and development, and technology transfers to and training for farmers.
Projections show that 80 percent of crops will likely
be impacted in the majority of their current areas of
cultivation by 2050, with particularly severe impacts
on high-value perennial crops. Considerable work
has been done to identify specific threats, quantify
likely impacts, and rank adaptation measures, but
this work needs to be more systematically integrated
into policy design and investment planning.
Supporting territorial development
Over the longer term, the health and well-being
of the rural sector will depend on the ability of
the Government to complement the sectorial
Agriculture and Rural Development
approach with a territorial approach to rural development. The Pacto Nacional Agrario12 and the recently launched Misión Rural13 are trying to lay the
groundwork for this strategy.
While the legal framework for territorial planning
exists in Colombia, implementation presents a
number of challenges. Law 388/97 requires local
governments to establish territorial plans, or Planes
de Ordenamiento Territorial (POTs), which among other things set out technical guidelines with respect
to land use and territorial development. Purely in
administrative terms, implementation of POTs
has been a limited success: only 65 percent of
Colombia’s 1,097 municipios have completed the
process and ratified the POT. In addition, POTs
for rural areas have rarely been used as a tool to
address directly the challenges of municipalities
and rural populations. Many lack technical rigor,
and even those that are technically sound tend to
be of limited use in the absence of serious participatory analysis of the issues. Since land-use
planning is a local function, a great deal depends
on the willingness and capabilities of local mayors and staff, which vary greatly across the country. While planning laws call for citizen participation, it is not fully regulated nor well understood
by local authorities; therefore, it is little practiced.
Participation is generally used for the approval of
plans already formulated by technical staff, not
to feed into the planning process and identify the
needs and priorities of the local population.
Introducing a new approach to policy-making. If a territorial approach to rural development
is to take hold in Colombia, it will require rebalancing the relationship between the center and
the periphery. To ensure that public interventions
effectively address the key development and reconciliation challenges facing rural areas, policy and program formulation will have to be based on a comprehensive, evidence-based analysis of the strengths,
weaknesses, opportunities, and threats associated
with these areas. The analytical approach being used for the Misión Rural reflects this type of
approach. Policy and program implementation would
then be based on customized sets of interventions
targeting locally relevant development challenges. Following principles of decentralized program
management, the selection of interventions for
each region would be decided by regional councils, formed from a number of key rural stakeholders. Although the primary focus will still be on the
productive transformation of the rural economy,
achieving this goal will require institutional changes that meaningfully empower communities to
take control of participatory, bottom-up processes
that allow them to plan, implement, and evaluate
the impacts of development interventions at the
local level.
Building a new institutional architecture.
Effective implementation of a territorial approach
to development will require a complete rethinking of how services are delivered to rural areas.
Starting with a broad concept of the rural sector
that encompasses multiple sectors, a wide range
of partners and stakeholders, and many different
economic activities, it will be necessary to build a
new institutional architecture consisting of centralized policy-setting and financing agencies,
decentralized implementation and coordination
entities, local civil society organizations, and private firms. A functional review of existing policy
programming and delivery bodies could serve to
analyze and benchmark strategy, operational, budget, and human resource management functions
of key institutions and derive recommendations
for the definition and delivery of a new institutional architecture. This new architecture could serve
as a platform for building consensus among public
agencies, civil society organizations, and private
actors in support of an inclusive, integrated rural
development strategy that is grounded in a longterm vision that transcends the electoral cycle.
The Road Ahead: Rebalancing
Public and Private Roles
What needs to be done to reverse decades of underperformance in the rural economy of Colombia
and unlock agriculture’s potential to contribute
to broad-based, sustainable growth? The country
91
92
PART TWO
|
CHAPTER 4
must restore the livelihoods of the many rural
households that have seen their fortunes decline
and transform today’s subsistence-oriented agriculture into a vibrant and dynamic commercial
agriculture. Achieving this transformation will
not be easy. will not be easy. Agricultural activities
are mainly carried out by private operators—the
millions of individuals, cooperatives, associations,
and firms engaged in the production, processing,
transport, storage, and distribution of raw commodities as well as transformed products. Public
General
Actions
Specific development
challenge
1. Restoring
rural
livelihoods
Land tenure security
spending can stimulate growth only indirectly.
Government policies can play a catalytic role by
providing public goods and services that boost the
returns to private investment, but public interventions must be appropriately targeted and correctly
timed to “crowd in” rather than “crowd out” private spending. In the final analysis, the success of
the government’s efforts to get agriculture going
and transform the rural economy will depend on
its ability to leverage the latent power of the private sector.
Short-term policy options
Medium-term policy options
Continue restoring land to people
affected by conflict and providing
reparations to families and
communities.
Improve the legal and institutional
framework governing tenure, access,
and use of land.
Pilot approaches for systematic
registration and cadaster.
Recapitalization of
households
Distribute seed, fertilizer, farming
implements, and technical assistance
to resettled populations.
Infrastructure quick wins
Selective road construction projects
to connect surplus production areas
to markets.
Build a national land administration
system.
Reform rural finance mechanisms,
programs, etc., and restore rural
extension services to better serve the
needs of rural poor.
Small-scale irrigation projects where
returns are highest.
2. Realizing
Crops
the potential
of agriculture
Revitalize technology generation and
transfer systems.
Improve the institutional framework to
manage agricultural risks.
Encourage public/private partnerships
and commercial alliances to promote
introduction and dissemination of
innovations.
Livestock
Pilot SPS adoption through a mix of
financial incentives (such as payment
for environmental services, or PES),
with technical assistance to farmers.
Scale up PES/Technical Assistance
schemes at the national level to
“transform” the livestock sector in
Colombia.
Forestry
Pursue readiness to REDD+ and
WAVES agenda.
Reduce deforestation and forest
degradation rates.
Define models for the development of Stimulate investments in commercial
commercial plantations.
forestry systems that are technically
efficient, economically profitable,
socially inclusive, and environmentally
friendly.
(continued on next page)
Agriculture and Rural Development
(continued)
General
Actions
Specific development
challenge
3. Adopting New institutional
a territorial
architecture
approach
to rural
development
Short-term policy options
Medium-term policy options
Undertake a functional review of
existing policies and service delivery
bodies for rural development.
Install a new institutional architecture
to manage territorial development,
including strengthening the local level.
Use the Misión Rural initiative as
the platform for building consensus
among public, private and civil society
organizations in support of inclusive
integrated rural development strategy.
Increase funding to support multisector activities at the territorial level
(accelerate fiscal decentralization).
Support implementation of POTs with
participatory local planning processes.
Invest significantly in public goods and
services, rather than direct subsidies to
private goods and services.
Test multi-sector coordination
initiatives for service delivery.
Risk management
Design an institutional framework to
manage agricultural risks.
Implement the institutional framework
to manage agricultural risks.
Climate smart
rural development
Strengthen the National Climate
Adaptation Plan with clear objectives
that defines tasks and details
investment needs.
Implement the National Climate
Adaptation Plan, monitor impacts, and
continuously update.
Endnotes
1
2
3
4
5
6
7
Source, DANE. Data taken taken from Banco de la
Republica web site: http://www.banrep.gov.co/pibbase-1994 and http://www.banrep.gov.co/es/pib.
Instituto de Hidrología, Meteorología y Estudios
Ambientales de Colombia.
World Bank. 2014 (in press). Low Carbon Growth
in Colombia.
Perfetti, J.J.(coordinator); A. Balcázar; A. Hernández; J. Leibovich with A. Becerra; S. Botello; S.
Cortés; L. Estrada; C.Rodríguez; H. Vásquez. 2103.
Políticas para el desarrollo de la agricultura en Colombia. Bogotá and Washington: SAC and Fedesarrollo.
Caballero, J.M. 2005. The Territorial Approach to
Rural Development. World Bank.
Departamento Administrativo Nacional de Estadística (DANE). 2013. Cuentas Nacionales Trimestrales. Producto Interno Bruto. Segundo Trimestre-Septiembre 2013.
Decreto No. 1985, 2013.
The Links between Actions for Rural Development
(LEADER) initiative was established by the Europe-
8
an Union to help rural actors consider the long-term
potential of their regions. As the name suggests, the
focus of the initiative is on promoting rural development at the local level. LEADER encourages rural
territories to explore new ways to become or to remain competitive, to make the most of their assets,
and to overcome the challenges they may face, such
as an aging population, poor levels of service provision, or a lack of employment opportunities. In this
way, LEADER contributes to improving the quality
of life in rural areas both for farm families and the
wider rural population. It uses a holistic approach to
address rural problems. It recognizes, for example,
that being competitive in food production, having an
attractive environment, and creating job opportunities for the local population are mutually supportive
aspects of rural life, requiring specific skills, appropriate technologies, and services delivered as a coherent
package with tailored policy measures. http://ec.europa.eu/agriculture/rur/leaderplus/index_en.htm.
“Unidades Agrícolas Familiares, tenencia y abandono forzado de tierras en Colombia,” Acción Social,
93
94
PART TWO
9
10
11
12
|
CHAPTER 4
Proyecto Protección de Tierras y Patrimonio de la
Población Desplazada, Diciembre 2010, Bogotá.
The World Bank has extensive international experience with such processes and could provide technical assistance.
Perry, S. 2012. El sistema de extensión agropecuaria
en Colombia. Bogotá.
Perfetti, J.J. 2009. Crisis y pobreza rural en América
Latina: el caso de Colombia, Documento de trabajo
No. 43, Programa Dinámicas Territoriales Rurales,
RIMISP, Santiago, Chile.
The rainy season in 2011–12 generated a crisis in the
rural sector that exacerbated longstanding structural constraints to rural development and peace. Farmers strongly protested. This situation was a “wakeup” call for the country, leading to the Pacto Agrario.
MADR has allocated important resources to consti-
13
tute and strengthen local participation in collecting
information in rural areas, defining local public policies. and identifying priority subpro­jects for investment in the short run. This information, together
with the Agrarian Census (2014), will be critical inputs for the Misión Rural in generating medium- and
long-term policy guidelines for rural development in
Colombia, consistent with the principles of the preliminary peace accords already reached in Havana.
Launched by President Santos in early March 2014,
with outcomes expected by December 2014, the
Misión Rural is designed to generate the information
needed to orient rural development policy toward
growth, equality, and political and social stability in
Colombia.
BID-CEPAL. 2012. Valoración de daños y pérdidas.
Ola invernal en Colombia 2010–2011.
Structural Changes – Implications for Growth, Productivity, and Competitiveness
CHAPTER 5
Urban Sector
95
96
PART ONE
|
CHAPTER 5
Main Messages
Colombia is at an advanced stage of urbanization and has a demonstrated capacity for innovative
urban management. In the past, cities have contributed to economic growth and poverty reduction,
and they can continue to do so.
However, Colombia must overcome poor connectivity among cities and between cities and ports,
lack of effective coordination mechanisms for urban agglomerations, unarticulated and duplicate planning instruments, and lack of efficiency and innovation in how cities finance themselves.
This note has two sets of Policy Recommendations: Colombia needs to address the challenges at two
levels: (i) national/System of Cities level, and (ii) city/agglomeration level.
Main recommendations at the national/System of Cities level include: (i) implement the CONPES on
Urban Policy defining the System of Cities, instructing the National Statistics Department (DANE) to
generate data at metropolitan, agglomeration, and regional levels and instructing the ministries to
mainstream and apply the System of Cities approach within their sectorial policies; (ii) mainstream the
System of Cities concept in the National Development Plan 2014–18; and (iii) promote an institutional
reform within the Ministry of Housing (MHCT) to move from a housing-centered agenda toward a
territorial approach to development.
Main recommendations at the city/agglomeration level include: (i) define and implement incentives
(co-financing, technical assistance, and guarantees) to promote strategic metropolitan projects; (ii) develop framework approaches for the use of alternative tools to finance urban investments, such as
tradable development rights, land-value capture mechanisms, and the structuring of public/private
partnerships for urban redevelopment and renovation.
Background
Colombia is at an advanced stage of urbanization and has a demonstrated capacity for innovative urban management. Today 75 percent of
Colombians live in cities. This share is expected to
grow to 86 percent by 2050, which would represent
around 20 million new urban dwellers.1 Relative to
its regional peers, Colombia stands out as having a
strong urban sector.2 Several Colombian metropolitan areas rank among the world’s 50 most-densely
populated cities,3 and many have provided internationally recognized examples of successful urban initiatives. Examples include slum upgrading
programs to improve mobility and reduce social
and economic exclusion in Medellin, sustainable
urban transport programs in Bogota, and programs to foster competitive local urban economies
in Bucaramanga. At the national level, the country
has developed well-recognized legal frameworks
and institutions to promote sound urban policies.
In the past, cities have been engines of growth;
moving forward, they will be important to sustaining Colombia’s achievements in economic growth.
Between 2002 and 2012, Colombia experienced
steady and strong economic growth as well as an
impressive decline in the prevalence of moderate,
extreme, and multidimensional poverty.4 Decades
of sustained urbanization gradually increased the
concentration of people and jobs, consolidating
economies of scale and agglomeration that have
contributed to economic prosperity (Figure 5-1).
Overall, Colombia’s economic growth has been
strongly driven by commodities, but the urban
economy, including manufacturing, financial services, retail, commerce and hospitality has contributed more than 50 percent to GDP’s growth
rate in the past four decades.5 Moving forward,
strengthening the role of cities may contribute to
mitigating the risks inherent to commodity intensive economies.6 An efficient urban system will be
necessary for the move from a commodity-driven economic system to a stronger resource-based
manufacturing structure and then to more knowledge-intensive industries. It is important that cities
enable this transition through an improved connective infrastructure, sound land management,
and proactive policies that ensure urban livability.
Cities will also play a major role in continued poverty reduction and shared prosperity. Despite the
urban areas’ lower poverty rates, the larger size of
the urban population still makes the urban poor an
important target for reducing overall poverty. As of
2013, urban areas housed more population in moderate and extreme poverty (9.5 million) than rural
areas (4.6 million). Thus, while the poverty rate is
40 percent higher in rural areas compared to urban
areas, the number of people affected by a 1 percent
reduction in the urban poverty rate is 68 percent
higher than the same change in the rural poverty
rate. Moreover, the dominance of the main cities in
terms of economic density and jobs creation (Map
Millions of inhabitants
FIGURE 5-1: Distribution of the Bottom 40 Percent in Colombia, 2002–12
25
20
15
10
5
0
2002
2008
2013
2002
Extreme poor
2008
2013
2002
Poor
Rural
Other urban areas
2008
2013
Bottom 40
Main urban areas (13 A.M)
Source: World Bank staff calculations based on GEIH-MESEP (2002–2013).
Urban Sector
97
decades5. Moving forward, strengthening the role of cities may contribute to mitigating the risks inherent to
commodity intensive economies.6 An efficient urban system will be necessary for the move from a
98
PART TWO | CHAPTER 5
commodity-driven
economic system to a stronger resource-based manufacturing structure and then to more
knowledge-intensive industries. It is important that cities enable this transition through an improved
connective infrastructure, sound land management, and proactive policies that ensure urban livability.
5-1)Figure
makes5-1:
the Distribution
urban agglomerations
a source
of the Bottom
40of
opportunities
for
low
income
families.
These
numPercent in Colombia, 2002-12
bers suggest that city-level policies and investments
that facilitate (through planning and land availability) and promote (through increased investment) access to basic services—such as water, sanitation, affordable housing, health, education, urban
transport, and public and recreational spaces—will
be essential for country-wide poverty reduction.
MAP
and
Concentration
of of
Map5-1:
5-1:Distribution
Distribution
and
Concentration
Jobs in
Colombia
Jobs in Colombia
Despite relatively lower levels of poverty, the main
urban areas (13 metropolitan areas) show continued divergence from middle-sized cities in key
development indicators, contributing to regional
disparities (Figure 5-1). The urban poverty rate of
Source: World Bank staff calculations (2010) based on DANE Census 2005
Source: World Bank staff calculations based on GEIH-MESEP (2002-2013)
Source: World Bank staff calculations (2010) based on DANE Census 2005.
the Colombia’s middle-sized cities (42.2 percent) in
is similar to the rural poverty rate (46.8 percent),
or almost two times the urban poverty rate of
3.
Cities
alsometropolitan
play a major
roleFurthermore,
in continued poverty reduction and shared prosperity. Despite
the 13will
largest
areas.
two levels: (i) at the national urban system (also dethe urban
areas’lower
poverty
rates,
the
largersize
urban population still makes the urban poor an
in the past 10 years, middle-sized cities’ povertyof the
fined as the System of Cities), and (ii) at city (or
important
target
for reducing
overall
poverty.
As of 2013, urban areas housed more population in moderate
rate
has increased
5 percent,
reaching
40 percent
agglomeration) level.
and extreme
poverty
(9.5
million)
than
rural
areas
of the national distribution in 2012. By contrast,(4.6 million). Thus, while the poverty rate is 40 percent
higher inthe
rural
areas compared
toinurban
number of people affected by a 1 percent reduction in the
percentage
of the poor
the 13areas,
largestthe
meturban poverty
rate
is
68
percent
higher
than
the
change in the rural poverty rate. Moreover, the
ropolitan areas fell 6 percent over the decade.sameKnowledge
dominance
of the main
cities
in termsurban-rural
of economic
Addressing
this and
the existing
dis- density and jobs creation (Map 5-1) makes the urban
agglomerations
a source
of toopportunities
forprosperlow income
These
numbers
suggest that city-level
parities will
be crucial
achieving shared
Thefamilies.
System of
Cities
in Colombia
policies ity
andandinvestments
that
facilitate
(through
planning
and
land
availability)
and
promote (through
contributing to the post-conflict agenda.
increased investment) access to basic services—suchColombia’s
as water,System
sanitation,
of Citiesaffordable
incorporateshousing,
151 mu- health,
education,
urban
transport,
and
public
and
recreational
spaces—will
be
essential
for
country-wide
The main sources of persistent inequality in
nicipalities and includes around 28 million inhabi- poverty
reduction.
Colombia are the historical disparities between
tants. A distinct feature of Colombian cities is their
urban and rural areas. Despite the significant deto become agglomerations or functional
4.
Despite
relatively lower levels of poverty, the tendency
main urban
areas (13 metropolitan areas) show
cline in the incidence of poverty at the national
metropolitan areas—where basic urban services
continued divergence frommiddle-sized cities in key development indicators, contributing to regional
level, moderate poverty remains high in rural aractivities are spread across several municipaldisparities
(Figure 5-1). The urban poverty rate of theand
Colombia’smiddle-sized
cities (42.2 percent)in is
eas relative to urban ones. Over the past decade,
ities. An “agglomeration” is defined as a group of
similar to the rural poverty rate (46.8 percent), or almost two times the urban poverty rate of the 13 largest
moreover, the gap between rural and urban areas
municipalities that have a functional relationship.
metropolitan areas. Furthermore, in the past 10 years,middle-sized cities’poverty rate has8 increased 5
has widened, with the ratio of moderate poverty
In the case of Colombia, the Mision Ciudades stipupercent, reaching 40 percent of the national distribution in 2012. By contrast, the percentage of the poor in
between the two regions increasing from 1.35 to
lates that a municipality has a “functional relationthe 13 largest7 metropolitan areas fell 6 percent over the decade. Addressing this and the existing urban-rural
1.64. In fact, the moderate poverty headcount
ship” when 10 percent or more of its population
disparities will be crucial to achieving shared prosperity and contributing to the post-conflict agenda.
rate of rural areas in 2012 was still higher than
commutes to an adjacent “core” municipality to
9
5.
The
main
sources
persistent
inequality
Colombia
thedaily
historical
that of
urban
areas inof
2002.
Overall, the
evidence in conduct
The analysisbetween
theirare
main
activities.disparities
suggests
the areas.
reduction
of poverty
been slightly
urban and
rural
Despite
the has
significant
declinesuggests
in thethat
incidence
poverty
at the national
Colombiaofhas
18 agglomerations
that level,
towards
urbanhigh
areas.
span more
113the
municipalities
(Map
5-2). In the gap
moderatebiased
poverty
remains
in rural areas relative to urban
ones.than
Over
past decade,
moreover,
addition,
the methodology
identified
38 nodal
cit- regions
between rural and urban areas has widened, withthe ratio
of moderate
poverty
between
the two
Thefrom
key 1.35
challenge
for7. the
next the
administration
ies thatheadcount
do not spanrate
beyond
the municipal
In fact,
moderate poverty
of rural
areas inadminis2012 was still
increasing
to 1.64
will be
thatOverall,
harness the
trative boundary
butthe
thatreduction
have moreof
than
100,000
higher than
thatdeveloping
of urbanurban
areaspolicies
in 2002.
the evidence
suggests
poverty
has been
benefitstowards
of urbanization
for economic growth and
inhabitants, or perform core functions within a
slightly biased
urban areas.
poverty reduction. This involves policy action at
region. So the System of Cities includes 18 urban
2
Urban Sector
MAP 5-2: The 18 Urban Agglomerations
MAP 5-3: The System of Cities
Barranquilla
Barranquilla
Cartagena
Cartagena
Cúcuta
Cúcuta
Bucaramanga
Bucaramanga
Medellín
Medellín
Bogotá
Bogotá
Cali
Cali
AGLOMERACIONES URBANAS
SISTEMA DE CIUDADES
> 5.000.000 hab.
1.500.000 - 5.000.000 hab.
500.000 - 1.500.000 hab.
100.000 - 500.000 hab.
Ciudades Uninodales
Aglomeraciones Urbanas
Ciudades Uninodales
0
50
100
200 KM
0
50
100
200 KM
Source: DNP-Mision Ciudades, 2014.
Source: DNP-Mision Ciudades, 2014.
agglomerations and the 38 nodal cities for a total
of 151 municipalities (Map 5-3).
cities in the urban portfolio. Bogota and Medellin
are more than 500 kilometers away from a port.
In contrast, Shenzhen, Mumbai, and Bangkok are
port cities that connect their countries to world
markets. Better connecting Colombian cities will
increase the economic efficiency of the urban system, allow cities to specialize, and result in cities
performing a specific function in the system.
The Colombia Urbanization Review—Amplifying the
Gains from the Urban Transition10 identified important challenges of the System of Cities. Colombian cities need to better connect among themselves
and with external markets, which would in turn
promote higher levels of specialization. Significant
physical and economic distances separate Colombian cities. To move goods from one city to another often requires transport over the Andes and
includes navigating altitude differences in excess
of 2,000 meters, exacerbating economic distances and increasing logistical costs.11 To reach major
ports, goods coming from cities must, on average,
be transported about three times further than in
Brazil and Chile, and six times further than in Argentina, the Republic of Korea, and China. Unlike many vibrant cities around the globe, Colombian cities are at a distance from ports and other
The ongoing expansion of the national road infrastructure12 will help to link cities more efficiently.
Moving forward, cities need to integrate the new
infrastructure within their urban spaces and economies. A critical aspect that may further impact the
efficiency of the overall urban system is how metropolitan agglomerations plan their urban space
in a sustainable manner to better connect to future
highway corridors and take advantage of new road
networks to enhance productivity and competiveness while mitigating possible negative externalities.
Specifically, metropolitan agglomerations will need
99
100
PART TWO
|
CHAPTER 5
to: (i) plan how to connect to future highway networks; (ii) optimize the location as well as the cost of
transport and logistics infrastructure, understanding possible implications on land prices, land-use
changes, and urban sprawl; (iii) coordinate land-use
planning at metropolitan scale; and (iv) develop the
tools to implement a coherent green logistics and
urban connectivity approach that mitigates adverse
externalities, such as gentrification, sprawl, and
negative environmental and social impacts.
In sum, the benefits from increased integration
and connectivity through transport and logistics
infrastructure need to be supported by policies at
the System of Cities, agglomeration, and regional levels that would allow specialization and increased competitiveness. Yet, designing policies at
the national level with this in mind is never easy,
and the country first needs to develop information
systems at the System of Cities level that shape
policy design and implementation. For example,
understanding the trends in intra-city trade can
prove essential to logistics investments and generating information on labor mobility, and they
should help determine investments and planning
in service provision, notably housing, education,
and health.
Challenges at the city level
At the city/agglomeration level, Colombian cities
face important challenges. First, they need to find
better ways to coordinate and collaborate across
governments to strengthen urban planning and
service delivery. Second, they need to take advantage of agglomeration economies to increase their
economic potential. Third, they need to diversify and enhance their sources of financing. These
challenges are discussed below.
Coordination across subnational governments
is fundamental to consolidating and harnessing
Colombia’s decentralization process. Colombia is
one of the most-highly decentralized countries in
Latin America. Over 1,000 municipal governments
have identical responsibilities for land-use planning, basic infrastructure service delivery, and the
provision of social services. In many Colombian
cities, water, sewerage, solid waste management,
electricity, and transport networks frequently span
several administrative boundaries, yet there are
limited examples of metropolitan planning and
coordination. Urban management is not a challenge exclusively for municipal governments, so
addressing the urban agenda will require much
closer collaboration across governments. To be effective, Colombia will need efficient, multi-tiered
policy coordination mechanisms to support policy formulation and coordinated interventions
between national and local governments. To deliver services more effectively, metropolitan and regional agencies may be necessary where there is a
mismatch between municipal boundaries and the
urban economic footprint.
Land-use planning in agglomerations will be the
cornerstone of effective collaboration amongst municipalities. Legal and administrative constraints
make integrated land and territorial planning virtually impossible. Currently, disaster risk, environmental, water resource management, and rural and
urban planning are done separately, with little or no
incentive to coordinate. Furthermore, the location
of jobs, houses, and basic services has important
implications for urban residents and for municipal
budgets, yet there are no incentives in place to ensure investments are not location-neutral. Integrated
urban planning could facilitate service provision by
generating economies of scale, which in turn could
make additional resources available for cities by using innovative land-value capture instruments.
Land-use planning for the housing sector deserves
particular attention. Because of Colombia’s large
overall housing deficit of 3.8 million (2.2 million in
urban areas), the housing sector has been a priority for the Government in recent years (Figure 5-2).
In 2014 alone, the Government allocated around
US$1 billion to support public housing for the
poorer segments: in addition, it operated programs
to support interest rate buy-downs for low- and
middle-income households and subsidized credit
guarantees. Most of the new housing stock is being built in the fringes of cities, where developers
Urban Sector
FIGURE 5-2: Sectorial Budget, Ministry of
Housing, City and Territory
(Million US$), 2000–2014a
1600
1400
1200
1000
800
600
400
Investment
Operations
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
0
2000
200
Total budget
Source: World Bank staff calculations using Central Bank and Ministry of
Finance and Public Credit’s data.b
a
In the year 2010 the former Ministry of Environment, Housing and
Territorial Development (MAVDT) was divided in the Ministry of Housing,
City and Territory (MVCT) and the Ministry of Environment and Sustainable
Development (MADS).
b
Bitacora de Cifras Presupuestales 2000–2014 http://www.minhacienda.gov.
co/HomeMinhacienda/presupuestogeneraldelanacion/cifrasHistoricas.
are able to find affordable plots. Indeed, cities in
many cases have expanded their urbanized areas
to accommodate these new developments. Urban
expansion that responds only to building targets
merits careful evaluation because it can be counterproductive in terms of affordability (by increasing
household expenditures on transport and municipal expenditures on investments and maintenance
of infrastructure), urban and economic densities,
and social exclusion. Land-use planning at the agglomeration level can help in understanding mobility patterns and identifying underutilized areas
within city limits as alternatives to urban expansion
and, perhaps more important, to develop innovative land value capture mechanisms that can be
used for affordable inner-city housing production.
Municipal and regional integration is not only
crucial to providing better services, planning, and
governance but also to fostering stronger, more resilient and inclusive economies. The concentration
of economic activity within regions is inevitable
and usually desirable for economic growth, but the
large spatial disparities in welfare levels that often
accompany this concentration are not. The World
Development Report 2009: Reshaping Economic Geography
recognized that development is far from being a
process of smooth convergence. Instead, it is highly
spatially differentiated. Typically, developing countries have widening welfare gaps between leading
and lagging regions, partly due to agglomeration
economies coupled with falling transport costs. In
low-income Cambodia, for example, the gap between leading and lagging areas in consumption of
otherwise similar households is almost 90 percent.
In middle-income Argentina, the gap is 50 percent;
in Canada, it is just 20 percent.13
The WDR 2009 recommends that governments
should pursue integration to exploit the benefits
of concentration while keeping spatial disparities
manageable. Policies should aim at improving
market links between leading and lagging regions
through greater domestic factor mobility, especially of labor. However, other spatially targeted policies may also be needed. The guiding principles
for designing policies are higher densities, shorter
distances, and lower divisions between cities/regions. Three of the world’s most prosperous places
display these characteristics: Tokyo, the largest city
in the world with 35 million people, is packed into
less than 4 percent of Japan’s land; in the United
States, the world’s largest economy, about 35 million people change residences each year; and within Western Europe, today’s most connected continent, countries trade about 35 percent of GDP.14
In Colombia, higher population densities have not
been matched by high economic densities. For instance, a comparison of actual building densities
with legally permitted densities in such cities as
Bogota shows considerable underuse of available
land. In 2010, 63 percent of commercial space, 53
percent of residential space, and 54 percent of industrial space in Bogota were underused. This is
probably a result of several factors, but information asymmetry between market participants likely
plays a large role. Low economic densities hamper
the ability of cities to enable economic interactions
that help create markets and promote innovation
and investment.
101
102
PART TWO
|
CHAPTER 5
Cities need to diversify and enhance access to finance to expand service delivery. It is estimated
that during the next 25 years a municipality of
less than 100,000 inhabitants will require approximately US$150 per capita annually to meet its investment needs in service delivery and infrastructure. A city with population between 100,000 and
1 million will require US$145 and a city with over
1 million inhabitants US$107 per capita. Of these
resources, 75 percent would be needed to maintain
current and future infrastructure.15 This situation
is even more challenging because smaller municipalities currently rely mainly on national transfers
to fund their investments; their operating costs
used up almost all of their resources and they had
no capacity to acquire debt.
Mid-sized and small cities must strengthen their
fiscal fundamentals, while mid-sized and large cities must continuously innovate with fiscal instruments.16 Municipal tax collection has increased
with decentralization and administrative reforms
across all categories of cities. However, mid-sized
and small cities have not kept pace with larger
cities in their ability to increase local revenues.
There is a positive correlation between real tax
revenue and the accuracy of the cadastral system. Large cities have more comprehensive land
cadasters. Bogota, for example, has attained 100
percent land registration. In comparison, only
43 percent of all rural areas in Colombia are included in the system. In Colombia, only Bogota,
Medellin, and Cali have independent cadaster
offices; all others are handled at the national level. A strong push is required to strengthen the
fiscal fundamentals for mid-sized and small cities. This might be done through increasing capacity-building in municipal fiscal management,
strengthening local cadastral systems, and structuring fiscal and performance incentives in the
national transfer system.
Mid-sized and large cities must find new and innovative ways to finance urban infrastructure. Cities will
require broad and diversified strategies to finance
themselves, including increasing access to municipal bonds and credit markets, accessing municipal
FIGURE 5-3: Sources of Funding for Municipal
Investment Expenditures
%
70
60.8
60
50
38.7
40 34.5
29.2
30
<100mil
SGP
Propios
22.9
20.6
10.6
8.0
10
0
23.2
17.6
20
9.2 8.2
5.3
100mil–1mll
Creditos
10.9
0.2
> 1mll
Regalias
Other
Source: DNP-Mision Ciudades 2014.
development funds and specialized financial intermediaries, and expanding the existing land-based
financing instruments. Colombia is a leader in
land-based financing instruments in Latin America.
However, these innovative land-based financing instruments have had limited “penetration” beyond
one single transaction per city. Mid-sized and large
cities should aim to innovate with new instruments
for infrastructure financing, adapting international
and regional experiences to the Colombian context.
Among these are: tradable development rights, land
sales and leases, tax-increment financing, and the
structuring of public/private partnerships for urban redevelopment and renovation.
Policy Recommendations
Within Colombia’s decentralized environment,
what should the role of the national government
be in the urban sector at both the System of Cities
and the agglomeration levels? This note presents a
list of policy recommendations that can be implemented in the short and medium term.
At a System of Cities level:
The country needs to develop and adopt a national urban policy that recognizes and defines
Urban Sector
its System of Cities. To achieve this, the following
actions are recommended in the short term: (i) implement the CONPES on Urban Policy defining
the System of Cities, instructing the National
Statistics Department (DANE) to generate data at
metropolitan, agglomeration, and regional levels
and instructing the ministries to mainstream and
apply the System of Cities analysis within their
sectorial policies; (ii) mainstream the System of
Cities concept in the National Development Plan
2014–18; and (iii) promote an institutional reform
within the Ministry of Housing (MHCT) to move
from a housing-centered agenda toward a territorial approach to development in coordination with
other relevant sectors, including urban planning
and economic activities, water and sanitation,
waste management, urban transport, social facilities, and urban amenities.
Generating sufficient, systematic, and robust information at the System of Cities level is a necessary
first step. The Misión Ciudades developed valuable
information on population dynamics, infrastructure investments needs, environmental planning,
and information and communication technologies at the System of Cities level. Moving forward,
Colombia could benefit from a systematic information and statistical database at the agglomeration level to better understand the dynamics of
the System of Cities as well as helping determine
policy and investment priorities.
The country needs to deepen its economic connectivity between and within its agglomerations.
As a complement to the road network expansion
and the government’s efforts to consolidate the
main highway corridors, cities will need to plan
ahead for potential bottlenecks at city and metropolitan levels by implementing land-use plans that
take advantage of the new infrastructure while
mitigating urban sprawl, reducing negative externalities, and enhancing quality of life for urban
residents. The Government will need to: (i) promote within its National Competitive System
the development of competitive and innovation
action plans per agglomeration; (ii) implement a
comprehensive strategy for land use and logistics
around major cities at a metropolitan scale, including analysis on potential adverse externalities
and possible implications on land markets, and
(iii) develop territorial strategies for the urban
area and its hinterland.
At a city/agglomeration level:
The Government needs to foster and enhance coordination at a regional and metropolitan scale,
recognizing the need to adjust to the functional relationship between small and medium-sized cities.
To achieve this, the following actions are recommended in the short term: (i) define and promote
the most convenient system of coordination per
agglomeration, taking into account the Colombian
legal framework, which allows the creation of multiple institutions, has not proven to be effective
in promoting metropolitan coordination in the
long-term; (ii) define and promote the most convenient incentives in terms of technical assistance,
funding, financing and guarantees to foster metropolitan projects; and (iii) formulate and support
the creation of Public Services Master Plans (water, sanitation, and solid waste management) per
agglomeration.
Colombia needs to foster efficiency and innovativeness in how cities finance themselves, especially for infrastructure solutions. To achieve this, the
following actions are recommended in the short
term: (i) promote, support, and implement a nationwide strategy to assess public management
performance in small and medium-sized cities,
including the revision of budget and fiscal management, debt management, and capacity to finance in national and international markets; and
(ii) develop framework approaches for the use of
alternative tools to finance urban investments,
such as tradable development rights, land-value
capture mechanisms, and the structuring of public/private partnerships for urban redevelopment
and renovation.
103
104
PART TWO
|
CHAPTER 5
Policy Challenges
at a System of Cities level
Recommendations
The country needs to develop
and adopt a national urban policy
that recognizes and defines its
System of Cities
(i) Implement the CONPES on Urban Policy to define the System of Cities, instructing the
National Statistics Department (DANE) to generate data at metropolitan, agglomeration,
and regional levels and instructing the ministries to mainstream and apply the System of
Cities analysis within their sectorial policies; (ii) mainstream the System of Cities concept in
the National Development Plan 2014–18; and (iii) promote an institutional reform within
the Ministry of Housing (MHCT) to move from a housing-centered agenda toward a
territorial approach to development in coordination with other relevant sectors, including
urban planning and economic activities, water and sanitation, waste management, urban
transport, social facilities, and urban amenities.
The country needs to deepen its
economic connectivity between
and within its agglomerations
(i) Promote within its National Competitive System the development of competitive and
innovation action plans per agglomeration; (ii) implement a comprehensive strategy for
land use and logistics around major cities at a metropolitan scale, including analysis of
potential adverse externalities and possible implications on land markets; and (iii) develop
territorial strategies for the urban area and its hinterland.
Policy Challenges
at a city/agglomeration level
Recommendations
The Government needs to foster
and enhance coordination at a
regional and metropolitan scale
(i) Define and promote the most convenient system of coordination per agglomeration,
taking into account the Colombian legal framework, allowing the creation of multiple
institutions, has not proven effective in promoting metropolitan coordination in the
long term; (ii) define and promote the most convenient incentives in terms of technical
assistance, funding, financing, and guarantees to foster metropolitan infrastructure
projects; (iii) formulate and support the creation of Public Services Master Plans (water,
sanitation, and solid waste management) per agglomeration.
The country needs to foster
efficiency and innovativeness in
how cities finance themselves
(i) Promote, support, and implement a nationwide strategy to assess public management
performance in small and medium-sized cities, including the revision of budget and fiscal
management, debt management, and capacity to finance in national and international
markets; and (ii) develop framework approaches for the use of alternative tools to finance
urban investments, such as tradable development rights, land-value capture mechanisms,
and the structuring of public/private partnerships for urban redevelopment and
renovation.
Endnotes
1
2
3
4
Misión Ciudades, 2014
Colombia had only six cities with more than 100,000
inhabitants in 1951; today, it has 57 cities with populations between 100,000 and 1 million (including
three cities between 1 million and 4 million and one
mega-city reaching 9 million residents).
Bogota, Medellin, Cali, Barranquilla, and Bucaramanga.
The annualized growth rate of real GDP per-capita averaged 3.2 percent over the past decade, more
than 1 percentage point above the LAC average for
the same period.
5
6
7
8
Colombia Urbanization Review—Amplifying the Gains from
the Urban Transition, 2012.
While there is no evidence of a commodity curse in
Colombia, the 2010 WB Report Natural Resources in
Latin America and the Caribbean beyond Booms and Busts?
identifies several commodity-related risks that can
adversely affect a country’s prospect for economic
and institutional development if they are not managed properly.
World Bank’s own calculation (2014).
The WB supported the Mision del Sistema de Ciudades
(2012–13). Under this initiative, a council of nation-
Urban Sector
9
10
al and international experts has been convened to
provide cross-sector policy guidance to ensure that
cities are engines of sustainable and inclusive economic growth in Colombia. The initiative is focused
on the efficiency of the entire urban system. A total
of 17 studies were commissioned under the Mision
to better understand demographic trends, environmental and urban planning synergies, investment
needs, productivity, and System of Cities poverty
and inequality trends.
Using the OECD standard, the threshold was established as 10 percent of labor force commuting to
work to the urban core.
World Bank, 2012.
11
12
13
14
15
16
It costs US$94 to move one ton from Bogotá to
Cartagena,compared to US$75 to ship one ton from
Cartagena it to the United States.. Roda & Perdomo (2011) cited in the Colombian Urbanization Review
(2012)
For further analysis on the infrastructure challenges and road network development, see the Infrastructure Policy Note.
World Development Report 2009.
Ibid.
Misión Ciudades, 2014.
For further analysis on the subnational fiscal challenges, see the National and Subnational Public Finances
and Governance Policy Note.
Bibliography
Banco de la Republica. “Tasa de Cambio del Peso
Colombiano” http://banrep.gov.co/es/trm.
Departamento Administrativo Nacional de
Estadísticas (DANE). http://www.dane.gov.co.
Departamento Nacional de Planeación (DNP).
(2014) “Documento Técnico de Soporte:
Misión del Sistema de Ciudades. Versión
Preliminar” Dirección de Desarrollo Urbano.
Bogotá, Colombia.
Ministerio de Hacienda y Crédito Público (MHCP).
“Bitácora de Cifras Presupuestales 2000–2014”
h t t p : / / w w w. m i n h a c i e n d a . g o v. c o /
HomeMinhacienda/presupuestogeneral
delanacion/cifrasHistoricas.
OECD. (2006), “Competitive Cities in the Global
Economy”, OECD Territorial Reviews. ISBN
92–64–02708–4.
World Bank. (2009), “World Development Report
2009: Reshaping Economic Geography”.
Washington, DC: World Bank.
World Bank. (2010), “System of Cities: Harnessing
Urbanization for Growth & Poverty
Alleviation”.
Sustainable
Development
Network. Washington, DC.
World Bank. (2013), “Planning, Connecting, and
Financing Cities – Now: Priorities for City
Leaders”. Washington, DC: World Bank.
DOI: 10.1596/978–0-8213–9839–5.
World Bank. (2013), “Shifting Gears to Accelerate
Shared Prosperity in Latin America and the
Caribbean”, Poverty, Gender and Equity
Unit.
Samad, T., Lozano-Gracia, N. and Patman,
A. (eds.) (2012), “Colombia Urbanization
Review: Amplifying the Gains from
the Urban Transition”, Directions in
Development. Washington, DC: World Bank.
doi:10.1596/978–0-8213–9522–6.
UNHabitat. (2009), “Planning Sustainable Cities”,
Global Report on Human Settlements 2009.
105
106
PART TWO
|
CHAPTER 5
Structural Changes – Implications for Growth, Productivity, and Competitiveness
CHAPTER 6
Disaster Risk Management in Colombia
107
108
PART ONE
|
CHAPTER 6
Main Messages
The growth of disaster risk in Colombia can be attributed for the most part to issues relating
to inadequate territorial, sectorial, and private-sector management, rather than such external factors as climate change. According to the Analysis of Disaster Risk Management in Colombia,2
four factors contribute to the escalating disaster risk. First, conceptual advances in the relationship
between disaster risk management and sustainable development have not been incorporated into
government policies or become integral parts of public administration, contributing to the growth
of risky conditions. Second, risk is constantly accumulating in cities and rural areas due to a failure to
implement and control municipal land-use planning policies and instruments and inadequate watershed management. Third, the inadequate application of disaster risk management policies in sectorial
planning threatens the sustainability of investments, both in goods producing and service sectors,
contributing to rising levels of exposure and vulnerability. Fourth, in the absence of a clear policy
delimiting government responsibility for responding to disasters and the associated losses, citizens
and the private sector are implicitly discouraged from assuming proactive roles in risk reduction and
management, resulting in greater fiscal costs.1
To address these challenges, Colombia would benefit from enhancing governance for disaster risk management. The focus of these measures should be on consolidating government policies
that strengthen local capacity for land-use planning, improve the coordination of government entities
for watershed management, define responsibilities of sectorial stakeholders, and promote the participation of public and private actors, contributing to reducing the government’s fiscal vulnerability to
disasters.
Supporting recommendations:
Regulate the Disaster Risk Management Law 1523 (2012) with particular emphasis on the
institutional framework, the associated funding windows for national and sub-national governments, and the National Disaster Risk Management Plan (Plan Nacional de Gestión del
Riesgo de Desastres). Through these integrated actions, the effectiveness and efficiency of risk management investments will be strengthened through strategic planning, coordination among territorial
levels, and monitoring and control.
Structural Changes – Implications for Growth, Productivity, and Competitiveness
Adopt regulations for flood and landslide control and management, technical standards for
risk assessment and mitigation, and a strategy for implementation. To achieve this objective,
the various agents responsible for watershed management will be central to reducing flood and landslide risk through planning, investment, and monitoring and control. Through these strategies, the formulation and implementation of watershed management plans (Planes de Ordenacion y Manejo
de Cuencas Hidrográficas) should be accelerated and incorporated as a determining instrument in
municipal land use plans (POTs).
Strengthen local capacity in territorial management to reduce the origin and accumulation
of disaster risks. A national strategy to strengthen municipal risk management should take into account differences in institutional, technical, and financial capacities among local governments to design and implement their respective Municipal Disaster Risk Management Plans (Planes Municipales
de Gestión del Riesgo). One of the main objectives of these plans will be to orient and prioritize
interventions and investments in risk reduction. In addition, a specific focus should be placed on reducing the amount of housing in high-risk areas through incorporating hazard and risk assessment into
land-use planning, implementing integrated neighborhood improvement plans, and designing resettlement programs for non-mitigable high-risk areas.
Reduce the continued generation of disaster risk and associated impacts through policies
and sectorial action plans. To achieve this, the design and implementation of sectorial policies for
risk management in each ministry should include risk assessment and associated prevention and mitigation measures. The wider application of these sectorial policies and plans will also support the
consideration of disaster risk in public projects and investments, facilitate effective and timely disaster
response efforts, and support an important dialog on the shared responsibility for reducing risks between the Government and the private sector. Priority sectors include finance, housing, agriculture,
water supply and sanitation, and transportation.
109
110
PART TWO
|
CHAPTER 6
Background
Latin America is experiencing an upward trend
in the number of reported disasters, and 20 LAC
countries have more than 50 percent of their GDP
exposed to two or more natural hazards.3 Annual
expected economic losses for the region amount to
more than US$5 billion (Figure 6-1), and most of
these losses are associated with damage to public
sector assets in health, education, water, transport,
and infrastructure sectors or damage to private
houses. In addition, significant losses are often
concentrated in the agricultural sector, impacting
production, markets, affecting government tax
revenue and the trade balance. Nonetheless, rapid urbanization, with its growth of urban populations and assets in combination with poorly or
unplanned development, is the main driver of the
costs associated with disasters in the region.4 For
example, it is estimated that a major earthquake
near any of Colombia’s largest cities could generate losses of US$12.7 billion for Bogota, US$7.5
billion for Medellin, US$6.4 billion for Cali,
and US$2 billion for the coffee-growing region
(Cardona, et al. 2004 a and b).
Colombia has the 10th highest economic risk
of three or more hazards in the world, according to the natural disaster hotspot study by the
World Bank. In Colombia, 84.7 percent of the
population and 86.6 percent of the assets are located in areas exposed to two or more natural hazards. The exposure includes both low-frequency/
high-impact events, such as earthquakes, tsunami
(in the Pacific), volcanic eruptions, and hurricanes
(in the Atlantic), and high-frequency but lower impact events, such as floods and landslides. Many
researchers expect climate change to exacerbate
flooding and landslides in large parts of the country. Colombia has Latin America’s highest rate
of recurrent disasters triggered by natural events,
with an average of more than 600 reported disasters each year. Colombia’s main challenge in disaster risk management is reducing some of the
existing extremely high levels of vulnerability.
