Colombia's new OECD membership to help expedite major economic reform

In May 2018 member states of the OECD formally welcomed Colombia as the 37th member of the organisation. The country is the third nation in Latin America and the Caribbean to join the group, after Mexico and Chile. The OECD has traditionally been considered an organisation for developed economies, sometimes being referred to as “the league of rich nations”. However, Colombia’s addition as a developing economy was welcomed by Ángel Gurría, the secretary-general of the OECD, when he said, “The global challenges we are facing today can only be addressed if we have emerging, developing and advanced economies working together.”

For its membership to be approved, Colombia was required to undergo a number of assessments, including in-depth reviews from 23 OECD committees on a wide spectrum of topics. The accession process began with open discussions in 2013, although former President Juan Manuel Santos expressed his interest in joining the group in 2011. He saw OECD membership as a way to expedite major reforms which he considered necessary for the country’s development, ranging from increasing the transparency of institutional governance to improving the well-being of citizens.

Existing Efforts

In order to be accepted into the OECD, Colombia had to bring aspects of its economy and legal system in line with the organisation’s standards. This included making a number of changes to its regulatory framework for various sectors, as well as updating some pieces of vital legislation. In a speech at the signing ceremony of the OECD Accession Agreement, Gurría acknowledged the efforts Colombia had made to comply with international best practices. “Through the OECD accession process Colombia has made impressive strides in, for example, reforming its justice system and reducing informality in the labour market,” he said. “The accession process has been instrumental in the design and implementation of new national policies, such as those on water and chemicals management.” At the same time, the Ministry of Labour has increased its capacity to combat corruption and reduce informality. As part of this, corporate governance of state-owned enterprises has been targeted, increasing transparency through measures such as removing state ministers from boards of directors.

Within education, Colombia has gone through a “silent revolution”, according to the OECD: the illiteracy rate of the population over 15 years of age fell by almost three percentage points to 5.2% between 2013 and 2017. However, this improvement is just the beginning. As part of a wider need to improve its human capital standing, the country is vying to be the best educated in Latin America by 2025, a goal which began with the previous administration and is being continued by President Iván Duque (see Education chapter). Given that the rank of Colombia’s human capital skills was 20 places below its overall ranking in the World Economic Forum’s “Global Competitiveness Report 2018”, at 80th and 60th, respectively, out of 140 nations, there is still work to be done in ensuring the economy has a more skilled and agile workforce.

The current administration’s National Development Plan 2018-22 (Plan Nacional de Desarrollo, PND) has been singled out by Gurría as a positive development in this regard. In a November 2018 speech to OECD ambassadors, he said the PND will “help to comply with the country’s social contract and support competitiveness”.

Security & Development

One of the most significant steps forward has been on the country’s security situation since 2016. That year Congress ratified a peace deal between the government and rebel militant group the FARC to end over five decades of violent conflict. The following year an agency known as the Implementation, Monitoring, Verification and Dispute Resolution Commission of the Final Peace Agreement was established to implement the agreements, resolve disputes and continuously monitor the deal’s progress.

From a development point of view, one of the most important aspects of the deal was the national government’s commitment to increase institutional support for people in former conflict areas, a key policy for reducing the country’s geographic inequalities. Although the peace deal has largely been respected, its implementation and acceptance is far from universal, and a number of isolated incidents in the first half of 2019 may put the wider agreement at risk.

OECD Recommendations

While Colombia has made some important advancements, membership comes with a number of additional OECD policy recommendations on countries and regions of interest. In May 2019 the OECD published a report titled “Production Transformation Policy Review of Colombia”. In the report, the organisation said “to continue progressing, Colombia needs to address the structural weaknesses that are holding back future progress”. Of these, productivity has been a sticking point, as productivity rates have barely increased in two decades. Since 2000 Colombia has made significant progress in improving key economic and social outcomes, such as doubling GDP per capita between 2000 and 2017, and reducing the poverty rate from 50% to 28%. Despite this progress, productivity levels remain at one-quarter of those of the US and the Colombian economy is less competitive overall as a result.

The country’s reliance on natural resources has arguably distracted it from reforming its industry. Although Colombia has a solid manufacturing history (see Industry overview), between 1990 and 2016 it fell from 57th to 70th place out of 150 countries in the Competitive Industrial Performance Index, published by the UN Industrial Development Organisation. In addition, when measured as a proportion of GDP, manufacturing accounts for half of what it did three decades ago. The Production Development Policy 2016-20 (Política de Desarrollo Productivo, PDP), released by the Private Council for Competitiveness, goes some way in addressing these structural issues in industries such as manufacturing. In its policy framework, the PDP concentrates on six key factors to improve Colombia’s productivity levels: science, technology and innovation; human capital; adoption of sound, modern industrial practices; entrepreneurship; promotion of export and investment; and financing. The OECD praises the programme in two senses. First, for its ability to unite different regions of the country to fulfil certain common goals; and second, for bringing together different government agencies and ministries that are involved in boosting the country’s competitiveness.

In addition to the six-pillared approach of the PDP, the OECD recommends that productivity be addressed through three axes. First is strengthening the government’s planning and anticipatory policy capacity. This will involve strategic planning and a more comprehensive framework to implement policy changes. Second is tapping the productivity potential of all regions. It recommends Colombia do this by boosting communications to less-developed areas and adopting a location-based approach to policy. Third is activating mechanisms so the country can benefit more from trade and investment. Much of this relates to moving Colombia higher in global value chains and boosting its service capacity. This tenant is also linked to the need to improve infrastructure – something that projects like the Fourth Generation road infrastructure programme will go some way in addressing.

Labour Informality & Pensions

Another critical area Colombia is working to address is labour informality, as the nation struggles to meet international standards due to the high level of informal employment. It is estimated that more than 50% of labourers in urban centres engage in informal work. As a result, many of these employees are paid less than the minimum wage, and they are not registered to pay income tax or receive employment benefits. This can create problems in older age; only around 30% of workers contribute to a pension scheme and just 20% of Colombians receive a pension, according to the OECD.

To reduce poverty among older citizens, the organisation recommends increasing the benefits and coverage associated with Colombia Mayor, a non-contributory pension programme launched in 2003. While the programme’s level of support is modest by regional standards – benefits typically stand between $15 and $34 per month, compared to $210 and $330 under similar schemes in Argentina and Brazil, respectively – coverage has increased from 482,000 in 2010 to more than 1.5m in 2018. Nonetheless, a study conducted by the government in 2016 did not find that the initiative had an impact on multi-dimensional poverty, suggesting there is ample scope to improve outcomes.

Going forward, Colombia will be obliged through its OECD membership to take a measured, evidence-based approach to its development – applying best practices and tackling socio-economic challenges such as low productivity, labour informality and geographic inequality. With a number of reforms already under way, it is hoped the country will fulfil some of its top policy objectives over the next decade, while enjoying the multitude of benefits brought by being part of the OECD.