José Ángel Gurría, Secretary-General, OECD: Interview

Interview: José Ángel Gurría

Can Colombia maintain growth at its current rate?

JOSÉ ÁNGEL GURRÍA: Colombia’s economy has done remarkably well over the past decade. Strong growth was driven by an oil and mining boom, foreign direct investment in the commodities sector and broad-based investment. This has allowed GDP per capita growth to catch up quickly with other OECD economies. However, income inequality and labour informality are still very high. Monetary policy normalisation in the US will make for tighter financing conditions, affecting Colombia’s growth prospects. In 2015 and 2016 the economy is expected to expand by around 3% per year, significantly below the 4.8% average growth rate of the past 10 years. To accelerate growth to its previous level, Colombia has to continue to undertake structural reforms that increase productivity and reduce inequality. The accession process allows Colombia to comprehensively diagnose its public policies and align them with OECD best practice.

How can Colombia improve the training of its human capital to promote economic diversification?

GURRÍA: Almost half of Colombia’s businesses report that the lack of a skilled labour force is a major constraint to their operations. More skills and better skills are needed for going into new economic activities and upgrading within established sectors. Several complementary policy actions are required for this to happen. First, it is crucial to expand access to pre-primary schooling, together with investment in health and better nutrition. Second, the quality of primary and secondary schooling has to improve. Last, more people should have access to tertiary education. All this requires time to take effect. Some recent measures, like the construction of more schools and the expansion of university scholarship initiatives, are significant steps in the right direction. In the short to medium term, Colombia can address the skills shortage by improving the effectiveness of its vocational education and training system in order to make it more responsive to industry needs.

How can a more balanced tax burden be achieved?

GURRÍA: High and complex taxes, as well as high non-wage labour costs, are challenges for most businesses in Colombia. Oil and mining are very capital-intensive, so several taxes, such as the recently introduced corporate surtax, have increased the tax burden on the oil and mining sector more than on the rest of the economy. Comprehensive tax reform is needed, though its goal should not be to increase investment in a particular sector, but to help diversify the economy and make it less reliant on extractive industries. A gradual elimination of the net wealth tax on businesses, approved in December 2014, is a step in the right direction. However, a gradual reduction of corporate tax rates that broadens the tax base by eliminating special regimes and taxing capital income more at the individual level would boost investment and make the tax system more progressive.

Is limited financial access affecting public works?

GURRÍA: Financing for the infrastructure programme does not seem to be a major constraint to its implementation. Colombia has improved its public-private partnership legislation, which now offers a comprehensive framework to attract more private investment and reduce problems of costly contract renegotiations. Infrastructure gaps are also being reduced by local and regional infrastructure projects, which are financed by oil and mining royalties under the recently reformed royalty sharing system. This system decentralises the planning and execution of projects, which improves the framework for subnational infrastructure investment. Despite better co-ordination of investment across the different levels of government within the new framework, the royalty system remains complex and time-consuming.