The country has been a pioneer in Latin America
in developing a comprehensive approach to disaster risk management, resulting in a decrease
in fatalities. Specifically, advances in monitoring,
early warning systems, and the organization of
national and local entities for emergency response
have contributed to a reduction in the loss of life
caused by natural phenomena. However, damage
to property, infrastructure, and livelihoods continues to rise, largely because of an increase in
vulnerability as a result of insufficiently planned
urban growth, inadequate land-use planning, and
limited application of building codes. The increase
of economic losses in recent events demonstrates
this, especially during La Niña 2010–11. According
FIGURE 6-1: Disasters Events and Losses in Latin America, 1961–2011
Count of Disasters
Damages from Disasters (US$ millions)
600
$50,000
300
$25,000
0
1961–1970 1971–1980 1981–1990 1991–2000 2001–2010
Source: EM-DAT.
$0
1961–1970 1971–1980 1981–1990 1991–20002001–2010
Disaster Risk Management in Colombia
to CEPAL-BID,5 economic losses attributed to
this single event were as high as COP$2.1 billion
(US$1.1 billion) (0.4 percent PIB-2010) and the
total damage was estimated at COP$11.2 trillion
(US$6.1 billion). Among the most affected areas
were housing (44 percent), infrastructure (38 percent), social services6 (11 percent), and the productive sectors (7 percent).
The development and approval of the National
Policy and a National System for DRM (Law 1523,
April 2012) established a new institutional framework for Disaster Risk Management. This has
been pursued by adopting a more comprehensive
approach to risk management, establishing new
structures and functions for different subnational levels, and ensuring a more explicit alignment
with the Constitution of 1991, oriented toward
sustainable development. The National Policy on
DRM was based on a broader understanding of
risk reduction and its multiple dimensions, rather
than retaining a predominant focus on disaster
response. This new approach facilitates the mainstreaming of DRM into land-use and territorial
planning while facilitating the application of principles of sustainable development. Nonetheless,
important steps remain to be addressed relating to
the regulation of Law 1523, with an initial focus
on those articles permitting the operationalization
of funding mechanisms for local and sectorial disaster risk management initiatives (understanding
risk, risk reduction and emergency response).
As part of the country’s approach to fiscal risk
management, Colombia has made important advances in financial protection instruments to cover
post-disaster expenditures associated with immediate response, rehabilitation, and reconstruction.
Depending on the magnitude and type of event,
the Government has a variety of instruments and
sources of financing at its disposal to reduce its fiscal exposure. These include: (i) insuring government
property against the impacts of natural hazards,
mandatory since 1993, allows part of the financial
risk in case of a disaster to be transferred to the insurance/reinsurance sector; (ii) budgetary re-allocations; (iii) the National Fund (Emergency Response
Account), the main source of resources for responding to the multiple low-intensity disasters that occur every year; (iv) the National Royalties Fund
that has been used since 2007 to provide additional
resources for disaster response and reconstruction
in regions and municipalities where it is permitted
by law; (v) subsidy accounts or pools are utilized
by selected ministries, and these may be accessed
for additional financing in the event of a disaster
(their financing is scarce); (vi) contingent loans (such
as the Catastrophe Risk Development Policy Loan
Deferred Drawdown Option (CAT-DDO) from
the World Bank), which give the government immediate and timely access to liquidity in national
disasters; (vii) city-specific disaster prevention and
management funds, which are in place for selected
major urban areas, are now mandatory for all municipalities under Law 1523 and must include funding mechanisms for the understanding of risk, risk
reduction and emergency response; and (viii) the
use of international loans, creation of new taxes,
and sale of government assets in the case of extreme events. Finally, the MHCP and World Bank
have been working closely to define a new parametric instrument which, through its eventual application, would protect the national budget following a
catastrophic seismic event.
The use of the World Bank-financed CAT-DDO
after the 2010–11 La Niña phenomenon showed
the advantages of contingent credits as sources of
immediate liquidity. As part of the Government’s
program on disaster risk management, the MHCP
in 2008 signed its first contingent pre-negotiated credit line in the amount of US$150 million,
which could be activated immediately upon declaration of a national disaster. In December 2010,
the Government made effective use of this instrument and requested its full disbursement to cope
with the damage from the La Niña 2010–11 phenomenon. In November 2012, the Government
and the World Bank signed a second CAT-DDO
in the amount of US$250 million.
Since 2012, the MHCP has made significant progress in designing a comprehensive strategy for the
financial management of disasters. The ministry
111
112
PART TWO
|
CHAPTER 6
identified three priority policy areas for assessing,
reducing, and managing fiscal risk from natural
disasters: (i) identification and understanding of
fiscal risk due to natural disasters; (ii) financial
management of disaster risk, including the implementation of innovative financial instruments; and
(iii) catastrophe risk insurance for public assets. As
the strategy was being developed, the Government
implemented parallel activities in the three areas
to improve its financial capacity to respond to
emergencies and mitigate long-term fiscal impacts
from disasters. With World Bank support, MHCP
launched the “Colombia: Policy Strategy for Public
Financial Management of Natural Disaster Risk”
in December 2013. The document was presented
in a national Forum jointly hosted by MHCP and
UNGRD.
Knowledge
According to a World Bank analysis of disaster
risk management in Colombia,7 86 percent of the
country’s population is exposed to medium and
high seismic hazards, 31 percent to medium and
high landslide hazards, and 28 percent to potential severe flooding (Figure 6-2). In geographical
terms, 36 percent of the national territory (960
municipalities) is exposed to high seismic hazard,
mostly in the Pacific and Andean regions (departments of Huila, Chocó, Valle del Cauca,
Nariño, Risaralda, Cauca, and Quindío). At the
same time, 18 percent of the national territory
is located in areas that have high landslide risk
(most frequently attributed to hydro-meteorological phenomena), especially in the departments
of Quindío, Risaralda, Caldas, Nariño, Cauca,
Arauca, Meta, Huila, Cundinamarca, Boyacá,
Tolima, and Santander. Twelve percent of the national territory is located in areas with increased
vulnerability to floods, distributed in 79 municipalities, mainly in the departments of Valle del
Cauca, Atlántico, Cundinamarca, Magdalena,
Antioquia, Cordoba, Cesar, Cauca, and Meta.
Although Colombia has been working steadily
in the area of hazard assessment, it is necessary
to advance in vulnerability and risk analyses in
order to define and implement associated risk reduction measures.
Between 1970 and 2011, more than 28,000 events
were registered that caused significant losses, nearly 60 percent of which were reported as of 1990
(Table 6-1). Data demonstrates an evident increase
in reported events, which can be attributed to the
growth in exposed population and assets and the
greater availability and quality of information
sources.
FIGURE 6-2: Area and Population Exposed to Earthquakes, Landslides, and Floods in Colombia
Flooding
Flooding
Landslides
Landslides
Earthquake
Earthquake
100 80
60
40
Percentage
20
0
20
40
60
High
Source: OSSO Corporation, 2011 from OSS O-EAFIT Corporation, 2011.a
Ibid, p. 13.
a
100 80
80 100
Area (104 Km2)
60
40
Percentage
Medium
Low
20
0
20
40
60
80 100
Population (million)
Disaster Risk Management in Colombia
During this period, loss of life due to disasters diminished, but the quantity of housing
destroyed increased (Figure 6-3). The Andean
and Pacific region had the largest damages and
TABLE 6-1: Events and Losses by Decades
Principal source
of information
Decade
Events
Hemerographic
1970–79
1980–89
Official
Fatalities
Population
Affected
5,657
4,025
1,710,541
23,060
25,584
5,123
28,316
4,727,790
29,317
15,873
1990–99
6,465
3,957
9,204,412
88,956
191,828
2000–09
9,270
2,180
9,284,073
41,689
470,987
2010–11
Total
Housing
Destroyed
Housing Partly
Affected
2,187
519
2,823,885
7,403
358,378
28,702
38,997
27,750,701
190,425
1,062,650
Source: OSSO Corporation, 2011 from OSSO-EAFIT Corporation, 2011.
FIGURE 6-3: Loss of Life and Destroyed Housing Per 100,000 Inhabitants, 1970–2011
4
Rate value
3
2
1
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
0
Year
Lineal (Deaths/100,000 inhabitants)
Linear (Deaths/100,000 inhabitants )
100
Rate value
80
60
40
20
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
0
Year
Dwellings destroyed/100,000 inhabitants
Linear (Dwellings destroyed /100,000 inhabitants)
Source: OSSO Corporation, 2011 from OSSO-EAFIT Corporation, 2011.
Note: The notable spike (1999) is the result of coffee-growing region earthquake and La Niña episode. The graph does not include losses produced by the Rl
Nevado del Ruiz volcanic eruption of 1985.
113
PART TWO
|
CHAPTER 6
losses associated with destroyed housing, while the
Caribbean and Pacific regions (most susceptible to
floods) had the highest quantity of partly affected
housing. In both regions, damages and losses relative to population were concentrated in municipalities with less than 100,000 inhabitants, which
are typically characterized by high proportions of
unsatisfied basic needs.8
that the effects of damages and losses caused by
minor and intermediate events in the housing are
greater—in fact, 250 percent larger—than those
produced by large disasters. This calculation, even
though conservative, demonstrates that the accumulation of events considered minor or moderate
requires a strong policy response to reduce the vulnerability of the population in the housing sector.
These impacts are generally produced by environmental degradation and the inappropriate use and
occupation of land, mainly by the most fragile socioeconomic strata.
In natural disasters, small and low-income municipalities do not necessarily have the greatest economic losses in absolute terms; however, they are
socio economically the most vulnerable to natural
hazards and have least capacity to recover. Data
on losses, normalized by the size of the municipal
population, indicate that both destroyed houses
and losses of life are focused in municipalities with
populations of between 10,000 and 50,000 inhabitants (Figure 6-4).
Regional analysis reveals a positive correlation
between natural disasters and declining welfare
indicators (Figure 6-5).9 A recent study on poverty and natural disasters in Colombia showed that
disasters increased the percentage of population
that suffers hardships related to “educational conditions in the home” and “conditions of children
and youth.” Moreover, disasters had a greater impact on the percentage of the population characterized by high levels of truancy, low educational achievement, limited access to potable water,
and poor quality of household materials used in
flooring.10
Between 1970 and 2010, accumulated losses in
the housing sector associated with all types of disasters (large, intermediate, and minor) amounted to US$7.1 billion, and average annual losses
were US$177 million. The large disasters (OSSO
Corporation, 2011) have resulted in losses of approximately US$2 billion. Intermediate and minor disasters have caused housing losses of approximately US$5 billion. The numbers confirm
Increasing climate variability, most commonly associated with the cyclical occurrence of the
FIGURE 6-4: Destroyed Housing and Loss of Life Per 100,000 Inhabitants, by Municipal
Population, 2001–10
1000
Deaths/100,000 inhabitants
10000
Destroyed housing /100,000
inhabitants
114
1000
100
10
1
0.1
1000
10000
100000
Population size
1000000
10000000
100
10
1
0.1
1000
10000
100000
1000000
10000000
Population size
Source: OSSO Corporation, 2011 from OSSO-EAFIT Corporation, 2011.a
a
The World Bank, 2012.Analysis of Disaster Risk Management in Colombia: A Contribution to the Creation of Public Policies. Bogota, Colombia. GFDRR, pg 36.
Disaster Risk Management in Colombia
FIGURE 6-5: Correlation Between Poverty and
Natural Disasters in LAC, 2009
Extreme poverty
headcount (%) Circa 2009
45
GTM
40
35
30
HND
NIC
25
SLV COL
20 DOM
BOL
ECU
PRY
15
MEX
PER
BRA
PAN
10
ARG
CRI
CHL
5
URY
0
0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0
% of population affected by droughts, floods
and extreme temperatures in 2009
El Niño and La Niña phenomena, contribute to
growing losses in Colombia (Figure 6-6). Between
1950 and 2011, El Niño impacted the country 15
times and La Niña 13 times. While the nationwide
flooding and landslides associated with La Niña
2010–11 produced one the largest economic losses
incurred as a result of rainfall, other episodes such
as La Niña 2008–09 had similar economic impacts
in terms of the number of municipalities affected
and the types of principal losses (agrarian, housing, transport). The tendency to register heightened weather variation in specific areas of the
country can not lead to the conclusion that these
regional changes have directly increased disaster
risk in the country.
In addition to socio-economic inequality, environmental degradation exacerbates existing vulnerabilities. Susceptibility to river flooding, flash floods,
and landslides in Colombia has grown as a result
of deforestation, soil erosion, and unplanned settlements. The factors that contribute to increasing vulnerability—such as the built environment’s
physical characteristics, political/institutional capacity to implement risk-reduction programs, and
economic instability—are also increasing in rural
areas, where the natural characteristics of the land
are often at odds with productive uses, such as livestock and agriculture. This is particularly evident
in municipalities with high percentages of unsatisfied basic needs and limited development that contributed to high levels of environmental degradation. For example, Colombia’s agricultural sector
FIGURE 6-6: La Niña and El Niño Phenomena vs Annual Registered Losses
500
Number of losses registered
450
400
350
300
250
200
150
100
50
0
1970
1975
1980
1985
1990
1995
2000
2005
Year
La Niña Phenomena
El Niño Phenomena
Not declared La Niña
Number of losses registered
2010
115
PART TWO
|
CHAPTER 6
is particularly vulnerable to natural hazards, an
exposure that could be reduced by climate-smart
agriculture and productive land-use planning.
Pending challenges also include the analysis and
quantification of agriculture risks, which could potentially serve as an input to the National Disaster
Financing Strategy.
FIGURE 6-7: T
otal Investments in Disaster
Risk Management at National,
Department, and Municipal
Levelsa
1800000
1600000
1400000
Events that can produce the most critical future
scenarios from the viewpoint of their financial
impact and loss of life are a severe earthquake,
tsunami (in the Pacific), a volcanic eruption,
and a La Niña episode. Earthquakes, although
they are rare, have a greater potential impact in
the country. A large-scale volcanic eruption, although it may recur once in 500 years, would also
be a crisis of national magnitude. Heavy cumulative rainfall caused by the La Niña phenomenon
1000000
800000
600000
400000
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
0
2000
200000
1999
In assessing the financial resources allocated to
the country’s defined goals relating to disaster risk
management, fundamental differences exist in
the amount and items financed by different levels
of government. While the national government
has predominately focused its efforts on enhancing the understanding of risk and emergency response/recovery12 (Figure 6-7), local governments
have invested modestly in selected measures that
contribute to risk reduction, such as reforestation
and watershed conservation.13 Municipal investments, however, reveal an inverse relationship to
those made by the national government, demonstrating the national government’s strong role in
financing the recovery process. This is largely the
result of a lack of required counterpart funding
from local governments, discouraging municipalities from assuming responsibility in recovery
efforts.
1200000
1998
Broadly speaking, the potential negative impacts
of climate change are recognized by scientists and
politicians; however, disaster risk in Colombia is
notably exacerbated by additional factors. The increase of disaster risk can be attributed to a combination of climate variability and the population’s
heightened vulnerability as a result of economic,
social, and environmental drivers.11
2010 COP$ million
116
National expenditure DRM
Departamental expenditure DRM
Municipal expenditure DRM
Source: Analysis of Disaster Risk Management in Colombia (2012).
a
Blank data points for departmental and municipal expenditures refer to
non-available data.
may produce the most immediate effects in terms
of number of municipalities with significant impacts on all sectors, especially the agriculture
sector. As previously seen, severe flooding and
widespread landslides have affected a significant
percentage of the country, causing serious crop
damages to landlords possessing large tracts of
land, devastating the livelihoods of small farmers, and damaging housing, transportation, and
other sectors.
Policy Recommendations
Colombia would benefit from improved governance structures relating to disaster risk management. These measures should focus on consolidating government policies that strengthen
local capacity for land-use planning, improve
the coordination of government entities for watershed management, define responsibilities of
Disaster Risk Management in Colombia
Enhance Governance In Disaster Risk Management
Policy challenges
Short-term policy recommendations
Implementation of
the Disaster Risk
Management Law
(1523).
1.
Regulate Law 1523 with an initial
1.
focus on those articles related to
operationalizing funding mechanisms for
local disaster risk management initiatives.
Regulate Law 1523 with a focus on those
articles related to operationalizing funding
mechanisms for sectorial disaster risk
management initiatives.
2.
Prioritize the adoption of the National
Disaster Risk Management Plan.
Fulfill defined objectives and targets of the
National Disaster Risk Management Plan.
3.
Strengthen the mandatory incorporation 3.
of criteria for disaster risk management
in the formulation of investment projects
through the National Bank for Public
Project Investment.
4.
Adopt a strategy to strengthen planning,
coordination, monitoring, and control for
investments in risk management at regional and
local levels of government.
Strengthen subnational 4.
capacity in the design
and application of
planning instruments
to reduce the causes
and accumulation of
disaster risk.
Design a national strategy to strengthen
the technical and financial capacity
of regional and local governments to
incorporate disaster risk management
for the purposes of land use and
development planning.
5.
Implement a national strategy to strengthen the
technical and financial capacity of regional and
local governments in disaster risk management,
which seeks mechanisms to promote
participation of the private sector.
6.
Formulate and implement a national strategy
for settlements in high-risk areas that sets
guidelines for land zoning, defines mitigation
criteria, and lays out resettlement programs
when required.
Systematically reduce
5.
flood and landslide risk
to minimize associated
impacts.
Assign responsibility for management
of rivers and water bodies to a
single national entity to improve the
understanding of risk management and
intra-governmental coordination for
decision making.
7.
Within Watershed Management Plans, regulate
the inclusion of risk assessment and mitigation
as part of each Master Plan for Flood and
Landslide Control.
8.
Formulate and incorporate Watershed
Management Plans as a determining instrument
in municipal land-use management planning.
Increase effectiveness
and efficiency
of disaster risk
management
investments.
Reduce disaster risk
6.
and associated impacts.
Delimit public and
private responsibilities
in risk management
and strengthen the
Government’s fiscal
vulnerability reduction
policies.
Medium-term policy recommendations
2.
Assign a unit responsible for disaster risk 9.
management in each ministry.
Develop planning instruments relating
to disaster risk management, watershed
management, and local land use with
investment plans.
Implement sectorial policies through specific
action plans for risk management in each
ministry.
7.
Design sectorial policies for risk
management in each Ministry.
8.
Initiate implementation of the policy
11. Design financial protection strategies for
strategy for public financial management
priority sectors and subnational governments
of natural disaster risk.
to protect the country’s financial balance on a
long-term basis.
10. Design and adopt inter-ministerial risk
management action plans.
12. Regulate the procedures and mechanisms
under which private sector agents participate
in different phases of disaster risk management.
13. Promote and incentivize municipal and sectorial
strategies to increase general awareness
regarding disaster risk management at the
household level.
14. Revise and adjust regulations to clarify
public and private responsibilities relating
to compensation for damages arising from
disasters.
117
118
PART TWO
|
CHAPTER 6
sectorial stakeholders, and promote the participation of public and private actors, reducing the
Government’s fiscal vulnerability to disasters. The
six proposed policy recommendations are:
Implement the National Disaster Risk Management
Law. This recommendation focuses on the regulation of Law 1523 and adoption of the National Disaster Risk Management Plan (according to Decree
1974/2013). It is also necessary to advance in the
operationalizing funding mechanisms for local and
sectorial disaster risk management initiatives.
Increase effectiveness and efficiency of disaster risk
management investments. Strengthen the mandatory incorporation of disaster risk management
criteria in public projects and the adoption of a
strategy for monitoring responsibilities and investments. This recommendation also includes the development of land-use planning instruments, with
investment plans to advance effectively in disaster
risk reduction.
Strengthen subnational capacity in the design and
application of planning instruments to reduce the
causes and accumulation of disaster risk. This recommendation promotes the review of local and
regional capacity for disaster risk assessment and
responds to the demand for streamlining of risk
knowledge in land-use and development planning.
This would also support the formulation and implementation of a national policy on at-risk settlements.
Systematically reduce flood and landslide risk to
minimize associated impacts. This recommendation
centers on improving the understanding disaster
risk and its links to environmental policy, development, and adaptation to climate change. This
policy suggests assigning responsibility for management of rivers and water bodies to a single national
entity and establishes the roles and coordination
mechanisms for the associated agencies. It aims to
adopt regulations for flood and landslide control
and management, and to develop a strategy for implementation, monitoring, and control.
Reduce disaster risk and associated impacts
through policies and sectorial action plans. This
recommendation can be achieved through appointing a unit responsible for disaster risk management in each sector and the implementation
of sectorial policies for risk management in each
ministry. The strategy also seeks to support the
adoption and implementation of sectorial and inter-ministerial action plans in risk management.
Delimit public and private responsibilities in risk
management and strengthen the Government’s fiscal vulnerability reduction policies. The adoption
of clear policy guidelines on the level of protection
that the national government and local authorities
offer to those affected by disasters is addressed in
this final policy recommendation. It suggests adjustment of regulations to clarify the private sector’s
responsibility and reduce fiscal contingencies resulting from the needs expressed by the affected population. It also promotes strategies to increase local
and sectorial awareness of risk management and
improve capacity in risk management strategies.
Endnotes
1
2
3
Analysis of Disaster Risk Management in Colombia: A Contribution to the Creation of Public Policies. Bogota, Colombia: The World Bank: GFDRR,
2012.
Ibid, p. 5
The World Bank, 2005. Natural Disaster Hotspots –
a Global Risk Analysis, p. 91.
4
5
6
The World Bank, 2013. Guarding against disaster.
LCRVP Briefing Note.
CEPAL, BID (2012). “Valoración de daños y pérdidas – Ola invernal en Colombia 2010–2011”, p. 61.
Includes the following subsectors: education, health,
family welfare, cultural heritage, sporting facilities,
security and defense, and justice.
Disaster Risk Management in Colombia
7
8
9
10
The World Bank, 2012. Analysis of Disaster Risk
Management in Colombia: A Contribution to the
Creation of Public Policies. Bogota, Colombia. GFDRR.
Unsatisfied basic needs (UBN) is one of the indicators that has traditionally been used to measure
poverty in Colombia. The UBN makes evident the
fragile conditions of the population in terms of the
physical makeup of housing and its resilience, and
the ability to recover in relation to the economic
characteristics of the homes.
The World Bank, 2013. Shifting gears to accelerate
shared prosperity in Latin American and the Caribbean.
Sanchez Fabio and Calderon Silvia. Pobreza y Desastres naturales. Proyecto “Fortalecimiento de la
Gobernabilidad para la Administración del Riesgo
Social en Colombia,” 2012.
11
12
13
Marulanda, M., Cardona, O.D., Barbat, A. 2008.
The Economic and Social Effects of Small Disasters Revision of the Local Disaster Index and the
Case of Study of Colombia. Megacities Resilience
and Social Vulnerability. United Nations University,
Munich Re Foundations.
National investments in emergency response have
risen markedly in response to major disasters—for
example, the 1999 earthquake (Eje Cafetero) and the
flooding and landslides of 2010–11(La Niña).
Selected large cities in Colombia, specifically those
with greater technical and financial capacity, have
made investments directly in risk reduction and disaster response.
119
120
PART ONE
|
CHAPTER 6
Structural Changes – Implications for Growth, Productivity, and Competitiveness
CHAPTER 7
Environmental Sustainability
121
122
PART ONE
|
CHAPTER 7
Main Messages
Natural resources are a backbone of the Colombian economy. In 2012, agriculture, forestry and fishing
represented 6.2 percent of GDP while mining and quarrying represented another 7.7 percent. However, a measure of environmental sustainability for Colombia, the genuine net savings indicator, shows
that gross national savings, after subtracting the costs of depletion of minerals, natural resources and
pollution fluctuate around zero and are far below the OECD and the regional averages. Furthermore,
environmental degradation has high costs for the economy, estimated at 3.7 percent of the GDP by
the 2007 World Bank study. These salient facts give rise to the environmental challenges typical of a
middle-income country with high income growth, a rich endowment and high dependence on natural
resources, and a high concentration of urban population. The OECD accession process has created
an impetus for strengthening environmental management in Colombia, a policy interest in moving toward a sustainable growth path, and an incentive to address the most pertinent environmental health
challenges.
This policy note highlights two main areas: pollution management and environmentally sustainable growth. Pollution management—air pollution, water pollution and solid waste management—is the main priority on Colombia’s environmental agenda. As the economy and the
urban population have grown, the annual costs of urban air pollution have increased dramatically
to an estimated 1 percent of GDP, matching the contribution to GDP of the minerals sector or coal.
Together with other environmental health problems—indoor air pollution from solid fuel used for
household chores and inadequate access to improved water sources and sanitation—annual environmental health costs reach 2 percent of GDP. Without considering the cost of natural disasters, this
makes urban air pollution as the biggest environmental problem, ahead of water supply, sanitation,
and hygiene.
Investment in wastewater treatment and solid-waste management needs to keep up with
the growing urban areas. Only around a third of wastewater in Colombia is treated, with the rest
discharged directly into water bodies and marine estuaries. Many of the rivers passing through Bogotá,
Medellin, and Cali and other urban areas are heavily polluted, and coastal cities such as Cartagena
and Barranquilla experience water quality problems in estuary and near-shore areas. Solid waste management and the management of hazardous waste are other areas that require greater policy and
investment efforts. One-fifth of Colombian municipalities, located predominantly in rural areas, do not
have adequate waste disposal, and around one-third of the country’s sanitary landfills are not properly
managed and do not comply with environmental regulations. Reducing pollution will require efficient
and sustainable water utilities, partnership building at the local, national, and international levels, proper policies, greater institutional planning, and adequate financial arrangements.
Structural Changes – Implications for Growth, Productivity, and Competitiveness
In relation to environmentally sustainable growth, it is important to consider that the peace
process, a renewed focus on agricultural development and the planned investment in roads
infrastructure may expand the deforestation frontier. The measures to promote forest and biodiversity conservation and address deforestation pressures will need to be closely connected with
policies that support sustainable agriculture. Promoting sustainable forestry and land-use practices will
require: (i) strengthening the technical assistance programs through rural extension services; (ii) supporting agricultural research and innovation to improve agriculture’s resilience to climate change;
(iii) slowing the advance of the deforestation frontier by measures that promote a shift from extensive
cattle farming, notably through greater security of land tenure; and (iv) improving the management of
protected areas. Colombia is one of few global pilot countries participating in the BioCarbon Fund
initiative supporting such practices. It has also signed on to the Aichi targets on protected areas, with
the objective of expanding them to the areas with underrepresented ecosystems, areas under pressure from development and the advance of the agricultural frontier and other ecosystems that generate important economic services such as water provision and regulation, biodiversity habitats and
biological corridors. Furthermore, in intensive agriculture, incentives for more efficient use of fertilizers
and pesticides would help not only improve farmers’ profits but also reduce soil and water pollution.
123
124
PART TWO
|
CHAPTER 7
Background
Colombia is one of the richest countries in the
world in terms of biodiversity, and it is generously
endowed with forests, water, and mineral resources. Located in the northwest of South America,
Colombia is one of what have been called the five
“megadiverse countries” in the world, i.e. countries that possess an exceptional wealth of plant
and animal species—known as a biodiversity
hotspot. We only need to look at a few figures to
realize just how special Colombia is. Stretching
from the Pacific Ocean to the Caribbean Sea, the
country covers “only” 0.8 percent of the world’s
land surface, yet, with between 45,000 and 51,000
species, it is home to some 15 percent of all plant
species in the world. And with 1,860 bird species,
reptiles, mammals and 469 amphibians, Colombia
has a biodiversity of fauna unrivalled by any other
country. Moreover, in terms of the number of species of flora that only occur in one specific region,
the so-called endemic species, Colombia is also a
world leader. One reason for this huge wealth of
biological resources is the wide variety of landscapes across Colombia. The country has 311 different types of ecosystems. 61 million hectares are
covered by different kinds of forests, and about 2
million hectares of páramos and 10 million hectares of natural savannas, as well as 6 million hectares of different marine and coastal ecosystems.
Coastal zones, coral reefs and marine areas generate significant economic benefits through ecosystem services they generate—tourism, artisanal and
commercial fisheries and protection of the coastlines, housing and infrastructure.1 Colombia is the
second most biologically diverse country in Latin
America. And this does not even take into account
the richness of biodiversity in the Chocó region
near the Pacific and in the peripheral parts of the
Orinoco plains and Amazonia—for the biosphere
here is still largely unexplored.2 Colombia is also
generously endowed with gold and other precious
metals, oil, and coal.
Colombia’s solid framework of environmental
management dates back to the 1974 National
Code on Renewable Natural Resources and
Protection of the Environment. It was strengthened throughout the past two decades, making
Colombia the Latin America region’s front-runner in the quality of environmental institutions
and regulations under Law 99 (1993), which established Colombia’s system of environmental
management in its current form. Pioneering efforts include implementation of economic instruments—water pollution and use charges—and
the possibility of expanding them to air pollution
and hazardous waste management. As part of the
OECD accession process, Colombia has signed
the green growth declaration and taken on a commitment to take significant steps to strengthen environmental management.
Against this backdrop, Colombia faces acute environmental challenges from rapidly rising pressure from air and water pollution in urban areas,
forest and land degradation in rural areas, and a
growing vulnerability to natural disasters and the
effects of climate change. Those environmental
challenges have intensified with the recent commodity price boom, the investment needs to overcome the infrastructure deficiencies (the main
bottleneck for the economy’s competitiveness),
and the rising urban population. The country faces tradeoffs. The large potential economic benefits from developing mineral resources and the
road network are juxtaposed against the need to
protect terrestrial and marine areas and the ecosystem services they generate, such as clean drinking water, bio-commerce, and tourism. The significant potential for developing agriculture and
bringing new land into production vies with the
risks of deforestation and pollution by agrochemicals, with the resulting degradation of water resources, soils, marine estuaries, and coral reefs
and the siltation of hydropower dams. Urban
sprawl and settlement in vulnerable areas must
be weighed against the risks posed by floods and
landslides, accentuated by the effects of climate
change. Colombia is vulnerable to the effects of
climate change, particularly through the devastating impacts of the natural disasters it frequently
experiences. Colombia is a minor contributor to
Environmental Sustainability
20
15
10
5
–5
OECD
SSA SSA
2010
0
2005
Colombia’s generous endowment of natural
wealth increases the urgency to ensure sustainable use of those resources. According to research on wealth accounting and social welfare,
FIGURE 7-1: Adjusted Net Savings, Including
Particulate Emission Damage,
1990–2012
2000
Is Economic Growth in Colombia
Environmentally Sustainable?
Colombia’s economy is vulnerable to risks associated with its natural resource richness; they can
be minimized by strong governance and effective
public spending on other productive sectors of
the economy and education. Countries well-endowed in natural resources often do not develop highly diversified economies, and they are at
risk of developing weak institutions—a phenomenon known as “the resource curse.” But recent
empirical evidence reveals that possessing commodity wealth does not necessarily compromise a
country’s growth. The risks can be overcome by:
(i) prudent management of natural resource rents;
1999
Sustainable management of natural resources in
Colombia and effective management of pollution are important for the prospects of sustained
growth and shared prosperity. This policy note
examines whether economic growth has been
sustainable, compares Colombia’s environmental
challenges and performance with other countries
in the region and the OECD, and highlights critical steps on the environmental policy agenda, including the most urgent measures to help reduce
the costs of pollution and degradation of natural resources and increase resilience to climate
change. This policy note casts the issues in terms
of shared prosperity, which is a concept recently adopted by the World Bank in its development
assistance. It is an approach particularly relevant
for the middle-income countries like Colombia
as they seek to focus on overall economic growth
that includes those who are relatively less well off
(the bottom 40 percent). In some cases, establishing the links between the environment and natural
resources and poverty is straightforward, as with
environmental health, air pollution, and access to
improved sources of drinking water; in other cases, the link is plausible but is not easily quantifiable
due to the need for case-specific data on population exposure to pollutants, as with solid waste and
wastewater.
the “genuine” saving, or the adjusted net savings indicator, is a proxy for sustainability, and it
shows the true rate of savings in an economy after accounting for natural resource depletion and
pollution damages. While it is an imperfect indicator, suffering from measurement and theoretical shortcomings, negative adjusted net savings
for several years in a row suggest that economic
growth is likely unsustainable from an environmental perspective because total wealth is being
depleted. Genuine savings tend to be lower in resource-rich economies, so it is no surprise to find
them fluctuating around zero in Colombia in the
past few years as energy production has increased
(Figure 7-1).4
1998
the global greenhouse gas emissions, with more
than half of its emissions stemming from land
use, including emissions from agriculture, forestry and deforestation. In terms of greenhouse gas
mitigation, the focus has been on emissions from
land-use change, the largest driver of emissions
in Colombia, and on the transportation sector,
which offers large local side benefits of mitigation
when local pollution is reduced.3
LAC
Colombia
East Asia and the Pacific
Sources: World Bank (2014). Calculated from the Adjusted Net Savings database.
125
PART TWO
|
CHAPTER 7
(ii) replacement of whatever natural wealth that
is extracted with other forms of durable capital;
and (iii) efficient public spending fueled by windfall rents from natural resources. In a contrary
case, total wealth will decline and growth will not
be sustainable, and some evidence suggests that is
happening in the LAC region.5 Because of unproductive choices, countries with high resource rents
tend to end up with lower genuine savings rates.
This has been happening in Colombia, where the
adjusted net savings—a measure of savings after subtracting the costs of natural resources extracted and the costs of pollution—have lingered
around zero and far below the regional average
(Figure 7-1 and Figure 7-2). This indicator suggests that the Colombian economy has a very low
rate of savings, and growth is not sustainable from
an environmental perspective.
gap, particularly in terms of road quality, where
Colombia ranks 130th in the world, according
to the recent Global Competitiveness Report.
Investment in the road sector through the Fourth
Generation (4G) program is expected to reach 7
percent of GDP over the next seven years, and it is
critically important to ensure the efficiency of that
spending.6 Another key is scaling up investment in
education to build up human capital. More generally, it is critical to transform natural resource rents
into other forms of capital in the economy’s key
growth sectors. Finally, ensuring sustainable long
term growth requires integration of environmental
considerations in the policy and investment agendas of the infrastructure, mining, energy, agriculture and other productive sectors. The risks are
particularly high in Colombia due to the central
role of the extractive industries in the economy, the
plans to further scale up investment in the road sector, and the advance of the agricultural frontier in
the context of the peace process. All of these would
need to develop in the presence of strong and effective environmental institutions at the national and
local levels, with an incentive structure to internalize environmental costs, and with an improved
To take advantage of a period of high commodity prices without depleting its wealth, Colombia
needs to increase its investment in the economy’s
productive sectors and education and strengthen
the management of natural resource rents. One
set of measures includes closing the infrastructure
FIGURE 7-2: Gross National Savings, Education Expenditures, and Natural Resource Degradation
and Depletion, 1990–2012
30
20
10
0
–10
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
–30
1991
–20
1990
Gross national savings, education
expendistures and
natural resources degradation
and depletion (% of GNI)
126
Pollution damages
Carbon dioxide damages
Minerals depletion
Energy depletion
Net forest depletion
Education expenditures
Fixed capital depreciation
Gross national savings
Sources: World Bank (2014). Calculated from the Adjusted Net Savings database.
Note: Adjusted net savings are a measure of environmental sustainability calculated as follows: gross national savings plus education expenditures less natural
resources depletion (minerals, energy and forest) and pollution and carbon dioxide damages. Net forest depletion for Colombia in the cross-country dataset is
zero, understating this category and the overall depletion estimates for Colombia. “LAC” denotes the Latin America and the Caribbean Region average.
Environmental Sustainability
enforcement capacity of sectoral regulators and
environmental agencies.
Environmental and social risks will need to be well
managed. That will require the strengthening of
the environmental licensing system, strategic environmental assessments of projects with cumulative
effects, much more robust monitoring and enforcement systems, and improved coordination between
the environmental and sectoral agencies and within the National Environmental System (Sistema
Nacional Ambiental, or SINA) to ensure compliance
with the environmental regulations. An important element for developing these mechanisms for
infrastructure and extractive industries projects
is the availability of forest and biodiversity monitoring systems, an early alert system for detecting
deforestation, pollution monitoring, and economic
analysis of the costs of pollution and degradation
of forests, biodiversity and other natural resources.
With support from the Nature Conservancy and
World Bank, the Ministry of Environment and
Sustainable Development (Ministerio de Ambiente
y Desarrollo Sostenible, or MADS) developed a pioneering methodology for an additional instrument—biodiversity offsets. They enable projects
to compensate for their biodiversity losses with
an equivalent or greater value of strengthened
biodiversity conservation in other areas. The regulatory and institutional framework needs to be
developed to enable the implementation of offset
projects, and valuation work for terrestrial and
marine biodiversity needs to advance.7 Another
set of measures to help move Colombia onto a
more sustainable growth path consists of improving the management of natural resource rents
through efficient institutions, governance mechanisms, and transparent information disclosures.
In the extractive industries, an important initiative for disclosure is Colombia’s candidacy for the
Extractive Industries Transparency International
(EITI) initiative.8 Improvements in the methodology for tendering strategic mining and oil reserves
and ensuring compatibility with the terrestrial and
marine protected areas’ boundaries is another priority measure to help promote development of the
extractive sector in a sustainable way.
Priority Issues on the
Environmental Agenda through
the Lens of Sustainable Growth
Wastewater treatment and solid waste management are important priorities on the urban environmental agenda, and tackling pollution has
high economic and social benefits. The 2004
National Action Plan for Municipal Wastewater
Management helped set the framework for the
rapid evolution of wastewater management programs in Colombia’s large urban areas and spelled
out an ambitious target of reaching a 50 percent
threshold of wastewater treatment by 2019. It is
unlikely that the target will be met due to the financing challenges in the sector; even though
wastewater treatment facilities have been built in
many municipalities, many of them are not operational because of insufficient funding to cover operation and maintenance costs. Wastewater
treatment is also the top concern on the broader
water resources management agenda because of
the significant pollution problems in urban and
agricultural watersheds; at the same time, water
quantity tends to be less of a problem and seasonal water scarcity, made worse by the effects of climate change, affects some hotspot areas, such as
La Guajira, a large number of municipalities on
the Atlantic coast, and many municipalities in the
Orinoquia and Central region. As for solid waste
management, it is particularly weak in mid-sized
cities, small towns, and rural areas, and challenges
remain in terms of enforcement of environmental
standards for landfills.
The wastewater treatment rate in Colombia is
relatively low, with only 33 percent of wastewater
receiving any type of treatment. Many of the rivers passing through such urban areas as in Bogotá,
Medellin, and Cali are highly polluted, and coastal
cities such as Cartagena and Barranquilla experience water quality problems in estuary and nearshore areas. In 1950, an estimated 50,000 hectares
of wetlands were connected to the Río Bogotá. By
2009, less than 1,000 hectares remained—much of
127
128
PART TWO
|
CHAPTER 7
it degraded by poor water quality. Some evidence
indicates that the high social benefits from wastewater treatment and recovery of urban watersheds
go far beyond the environmental benefits. For example, a survey of 1,000 households carried out
as part of project preparation to improve wastewater treatment and recuperate the watershed of
Río Bogotá indicated strong support for cleaning up
the river and transforming it into an urban environmental asset. The key elements of success are
the presence of an efficient and sustainable water
utility, partnership building at the local, national,
and international levels, and the proper policy, institutional planning, and financial arrangements (see
Box 7-1). In Cartagena, the recent implementation
of a wastewater treatment project resulted in astonishing results and a recovery of water quality in the
coastal zone, with multiple social and environmental benefits.9 Given Colombia’s extensive coastlines
and a significant concentration of population in
coastal cities, wastewater treatment in coastal areas
and discharge of treated wastewater is a significant
issue. Discharge norms have not yet been developed
for coastal zones. Devising sufficiently flexible discharge standards that take into account the characteristics of the receiving body of water (the ocean) is
an important element of a strategy to scale up investment in wastewater treatment in Colombia.
Efforts to improve wastewater treatment are underway in other Colombian cities, and two main
challenges will need to be addressed—coordination and financing. The first involves coordination
and scale. Effective coordination mechanisms between municipalities are needed to invest in wastewater treatment facilities of the right capacity that
connect all main discharge sources. Coordination
strategies can build upon the existing mechanisms
in the sector. Investment targets in wastewater treatment can be articulated with the municipal development plans through such programs as Water for
Prosperity (Programa Agua para la Prosperidad, PAPPDA) and Sanitation of Wastewater Discharge
(Saneamineto para Vertimientos, SAVER). The second
issue is the availability of financing and, in particular, the challenges municipalities face in generating sufficient funds to co-finance investment
in new projects. At the current level of financing,
it is highly unlikely that Colombia will meet the
National Action Plan for Municipal Wastewater
Management’s target of having 50 percent of
wastewater in Colombia treated by 2019. To tackle
this challenge, it is necessary to improve financial
sustainability of wastewater treatment companies
through tariff policies.
An urgent need exists for review of the priority actions under the municipal Wastewater Management
and Treatment Plans and review of the instruments
for wastewater treatment financing. Among those
measures, it would be necessary to make changes to
the water use and water pollution charges scheme,
established in accordance with the Law 99 (1993).
The level of the fees, the pollutants that the charge
is based on, and the management scheme of the
revenues from the fees need to be revised, with
the objective of promoting greater investment in
wastewater treatment capacity by municipal sources. Furthermore, the way the fees for water pollution are currently calculated, they do not provide a
sufficient incentive to reduce pollution—so a revision of the formula for the fees is needed.10
The challenges in terms of solid waste management are also formidable. Around 79 percent of 27
tons of solid waste Colombia’s cities generate everyday is disposed of properly in landfills. Around
one-third of the sanitary landfills do not operate
in accordance with the environmental standards,
resulting in health impacts through the spread of
communicable diseases, fires, and pollution of water sources. Some waste is dumped directly into
water bodies. The regulatory framework for solid waste management has been strengthened but
requires further steps to increase investment and
improve the monitoring and enforcement. For
hazardous waste and chemicals management, the
regulatory framework requires strengthening, and
the existing information is not sufficient to prioritize policy actions and investment measures.
Colombia is a global hotspot for mercury pollution with high resulting environmental and health
costs, making this a particularly urgent priority
Environmental Sustainability
BOX 7-1: Wastewater Treatment Has High Social and Economic Returns: The Example of Río Bogotáa
More than 1,000 water bodies in Colombia have suffered as a result of the discharge of untreated
wastewater. This has caused anoxic conditions in rivers in such places as Bogotá, Medellin, Cali, and
Sogamoso and eutrophication in lakes and wetlands. The contamination of natural water resources
reduces options for human consumption, increases the risk of infectious diseases, and deteriorates
groundwater and other local ecosystems.
Large cities such as Bogotá, Medellin, Cali, and Cartagena are currently embarking on wastewater
treatment programs. Colombia currently has 410 wastewater treatment plants (WWTPs) in 354 municipalities—about 32 percent of the municipalities in the country. However, only about 33 percent of
these WWTPs perform efficiently and in accordance with environmental standards.
The World Bank assessed the economic feasibility of the Río Bogotá Environmental Recuperation and
Flood Control project, designed to improve wastewater treatment and recuperate the watershed of
the Rio Bogotá. The project was judged economically feasible, with net benefits of US$249 million
over 40 years and an internal rate of return of 16.9 percent. The main benefits come from willingness
to pay for an improved Río Bogotá environment with a string of multi-functional parks, along with
reduced flood damages along the river.
A well-structured contingent valuation study was conducted in which more than 1,000 households
were interviewed to determine their willingness to pay for environmental improvements. The survey
indicated strong support for cleaning up the river and transforming it into an environmental asset. The
average willingness to pay was estimated at around US$3 per household per month, generating 92
percent of the net benefits. The forecast wastewater tariff increases needed to sustain operation of the
Salitre wastewater treatment plant are estimated at US$1.50 per household per month.
a
Adapted from World Bank (2010).
on the chemicals management agenda. Mercury
is used extensively in Colombia’s gold mining and
in some industrial processes, and health risks are
particularly acute in the small-scale and artisanal
mining sectors. Mercury pollution has high health
costs due to the neurological effects on adults and
children—loss of intelligence (as measured by
Intelligence Quotient, or IQ) and mild mental
retardation (MMR). Mercury directly affects the
gold-producing municipalities, where the population is exposed to vapors from mercury-based
gold production processes and water pollution. It
has indirect effects on the water sources, agriculture, and fisheries of downstream populations. A
recent World Bank study found that health risks
in the Antioquia region and the affected downstream municipalities alone, without considering
the direct health impacts on the population of the
mining areas, are striking. In municipalities downstream from the Antioquia region’s gold production areas, the mercury pollution-related economic
toll from IQ losses and MMR may be on the order
of 81 billion COP (US$43 million) to 231 billion
COP (US$122 million), or 14 percent of the value
added in the metallurgical sector of Antioquia.11
Other health effects could not be quantified due to
the difficulty of attributing a range of illnesses to
mercury exposure, nor was it possible to quantify
the cost of environmental impacts, so the above
estimate is a lower bound on the damages. The
epidemiological evidence is currently limited, and
additional toxicological studies and epidemiological monitoring are needed to generate a more
accurate estimate of the health effects of mercury
129
130
PART TWO
|
CHAPTER 7
pollution and the resulting costs. Nevertheless, the
need is clear for public intervention to improve
awareness of the pollution and promote measures
to improve incentives for innovation and the adoption of clean technologies in the mining sector.
The peace process opens up new growth prospects
for agricultural production and the rural sector,
and several steps can help make that growth environmentally sustainable. Colombia’s rural areas
were the most heavily damaged by years of conflict
and violence. They have not been at the center of
policy attention in the past few decades, leaving the
agricultural sector and the rural economy suffering from underinvestment and subpar provision of
public services. Under the new political scenario,
investment in these areas would unleash significant
pro-poor growth potential. As the policy note on
agriculture and rural development emphasizes, it is
critical to use Colombia’s rich forest resources and
cultivable land in ways that maintain the natural
capital base, which includes 60 million hectares of
forests, 22 million hectares of arable land (only a
quarter cultivated), and abundant water resources.
Given Colombia’s mountainous terrain, land degradation and soil erosion are pervasive and result
in annual economic losses estimated at more than
0.7 percent of GDP (Sanchez-Triana et. al., 2007).
In terms of the policy recommendations, the measures to promote forest and biodiversity conservation will need to be closely connected with policies
that support sustainable agriculture. Promoting
sustainable forestry and land-use practices will
require: (i) strengthening the technical assistance
programs through rural extension services; (ii) supporting agricultural research and innovation to
improve agriculture’s resilience to climate change;
and (iii) slowing the advance of the deforestation
frontier by measures that promote a shift from extensive cattle farming, notably through greater security of land tenure. Colombia is one of few global pilot countries participating in the BioCarbon
Fund initiative supporting such practices. It has
also signed on to the Aichi targets on protected areas, with the objective of expanding them to the
areas with underrepresented ecosystems, areas
under pressure from development and the advance
of the agricultural frontier and other ecosystems
that generate important economic services such
as water provision and regulation, biodiversity
habitats and biological corridors (see Box 7-2).
Furthermore, in intensive agriculture, incentives
for more efficient use of fertilizers and pesticides
would help not only improve farmers’ profits but
also reduce soil and water pollution.
In addition to managing pollution risks and slowing
the advance of the deforestation frontier, growing
in a sustainable way will require improved management of the risks of natural disasters. Floods
and landslides are the most frequent disasters that
afflict Colombian cities and rural areas, and their
frequency is expected to rise due to the effects of
climate change and greater climate variability.
Colombia is well advanced in terms of a comprehensive approach to disaster risk management,
but the systems in place have not been sufficiently
effective in preventing population exposure and
vulnerability. Part of the problem is the gradual
increase in the occupation of areas unsuitable for
sustainable development; or land uses and productive activities incompatible with the existing
landscapes and ecosystems. Improved management of the risks will require strengthening existing planning and policy instruments, such as the
Watershed Management Plans (Planes de Manejo de
Cuencas, POMCAs), Territorial Management Plans
(Planes de Ordenamiento Territorial, POTs), and the
Departmental and Municipal Plans.12
The range of services generated by Colombia’s
ecosystems is not appropriately recognized by the
economy. Sitting at the confluence of the Andes
and Chocó biodiversity hotspots, Colombia is considered the world’s second most biodiverse country.
It is home to unique ecosystems, such as the high-altitude tropical wetlands and páramos. In addition to
being home to unique biodiversity, the páramos also
play a key role in water regulation and reducing the
risk of landslides in downstream areas. In this context, sustainable land use and protection of the upstream watersheds and páramos will translate into real
economic and social benefits, making delimitation
Environmental Sustainability
BOX 7-2: The BioCarbon Fund in Colombia—Initiative for Sustainable Forest Landscapes (ISFL)
The BioCarbon Fund Initiative for Sustainable Forest Landscapes (ISFL) is a multilateral facility, supported by donor governments and managed by the World Bank. It seeks to promote reduced greenhouse gas emissions from the land sector through REDD+,a more sustainable agriculture, and climate
smart land-use planning and policies. It has pledges totaling US$300 million from Norway, the United
Kingdom, and the United States.
The ISFL is set up to support activities to manage land-use change while minimizing forest loss and
greenhouse gas emissions. It builds on the experience of Tranches 1 and 2 of the BioCarbon Fund
and will address the loss of forests, which remains a fundamental global challenge, particularly in the
tropics. In Colombia, more than 50 percent of greenhouse gas emissions can be attributed to land-use
transformation in the rural sector. Deforestation and other land-use changes account for almost onethird of global emissions. Agriculture is estimated to be the driver of approximately 80 percent of
deforestation worldwide, with commercial agriculture being most important in Latin America. At the
same time, agricultural expansion is also part of a strategy to raise rural incomes.
ISFL promotes climate-smart agricultural and low carbon land-use practices in selected geographical
areas where agriculture is a major cause of deforestation. The initiative builds on a portfolio of jurisdictional programs in Zambia, Ethiopia, Indonesia, and Colombia. The ISFL consists of two components:
i. Technical assistance and grant funding to support selected countries with implementation
of its REDD+ strategies and the creation of enabling environments that change the way landuse decisions are made. Grants will be disbursed through the BioCarbon Fund’s associated
technical assistance facility, the BioCFplus;
ii. Results-based financing (a.k.a., payment for performance) based on achieved emission reductions. The main metric for results-based payments will be carbon emission reductions, but
other economic, environmental, and social indicators will be monitored. Carbon payments
(including some upfront milestone payments) will be made through the BioCarbon Fund.
In Colombia, the selection of a jurisdiction is ongoing in close coordination with the ministries charged
with agriculture (MADR) and the environment (MADS).
REDD was first discussed in 2005 by the UNFCCC at its 11th session of the Conference of the Parties to the Convention (COP) at the request of Costa
Rica and Papua New Guinea, on behalf of the Coalition for Rainforest Nations, when they submitted the document “Reducing Emissions from Deforestation
in Developing Countries: Approaches to Stimulate Action,” with a request to create an agenda item to discuss consideration of reducing emissions from
deforestation and forest degradation in natural forests as a mitigation measure. The 2007 COP in Bali introduced the terminology REDD+ under the
“Bali Action Plan,” with reference to additional eligible mitigation activities: sustainable management of forests, conservation of forest carbon stocks and
enhancement of forest carbon stocks. Source: Wikipedia.
a
of the páramos an urgent priority for the economic
agenda as well as biodiversity conservation. In light
of the Government’s commitment to achieving the
Aichi targets of protecting 17 percent of terrestrial
areas and 10 percent of marine areas by 2020, the
expansion of protected areas would need to target
places that generate the most valuable ecosystem
services or include underrepresented ecosystems.13
The ongoing program on Wealth Accounting and
Valuation of Ecosystem Services (WAVES) in Colombia, supported by the World Bank, seeks to help
improve the recognition of the role natural resources and ecosystem services play in the economy and
generate national accounting data on water, forests, and ecosystem services as an input for decision-making processes.
131
132
PART TWO
|
CHAPTER 7
Priority Environmental
Challenges through the Lens of
Shared Prosperity: Environmental
Health
The shared prosperity and pollution management
agendas are closely linked. According to a recent
World Health report, about 7 million premature
deaths—one in every eight deaths globally in
2012—are linked to exposure to air pollution from
ambient and household sources (WHO, 2014).
Indoor air pollution, mainly due to the use of solid fuels for cooking and other domestic needs, is
another major cause of respiratory illness, disproportionately affecting women and children and
primarily rural households. Inadequate access to
improved sources of drinking water and sanitation
is the leading cause of diarrheal illness and mortality of children under five years of age, with the
risks of disease and mortality amplified by malnutrition. The environmental health problems linked
to pollution from those sources have high economic costs in terms of premature mortality, health
expenditures, and the loss of productivity, not to
mention deterioration of the quality of life.
Urban air pollution causes three times as many
deaths as inadequate water supply, sanitation, and
hygiene, and five times as many deaths as indoor
air pollution. Despite considerable progress in environmental management over the past decade, a
recent assessment reveals that Colombia’s population still faces significant adverse impacts from
exposure to urban air pollution (UAP), inadequate
water, sanitation, and hygiene (WSH), and indoor
air pollution from solid fuel use (IAP) (Golub et al.,
2014). The total health cost attributable to these
three factors amounted to about 10.2 trillion COP
annually, or about 2 percent of GDP in 2010
(Figure 7-3). In terms of mortality, about 7,600 annual premature deaths can be attributed to these
environmental factors (Table 7-1). About 5,000
deaths are associated with UAP, around 1,600 with
inadequate WASH, and 1,000 with IAP. In terms
of the burden of disease—measured in terms of
lost disability adjusted life years (DALYs)—the
pattern is similar: nearly 70 percent of DALYs are
attributable to UAP, around 20 percent to WSH,
and around 10 percent to IAP.14 The overall burden of health costs from these three factors is at
the same level as 2002, but the relative magnitude
of the costs has changed, reflecting population
and income growth, an improvement in access to
improved sanitation, and growth in urban population in Colombia.15 Health costs in the three
sectors are moderate compared to other countries
in the region, and the share of air pollution costs
is high.
Health costs of urban air pollution have increased
relative to other health costs, but better air quality
in Bogota helped temper the rise. In 2002 a World
Bank study found that urban air pollution was the
fourth highest in terms of associated costs, following water supply, sanitation and hygiene, and natural disasters (Sanchez-Triana et. al., 2007). In the
recent round of evaluations that update the earlier
study, the mean annual cost of Colombian urban
air pollution is estimated at 5.7 trillion COP, or 1.1
percent of GDP in 2010 (Table 7-1). Mortality represents about 79 percent of total estimated costs.
Setting aside natural disasters, this puts urban air
pollution in first place, ahead of water supply and
sanitation and hygiene (Golub et al., 2014).16 As
evident from sensitivity analysis carried out by the
study, the costs of urban air pollution would have
been even higher in the absence of an improvement
in air quality in Bogota.
Improvements in fuel quality and other policy
measures implemented since 2002 to improve urban air quality in Bogota alone have helped reduce
pollution. Using methodologies and statistical
methods to estimate health costs of pollution validated by the World Health Organization (WHO),
the recent assessment estimates that a reduction
in particulate matter—PM10 levels—from an average of 66 micrograms per cubic meter in 2002
to 59 micrograms helped save an average of 200
lives in 2010 due to the avoided mortality from
respiratory illnesses; in addition, around 252 billion COP a year in health costs were saved due to
Environmental Sustainability
FIGURE 7-3: Environmental Health Costs in Colombia and in the Region (% of GDP)
4.5
% GDP
3.5
6,000
5,000
0.9
3.0
2.5
4,000
1.3
1.0
2.0
1.5
1.0
0.3
1.9
1.6
0.5
0.9
0.2
0.4
0.6
0.8
0.6
0.8
0.9
1.1
1.0
1.0
Nicaragua
(2007)
Peru
(2006)
Honduras
(2006)
Colombia
(2002)
0.9
0.9
0.8
1.0
0
Bolivia
(2005)
Guatemala El Salvador
(2006)
(2006)
WSH
Urban AP
Indoor AP
0.2
1.1
0.7
Colombia
(2010)
3,000
0.2
2,000
0.5
US$ per capita
4.0
1,000
1.1
0
Ecuador
(2004)
GDP per capita (current US $)
Source: Country Environmental Analyses for various years. For Colombia, see Golub et al. (2014) for the 2010 results and Larsen (2004) for 2002 (reported in
Sanchez-Triana et al., 2007).
Note: For Colombia, the estimates of the costs of urban air pollution for 2002 and 2010 (shown above) are not directly comparable because a slightly different
methodology was used in the more recent assessment. The latest data take into account significant income growth in Colombia over the past decade and
an expansion of the air-quality monitoring network (and populations of cities with monitoring data are included in the 2010 analysis, whereas in 2002 an
extrapolation was used for cities without monitoring networks). About half of the costs are due to population exposure to air pollution in Bogota, and air quality
has improved there since 2002. Sensitivity analysis reveals that, keeping all other factors constant, health costs due to air pollution in Bogota alone would have
been 7 percent higher in 2010 had air quality not improved.
that improvement in air quality. Without the gains,
the number of deaths due to air pollution in 2010
would have been 7 percent higher than estimated;
in 2012, 16 percent more deaths would have been
attributed to air pollution.
Indoor air pollution weighs the most on women
and children, affecting the rural population and
perpetuating the cycle of poverty. The mean estimated annual cost of health impacts from indoor
air pollution associated with the use of traditional
fuels (mainly fuel wood) in rural areas of Colombia
is 1.1 trillion COP (0.22 percent of GDP in 2010).
This environmental factor weighs most heavily on
the vulnerable groups and often perpetuates the
poverty cycle. Mortality in children under age five
years of age represents 6 percent of the cost, and
mortality in women over 30 years of age represents
about 78 percent. Acute respiratory illness in children and adult females and Chronic Obstructive
Pulmonary Disease morbidity of adult females
represent 16 percent of the cost.
TABLE 7-1: Summary of Environmental Health Costs in 2010
Annual Mortality
Annual Morbidity
Number of premature
deaths
DALYs
(million)
Urban Air Pollution (UAP)
5,000
65
5,700
1.12
Water, sanitation and hygiene (WSH)
1,600
20
3,450
0.68
Indoor Air Pollution (IAP)
1,000
12
1,129
0.22
Total
7,600
97
10,279
2.20
Factor
Associated Monetary Costs
COP
(billion)
Percentage
of GDP
Source: Golub et al. (2014).
Note: US$1=COP$1,817. DALYs are disability-adjusted life years. The epidemiological and environmental data are for 2010, and the GDP was reported for 2009
at the time of the study.
133
134
PART TWO
|
CHAPTER 7
Health costs of inadequate water supply, sanitation, and hygiene have fallen, but a large share of
the costs still results from child mortality. The mean
estimated annual cost of health impacts from an
inadequate supply of drinking water and sanitation
and from poor hygiene in Colombia is 3.45 trillion
COP (0.68 percent of GDP in 2010). Mortality
in children under age five represents 17 percent
of the cost, with morbidity accounting for the remaining 83 percent. Diarrheal mortality and morbidity represent about 89 percent of the total cost,
estimated at 3.05 trillion COP annually. Urban
areas represent about 77 percent of the total diarrheal cost. The reduction of health costs in this
sector has been associated with improvements in
public health measures, with a resulting reduction
of background diarrheal mortality and morbidity
burdens, and an increase of rural populations with
access to improved sanitation in 2002–10.
Recent efforts to strengthen air quality management have diminished increases in air pollution.
Colombia has made significant progress toward
effective air pollution management in in the past
decade. The 2010 Air Pollution Control and
Prevention Policy made progress in air quality assessment, monitoring, standardization of air quality
inventories, fuel-quality improvement, and implementation of incentive programs for environmental
control and monitoring. Despite the policy efforts
to control air pollution and a series of measures implemented at the national and local levels, pollution
pressure continues to grow with an increase in the
vehicle fleet. Over the 2000s, it increased 40 to 50
percent in Bogota and Bucaramanga and 10 to 20
percent in Cali and Medellin.
No systematic efforts have been made to reduce the
burden of disease from indoor air pollution. One
area where little progress has been achieved over
the past decade is in management of indoor air
pollution. No efforts have focused on decreasing
exposure to indoor air pollution, and the burden
of diseases associated with it continues to be overwhelmingly concentrated among Colombia’s rural
households. Trends are not encouraging—53 percent of rural households used solid fuels in 2005,
compared to just over 50 percent in 2010 (ENDS,
2005; ENDS, 2010). The highest incidence of solid fuel use is found in the Eastern (18 percent) and
Caribbean regions (20 percent). Bogotá is the only
region where solid fuel use for household uses is
negligible.
Sanitation and diarrheal treatment have improved
in rural areas, reducing the incidence of diarrheal
illness. General malnutrition (low weight for age) in
Colombia decreased from 7 percent in 2005 to 4.5
percent in 2010. Severe malnutrition has also decreased slightly—from 0.6 to 0.5 percent (ENDS,
2010: 298). The use of some sort of oral rehydration therapy—the main remedy used to treat diarrheal illness in children—increased from 61 percent in 2000 to 70 percent in 2005 and 74 percent
in 2010 (ENDS, 2010: 256). Although not proportional to GDP growth over the same period, these
improvements are still notable. However, systematic
differences remain between urban and rural areas
as well as among regions in terms of the awareness
and care of diarrheal diseases in children.
Rural-urban and regional differences persist in the
supply of safe drinking water and provision of appropriate means of sanitation. In the 2002–2010
period corresponding to the environmental health
analysis above, national demographic and health
surveys show decreases of 13 percent in the share of
Colombia’s population without access to improved
sanitation, using the WHO/UNICEF definition.17
The share of the rural and urban population with
improved sanitation reached 84 and 99 percent,
respectively. The national statistics on rural and urban coverage by piped sewerage networks, which
is one of the improved sanitation sources for the
purposes of environmental health analysis and the
WHO/UNICEF definition, show similar gains in
rural areas. According to the household surveys
carried out by the National Statistics Department,
the coverage of rural areas by sewerage networks
increased from around 65 percent in 2003 to nearly
70 percent in 2013. Nevertheless, inadequate WSH
in rural areas is still a serious environmental health
and health equity problem that disproportionately
affects the relatively poor rural population.
Environmental Sustainability
In terms of the next steps on the policy agenda,
the following steps will be critical for advancing
in terms of controlling the air pollution: (i) design economic instruments to reduce air pollution
along the lines of water use and pollution charges
in Colombia (e.g., air pollution charges established
by the 1993 Law 99); (ii) promote renewal of the
vehicle fleet (e.g., junking programs for the old bus
fleet, programs to retrofit most polluting vehicle
classes); (iii) promote fuel switching from coal to
natural gas and switching to improved ovens in
industry (e.g., improved stoves programs for brick
producers); (iv) strengthen the capacity for air
quality and emissions modeling at local environmental authorities, forging alliances with universities and other interested stakeholders; and (v) create real-time air quality alert systems to reduce
population exposure during peak pollution times.
On the indoor air pollution management agenda,
a national program will need to be developed in
conjunction with local agencies to improve incentives for the use of improved stoves and, where
available, switching to cleaner fuels such as natural
gas. The implementation of the 2014 Law 1715
on Renewable Energy presents an opportunity
for reducing the costs of indoor air pollution by
promoting the use of alternative non-fossil energy
sources in rural areas that are not interconnected.
In terms of the water supply and sanitation agenda, investments in wastewater treatment need to be
scaled up significantly, with emphasis on household
sanitation and hygiene. A significant scaling up of
investment in wastewater treatment will require the
enabling institutional and financial conditions. In
that context, the methodology for water use and
water pollution charges will need to be revised,
with an eye to improving incentives for investment
in wastewater treatment. From the health perspective, provision of improved sanitation to households and the soft measures—education and promotion of hygiene—will result in the highest social
benefits and help further reduce child mortality.
Institutional strengthening and the scaling up of
investments are also needed in the solid waste management sector, including hazardous waste and
chemicals. Effective coordination mechanisms will
need to be established to facilitate improved collaboration across municipalities and between municipalities, the Autonomous Regional Corporations
(Corporaciones Autonomas Regionales, or CARs), and
national environmental and sectoral agencies.
Improvements along those dimensions will help
reduce environmental health costs in contamination hotspots, where exposure to pollutants and
vector-borne diseases due to improper solid waste
management is high. Typically, the poorest households benefit the most from such improvements.
The OECD Accession Creates an
Impetus for Green Growth
The prospect of OECD accession creates an opportunity for strengthening environmental management in Colombia and moving toward a more
sustainable growth path. As part of the accession
process, Colombia has signed the declaration on
green growth. In the environmental performance
review for Colombia, the OECD recommends establishing green growth as a central element of the
2014–18 National Development Plan and defining
concrete, measurable environmental objectives for
key economic sectors. By green growth, the OECD
refers to development that achieves sustainable economic growth and social stability, safeguards the
environment, and conserves resources for future
generations. Conversely, “development that is not
based on green growth may lead to prosperity, but
only in the short term, and will soon be undermined
by insecurity and vulnerability” (OECD 2013: 13).
The benefits of green growth result from sustainable management of natural resources, lower risks
of pollution, greater access to basic infrastructure
services for all population groups (including the
poor, more secure livelihoods), and a shift to a resilient and less energy-intensive growth path.
To gain the OECD membership, Colombia will
need to show how it plans to attain the key targets
of the OECD’s acquis on the environment. The
OECD’s requirements include a set of around 72
recommendations and decisions and 45 specific
recommendations for strengthening environmental
135
PART TWO
|
CHAPTER 7
management in Colombia. A key element will be
increased public and private spending on environmental protection and environmental services;
now, it is significantly lower in Colombia at around
0.33–0.6 percent of GDP, compared with 1 percent and above for OECD countries (Figure 7-4).18
The recent assessment by the Contraloria notes that
the current level of environmental expenditures in
Colombia is insufficient for adequate performance
of the national environmental institutions of the
National Environmental System (Sistema Nacional
Ambiental, or SINA). The low level of public environmental expenditures and the economy’s remarkably high dependence on natural resource rents, as
well as the high costs of environmental degradation
in Colombia, make it necessary to place sustainable
growth at the core of the development agenda.
Institutional strengthening is one of the most challenging and important areas in Colombia’s shift to
a green growth path. Despite such recent measures
as the creation of the new National Environmental
Licensing Agency, challenges remain in the enforcement of Colombia’s extensive framework of
environmental laws and regulation, and serious
difficulties persist in the vertical organization of
the environmental management system. The 33
CARs have key responsibilities for implementing
environmental policies at subnational level. The
MADS is responsible for developing policy guidelines and issuing regulations and standards at the
national level and coordinating CARs’ activities,
and CARs are supposed to function as integral
parts of the environmental management system
and guarantee the implementation and enforcement at the local level. However, as pointed out by
the OECD, “the Constitution provides CARs with
a high degree of autonomy in administrative and
fiscal terms, and they are subject to few accountability constraints and controls. In addition, their
system of governance leaves them vulnerable to
capture by local interests; and they are financed in
a way that results in most of them lacking human
and other resources. These weaknesses hinder the
development of the national environmental information system and the implementation of environmental impact assessment (EIA) and licensing
procedures, and impede a consistent approach to
FIGURE 7-4: Total Natural Resource Rents and
Environmental Expenditures
(% of GDP)
Environmental expenditures
(% of GDP, incl. industry and government)
136
1.8
Romania
Italy
1.6
1.4 Czech Republic
Bulgaria
Poland
Finland
1.0 France
Slovak Republic
Croatia
0.8
Hungary
Portugal
0.6
Turkey
Spain
1.2
Mexico
Norway
Colombia
0.4
0.2
0
0
2
4
6
8
10
12
14
Total natural resources rents (% of GDP)
Source: Eurostat (2013) and DANE (2013).
Note: An additional category of environmental expenditures, reported for
some European countries, are outlays by public and private enterprises
specializing in producing environmental services. The category is high for
some European countries (especially Spain, France, Poland, Italy, and Romania)
and is not reported in the figure above to make the data comparable to
Colombia. The country’s DANE does not report environmental expenditures
by private enterprises.
environmental enforcement” (OECD, 2014: 42).
Progress in this area will be critical for attaining
more sustainable developmental outcomes.
Policy Recommendations
Policy recommendations fall within the following
areas: (i) reducing the environmental health costs by
controlling urban air pollution, improving access to
improved water supply and sanitation sources, and
reducing indoor air pollution; (ii) improving wastewater management; (iii) strengthening the performance of the solid waste sector and improving hazardous waste management; (iv) accounting for the
role of natural capital and ecosystem services and
their sustainable use in the Colombian economy;
and (v) short-term recommendations to attain green
growth, including institutional strengthening and
the improvement of the environmental licensing
process to increase its effectiveness and efficiency.
The policy note does not provide recommendations
to help reduce the vulnerability to natural disasters;
that is covered by a separate policy note.
Environmental Sustainability
Development Challenges
Policy Recommendations
1.
•
Design economic instruments to reduce air pollution (e.g. introduce air
pollution charges established by the 1993 Law 99 and revise fuel and
vehicle taxation schemes to provide incentives for the use of clean fuels and
clean vehicles);
•
Promote renewal of vehicle fleet (e.g., junking programs for the old bus
fleet; programs to retrofit most polluting vehicle classes);
•
Promote integrated urban planning, alternative transportation systems
such as scaling up Bus Rapid Transit (BRT) Transmilenio lines and traffic
management through Peak and Plate (pico y placa) and congestion pricing
programs;
•
Promote fuel switching from coal to natural gas, switching to improved ovens
in industry (e.g., improved stoves programs for brick producers);
•
Strengthen the capacity for air quality and emissions modeling at local
environmental authorities, forging alliances with universities and other
interested stakeholders;
•
Create real time air quality alert systems to reduce exposure during peak
pollution times.
•
Promote access to improved drinking water sources and sanitation,
particularly in rural areas. Carry out a cost-benefit analysis of interventions
in the water supply and sanitation sector at a disaggregated level by district
and poverty level to improve the targeting of the investments;
•
Promote hygiene programs (e.g. hand washing campaigns) shown to be
effective at improving health outcomes in this sector, particularly when they
support customized curricula in schools and kindergardens and “training of
trainers” programs;
•
Strengthen the capacity to carry out economic analysis of health costs
and cost benefit analysis of policy interventions and investment programs
by building in-house capacity at the district environmental authorities,
Department of National Planning, Ministry of Health and Ministry of
Environment and Sustainable Development, in partnership with academia,
local universities and other stakeholders.
•
Design and implement a cross-sectoral program to address indoor air
pollution that includes the interventions below;
•
Evaluate existing improved stove programs and implementing measures to
ensure improved delivery and operation of the programs and to maximize
their effectiveness and efficiency in contributing to the achievement of
improved health outcomes in population groups most affected by indoor air
pollution, in addition to fuel efficiency as promoted by Ley 1715 of 2014;
•
Establish different mechanisms to build awareness of the health effects of
indoor air pollution, particularly in rural communities, through existing
outreach programs, such as those for rural health care;
2.
3.
Pollution has high health
costs in Colombia and weighs
disproportionately on the poor.
Urban air pollution has the highest
health costs, and they have risen to
the top in terms of mortality and
economic costs due to illness.
Health costs of inadequate water
supply, sanitation, and hygiene have
fallen but a large share of the costs
still results from child mortality.
Indoor air pollution causes
respiratory illness and premature
mortality, weighing the most on
women and children, affecting the
rural population and perpetuating
the cycle of poverty.
•
Include in housing subsidy programs for rural low-income housing
requirements for building codes and housing design in poor
communities to allow for improved ventilation, including the design of
chimneys;
•
Evaluate the availability of LPG and other cleaner fuels in areas that
predominantly use fuelwood, and implement actions to improve
availability and access to fuelwood users in a safe and cost-effective
manner;
•
Implement a research program to improve understanding of underlying
factors that affect exposure levels;
•
Extend the coverage of rural electrification programs.
(continued on next page)
137
138
PART TWO
|
CHAPTER 7
(continued)
Development Challenges
Policy Recommendations
4.
•
Significantly increase investment in wastewater treatment, creating
enabling conditions for investment in and promotion of PPPs, particularly
by improving the coordination of investments in wastewater treatment
infrastructure across municipalities, by articulating the PAP-PDA and SAVER
program targets with municipal and departmental plans;
•
Strengthen the financing mechanisms of operation and management costs of
wastewater treatment facilities through such measures as tariff changes and
the development of other financial instruments (e.g. guarantees);
•
Strengthen the municipal capacity for designing bankable wastewater
treatment project of appropriate scale;
•
Revise the system of water use and pollution charges established by the
1993 Law 99 (see below).
•
Strengthen the monitoring and enforcement of environmental standards for
landfills;
•
Develop economic instruments for the hazardous waste sector as stipulated
by the 1993 Law 99;
•
Strengthen the coordination mechanisms between the CARs and
municipalities in solid waste management;
•
In the area of hazardous waste and chemicals management, improve
pollutant and polluted sites inventories and devise strategies to address
environmental legacies;
•
To reduce the health costs of mercury pollution, implement a series
of actions, including (i) monitoring of air and water quality in mining
production areas and in areas downstream, (ii) carry out epidemiological
surveillance of populations exposed to pollution, (iii) carry out awareness
campaigns, (iv) promote the use of clean technologies in the mining sector,
(v) promote formalization in the small-scale and artisanal mining sector, (vi)
develop inspection and monitoring capacity at the National Mining Agency.
5.
6.
Wastewater is a major source of
pollution in urban watersheds and
only a quarter of wastewater flows
are treated.
Solid waste management faces
formidable challenges; 20 percent of
municipalities do not have adequate
waste disposal and 30 percent of
sanitary landfills do not follow the
environmental regulations. Hazardous
waste is lagging solid waste in terms
of regulation and implementation.
Sectorial policies and water
•
resources management plans do not
translate into investment plans at the
watershed and local levels. There is an •
absence of an integrated framework
for marine and coastal resources
management.
Strengthen the mandate of the MADS for water resources management,
developing mechanisms to add to the impact of water resources planning
tools on investments;
Revise the system of economic instruments for water resources management
(water use and pollution charges); the current levels are very low and do
not provide sufficient incentives to reduce pollution and do not promote
greater investment in wastewater treatment, particularly by municipalities;
•
Develop wastewater discharge standards for coastal and marine areas, taking
into account the absorption capacity of the receiving water body (e.g. assess
the feasibility of submarine emissaries when treatment is sufficient);
•
For coastal and marine areas, develop a new Integrated Coastal Zones
Management Policy building upon two earlier overlapping policies and a
Masterplan to implement it.
(continued on next page)
Environmental Sustainability
(continued)
Development Challenges
Policy Recommendations
7.
•
Attain the Aichi targets on protected areas, expanding them in areas with
underrepresented ecosystems, areas under pressure from development
and, among other criteria, areas that generate significant ecosystem services
(e.g. the páramos);
•
Develop a national policy on green environmental accounting, with
guidance on information provision and coordination across agencies and the
public;
•
Enhance policy framework, including access to credit for small and medium
farmers, to release land with degraded pastures from extensive livestock
production for other uses that have potential for environmental mitigation,
such as agroforestry, silvopastoral systems, and commercial forestry, and
promote sustainable agricultural production methods;
•
Strengthen data and systems measuring fertilizer consumption by type of
crop and optimum use and provide technical assistance to farmers through
extension services;
•
Secure land tenure regimes for small landholders, promoting land-use
intensification and reducing clear cutting, and remove any perverse
incentives for land titling that promotes the expansion of slash-and-burn
agriculture.
•
Strengthen environmental institutions, coordination mechanisms across
sectors on the environmental agenda, coordination between the MADS and
CARs, and develop financing mechanisms to facilitate improved monitoring
and enforcement;
•
Strengthen the environmental licensing process and the Strategic
Environmental Assessment for projects with significant cumulative impacts,
and improve the methodology for tendering strategic mining and
hydrocarbons reserves;
•
Develop a national Green Growth Strategy and Colombia’s proposal for the
attainment of the OECD’s body of environmental instruments and priority
recommendations;
•
Develop real-time environmental information systems to provide inputs in
decision making, including forest monitoring, a mining sector cadaster, and
green national accounting (e.g., for devising the green growth strategy and
the licensing process);
•
Ensure the attainment of the Extractive Industries Transparency International
(EITI) status.
8.
Ecosystem services, biodiversity,
and forest resources generate
significant economic benefits,
particularly drinking water and
water regulation services in cities.
They reduce the risks of natural
disasters, particularly floods and
landslides. However, the value of
these services is not adequately
accounted for in sectorial policies
and a large share of the páramos,
wetlands, and strategically
important ecosystems has been
altered, reducing the water
regulation benefits. As the peace
agenda progresses and investment
in road infrastructure rises, the
agricultural frontier will likely
expand, adding to the deforestation
pressures. Furthermore, agriculture
is the main source of greenhouse
gas emissions in Colombia.
Economic growth is not on a
sustainable path, with a low level of
genuine savings.
139
140
PART TWO
|
CHAPTER 7
Endnotes
1
2
3
4
5
6
7
An ongoing study by the World Bank “Valuing Marine and Coastal Ecosystems in Colombia: Considerations for the Design of Conservation Strategies”
has estimated the value of the economic services generated by the coastal and marine ecosystems of Colombia. Preliminary estimates suggest that of the different types of ecosystems, those with a higher value
per hectare are the coral reefs (US$1,097 per hectare
per year) coastal bioma (seagrass, shelf sea, estuaries
and shores) with a value of US$446 per hectare, and
coastal wetlands (mangroves) with an estimated value of US$600 The study concludes that marine and
coastal ecosystems generate an annual flow of goods
and services estimated at between 0.94 and 3.06 percent of GDP in 2013. It is important to note that
these are average estimates and that they are based
on limited data that are not site-specific and cannot
be used for the purposes of devising compensation
and offsets programs. For a description of the methodology and the detailed results, refer to the study.
Adapted from Howard, Pippa (2014). “Developing
Offsets for Loss of Biodiversity: Experience from
Colombia.” The World Bank, Washington, D.C.
The World Bank (2014). “Low Carbon Development for Colombia.” Washington, D.C.
The concept of adjusted net savings rests upon the
premise of three forms of capital: natural, human,
and physical. Transformation of one form of capital
in another is possible. Thus, education expenditures
are added to gross natural savings and partly offset
the depletion of natural capital (Hamilton (2000),
Hamilton and Ruta (2009)).
Sinnott et al (2010). “Natural Resources in Latin
America and the Caribbean. Beyond Booms and
Busts?” World Bank, Washington, D.C.
International Monetary Fund (2014). “Colombia.
Staff Report for the 2014 Article IV Consultation.”
Washington, D.C.: p. 12.
Howard, Pippa (2014). “Biodiversity Offsets: the
Options for Colombia.” Latin America and the Caribbean Region LCSEN Occasional Paper Series.
The World Bank. Washington, D.C.
8
9
10
11
12
13
14
15
16
The Extractive Industries Transparency Initiative
(EITI) is a global coalition of governments, companies and civil society working together to improve
openness and accountable management of revenues
from natural resources. Countries implement the
EITI Standard to ensure full disclosure of taxes and
other payments made by oil, gas, and mining companies to governments. These payments are disclosed in
an annual EITI Report. Colombia had declared its
intention to apply for EITI candidacy during 2014.
Browder, Greg and Ricardi Duvil (2014). “Restoring the Coastal Environment in Cartagena, Colombia.” Latin America and Caribbean Region LCSEN
Occasional Paper Series. The World Bank. Washington, D.C.
See, for example, Rudas (2010) and Blackman
(2006).
World Bank (2012). “Assessment of the Environmental and Health Impacts of Mercury Pollution in
Colombia.” Washington, D.C. Draft report.
Campos et al. (2011). “Analysis of Disaster Risk
Management in Colombia. A Contribution to the
Creation of Public Policies.” The World Bank.
Washington, D.C.
OECD (2014). “Environmental Performance Review: Colombia.” OECD Publishing.
DALYs are the sum of years of potential life lost due
to premature mortality and the years of productive
life lost due to disability.
See Sanchez-Triana et al. (2007).
To assess the benefits of improvements in air quality
observed in Bogota since 2002, a sensitivity analysis
was carried out by Golub et al. (2014). It shows the
changes in mortality and morbidity and the associated costs in Bogota in two cases: a high concentration
scenario with the average levels of PM10 measured
in Bogota in 2002, and a low concentration scenario with the levels measured in 2012. It is estimated
that 200 additional mortality cases would have occurred in Bogota had pollution levels remained unchanged at the 2002 level; 440 fewer mortality cases
would have occurred, ceteris paribus, with a con-
Environmental Sustainability
17
centration level on average equal to 48 µg/m3 (i.e.,
the ambient level of PM10 measured in Bogota in
2012). The set of policy measures, including the introduction and enforcement of more stringent fuel
quality standards in Bogota, that led to the lower
measured levels of PM10 resulted in a reduction of
mortality cases in Bogota by 7 percent in 2010, compared to what they would have been had air quality
not improved. A further improvement in air quality in 2012 resulted in a reduction of mortality cases in Bogota by 16 percent, compared with the baseline (2010) scenario.
The WHO/UNICEF Joint Monitoring Program
(JMP) has established a standard set of drinking-water and sanitation categories that are used for monitoring purposes. An “improved” drinking-water
18
source is one that, by the nature of its construction
and when properly used, adequately protects the
source from outside contamination, particularly fecal matter. An “improved” sanitation facility is one
that hygienically separates human excreta from human contact. The definitions used by the JMP are
often different from those used by national governments. Estimates in JMP reports may therefore differ from national estimates. Source: http://www.wssinfo.org/definitions-methods/watsan-categories/
Public environmental protection expenditures in
Colombia dropped from 0.6 percent of GDP in
2012 to 0.33 percent in 2013. The difference is due
to a change in the methodology and accounting for
investments in the water supply and sanitation sector in 2012.
References
Browder, Gregor and Ricardi Duvil (2014).
“Restoring the Coastal Environment in
Cartagena, Colombia.” Latin America and
Caribbean Region LCSEN Occasional Paper
Series. The World Bank. Washington, D.C.
Blackman, Allen (2006). “How Well Has Colombia’s
Wastewater Discharge Fee Program Worked
and Why?” Economic Incentives to Control
Water Pollution in Developing Countries
Policy Brief Series. Resources for the Future.
Washington, D.C.
Campos, Anna, Niels Holm-Nielsen, Carolina
Diaz, Diana Rubiano, Carlos Costa, Fernando
Ramirez, and Eric Dickson (2011). “Analysis
of Disaster Risk Management in Colombia.
A Contribution to the Creation of Public
Policies.” The World Bank. Washington, D.C.
Departamento
Nacional
de
Estadísticas
(DANE) (2013). Cuenta de Actividades
Ambientales. Boletín de Prensa. Bogotá,
Colombia.
Disposición Final de Residuos Sólidos en Colombia
(2013).” Superintendencia de Servicios Públicos.
Bogotá, Colombia.
ENDS (2010). Encuesta Nacional de Demografía y
Salud 2010. Asociación Probienestar de la Familia
Colombiana (Profamilia), Bogotá, Colombia.
Eurostat (2013). “Energy, transport and environment indicators.” Luxembourg: Publications
Office of the European Union.
Golub, Elena, Irina Klytchnikova, Gerardo
Sanchez, and Juan Carlos Belausteguigoitia
(2014). “Environmental Health Costs in
Colombia: Changes from 2002 to 2012.” The
World Bank, Washington, D.C.
Hamilton, Kirk (2000). “Sustaining Economic
Welfare. Estimating Changes in Per Capita
Wealth.” World Bank Policy Research Working Paper No. 2498. The World Bank. Washington, D.C.
Hamilton, Kirk and Giovanni Ruta (2009).
“Wealth Accounting, Exhaustible Resources
and Social Welfare.” Environmental and Resource
Economics42, pp. 53–64.
Howard, Pippa (2014). “Biodiversity Offsets: the
Options for Colombia.” The World Bank.
Washington, D.C.
141
142
PART TWO
|
CHAPTER 7
International Monetary Fund (2014). “Colombia.
Staff Report for the 2014 Article IV
Consultation.” Washington, D.C.
OECD (2014). “Environmental Performance
Review: Colombia.” OECD Environmental
Performance Reviews. OECD publishing.
OECD (2013). “Putting Green Growth at the
Heart of Development.” OECD Green
Growth Studies, OECD publishing.
Rudas, Guillermo (2010). “Tarifas de las tasas por el
uso del agua. Impactos sobre el costo del servicio de
acueducto residencial y sobre la rentabilidad industrial y agropecuaria.” Documento de Trabajo. The
Nature Conservancy, Patrimonio Natural and
Wildlife Fund. Bogotá.
Sanchez-Triana, Ernesto, Kulsum Ahmed, and
Yewande Awe, eds. (2007). “Environmental
Priorities and Poverty Reduction. A Country
Environmental Analysis for Colombia.” The
World Bank. Washington, D.C.
Sinnott, Emily, John Nash, and Augusto de la
Torre (2010). “Natural Resources in Latin
America and the Caribbean. Beyond Booms
and Busts?” World Bank, Washington, D.C.
The World Bank (2014). “Low Carbon
Development for Colombia.” Washington,
D.C.
The World Bank (2012). “Assessment of the
Environmental and Health Impacts of
Mercury Pollution in Colombia.” Washington,
D.C. Draft report.
The World Bank (2010). “Project Appraisal
Document on a Proposed Loan in the Amount
of US$250 million to the Corporación Autonoma
Regional de Cundimarca with a Guarantee from
the Republic of Colombia for a Río Bogotá
Environmental Recuperation and Flood
Control Project.” Washington, D.C.
Structural Changes – Implications for Growth, Productivity, and Competitiveness
CHAPTER 8
Transport Infrastructure
143
144
PART TWO
|
CHAPTER 8
Main Messages
Background: Colombia’s transportation network plays an important role in the country’s economic
and social development. However, a fragmented institutional and regulatory framework, low technical
capacity, and persistent low levels of investment lacking a strategic vision are the root causes of the
country’s transport infrastructure gap.
Current challenges include: (i) lack of strategic long-term planning in the sector and a fragmented
institutional and regulatory framework; (ii) limited local and national capacity to manage the decentralization of the road network and other decentralized functions; inflexible and volatile budgets and
limited contracting and implementation capabilities leading to low investments; (iv) an unprecedented
increase in the number of road concessions demanding important contract management capabilities;
(v) weak frameworks to address transport sector externalities, such as road accidents, transport-related
greenhouse gas emissions and resilience to climate change related events; and (vi) low diffusion of
multimodal transport corridors and improved logistics practices.
Main policy recommendations include clarifying and strengthening the competencies and roles of
agencies at the national level, improving subnational level competencies in planning, project structuring, and project management, enhancing the contract management capacity for public/private partnership (PPP), streamlining the PPP project cycle and the planning and structuring of PPPs, mainstreaming road safety and environmental management in the sector’s policy agenda, promoting multimodal
transport based on integrated planning principles and economic rationale, and enhancing the environment for private participation in logistics services.
Background
The availability and quality of infrastructure are
key determinants of long-run growth and affect
the competitiveness of an economy; hence, improving the provision of infrastructure will be a
determining factor in Colombia’s ability to cash in
on a potential growth dividend. Colombia’s economic performance has been impressive in recent
years, yet the country suffers from severe connectivity challenges that drag down its growth and
competiveness. Investment in transport infrastructure averaged 0.8 percent of GDP from 2001 to
2009, with recent National public investment
rising to 1.3 percent of GDP in 2010 and 2011
(Figure 8-1).1 However, several estimates conclude
that investment should rise to at least 3 to 4 percent
of GDP to close the country’s infrastructure gap2
and meet projected demand.3
Colombia’s infrastructure gap is particularly acute
in road transport—as shown by the high logistics
costs compared to similar economies around the
world. A host of studies and benchmarks highlight
Colombia’s transport infrastructure bottlenecks.
For instance, Colombia ranks 69th among 144 countries in the World Economic Forum’s competitiveness ranking (2012–2013 and 2013–2014 reports),
mainly being pulled down mainly by the quality
of its combined transport4, electricity supply and
FIGURE 8-1: Investment in Transportation
Infrastructure
FIGURE 8-2: Transport Infrastructure Quality
Rating According to the World
Economic Forum 2013
OECD
5.33
Chile
1.8%
1.63%
1.6%
4.54 (46)
Uruguay
4.31 (55)
Mexico
1.4%
4.14 (64)
Brazil
1.2%
0.97%
1.0%
0.8%
0.66%
0.6%
0.4%
4.02 (71)
Ecuador
3.81 (79)
Argentina
3.52 (89)
Peru
3.50 (91)
Colombia
3.50 (92)
Venezuela
0.2%
0
telecommunications infrastructure (ranked 92nd),
and the quality of its institutions (ranked 110th,
Figure 8-2). In the World Bank’s 2014 Logistics
Performance Index, Colombia ranks 97th among
160 countries, making it one of the worst performers relative to regional peers (Figure 8-3).5 The
country ranks 93rd among 185 economies in the
World Bank’s 2013 Doing Business indicator related to Ease of Cross Border Trade,6 which predominantly highlights the country’s high inland transportation costs and time in performing a foreign
trade transaction (Figure 8-4). In particular, more
than 65 percent of the exporting/importing costs
in Colombia are associated with inland transport,
and these costs are more than double the LAC and
OECD averages.7,8 Furthermore, an analysis of
Colombia’s infrastructure gap by transport mode
finds the largest deficiency in road infrastructure,
where Colombia ranks 130 out of 148 in 2013–
2014 WEF’s GCR. A 2013 study by Fedesarrollo9
estimates that in order to reduce the gap in road
infrastructure10 in Colombia, the country should
have at least 25 percent more roads (approximately 45,000 kilometers), and 30 percent more paved
roads (approximately 8,000 kilometers).11 The gaps
in port and airport infrastructure are less significant, although most of them are already operating
2.61 (125)
0
2004
2005
Total
Source: Fedesarrollo 2013.
2006
2007
Public
2008
2009
Private
1
2
3
4
5
6
2010
Source: World Economic Forum 2013.
Note: Colombia’s overall transport infrastructure quality rating is 3.50 on a
scale of 1 to 7. Numbers in parenthesis in both graphs refer to countries’
overall ranking.
Transport Infrastructure
145
PART TWO
|
CHAPTER 8
FIGURE 8-3: Logistics (Logistics, plural)
Performance Index, 2014
OECD
3.67
Chile
3.26 (42)
Mexico
3.13 (50)
Argentina
2.99 (60)
Brazil
3.94 (65)
Peru
2.84 (71)
Venezuela
2.81 (76)
Ecuador
2.71 (86)
Uruguay
2.68 (91)
Colombia
2.64 (97)
0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Source: World Bank’s Logistic Performance Index 2014.
at maximum capacity, and this will only worsen
with increased trade and passenger demand.
Against this backdrop, the economic relevance
of Colombia’s road sector has never been higher,
triggered mainly by a rapid expansion of freight
transportation by road and the potentially higher demands of new free trade agreements (FTA).
Colombia’s growth has been accompanied by increases in foreign and domestic trade flows, which
have placed tremendous pressure on the country’s
road infrastructure and underscored the need to
improve connectivity within cities and between
cities and ports to external markets. Transport infrastructure deficiencies also hinder regions from
reaping the full benefits of trade. Regions continue to be self-contained and relatively autarkic,
which hampers greater regional integration and
more specialized and competitive cities.12 The
predominance of road transport has increased
to the extent that other modes of transport, including river and rail, have historically ceased to
be an option for the movement of general cargo.
Instead, they have concentrated on moving special cargo, such as coal (rail) and oil/oil derivatives
(rivers).13 Indeed, if Colombia continues on its
current growth trajectory, if at the same time the
new FTAs increase trade,14 and if all planned road
investments are carried out in the coming years,
the road network will have an acceptable level
of service by 2020. By 2035, however, demand
will again exceed road capacity.15 For the reasons
described above, this Policy Note focuses on the
road sector’s looming challenges, while discussing
constraints to creation of a modern multimodal
transport sector and the role logistics services play
in this respect.
FIGURE 8-4: High Cost of Importing and Exporting
Cost of Export Procedures ($USD)
2500
2000
2,355
7%
13%
170
Cost of Import Procedures ($USD)
3000
300
2500
350
15%
1,535
1500
2000
2,470
6%
7%
10%
150
170
250
1,900
1500
Source: Doing Business 2014.
Inland transportation
and handling
Documents
preparation
77%
Customs clearance
and technical control
Inland transportation
and handling
0
Customs clearance
and technical control
0
Documents
preparation
500
Ports and
terminal handling
500
Ports and
terminal handling
1000
65%
Totals
1000
Totals
146
Transport Infrastructure
The transport sector is of paramount importance
in overcoming the regional isolation at the root of
the country’s socioeconomic inequalities. The lack
of roads and deficient road conditions are obstacles
to rural areas’ connection to the rest of the country. Being isolated hinders access to public services,
makes products more difficult to sell to larger markets, limits economic opportunities, slows regional integration and competitiveness, and may even
limit the presence of the Government16 in some
regions. Although the planned improvements to
the national road network (roads under concession) are important to connecting rural areas with
markets, improving the connectivity and quality of
secondary and tertiary roads is crucial for both regional development and reducing rural poverty.17
The Santos administration has implemented a
number of reforms to revamp the institutional and
regulatory framework, improve the investment climate, and enhance public-private dialogue in the
transport sector. Responding to problems encountered in the three generations of concessions that
started in the mid-1990s,18 the Santos administration embarked on a set of comprehensive reforms
expected mobilize more private sector resources
and skills for public transport projects. A PPP Law
(Law 1508, 2012) was enacted. The National Institute of Concessions was transformed into the National Infrastructure Agency (ANI)— in charge of
structuring and managing road concessions. The
Financiera de Desarrollo Nacional (FDN) was created
to provide long-term funding and innovative financial products to the infrastructure sector. Finally, a number of existing public agencies (FINDETER and FONADE) were given a mandate to
provide project structuring services to develop a
pipeline of projects. The new Infrastructure Law
(Law 1682 from November, 2013), is designed to
tackle some of the most pressing transport bottlenecks that have historically led to cost-overruns
and delays in transport projects.19 It also calls for
creation of two important agencies in the transport sector: the Transport Planning Unit (designated by Decree 946 of 2014) and the Transport
Regulatory Commission (Decree 947 of 2014).
These two agencies,20 which are planned to be ful-
ly during 2015, will be the keystones from the National Government to develop and prioritize the
robust pipeline of infrastructure projects within
long term vision master plans.
Despite these achievements and the sector’s important role in the country’s economic and social development, a transport infrastructure gap persists,
rooted in a fragmented institutional and regulatory
framework, low technical capacity, and persistent
low levels of investment that lacks a strategic vision,
particularly in the secondary and tertiary networks.
Colombia’s transport sector underwent a series of
transformations since the 1990s, but the pace of reforms and the degree to which these reforms have
been internalized at the national, departmental,
and municipal levels are quite different and even
vary significantly among the subnational levels.
The recent program of bold reforms is meant to
improve the investment climate for private participation and strengthen the institutional framework
at the national level. Successful implementation
of the Fourth Generation of Concession Program
(known as 4G)21 will be the ultimate test to gauge
whether the reforms pay off. For those roads not
under concession, what has become evident is that
the decentralization of road infrastructure carried
out in the 1990s was left incomplete. In practice,
the allocation of competencies and responsibilities at the national and subnational level was never
made clear. As a result, there is a need to revamp
the institutional capacity at all levels and develop
more strategic planning and financing options, so
investments in the secondary and tertiary network
generate economic and social impacts.
Knowledge
Road transport is the dominant mode in
Colombia concentrating more than 70 percent
of total freight volume movements; the sector has been characterized by low diffusion of
multi-modal and logistics practices. The overall
modal split in Colombia’s freight transportation
shows a clear dominance of road transportation,
with 70 percent of total freight volume moved
147
148
PART TWO
|
CHAPTER 8
by truck. Railroads account for 27 percent of
freight, and are used almost exclusively to transport coal from mines to maritime ports for export. Inland navigation represents 3 percent of
freight, and flows are concentrated on the Rio
Magdalena, which is mainly used to transport oil
and its derivatives. Commercial navigability for
other products could be feasible, but requires the
development of intermodal facilities and dredging to ensure all-season navigability. Under these
conditions, modern multimodal transport is virtually non-existent in Colombia, and except for
coal and oil, all freight is concentrated by road.22
Almost all of Colombia’s international trade is
channeled through maritime ports. Truck flows
through border crossings with Venezuela and
Ecuador take comparatively small volumes, while
air transportation is only relevant for the small
fraction of higher value products or perishable
goods.23 As of recently, initiatives are underway
to expand the installed port capacity on both
coasts, improve the connectivity between ports
and inland transportation network,24 and expand the navigability in the Rio Magdalena,25 by
which the National Government expects to cut
down by 50 percent freight transport costs to the
Caribbean coast and foster coal mining.
Logistics services and practices have improved in
Colombia, and the formulation and adoption in
2008 of a National Logistics Plan was a step in the
right direction to develop the enabling environment
and prioritize a set of actions to promote modern
logistics practices and multimodality. However, numerous challenges still remain, including the consolidation of a national logistics observatory; improving inspection and customs clearing of freight
at ports, airports and border crossings;26 improving
cargo handling in urban centers; improving cargo
transport pricing and tariff schemes; improving
the performance, efficiency, safety, reliability and
greenhouse gas emission levels of the freight truck
fleets; and mainstreaming communication and information technology in logistics practices.27
The country’s road infrastructure includes a network of 214,399 kilometers (out of which only
11.88 percent are paved).28 This network includes
roads that are the responsibility of three different
administrative levels, i.e., national, departmental
and municipal, as follows: (i) 17,249 kilometers of
national roads, of which 11,682 are under public
domain managed by the National Road Agency
(INVIAS), and 5,262 are concessions managed by
the ANI (with provisions for additional 8,100kilometers from INVIAS to be transferred to ANI to
be bid as part of the 4G plan, which will leave ANI
with 13,362 kilometers); (ii) 42,954 kilometers of
secondary roads are under the jurisdiction of 32
Departments; (iii) an estimated 141,945 kilometers
of rural and local roads are primarily under the
jurisdiction of municipalities, although INVIAS
and Departments also manage a portion of this
network;29 and (iv) 12,251 kilometers of private
roads (Table 8-1). About 80 percent of the primary
network and 27 percent of the secondary network
is paved. Moreover, only 1,170 kilometers of the
primary network are dual carriageways. In general,
the quality of the road network is poor (Figure 8-5),
except on the access corridors to major cities and
ports, which are predominantly under concession.
Yet, since most of the assessment of road assets
(particularly those under public domain) relays
solely on visual inspections, there is a need to complement with more robust techniques to identify,
quantify, and value the condition of the network.
FIGURE 8-5: Quality of the National,a
Secondary, and Tertiary Roads
3.83%
14.44%
26.03%
26.68%
27.93%
Very good
Regular
Bad
Good
Very bad
Source: INVIAS for the national road network under its jurisdiction.
Fedesarrollo (2013) for the secondary and tertiary roads.
a
Includes only national roads under INVIAS jurisdiction.
Transport Infrastructure
TABLE 8-1: Road Network in Colombia 2013
Length (Km)
National Roads
11,682 (3,582)
8,313
ANI
5,262 (13,362)
5,262
Total
305
Unpaved (km)
3,369
305
17,249
8.0%
13,880
3,369
20.0%
11,598
31,356
Secondary Roads
Departments
42,954
Rural and Local Roads
INVIAS
26,970
Departments
14,195
Municipalities
100,780
Total
141,945
Private Roads
Paved (km)
INVIAS
Departments
Total
%
66.2%
12,251
5.7%
214,399
100%
141,945
12,251
25,478
188,921
Source: Plan Vial Regional (PVR 2013).
Note: For National Roads, number of kms in parenthesis reflects the reallocation due to 4G plan.
The new institutional set-up at the national level
offers an opportunity to revamp the institutional
capacity, but Colombia needs to clarify the roles,
responsibilities, and coordination mechanisms of
the road sector agencies and, more generally, the
entire transport sector. The transport sector has
been characterized by inadequate policy and planning capacity, the lack of a multimodal policy, a
short-term and reactive vision and management,
and a shortage of technical personnel in key agencies.30 The Santos administration’s recent reform
package is a step in the right direction for overcoming some of these shortcomings. Yet, the new institutional set-up also raises some concerns. The first
relates to the role of the Ministry of Transport.
One of its core functions—planning and prioritizing investments with high rate of social returns—
has been delegated to the Transport Planning
Unit. This unit, like a number of other recently
created transport agencies (Regulatory Commission, ANI), is an independent body (agencia adscrita), not part of the ministry. The strategy has been
adopted as a way to create incentives to attract and
retain technical staff, improve governance structures, and contracting and implementation capacity. Nonetheless, it is important that the Transport
Ministry also revamps its technical and implementation capacity to retain its policy-making mandate
and consolidate and coordinate the different trans-
port sector agencies. The second issue emerges as
a result of the new 4G concession program, and
the fact that more than 75 percent of the national road network will be managed by ANI. Against
this backdrop, the National Road Agency (INVIAS), which has important technical capacity deployed through the 32 Departments, is struggling
to find a new role and mandate that will allow it
to act as facilitator in the process of decentralization of regional road networks Lastly, the proliferation of project structuring agencies (ANI, FDN,
FONADE, and FINDETER) may help create a
pipeline of transport projects in the near future,
but eventually there will be a need to better define their competencies and boundaries to achieve
more efficient and specialized interventions.
At the subnational level, the process of decentralizing the road network is still incomplete. Two
tasks are of paramount importance to achieving
the integration of the road network under all jurisdictions: (i) building up the institutional capacity
(planning, structuring, financingand project management) and (ii) strengthening the coordination
mechanisms between national, departmental, and
municipal levels. Begun in the 1990s, the process
of decentralizing the road network (both in terms
of financing and capabilities) has proved inadequate. The poor condition of the road network,
149
150
PART TWO
|
CHAPTER 8
particularly the secondary and tertiary roads that
are mainly under subnational jurisdiction, is a
clear indication of such deficiencies (Figure 8-5).
Through the Ministry of Transport, the national
Government has recently made some strides in
supporting the departments with the mechanisms
and institutional arrangements and regional financing mechanisms31 required to comply with the
decentralization of competencies introduced in
the 1990s. To this effect, the Ministry of Transport
launched a program (Plan Vial Regional) to help
the departments strengthen their technical and
institutional capacities, access sources of funding,
and financing and implement road management
methodologies for the secondary road network.32
Yet, this technical support has not been extended
to municipalities to improve the planning, procurement mechanisms for works33 and road management capabilities of tertiary roads. Information
on the quality of these networks is limited, complicating the process of investment planning and
leading to fragmented and sporadic investments
that make very little sense from an economic or
social perspective. Sources of financing, including
those from the national Government, are also extremely volatile, worsening the situation. Design of
a technical assistance program similar to the one
put in place for the secondary road network could
be an option for improving municipal planning
and road management capabilities under the current decentralized framework. Furthermore, the
Ministry of Transport should leverage the newly
created Transport Planning Unit to achieve an
integrated planning process that generates strategic investments at the subnational level that make
sense from a regional perspective. Project structuring and project management capacities also need
to be shored up at the subnational level. These
are becoming particularly important under the
reforms supported by the new Royalties Law (Ley
de Regalias)34 and the PPP Law. Under these laws,
subnational entities can originate and structure
transport infrastructure projects to be financed by
royalty transfers and/or can receive unsolicited
proposals from the private sector that would need
to be evaluated and filtered (more on this below).
National public project structuring agencies (FDN,
FONADE, and FINDETER) could help build
these capabilities at the sub-national level; alternatively, the government could follow the examples
of Brazil, Mexico, and other countries and set up
project structuring facilities or leverage support
from private structuring agencies.35
In terms of financing strategies, Colombia needs
to develop a resource framework and the contracting and implementation capabilities for stable financing of the publicly managed road sector and
adopt cost-effective asset management policies to
make the most of available resources. The road
network, particularly those assets managed by the
public sector, has been subject to disruptive “stopand-go” implementation programs, resulting from
inflexible and volatile budget allocations. The pattern has impeded a long-term maintenance strategy36 and implies that higher financial requirements
are needed to overcome the backlog of deferred
maintenance. Furthermore, limited contracting
and implementation capabilities—at all levels of
government— result in further maintenance backlogs because budget allocations are not executed
in a given year.37 Against this backdrop, a sound
resource framework and a system for the financing of the road network in which resource allocation is based on cost-effective policies according to
agreed and coherent priorities, developing more
modern and sound financial planning mechanisms
adequately linked to investment plans is required
to reduce the deterioration of the road network
and maintenance backlog.38 At the national level,
the 4G program under execution by ANI has prioritized corridor projects (including construction,
operation and maintenance for over 20 years) with
the highest socioeconomic benefits. In this sense,
PPP legislation includes road maintenance requirements which are not dependent yearly budget allocations. In its turn, INVIAS is developing a
performance-based road rehabilitation and maintenance program39 to improve management and
quality of the national road assets. However, deployment of this type of program would imply securing the necessary funds to rehabilitate segments
that have not received interventions in recent years,
implementing more modern planning strategies to
Transport Infrastructure
anticipate future requirements, and designing efficient work programs aligned with existing budgets.
Through the Plan Vial Departamental, the Ministry
of Transport has helped departments tap into
more stable sources of financing and adopt more
cost-effective management policies, but municipalities still face enormous challenges in this respect.
With its growing concession program, Colombia
needs to enhance the Government’s PPP contract
management capacity and reinforce the planning,
structuring, and project evaluation filters in the
PPP project planning cycle. Implementation of the
4G concession program will result in 40 new projects for construction of 8,100 kilometers of national roadways and generate new investments of
approximately USD$26 billion over the next eight
years. If the 4G program is executed as expected,
by the end of 2014 alone, ANI will have at least 25
more road projects to manage.40 This represents a
doubling of the 25 road concessions from previous
generations that ANI currently manages.41 This
tremendous increase in projects under management will put significant pressure on ANI’s contract management function and call for an important institutional effort. As documented in research
and experience, concession agreements are subject
to a high incidence of renegotiation42 and the Government must be in a strong position to manage
incumbent operators and enforce contracts that
are inherently complex and involve a wide variety of legal, financial, and technical obligations on
the part of private operators that must be continuously monitored. As previously mentioned, the
country needs to strengthen investment planning
in the road sector, irrespective of the procurement
model utilized (public works or PPP). Once a pipeline of projects that makes sense from an economic
and social perspective is defined, public structuring
agencies (ANI, FDN, FONADE, and FINDETER) should come in to support in the development of PPP projects, both at the national and
local levels. In this sense, the Government’s PPP
support framework needs to be streamlined, with
the mandates and competitive advantages of the
various agencies involved in the PPP project cycle
better defined (Ministry of Finance, DNP, Minis-
try of Transport, FONADE, FDN, FINDETER,
ANI). In addition, project evaluation filters from
the above mentioned agencies are coming in too
late in the preparation cycle, since early screenings
are required to reduce the risk of wasting resources in the preparation and evaluation of inadequate
PPP projects and to avoid conflicts when national
and subnational government entities deny (or ask
to significantly modify) projects at a later stage.
Lastly, it is of paramount importance that Colombia
continues to address transport sector externalities
by mainstreaming road safety initiatives and environmental management programs (including resilience to climate change events of the road network
and comprehensive vehicle mechanical and emissions inspections) into the policy agenda. Due to the
ever-growing number of casualties and fatalities on
the road network, road safety has become a common and prominent issue at all levels of government. In Colombia, road fatalities are the second
cause of death overall, and the leading cause of
death among children and early youth (5 to 14 year
cohort).43 Between 2012 and 2013, Colombia took
important strides to establish a new institutional
and technical framework to address road accidents
and vehicle maintenance standards, by creating the
Road Safety Lead Agency (Law 1702, 2013) based
on international best practices (in parallel with the
National Road Safety Fund to earmark specific resources for the implementation of the new policies),
and the revised technical-mechanical mandatory
inspection for all motor vehicles (Decree 019 of
2012). New regulation was also enacted to increase
fines for driving under the influence of alcohol.
Adequate enforcement and monitoring schemes
for these regulations are still in the early stages and
may undermine the effectiveness of the measures.
In terms of resilience to climate change, the experience with the meteorological phenomenon known
as La Niña in 2010 and 2011 proved the lack of preparedness of the road sector, and called for mainstreaming environmental management and disaster
risk policies in the transport sector. Against this
backdrop, the PPP Law requires government agencies to undertake a natural disaster risk and vulnerability analysis for all proposed projects.
151
152
PART TWO
|
CHAPTER 8
Policy Recommendations
Policy Recommendation #1: Clarify and
strengthen the competencies and roles of
various transport agencies at the national level. First, and foremost, the Ministry of
Transport needs to overhaul its technical capacities to strengthen its policy-making functions and
move away from a short-term and reactive vision
and management of the sector, strengthen its policy-making functions and link them with a concrete
long term infrastructure investment plan. The creation of the new Transport Planning Unit is a step
forward because the sector has been characterized
by a lack of integrated, long-term planning (and
a corresponding robust project pipeline). For this
Unit to work properly, the Ministry of Transport
needs to have the right technical personnel and
the adequate coordination mechanisms and information flows, so the core planning function is not
delegated but feeds into policy-making. Second,
with the new institutional set-up emerging at the
national level, a broad exercise should be launched
to clarify the roles of various transport sector agencies in a coherent and coordinated manner and to
make sure that the capacities are being developed
to fully discharge the responsibilities established by
the new institutional framework. For instance, the
national roads agency INVIAS is currently struggling to find its role as facilitator of the decentralization of road networks amongst the new wave of
road concessions led by Public structuring agencies
(ANI, FDN, FONADE, and FINDETER). These
agencies are are openly competing to build a pipeline of transport sector PPPs, which can benefit
greatly from a long term infrastructure master
plan led by the Ministry of Transport and the
Transport Planning Unit. The Superintendence of
Ports and Transport also needs to be revamped to
focus on supervision and build the technical capacities to respond to the new challenges is needed in
coordination with the recently created Transport
Regulatory Commission.
Policy Recommendation #2: Improve the institutional set-up to manage the secondary
and tertiary road network, bolster capacities at the subnational level, and develop a
more stable financing framework and system for prioritizing investments, with the
goal of generating impacts that make sense
from an economic and social perspective.
There is a need to mesh long-term planning of
the national, regional, and local road networks.
With the deployment of the Plan Vial Departamental
program, the Ministry of Transport has taken
important strides in helping departments with
their planning and project structuring capacities.
The ministry could leverage this program to support municipalities in developing competencies
and instruments to manage the tertiary road network—e.g., collection of statistics, compilation of
road inventories, guidelines to manage the network, identification of funding sources, etc. The
Transport Planning Unit should also become the
coordinating body for the integral planning of the
sector at the subnational level, and INVIAS could
take on a new and more focused role in providing
technical assistance to municipalities in the management and maintenance of the tertiary network.
To this effect, the experience of countries like
Peru, Mexico, and India44 could be benchmarked
in designing a rural roads program anchored at
INVIAS. The financing framework also needs to
be tackled, particularly for rural roads. Since municipalities are largely dependent on transfers from
the national Government, there is a need to prioritize resource allocation based on economic and/
or social parameters to generate greater impacts.
Lastly, there is a need to bolster project structuring and project management capacities at the
subnational level. To tackle these deficiencies, the
Government could consider the following alternatives: (i) agreements with national public project
structuring agencies (mainly FONADE, due to its
experience and important technical capacity, and
also including FDN and FINDETER) to increase
and strengthen support to sub-nationals; (ii) establishment of a proposed project structuring facility, perhaps funded by royalty system proceeds
and with support from international honest brokers; (iii) leverage support from private structuring
agencies, as it is done in countries like Brazil or
Transport Infrastructure
Mexico. The ultimate goal is to avoid fragmented
and atomized public investments by prioritizing
the structuring and implementation of subnational projects that have regional or national impact
and are conceived within a long term infrastructure master plan, as opposed to fragmented and
atomized public investments45
Policy Recommendation #3: Enhance PPP
contract management capacity and the
planning and structuring of PPPs. The 4G
program’s unprecedented increase in the number
of road concessions will demand an important institutional effort in contract management. In this
respect, setting up adequate governance and technical competencies in the Transport Regulatory
Commission to respond to its chartered responsibilities is critical. Contract management functions
in the ANI also need to be revamped by implementing such initiatives as: (i) institutional specialization
in managing pre-defined types of obligations that
are present across all concession agreements (i.e.,
insurance requirements, performance bonds, supervision of quality of service, etc.); (ii) quality certification for policies and procedures to provide a
sense of security to private sector participants and
infrastructure users; (iii) intelligent use of outsourcing possibilities for tasks that could be better handled by third parties; (v) training and professional
development programs to build a cadre of experienced contract managers; and (vi) a governance
structure that shields the function from potential
outside interference. In terms of improving the
planning and structuring capacities of transport
PPPs, the Government could consider designing
and implementing a capacity building program
on PPPs for public structuring agencies. It would
provide structured training to public sector officials
responsible for the preparation and evaluation of
investment projects (Peru and Uruguay recently
implemented such programs). Refining the PPP
project cycle and establishing more detailed guidelines and procedures is also key. The Government
could consider facilitating PPP project preparation
and evaluation by: (i) introducing project screening at the pre-feasibility stage and better enforcing
the PPP project registry created by the PPP Law;
(ii) mandating the use of standard project preparation and evaluation forms for private and public
proponents; (iii) signaling to the private sector the
priority sectors leveraging information from long
term infrastructure master plans and its derived
project pipeline.
Policy Recommendation #4: Continue to
mainstream road safety and environmental management in the transport sector
policy agenda. The Government needs to continue in an aggressive and decisive manner to
design and implement an integrated, multi-disciplinary and results-focused approach for road
safety. In this respect, moving forward with the
creation of the Road Safety Lead Agency with a
Safe System approach46 based on technical and
independent criteria is crucial. The experience
of Lead Agencies operating successfully in Spain
and Argentina should be considered. At a minimum, Colombia’s Lead Agency should take on
the following responsibilities: (i) spearhead road
safety issues and serve as the central convening
body for other stakeholders, including civil society, private sector, and national and local government bodies; (ii) organize and lead the team that
plans and implements road safety policies; and
(iii) lead technical aspects and establish a system
for road safety information. In addition to creating the Lead Agency, Colombia needs to revise its
National Traffic Code to include the road safety perspective/policy in its norms and include
road safety design47 criteria in the road network
currently being developed, particularly dual carriageways. These concerted efforts to improve
road safety should ultimately be measured and
monitored against the goal set by United Nations
for the Decade of Action—reducing by 50 percent the deaths by road accidents in the 2011–20
period. In terms of environmental management,
Colombia needs to revamp its adaptation, mitigation, and increased resilience strategies to manage the risks and vulnerability posed by climate
change on its transport infrastructure. This will
require the collection and continuous update of
information on high risk areas, the design and implementation of disaster risk assessment policies,
153
154
PART TWO
|
CHAPTER 8
and associated prevention and mitigation measures in the transport sector.
Policy Recommendation #5: Promote the
adoption of multimodal transport in trade
corridors, guided by integrated planning
principles and economic rationales, and enhance the enabling environment for private
participation in logistics services. As previously mentioned in this note, Colombia can expect
a significant expansion of freight transportation as
a result of new trade agreements. As a response
to this increased pressure in its transport networks,
the adoption of multimodal transport strategies
should emerge from an integrated and strategic
planning exercise focused on key trade corridors
and guided by economic rationales—cost-efficiency criteria, lengths to be travelled, type of cargo
to be transported, etc. Furthermore, although
the Government is making important strides in
improving the infrastructure for handling certain
types of freight through inland navigation and rail,
these investments need to be complemented with
adequate logistics platforms and services that will
make multimodal transport feasible. Additionally,
logistic platforms must be planned in consideration to optimize flows from production centers
to multimodal integration centers taking into account that logistic activities put additional strain to
the already congested urban road networks in production centers.48 In this sense, the most important
task for the Government is to provide the enabling
environment and regulations for the private sector
to develop these complementary logistics services
(logistics centers, transfer centers, and cargo consolidation facilities). It will involve facilitating and
simplifying all procedures related to cargo control,
inspection, and customs clearance.
The following matrix summarizes the overall diagnostic and policy recommendations over short
(one year) and long-term (four years) horizon:
Transport Infrastructure
Development Challenge Policy Recommendations—Short Term
Lack of strategic long-term
planning and clarity on the
roles and competencies
of agencies at the national
level.
Limited local (and national)
capacity to manage more
decentralized systems.
Limited contract
management capacities
points to the need to
strengthen the planning and
structuring of PPPs.
Weak sectoral frameworks
to address transport sector
externalities, such as road
accidents and climate
change.
•
Define/clarify competencies, governance
structures, and coordination mechanisms
of national level agencies (Transport
Planning Unit, Regulatory Commission,
Superintendence of Ports and
Transport).
•
Carry-out long-term investment master
planning of the transport network which
can set the grounds for a robust project
pipeline and based on state of the art
planning tools and sound economic
analysis (cost-benefit analysis) while
generating linkages with transport policy
strategies.
•
Design and roll-out a program, led by
the Ministry of Transport, to support
subnational governments in defining
competencies and instruments to
manage the secondary and tertiary road
network.
•
Implement Standard Bidding documents
for road construction and maintenance
programs at the subnational level.
•
Bolster project structuring and
project management capacities at the
subnational level.
•
Create, staff, and set up adequate
governance and technical competencies
in the Transport Regulatory
Commission to respond to its chartered
responsibilities in the PPP realm.
•
Revamp contract management functions
in the ANI for pre-defined types of
obligations that are present across all
concession agreements.
•
Strengthen an early screening process
in the PPP cycle to allow prioritizing
projects in which private participation
is more financially and economically
feasible.
•
Staff and setup adequate governance
and technical competencies in the Road
Safety Lead Agency.
Policy Recommendations—Long Term
•
Leverage the Transport Planning Unit as
the coordinating body for the integral
planning of the sector at the subnational
level.
•
Leveraging on studies and reports on
diagnosis and strategies to fund public
investment at the national and subnational
level for of infrastructure projects
(including the REDI study financed by
the World Bank), propose strategies to
increase the public investment levels and
innovative financing mechanisms at both
levels.
•
Design and implement a capacitybuilding/training program on PPPs for
public structuring agencies.
•
Refine and streamline the actual PPP
project cycle (as dictated by the process
and procedures manual published by the
Ministry of Hacienda) by standardizing
project documents and establishing
supervision, monitoring and enforcement
mechanisms for these detailed guidelines
and procedures.
•
Better define competitive advantages
and enforce mandates of the different
public sector agencies involved in the
PP project cycle, ensuring that project
evaluation filters are timely and technically
robust and avoiding relegating filters as
procedure check-boxes.
•
Link the PPP project pipeline with a long
term infrastructure master plan which
defines priority national and subnational
projects.
•
Establish the National Road Safety
Observatory.
•
Incorporate environmental management
policies in transport sector agenda.
(continued on next page)
155
156
PART TWO
|
CHAPTER 8
(continued)
Development Challenge Policy Recommendations—Short Term
Policy Recommendations—Long Term
Low diffusion of multimodal
and logistics practices.
•
•
Adopt multimodal systems in trade
corridors, guided by strategic planning
and economic rationale.
•
Consolidate the consolidation national
logistics observatory at DNP.
Continue with the implementation of
the National Logistics Plan, including
dimensions related to: improving
inspection and customs clearing of
freight at ports, airports, and border
crossings; improving cargo handling in
urban centers; improving cargo transport
pricing and tariff schemes; improving the
performance, efficiency, safety, reliability,
and greenhouse gas emission levels of the
freight truck fleets; and mainstreaming
communication and information
technology in logistics practices.
Endnotes
1
2
3
4
5
6
Estimates from National Planning Department
(DNP) indicate that combined private and National public investments in transport infrastructure in
2013 ascended to 2.94 percent of GDP.
The “infrastructure gap” is defined as the difference
between a specific infrastructure requirement and
the effective current supply or stock of infrastructure.
The Economic Commission for Latin America and
the Caribbean (ECLAC) estimates the gap based on
the development of the stock of infrastructure-related capital relative to infrastructure demand. Refer to
ECLAC, July 2011. “The Infrastructure Gap in Latin America and the Caribbean.”
According to Fedesarrollo (2013), 20 percent of this
investment should be allocated to close the infrastructure gap and the remaining 80 percent to the expected increase in demand until 2020. See Fedesarrollo,
2013. “Infraestructura de Transporte en Colombia.”
The WEF’s GCR does not include a specific indicator for “quality of transport infrastructure.” However, measurements based on businessmen’s perceptions of the quality of roads rank the country 130 of
148 (2013–2014). Other perceptions rank railroad
infrastructure, quality of port infrastructure, and
quality of air transport infrastructure.
Colombia ranks third to last in South America,
ahead of only Ecuador, and Venezuela.
The indicator groups the procedures in the following four aspects: (i) document preparation; (ii) cus-
7
8
9
10
11
12
toms clearance and technical control; (iii) ports and
terminal handling; and (iv) inland transportation
and handling.
High costs, however, are partly explained since Colombia has its main production centers in the mountainous center of the country and more distant from
coastal ports than benchmark countries in the region.
The cost of exporting a similar good (per Doing
Business methodology) amount to US$2,355 in Colombia, US$1,283 in LAC (average), and US$1,070
in OECD countries (average). The corresponding costs of importing are US$2,470, US$1,676,
and US$1,090. World Bank’s Doing Business 2014
http://www.doingbusiness.org.
Refer to Fedesarrollo. 2013. “Infraestructura de
Transporte en Colombia”.
However, benchmarks aggregating total number of
kilometers of main, secondary and tertiary (rural)
roads place Colombia as the country with highest
road density in the region.
Fedesarrollo. 2013. “Infraestructura de Transporte
en Colombia.”
In Colombia, where cities are relatively autarkic
and do not currently play complementary roles because of the presence of a large number of economic sectors but at low scales with limited specialization, lowering transportation costs could lead to
more specialized and competitive cities. See Pablo
Roda (2011).
Transport Infrastructure
13
14
15
16
17
18
19
20
21
The National Infrastructure Agency—ANI—has
made efforts to promote transport infrastructure
projects which favor a multimodal approach, as
demonstrated by the structuring and bidding of the
strategic Magdalena River navigability project.
In 2005, Colombian ports moved 91.8 million tons,
a number increased to 131.9 million tons in 2010.
Iin the coming years, this activity is expected to increase between 20 and 40 percent, according to a
recent study by Fedesarrollo (2013). “Infraestructura de Transporte en Colombia,” p. 39.
Roda, Pablo (2012). “Conectividad Interurbana en
Colombia” Misión Ciudades.
Including the supply of government health, education, security, and institutional services.
Plan Vial Regional. 2013. Red Vial Nacional, 2013.
The problems associated with private participation
in transport projects (project delays, high cost-overruns and the renegotiation of several contracts at a
high cost to the Government) have been largely documented. Refer, for instance to Benavides (2010).
“Reformas para Atraer la Inverson Privada en la Infraestrctura Vial”; OECD Working Paper (2013).
“Opening the black box of contract renegotiations:
An analysis of road concessions in Chile, Colombia
and Peru.”
The most important bottlenecks include: approval of environmental licenses, land and resettlement
processes, and responsibility for the intervention
and financing of public utility networks during construction of transport infrastructure. See “Informe
de la Comisión de Infraestructura,” October 2012.
http://www.infraestructura.org.co/present/23nov/
STEINER.pdf.
The Transport Planning Unit and the Transport
Regulatory Commission were created as decentralized agencies from the Ministry of Transport; however, no institutional arrangements are yet in place
to enable fluid communication channels between the
agencies and the existing Planning Bureau (Oficina
Asesora de Planeacion) at Ministry of Transport.
In Colombia, concessions of the national primary network can be divided chronologically into
four generations or phases, each with its own contract design principles. The Santos administration is
launching the fourth generation, which includes approximately 8,100 kilometers and total investments
22
23
24
25
26
27
28
29
30
31
32
of US$24.5 billion and aims to tackle some of the
challenges faced by previous phases.
Roda, Pablo (2012). “Conectividad Interurbana en
Colombia” Misión Ciudades.
World Bank (2004). Recent Infrastructure Developments.
Refer to CONPES 3744, April 2013 “Política Portuaria para un País más Moderno.”
Refer to CONPES 3758, August 2013. “Plan para
Restablecer la Navegabilidad del Río Magdalena.”
The bidding process for this Project is well advanced
with contract award planned to happen during Q4
2014. In 2014, this project received the award for
“most strategic infrastructure project in Latin America” at the 12th Latin American Infrastructure
Leadership Forum.
The National Government is advancing towards the
approval of a new National Ports and Customs Statute (Estatuto Aduanero), which aims at modernizing, streamlining and strengthening customs processing at border crossings, ports, and airports.
Refer to CONPES 3779, October 2013.
Plan Vial Regional. 2013. “Red Vial Nacional 2013”
Owing to lack of local resources and capacities for
road maintenance, the decentralization process
could not be fully completed and therefore significant portions of the tertiary road network remain
with INVIAS under national jurisdiction. Refer to
World Bank (2004). Recent Economic Developments in Infrastructure in Colombia.
World Bank (2004). Recent Economic Developments in Infrastructure in Colombia.
Reports on the status of the decentralization process
indicate that limited Municipal and Departmental
finances undermine the capacity of subnational entities to embark in decentralized road construction
and maintenance projects.
As of 2013, the results of the first phase of the Plan
Vial Regional were: (i) 32 departments carried out inventories of their roads, cataloging 35,210 kilometers
of roads; (ii) 25 Departmental Road Plans were approved; (iii) a set of road management guidelines and
methodologies were developed to support the departments; (iv) a regional support group was created in
the Ministry of Transport: and (v) facilitating access
to finance (such as Royalty System, FINDETER, etc).
See Ministry of Transport (2013). Plan Vial Regional.
157
158
PART TWO
33
34
35
36
37
38
39
|
CHAPTER 8
Including the implementation of Standard Bidding
Documents for Departmental and Municipal road
works contracts, which allow improved bidding processes with ultimate gains in cost-effectiveness.
Introduced in 2012, the new Royalties Law, among
other reforms, created a dedicated fund to finance
strategic regional infrastructure investments. Transport projects, primarily focused on improving the secondary and tertiary network with paved roads, represent the highest share of infrastructure investment.
Estruturadora Brasilera de Projectos (EBP) in Brazil
and the MuniAPP or PIAPPEM Programs in Mexico are among the facilities that fund project preparation and develop a PPP pipeline both at the national and subnational level. India’s web-based PPP
Toolkit (http://toolkit.pppinindia.com/) aims to
improve the quality of infrastructure PPPs.
While budgetary appropriations for the sector can
be initially high, they can be curtailed throughout
the year to keep overall spending in line with fiscal
targets.
According to the General Controller’s Office,
road-sector agencies executed only an estimated 15 percent of their budgets in 2013. Refer to
Comptroller General’s Office (2013) Review of National Budget.
Official estimates indicate that the present backlog,
or cost of rehabilitating the network back to a high
quality standard, is in the order of US$500 million,
plus US$120 million per year in maintenance costs.
Refer to CAF (2008).” Mantenimiento Vial – Informe Sectorial.”
These types of contracts, widely used in places such
as Argentina and Brazil for the rehabilitation and
maintenance of the road network, include the following features: (i) linking budget allocations with
multi-year expenditure requirements established
under the contracts; (ii) increasing cost-efficiency as compared to ad-measurement type contracts;
(iii) minimizing delays in project implementation;
(iv) eliminating cost overruns; (v) reducing the risk of
unsatisfactory quality in the rehabilitation and subsequent maintenance works improving the condition of the network, and slowing down the evolution
of roughness; (vi) cutting down government’s supervision costs; and (vii) fostering innovation in the programming and execution of works.
40
41
42
43
44
45
46
47
48
It is expected that bids for the first package of nine
roads (five Autopistas de la Prosperidad and four
Victorias Tempranas) will be received by the end
of April 2014 (April 9th for the Autopistas de la
Prosperidad), and the projects will be awarded by
the end of June 2014. Another 10 projects are currently in the prequalification process and are expected to be awarded by the end of September
2014. Finally, six more projects developed under private initiative are in advanced stages of
preparation with bidding processes expected to be
launched in 2014.
Also note that ANI has assumed the responsibility
for managing all seven of the concession contracts
that govern the operation of 17 airports in Colombia, and it will also be responsible for managing new
concession contracts in the rail sector.
For instance, refer to OECD Working Paper (2013).
“Opening the black box of contract renegotiations:
An analysis of road concessions in Chile, Colombia
and Peru;” Eduardo Engel E., Fischer R., Galetovic
A. (2009). “Soft Budgets and Renegotiations in Public-Private Partnerships;” Guasch J. L., J. J. Laffont
and S. Straub (2007), “Concessions of Infrastructure
in Latin America: Government-led Renegotiation.”
In 2013, road fatalities were approximately 5,600,
according to the National Institute of Legal Medicine and Forensic Sciences.
For Peru, see Provias Descentralizado: http://www.
proviasdes.gob.pe/. For India, see the Indian National Rural Roads Program, PMGSY: http://
pmgsy.nic.in/.
Refer to National and Subnational Public Finances
and Governance Policy Note for a complementary
discussion on this topic.
This approach is based on the principle of shared responsibility to minimize the risk of accidents. This requires a multi-disciplinary and multi-sectorial vision.
Road safety design features should reinforce road signaling standards and improve considerations on maximum turn radii, configuration of road accesses and
lane exits andaccepted materials and configurations
for lane shoulders and dual carriageway split sections.
Logistic platforms should consider the regional and
urban dimensions of its impact in order to avoid
hindering the internal competitiveness of urban
centers.
Structural Changes – Implications for Growth, Productivity, and Competitiveness
CHAPTER 9
Financial Sector
159
160
PART TWO
|
CHAPTER 9
Main Messages
The financial crisis in 1999 led to strengthening financial sector stability through revamping oversight.
Today, Colombia’s banking system is much better supervised and resilient, a fact demonstrated during
the recent global financial crisis. Domestic conglomerates dominate the financial landscape, changing
the structure of the financial system. At the same time, Colombia’s capital markets have been rapidly
expanding in size and instruments and they are now among the most developed in the Latin American
region. Furthermore, a large share of the population still lacks access to formal financial services. Colombian authorities have made financial inclusion a core element of the socio-economic development
of the country with enabling policies, but additional reforms are necessary.
Current challenges include: (i) reforming an oversight architecture that has not adapted to the new
financial structure; (ii) further developing government debt and non-debt markets and broadening
the investor base; (iii) expanding financial inclusion, particularly in rural areas, by increasing the population’s financial literacy and creating financial products to enhance access to credit for small and
medium enterprises (SMEs).
Main policy recommendations of this note address three areas. First, improving oversight of the financial
sector: Recommendations include revising the existing financial sector oversight architecture with a
view to adapting it the new financial sector structure, strengthening consolidated supervision as well
as establishing new rules to address the risks facing conglomerates expanding abroad.
Second, developing capital markets. Recommendations in this area include enhancing the efficiency of
government debt markets; improving the enabling environment for issuing and investing in non-government bonds to facilitate financing of key sectors as infrastructure and housing; and broadening the
investor base and making it more competitive. In particular, the country would benefit by expanding
the investment options for pension funds and removing existing barriers to foreign investors.
Third, supporting financial inclusion. Organizing a national policy framework for financial inclusion with
high-level and technical coordinating committees and a clear champion leader, perhaps at the presidential level, would improve the ability to design and target policies to promote responsible financial
inclusion. Initiatives should focus on financial education for students and adults, facilitating the use of
cell phones and other technologies in delivering financial services, and making it easier for SMEs to
gain access to credit.
Background
Strengthening financial sector oversight
and developing capital markets has been
at the core of Colombia’s financial development agenda in the past decade. In 1999,
poor loan origination standards coupled with weak
banking supervision left banks particularly vulnerable to the economic downturn and culminated
in the closing or recapitalization of several banks.
This financial crisis had a strong impact on macroeconomic stability and growth, heightening poverty levels. Indeed, poverty increased 8 percentage points from 1995 to 1999,1 particularly in the
urban areas. As the situation stabilized, the focus
shifted to strengthening financial sector stability
through revamping oversight. Significant goals
were achieved. Today, Colombia’s banking system is much better supervised and resilient, a fact
demonstrated during the recent global financial
crisis.2 Colombia has become a pioneer within the
region in adapting macroprudential policies and
Basel III standards.3 At the same time, Colombia’s
capital markets have been rapidly expanding in
size, and they are now among the most developed
in the Latin American region.
Banking and insurance sector intermediation is
comparable to countries of similar per capita GDP,
size, and demographics—although capital market
intermediation to the private sector remains below
potential. Assets of the supervised financial system
reached 75 percent of GDP at the end of 2013,
with the banking sector accounting for more than
half of all financial system assets. Credit to the
private sector has recovered to its 1999 pre-crisis
levels, doubling to around 40 percent of GDP in
2013 since the low 20 percent in 2003 (Figure 9-1).
Pension Fund Administrators (AFPs) are the most
important non-bank financial institutions (NBFI),
holding around 21 percent of GDP in 2013. Insurance premiums are still small (2.4 percent of
GDP), but they have been growing. Meanwhile,
mutual funds are slowly growing to be the second
largest player of the capital markets (6.8 percent of
GDP). Despite high equity market capitalization,
investors buy and hold, limiting turnover. In addition, the size of domestic private sector issuance is
very small compared to peers.
Despite progress in promoting financial inclusion,
a large share of the population still lacks access to
formal financial services. Internationally comparable data show that only 30.4 percent of Colombia’s
population over 15 years old has access to formal
financial services (Findex, 2011), below the regional average of 39 percent (Figure 9-2). This is similar to the levels in Ecuador (36.7 percent), Mexico
(27 percent), and Argentina (33.1 percent) but lower than Chile (42.2), Brazil (55.9), and Venezuela
FIGURE 9-1: Financial Sector Structure (as a Percentage of GDP 2012)
120
100
80
60
40
20
0
Colombia
Regional median
Private sector credit as % of GDP
Market turnover ratio %
Income group median High income OECD median
Insurance premiums as % of GDP
Expected median
Pension funds assets % of GDP
Outstanding domestic private debt issuance % of GDP
Source: Finstats.
Financial Sector
161
PART TWO
|
CHAPTER 9
(44.1 percent). Women and those living in rural
areas utilize financial services less. Findex shows
that 35.9 percent of men have a bank account,
compared with 25.4 percent of women. Only
24.6 percent of the population in the rural areas
has an account at a formal financial institution,
compared to 33.5 percent of the urban population. Researchers are finding increasing evidence
of the importance of increasing financial services
availability, including improved household welfare,
reduced vulnerability to risks, and increased business activity.
Colombia’s banking penetration has grown, but
actual customer usage remains low. Based on a
strong banking system and favorable macroeconomic conditions, the number of commercial
bank branches has grown to 15 establishments per
100,000 adults in 2012, up from 13.9 establishments per 100,000 adults in 2008.4 This is similar
to the levels of Mexico (15) but lower than Peru
(70) or Brazil (47). Penetration grew in terms of territorial presence, with more than 38,000 bank correspondents registered at the end of 2013. Nearly
every municipality in the country has the presence
of some financial institution. However, as many as
two-thirds of banking correspondents handle less
than five transactions a day and/or only accept bill
payment transactions.5 Findex data show that more
than 40 percent of accounts at formal financial institutions are not used on a monthly basis.
Financial sector structure
Domestic conglomerates, increasingly operating
across borders, dominate the financial landscape.
Currently, 36 conglomerates have a strong presence in the financial system, with many of them
operating in the real sector as well. These entities
typically include one or more banks, leasing companies, financial corporations, insurance companies, pension fund administrators, and real sector companies. Ten of these conglomerates hold
about 80 percent of total financial sector assets. In
the banking sector, the percentage of assets held by
the top three banks—Bancolombia S.A., Banco de
Bogota S.A., and Davivienda S.A.—has remained
largely stable at around 50 percent in the past three
years. This rises to 62 percent if the four banks
owned by the Grupo Aval conglomerate are analyzed as a single bank.6 After recent mergers and
acquisitions, two domestic financial conglomerates
dominate the pension-fund industry. Colombian
financial conglomerates have 170 subsidiaries
abroad, with the largest assets of subsidiaries in
Panama (44.4 percent), El Salvador (14.0 percent), Costa Rica (9.8 percent), and Honduras
(6.7 percent).
FIGURE 9-2: Comparison of Access to Finance Indicators in Latin America
% of population claiming to have a bank account
60
Physical access points per 100,000 adults
250
50
200
40
150
30
100
20
Regional
median
Venezuela
Mexico
Ecuador
0
Colombia
0
Chile
50
Brazil
10
Argentina
162
Source: World Bank Findex 2011. % of population (age 15+) reporting
possession of an account at a formal financial institution.
Commercial
bank branches
Colombia
ATMs
Brazil
Point of sale
Bank
devices correspondents
Mexico
Peru
Sources: IMF Financial Access Database 2012 (commercial Banks and ATMs,
branches) and the Alliance for Financial Inclusion (POS, CBs).
Financial Sector
FIGURE 9-3: P
ercentage of Assets of the
Subsidiaries of Colombian Banks
Abroad as of Dec 2013*
FIGURE 9-4: Annual Issuance in the Capital
Markets
Annual Issuance (Bn of CP)
Peru
7.4%
Costa Rica
13.0%
Guatemala
6.8%
$43.6
$38.9
Otros Paises
38.3%
$18.8
$6.9
$24.4
$21.3
$4.4
$4.7
$29.3
$8.1
$5.1
$32.8
$24.9
$5.7
$13.8
$8.4
$8.8
$13.7
$30.2
$2.2
$10.2
$11.9 $20.0 $15.7 $16.1 $19.2 $18.7 $24.5 $26.4 $17.8
El Salvador
14.2%
2004 2005 2006 2007 2008 2009 2010 2011 2012
Panama
20.4%
Source: Superintendencia Financiera de Colombia. Presentation
“Supervisión de Conglomerados: La Visión del Supervisor”, Cartagena June
27 2014 and WB calculations.
* The assets correspond to the sum of the assets of individual subsidiaries in
each country.
While government bond markets are deep, the
non-government debt market is small and dominated by financial institutions. At the end of
2013, the Ministry of Finance registered that
government bond markets in Colombia amounted to about 30 percent of GDP. Most debt is denominated in local currency, with average maturity of outstanding debt at around five years.
The architecture of the primary and secondary
markets is well-structured with links to each other through the primary dealer scheme and the
two-tiered trading model. In contrast, non-government debt amounts only to about 6 percent
of GDP. Issuance is concentrated in large issuers
with credit ratings that rarely go below AA+. The
underdevelopment of the market seems related to
three factors: (i) bank dominance in the financial
sector as the main source of funding for corporations; (ii) high risk aversion among institutional investors which limits demand for smaller and
second tier rated issuers, even if they are above
investment grade; (iii) high concentration of the
investor base dominated by four pension funds;
and (iv) regulations resulting in high issuance
costs and long time-to-issuance. All these factors
result in small and concentrated holdings, leading
to low liquidity.
TES
Private debt
Equities
Source: SFC, MHCP, BVC, CT.
Equity market capitalization has seen a substantial
increase over the past several years, but it is highly
concentrated in a small number of issuers. As of
the end of December 2013, 82 companies were
listed across a range of sectors (agriculture, commerce, finance, industrial, etc.), with a total market
capitalization of approximately US$215 billion.
Traded volumes in shares were approximately
US$26 billion in 2013. However, the listings of
two large state-owned companies, Ecopetrol and
ISA, and two large financial groups drive the result. The market is not very liquid, with trading
concentrated in the 10 largest stocks accounting
for around 80 percent of total market capitalization and a free float of only around 20 percent.
The number of new IPOs or secondary offerings
is very small—only four over the past three years.
Pension funds are an essential factor shaping the
supply of capital-market instruments. In 2013,
pensions’ assets under management were at about
21.4 percent of GDP.7 Pension funds hold the largest share of these assets in government securities,
followed by corporate securities, foreign assets, and,
to a much lesser extent, deposits and equity in other
financial institutions. According to recent Financial
Sector Assessment Program (FSAP) findings, however, the ownership of leading AFPs by domestic
economic groups could potentially be affecting the
investment decisions of the industry.8 There are
strict regulations on affiliated parties that prohibit
163
164
PART TWO
|
CHAPTER 9
pension funds from investing in companies in their
conglomerate. While this is best practice, it further
narrows the investment options available in a country with a high concentration of industrial-financial
conglomerates. This makes it even more important
to broaden asset classes, including increased share
of corporate bonds and developing infrastructure-related securities.
Despite recent growth, private equity funds
(PE) and venture capital (VC) represent only 1 percent of the total investment in Latin America. The
industry plays a key role in leveraging resources
to support entrepreneurship growth in the early
stages. The PE/VC industry grew at an average
annual rate of 104 percent between 2005 and
2012. According to Bancoldex (2012), this capital
was committed to 31 funds, concentrated mainly
in infrastructure and real estate sectors. Despite
this important dynamic, Colombia’s PE/VC is
still small compared to regional peers.9 According
to the Latin America Private Equity and Venture
Capital Association (LAVCA) Scorecard,10 one of
the most important challenges for the development of this industry in Colombia is the somewhat
complex tax environment for the PE/VC industry.
The development of this market is important to
promoting the diversification and sophistication of
Colombia’s productive sector.
Colombian authorities have made financial inclusion a core element of the socio-economic
development of the country with enabling policies. In 2006, the government created Banca de las
Oportunidades to support financial inclusion through
a combination of policy actions, including regulatory reforms, financial capability initiatives,
and incentives for providers to meet low-income
consumers’ demand for banking services. The
Government has also promoted the opening of
bank accounts for the vast majority of beneficiaries of the Familias en Acción conditional cash-transfer program. There has also been policy advances to lighten regulatory and tax treatment for
low-balance accounts, including exempting them
from the 4x1,000 tax and introducing simplified
account-opening procedures. Furthermore, the
regulatory and supervisory environment for microcredit has been strengthened. A secured transactions law that helps businesses use their assets
to access credit was approved in 2013, and the
collateral registry went live in March 2014. A financial education decree was approved in 2014, a
Committee on Financial Education has been created, and a national financial inclusion strategy is
in the advanced stages on order to promote the
usage of financial instruments in Colombia.
Products designed to better serve low-income
populations have complemented financial inclusion policy efforts. Savings accounts with simplified processing and electronic deposits have been
developed to seek a balance between the greater
flexibility needed to promote financial inclusion
and the safety requirements imposed by the Risk
Management System of Money Laundering and
Terrorism Financing. Mobile wallets and remittance-linked products are among the innovations
supporting increased use of financial services that
are becoming more common in Colombia.11 Along
with this, a 2009 Law on consumer protection for
financial services mandates financial institutions to
educate consumers on the products they offer.
Main Challenges
Oversight of the financial sector
Financial oversight architecture was designed more
than a decade ago, and has not adapted to the new
financial sector structure. The definition of financial intermediation in Colombia, focused exclusively on collection of resources for the public, is both
strict and unclear in interpretation, creating grey
areas for supervision, such as provision of funeral insurance or issuance of pre-paid cards.12 Some
financial cooperatives that collect resources from
members are now bigger than some of the banks
subject to full prudential oversight. The formation
of cross-border conglomerates and the development of capital markets have put increased demands on prudential and conduct supervision (discussed below). In addition, new intermediaries are
Financial Sector
being created, such as issuers of electronic deposits,
expanding the universe of supervised institutions.
The Superintendencia Financiera de Colombia
(SFC) has a broad mandate and a structure that
makes supervision difficult.13 Currently, the SFC
has a long list of responsibilities in both prudential and conduct areas, including the supervision
of participants typically not covered by similar
institutions worldwide,14 with some functions that
are unipersonal to the superintendent. This broad
authority presents challenges for the organization
and resources of the SFC, which could create bottlenecks. On the strategic level, the SFC has not
conducted an approval/review of regulatory priorities, plans, and resources with a view toward ensuring that the strategic direction and resources are
aligned with the agency’s expectations. The SFC’s
structure also presents challenges to the oversight
of self-regulatory organizations (SROs) by splitting
the responsibility for oversight between a range of
independent departments without a centralized
coordination and limited experience on the matter.
Recent changes on the structure of the Colombian
financial sector, such as the increased internationalization of financial conglomerates, have exposed
the need to enhance regulatory and supervisory standards. As the 2012 FSAP recommended,
oversight practices should be adapted to the new
challenges of conglomerates and the increased internationalization of the system. Conduct supervision, regulation of pension funds, and consolidated
supervision are some of the key areas affected by
the evolving structure. Increased market concentration and intra-party exposures could increase the
risks of financial instability, with potentially adverse
macroeconomic consequences. It also could affect
competition and price formation in key markets.
Moreover, the increasing penetration of foreign
markets has generated a series of concerns: (i) the
exposure of cross-border conglomerates to country,
transfer, and foreign exchange risks as well as contagion risk within entities belonging to the group;
(ii) the legal authority and operational capabilities of
the supervisor to address this new task; and (iii) the
use of appropriate corporate governance practices.
There are legal gaps that weaken the powers of
SFC as the supervisor. A legal reform currently
under consideration proposes to include under full
SFC supervision the holding companies of financial
institutions and to force changes in a group’s structure. However, other important legal gaps need to
be addressed, including the definition of financial
conglomerates, the definition of related party, and
the scope and conduct of consolidated supervision
that do not allow supervisors to fully “capture” an
economic group and supervise diverse risks. In addition, some of the financial soundness indicators
reflect only the situation for the consolidated supervised entities. This aspect could be solved if not
only the financial and regulated entities but also the
holding companies are subject to SFC supervision.
Such a change requires a modification of the law
and is under discussion by Colombian authorities.
The SFC has a robust framework for the supervision of several individual risks, but lacks an integrated view of risks management. As mentioned
in the 2012 FSAP, the SFC has issued norms prescribing the standards for financial institutions’
risk management on credit, market, liquidity, operational, and anti-money laundering risks. While
these norms are applied to the individual institutions and individual risks, a general requirement
mandates that supervised entities manage their
risks in a comprehensive way for the whole financial groups. Furthermore, no standards exist for
the management of interest rates in the banking
book and country and transfer risks. These latter
risks, which were originally considered low priority, have become significant with the expansion of
Colombian banking groups abroad.
Development of capital markets
Policies to continue the development of capital
markets are a high priority for government authorities. Overall, a range of actions is needed to
further develop and improve Colombia’s capital
markets. Broadly, the challenges include: enhancing the efficiency government debt markets; improving the enabling environment for issuing and
investing in non-government bonds to facilitate
165
166
PART TWO
|
CHAPTER 9
financing of such key sectors as infrastructure and
housing; and broadening the investor base and
making it more competitive. Reforms to tackle
most of these issues are already underway or in
the process of being designed, but additional targeted interventions are needed.
Key challenges to further developing government
debt markets is increasing secondary market liquidity across the yield curve and creating competition in placement mechanisms by reducing the
share of direct placements to public institutions.
A better functioning of the money market would
also contribute both to improved government debt
markets and more efficient liquidity management
tools for the financial sector. Despite efforts to improve repo markets and the interbank reference
rate, important bottlenecks persist for more efficient money markets, such as the 4x1,000 tax on
financial transactions that penalizes shorter-term
transactions, which is being gradually phased out,
and the erratic issuance of T-bills strictly tracking
the Treasury’s cash flow needs as established by
law.
An important challenge remains to develop markets to funds investment needs, particularly in
housing and infrastructure. The potential exist to
significantly boost growth in the non-government
debt market through the development of new
types of fixed-income securities to finance housing
and infrastructure. The latter could have a significant impact in the securities market because of
Colombia’s existing infrastructure gap.15 In this
context, a comprehensive approach is required
across several government agencies. The most important changes are being developed under the
leadership of the Ministry of Finance, National
Infrastructure Agency (ANI) and the National
Development Bank (FDN), with the support of
the World Bank Group. Issues include (i) improvement of the institutional set up in the Government
to structure, allocate, and monitor infrastructure
projects; (ii) the need for flexible issuance regulations for professional investors; (iii) lack of prudential regulations for banks that are specific to
project finance; (iv) creation of new products and
investment vehicles, such as project bonds, credit enhancement schemes, and high-quality infrastructure funds; and (v) forming the enabling
environment for pension funds to engage in infrastructure financing through capacity-building and
a revision of their investment and minimum return rules.
Pension funds dominate the investor base due to
limited development of other intermediaries, including foreign investors that are subjected to cumbersome regulations. The capital markets investor
base is dominated by pension funds, with an incipient mutual fund industry and a small presence of
insurance companies and foreign investors. As far
as foreign investors are concerned, they have very
little presence, mainly due to an unfavorable tax
treatment and administrative red tape, particularly in the foreign exchange market. As of October
2013, foreigners held 6.6 percent of Colombia’s
total domestic Government securities, compared
to Peru (52 percent), Uruguay (50 percent), Mexico
(36 percent), and Brazil (17 percent).
Current regulations for pensions and insurance
impede further risk-taking and the provision of
long-term finance by pension funds. Participation
of other investors in the capital market is still small.
Pension funds are an essential factor shaping the
supply of capital- market instruments, but their
portfolios are relatively conservative and subject to
minimum return regulations linked to the industry
average, which encourages herd behavior along a
benchmark of the industry’s average return. The
insurance industry is so far a negligible provider of
long-term financing because the conditions to develop life insurance products at competitive prices are missing. Minimum pension disbursements,
including annuities, need to be by law above the
minimum wage, running above inflation in the
past, which makes it impossible to hedge through
market mechanisms. As a result, pension annuity
products tend to be overpriced, demand for such
products is limited, and the private pension fund
system is at risk because of its dependency on the
availability of affordable annuities. The annuity market is also affected by the inefficiencies in
Financial Sector
the disability and survivorship market. The engagement of the public sector is required to assess
options that would make life insurance a viable
business as in countries at Colombia’s level of
development. This is not only relevant for the insurance industry but also for the sustainability of
private pensions.
The Mercado Integrado Latinoamericano (MILA), the
regional exchange initiative, is still in the initial
stages of development, and substantial regulatory harmonization needs to take place to further
develop an integrated regional capital market.
MILA involves linking exchanges of Colombia,
Chile, and Peru with each exchange keeping
its home regulations and supervisor. The three
country supervisors are collaborating to harmonize rules and facilitate cross-border transactions.
Results are still modest, but the initiative has
triggered a series of cross-border acquisitions to
create regional investment banks that can be expected to reshape the industry in the region. It is
also expected that Mexico will join the initiative
with the recent approval of its financial reform.
Challenges ahead include further harmonization
of regulations and taxation regimes on portfolio investments, the inclusion of IPOs, improving custodial connectivity, and expanding into
fixed-income assets.
Financial inclusion
Fostering access and usage of financial services,
particularly in rural areas, is a key challenge in
Colombia. Progress has been made in the number
of access points, but low product use reduces the
benefits of inclusion. Colombians have difficulties
using financial products in the informal economy
because of consumers’ lack of knowledge concerning financial products available, the benefits
of using those products, and the institutions that
provide them.16 Authorities have important challenges in increasing the greater use of financial
services through mobile and other alternative
channels that enable outreach to wider segments
of the population and the development and utilization of flexible products customized to the needs
low-income population, especially those living in
rural areas. Promoting access and use of financial
services that will facilitate channeling resources to
productive uses, especially in the area of agricultural finance, is also a key challenge at the core of
the peace process. In addition, Colombia needs
to find ways for financial institutions to operate
in a sustainable manner in rural areas, without
high levels of government guarantees to facilitate
transactions. The expansion of financial inclusion
can help to improve household management of
risks, smooth consumption, and spur enterprise
activities.
The need to strengthen the capability of the
Colombian population to make sound financial
decisions is an important challenge. Even as financial services become more physically accessible, many Colombians need to increase their
comfort level with formal financial institutions. A
recent World Bank survey found that more than
two-thirds of the Colombian population could
not do a simple interest rate calculation, and they
were never taught to manage money, making it
difficult for them to analyze the terms and conditions of financial products. A similar lack of
formal financial knowledge was found in other
developing countries in Latin America, such as
Mexico.
Credit for SMEs, particularly microcredit, remains
limited. According to Asobancaria,17 the number
of firms with at least one financial product reached
632,000 in December 2013, an increase of 25
percent compared to 2012. The most used product is the savings account. However, just 1 percent
of these firms offer microcredit. The 2013 Gran
Encuesta PYME (GEP) survey indicated that more
than 50 percent of SMEs reported no access to the
financial sector; in particular, SMEs cannot access
sufficient long-term financing to modernize their
operations, and they lack alternative non-bank financing sources. According to data from Factoring
Chains International, Colombia lags Brazil,
Mexico, and Chile, volume factoring,18 is often an
important source of finance for SMEs that have
difficulty accessing bank finance.
167
168
PART TWO
|
CHAPTER 9
Recommendations
Improve oversight of financial sector
The existing financial sector oversight architecture
should be revised with a view of adapting it the new
financial sector structure. A first-best option would
involve a comprehensive review of the definition
of financial intermediation as well as the mandates
of all institutions with responsibilities for financial
sector oversight. Such a review should take into
account international experiences in countries
with similar financial sector structures as well as
the comparative advantages of existing institutions
in Colombia. A comprehensive evaluation would
involve changing several laws, but a more modest
review could involve the heavy burden the law puts
on the SFC for conduct supervision.
At the minimum, authorities should rethink the
structure of SFC. An alternative worth considering would be a “Twin Peaks” structure, with a
SFC retaining responsibilities on prudential supervision of all institutions and conglomerates and a
new institution in charge of conduct supervision
across all markets and the creation of a more collegiate decision structure. In addition, strengthening the independence and the legal protection
of the superintendent and other senior officials
would be essential to make risk-based supervision
viable. Currently, the head of the financial sector
regulator (SFC) is appointed by the Government
and may be changed after every political election.
A fixed-term appointment staggered between administrations would help ensure its independence.
Despite significant improvements on consolidated
supervision, further strengthening of supervisory
procedures is necessary. The SFC has established
good coordination mechanisms with international peers to monitor conglomerates’ activities.
However, consolidated supervision in Colombia is
hindered by some domestic financial groups’ complex and non-transparent corporate structures. The
SFC should gain legal authority in this area, especially to oversee currently unregulated bank holding
companies. At the same time, the definition of related parties, the definition of a conglomerate, and
the methodology for calculating consolidated capital should be revised.
It is recommended that authorities continue to develop the integrated risk measurement tools necessary for monitoring the increasingly complex risk
structure of conglomerates. While the Colombia
groups’ recent expansion abroad is positive for the
system, it requires close monitoring and improved
risk management tools to better gauge trends and
risks overseas. SFC would benefit from updating
the supervisory framework to ensure that supervisors have access to all information necessary to
assess a conglomerate’s intraparty risks and its exposure to new jurisdictions. Formal written guidance with regard to the comprehensive risk management of banks and banking groups is necessary.
The adoption of a new supervisory framework
would give the SFC explicit authority to tailor prudential norms to the risk profile of each bank to
help manage systemic risk and enhance the effectiveness of risk-based supervision.
The increased complexity of Colombian capital
markets calls for new approaches for regulatory
oversight. The need for reform arises not only from
new types of products and investors but also from
the recent liquidation of Interbolsa, the largest broker-dealer. In addition to ongoing efforts to improve
the oversight framework, it might be beneficial to
review the current Self-Regulatory Framework
to achieve a clearer delineation of responsibilities
between the regulators and the Self-Regulatory
Organizations.19 In addition, the SFC has substantial authority to oversee the securities sector, but
could take further steps to enhance protection of
minority shareholder rights and investor protection,
especially for collective investment vehicles.
Development of capital markets
Liquidity of the government bond market yield
curve from short- to long-term tenors should be
improved. The government bond market is already
relatively developed, but improvements could be
Financial Sector
made in terms of price formation and liquidity.
This would support a more efficient money market
for liquidity management in the financial sector
and more efficient price formation in longer-term
maturities. Reforms recommended include: (i) a
more regular issuance policy in T-bills; (ii) a revision to the re-opening and liability management
policies to further support secondary market liquidity; (iii) a revision of primary market and primary dealers rules to increase competition.20
The development of an institutional and regulatory framework to support capital market financing for housing and infrastructure is essential.
Housing and infrastructure are strategic sectors for
Colombia’s development. Reforms are necessary
on several fronts: (i) reviewing laws and regulations
related to housing and the issuance of mortgage
covered bonds; (ii) establishing a “hybrid issuance
regime” for professional investors;21 (iii) reviewing
prudential regulations so banks can increase their
capacity to lend to project finance schemes and
provide guarantee facilities while keeping equivalent standards to those of corporate lending;
(iv) developing credit enhancement and take-out
schemes to facilitate institutional investors engagement in infrastructure financing;22 and (v) developing high-quality infrastructure funds, including
both equity and bonds that could channel pension
funds’ investments.
Policy and regulatory changes could support a more
diversified institutional investor base for long-term
financing, particularly the reinforcement of the
regulatory framework to engage pension funds in
long-term financing for infrastructure. Increasing
the pool of investors, particularly long term, would
support the deepening of capital markets. Existing
investors, such as pension funds, could play a greater role in capital market development while increasing the opportunities for higher returns within
acceptable risk limits.23 Specific activities planned
by the Government and supported by World Bank
experience in other countries include:
i. A revision of pensions funds minimum return
regulations to introduce more competition
and flexibility in their portfolio composition,
including higher exposure to infrastructure financing. 24
ii. A revision of pension funds investment regulations to increase their capacity to invest in
alternative assets, including infrastructure.
iii. An assessment of the main obstacles preventing pension funds from increasing their exposure to infrastructure investments (e.g. projects
financial structure, risk management capacity,
economies of scale for dedicated teams) and
the implementation of programs to address
them.
iv. An engagement of the regulator in developing guidelines for best practices in terms of required resources and risk-monitoring schemes
for infrastructure investments by institutional
investors.
Colombia would benefit by continuing the process
of phasing out double taxation of foreign investors as well as revising the complex administrative
and registration procedures to access the foreign
exchange and the domestic securities market. A
greater presence of foreign investors would help
address the structurally concentrated nature of
Colombia’s financial sector by increasing competition. It would also contribute to extending maturities, improving liquidity, and increasing the
appetite for instruments with a higher risk profile.
Drawbacks related to excessive capital inflows and
outflows could be handled by establishing more
transparent and simple regulations that would enable the Government to control flows when necessary while reducing distortions in capital market
development.
The efficiency and competitiveness of annuities
market should be improved. To address these challenges, two types of actions are recommended:
(i) the development of options for hedging minimum wage risk and increased competition in the
annuities industry; and (ii) an estimation of the actuarial cost of the insurance of disability and survivorship for users in the private pension scheme,
so a competitive pricing structure could be introduced for these services.
169
170
PART TWO
|
CHAPTER 9
Support financial inclusion
Colombia needs to ratify a comprehensive financial inclusion strategy, with a strong inter-institutional coordination mechanism. Organizing a
national policy framework for financial inclusion
with high-level and technical coordinating committees and a clear champion, perhaps at the presidential level, would improve the ability to design
and target policies to promote responsible financial
inclusion. Support for this goal would come from
approval of the draft financial inclusion strategy,25
which would create a multi-institution committee,
chaired by the Ministry of Finance and include,
among other things, efforts to promote the access
to and use of financial services, with a focus on
marginalized populations, SMEs, and rural areas.
Inclusion will be helped by promoting the sustainability of financial sector operations in rural areas. Credit guarantee programs, such as the Fondo
Agropecuario de Garantia (FAG), offer high levels of
coverage for loans that could be creating moral hazard problems for banks that use the guarantees. To
avoid contamination of rural lending markets, FAG
and other guarantee programs should be reviewed
in light of past performance and international good
practices. Furthermore, capacity-building should
be provided to credit cooperatives and other private
institutions that have shown promise in serving the
needs of rural businesses and households.
Well-designed financial education interventions will
be an important element of promoting responsible
use of financial services. Following the issuance of
the national financial education decree, primary
schools in select municipalities will begin pilot programs for financial education in 2014, with a proposed expansion in the following year to secondary
schools and the rest of the country. Age-appropriate
curricula, resource materials and, teacher training
will be critical to support the understanding of the
fundamentals of personal finance and use of financial products. Colombia could draw on the Brazilian
experience, which rigorously evaluated its public
financial education program with the support of
governmental institutions and representatives from
several private sector institutions. For the adult
population, shorter interventions featuring the
transmission of key messages (i.e., through public
service programming, the media and entertainment programming, or workplace initiatives) could
be a more appropriate avenue to promote desired
financial behaviors. Efforts to support the enforcement of Colombia’s financial consumer protection
framework, particularly provisions related to transparent presentation of costs, will be a key complement to financial education efforts.
Additional legal and regulatory improvements are
necessary to continue promoting the regular use of
financial services, with an emphasis on technological avenues that facilitate transactions. Authorities
should continue to support an enabling regulatory
framework for the use of mobile banking and other technological innovations, which would make
it easier to expand financial services to the poor,
women, and other unserved groups, particularly
in remote areas where branches are not cost-effective. The use of a technology like cell phones
can provide a massive link to increase the use of
formal banking services, offering large segments
of the population cheaper access with simpler
procedures. Efforts to expand financial services in
innovative ways (i.e., through correspondents and
mobile channels) will help bring these services closer to customers. For example, the Pague Digital law
proposed in 2014 would establish a license for new
classes of financial services providers for electronic
payments, deposits, and savings that is expected to
facilitate and reduce the costs of these transactions
for consumers. As Colombian financial institutions
expand their outreach and tailor their products and
requirements to serve a larger pool of consumers,
customers’ demand and use should increase as well.
The effective implementation of the new
Guarantees Law (1676) and creation of an enabling framework for factoring would support the
Government’s objective of easing credit access for
SMEs. The law was enacted in August 2013, followed in February 2014 by Decree 400, regulating
the use of movable assets as collateral in financial
operations. The new law is expected to facilitate a
Financial Sector
much faster execution of guarantees. Defining regulations to support the use of electronic invoices
Development
Challenge
Improve
oversight of
financial sector
Develop capital
markets
could support the use of factoring as a source of
finance for SMEs.
Institutions
Timeline
Rethink the structure of SFC and strengthen the independence of the
superintendent.
Recommended Policy Option
SFC, MHCP
ST
Strengthen consolidated supervision by (i) giving SFC legal authority to
oversee currently unregulated bank holding companies and (ii) redefining
the concepts of related parties and conglomerates.
SFC, MHCP
ST
Adopt an improved capital adequacy regulation adapted to Basel III
recommendations.
SFC, MHCP
ST
Develop integrated risk measurement tools necessary to monitor the
increasingly complex risk structure of conglomerates.
SFC, MHCP
MT
Improve the capital markets oversight framework.
SFC, MHCP
ST
Improve liquidity of the government bond market yield curve from short- to
long-term tenors.
MHCP
MT
Support development of an institutional and regulatory framework that
promotes financing for housing and infrastructure through capital markets.
MHCP
ST
Develop policy and regulatory changes to support a more diversified
institutional investor base for long-term financing.
MHCP
ST
Continue the process of phasing out double taxation on foreign investors as
well as the complex administrative and registration procedures for accessing
foreign exchange and the domestic securities market.
MHCP
MT
SFC, MHCP
MT
MHCP
ST
SFC, MHCP
MT
Support an enabling regulatory framework for the use of mobile banking and
other technological innovations, including the proposed Pague Digital law that
establishes a new license category to issue electronic payments and deposits.
MHCP
MT
Develop a platform to support the use of factoring as a source of finance for
SMEs.
MHCP
MT
Promote the development of options for hedging minimum wage risk and
increase competition in the annuities industry.
Support
financial
inclusion
Approve a comprehensive financial inclusion strategy, including financial
literacy actions.
Promote the sustainability of financial sector operations in rural areas.
Endnotes
1
2
In 1995, the poverty rate was 49.5 percent; in 1999,
it was 57.5 percent. However, these numbers should
be carefully examined because they were calculated using a dated poverty measurement methodology that clashed with improvements in the national
household survey system that led to changes 2002.
Government efforts have been extensively supported
by the World Bank and other multilaterals through a
3
number of operations, including loans, technical assistance, analytical work, and policy dialogue.
Some of the reforms implememted in the past few
years have the objective of strengthening the capital and liquidity standards for banks and insurance
companies, in particular through the adoption of
Basel III standards. In addition, measures have been
adopted to support the strengthening of financial
171
172
PART TWO
4
5
6
7
8
9
10
11
12
13
|
CHAPTER 9
conditions of credit establishments during financial
distress periods, including countercyclical provisions.
IMF Financial Access Survey (2012). According to
the Association of Banks of Colombia (Asobancaria) this number increases to 17 per 100,000 adults.
FSAP 2012.
Conglomerates can own various financial institutions or subsidiaries. For instance, one of the largest local groups (Aval Group) manages four banks
(Banco de Bogota, Banco de Occidente, Banco AV
Villas, and Banco Popular) and is controlled by one
final beneficiary owner. The Grupo Empresarial Antioqueño (GEA) is composed of three firms (SURA,
Argos, and Nutresa) and has a complex structure of
control. While this group has a significant stake in
Bancolombia as well as insurance and pension institutions, it is hard for the SFC to monitor the horizontal relationships among these financial institutions.
Grupo Bolivar has divided its control into several
holdings, each one in charge of a different financial
business (banking, insurance, and pension funds).
Source: Quarterly National Accounts and SFC Report “Actualidad del Sistema Financiero Colombiano” December 2013.
AFP Proteccion, belongs to Group Antioqueño
(37 percent of pension assets), AFP Porvenir belongs to Group Aval (44 percent), AFP Colfondos
belongs to Group Scotiabank (14 percent), and AFP
Old Mutual Skandia belongs to Group Old Mutual (UK) (5 percent).
Other emerging Latin American countries account
for a larger regional share of the industry, including
Brazil (79 percent), Mexico (4 percent), and Peru (4
percent).
The LAVCA Scorecard measures 13 dimensions
that affect the development of private equity and
venture capital.
According to the 2013, SFC financial inclusion report, a significnt increase in the usage of mobile and
internet banking was registered, with a growth rate
of the number of transactions of 870 percent and 94
percent respectively during the 2009–2013 period.
Collection of resources from more than 10 individuals without a licence could be considered illicit financial intermediation.
The mandates of the SFC are to preserve the stability, safety, and confidence of the financial system; organize and develop the Colombian capital markets;
14
15
16
17
18
19
20
21
22
23
24
25
protect investors, depositors, and insurance policy
holders; and assure protection for consumers of financial services. Recently the SFC was given responsibility for oversight of public health agencies (EPS).
For example, SFC is responsible for payment system oversight, a mandate typically placed in central
banks, as well as the oversight of health insurance
providers.
Including US$26 billion of planned investments in
an ambitious road concessions program (G4).
See World Bank, Colombia’s Financial Capabilities
Report, July 2013.
Informe Semestral de Inclusion Financiera, June 2013.
In 2012, Colombia’s total factoring volume was at
EUR4.5 billion, while Brazil reached EUR43.6 billion, Mexico EUR26.1 billion, and Chile EUR24
billion.
An assessment of strengths and weaknesses of the
current model would need to be conducted to determine whether the existing SRO model is adequate
seven years after its inception. The World Bank
team is supporting this assessment. Recommendations are being made taking into account the existing current oversight framework, but it would need
to be revised if SFC responsibilities were to change.
The World Bank team is currently supporting the
MHCP in reinforcing its government debt market
strategy along these lines.
This is in line with professional issuance regimes developed in the U.S. (e.g. 144A), the EU, and several
advanced EMEs, which now account for the majority of the fixed-income market.
FDN is currently developing such instruments and is
expected to be one of its main providers.
Pension funds’ demand is an essential factor shaping
the supply of capital market instruments, but their
portfolios are relatively conservative and subject to
minimum return regulations based on the industry
average, which encourages herd behavior.
With World Bank support, authorities are working
on the reform of the private pension industry by improving the enabling environment for investment diversification, revising the minimum returns schemes
and other areas for the strengtening of the pension
industry in Colombia.
Ministerio de Finanzas, Estrategia de Inclusión Financiera, Presentation March 2014.
Structural Changes – Implications for Growth, Productivity, and Competitiveness
CHAPTER 10
The Urgent Innovation Agenda—
Governance, Knowledge, and Firms
173
174
PART TWO
|
CHAPTER 10
Main Messages
Innovation—the adoption of new production techniques and the introduction of new products—is
the best defense against foreign competition and the commodity-driven exchange rate appreciations
that are especially hard on the SME sector.1 Innovation is also essential for taking advantage of the
new markets opened by free-trade agreements (FTAs) and to reviving the agricultural sector, where
stagnant productivity has become a sensitive political issue. Colombia has a window of opportunity,
created by a strong macro environment, increased integration with the global economy, and a commodity boom that offers the resources for the important project of development. However, it faces
important weaknesses in innovation policy that threaten to undermine this opportunity; these weaknesses require substantial and urgent policy changes. To seize the opportunity, the innovation agenda
must become a priority for the country.2 This policy note makes policy recommendations regarding
the governance of the National Innovation System, funding for innovation, modernization of demand
(i.e., firms) and demand (e.g., education centers) for innovation.
The governance and public components of the National Innovation System (NIS) require reform managed at the highest levels, and existing institutions need to specialize, become technically stronger,
and stop competing among themselves. The well-known market failures that characterize innovation
imply an important role for government in redressing them. Coordination among the players in the
Colombian innovation system has been hampered by weak institutional capacity within agencies and
competition among them. Although progress was made with the creation of the coordinating Comite
Tecnico Mixto in 2013, a large number of programs remain fragmented and redundant.3 Similarly, the
agricultural research and extension services need modernizing. At the oversight level, overlapping legal normative leave it unclear who is in charge of certain aspects of the system and hence who should
lead reform efforts in those areas.4
The coming on line of regalias (royalties) offers new resources for innovation, but a strategy is needed
to lower the risk of resource misallocation from low capacity at subnational levels. One promising idea
that has begun to be implemented—a series of almost off-the-shelf modules for successful national
initiatives in such areas as secondary school science education, technological assistance or agricultural
extension. However, the current bottom-up strategy for allocating regalias is separated from a national
strategy supporting innovation. Colombia needs to rethink its NIS with an eye toward clear definition
of roles and development of a multi-decade plan for institutional strengthening. Success will require
strong leadership at the presidential level
Key focus on modernizing lagging firms and farms is crucial because they are the main generators
of innovation and productivity. Growth is driven by firms and farms, and they must be at the center
of discussions of innovation and reforms of the NIS. Recent studies suggest that Colombia’s firms lag
substantially in management quality and preparation for innovation. Further, productivity in the agricultural sector, where 60 percent of the poor live, has not kept pace with overall growth.
Improving the quality of human capital and the supply of knowledge is essential. Studies find that
low-quality education is one of the contributing factors to low productivity and slow economic growth
in Latin America, including Colombia. From weak fundamentals in math and science, as reflected in recent PISA scores, to low university enrollments and PhD graduates in engineering and science to relevant
research—the country must remove improve the quality and relevance of its educational offerings.
Monitoring and evaluation (M&E) needs to become a central element of all government programs.
Major programs of worker training, government research, and firm support lack the most rudimentary
documentation of their effectiveness. Mainstreaming M&E throughout the Government would force
prioritization, help in the consolidation and pruning of programs related to innovation, and lead to
better targeting.
The Urgent Innovation Agenda—Governance, Knowledge, and Firms
175
PART TWO
|
CHAPTER 10
Background and Context
Poor growth performance in Colombia is largely
explained by lackluster productivity, associated to
low innovation levels. Half of Colombia’s growth
is due to productivity improvements, a large fraction of which come from innovation. TFP growth
has averaged a low 0.5 percent over the past 60
years, climbing to 1 percent between 2003 and
2010—a rate that is still slow even by LAC standards (e.g., compare with Chile’s 2 percent TFP
growth after reforms). An extremely large number of Colombian companies are too far from the
frontier to proactively respond to increasing external competitive pressures. At 0.18 percent in 2011,
national research and development (R&D) expenditures as a share of GDP are roughly half the expected rate for a country at Colombia’s level of development (the dotted line in Figure 10-1). Other
resource-abundant countries like Canada and
Australia invest approximately 2 percent of GDP
in R&D, with South Africa at 0.93 percent and
Malaysia at 0.63 percent on R&D. For Colombia,
the decline in R&D from 0.25 percent at the end
of the 1990s is entirely explained by the collapse in
private sector R&D—from a peak of 12 percent in
1997 to under 0.04 percent in 2006–10. According
to the National Innovation Survey IV (2007–08),
only 11.8 percent of Colombian firms with over 10
workers innovate in product or process, compared
to 30 percent on average for countries at its level
of development.
Conflict lowers productivity because of risk-avoiding coping strategies impact productive choices. An
often overlooked consequence of the conflict is its
effect on productive choices because of the greater
risks for investments in productive activities. This
is especially strong in agriculture. A recent study
shows that farmers who live in areas threatened
by armed fighters tend to favor fast-growing crops,
which allow short-term returns, or they convert
cropland into pasture for cattle, a mobile product
that can be quickly liquidated (Arias et al 2013).5
In this risky context, farmers prefer to avoid coffee, cocoa, rubber, fruit trees or other permanent
FIGURE 10-1: Colombia’s Deficient R&D
Performance
4.5
Predicted and Observed R&D/GDP (%)
176
4.0
Korea
Finland
Japan
3.5
3.0
2.5
Taiwan
2.0
China
1.5
Brazil
1.0
0.5
0
Turkey
Mexico
India
Colombia
4
5
Spain
6
7
Hong Kong
Malaysia
8
9
10
11
Log GDP per capita
Source: Goñi and Maloney (2014).
crops, which require investments that take longer
to yield returns and are harder to liquidate in the
short-term, even if they are more profitable in the
long run. This risk minimization strategy hampers
profitability and generates an inefficient allocation
of resources.6
Three main pillars support National Innovation
Systems (NIS) in general and Colombia’s National
System of Science, Technology and Innovation
in particular, each of which will be analyzed separately (Figure 10-2). First, the governance system
includes the institutions that share responsibilities
for defining the policies and programs to promote
innovation, the rules and mechanisms for their coordination, and the overall context that shapes incentives for the accumulation and reallocation of the
physical and knowledge capital that promotes productivity growth. Second, on the demand side, firms
and entrepreneurs are the centerpiece of the NIS; if
they lack the capacity, or the competitive and trade
contexts offer few incentives to innovate, then there
can be no productivity growth. Last, but not least,
on the supply side, innovation requires sources of
ideas and quality human capital across a spectrum
that is relevant to the needs of firms and farms.
The Urgent Innovation Agenda—Governance, Knowledge, and Firms
FIGURE 10-2: Schematic of the National Innovation System
Oversight of Innovation System
•
•
•
•
•
Supply side
Accumulation & Allocation
Universities
Think Tanks
Technology Parks
Consultants
Knowledge
Human capital
Quality systems
Best practices dissemination
Science and technology systems
International Linkages
Demand side
Firms
Entrepreneurs
Productivity
Barriers to accumulation/allocation
• Financial markets
• Entry/exit barriers
• Business climate/regulatory barriers
Barriers to knowledge accumulation
• Market failures
• IP regime
• Early stage financing (i.e. seed and venture)
• Factor market rigidities
•
•
•
•
•
Macro environment
Competitive regime
Trade regime
International market
Entrepreneurship
Source: Maloney 2010.
Distortions that influence incentives for the allocation of inputs can have sizeable economy-wide effects on overall productivity. By comparing China
and India with United States, Hsieh and Klenow
(2009) show that these distortions, external to the
firm, account for 30 to 60 percent of the productivity gaps among these countries.7 The usual factors
affecting physical capital accumulation, such as
those captured by Doing Business (DB) Reports,8
are also relevant to the accumulation of knowledge
capital. In addition to those factors measured by
DB indicators, especially important for innovation
and productivity are intellectual property regimes,
financing conditions for early stage ventures, and
factor-market rigidities.
Quality of education matters. A World Bank
Study on Education and Skills for the 21st
Century in LAC (2009–11) concludes that Latin
America’s inability to increase the new economy
skill content of its labor force may be related to
low educational quality and unfavorable business
environments. The analysis shows that education
plays an important part in the acquisition of skills;
more education enables individuals to engage in
occupations with higher skill content; and better
quality education would likely enable the region
to move toward better jobs, with a higher content
of new economy skills.9
Challenges
Governance of the Colombian National
Innovation System
The governance system supporting innovation
in Colombia is characterized by fragmentation,
duplication, and lack of specialization. Creating
innovative firms involves an extensive process of
raising the capacity of existing and new firms and
cultivating over time their demand for innovation and ability to absorb technologies. To date,
Colombia does not have a coherent integrated
system of support mechanisms that will encourage the increasing productivity and sophistication
of firms over time and render them more able to
use and generate output-increasing knowledge.
Figure 10-3 shows that many different elements of
the support system are now scattered across different entities, with substantial overlap and duplication of programs. The National Training System
(SENA), for instance, operates both basic start-up
support as well as advanced technological parks
177
PART TWO
CHAPTER 10
|
Technological approach
FIGURE 10-3: Support Systems for Firms
Across Age and Level of
Sophistication
Advanced
Limited
that support innovation are numerous, and many
are very small, with an excessive number of “pilots”
being launched. Most critically, a majority of the
programs lack a rigorous evaluation framework. In
practice, evaluation is a concern that emerges ex
post, which makes it difficult to rigorously evaluate
the efficacy and efficiency of these programs. For
this reason, high-level policy makers are in a difficult position when they have to decide about expanding, reforming, or eliminating a program.
Colciencias, iNNpulsa
Fund and calls,
SENA (calls), CDT
Technopark
-SENA
Mature
SET
Entrepreneurship
-SENA
New
SENA centers
and formation
MIPEs-SENA,
agricultural
extension
Existent
Declining
Life cycle of the company
Note: SET = System of Technological Extension.
(technoparque). Colciencias and InnPulsa both
are charged with higher-end support to innovative
firms. In fact, Colombia has at least 56 different
programs to support improvements within existing firms, spread across multiple agencies that are
often duplicative and underfunded. The recent
review performed by the Comite Tecnico Mixto10
shows that many of these programs are small and
underfunded; 90 percent of the programs control
only 20 percent of the total resources.
Most programs that support innovation lack a robust evaluation strategy, making it hard to justify expansion, improvements, or elimination. Programs
Lack of capacity at subnational government hampers the effectiveness of the regalias funds devoted
to innovation. Ten percent of the COP 9 billion of
royalty funds, or about US$500 million, are earmarked for innovation, science, and technology.
Capacity constraints in local administrations may
affect project formulation and effective execution
of expenditures. Funds requested by local governments point to lack of adequate regional innovation
strategies that balance both activities to improve
skills (supply side) and firms capabilities to effectively use these skills to innovate (demand side).
Challenges to factor accumulation and
allocation
Substantial room for improving the business environment exists in Colombia. While it has achieved
important progress in the Doing Business indicators,11 Colombia still lags the regional top performer
Starting a
Business
Getting
Electricity
Colombia
43
79
24
101
Argentina
126
164
181
80
Brazil
116
123
130
14
Chile
34
22
101
Mexico
53
48
Peru
42
63
Source: World Bank.
94
138
73
98
153
129
57
97
107
109
80
159
124
121
135
43
55
55
34
38
40
64
102
40
133
150
42
68
118
59
71
26
117
79
22
28
16
73
55
105
110
Resolving
Insolvency
104
Enforcing
Contracts
6
Trading
Across
Borders
73
Paying
Taxes
Getting
Credit
53
Protecting
Investors
Registering
Property
Dealing with
Construction
Permits
Ease of Doing
Business Rank
TABLE 10-1: Ease of Doing Business Rank (Doing Business Report, 2014)
Economy
178
155
25
The Urgent Innovation Agenda—Governance, Knowledge, and Firms
(i.e. Chile), and it is even further behind when compared with OECD countries (Table 10-1).
FIGURE 10-5: New Business Density, 2012
14
The lack of a developed system to support early-stage financing reduces entry opportunities,
especially for innovative young firms. As they
move from the proof of concept phase to being
established and perhaps publically listed, innovative firms require a spectrum of distinct financing
sources of differing characteristics (Figure 10–6).
Colombia has representation in most phases of
the life cycle—but it is truly small (Figure 10-7).14
For the innovative start-ups, Colombia’s market-driven programs of venture capital/private
equity (VC/PE) remain low relative to market
size: 0.16 percent of GDP, compared to Brazil
FIGURE 10-4: Differences Between Cities in
Colombia
Days to start a business
25
20
15
10
0
Armenia
Santa Marta
Pereira
Ibague
Cali
Cartagena
Manizales
Bogota
Neiva
Bucaramanga
Medelin
Palmira
Sincelejo
Barranquilla
Pasto
Villavicencio
Cucuta
Riohacha
Popayan
Monteria
Valledupar
Tunja
Dosquebradas
5
12
10
8
6
4
Australia
Siganpore
Chile
Peru
Brazil
Colombia
0
Mexico
2
Argentina
Regulations and incentives for entry of dynamic
young firms at the subnational level are particularly
important. Recent work has shown that the vast majority of jobs and income growth in Colombia is generated by the top 10 percent of young firms.12 The
need to facilitate entry, support, and, if necessary,
allow exit of such firms is therefore crucial. Large
differences exist in terms of barriers to entry between places like Armenia, Santa Marta, or Pereira,
where setting up a new business takes no more than
a couple of days, and places like Dosquebradas,
Tunja, or Valledupar, where the same operation
takes more than 20 days (Figure 10-4).13
Source: Entrepreneurship Snapshot, World Bank.
at 0.27 percent or the US and UK at close to
1 percent. Government programs to ameliorate
market failures and provide financing across the
innovation lifecycle (start up, venture capital
etc.) related to innovation are deficient in coverage, fragmented, and poorly coordinated.
The intellectual property regime requires strengthening and adapting to the needs of Colombia’s entrepreneurial ecosystem and specifically SMEs. An
effective intellectual property (IP) regime plays an
important role in fostering innovation in various
ways. It fosters technological innovation through
patents, business innovation through trademarks,
software innovation through copyrights, and even
more “indigenous” types of innovation through
geographical indications. Colombia has improved
its IP regime and tried to make it more efficient
and effective—but important challenges are
ahead. First, granting IP offices judicial powers in
2012 was an important step forward in improving
the efficiency of IP litigations; however, it is still
necessary to improve the quality of IP examinations and reduce delays. Second, the IP system’s
user base of the outside Bogota is very limited and
hampered by the absence of regional IP services.
Third, the availability of information for businesses has improved (i.e. online), but most Colombian
companies, especially SMEs, still have very limited
knowledge and capacity to take advantage of the
IP system. Finally, the system is now specifically
179
PART TWO
|
CHAPTER 10
FIGURE 10-6: Startup Financing Cycle
Startup Financing Cycle
Financial Stage
180
Seed Capital
[Angels, Family &
Friends, Microcredits,
etc.]
Startup Capital
[Angels, Microcredits,
VC firms—series A,
etc.]
Early Stage
[VCs, Angels,
Mezzanine funds, etc.]
Later Stage
[PE/Growth Funds,
Factoring, Leasing,
Bank funding, etc.]
Corporate
[PE - growth/buyout
financing, Bank debt,
Public equity, etc.]
Focus of SME PE
funds in developing
countries
Nascent market in developing
countries, which can be
unlocked with twinned
financing/ TA models
Significant capacity development needs, in addition to financing gap, in developing countries
Concept
(Idea created, first
business plan
prepared,
but product not fully
tested or market
ready
Product Development
(Product prototype
needs to be finalized
and introduced to
market)
Initial Revenue
(Proven product but
negative cash flow)
Established
(Sustained positive
cash flow and
business is viable)
Corporate
(Strong sales/revenue
and stable cash flows)
Stage of Company
Source: Authors’—Various Research Sources.
focused on patents, which may not be the most important instruments for Colombian SMEs.15
Demand-side challenges
Firms are very heterogeneous and their needs
are different. In Colombia, the top firms are
400 percent more productive than the laggards.
Differences of the same order of magnitude exist
in terms of their managerial capacities, limiting
firms’ ability to raise funds, particularly in early stages (Figure 10-8).16 Instruments to support
innovation need to be tailored to specific groups
of firms and the temptation of “one-size-fits-all”
needs to be carefully avoided.
Weak quality of firm management generates low
technological “absorptive capacity.” A recent LSEWorld Management Survey undertaken jointly by
World Bank and DNP revealed that Colombian
firms have among the worst management quality
measured to date (Figure 10-9). This translates to
poor ability to identify and adapt new technologies,
little long-run planning, and poor human resource
policies. In fact, the top quartile of Colombian firms
performs close to the bottom quartile of U.S. firms
in terms of their managerial score.17 Moreover,
Colombian managers are not aware of their poor
managerial performance—the gap between “perceived performance” and “real performance” is
largest in Colombia. A recent study of firm practices by Bain Consulting found that only 37 percent of
Colombian firms benchmark their activities against
best practices, well below the 83 percent in the global sample. Similarly, only 37 percent of Colombian
firms undertook practices for knowledge management, while the global average was 62 percent.
Challenges to the supply of skills and
knowledge
Colombia needs to improve the quality of its education system to supply skills and knowledge required for the new economy jobs. At the primary
The Urgent Innovation Agenda—Governance, Knowledge, and Firms
FIGURE 10-7: Mapping of Colombian SME Investment Funds
Investment
size (US$)
Stage
Mid-Cap growth/Buyout
$10 MM +
PE in SMEs
$3–10 MM
Venture capital
$100,000–$2 MM
Impact investing
Seed/Angel/Incubators
<$100,000
No-Low returns
Market returns
Rate of return
Source: LAC SME PE/TA FUND PRE-FEASIBILITY STUDY (World Bank).
and secondary levels of education, Colombia continues to underperform in math and science. In
the most recent results from PISA 2012, Colombia
scored significantly below the OECD average
as well as below all other middle-income Latin
American countries participating in PISA (Chile,
Costa Rica, Mexico and Brazil), with one exception—Peru. These results suggest that Colombia
is not producing students with enough 21st century skills, such as higher-order cognitive and socio-emotional abilities (which include creativity,
critical thinking, entrepreneurship, etc.).18
The relevance and quality of technical education is not sufficient to respond to the demand of
Colombian firms. The technical education system
(SENA) absorbs vast resources yet gets mixed reviews from the private sector on relevance and
quality. In addition, the curriculum is not meeting the demands of the private sector, particularly for 21st century skills. Existing studies suggest
little or no impact of SENA technical education
on earnings, and cost-benefit analysis suggest that
SENA’s training is the least profitable, trailing
below both other public institutions and private
ones.19 Furthermore, there appears to be an absence of systematically collected data to undertake a careful evaluation of the various programs.
For instance, data is lacking on the performance
of its graduates.
Colombia faces a serious shortage of qualified
human capital at higher educational levels. The
challenges of raising enrollments in higher education (throughout the country and across socioeconomic backgrounds) and attracting and retaining
the best talent contribute to the deficient supply
of advanced human capital. The usual pyramid
of skills showing a vast number of technicians
and relatively few university graduates is inverted
in Colombia, with 65 percent of tertiary students
enrolled in university and 35 percent in technical
programs. Though showing a higher than average
number of engineers, Colombia is below the average in graduating PhDs in science and technology
fields. In higher level technical training, there is a
shortage of the private sector providers who could
best meet the needs of industry.
181
PART TWO
|
CHAPTER 10
FIGURE 10-8: Productivity and Managerial Differences in Colombia
TFP Differences among Colombian Firms
Managerial Differences among Colombian Firms
0.6
Distribution of firms
182
2.0
1.5
0.4
1.0
0.2
0.5
0
0
–4
–2
0
2
4
–0.5
0
0.5
Distance from average management score
Distance from average sectoral productivity
Source: Entreprise Survey Data 2010 (World Bank).
Few academic programs and institutions are accredited as high quality by the national educational
quality assurance system. The mandatory Register
of Qualified Programs (Registro de Calidad) represents an enormous, positive step in quality assurance. However, high-quality accreditation covers
only about 22 percent of the programs and 10
percent of the institutions. Moreover, only 14 percent of the faculty in Colombia has doctorates,
compared to 40 percent in the region, suggesting
a deeper issue of overall quality in the system. In
addition, with the information from the Labor
FIGURE 10-9: Managerial Quality in Colombia
Colombia Autoparts
Colombia
India
Brazil
China
Greece
Chile
Argentina
Republic of Ireland
Portugal
New Zealand
Northern Ireland
Poland
Mexico
Australia
France
Italy
Great Britain
Canada
Sweden
Germany
Japan
United States
Colombia
Mexico
Brazil
Chile
Argentina
Greece
India
Portugal
Republic of Ireland
China
Northern Ireland
New Zealand
Canada
Australia
Poland
Italy
Great Britain
Germany
United States
France
Sweden
Japan
Singapore
0
1
2
3
Mean of overall management
Source: DNP/World Bank based on World Management Survey.
4
1.28
1.14
1.10
1.02
1.02
0.97
0.95
0.84
0.81
0.79
0.75
0.72
0.58
0.57
0.52
0.48
0.47
0.35
0.25
0.19
0.19
0.13
–0.34
–1.5
–1.0
–0.5
0
0.5
1.0
1.5
Average overscoring (selfscore-management)
The Urgent Innovation Agenda—Governance, Knowledge, and Firms
Observatory for Education on labor market insertion for higher education graduates and SABER
PRO results, more emphasis could be placed in the
accreditation process in results and outcomes.
Universities and research centers are weakly connected to private-sector demand. Colombia’s collaboration between higher education institutions
and the private sector compares unfavorably to
peers and OECD countries, probably reflecting a
low opinion of the quality of scientific institutions
(Figure 10-10). On the research side, Colombia
has more than 300 Technological Centers, only
40 percent of which were evaluated as performing
reasonably well.20 Colombia produces 9.3 scientific and technical journal articles per million inhabitants, compared with averages of 21 for Latin
America and 590 for most developed countries.
Moreover, the Colombian Observatory for Science
and Technology (OCYT) reports that the research
is highly concentrated in humanities and social sciences, which account for almost half of the indexed
publications. More clarity on research outcomes is
needed, along with alignment of financial incentives
to ensure quality and relevance to the private sector.
The agricultural system of research and extension
is in need of a thorough modernization. Colombia
has a long history of extension programs, but it is
a history of policy inconsistency over time and inadequate attention to research and maintenance of
the human capital of agents (Perry 2012, Perfetti et
al. 2009). Despite the country’s vast land resources
and the importance of rural prosperity for achieving peace, Perry contends: “Today, there is no national system of extension nor of technical assistance in Colombia and reforms over the last two
decades have appeared to leave what system there
was exhausted and disarticulated.” In terms of
coverage, agriculture institutes are often involved
in research, which does not translate into technology diffusion (Scott 2005). Furthermore, for vast areas of the country, there is little in the way of solid
agricultural research that would point farmers of
any size toward lucrative crops, perhaps for export,
appropriate to their ecosystems.
Policy Recommendations
Recommendations for improving the
governance of the NIS
Establish a presidential level coordinating body.
A coordinating body at the highest level is necessary to implement the recommendations suggested
Quality of Scientific Institutions
Source: World Economic Forum, Global Competitiveness Report.
University/private sector collaboration
Hong Kong
Taiwan
Siganpore
Malaysia
Turkey
United States
Finland
Israel
Sweden
Australia
Ireland
India
Korea
Spain
China
Mexico
Costa Rica
Colombia
Chile
Brazil
6.5
6.0
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
Argentina
FIGURE 10-10: Private Sector Opinion on the Quality of Scientific Research and Degree of
Collaboration with Universities
183
184
PART TWO
|
CHAPTER 10
here and to engage in ongoing oversight of the system and long-run planning. This would provide a
strong signal of the political will to push forward
the “innovation locomotive.” Arguably, the coordinating body should be an energetic joint National
Council of Competitiveness and Innovation that
would be led by the nation’s president, attended by
the relevant ministers, and structured by the Alta
Consejeria for Competitiveness and Innovation. The
council should include academics, public servants,
and private sector figures of national weight who
would engage actively in developing a long-range
view, undertaking unimpeachable studies on key
issues, defining the country’s priorities for science,
technology, and innovation, and, vitally, promoting
the innovation and productivity agenda credibly
with the public. A subcouncil at the ministerial
level, attended by ministers, would be tasked with
formulating specific policy.
Focus, specialize, and enhance the capabilities of
the NIS institutions within a clear innovation strategy. Colombia needs to clearly articulate a 10-year
strategy for its NIS that both defines long-term
goals and prioritizes activities to reach those goals.
Flowing from this strategy, the country will need to
define the roles and limits of relevant government
agencies to meet NIS goals and develop a 10-year
plan for institutional strengthening. Currently, the
system is characterized by fragmentation, overlap,
and duplication. The recommendation calls for
moving toward a clear division of roles, specialization, and coordination. In this context, one agency
would focus on the supply of higher-level human
capital and research. Another one, with close connections to private sector, would focus more on the
demand side and raising firm capacity for innovation. Yet another one would concentrate and
specialize on technical training, with a strong focus
on regional and local presence. Finally, the activities of these various specialized agencies could be
monitored and reviewed by a central institution,
which would have no responsibilities in the implementing programs and activities. In each area,
Colombia faces major challenges; hence, narrowing the mission of each, strengthening the capacity of functionaries, revisiting the organizational
structure, staffing them with leaders respected in
the relevant fields, and stabilizing the finances are
essential steps to their essential roles in the NIS.
Regalias need to become a central element of a
national strategy of innovation. The current bottom-up strategy to allocate regalias for innovation
projects has the advantage of responding to the local needs, as identified by the governors, but it separates the effort from a national strategy to support
innovation. A more streamlined menu of programs
that have been rigorously evaluated and aligned to
this strategy could be offered to the regions—for instance, programs for science education, technological assistance, agricultural extension, and research.
These programs could be packaged as modules
that regions can draw on, including those with
weak administrative capacity, as effective, relevant
ways of employing these resources.
Program evaluation needs to become a routine.
Programs of innovation, science and technology, training, and support to firms should have an
evaluation of impact built into their design. This
provides discipline and improves the efficacy of
government efforts. A public expenditure review
should be undertaken for existing programs to understand where resources are flowing; dominant
programs need to be evaluated, and priorities realigned in light of the findings.
Recommendations for improving factor
accumulation and reallocation
Develop a plan for regulatory reforms at the
subnational level aimed at a “raise to the top.”
Implementation of business regulation differs
substantially across Colombian cities. A strategy
of subnational regulatory reforms could use as
examples those cities that have been successful
in streamlining policies and procedures and implementing national regulation efficiently. Most
of the business regulatory framework is legislated at a national level, with a smaller part, such
as local fees and taxation, being within the purview of local state and municipal governments.
The similarity in legal frameworks facilitates the
The Urgent Innovation Agenda—Governance, Knowledge, and Firms
learning process and the application of best practices across the country. The Mexican experience
shows the importance of having federal agencies
working with subnational governments to promote and assist on the regulatory reform agenda.
Private capital markets require further public support to meet the needs of SMEs and highly innovative start- ups, especially in providing technical
assistance and development of an exit strategy for
private equity funds. Technical assistance (TA),
when delivered in conjunction with private equity, can unlock more investment commitments.
However, the small size of Colombian PE funds
limits their ability to provide TA. Such twinning
is actually the rule in VC in the U.S., where managerial resources often are scarce in young, growing firms; the most innovative entrepreneurs are
not necessarily endowed with talents as managers.
A major role of VC is the fielding of good managers and managerial expertise.21 The Brazilian
success in developing PE/VC is largely due to the
existence of Novo Mercado and Bovespa Mais, which
provide an exit strategy to PE investors by taking companies public. Similar exit opportunities
should be considered in Colombia.
Strengthen the intellectual property regime in
ways that are relevant and respond to the needs of
Colombian SMEs. Despite some recent improvements, four IP areas would benefit from further
advancement. First, the IP regime needs to become integrated in a broader innovation strategy,
including other initiatives supporting innovation.
Second, the nature of Colombian SMEs limits
the role of patents, so other instruments such as
trademarks, copyright, protection of traditional
knowledge, and geographical indications are especially important and should be given a central
role. Third, the IP regime is currently centralized
in Bogota, which points to a need to raise awareness among potential users outside the capital.
Finally, the limited current use of various IP instruments suggests a large scope for experimenting, with simplification of procedures and provision of incentives for expanding the use of the
various instruments.
Recommendations for the demand side
Identifying specific needs and targeting of programs should be a key principle. The heterogeneity of Colombian firms makes it essential to
adopt instruments that target the specific needs
of different types of potential beneficiaries.
This requires two steps: (i) a detailed diagnostic
of these needs and (ii) a careful design that responds specifically to them instead of replicating
programs previously applied in different types
of firms. Programs and interventions could be
financed through the regalias if designed as modules of best practice that could be modified to
local contexts.
Low productivity firms require specific programs
that help them to close the productivity gap.
Recommendation in key areas include:
• Technological extension: Technological extension programs have been used in the U.S.,
Singapore, Korea, Japan, and other countries
to improve the quality of firm management
along the dimensions of production, operations, quality control, strategy, logistics, human resource management, the environment,
continuous improvement, lean manufacturing,
Six Sigma, 5S etc.22 Pending the results of the
Inter-governmental Pilot on Technological
Extension, scaling-up across Colombia would
increase the competitiveness of SMEs and lay
the foundations for more innovative firms in
the future.
• Agricultural extension: A parallel system of extension and research was absolutely critical
to stimulating growth and poverty reduction
in U.S. rural sectors. Colombia would benefit
from bottom-up development of research cum
extension systems that are linked nationally
and offer incentives for continual upgrading
of knowledge and human capital and concrete
evaluations of coverage and efficacy. Ideally, a
well thought out program, coordinated with
university upgrading and centers of excellence, would provide an excellent use for funding from regalias..23
185
186
PART TWO
|
CHAPTER 10
• Targeted programs for micro-entrepreneurs: In areas
where most of the existing firms are micro
units, characterized by high degrees of social
exclusion and poverty, programs such as technology extension are unlikely to respond to
users’ needs. It is important to design specific
interventions that support “groups” of local
entrepreneurs. Currently, the technology extension pilot program is developing a specific
intervention for micro enterprises; in addition,
Colombia can learn from successful experiences in post-conflict regions targeting re-integration of youth at higher risks of participating in illicit activities.24 These programs have
their own specifics and should not be mixed
with programs such as technology extension,
but they can be useful, especially in the shortterm transition toward peace and reduction
of inequalities by providing alternatives to
illicit activities. However, it is recommended
that programs to increase productivity of micro-enterprises (and the self-employed) should
be evaluated and compared to alternative programs to facilitate transition into labor markets and obtaining salaried occupations.
To move up the ladder of technology sophistication and managerial capacities, companies require
support from specific agencies and programs that
facilitate the adoption of newer technologies. Many
of these programs have been implemented in the
past—but in a fragmented and non-rigorous manner. Many of these programs have never been evaluated. An important step going forward is, to the
extent possible, assessing their effectiveness and
evaluating the lessons from these programs before
designing new ones. Even more important, the uncertainty about the impact of some of these programs increases the importance of designing a rigorous evaluation framework to decide how to better
target and improve them to maximize their effectiveness. Recommendation in key areas include:
• Matching grants programs: Mature firms in
Colombia of between US$1–US$10 million score very low in terms of innovation.
Globally, 30 percent of such firms innovate
either in process or product; in Colombia,
perhaps 12 percent. An ambitious goal could
be to perhaps triple the present level to create a critical mass of innovative companies.
Matching grants for process and product innovation should be used in conjunction with
matching grants for technology transfer, such
as technology extension programs.25
• Technology centers. Beyond the basic elements
of running businesses covered by technological extension, there is a role for institutions
that remedy the appropriation externalities of
technology transfer, technology development,
adaptation, and diffusion more important to
industries and to their more sophisticated clients. These are discussed in more details in
section on the supply side.
• Technological transfer offices (TTO). While the problems of upgrading universities will be discussed
below, tightening the linkage between innovation within universities and the private sector
often happens through TTOs. These offices
can also serve as a place for the private sector to
interact with universities and bring together the
demand pull and science push. Colombia has
had good experience with TechNova, a collaborative TTO for more than six universities from
Antioquia that started developing capability for
contract research in existing companies. Other
TTOs perform in a much less effective manner,
and there is generally a shortage of evaluation
of the effectiveness of TTOs.
For technologically advanced start-ups, the NIS
should focus on nurturing an ecosystem that supports these firms through incentives based contracts. Technology intensive start-ups require a
combination of entrepreneurial support, seed
funding and angel networks, and performance
based incubators together. Based on emerging best
practices, support for these types of companies
should be delinked from the “choice of companies
to support” and should focus more on supporting
those institutions that create such a microcosm
with types of contracts that generate incentives
to focus on increasing performance of final beneficiaries, such as ex-post compensation based on
The Urgent Innovation Agenda—Governance, Knowledge, and Firms
success. This approach would put the burden of
identifying appropriate business ideas on experts
and financiers rather than on Government, which
instead would operate as a “wholesale” supporter.
In sum, the existing system requires improving the
structure of incentives for incubators and accelerators with a specific focus on rewarding performance ex-post rather than picking winners ex-ante.
the focus should be on services that solve informational failures about the quality of products being exported. Third, export and FDI promotion
should be consolidated into a single agency, and
the number of EPAs in the country minimalized.
However, export strategy could be considered in a
more dynamic context, coordinating new export
leaders jointly with cluster mapping.
A coherent policy to identify clusters with export potential and preparing them for exporting
would help reap the benefits from the recent FTAs.
Gathering of foreign market information produces
important externalities related to consumer preferences, business opportunities, quality and technical requirements, etc. Private firms alone will not
provide foreign market information because companies hesitate to incur research and marketing
costs that can also benefit competitors. The same
applies to pioneer exporters, who make a considerable investment in attempts to open foreign markets, cultivating contacts, establishing distribution
chains, and undertaking other costly activities that
can be used by their rivals.26 Information asymmetries and spillovers call for the establishment of
trade networks as public goods.
In addition to differentiation and targeting, another key principle should be moving toward more
horizontal programs and policies. Currently, a
large number of programs are “vertical” or “thematic,” requiring choices about sectors or beneficiaries that are highly risky, a process that can be
potentially influenced by external lobbies. While at
times it is necessary to apply “vertical” instruments
(such as in specific pilot programs for sectors with
certain needs), such programs should channel the
bulk of resources. It is also suggested to merge various “vertical” fragmented programs into larger
and more impactful “horizontal” ones that address
the needs of more sectors rather than narrowly defined groups of companies.
More resources could be devoted to export promotion, although the design of the export promotion agency should be carefully considered. A
recent World Bank study27 confirmed that export
performance improves substantially with investment in export promotion agencies (EPAs). A
10 percent increase in EPA budgets at the mean
leads to a 0.6 to 1 percent increase in exports after
correcting for selection and endogeneity biases.
Colombia’s below- average spending on export
promotion suggests that more could be done, particularly in the context of the FTAs. It is not clear
that this should be done through a public agency,
nor is it clear how effective the interventions of
PROEXPORT have been (this is an area where
we lack knowledge and going forward evaluation
of PROEXPORT is very relevant). As always, the
design of the EPA is critical. First, as with all innovation agencies, private-sector participation in the
board seems correlated with effectiveness. Second,
Establish targets for improving the quality of primary and secondary education, with a focus on
science and math outcomes. First, quality begins
with teachers. Essential components of increasing
quality in the classroom includes a more comprehensive teacher reform to recruit the best students
into teaching (particularly science and math), incentives and support excellence in the classroom
through measurement and accountability, and the
upgrading of existing teacher skill. Second, recent
evidence suggest that a key driver of improving
school outcomes is the managerial capacities of
school directors, coupled with appropriate incentives and autonomy. Third, an overall review of
learning needs to scale back rote memorization in
favor of further development of socio-emotional,
21st century skills, and active pedagogies.
Recommendations for the supply side
Develop and implement a plan to upgrade universities. Accreditation, progressive upgrading of
187
188
PART TWO
|
CHAPTER 10
staff competencies, curriculum reform, the use of
clear evaluation systems, and greater awareness of
private sector skills demand are critical for upgrading Colombian universities.
• Evaluation: Introduction of clear mechanism to
• Accreditation will help define a level of excellence for universities and provide a level
of transparency for students choosing careers
and institutions. The mandatory Register of
Qualified Programs (Registro de Calidad) represents an enormous, positive step in quality assurance. Nonetheless, it is inherently a
“desk-review” of program quality; the quality
assurance system should expand and deepen
with additional checks, so that the quality of
education can be assured along with the current checks on relevance, content, and organization of instruction provided by the Registro
de Calidad system. Specifically, (i) external
evaluators should scrutinize more thoroughly
the readiness of institutions to provide programs for which they apply; (ii) all institutions
should present evidence of sound, impartial
outcome evaluations and careful monitoring
of student progress in existing programs and
demonstrate that infrastructure is adequate. In
addition, strengthening co-operation between
ICFES and CONACES/CNA would allow
student assessment information to improve
the overall design and operation of the quality assurance system. ICFES should continue
improving SABER 11 and SABER PRO tests,
enduring comparability across years and their
adaptation to different types of institutions
and programs, including technical and technological institutions. Revised SABER 11 and
SABER PRO exams will enable value-added
assessment of tertiary education programs.
Valued-added measures will also allow judgments on how effectively different institutions
have used resources invested by students and
the state. Widespread dissemination of rankings of program, such as is done by U.S. News
and World Report for U.S. universities, would
facilitate educational choices by students and
hiring choices by firms.
•
•
•
•
evaluate research output and allocate university funding based on performance criteria, such
as those used in other OECD countries (i.e. the
UK), could introduce incentives for attracting
and retaining high-quality researchers.
Avoid Public Sector Crowding Out: A greater role
for the private provision of higher education,
including technological education, is desirable,
both because competition with accreditation
leads to higher quality, and because the private
sector has a greater incentive and ability to respond to the individual needs of the private
sector firms. A level playing field where public
entities are not subsidized to the degree that
private supply cannot emerge is essential.
Post-doc opportunities: A stronger post-doctorate program to attract diaspora PhD students
would be one strategy to increase staff competency. Colombia spends about 10 percent
of what Chile does plugging in returning students. Policy considerations could include a
reinsertion bond (bono de reinsercion) that would
support the process of entering the private sector or university sector for two years.
Revised curricula: The curricula at universities
should be reviewed to ensure that there are
opportunities for students to engage and develop projects related to real-world problems,
with an infused spirit of entrepreneurship,
increased connections with the private sector
and social challenges, and a corresponding
move away from theoretical and rote learning.
Ties with private sector: To support stronger links
of universities to the private sector, matching
grant-type programs that pair universities, the
private sector, and technological consortia can
provide both incentives for relevance and exploit synergies in the two sectors. Issues such
as relevance of research to the private sector,
connections to industry, and attitudes toward
entrepreneurship are important. Student entrepreneurship programs, technology transfer
offices, and intellectual property policies are
all initiatives to create a more innovative culture in universities.
The Urgent Innovation Agenda—Governance, Knowledge, and Firms
Development Challenge Recommended Policy Option
Institutions
Restructure governance
of the National Innovation
System
Raise the political attention for the innovation agenda
and establish a presidential-level coordinating body to
strengthen coordination.
Presidencia,
Colciencias, DNP,
SENA, MICT,
Bancoldex, Inpulsa
ST
Clarify the role of various institutions, strengthen and
specialize them.
Presidencia,
Colciencias, DNP,
SENA, MICT,
Bancoldex, Inpulsa
ST-MT
Build on the suggested institutional reforms to
revise existing programs, streamline them, and avoid
duplication.
Presidencia,
Colciencias, DNP,
SENA, MICT,
Bancoldex, Inpulsa
ST-MT
Revise system of regalias, link it to a national innovation
strategy, and use a of pilot-evaluation-scale up
approach.
Presidencia,
Colciencias, DNP
ST-MT
Establish regulations for rigorous monitoring and
evaluation of government programs.
Presidencia, DNP
ST
Shift the focus of regulatory reforms to the subnational
level.
DNP, MICT, Local
Governors
MT
Increase support for private capital markets, especially
through the provision of TA and exit strategies for PE
investors.
MHCP, DNP, Bancoldex,
Inpulsa
ST
Pilot, evaluate, and scale up managerial mentoring
schemes for young and high-potential start-ups.
DNP, Bancoldex
Strengthen IP regimes to respond needs of Colombian
SMEs.
DNP, MICT
Improve incentives for
the accumulation and
allocation of knowledge
Demand side of
innovation: focus on firms
performance
Complete, evaluate, and scale up technology-extension DNP, MICT, Inpulsa,
program.
SENA
Timeline
ST-MT
MT
ST-MT
Design, pilot, evaluate, and scale up programs for
micro-entrepreneurs.
DNP, MICT, SENA
ST
Reform the agricultural extension and integrate it with
agriculture research.
MADR
MT
Design, pilot, and evaluate targeted programs for
higher potential and more sophisticated firms such as:
DNP, MICT,
Colciencias, Bancoldex,
Inpulsa
ST-MT
Design, pilot, and evaluate targeted programs for
exporters and integrate them with other existing
programs.
DNP, MICT, Bancoldex,
Inpulsa
ST-MT
Establish targets to improve educational quality, with a
special focus on science and math outcomes.
MNE
ST
Develop and implement an upgrade plan for
universities that focuses on: (i) accreditation, (ii)
evaluation, (iii) revised curricula, (iv) post-doc
opportunities, and (v) articulation with private sector.
MNE, Colciencias
MT
Evaluate current supply of technical skills and revitalize
the system of technical and vocational training to align
it with needs of private sector.
MNE, SENA
MT
• Matching grants schemes
• Technology centers
• Technology transfer offices
Supply side of innovation:
focus on relevance and
quality of knowledge and
skills
189
190
PART TWO
|
CHAPTER 10
Consolidate, review incentives, and upgrade research centers. These centers should remedy market failures arising from the transference, adaptation, and diffusion of technology. One first step
is to review and consolidate research institutes
as well as clarify missions and incentives to raise
quality and relevance. Financing will also need to
be reviewed in light of international experience.
For instance, Finland’s VTT features performance
contracts and cost sharing where a third comes
from the state, a third through matching grants,
and a third from the private sector.28
Ensure the supply of technical skills that are high
quality and aligned with the needs of industry.
Main issues for SENA include: (i) streamlining its
organization so that it is more efficient and focuses
training where there is a demand; (ii) improving
the relevance of courses through a tighter dialogue
and feedback from the private sector; (iii) incorporating entrepreneurship training and socio-emotional and higher-order cognitive skills into the
teaching methodologies; and (iv) focusing on market failures and filling gaps the private sector will
not fill (for example, providing training services in
remote zones or in fields where there is demand
but private sector does not want to invest).
Endnotes
1
2
3
4
5
6
This policy note distinguishes between “innovation”
and “invention.” Invention usually refers to the first
occurrence of an idea, while innovation refers to the
first commercialization of the idea. While inventions
may occur anywhere (i.e. universities, research centers, etc.), innovations normally occur in commercial firms. To turn an invention into an innovation,
a firm normally needs to combine different elements
of knowledge, skills, and capabilities (i.e. production
knowledge, market knowledge, distribution system,
financial resources, etc.).
Innovation was to have been one of the critical “locomotives” of the previous administration but the
agenda lost substantial momentum after the first
year.
For example, similar programs for firm innovation
and entrepreneurship are found at least three agencies—Colciencias, SENA, and iNNpulsa.
For instance, Law 1286 put Colciencias in the role
of rector of the innovation sector, while the 2010
Plan de Desarrollo put iNNpulsa more in charge of
the firm-related programs and DNP more in charge
of oversight.
María Alejandra Arias and Ana María Ibañez and
Andres Zambrano, “Agricultural Production amidst
Conflict: The Effects of Shocks, Uncertainty and
Governance of Non-State Armed Actors,” Mimeo.
See article in The Economist, October 26 2013.
7
8
9
10
11
Chang-Tai Hsieh and Peter J. Klenow, 2009. “Misallocation and Manufacturing TFP in China and
India,” The Quarterly Journal of Economics, MIT
Press, vol. 124(4), p. 1403–48, November.
DB indicators are used as proxies for business environment mostly because of data availability. However, it should be stressed that DB indicators are just
a subset of those regulations that matter for improving firms productivity and, more specifically, for improving incentives for innovation.
The debate about the size of education’s contribution to productivity and growth is still open. Hanushek and Woessmann (2012) suggest that considering educational achievement, a more appropriate
measure of human capital than school attainment,
would solve the “growth puzzle” behind slow growth
of Latin American countries. However, recent work
by Acemoglu, Robinson and Gallego (2014) and
Caselli (2013) using different methodologies suggests that accounting for achievement and educational quality explains only a limited part of Latin
American countries’ productivity gap.
Comite Tecnico Mixto de Innovacion (2014). Analisis del Ecosistema de Innovacion: Instrumentos de
Apoyo a la Innovacion (2010-Sept2013), Borrador,
15-1-2014, Colciencias.
Colombia is one of the top reformers in the past decade, according to the 2014 DB report.
The Urgent Innovation Agenda—Governance, Knowledge, and Firms
12
13
14
15
16
17
18
19
20
21
22
23
Eslava and Haltiwanger (2013).
See Sub-national Doing Business data.
At the seed/angel phase, for example, Fundacion Bavaria has closed only one deal in the past few years.
PE at the SME level is similarly thin.
For details on this topic, see the OECD’s report
“National Intellectual Property Systems, Innovation
and Economic Development: Perspectives on Colombia and Indonesia,” OECD, 2014.
According to a World Bank study, PE firms report
that half of the firms requesting investments lack
coherent financial statements and business plans.
In Colombia, about 36 percent of the larger firms
are family-owned. Family-owned firms show substantially worse management practices than diffusely owned firms.
http://www.sri.com/sites/default/files/publications/imports/21st_century_skills.pdf.
Carlos Medina and Jairo Nunez (2005). The Impact
of Public and Private Job Training in Colombia.
IDB Working Paper. Alejandro Gaviria Uribe and
Jairo Nunez Mendez (2002). Evaluating the Impact
of SENA on Earnings and Employment. Document
220, Archivos de Economia, Direccion de Estudios
Economicos, DNP.
Colombian Observatory of Science and Technology.
De Carvalho, Antonio Gledson; Calomiris, Charles
W.; Matos, João A. Venture Capital as Human Resources Management. Journal of Economics and
Business, v. 60, p. 223–255, 2008.
Rigorous evaluations of interventions in India’s textile sector using randomly selected firms receiving
consulting services related to modern management
techniques found rates of returns of 11 percent in
one year (compared to a control group) through better quality control, improved efficiency, and reductions in inventory.
See Santiago Perry (2012). El Systema de Extension Agropecuaria en Colombia. Perfetti y Gallego
(2009). Propuesta de una Politica Nacional de Asistencia Tecnologica Agropecuaria. The roots of U.S.
progress in agricultural productivity can be found in
the land-grant college system started in the 1860s,
which supported the establishment of universities
with a specific technical and agricultural extension
mission. UC Berkeley, UC Davis, the University of
Illinois, Cornell, the University of Michigan, Uni-
24
25
26
27
28
versity of Wisconsin, and the majority of decent engineering schools in the southern U.S. arose from
this program.
Examples of these programs are discussed in Blattman, Christopher, Nathan Fiala, and Sebastian
Martinez. “Generating skilled self-employment in
developing countries: Experimental evidence from
Uganda,” forthcoming, Quarterly Journal of Economics.
Annan, Jeannie, Christopher Blattman, Eric Green,
and Julian Jamison. “Does entrepreneurship empower women? Evidence from Uganda.” Annan,
Jeannie and Christopher Blattman. “Can swords be
turned into ploughshares? Experimental effects of
an agricultural program on employment, lawlessness, and armed recruitment.”
Several assessments of these programs suggest that
the impact can be very large in specific innovations
and in generating a routine for innovation in midsized firms.
The services offered by EPAs can be divided into
four broad categories: (i) country image building
(advertising, promotional events, but also advocacy);
(ii) export support services (exporter training, technical assistance, capacity-building, including regulatory compliance, information on trade finance,
logistics, customs, packaging, pricing); (iii) marketing (trade fairs, exporter and importer missions, follow-up services offered by representatives abroad);
and (iv) market research and publications (general, sector, and firm level information, such as market surveys, on-line information on export markets,
publications encouraging firms to export, importer
and exporter contact databases).
Lederman, Daniel and Olarreaga, Marcelo and
Payton, Lucy, 2010. “Export promotion agencies:
Do they work?” Journal of Development Economics, Elsevier, vol. 91(2), pp. 257–265, March.
The common tendency to offer majority financing by the state leads to deficient incentives to orient work toward the productive sector. Too much
public funding, and such institutes lose their incentives to connect to the private sector. Too little public funding, as is the case of the Crown Research Institutes in New Zealand, and the centers look more
like private consulting firms and do not provide the
mandaated public goods of technological recollection and diffusion.
191
192
PART TWO
|
CHAPTER 10
CHAPTER 11
Moving Toward a Social Protection System
Credit: OCHA Colombia
Main Messages
Colombia has expanded the quantity and coverage of social programs over the past decade but Colombians are not efficiently using the SPS; as programs expand, the Gini remains one of the highest in
the region and poverty reduction could have been furthered. However, a slight adjustment in vision
and tightening or creating a few systems tools can better get the right program to the right people in
an efficient manner.
This note proposes transforming Colombia’s current collection of social programs into a cohesive
and integrated SPS that provides to all Colombians effective protection from income shocks, helps
smooth consumption over the life cycle, and promotes greater human development. Such a SPS
would be characterized by an articulated set of risk-focused programs that are easily identifiable
and accessible by the population, complemented by a series of sub-systems similarly functioning in
an articulated and client-focused manner. This approach would aid the eligible to access and utilize
benefits in a systematic way to navigate an individualized pathway for overcoming their specific social
challenges.
Such a vision can be achieved by creating systems management tools to better connect and allocate access to existing programs. These tools can also be used to manage the supply of programs. By
identifying gaps in program coverage of certain risks or populations and by revealing inefficient program overlaps, programs can be created, merged, revised, or eliminated to meet population needs
while increasing the efficiency of the overall SPS.
This note reviews the progress achieved to date in creating the SPS, issues facing the key sub-systems of health, labor, social assistance, and social security, and the tools to be developed to move
toward an integrated SPS. To this end, the note recommends: (i) upgrading existing SPS management
tools to better identify the needs of the population, the supply of programs to meet those needs, and
articulation processes to link supply to demand, (ii) developing information systems that provide better access to labor market opportunities and health services and improve management of the labor
and health sub-systems, and (iii) creating a new health management model and modernizing financing
strategies and tools to reduce administrative fragmentation in the health system and improve health
outcomes.
Background: Colombia’s Social
Protection “System”—Strengths
and Areas for Improvement
into the system. The objective of these programs is
to “graduate” the poor to the social security programs and to protect against shocks. These are
rounded out by several labor market interventions
that promote employability, provide job training (mostly through SENA), and protect workers
against economic shocks.
Over the past 20 years, Colombia has developed a
rich array of social security, social assistance, and
labor-market programs to support the needs of vulnerable populations.1 Approximately 80 national
programs are operating to manage a range of social
risks and some programs have achieved substantial
coverage (Figure 11-1). The contributory social security schemes (“insurance” in Figure 11-1) offer
pensions, health insurance, occupational hazard
insurance, and a random set of other benefits (via
Cajas de Compensación, workers’ clubs that provide
services ranging from unemployment insurance to
sports clubs) to those who pay into the system; these
programs are intended to protect against income
shocks and help smooth consumption over the life
cycle. To reduce poverty and promote greater human development, Colombia has a broad range of
social promotion (assistance) interventions, many
of which provide the same service as the contributory system but to a population that does not pay
The health insurance program is globally applauded for its universal coverage. The Law 100
of 1993 created the General System of Social
Security in Health (Sistema General de Seguridad
Social en Salud, or SGSSS), which has seen a rapid expansion in coverage, financial protection,
and equity over the years. As of December 2013,
43.2 million people were covered by health insurance (approximately 92 percent of the eligible population); nearly half paid through
payroll contributions of a household member
(Contributory Regime, or RC) and the other half
paid through general taxes (Subsidized Regime,
or RS) (Figure 11-2a).2 The financial protection
of the system is quite effective; out-of-pocket expenses of the population represent 17 percent
of total expenditures in health, compared to a
FIGURE 11-1: Colombia’s Social Protection System is Fragmented, with Significant Coverage Gaps
100
2 programs
90
40
80
35
30
70
52 programs
60
25
50
20
40
14 programs
15
3 programs
10
5 programs
30
20
5
10
–
–
Unemployment
Illness
Child development
Poverty
Old age
Potential benef iciaries covered (%)
Coverage (millions)
50
45
Risk
Coverage (insurance)
Coverage (assistance)
Potential beneficiaries covered
Source: SINERGIA; Informe de Gestión 2013, Sector de la Inclusión Social y la Reconciliación, DPS; Informe de Actividades al Congreso 2012–13, Ministerio de
Trabajo; Informe de Gestión enero-septiembre 2013, SENA; Informe de Rendición de Cuentas, Gestión 2012–13, Ministerio de Agricultura y Desarrollo Rural;
Informe al Congreso 2012–13, Sector de Comercio, Industria y Turismo.
Note 1: Potential beneficiaries in each category are those who are eligible; for unemployment, potential beneficiaries are all the unemployed; for illness, it is the
entire population; for child development, it is the share of the population under age 18; for poverty, it is the poor as measured by monetary poverty; and for
old age, it is the population over age 65.
Note 2: This figure does not pretend to be exhaustive; it only includes programs reported by three entities and two sectors (see source note).
Moving Toward a Social Protection System
195
PART TWO
|
CHAPTER 11
regional average of 34 percent (Figure 11-2b).3
Evidence also points toward increased access to
services, especially those related to reproductive
health. The percentage of pregnant women that
had at least four prenatal check-ups grew from 70
percent in 1990 to 90 percent in 2010.4 These accomplishments have also helped to increase equity in access and use of health services, especially
for those living in rural areas and the poor, and
reduced the risk of catastrophic and impoverishing health expenditures in cases of illness.5
In response to the 1999 economic crisis, Colombia
created the conditional cash transfer program called
Familias en Acción, which has grown into the country’s largest social assistance program. It aims to
break the intergenerational transmission of poverty by providing more than 2.6 million families with
cash transfers when they comply with their co-responsibilities in terms of investments in their children’s human capital; in parallel, the Government
provides basic health, nutrition, and education
services. In 2013, the program was expanded to
provide cash transfers to nearly 80,000 high school
graduates from Familias-eligible households who attend technical or technological training programs
in the SENA (Servicio Nacional de Aprendizaje) and
universities (1,753 students). About 35 percent of
the poor are covered by the program. Numerous
impact evaluations have found that participation in
FIGURE 11-2A: Affiliation with Health System
Familias improves human capital outcomes of children. A randomized control trial of the program
found that primary school attendance of Familias
beneficiaries increased by nearly 2 percentage
points and secondary school attendance increased
by nearly 7 percentage points.6 Beneficiaries are 4
to 8 percentage points more likely to complete high
school (relative to a graduation rate of 50 percent
for the control group)7 and are more likely to attend a higher education institute than similar youth
who were not beneficiaries.8 Familias beneficiaries
are similar to non-beneficiaries in performance on
standardized tests.9 In terms of health, malnutrition among children less than three years old living
in rural areas decreased by 6 percentage points, and
a reduction of 4.1 percentage points was measured
in urban areas. Children were taller and heavier
(by 0.21 standard deviation) by age 9–12.10 In rural households, the cash transfer reduced income
poverty by 5.4 percentage points and extreme poverty by 12. 6 percentage points, with a decline in
extreme poverty among urban household of 17.1
percentage points.11
Simultaneously, Colombia has begun to build
Systems Management Tools to better deliver social
programs to those who need them. The SISBEN, a
tool to identify and rank the extreme poor with the
objective of identifying potential social program
FIGURE 11-2B: Out-of-Pocket Health
Expenditures, 2012
Affiliation Health System by regimes
Out of pocket expend. as % health expend. 2012
57%
49%
25%
26%
31%
47%
38%
37%
Source: NHA-WHO 2012.
Source: Minsalud—Fosyga.
Venezuela
Peru
Mexico
Ecuador
Chile
Brazil
Bolivia
2012
RC
Colombia
RS
2011
2010
2009
2008
2007
2006
Total System
Argentina
Population
2005
2004
17%
2003
50
45
40
35
30
25
20
15
10
5
0
2002
196
Moving Toward a Social Protection System
beneficiaries, was developed in the mid-1990s and
is in its third iteration. It has been used to identify households eligible for poverty-oriented programs, such as the Familias en Acción. Law 797 in
2003 (Article 15) established the RUAF (Registro
Único de Afiliados), which was intended to serve as a
Unified Registry of Beneficiaries, listing the social
programs that every Colombian accesses. In 2006,
Colombia created the Red Juntos Program (now
Red UNIDOS), a one-stop-shop to help the extreme
poor access social programs. Patterned on the
ChileSolidario model, this program is implemented
by more than 10,000 coaches assigned to more
than 1.5 million of the “extreme poor,” including
displaced families, to help them access social programs that will help them overcome extreme poverty. In 2010, the Social Prosperity Department
was created with the objective of unifying all social assistance programs under one institutional
umbrella. A Ministry of Labor and Pensions, with
a Vice-Ministry of Employment, raised the focus
of labor policy, labor-related social protection programs, and active labor-market programs in the
government’s portfolio. Finally, Colombia built a
true sub-system, through the Cero a Siempre initiative (see Box 11-1).
With the growth in universal health insurance, a
large social assistance program, and an increase
in the number of social programs, social spending in Colombia is on par with the Latin America
region (Figure 11-3). Colombia’s social expenditure as a share of GDP is 9.7 percent, compared
to a regional average of 8.3 percent, but far less
than the 20 percent in Argentina and Brazil. The
steady growth in social expenditure from 3 percent
in 1990 to nearly 10 percent two decades later mirrors a growth pattern across the region, although
Colombia had one of the largest increase in social
expenditures as a share of GDP.
BOX 11-1: Building a System for Social Protection: Cero a Siempre
The Cero a Siempre is an Early Child Development strategy that provides comprehensive care for
pregnant women and children into early childhood. It differs from a program or ministry because it
relies on management tools that are the basis of a sub-system. Key features are:
i. The initiative coordinates the many programs that serve this population rather than developing and managing its own programs;
ii. The system administrator developed articulation processes among various service providers
to deliver the right service at the right time for the beneficiary;
iii. An Inter-sectorial Committee coordinates actions and articulates entities at the national, departmental, and municipal levels, each actor involved recognizing the central importance
of its role and offering its institutional structure, policy actions, resources (monetary and
human), and capabilities to ensure the development of each child and pregnant woman;
iv. Beneficiaries, not institutions, are at the center of the strategy; it organized existing entities
and programs around pregnant women and children; the monitoring system follows the conditions and quality of life of every Colombian child who has been served by any program in
the system;
v. La Ruta Integral de Atenciones (RIA) is a reference instrument to guide local authorities and
other local actors to design pathways to meet the particular needs of new mothers and children. The RIA recognizes that certain populations have special needs, which does not imply
differential care but instead universal care, with a tailored, appropriate approach.
Source: Constanza Liliana Alarcón. Estrategia de Atención Integral a la Primera Infancia: Fundamentos Políticos, Técnicos y de Gestión,Coordinación. Alta
Consejería Presidencial para Programas Especiales, Coordinación. Bogotá, Colombia, 2013.
197
PART TWO
|
CHAPTER 11
25
0.600
20
0.500
0.400
15
0.300
10
0.200
Social Expenditure (1)
Latin America and
the Caribbean
Uruguay
Dominican Republic
Peru
Mexico
Honduras
Guatemala (***)
Ecuador
Costa Rica
Colombia (**)
Chile
0
Brasil
0
Bolivia (EP) (***)
0.100
Argentina (*)
5
Gini Index
FIGURE 11-3: Social Expenditure and Inequality
Social Expenditure as % of GDP
Gini
Sources: Social Expenditure: http://estadisticas.cepal.org/cepalstat/WEB_CEPALSTAT/Portada.asp; Gini: World Bank. (2013).a
Note 1: Social expenditure is spending in social assistance, pensions, and health.
Note 2: Gini Data: (*) Argentina and Uruguay only considers urban areas; (**) Source: DANE, Reporte Pobreza, 2012; (***) No data available.
a
World Bank. (2013). ―Shifting Gears to Accelerate Shared Prosperity in Latin America and The Caribbean.” LCSPP. June 2013.
Challenges
The less-than-hoped-for outcomes can be traced
to various factors that create bottlenecks in converting investment to results, including system
fragmentation, coverage gaps and overlaps, and
information.
FIGURE 11-4: Infant Neonatal Mortality
Mortality rate, infant (per 1,000 live births)
40
35
30
25
20
Argentina
Mexico
Source: WDI-The World Bank.
Brazil
Peru
Colombia
Venezuela
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
10
2002
15
2001
In spite of the development and expansion of social programs and institutional realignment, the
results are not as strong as hoped. Many indicators are positive. Social expenditure increased 50
percent over the past decade, one of the largest
rates of growth in the region, and poverty rates
and the Gini coefficient fell. However, the record
isn’t entirely encouraging. The Gini still remains
one of the highest in Latin America. Population
health outcomes are average—or below average in some cases. Maternal mortality has been
stagnant since 2009; infant neonatal mortality
(11.2 per 1.000 live births in 2012) is higher than
neighboring countries with similar development
levels (Figure 11-4); so is the prevalence of diabetes. In addition, the SGSSS is characterized by
a worse perception among the population than
other health systems (Figure 11-5). As discussed
in the Poverty Chapter, cash transfers to the poor,
namely Familias en Acción, was responsible for significant declines in rates of extreme poverty (28
percent) and poverty (19 percent), but declines
were much smaller in rural areas, where Familias
is most prevalent.
2000
198
Moving Toward a Social Protection System
FIGURE 11-5: Perception of the Health Care
System
Our HCS needs to be rebuilt
100%
80%
27%
27%
31%
MEX
COL
8%
SWIZ
US
8%
SWE
3%
12%
NOR
UK
11%
NZ
14%
GER
7%
11%
FR
NETH
10%
0%
CAN
20%
AUS
40%
20%
60%
Source: Commonwealth Fund International Health Policy Survey in Eleven
Countries (2010); and: Primary Care Surveys-Inter American Development
Bank, Colombia and Mexico 2012 (preliminary results).
System fragmentation reduces the
effective and efficient use of social
protection programs
The SPS is fragmented among many dimensions.
First, multiple programs address the same risk
(Figure 11-1), partly due to financing mechanisms
that create different programs covering the same
risk, funded by different sources (contributory
and subsidized) and, in some cases, providing the
same benefit. This fragmentation is increasing as
Colombia fills coverage gaps by creating subsidized programs that provide the non-contributing
population the same benefits as the contributory
programs. For example, Colombia is in the process
of developing its fifth program to provide cash to
the elderly population.
Multiple programs are also a result of different
ministries or directorates developing their own
programs for sub-sets of the population. For example, multiple entrepreneurship programs target women, extreme poor, rural populations, micro-enterprises, indigenous groups, and youth, all
of which provide a combination of skills development, entrepreneurial training, and stipends
or loans. They are run by the Social Prosperity
Department, Ministry of Labor, Ministry of
Agriculture, Ministry of Commerce, Ministry of
ICT, Colciencias, or SENA, with each program
serving a small number beneficiaries.12
System fragmentation leads to an inefficient use of
the SPS as a means to manage social risks. This
manifests itself in two ways. First, the ad hoc development of programs by many institutions at the
national and subnational level does not create a
pathway out of the risk. Emerging from poverty,
illness, unemployment, or any other risk requires
a series of steps that build on each other. If a step
is missing, progress out of the risk is interrupted.
So while people are benefitting from the programs,
they are not necessarily achieving their larger
goals. Second, even if the collection of programs
did create a path out of the risk, the target populations have little awareness of which programs they
are eligible for and which programs can best raise
their living standards. It is very costly for individuals to collect information from all ministries and
secretaries at various levels of government and to
identify the set of programs to fill their specific
needs. Even if programs could be identified, the
transaction costs of applying, receiving notice of
eligibility, and obtaining benefits are high.13
Administrative fragmentation also creates unnecessary costs and confusion. The two health insurance
regimes, the RS and the RC, notwithstanding the
unification of their benefit packages (POS), still maintain different sources of financing, follow different
methodologies for the calculation of the insurance
premium (UPC), use different insurers (EPS), and
follow different sets of rules and regulations. This
produces costs that could be avoided by an increased
harmonization between the two regimes. The decentralization process has introduced additional fragmentation into the SGSSS.14 Horizontal fragmentation was exacerbated with transfer of the insurance
function to multiple EPS, and vertical fragmentation
arose when local governments became active in the
provision of services and management of the RS.15
The fragmented health financing system creates
significant inefficiencies due to administrative cost,
multiple processes, legal decisions, and perverse incentives. The RS is funded by up to 16 different
199
200
PART TWO
|
CHAPTER 11
sources,16 which include payroll contributions, earmarked levies from general taxes, local revenues
from lotteries, and RC solidarity contributions distributed to multiple intermediaries (EPS) who then
pay service providers. Due to the heterogeneity of
the sources and limited capacity of some actors, RS
financial resources do not always reach the providers, jeopardizing the financial stability of the system. Several studies show that the current practices
of including risk adjustments in insurance premiums (UPC) are not sufficient to avoid risk-selection
by EPS, and the current POS definition leads to
the reimbursing of medical procedures that are
not cost-effective.17 In addition, SGSSS complexity
creates vulnerabilities related in particular to fraud
and corruption in claims processing and beneficiary affiliation, areas of vulnerability that do not exist
in integrated public-provision systems.18
This fragmentation leads to horizontal equity, but
it creates potential distortions in the labor market
and vertical inequities. Workers in the RC system
pay a percentage of their salaries for health insurance, while workers who earn the same amount but
are in the RS system pay nothing to access the same
POS—this could discourage formal employment.19,
20
Regarding vertical inequities, a pensioner in the
Prima Media regime and one in the Ahorro Individual
may pay the same amount into the system but the
former may receive a much higher pay-out due to
the different structures of the programs. Finally,
the system has severe regressivity due to a patching
together of benefits over time. For example, while
all formal sector employees contribute to pension
and contributions are capped, higher earners take
a disproportionate amount of the system. In fact,
Colombia has one of the most generous top pension contributions in the world.21
Insufficient or unbalanced coverage
leaves large segments of the population
vulnerable to certain risks
In spite of a large number of social programs for various populations, and much overlap, Colombia faces
two coverage issues: insufficient coverage of some
risks and insufficient coverage of some populations.
In health, the risk of poverty from illness is effectively mitigated by health insurance that covers
around 92 percent of the population—but the
risk of illness is not well covered. The health insurance model focuses on the provision of individual and specialized health services, rather than
wider-reaching public health, prevention, and
health promotion activities and addressing health
problems at the primary-care level. Evidence
shows that health systems with a strong primary
care orientation are able to produce better health
outcomes and higher levels of satisfaction.22
Expensive, individualized care—for example, a
high rate of general hospitalization (9 percent),23
most of which the evidence suggests was unnecessary,24 or 16 percent of Ministry of Health budget
for individualized legal claims for services outside
of the POS (tutelas)25—distorts expenditure and
coverage of the health care system.26 More generalized health prevention and promotion activities
are increasingly needed in Colombia, a country
facing an aging population and an epidemiological
transition characterized by an increase in the burden of diseases related to chronic conditions and
non-communicable diseases.27
Labor risks are also insufficiently covered. Programs
for the more than 2 million unemployed are limited to job training, largely through SENA, with
a smaller number accessing labor intermediation
services. Very few benefit from temporary employment, other supports to obtain work or start a small
firm, and unemployment insurance.28 Support for
the working poor is particularly scarce.29 The quality of these services is questionable as well. Over a
nine-month period, for example, only 15.3 percent
of SENA graduates who registered with the labor
intermediation service obtained jobs in a labor
market with 8.5 percent unemployment.
The elderly population is well covered (Figure 111), but the benefits are insufficient. While nearly half of the 2.4 million people over age 60 are
poor,30 only 30 percent receive pensions, and most
of these beneficiaries are not poor.31 The rest receive a stipend equal to US$20–$35 a month
(the minimum pension payment is approximately
Moving Toward a Social Protection System
US$300 monthly).32 However, the elderly poor
have needs in addition to money, including healthcare, housing (25 percent live alone or with another elderly person),33 nutrition, and psycho-social well-being. Healthcare itself is covered by the
health insurance system, but out-of-pocket expenses are substantial.34 With the conversion of PPSAM
(Programa de Protección Social al Adulto Mayor) and Juan
Luis Londoño de la Cuesta programs to the cash-transfer Colombia Mayor, 500,000 more people are receiving benefits (for a total of 1,213,500), but the
nutrition and psycho-social well-being dimensions
are no longer addressed by any program.
By the nature of its work, the rural population
is outside the social insurance programs and has
not fully benefitted from their rapid growth. In
addition to the Familias en Acción program, which
originally targeted the rural population (until
2011), there are 10 programs solely focused on
rural areas, with coverage of 450,000 in a population of more than 11 million. While non-contributory insurance covers rural areas—for example, 83 percent of the rural population is
covered by the RS—it is not clear which of the
smaller programs are operating in rural areas.
The lack of social support is reflected in rural
poverty statistics. While poverty has declined in
Colombia over the past decade, only one-quarter
of the reduction was due to lower rural poverty.
This is not to say that the situation in rural areas has not improved. Poverty rates are down a
third over the past decade—to 42.8 percent for
the broad measure and 19.1 percent for extreme
poverty by 2013. However, the improvement has
been much greater in urban areas, where both
rates dropped by 50 percent over the same period—to 26.9 percent for poverty and 6.0 percent
for extreme poverty.35
Limited information for system
functioning
Although social expenditures in Colombia are on
par with the Latin America region, improved information collection and management can lead to
efficiency gains in various sub-sectors.36
The health sector could better manage information to improve beneficiaries’ use of the system
and the quality delivery of services. The EPSs can
play a larger role in helping Colombians manage
their health risks by guiding users toward the most
cost-effective health-care services, including illness
prevention and health promotion. At a higher level, weak and complex supervision of the health
sub-system leads to insufficient oversight. The
National Superintendence of Health (SNS) has
functions of inspection, surveillance, and control
over more than 9,000 providers and insurers across
the country,37 but it lacks the financial and human
resources to effectively collect information and act
on it to improve health care quality.
The labor sub-system, still in its developmental
stage two years after the creation of the Ministry
of Labor, has severe information gaps that lead
to policy and program inefficiencies. Colombia
does not have a unified information database
about labor market trends. Instead, universities,
local chambers of commerce, DANE, Ministry
of Health, Ministry of Education, Ministry of
Labor, SENA, and local governments collect and
monitor selected basic indicators. These efforts
are isolated, incomplete for monitoring national
trends, and typically updated on an ad-hoc basis.
To strengthen the regional labor observatories, the
Ministry of Labor instituted the Ormet Network
to provide financing and training. However, the
country does not have the broader set of procedures and institutional arrangements to convert
the current efforts into a consolidated and updated system. This lack of information makes it difficult to create labor policy, direct labor programming, and focus training strategies. Further, it
limits the public’s ability to make decisions about
the types of training they should select and the
location of job opportunities.
Similarly, Colombia does not have a robust system to provide information for effective job
search. For years, SENA provided the only public labor intermediation service, although only
SENA graduates and employers could access
it. There are no evaluations to assess how well
201
202
PART TWO
|
CHAPTER 11
the system functioned. Instead, nearly half of
Colombians find jobs through word of mouth,
leading to inefficient job matches and excess time
spent in job search.
Global Evidence to Move
Colombia Toward a True SPS
Transition from a static set of social
protection programs to a dynamic SPS
There is a global movement away from social protection programs and toward the SPS concept. A
true SPS can be defined as an “articulated collection
of social interventions (services, transfers, and benefits delivered through programs) that help people
and families throughout their life-cycle to confront
the risks that they face.”38 A system management
model that coordinates information on the demand
and supply of social services can convert a random
collection of social interventions and sub-systems
into an efficient SPS.
The conceptual framework underlying Colombia’s
current SPS is still relevant in this changing model, but the institutional structure needs to be updated. Holzman and Jorgensen (2000)39 propose
that an SPS should provide interventions that
prevent risks that lead to poverty, mitigate shocks
that could lead to poverty, and cope with structural poverty. This conceptual model formed the
basis of Colombia’s, as well as many other countries’, SPS.40 Figure 11-6 depicts the institutional
application of the model in Colombia. Risk prevention is addressed through human capital formation (education and training); risk mitigation
is addressed through social security (health, professional risk insurance, pensions), assets (housing,
financial inclusion, micro-insurance), and risk
management pillars (natural disaster, Internally
Displaced Populations – IDPs, emergency employment); and coping is the social promotion.
While the conceptual model is still the bedrock of
what an SPS should achieve, there is increasing
recognition that directly mapping an SPS to these
FIGURE 11-6: Current Vision of the Colombian
Social Protection System
Integrated
Social
Security
Access
to Assets
Human
Capital
Formation
Managing
Crises
Social Promotion System
Source: Bases del Plan Nacional de Desarrollo 2010–2014 Prosperidad para
todos, DNP.
concepts does not produce the expected outcomes
since the model (i) leads to system fragmentation
since each sub-system is independent,41 (ii) assumes that individuals are in a single pillar at any
time, (iii) assumes a relatively static model that individuals only move up, thereby ignoring negative
shocks, (iv) mixes various risks, tools, and actors
within a pillar, and (v) loses the beneficiary in a
structure driven by financing source and institutional organization. Finally, it does not have the
characteristics of a system: articulation, integration, and flexibility.
Instead, there is a movement toward a
beneficiary-centered risk management model
where the SPS is designed to serve beneficiaries and their heterogeneous set of risks. In this
FIGURE 11-7: Colombia’s SPS when Applying a
Systems Approach
Demand
management
tools
Integrated
Social
Security
Supply
management
tools
Access
to Assets
Human
Capital
Formation
Managing
Crises
Social Promotion System
Inter-institutional management tools
Information management tools
Budget management tools
Moving Toward a Social Protection System
model, the person or family is at the center, with
a specific set of risks and goals. The programs are
static building blocks and dynamic management
tools link access to and exit from programs as
people move through the system, accessing support according to their needs. This model rests on
five sets of tools: (i) demand management tools to
identify and understand the target population and
its needs, (ii) supply management tools to identify
the existing supply of program, link beneficiaries
to the supply, and give providers incentives to
meet the demand, (iii) inter-institutional management processes that are specifically designed and
budgeted to create functional inter-institutional
collaboration, (iv) information management tools
for the system (such as population registry, Unified
Registry of Beneficiaries), which differ from program Management Information Systems, and
(v) budget management tools for the system,
which differ from those at the program level.42
These tools are useful for creating a SPS, but they
also build efficiency in the sub-systems and identify and address coverage gaps for certain risks or
certain populations.
Figure 11-7 presents an adaptation of the current
model that addresses many of the shortfalls by simply introducing systems tools. The family is added
to the diagram. The family is linked to the program streams (groups of programs addressing the
same risk and, collectively, forming a pathway out
of that risk) through demand management tools
and supply management tools. Program streams
are linked to each other through inter-institutional management processes, information management tools, and system-wide budget management
tools. Examining the interior of the streams shows
the interconnections among programs as well.
Figure 11-7 also allows families to move among
streams of programs and to move “backwards”
(i.e., from social security to social promotion) because of a shock to the family. The diagram is far
from complete, but it is intended to communicate
that the proposal is not for a new SPS; instead, it
introduces a few tools to make the existing system
work more as a system—i.e. interconnected and
articulated.
Policy Options to Reduce System
Fragmentation, Improve Coverage,
and Close Information Gaps
Strengthen SPS tools to overcome
inefficiencies created by system
fragmentation and to reach uncovered
populations
In the long run, Colombia can converge to an interconnected and articulated SPS with a set of risk-focused program streams that are easily identifiable
and accessible by the population, complemented
by a series of sub-systems similarly functioning in
an articulated and client-focused manner. Getting
there is perhaps more of a challenge for a middle-income country like Colombia that already has
established program tools, compared to a country
starting from almost nothing.43 Through planning,
building on what is already there, and introducing new tools in a gradual yet high-quality way,
Colombia will achieve an SPS and the efficiency
gains and improved outcomes that come with it.
The following policy options are based on the criteria that they are fundamental pieces of an SPS,
and they (or their components) already exist in
Colombia and can be strengthened.
Further Develop and Maintain Supply Management Tools.
Two tools are recommended: (i) an inventory of
social protection programs and (ii) a stronger Red
UNIDOS. The inventory provides the information
for SPS organizers to identify pathways (within
program streams) for beneficiaries to manage their
risks and to identify gaps in coverage that will prevent graduation. Such an inventory not only includes program names but also information about
eligibility criteria, coverage, and program effectiveness. It includes national as well as departmental and local programs. While institutions have a
list of their own programs, the challenge involves
bringing these together into a single inventory,
adding the categories of analysis, and maintaining
a team to constantly update it. Given Colombia’s
constantly evolving set of social programs, this
203
204
PART TWO
|
CHAPTER 11
inventory will require constant curating and regular interaction with various ministries, departments, secretaries, and NGOs.
Strengthen Red UNIDOS, especially in rural zones.
Although only focused on the extreme poor, the
Red UNIDOS program is the seed of an articulated SPS. It provides the function of identifying demand for social services and bringing supply and
demand together by (i) working with the extreme
poor to identify pathways to manage their specific risks and (ii) bringing information about supply
to those populations. The model has been highly
successful in Chile, and Colombia has room for
improvement. UNIDOS would benefit from an external review of its current program, its current articulation and coordinating instruments (Comisión
Intersectorial, SIUNIDOS, and Mesa de Pobreza), the
completeness of its program inventory, internal
management, and coverage of certain populations
(rural, elderly) to identify areas for improvement.
Strengthen information management tools, specifically by
improving the RUAF to serve as a unified registry of beneficiaries (URB). A URB is a database that includes an
entry for all citizens and identifies all the social programs they are currently accessing. It provides adequate and reliable information to individuals and
their coaches (such as Red UNIDOS coaches), and
program administrators can access full information
about who is participating in which social program.
Through the inventory of programs, it can also
be used to identify those programs that a person
is eligible for and is not accessing. The RUAF is
the basis of the URB. It includes all people with a
birth certificate (registro de nacimiento), and for each it
identifies the programs the person is affiliated with.
However, the RUAF is not functioning as an URB
because the information is outdated and the registry
is compromised by not having a unique identifying
number for each Colombian.44 To transform the
RUAF to a URB, the next steps include (i) identification of a coordinating agency with a high level of
legitimacy and the inter-institutional management
tools to make the RUAF effective; (ii) analysis of
the extent and nature of the unique identifier problem; (iii) identification of incentives for programs
to regularly report to the system, (iv) adjusting the
software that matches program data to the RUAF,
ensuring inter-operability; (v) training staff responsible for the reporting process to ensure proper use
of the system; and (iv) developing privacy norms so
that the information can be confidentially accessed
by appropriate users.45
Update the demand management tool SISBEN III, a better
tool to identify the poor and to minimize type I and type II
risks, to be regularly updated and be used by a wide range
of programs.46 The SISBEN is a globally recognized
tool to identify beneficiaries of social programs.
It also provides a profile of the extreme poor that
can be used by coaches to develop exit paths and
by programs to identify social needs among specific populations. The current SISBEN47 index
(SISBEN III) has been refined to reduce the possibility of manipulation, minimize errors of inclusion, and allow for incremental precision so that
programs can define their own cut-off points for
eligibility criteria. In spite of the successes, the
SISBEN continues to be a relatively static instrument, only updated when individuals self report
new information and only accessible at the central
level through DNP. The challenge is to identify an
efficient process to make the SISBEN self-updating. An option for a faster updating includes an
integrated master data base to follow individuals
through their life (rather than the current practice of excluding individuals from the data base if
they happen to rise above an extreme poverty line
at some times). A sub-set of the SISBEN should
be confidentially accessible by key SPS actors, including local governments, to improve supervision
of the system. This would need to be developed
in conjunction with the URB and with the Red
UNIDOS, with an examination of current laws that
may hinder this inter-institutional collaboration.
Create inter-institutional management tools to strengthen
the articulation process to better collectively address specific
social risks. Colombia has dozens of inter-sectorial commissions (comisiones inter-sectoriales) with the
goal of enhancing cross-sectorial collaboration
around social issues. However, many of these
are not true processes; usually, they are add-ons
Moving Toward a Social Protection System
to already busy schedules, largely consisting of
meetings. The inter-sectorial collaboration tool
underlying an SPS is a process in itself, with
an identified technical team, joint goals around
collaboration (as opposed to higher-level goals
around outcomes), a work program with clear
responsibilities and timeline, accountability to
highest level decision-makers, and its own budget. The Cero a Siempre strategy to manage risks in
early childhood was largely a success due to the
intense and structured effort around articulation
and coordination. These lessons can be useful to
others. As a first step, the lessons from the Cero a
Siempre experience should be captured and shared
and a few pilot cross-sectorial efforts, with budget
and coaches to support the work.
Build the labor sub-system by creating
information for policymaking and
program purposes
Articulate and strengthen regional labor observatories to provide consistent information for policy-making and for decision-making. An organizational process to develop
a national labor observatory would build on the
existing regional bodies. This would require conceptualizing a national observatory’s role, making
judgments about indicators and outputs, and conceptually and technologically aligning the work of
the regional observatories. To start this process, the
Ministry of Labor needs to (i) map all the information being produced at national and subnational
levels, including variables, frequency of collection,
methods of collections, and use of data; (ii) analyze the map to identify commonalities, gaps, and
misalignments; (iii) identify software to access useful information; (iv) create protocols on indicators,
data collection methods, data analysis methods,
and information sharing for the national database
(recognizing that local needs may require additional information); (v) identify funding mechanisms to
sustain local actors’ inputs to the larger system and
upgrade their technical skills to collect data, maintain its quality, and meet standardization requirements; and (vi) design and standardize the analysis
and outputs (bulletins, regular reports, etc.) of the
labor observatory system.
Create an inclusive, full-service employment service.
Recognizing the usefulness of such a system
for the general population, the Ministry of
Labor sponsored legislation to create a Public
Employment System that would be guided by the
ministry and implemented through the Special
Administrative Unit for the Public Employment
Service (Unidad Administrativa Especial del Servicio
Público de Empleo, or UAESPE). The general objective is to provide the population with information about job search and training opportunities. This system is expected to replace the more
limited service offered by SENA to its graduates.
The UAESPE is in its design phase and needs to
define itself, including its mission, who it intends
to serve, its range of services, the results it aims to
achieve, the actors that will feed into the system,
its budget, and its IT systems.
Modernize the health sub-systems by
developing a new health care model
for Colombia with stronger internal
management and control
Create a new health care model for Colombia. The
Ministry of Health is developing a new model of
health care and service delivery, which would focus on managing the health risks of the population
living in a specific geographical area.48 To achieve
this objective, the model envisages enhancing the
coordination between local health administrations
(responsible for public health activities) and insurers (responsible for illness prevention and health
promotion activities) to improve the capacity of
the health delivery network at primary care level.49
The new model would need appropriate incentives
and a new regulatory approach to ensure that all
parts of the SGSSS— insurers (EPS), providers of
health services (Instituciones Prestadoras de Salud, or
IPS), and local authorities—work in a coordinated way.50 In particular, the role of the EPS would
evolve from the financial management of the resources to the more complex role of managing the
health risks of the enrolled population.
Develop more sophisticated and effective tools to manage
health financing processes. The structural changes and
205
206
PART TWO
|
CHAPTER 11
recent judicial norms to govern the health system
require revisions in several financing-related issues.
Specific steps include: (i) revise the provider payment system used in Colombia to include incentives and performance-related payments, (ii) unify
the procedure to calculate the UPC for the RS
and RC regimes, (iii) improve the definition of
benefits included in the POS to reduce scope for
legal claims, and (iv) continue expanding the role
of health technology assessment (HTA) and price
regulations for pharmaceuticals.
Enhance the regulatory capacity of the Superintendencia de
Salud (HS). Although the Law 1438 already defined
a new set of functions and attributions for the HS,
its capacity should be enhanced to fulfill not only
its current mandate but also expanded responsibilities in the future. This would include: (i) a new
conceptual framework for inspection, monitoring,
and control as outlined in the proposed ordinary
Development challenge
health reform, (ii) upgrading the technical and human capabilities of the HS to deal with the coming
changes in terms of risk adjustments for the system, and (iii) estimating the costs of total decentralization of the HS to extend its outreach to all
regions of the country.
Conduct public outreach to improve the image of the SGSSS
during this period of reform. To make visible the benefits
that the insurance model offers in terms of access,
coverage, and benefits for Colombians, the Ministry
of Health needs to strengthen its communications to
address public concerns. This includes: (i) improving
the direct communication and interaction with users
and communities to increase the sense of ownership,
designing and carrying out a multi-media strategy to
explain the rights, benefits, and functioning of the
system; and (ii) working with insurers and providers
to strengthen the transparency policy on contracts,
care provision, processes and procedures.
Short-term policy options
Medium-term policy options
Strengthening Social Protection System tools
Compile complete and accurate
information on social protection
program supply (supply management
tool).
Approve a CONPES to create an inventory
of social programs, define their uses,
identify their administrators, and define the
process to maintain current the inventory.
Develop and implement the processes
to create and maintain the inventory
of national, departmental, and local
social programs. Constantly update the
inventory.
Match social program supply to social Institutional analysis of Red UNIDOS and
identification of strategies to strengthen
demand (supply management tool).
its role within its current institutional
parameters.
Institutional reform so that Red
UNIDOS can effectively guide the
extreme poor through the range of
social protection/assistance programs
across the entire social protection/
assistance system.
Improve social demand information
management by creating a unified
registry of beneficiaries (information
management tools).
Develop a protocol and implement
incentives to maintain the RUAF up-todate and confidentially accessible to a
select set of users.
(i) Review of the RUAF to identify the
structural limitations to serving as a URB,
(ii) identify a rector for the system and train
staff to populate the database, and (iii)
update software to facilitate uploading data
and downloading information.
Modify the SISBEN dynamic targeting Review options to convert the SISBEN to
tool so that it is regularly updated
a dynamic information collection system;
(demand management tool).
review laws that limit these options.
Implement a process for a dynamic
SISBEN clearly linked with program
eligibility criteria, once short term
option is achieved.
Articulation among sub-system
Record the tools, and the process to
programs to more efficiently and
develop the tools, from the Cero a Siempre
effectively respond to social demand. model; pilot these tools in two other intersectorial initiatives.
Implement operational interinstitutional tools in all cross-sectoral
efforts in the social sectors.
(continued on next page)
Moving Toward a Social Protection System
(continued)
Development challenge
Short-term policy options
Medium-term policy options
Build labor sub-system through improved information
Improve labor information systems
to guide potential workers and labor
policy.
Map the labor information being created by
various institutions and develop a schematic
for a unified labor observatory; develop
protocols and software to standardize and
upload the regional labor observatories;
define the mission, beneficiaries, range of
services, and IT system of the UASEPE and
the oversight role of the Ministry of Labor.
Implement the tools for a national
labor observatory, built on stronger
subnational data collection and analysis
efforts.
Review the UASEPE to identify
strengths and areas for improvement to
continue moving toward a full-service
labor intermediation service.
Develop a new model of health care with stronger internal management and control
Implement a prevention/promotion
health care model to improve
coverage and health outcomes and
the efficient use of the sub-system
resources.
Review the articulation tools between the
local health administration and the EPS;
review the changes needed for transforming
EPS from financiers to health management
providers.
Reduce administrative fragmentation
through more sophisticated and
effective tools to manage health
financing.
Further reform of the health financing
(i) Analysis and design of pharmaceutical
policy and price regulation, (ii) institutionalize system toward a pay-for-results system.
the Health Technology Assessment, and
(iii) revise the incentives system and
accountability mechanisms among the various
players in the sector (e.g. EPS, IPS, central and
local governments) to improve performance
and governance in health management and
health information systems.
Reduce fragmentation through
enhanced risk management of the
insurance system through changes in
risk adjustment mechanisms.
Refine use of data on frequency of health
usage from RIPS.
Achieve more efficiency and
transparency in the system through
improvements in oversight and
control capabilities.
Design a new framework of inspection,
monitoring, and supervision to move from
the traditional compliance based approach
toward a risk-based monitoring and
supervision system.
Integrate both financial and health
risks in the risk-based monitoring and
supervision system.
Improve public confidence in the
health system through awareness of
achievements and rights.
Design of a new communication strategy for
the Health System.
Increase participation of users and
community in policy-making of the
system.
Design and test incentives for better
performance.
Implementation and enforcement of a tighter
transparency policy.
Reorganize service networks and
estimate demand for remote regions;
implement the patient-centered
medical home model in large
population centers.
Unify methodology across regimes
for insurance premium computation
(UPC).
Implement a set of pay-perperformance guidelines based on
health outcomes of affiliates.
207
208
PART TWO
|
CHAPTER 11
Endnotes
1
2
3
4
5
6
Since the 1990s, Colombia has been building the
components of a social protection system. Unlike
its neighbors, Colombia did not suffer severe crises
during most of the 20th century. In spite of deep civil strife, families took care of each other when experiencing a sudden negative shock to their well-being
and programs to reduce poverty were not a part of
the overall policy dialogue. This changed with the
1991 Constitution. The 1990s saw Law 100 to create a universal health insurance system, the creation
of a registry of the poor via SISBEN. When the
1999 economic crisis hit, Colombia saw that it did
not have the basic structure to support those whose
incomes were lost or diminished. Shortly thereafter,
the social safety net (Red de Acción Social) was created through three large cash-transfer programs: Familias en Acción, Jóvenes en Acción, and Empleo en Acción.
At the same time, Law 789 defined a social protection system and created a Ministry of Social Protection. The programs and institutions grew and, in
2006, Colombia recognized the need to better coordinate its social protection and social assistance programs to more efficiently and effectively reach the
poor. This led to the creation of Red Juntos, modeled
on the successful Chilean experience (ChileSolidario).
Social assistance and protection programs continued to expand and multiply in the period.
SISPRO: Sistema de Información de la Protección
Social www.sispro.gov.co/.
World Bank (2012). World Development Indicators. October 2012. The World Bank, Washington DC.
Profamilia. (2011). Encuesta Nacional de Demografía y
Salud 2010. Profamilia, Bogotá, Colombia.
Equity in access was further improved by the sentence T-160 of 2008 of the Constitutional Court
that commanded the unification of benefit packages
of the RC and RS regimes (Colombia, Corte Constitucional, Sentencia de Tutela No. 760 de 2008).
Institute for Fiscal Studies, Econometría, and Sistemas Especializados de Información (2006). “Evaluación del Impacto del Programa Familias en Acción–
Subsidios Condicionados de la Red de Apoyo Social.”
Bogotá, Colombia: National Planning Department.
7
8
9
10
11
12
13
14
15
Independent Evaluation Group (2011). “Assessing the
Long-Term Effects of Conditional Cash Transfers on
Human Capital: Evidence from Colombia,” Report
No. 59127, The World Bank, Washington DC.
Camacho, Adriana and Roman Zarate (2013). “Going one Step Beyond with Conditional Cash Transfers: College Outcomes,” LCSHD/World Bank. unpublished.
IEG 2011, ibid.
Institute for Fiscal Studies, Econometría, and Sistemas Especializados de Información 2006, ibid; Institute for Fiscal Studies, Econometría, and Sistemas
Especializados de Información (2012). “Impactos
de largo plazo del Programa Familias en Acción en
municipios de menos de 100 mil habitantes en los
aspectos claves del desarrollo del capital humano.”
Bogotá, Colombia: National Planning Department.
Institute for Fiscal Studies, Econometría, and Sistemas Especializados de Información 2006, ibid.
Acosta, Olga Lucia, Nohora Forero Ramírez, and
Renata Pardo Pinzón (in process). “Diagnóstico sobre el Sistema de Protección Social Colombiano y las
Principales Acciones que se Deben Realizar para su
Ajuste y Modernización.” CEPAL, United Nations.
This is particularly costly for the poor who do not
have the tools or training to undertake such an effort and who do not have the experiences to shortcut
their understanding of the information they collect.
Described by Kahneman (2003). “Maps of Bounded Rationality: Psychology and Economics” American Economic Review. 93:5, p. 1449–1475.
Montenegro, Fernado, and Oscar Bernal (2013).
“Colombia Case Study: The Subsidized Regime
of Colombia’s National Health Insurance System.”
UNICO Studies Series 15. The World Bank, Washington DC; Guerrero, Ramiro, S. Prada, D. Chernichovsky, and J. Urriago (2013). “La doble descentralización en el sector salud: Evaluación y
alternativas de política pública.” Centro de Estudios en Protección Social y Economía de la Salud
(PROESA) and Universidad Icesi. Cali, Colombia.
The role of the local government is particularly important in the provision of public health services in
Moving Toward a Social Protection System
16
17
18
19
20
21
rural areas. where health providers are predominantly public.
Ministerio de Salud y Protección Social (2013). Exposición de motivos del Proyecto de Ley (Senado).
“Por el cual se redefine el Sistema General de Seguridad Social en Salud y se dictan otras disposiciones.” Bogota, Colombia.
Nuñez, Jairo and J. Zapata (2012). “La Sostenibilidad Financiera del Sistema de Salud Colombiano-Dinámica del gasto y principales retos de cara
al futuro.” Fedesarrollo, Bogotá, Colombia; Ruiz
F, Uprimny M. (2011); “La salud: entre la reforma estructural y el ajuste regulatorio.” Documento Técnico GPES/1596–11. Asocajas – Cendex,
Bogotá, Colombia; Alfonso, E., Riascos, A. and M.
Romero (2013). “The Performance of Risk Adjustment Models in Colombia Competitive Health Insurance Market.” Working Paper Quantil 2013–1.
Savedoff, W. (2007). “Transparency and corruption
in the health sector: A conceptual framework and
ideas for action in Latin American and the Caribbean,” Health Technical Note 03/2007, IDB, Washington D.C.; Hussmann K. (2011). Vulnerabilities to
Corruption in the Health Sector: Perspectives from Latin
American Sub-Systems for the Poor (with a Spcial Focus on
the Sub-national Level. UNDP.
Camacho A, Conover E, and Hoyos A. (2013). Effects
of Colombia’s Social Protection System on Workers’
Choice between Formal and Informal Employment.
The World Bank Economic Review, p. 1–23.
In this regard, the recent fiscal reform (Ley 1607
of 2012) has substituted part of the financing of
health, SENA, and ICEBF from employers and
employees contributions to general taxation to reduce the disincentive to formality. “Proyecto de
Ley No. 1607, exposición de motivos al proyecto
de Ley por medio de la cual se expiden normas en
material tributaria y se dictan otras disposiciones.”
Ministerio de Hacienda y Crédito Publico, Bogotá, 2012.
Ministerio de Trabajo (2013). “Nuevo Modelo de
Protección para la Vejez,” Presentación a la Mesa
de Expertos. October 2013. http://www.mintrabajo.gov.co/component/docman/doc_download/935-presentacion-nuevo-modelo-de-proteccion-par-la-vejez.html.
22
23
24
25
26
27
28
Starfield B., Shi L., Macinko J. (2005). “Contribution of Primary Care to Health Systems and
Health.” The Milbank Quarterly, 83:3, p. 457–502.
Derived from the Encuesta de Calidad de Vida, 2011.
Guanais et al. (2012) estimated that the rate of
avoidable hospitalizations (i.e., ambulatory care
sensitive conditions) for the country is 21 percent,
the second highest in LAC. Guanais F.C., Gómez-Suárez R, Pinzón L. (2012). “Primary Care Effectiveness and the Extent of Avoidable Hospitalizations in Latin America and the Caribbean.” SPH
Discussion Paper No. IDB-DP-266. Inter-American
Development Bank, Washington, DC.
The monetary value of legal claims (tutelas y recobros)
for services not included in the benefit package (noPOS) increased from 1.8 percent of the total SGSSS
expenditure to 16 percent in 2009. Nuñez, Jairo and
J. Zapata (2012). “La Sostenibilidad Financiera del
Sistema de Salud Colombiano-Dinámica del gasto
y principales retos de cara al futuro.” Fedesarrollo,
Bogotá, Colombia.
The scope for legal claims is related to the fact that
the POS was not updated from inception of the
new system until 2012 and consequently lagged new
technologies for health care and the fact that services are too strictly defined in the POS. This ruling, together with the Law 1428, established a yearly update of the benefit package and set the goal of
an “implicit” plan, which should be more flexible
and in tune with the epidemiological profile of the
population. Ministerio de Salud y Protección Social
(2013). Exposición de motivos del Proyecto de Ley
(Senado). “Por el cual se redefine el Sistema General de Seguridad Social en Salud y se dictan otras disposiciones.” Bogota, Colombia.
Montenegro F, Bernal O. 2013. Colombia Case
Study: The Subsidized Regime of Colombia’s National Health Insurance System. UNICO Studies
Series 15. The World Bank, Washington DC.
The unemployment insurance program is operated
through Cajas de Compensación, drawing from its own
resources. Approximately 95,000 people receive the
benefit each year, largely limited by the small share
of formal-sector workers who voluntarily set aside
a portion of their retirement account to receive unemployment insurance.
209
210
PART TWO
29
30
31
32
33
34
35
36
37
38
39
40
41
|
CHAPTER 11
SENA, Informe de Gestión enero-septiembre de
2013, Bogotá, Diciembre 2013.
Acosta, ibid.
The poorest 20 percent of the population receives,
on average, no pensions income while the richest 20
percent received an average of 164,000 Colombian pesos monthly. Similarly, pensions comprise 0.2
percent of household income in the poorest households, compared to 10.3 percent in the wealthiest
housholds. Background Note: Colombia Poverty
and Shared Prosperity.
http://www.fondodesolidaridadpensional.gov.
co/prosperargel/que-es-programa-proteccion-social-adulto-mayor.
Muragarra, Edmundo (2012). “Aging, Poverty and
Social Protection in Colombia Evidence and Policy
Options.” LCSHS/World Bank. Unpublished.
Muragarra, ibid.
Source: Background Note: Colombia Poverty and
Shared Prosperity.
The General System of Social Security in Health
(Sistema General de Seguridad Social en Salud-SGSSS)
and the emerging Labor Sub-System are discussed
here. The efficiency issues in the third sub-system of
Social Assistance are encompassed in the above discussion on Fragmentation.
Nuñez, Jairo and J. Zapata (2012). “La Sostenibilidad Financiera del Sistema de Salud Colombiano-Dinámica del gasto y principales retos de cara al
futuro.” Fedesarrollo, Bogotá, Colombia.
Silva, Veronica (forthcoming). “Notas sobre un
Sistema de Protección Social y sus Herramientas de
Gestión.” LCSHD/World Bank. In process.
Holzman, Robert and Steen Jorgensen (2000). “Social risk management : a new conceptual framework
for social protection and beyond,” Social Protection
Discussion Papers 21314, The World Bank.
Ley 789 (2002).
Robalino, David, Laura Rawlings, and Ian Walker
(2012). “Building Social Protection and Labor Sys-
42
43
44
45
46
47
48
49
50
tems,” Social Protection and Labor Discussion Paper #1202. World Bank.
Silva, ibid.
Robalino, ibid.
The RUAF was created under Ley 797 2003 (Article
15) as an entity that integrates the social protection
sector (Ministerio de la Protección Social). It establishes
that the inclusion in such registry is mandatory for
access to subsidies or publicly funded services and
requires a unique identification number according
to the existing documents.
Development of the Law 1712, March 2014 (Transparency and Right to Access to Public Information
Law).
Camacho, Adriana and Emily Conover (2013).
“Effects of Subsidized Health Insurance on Newborn Health in a Developing Country.”.Economic Development and Cultural Change, 61: 3, p. 633–658.
According to the Law 715 2001, Article 94, the SISBEN has to be reviewed every three years.
Recognizing the varous situations in terms of health
needs, availability of services, and insurers across
the country, the MinSalud is developing different
models: (i) a model for disperse and indigenous populations; (ii) a model for urban areas characterized
by competition in the markets for insurance and
provision; and (iii) an intermediate model for areas
with limited competition among insurers and provision mainly by public providers.
The MinSalud had proposed to upgrade the Health
Management Zones (HMZ). Zone managers would
be responsible for organizing and managing the network of service providers to respond to the population’s specific health needs and comply with the benefit plan.
The new regulatory framework would require an increased capacity of the Superintendencia de Salud
to monitor insurers and local health authorities.
CHAPTER 12
National and Subnational Public Finances
and Governance
Main Messages
Over the past two decades, Colombia has made significant progress on decentralization to promote
growth and reduce regional disparities and poverty, but its fiscal and governance framework still has
not delivered rapid regional convergence.
Current challenges, however, include suboptimal implementation of the decentralization framework, weak local revenue sources, lack of long-term strategic territorial planning, scarce local and central capacity to manage more decentralized systems, and limited citizen engagement.
This policy note includes a set of main policy recommendations: enhance overall coordination
among various levels of government and among key agencies in the central Government; implement
an effective incentives framework to reward subnational government performance; improve subnational control, monitoring, and evaluation; revisit the decentralization framework, particularly the roles
and responsibilities of departments; and provide sustained technical assistance to improve public
sector management and to broaden local revenue sources in subnational governments.
Background
In decentralizing, Colombia has aimed at finding
the right balance between central authority and local autonomy, equity in resource distribution, and
higher efficiency in public spending. Colombia is a
unitary country divided into 32 departments (regional governments) headed by popularly elected
governors and departmental assemblies. Composed
of locally elected representatives, the assemblies
are responsible for, among other things, approving
the departments’ budgets. In addition, there are
just over 1,100 municipalities with elected mayors
and municipal councils. According to the IMF, subnational governments (SNGs)1 collectively account
for a large share of public spending in Colombia
(8.1 percent of GDP in 2011). Departments and
municipalities raise about 3 percent of GDP in
tax revenues (Table 12-1), with the remainder2
provided by the General Participation System
(Sistema General de Participaciones, or SGP), central
Government transfers, and other funding sources,
such as non-tax revenues and royalties on natural
resources.3 Small municipalities tend to be poorer
than larger ones: while 29 percent of the population at large has one or more unmet basic needs,
approximately 46 percent of the inhabitants of
municipalities with fewer than 50,000 inhabitants
report at least one unmet basic need.4 The country
as a whole has a keen interest in the decentralization framework and SNGs’ efficiency and effectiveness, shaped by the high incidence of poverty
in small municipalities and the extent of resources
managed at the local level and their impact on service delivery and national development goals.
Fiscal decentralization has substantially advanced
in Colombia over the past two decades. Today,
SNGs execute the vast majority of the national
budget. Table 12-1 shows this move toward fiscal
decentralization; the share of subnational expenditures represented by total government expenditures
grew in more than ten points from 1995 to 2009.5
The 1991 Constitution transferred responsibilities
and resources to municipalities and departments
for the delivery of key public services. The transfer
system that resulted from the 1991 Constitution focused on financing education, health, and water and
sanitation to standardize SNGs’ provision of these
services across regions. By the mid-1990s, a number
of shortcomings in the decentralization framework
had become evident. To enhance SNGs’ capacities
to manage their responsibilities and resources, the
1991 Constitution provided for the certification of
SNGs based on their fiscal performance. However,
earmarking transfers did not produce the expected
improvements in coverage or quality of services, and
certification of individual SNGs succumbed to political pressures and became pro forma during the late
1990s. In addition, Colombia’s economy entered
into recession between 1998 and 1999, with growth
declining from 0.6 percent in 1998 to –4.3 percent
the following year.6 This led to a significant drop
TABLE 12-1: Fiscal Decentralization
Year
Total taxes
as % of GDP
Subnational taxes Subnational taxes
as % of GDP
as % of total taxes
Subnational
expenditures as % of
total expenditures
Transfers to SNGs
as % of GDP
1990
8.2
1.7
20.2
n.a.
n.a.
1995
10.0
1.9
21.0
18.5
3.6
2000
11.7
2.2
19.3
24.9
6.9
2005
15.2
2.8
18.1
29.4
7.3
2010
17.3
2.9
16.8
28.95a
7.8a
Sources: Adapted and updated from Bird (2011) and Sánche, España and Centeno (2012) and based on data from ECLAC/CEPAL, OECD, Banco de la
República (http://www.banrep.gov.co/es/series-estadisticas/see_finanzas_publi.htm), and Ministry of Finance and Public Credit (http://www.minhacienda.gov.co/
HomeMinhacienda/politicafiscal/Estadisticasfiscales).
a
Data for 2009.
National and Subnational Public Finances and Governance
213
214
PART TWO
|
CHAPTER 12
in current revenues, reducing the resources transferred to SNGs in nominal terms by 23.6 percent
in 1998 and 24.6 percent in 1999. Meanwhile, the
rapid increase of transfers (Table 12-1) stimulated
expenditure growth and debt and diminished the
incentives for SNGs to raise their own revenue.
Consequently, the country experienced a debt crisis
in the late 1990s that even threatened fiscal sustainability at the national level.7
Between 1997 and 2003, a second set of reforms
was designed to discourage excess spending and
borrowing.8 In 1999, a new bankruptcy law (Law
550) focused primarily on private corporations but
also included provisions for bankruptcy protection
procedures for highly indebted SNGs and public
enterprises that could not, or chose not to, work
out a voluntary rescheduling with their creditors.9
Beginning in 2000, the Congress approved reforms
geared toward limiting the growth of transfers and
imposing strict budget constraints on SNGs through
a subnational insolvency framework and spending
limits. These rules—collectively referred to as the
Fiscal Insolvency Framework (Esquema de Saneamiento
Fiscal)—also allow the central Government to establish Debt Restructuring Agreements and Fiscal
and Financial Performance Agreements with SNGs
to improve their organizational and operational capacity and correct fiscal imbalances. In 2001, the
SGP established the total amount to be distributed
to SNGs at the 2000 level (as a percent of GDP) of
the previous general transfers. Thereafter, the share
received by SNGs was to be increased annually by
2 percent in real terms until 2005 and then by 2.5
percent up to 2008.
Since 2000, the central Government has been
developing indicators and strengthening capacity
to properly monitor services delivered by SNGs.
Because the national goals for key services set out
in previous National Development Plans had not
been achieved, a third set of reforms was approved
after 2008, authorizing the executive branch to
monitor and control SNGs’ compliance with the
coverage, quality, and continuity goals set out
for the key services financed by the transfer system.10 The new system features a set of risk events
(or thresholds) that may trigger the executive
branch’s use of preventive or corrective measures.
Preventive measures may include “performance
plans” between the executive branch and SNGs,
which prescribe the specific actions for the SNGs
to mitigate or eliminate the risk event.11 Corrective
measures include the executive branch’s authority
to take over SNGs’ roles and resources to ensure
provision of services that are at risk. This innovative tool aims to strengthen the government’s accountability to citizens in the delivery of services,
transparency and efficiency in the use of public
resources, and coordination of performance between different levels of government to align them
with stated national objectives.
The drive toward performance-based transfers has
continued through reforms to the royalties system
and territorial management. In June 2011, the
Congress approved another constitutional reform
geared toward introducing results conditions in
the royalties system (Sistema General de Regalías, or
SGR). Created in 1991, the royalty transfer system
was based on the revenues of commodities, such as
oil, gas, and minerals. While the annual amount of
royalties was previously insignificant, it increased
substantially over the past two decades with rising
commodity prices and production. In 2008, royalties payments amounted to COP 6 billion (about
US$3 billion, or 1.3 percent of GDP), six times
higher than the levels of the 1990s.12 The new
law calls for joint management bodies (Órganos
Colegiados de Administración y Decisión) between
the national Government and SNGs, with the goal
of improving the efficiency of the decision-making
process relative to the use of royalties, including
the possibility of suspending transfers to underperforming SNGs.13 The law aims at ensuring that
resources are channeled towards relevant, strategic,
and viable projects. In 2011, Congress approved the
Territorial Management Organic Law (Ley Orgánica
de Ordenamiento Territorial, or LOOT),14 which complements the royalty reform by seeking to reduce
the risk of investment fragmentation and low-quality projects among SNGs through various associations among municipalities and other territorial
entities.15
National and Subnational Public Finances and Governance
Progress
fiscal system (taxes and transfers) shows a limited
redistributive capacity, even compared with other
countries in Latin America and the Caribbean.17
The SGP, which provides central Government
transfers to the SNGs based on poverty variables
(among other factors), has had little impact in reducing differences among departments and municipalities. Similarly, it is unclear whether the
comprehensive tax reform recently approved by
Congress will do anything to address disparities
across regions. By contrast, SGR reform appears
to be a step in the right direction. World Bank projections suggest poor departments will grow faster
than richer ones under the new framework.18 In
sum, while the new royalties system will help reduce disparities, more efficient execution of SGR
resources and bolder reforms are needed to increase the pace of regional convergence.
The decentralization process has produced mixed
results in terms of promoting growth and reducing regional disparities and poverty. Since 2002,
Colombia’s strong growth has been accompanied
by poverty reduction and substantial job creation,
which were expected to have a major impact in
terms of inequality and regional convergence. Yet
the country’s Gini coefficient (0.54 in 2012) is still
one of the highest in the region and worldwide,
eclipsing that of peers like Peru (0.48 in 2010).
This is due to the large and enduring disparities
between urban and rural areas and the stark differences in poverty rates among departments
(Figure 12-1).16 In fact, small municipalities (under
10,000 inhabitants) have poverty rates above the
national average (45.1 percent versus 27.78 percent), and their pace of poverty reduction has been
slower than average (37.1 percent reduction versus
54 percent in large municipalities for 1985–2005).
Critical gaps remain an impediment to regional
competitiveness and are closely related to services
delivered by SNGs. Educational achievement shows
significant regional variance in Colombia: urban
departments and cities fare significantly better than
rural areas in terms of literacy, absenteeism, and average years of schooling.19 Moreover, differences in
The current fiscal and governance framework for
SNGs has not led to rapid regional convergence.
Although Colombia has seen steady, but slow, convergence in per capita income levels, the overall
FIGURE 12-1: Regional Disparities
Incidence of Monetary Poverty by Department in 2012 (%)
80
70
60
50
40
30
20
Chocó
Cauca
Córdoba
La Guajira
Magdalena
Sucre
Nariño
Cesar
Huila
Bolivar
Tolima
Caqueta
Norte de Santander
Quindío
Boyacá
Caldas
Atlántico
Total National
Meta
Risaralda
Valle del Cauca
Antioquia
Cundinamarca
Santader
0
Bogotá D.C.
10
Source: DANE—Encuesta Continua de Hogares (2002–2006) and Gran Encuesta Integrada de Hogares (2008–2012).
Note: The incidence of monetary poverty indicates the percentage of people who are classified as poor based on a certain level of consumption; i.e., it allows
for the observation of the non-conditional probability that an individual will be poor in a given department.
215
216
PART TWO
|
CHAPTER 12
other key drivers of competitiveness appear to be
widening. According to the Economic Commission
for Latin America and the Caribbean (ECLAC),20
regional disparities in competitiveness, as measured
by levels of economic performance, infrastructure,
human capital, and science and technology, have
broadened during the past decade. Leading departments have made substantial progress, while those in
the middle and at the bottom remain stagnant. This
trend poses a challenge for the subnational finance
framework because the lagging departments are also
more dependent on central Government transfers.
The SGP has contributed to expanding the decentralization process and improving a number of basic
services across the country. The SGP fosters better
fiscal management by both the central Government
and the SNGs, improving the coverage of key services.21 As a predictable source of resources for
SNGs, the SGP has contributed to better subnational planning and efficiency in the use of resources. However, the increase in the coverage of basic
services has not been accompanied by increases in
the quality of these services.22 Evaluation reports
from the Ministry of Finance and Public Credit
(Ministerio de Hacienda y Crédito Público, or MHCP),
the Comptroller General’s Office (CGR), and the
National Planning Department (DNP) indicate significant shortcomings in the overall management
of resources. The evidence suggests that SNGs lack
the capacities, the systems, and the data to properly
manage, monitor, control, evaluate, and report on
the use of resources affecting service delivery.23
The new SGR distributes resources more evenly
across regions but still faces efficiency and capacity
challenges. The new SGR24 has created a framework that is conducive to better regional equity25
and better management of resources. However,
there are concerns about the efficiency of the
institutional framework for approval of regional investment projects through the regional SGR
management bodies which includes direct DNP
participation, and about the central Government’s
capacity to respond to demand and expedite the
execution of regional projects. Execution of SGR
resources, as monitored by the CGR, continues to
be slow.26 However, relaxing the controls to speed
up execution could raise major issues in terms
of transparency and accountability in the use of
funds. Finally, having separate systems (SGP and
SGR) to finance similar regional objectives and
projects is costly, inefficient, and subject to unavoidable overlaps (see Box 12-1).
The role of departments in promoting coordinating, and providing support to municipalities
is still unclear and is perceived to be weak. With
the wave of decentralization reforms that started
in 1986 partly transferred to the departments the
responsibility for providing critical services, such as
health and education; however, this intermediate
government layer remained institutionally weak.
Colombia’s decentralization framework has not
granted clear specialized roles to departments in
terms of service provision, technical assistance, or
supra-municipal and sector approaches. In practice, the framework is based on a bipolar scheme
in which the central Government defines policies
and municipalities execute them, leaving departments somewhere in between. Uncertainty about
the departments’ roles and responsibilities has led
to frequent clashes with municipalities and undue
delays in formalizing the new LOOT-authorized
forms of territorial association that the departments either refuse to sponsor or openly oppose.
Arguably, this dynamic is also conducive to public investment atomization—that is, the widespread
use of public funds for small and micro projects
with little regional impact. It is evident that small
municipalities will benefit from departments’ support in such areas as tax administration and service
delivery of key regional competencies (e.g., health,
education, and local infrastructure maintenance).
As Colombia approaches the end of the internal
conflict, SNGs could play a critical role in the transition process. Because the risk of violence is greater
in departments or municipalities with weak institutions, building capable and legitimate institutions
at the local level is key to breaking Colombia’s cycles of violence.27 Strengthening SNG institutions
will be critical as the country enters a post-conflict
transition. For instance, municipal governments
National and Subnational Public Finances and Governance
BOX 12-1: Government’s Transfers to SNGs: SGP and SGR
Most of the central Government’s transfers to SNGs are channeled through two systems: SGP and SGR.
•
The SGP funds are transferred to SNGs pursuant to articles 356 and 357 of the Constitution to
finance services under the SNGs’ jurisdiction—mainly health, education, and water and sanitation.
•
The SGR includes the systems of revenues, transfers, institutions, procedures, and regulations that,
according to articles 332, 360, and 361 of the Constitution and Law 1530 of 2012, govern the distribution and transfer to the SNGs of revenues from exploitation of nonrenewable natural resources. The system determines the use, management, execution, control, and objectives of the funds,
including regional and inter-generational equity, savings, competitiveness, good governance, and
macro-stability.
In 2012, almost COP 34 trillion (US$18 billion) were made available to SNGs via these two systems, as
follows:
Source of financing
Amount in COP (millions)
Amount in US$ (billions)
SGP
25,951,621
13.7
SGR
7,904,418
4.2
that show willingness to improve their management capacities and start providing better public
services will also become more accountable to and
trusted by citizens during the transition process. A
new virtuous cycle will be set in motion as SNGs’
performance—measured by improved delivery
of public services—creates higher levels of trust
among citizens. While the peace process continues
at the national level, departments and municipalities should prepare to face the challenges of the
post-conflict transition by building basic administrative and managerial skills and welcoming feedback from citizens throughout the process.28
Challenges
While the new legal and regulatory framework
for decentralization is expected to improve SNGs’
performance, additional measures are required for
better service delivery. In particular, analytic work
conducted by the World Bank on decentralization
in Colombia shows that the country still faces significant challenges in achieving the high goals the
Government and Congress had in mind when approving the most recent reforms. Before enacting
additional reforms in the short to medium term,
the country might consider focusing on reaping
the benefits of the reforms already passed by making them fully operational and strengthening the
institutional capacity of the responsible national
and subnational agencies.
The country still shows uneven implementation of
the decentralization framework. As Bird highlighted and a recent World Bank study showed,29 SNGs’
management and service delivery have had successes and failures, with no clear correlation with size or
economic resources. The main reasons include the
lack of incentives to promote SNGs’ own revenue
collections30 and the lack of accountability created
by the fact that different levels of government control services’ inputs.31 The at-best modest impacts
on service delivery of greater and better-distributed amounts of resources flowing to the regions
has been widely documented. More important,
the capacity of SNGs to use, manage, monitor,
217
218
PART TWO
|
CHAPTER 12
control, and report on these resources remains an
issue. It appears that Colombia has focused on the
decentralization framework’s “macro” elements of
(particularly on the fiscal “rules of the game”) but
has made little progress on the “micro” dimension
of the institutions in charge of implementing the
framework (i.e., the administrative and managerial
tools at the three levels of government that should
make the fiscal rules operational). Weak local core
management areas, such as financial management
and procurement, have had a negative effect on the
day-to-day use of funds and on the results expected
from regional investment projects.
Broadly, Colombia faces two types of challenges:
ones related to the decentralization framework and
institutional coordination and ones related to the
capacity of SNGs. Attention to both is critical for
more efficient revenue mobilization and more effective service delivery.
Stronger decentralization framework
and better institutional coordination
Challenge #1: Poor coordination between central and regional governments. The interface
between the central Government and SNGs centers
on coordination and monitoring mechanisms: the
Fiscal Insolvency Framework, performance plans,
results agreements, and Contratos Plan. They provide
tools to help SNGs improve their capacities to manage the administration of resources and the delivery
of services. Unfortunately, the breadth of programs,
funding sources, agency responsibilities, and SNG
priorities challenge the central Government’s ability
to coordinate interventions. For example, demands
for information by various central entities often are
duplicative, vary in content or timing, and/or reflect
arbitrary agency-specific priorities that together
add to reporting SNGs’ administrative burdens and
costs. The departments’ competency uncertainties
and general institutional weaknesses do not contribute to clarity in roles and coordination across levels
of government.
Challenge #2: Distortions to the incentives
framework. In many countries, successful fiscal
decentralization hinges largely on the successful
application, within a clear legal framework, of a
customized mix of incentives and policies, often developed at the local level and piloted, refined, and
then replicated nationwide under the close scrutiny of citizens. In Colombia, the incentive structure
for improved SNG performance has been distorted by frequent changes in the policy environment;
non-conditional central Government transfers,
even with poor local revenue efforts; and the limited range of fiscal incentives or disincentives from
the central Government to effectively reward or
sanction performance. The problem has been exacerbated by a lack of transparency and accountability in many (usually smaller) municipalities and
failure to promote citizen participation.32
Challenge #3: Inconsistent long-term strategic planning and lack of reliable regional performance data. The strategic planning
mechanisms of the Government and SNGs are
only weakly linked. The available information
does not permit expression of sector and regional priorities that would promote the development
of long-term planning strategies. The central
Government, as part of OECD working groups,
has developed important initiatives—including
the creation of a territorial management observatory, the generation of better subnational statistics,
and work on defining functional associations at
the regional level—but it will need to further boost
strategic and analytic capacities for improved regional policymaking. Subnational information
is scarce and spotty; basic statistics and administrative, financial, and local management data are
missing. The last census (2005) is almost 10 years
old, and there is no certainty on whether it will be
updated in 2015. Overall, lack of data prevents
subnational policymaking, program evaluation,
and the monitoring of SNGs’ performance. For
instance, Colombia’s decentralization experiences
need to be gathered, systematized, and expanded to be more relevant for various types of SNGs,
and then potentially replicated nationwide. Local
initiatives and preferences should also be tracked
as part of exploring the most effective links between accountability and performance to help
National and Subnational Public Finances and Governance
increase citizens’ participation in the planning
process. To ensure the long-term sustainability
of improved data collection and dissemination
mechanisms, synergies and economies of scale
could be explored with academic institutions at
the SNG level.
Stronger capacity of SNGs
Challenge #4: Not enough attention to broadening local revenue sources. At 1.5 percent of
GDP for 2010, Colombia’s property tax collections
are now above the average for Latin American
countries (0.8 percent of GDP) and slightly below
the average for OECD countries (1.8 percent), with
Brazil at 1.9 percent and Argentina at 3.0 percent.
However, this tax represents only 20 percent of the
overall local tax collection,33 and most municipal
tax administration authorities (except those in the
large cities) have weak management and controlling
capacity. Stronger tax administration remains a
core local public management function that needs
to be improved in small and medium-sized municipalities, and specific actions coordinated by regional authorities are needed to broaden local revenue
sources, with a particular focus on key areas, such
as property tax administration.
Challenge #5: Weak local capacity to manage new decentralized systems. Although service coverage has seen significant increases, the improvements have come at very high costs, have not
attained the expected results, and have had very
uneven impacts among SNGs. Clearly, few SNGs
are close to their potential level of performance.
Poor capacity in expenditure planning and execution, treasury and accounting, public procurement, internal control and auditing, and human
resource management commonly undermines the
efficiency of subnational expenditure. The progress the central Government made in reforming
its financial management system (by launching
the Sistema Integrado de Información Financiera) has
not been extended to SNGs. Cash management is
poor, and payments to service providers are often
delayed, affecting service delivery prices. In addition, SNGs’ administrative and financial software
systems are generally outdated, require a high degree of manual entry, do not allow for data sharing between management functions (such as budgeting and accounting, for example), and do not
permit fluid information sharing with higher levels
of government. These issues reduce the efficiency
of administrative processes and occupy time that
would otherwise be dedicated to program management and attention to citizens. SNGs’ weak civil service often prevents the technical continuity of
local staff, creating high turnover. Finally, despite
improvements in the legal and regulatory framework that governs procurement systems, SNGs
lack adequate capacity to manage these systems
and often resort to legacy or informal procurement
practices.34
Policy Recommendations
As Colombia assesses the new decentralization framework’s results, it should focus on
developing capacities at the local level, but
do it more effectively. Building capacity has been
a recurrent theme, but implementation has arguably been less than successful. Learning from the
past, the new approach to boosting local capacities
should feature these main elements: (i) continuing
and sustaining technical assistance using new management and information technology (IT) tools;
(ii) implementing an effective incentives framework;
(iii) improving coordination among key actors;
(iv) enhancing the framework for control, monitoring, and evaluation of the local use of national and
local resources; and (v) promoting citizens’ participation. The table at the end of this notesummarizes
the policy recommendations around thematic objectives and timeframes.
Stronger decentralization framework
and better institutional coordination
Policy area #1. Improved coordination
among levels of government and key central Government agencies. The three critical
levels of government (central, departmental, and
municipal) and key central actors, such as DNP,
219
220
PART TWO
|
CHAPTER 12
MHCP, the Ministry of the Interior, and CGR,
require closer collaboration and synchronized
action. In addition, a number of new organizations35 need additional support to increase their
efficiency. Central agencies’ information requests
to SNGs need to be further streamlined.36 The
agencies also need to promote standardized and
coordinated approaches to core public management functions and processes like accounting and
public financial management as well as procurement rules and standards, all while taking into account the different needs and capacities of each
subnational level of government. This requires
a review of the territorial distribution of powers
and responsibilities, which can serve as the basis
for the establishment of strategies for improved
intergovernmental coordination. Finally, for better resource allocation and evaluation of subnational funds, the central Government needs
to move toward analyzing subnational public
programs, regardless of whether the funds involved are recurrent or investment funds and independently of the source of financing (national
budget, SGR, SGP).
Policy area #2. Enhanced subnational control and the monitoring and evaluation
(M&E) framework. Colombia’s current control
and monitoring instruments are inefficient, fragmented, conceptually inconsistent, and focused
on ex post reviews and sanctions. However, SNGs’
fragmentation and their lack of data and capacities erect a barrier to monitoring and evaluating their performance. The central Government
should emphasize improving and integrating
the control and M&E instruments of the agencies directly involved, such as DNP, MHCP, and
CGR. If the efficiency and effectiveness of decision-making and expenditure execution at the
subnational level are to be improved, procedures
need to be harmonized and streamlined. At the
same time, institutionalizing evaluation is key to
identifying and tracking SNGs’ performance.
Evaluation will generate regular feedback loops
to inform SNGs’ management and will strengthen the central Government’s role in tracking
SNGs’ progress.
Policy area #3. Effective implementation of
an incentives framework for SNGs. Strong
management systems require a clear and explicit incentives framework. Successful subnational
management rests on identifying an array of possible incentives, instruments, and metrics for subnational performance, standards of good performance, and documentation and dissemination of
good practices. It is critical to define performance
indicators and information tools to measure SNGs’
management capacity, set out standards and good
practices in subnational public management performance, and implement an incentives framework
to reward superior or outstanding performance or
assist underperformers in achieving sustained performance. Finally, it is critical to make operational
the incentives that are already attached to SGP’s
and SGR’s institutional frameworks.
Policy area #4. Through an independent
evaluation, review and adjust the decentralization framework, particularly the SGP
and the SGR, and the role of the departments. In the first place, the Government should
undertake an in-depth analysis of the SGP and
SGR to independently determine what is working well and what is not. The findings could lead
to changes (operational rather than legal) that increase the system’s efficiency, probably by merging
the SGP and SGR funds into a single budget, control, and M&E framework. In addition, it would
be advisable to review the impact of the current
formulas for resource allocation. Finally, the
Government should continue working on the clarifying and enhancing the role of the departments,
including proposals for a new organic law (Ley de
régimen departamental). Such proposals should outline the departments’ competencies, their role as
coordinators/supporters of small municipalities,
and their control and M&E functions in the use
of the resources, results achieved, and municipal
fiscal and management performance. Their potential role as promoters and/or co-implementers of
investment projects sponsored by associations of
municipalities may become paramount to providing regional cohesiveness and to avoiding atomization of public investment.
National and Subnational Public Finances and Governance
BOX 12-2: Technical Assistance to Boost Local Capacities: Specific Elements
Lessons learned point to the need to focus on the development of local capacity to carry out specific
core management functions. This work should feature the following elements:
Defining SNG management standards on the basis of normative and standardized concepts of
robust subnational management core functions. The design should be guided by Colombia’s successful experiences and by international criteria, such as the International Public Sector Accounting
Standards (IPSAS) adopted by the specialized Board of the International Federation of Accountants,
the principles and guidelines adopted by the International Organization of Supreme Audit
Institutions (INTOSAI), and the manuals and guides of the IMF’s Government Finance Statistics.
Avoiding discrete interventions and focusing on sustained hand-holding technical support, particularly to small and medium SNGs. As recent work with SNGs has shown, it is critical to provide
support gradually and in a sustained and customized fashion. While support at the diagnostic stage
is useful, technical assistance during implementation is even more important. This sustained assistance
is key and should be provided initially by the central Government and later on by experts from academia and/or the private sector. The central Government should, however, regulate the standards for
strong SNG management through periodic assessments (similar to the Public Expenditure and Financial
Accountability [PEFA] assessments). In sum, the effort is about using standard tools but applying them
in a local context in a sustained and regular fashion.
Adopting a nontraditional approach to capacity-building. While knowledge of core management
functions and standards is key to enhancing local capacity, training should be oriented toward developing practical competencies that allow local officials to make decisions and allocate resources more
efficiently. Capacity-building efforts have hitherto made little difference at the local level; thus, a new
approach focused on addressing municipalities’ actual management needs should be developed.
Leveraging new technologies for data generation and use. For example, the use of cloud computing,
allowing easier access for users (both SNGs and central Government), will reduce the need for ad hoc
local IT solutions, reduce or eliminate the burden of regular reporting, improve the quality of fiscal and
financial data, and facilitate SNGs’ internal management and service delivery to citizens. It should be
aligned with ongoing Government initiatives such as Vive Digital, which (among other targets) aims at
reaching most SNGs with optic fiber. An explicit agenda on boosting the generation of subnational data
is needed to enable SNGs’ policymaking and management of investment projects. Carrying out a regular census, institutionalizing the padrón, or working on other data sources will remain key challenges.
Reinforcing transparency, control, and accountability through citizens’ participation. The central
Government recognizes that Colombia’s experiences with citizen-sponsored initiatives need to be gathered, systematized, and expanded to be more broadly applicable for different types of SNGs and replicated nationwide. Local initiative and preferences will play a key role in this effort, but the Government
should make examples available, facilitate peer learning, identify and publicize successes, explore and
reinforce the transmission lines between better accountability and performance, and to the extent possible reward the SNGs that make significant progress. The Government is leading, supporting, and promoting mechanisms to raise citizens’ participation in the planning, budgeting, and execution of public
(continued on next page)
221
222
PART TWO
|
CHAPTER 12
BOX 12-2: Technical Assistance to Boost Local Capacities: Specific Elements (continued)
investments. However, all these initiatives are being led by different agencies, with different methodologies, and they are not being coordinated to take advantage of synergies. Some SNGs receive support
from the Dirección de Apoyo Fiscal to prepare a participatory budgeting process, while others receive
support from the DNP’s Directorate of Royalties to promote citizens’ participation in the monitoring of
investment projects financed from royalties or other sources. However, the central Government has no
coordinated effort or strategy to promote the institutionalization of citizen participation mechanisms at
key points in the planning and expenditure chains. This calls for a new strategy to enhance citizen participation and raise levels of accountability. In addition, the Government should continue and broaden
current initiatives, including open government or citizens’ audits (auditorias visibles).
TABLE 12-2: Policy Challenges and Recommendations
Policy areas
Policy challenges
Stronger
decentralization
framework and
better institutional
coordination
Poor coordination
• Carry out an in-depth analysis of the SGP
and SGR system and review the impact of
between central and
the current formulas for resource allocation
regional governments
and the regime of tax exemptions.
Distortions to the
incentives framework
Inconsistent longterm strategic
planning and lack
of reliable regional
performance data
Short-term policy recommendations
• Design proposals and generate a consensus
on a new Ley de régimen departamental.
• Develop an incentives strategy to
encourage SNGs to form associations
for co-investments and shared service
provision.
• Establish a program to boost central and
departmental capacities for long-term
strategic territorial planning.
• Implement an SNG incentives framework to
guide regional transfers.
• Define standards, good practices,
performance indicators, and information
tools to measure and reward SNGs’
performance.
Stronger capacity
of SNGs
Not enough attention
to broadening local
revenue sources
Weak local capacity
to manage new
decentralized systems
•
•
•
Set up a program coordinated by
regional governments to support
stronger tax administration of key
municipal taxes (e.g., property, industry
and commerce), including work with
cadaster and property registry.
Harmonize local management practices
and implement international standards
for core management areas (e.g., IPSAS
accounting standards, INTOSAI auditing
standards).
Design an SNG management system
and roll it out gradually with sustained
technical assistance using new IT tools.
Medium-term policy
recommendations
• Merge the financing,
control, and monitoring and
evaluation (M&E) functions of
the SGP and SGR systems for
improved decision-making
and resource management.
• Enhance the subnational
control and M&E framework
by integrating the control
and M&E instruments of the
agencies directly involved.
• Generate and disseminate
better local financial,
administrative, and sector
data, institutionalizing data
sources such as the census,
padron, or administrative
sources.
•
Design supporting
mechanisms to help
small SNGs enhance local
revenue sources.
•
Review the framework
regulating SNGs’ civil
service.
•
Promote and scale up
citizen participation
initiatives by defining
a comprehensive new
strategy.
National and Subnational Public Finances and Governance
Stronger capacity of SNGs
Policy area #5. Sustained technical assistance to SNGs through new management
and IT tools. Capacity-building activities should
be focused on solving problems that prevent the
adequate delivery of services or the sustained improvement of service outcomes. The Bank’s experience using tools such as MiGestion and Rapid
Assessment and Action Plans37 in selected municipalities has shown the effectiveness of targeted
approaches. The new technical assistance delivery approach should aim at (i) creating a coherent
and structured supply of capacity-building tools
to SNGs, especially in the core management areas that are key to improving the allocation and
use of public resources for service delivery—
planning, investment, procurement, financial
management, local tax administration, and civil
service; and (ii) ensuring technical continuity with
low turnover of the technical staff needed for the
success of larger, multiyear projects as well as for
performance measuring, project M&E, intergovernmental negotiations and outsourcing, and the
formation of public-private partnerships, which
will likely be more important for SNGs than specific sector skills. (Box 12-2 describes some of the
important elements of such technical assistance.)
Endnotes
1
2
3
4
5
6
For the purpose of this document, SNGs are the government entities (Entes Territoriales) below the central
Government—both departments and municipalities
(as provided by Article 286 of the 1991 Constitution).
Around 60 percent of the total resources were managed by SNGs for 2000–09, according to the 2012
IDB flagship report “More than Revenue: Taxation
as a Development Tool.”
According to the previous law, royalty resources
were distributed only to entities that produced or
transported natural resources. Law No. 1530/12
changed the distribution criteria.
DANE (2005 Census). For more details, see the policy background note “Towards Shared Prosperity in
Colombia.”
In the region, only federal countries such as Brazil (23.4 percent for 2009) and Argentina (14.7 percent) show higher percentages of subnational taxes
as a percentage of GDP. Within the OECD, Spain, a
constitutionally non-federal country with a highly decentralized political structure, has undergone a significant process of fiscal decentralization in the past 15
years; the percentage of subnational taxes relative to
GDP went from 4.8 in 1995 to 23.7 in 2009.
Colombia’s economic crisis of the late 1990s was a
result of a combination of internal (real estate market bubble) and external factors (the “Asian tigers”
crisis). In the early 1990s, Colombia carried out
a process of financial liberalization. At the same
time, a sharp increase in capital inflows caused significant monetary and credit expansion, encouraging increased public and private spending. While
private and public savings rates increased, the current account deficit expanded. The demand for
non-tradable goods (especially real estate) then expanded, leading to an increase in domestic credit and asset prices as well as a real appreciation of
the Colombian peso. Between 1997 and 1999, a reversal of capital flows and deteriorating terms of
trade led to a sharp decline in aggregate spending
and the elimination of the current account deficit.
Output declined more than 4 percent in 1999, and
real estate prices fell about 27 percent in real terms.
The reversal of capital flows affected the financial
system through the reduction in liquidity and the
consequent increase in funding costs. The increase
in real interest rates, coupled with the decline of
real estate prices in real terms, increased the financial burden on households, increasing the number
of nonperforming loans and affecting the credit
ratings of financial intermediaries. The Colombian debt grew from a little over 200 basis points
over treasuries towards the end of 1997 to over 900
points in the third quarter of 1998, affecting the
223
224
PART TWO
7
8
9
10
11
12
13
14
15
|
CHAPTER 12
balances of both the indebted private sector and
government.
Ministerio de Hacienda y Crédito Público (2009).
Specifically, Congress enacted the follwing laws:
Law 358 of 1997 (for the sustainability of subnational debt), Law 617 of 2000 (aimed at racionalizing of national debt) and Law 819 of 2003 (which
establishes norms in terms of budgeting and fiscal
transparency and responsibility).
Del Villar et al. (2013).
In 2007, the Congress approved Constitutional
Amendment No. 04, which was later regulated by
the executive branch (Decree 28 of 2008, Framework to Monitor, Track and Control SGP resources). Both rules approve and implement the “Strategy for Integral Monitoring, Tracing and Control of
Expenditures Financed by the SGP.”
These performance plans include Debt Restructuring Agreements with MHCP and Development
Planning Agreements (Contratos Plan) with the National Planning Department (DNP).
This contrasts with the evolution of resources transferred to the SNGs under the SGP, which have remained constant since the inception of the system in
2001 (they represented 4.7 percent of GDP in 2002
and 4.3 in 2009).
This reform is referred to as “Framework to Monitor, Track and Control Royalties Resources.”
Law 1454 of 2011, approved after 20 years of political bargaining.
LOOT paves the way for long-term strategic and
larger-scale projects by promoting the formation
of investment-specific departmental or municipal associations, similar to the single-purpose or
multi-purpose associations of SNGs common in
Europe. New regional and provincial investment
projects will be financed out of two new funds created by the royalties reform: the regional development fund and the compensation fund. The law
created the Comisión de Ordenamiento Territorial, a
technical and advisory body that will propose, supervise, and evaluate the execution of territorial
policies. It also introduced the Contratos Plan, an intergovernmental coordinating tool that brings together various levels of government to undertake
projects that meet national priorities. By February
2012, seven Contratos Plans were in place.
16
17
18
19
20
21
22
23
24
Thiel index data for 2011 (0.58 nationwide, 0.55 for
urban areas, and 0.41 for rural areas) suggest that
the country’s high level of inequality is exacerbated
by income inequality across regions.
“Enhancing Fiscal Capacity to Promote Shared
Prosperity Project” (P145605), Project Document;
World Bank.
Enamorado, López-Calva, and Rodríguez-Castelan
(forthcoming) have found evidence that poor departments in Colombia are growing faster than rich ones.
They have also found preliminary evidence that the
new royalties scheme is succeeding in reducing income disparities across Colombian departments.
DANE, 2005 Census.
http://www.cepal.org/colombia/noticias/documentosdetrabajo/6/51446/Escalafon_de_la_Competitividad_2012–2013.pdf.
Despite issues of attribution, evidence shows that
education coverage has increased in terms of enrollment numbers: between 1990 and 2010, net primary school enrollment rose from 71 percent to 88
percent. In health, according to a recent impact
evaluation, the SGP has had a positive and significant effect in terms of access to health services and
illness prevention, and mortality rates dropped from
28 percent in 1990 to 16 percent in 2010. During
the same period, rural population with access to improved water sources rose from 70 percent to 72 percent, and population with access to improved sanitation facilities rose from 68 percent to 78 percent.
Source: World Bank Data Bank.
Despite the country’s progress on educational indicators, such as expenditures per student, no evidence indicates that increases in SGP resources have
had positive impacts on the quality of education. In
fact, a 2009 impact evaluation conducted by DNP
shows that in tested municipalities, an increase in
SGP funds reduced the average score on the national evaluation test by 0.27 percent to 0.33 percent.
See Departamento Nacional de Planeación (2010).
In addition to the document cited in the preceding
note, see Departamento Nacional de Planeación
(2003), Contraloría General de la República (2009),
and Ministerio de Hacienca y Crédito Público
(2009, 2011).
See Constitutional Amendment No. 5 of 2011, Law
1530 of 2012.
National and Subnational Public Finances and Governance
25
26
27
28
29
30
31
32
33
34
See Enamorado, López-Calva, and Rodríguez-Castelan (forthcoming).
Despite some discrepancies between CGR and
DNP about the figures and categories, evidence
strongly suggest that the royalties resources of 2012
and 2013 are not being executed as expected, and
the implementation of regional investment projects
continues to lag.
See World Development Report 2011: Conflict, Security and
Development, World Bank.
See “Triangles of (Dis)trust” in Arizti et al. (2010).
See Bird (2011) and World Bank (2009a).
Although SNGs’ revenues have increased, no evidence supports the idea that the gains have been
due to a tax effort beyond the positive economic
cycle.
Liu, L., Del Villar, A., et al. This note takes into account the conclusions from studies conducted on the
political economy context of decentralization in Colombia: Rojas, F., Bird, R., and Del Villar, A.; and
Mosqueira, E., and Webb, S.
The role of the central Government in providing
positive incentives and fostering inter-institutional coordination has also been identified in Samad,
Lozano-Gracia, and Panman (2012) as an opportunity for improving performance in SNGs.
See Corbacho, Fretes, and Lora (2012).
For instance, the recently established procurement
agency (Colombia Compra Eficiente) noted that lack of
integration between its procurement systems and
35
36
37
those of SNGs blocks validation of contracting
data. The agency still has to benchmark nationwide
procurement practices, analyze local practices, catalogue lessons learned, and develop system interfaces with SNGs.
The LOOT and the royalties reform created organizations to enhance the effectiveness and efficiency
of SNGs’ funds—for example, the Territorial Management Commission and the Órganos Colegiados
de Administración y Decisión.
The implementation of the Formulario Unico Territorial (FUT), a single format for SNG reporting to
MHCP, has been acknowledged as an improvement,
but municipalities still dedicate large amounts of
time to responding to countless and overlapping requests from central agencies.
MiGestion is a tool created to assess the strength of
core public management processes and functions in
small municipalities and guide an improvement program of specific actions in line with international
standards, such as PEFA. A Rapid Assessment and
Action Plan is an exercise the Bank carries out for
subnational governments to identify public management improvements in different functional areas that can affect fiscal performance and service
delivery. The methodology is problem-driven, results-oriented, and focused on quick gains. It has
been successfully applied in Colombian municipalities, including Barranquilla, Cali, and Cartagena.
Bibliography
Acto Legislativo 05 de 2011, por el cual se constituye el Sistema General de Regalías, se modifican los artículos 360 y 361 de la Constitución
Política y se dictan otras disposiciones sobre el
Régimen de Regalías y Compensaciones.
Acto Legislativo 1 de 2001, por medio del cual se
modifican algunos artículos de la Constitución
Política.
Arizti, P., et al. 2010. Results, Performance Budgeting
and Trust in Government. Washington, DC:
World Bank.
Banco Mundial. 2009. Plan de Acción Rápida para la
Mejora de la Gestión Pública de la Municipalidad
de Cartagena de Indias. Unidad de Gestión del
Sector Público América Latina y el Caribe.
———. 2010. Evaluación y Plan de Acción Rápida para
la Mejora de la Gestión Pública de la Municipalidad
de Barranquilla, Colombia. Unidad de Gestión
del Sector Público América Latina y el Caribe.
———. 2012. El Gasto Tributario en Colombia.
Bogotá, Colombia.
Banco Inter-Americano de Desarrollo. 2009.
Sistema de Evaluación PRODEV (SEP) para
Gobiernos Locales.
———. 2010. Descentralización y sostenibilidad fiscal subnacional: Los casos de Perú y
225
226
PART TWO
|
CHAPTER 12
Colombia. Departamento de Países del Grupo
Andino.
———. PRODEV: http://www.iadb.org/es/temas/prodev/componentes,2017.html
Bird, Richard. 2012. “Fiscal Decentralization
in Colombia: A Work (still) in Progress.” ,
International Center for Public Policy,Working
Paper 12–23.
Centro de Investigación y Desarrollo en Información
Geográfica. 2005. Fortalecimiento Institucional
(Capacity Building) de Entidades del Estado
para la Gestión de las Infraestructuras de
Datos Espaciales.
Centro Nacional de Consultoría. 2009. Evaluación
de resultados del Sistema General de
Participaciones.
CEPAL. 2013. Panorama fiscal de América Latina y el
Caribe: Reformas tributarias y renovación del pacto
fiscal, Santiago de Chile.
CEPALSTAT: http://estadisticas.cepal.org/cepalstat/WEB_CEPALSTAT/Portada.asp
Contraloría General de la República. 2009.
“Sistema General de Participaciones. Análisis
y resultados de los hallazgos del proceso auditor.” Plan General de Auditoría.
Corbacho, A., V. Fretes, and E. Lora. 2012.
Recaudar no Basta: Los Impuestos como Instrumento
de Desarrollo. Banco Interamericano de
Desarrollo.
Del Villar, Azul, L. Liu, Edgardo Mosqueira, Juan
Pedro Schmid, and Steven Webb. 2013. Until
Debt Do Us Part: Subnational Debt, Insolvency, and
Markets. Part 2, Chapter 5: “Colombia: SubNational Insolvency Framework.”
Decreto 1881 de 1990 por el cual se dictan normas
conducentes al fortalecimiento de la política
de descentralización administrativa.
Decreto Ley 28 de 2008, por medio del cual se
define la estrategia de monitoreo, seguimiento y control integral al gasto que se realice con recursos del Sistema General de
Participaciones.
Departamento Administrativo Nacional de
Estadística. 2009. Encuesta de cultura política 2008, Informe de Resultados. Dirección
de Regulación, Planeación, Estandarización y
Normalización.
Departamento Nacional de Planeación. 2001.
Evaluación a la descentralización municipal
en Colombia: Balance de una década. Tomo I.
———. 2003. Evaluación del SGP. Dirección de
Desarrollo Territorial.
———. 2004. Reporte de Evaluación No 15.
Sistema Nacional de Evaluación de Resultados
de la Gestión Pública.
———. 2006. Balance Plan Colombia 1999–2005.
———. 2010a. Evolución de Sinergia y
Evaluaciones en Administración del Estado.
15 años del Sistema Nacional de Evaluación
de Gestión y Resultados – Sinergia: Una mirada desde las evaluaciones de política pública
más relevantes.
———. 2010b. Evaluación al SGP. Dirección de
Evaluación de Políticas Públicas.
———. 2012. Programa de Generación y
Fortalecimiento de Capacidades Territoriales.
Borrador del Diagnóstico. Versión para discusión interna.
———. Visiones Departamentales en el marco de
Visión Colombia II Centenario: 2019. http://
www.dnp.gov.co/Programas/Desarrollo
Te r r i t o r i a l / O rd e n a m i e n t oy D e s a r ro l l o
Te r r i t o r i a l / P l a n i f i c a c i ó n E s t r at é g i c a /
VisionesdeDesarrollo.aspx
Documento CONPES 2843 de 1996. Aclaración
al programa de apoyo al saneamiento fiscal y
al fortalecimiento institucional de entidades
territoriales (Documentos CONPES 2843 y
2870 de 1996).
Documento CONPES 2956 de 1997. Programa de
Fortalecimiento del Sistema de Información
Financiera Territorial.
Documento CONPES 3238 de 2003. Estrategias
para el fortalecimiento departamental.
Documento CONPES 3278 de 2004. Autorización
a la nación para contratar una operación
de crédito externo hasta por un monto de
US$30 millones, o su equivalente en otras
monedas, con destino a la financiación del
programa “Paz y Desarrollo.”
Documento CONPES 3566 de 2009. Concepto
favorable a la nación para contratar un empréstito externo con la banca multilateral hasta por US$7,812,500 dólares o su equivalente
National and Subnational Public Finances and Governance
en otras monedas, destinados a financiar la segunda fase del programa “Paz y Desarrollo.”
Enamorado, Ted, Luis F. López-Calva, and Carlos
Rodríguez-Castelan. Forthcoming. Regional
Convergence in Colombia and Prospective Impacts of
the Reform of the Regalías System. Washington,
DC: World Bank.
Espinosa Cuervo, José Oswaldo. 2011. Informe de
contrato para el Departamento Nacional de
Planeación.
Fiszbein, Ariel. 1997. Decentralization and Local Capacity:
Some Thoughts on a Controversial Relationship.
World Bank, Economic Development Institute.
Technical Consultation on Decentralization.
FAO, Rome, 16–18 December 1997.
Gaviria, Alejandro. 2012. Esta semana el Gobierno dio
a conocer los primeros datos sobre la nueva distribución
regional de las regalías. elespectador.com.
GERENCIAL Ltda. 2011. Orientaciones
Metodológicas para la Formulación de
Programas y Proyectos de Inversión.
Consultoría para el BID, PRODEV.
González, Jorge Iván. 2011. La frágil Ley de ordenamiento territorial. Congresovisible.org.
Informe del presidente Álvaro Uribe Vélez ante el
Congreso de la República 2006.
Informe del presidente Álvaro Uribe Vélez ante el
Congreso de la República 2010.
Informe del presidente Juan Manuel Santos ante el
Congreso de la República 2011.
International Finance Corporation. 2007.
Municipal Scorecard 2007. Project News and
Highlights. Office for Advisory Services in
Latin America and the Caribbean.
———. 2012. Strengthening Local Governments
to Implement the New Royalty System in
Colombia. Advisory Service Concept Note.
Ley 358 de 1997, por la cual se reglamenta el artículo 364 de la Constitución y se dictan otras
disposiciones en materia de endeudamiento.
Ley 489 de diciembre de 1998, por la cual se
dictan normas sobre la organización y funcionamiento de las entidades del orden nacional, se expiden las disposiciones, principios y
reglas generales para el ejercicio de las atribuciones previstas en los numerales 15 y 16 del
artículo 189 de la Constitución Política y se
dictan otras disposiciones.
Ley 550 de 1999, por la cual se establece un régimen que promueva y facilite la reactivación
empresarial y la reestructuración de los entes
territoriales para asegurar la función social de
las empresas y lograr el desarrollo armónico
de las regiones y se dictan disposiciones para
armonizar el régimen legal vigente con las
normas de esta ley.
Ley 617 de 2000, por la cual se reforma parcialmente la Ley 136 de 1994, el Decreto
Extraordinario 1222 de 1986, se adiciona la
ley orgánica de presupuesto, el Decreto 1421
de 1993, se dictan otras normas tendientes
a fortalecer la descentralización, y se dictan
normas para la racionalización del gasto público nacional.
Ley 715 de 2001, por la cual se dictan normas
orgánicas en materia de recursos y competencias de conformidad con los artículos 151, 288,
356 y 357 (Acto Legislativo 01 de 2001) de la
Constitución Política y se dictan otras disposiciones para organizar la prestación de los servicios de educación y salud, entre otros.
Ley 819 de 2003, por la cual se dictan normas
orgánicas en materia de presupuesto, responsabilidad y transparencia fiscal y se dictan otras
disposiciones.
Ley 1176 de 2007, por la cual se desarrollan los
artículos 356 y 357 de la Constitución Política
y se dictan otras disposiciones.
Ley 1450 de 2011, por la cual se dictan normas
orgánicas sobre ordenamiento territorial y se
modifican otras disposiciones.
Liu, L., and Steven Webb. 2010. Laws for Fiscal
Sustainability and Discipline: International
Experiences, Policy Research Working Paper
5587. Washington, DC: World Bank.
Ministerio de Tecnologías de la Información.
Estrategia de Gobierno en Línea Territorial.
http://programa.gobiernoenlinea.gov.co.
Ministerio de Hacienda y Crédito Público,
Dirección de Apoyo Fiscal. 2009. 10 años
de transformación Fiscal Territorial en Colombia
1998–2008.
227
228
PART TWO
|
CHAPTER 12
———. 2011. Monitoreo, Seguimiento y Control al uso
de los Recursos del Sistema General de Participaciones
Vigencia 2011.
Moller, Lars. 2012. Fiscal Policy in Colombia: Tapping
Its Potential for a More Equitable Society. Policy
Research Working Paper 6092. Washington,
DC: World Bank.
Moncayo Jiménez, Edgard. 2002. Nuevos enfoques
de política regional en América Latina: El caso de
Colombia en perspectiva histórica. Las políticas regionales en Colombia. Separata N° 5 de 7. Archivos
de Economía, DNP. Documento 198.
Mosqueira, Edgardo, and Azul del Villar. 2012.
Coordination of services delivery outputs among all
levels of innovative Colombian strategy based on
M&E outputs.
Observatorio de la economía Latinoamericana.
2010). Descentralización y disparidades económicas territoriales en Colombia (1990–2005).
Publicación Nº 130. http://www.eumed.net/
cursecon/ecolat/co/10/amg.htm.
Pinzón Sánchez, Alberto. 2011. Lecciones del Proceso
de Paz 1998–2002. La experiencia del Caguán.
Rebelión.
Plan Nacional de Desarrollo “Cambio para construir la paz” (1998–2002).
———. “El salto social” (1994–1998).
———. “Estado Comunitario: Desarrollo para todos” (2006–2010).
———. “Hacia un Estado Comunitario”
(2002–2006).
———. “La revolución pacífica” (1990–1994).
———. “Prosperidad para Todos” (2010–2014).
Porras, Oswaldo. 2006. “La Descentralización en
Colombia: Estado Actual y Perspectivas.” In
Historias de Descentralización, edited by Darío
Restrepo. Bogotá: Universidad Nacional de
Colombia.
Ramírez Mora, Juan Manuel. 2011. La carrera
Administrativa en Colombia – Análisis y perspectivas, Tesis maestría en Administración. Bogotá:
Universidad Nacional de Colombia.
Revista semana, 31 de mayo de 2011. Tras 20
años, Congreso expide Ley de ordenamiento territorial. http://www.semana.com/nacion/tras-20-anos-congreso-expide-ley-ordenamiento-territorial/157732–3.aspx.
Rojas, Fernando. 2011. Creación de capacidad ajustada al modelo de descentralización: De enseñanza de la norma a capacidad de producir resultados.
(Documento en elaboración.)
Samad,
Taimur,
Nancy
Lozano-Gracia,
and Alexandra Panman. 2012. Colombia
Urbanization Review (P121640). Washington,
DC: World Bank.
Sarmiento, Alfredo. 2004. La institucionalidad social en Colombia: La búsqueda de una descentralización con centro. CEPAL, División de
Desarrollo Social. Serie Políticas Sociales.
Sánchez, Fabio, Irina España and Jannet Zenteno.
2012. Sub-national Revenue Mobilization in Latin
American and Caribbean Countries: The Case of
Colombia. IDB Working Paper Series no.
IDB-WP-355.
Téllez, María Fernanda. 2013. Descentralización
y Fortalecimiento Subnacional Institucional en
Colombia: Aspectos Relevantes de las Últimas Dos
Décadas. Working Paper Series on Public Sector
Management. Washington, DC: World Bank.
Tobón Quintero, Gabriel. 2011. “Ley Orgánica
de Ordenamiento Territorial: ¿Un olvido más
del carácter multiétnico y pluricultural de
Colombia?” In Observatorio de Territorios Étnicos:
Una apuesta por la defensa de los territorios.
Transparencia por Colombia: Estudio sobre la
figura de la veeduría ciudadana. 2000. Para
fortalecer el control ciudadano en Colombia.
Cuadernos de la Transparencia No 2.
Unión temporal Economía Urbana-Centro
Nacional de Consultoría. 2011a. Evaluación
de sostenibilidad financiera de los municipios
receptores, de resultados del Fondo Nacional
de Regalías y Evaluación de impacto de las
regalías directas.
———. 2011. Evolución institucional y de operaciones de la función de Control y Vigilancia
de las regalías.
United Nations. 1992. Report of the United
Nations Conference on Environment and
Development, Rio de Janeiro, 3–14 June 1992,
vol. I: Resolutions adopted by the Conference,
resolution 1, annex II.
———. 2006. Economic and Social Council.
Definition
of
basic
concepts
and
National and Subnational Public Finances and Governance
terminologies in governance and public administration. Committee of Experts on Public
Administration, Fifth session.
New York, 27–
31 March 2006.
Wiesner, Eduardo. 2009. Fiscal Federalism in Latin
America: From Entitlements to Markets. Washington,
DC: Inter-American Development Bank.
World Bank. 1991a. Municipal Development
Project. Project Agreement.
———. 1991b. Municipal Development Project,
Staff Appraisal Report. Infrastructure and
Energy Operation Division, Latin America
and the Caribbean Region.
———. 1995. Colombia: Local Government
Capacity: Beyond Technical Assistance.
Country
Department
III,
Country
Operations Division I, Latin America and
the Caribbean.
———. 1996. Colombia: Reforming the
Decentralization Law: Incentives for an
Effective Delivery of Services. Volume l: The
Main Report. Country Operations, Country
Department II. Latin America and the
Caribbean Region.
———. 2001. Municipal Development Project,
Implementation
Completion
Report.
Finance, Private Sector and Infrastructure
Sector Management, Latin America and the
Caribbean Region.
———. 2006. Municipal Development Project,
Project Performance Assessment Report.
Independent Evaluation Group.
———. 2008. Rapid Assessments and Action Plans: A
World Bank Methodology to Improve Public Sector
Management of Sub-National Governments.
———. 2009a. Colombia Decentralization: Options and
Incentives for Efficiency.
———. 2009b. Problem-driven Governance and
Political Economy Analysis, Good Practice
Framework.
———. 2011a. World Development Report:
Conflict, Security and Development.
———. 2011b. Colombia: Programmatic Strategic
Engagement on Public Sector Management
and Governance. Concept note. Public Sector
and Governance, Poverty Reduction and
Economic Management, Latin America and
the Caribbean.
———. 2013. Colombia: Programmatic Strategic
Engagement on Public Sector Management and
Governance. Concept note. Public Sector and
Governance, Poverty Reduction and Economic
Management, Latin America and the Caribbean.
———. 2013. Intergovernmental Fiscal Relations in
Latin America: The Case of Colombia, Peru and
Mexico.
229
1818 H Street, NW
Washington, DC 20433 USA
Telephone: 202-473-1000
Internet: www.worldbank.org
Fly UP