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Colombia’s development agenda needs to prioritize productive transformation

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To build on its socio-economic progress, Colombia needs to fast track its productive transformation, according to the OECD’s Production Transformation Policy Review (PTPR) of Colombia, released today at a presentation hosted by Colombia’s National Planning Department (DNP).

The PTPR provides timely recommendations on how Colombia can advance on its path towards prosperity on a topic that is among the priorities of the National Development Plan 2018-2022.

The PTPR was produced by the Development Centre of the Organisation for Economic Co-operation and Development (OECD) in collaboration with the United Nations Economic Commission for Latin America and the Caribbean (ECLAC); the United Nations Conference on Trade and Development (UNCTAD); and the United Nations Industrial Development Organization (UNIDO).

Following a peace deal in 2016, Colombia is back on stage after more than five decades of conflict. Between 2000 and 2017, GDP per capita doubled, and the economy grew at an annual average of 4.3%, double the rate of growth of Latin America. The poverty rate declined from 50% to 28% in the same period.

Simultaneously, investors’ confidence has grown, placing Colombia in the spotlight for global investors. In 2017, Colombia’s inward stock of foreign direct investment reached 59% of GDP, ranking amongst the highest in the Latin America and Caribbean region and above the OECD average of 48%.

However, the PTPR signals that despite the progress achieved over the past 20 years, Colombia’s economy still suffers from structural weaknesses that are hampering future advances.

Colombia’s economy remains increasingly reliant on natural resources. In 2017, primary production and mining accounted for 80% of exports, 10% more than in 1991. And despite a relatively long tradition of manufacturing, the sector is becoming less relevant and less competitive. Productivity has not increased enough for Colombia to catch up with more advanced economies. Economic opportunities continue to be limited to a few territories.

In the OECD, Colombia suffers from the second-highest labour productivity gap between regions, after Mexico. In addition, there is still insufficient investment in innovation. Investment in research and development (R&D) in Colombia is 0.25% of GDP, which is 15 times less than the OECD average and well below the top R&D investing country in the region, Brazil (1.2%).

The PTPR confirms that Colombia has implemented reforms since 2006 to address its structural weaknesses and fast-track economic transformation. Colombia has strengthened its institutions, establishing, for example, the National Metrology Institute in 2011 and the Ministry of Science, Technology and Innovation in 2019.

The country has also improved financing for innovation and regional development by earmarking 10% of the national royalties’ system from mining to finance innovation projects in all its regions. The Production Development Policy (PDP) 2016–2025, drawn up by the DNP in co-operation with several ministries and agencies, represents a step forward by setting up a consultative process with all regions in the country to define priorities for increasing exports and productivity.

The PTPR provides a detailed analysis of the PDP’s assets and weaknesses. It identifies three game changers for Colombia to become a competitive and innovative nation that offers new opportunities for all territories and people:

Strengthening the government’s planning and anticipatory capacities to shape the future. Colombia could update its planning structure by creating new incentives to achieve a shared commitment to budget allocation and policy implementation.

Tapping the productivity potential of all regions. This requires a two-track approach: simplifying red tape and improving the communication infrastructure. At the same time, Colombia needs to invest in fostering export diversification and innovation, and to shift from technology adoption to creation.

Activating mechanisms to benefit more from trade and investment. To achieve export diversification, Colombia could look at deepening and benefiting more from regional integration and at improving its participation in global value chains, notably by increasing coordination between industrial development, trade and investment policies. Colombia could also strengthen its trade policy by taking advantage of technology transfers and technical co-operation.

According to the PTPR, Colombia is well-positioned to move forward. The country can leverage both established and credible planning capacities and a set of well-established private sector institutions to help mobilize private sector investment for innovation and competitiveness.

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Are we on track to meet the SDG9 industry-related targets by 2030?

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A new report published by the United Nations Industrial Development Organization (UNIDO), Statistical Indicators of Inclusive and Sustainable Industrialization, looks at the progress made towards achieving the industry-related targets of Sustainable Development Goal (SDG) 9 of the UN 2030 Agenda for Sustainable Development. The report is primarily based on the SDG9 indicators related to inclusive and sustainable industrialization, for which UNIDO is designated as a custodian agency, showing the patterns of the recent changes in different country groups.

Six years after the adoption of the 2030 Agenda for Sustainable Development and its 17 SDGs, there has been increasing demand for information on whether the SDG targets could be reached, and what actions should governments take to accelerate progress. The UNIDO report introduces two new tools developed by UNIDO to help countries measuring performance and progress towards SDG9 industry-related targets: the SDG9 Industry Index and SDG9 progress and outlook indicators. The SDG9 Industry Index benchmarks countries’ performance on SDG-9 targets over 2000-2018 for 131 economies. In addition, the report develops two measures to answer the main questions:

  • Progress: how much progress has been made since 2000?
  • Outlook: how likely is it that the target will be achieved by 2030?

The global COVID-19 pandemic has inevitably had a negative toll on the progress towards reaching the SDG9 indicators, but the extent of the long-term impact remains to be seen. Industrialized countries continue to dominate global manufacturing industry, but their relative share has gradually declined over the past decade. In 2010, industrialized economies made up 60.3% of global production, which has decreased to 50.5% in 2020. China has been the largest manufacturer, now accounting for 31.7% of global production. This is a trend that has been reinforced by the pandemic.

Progress for the least developed countries (LDCs), at the heart of the 2030 Agenda, is a different story. While economic theory and countries’ experiences across the world have established that industrialization is an engine of sustainable growth, progress among LDCs remains very diverse. Asian LDCs are poised to double their share of manufacturing in GDP and thus meet SDG target 9.2, but African LDCs have stagnated.

SDG9 Industry Index

The SDG-9 Industry Index, consisting of five dimensions, covers three targets and five indicators and assigns a final score to countries. In 2018, the top ten consisted of exclusively industrialized economies, with Taiwan, Province of China, Ireland, Switzerland, the Republic of Korea and Germany making up the top five. In general, industrialized economies perform best in all dimensions of the Index.

The countries at the bottom of the ranking are LDCs, in particular those located in sub-Saharan Africa. Although some African countries have been displaying impressive growth rates, growth has been driven by an extended commodity boom and foreign capital inflows, while industrialization and structural transformation have stagnated. Additionally, substantial data is lacking for a significant amount of the countries. In the SDG9 Industry Index, only 24 out of 54 African countries are included, from which only eight are LDCs. It is clear that national statistics offices need strengthening, as data availability helps countries formulate, review and evaluate their development plans and programmes.

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ASEAN Survey Calls for Joint Action for an Inclusive and Sustainable Digital Economy

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The World Economic Forum launches today the ASEAN Digital Generation Report 2021, a special edition of its annual ASEAN youth survey report series, which examines the impact of the pandemic on personal income, savings and the role of digitalization in the region’s economic recovery. The report’s survey, conducted with close to 90,000 participants from Indonesia, Malaysia, the Philippines, Singapore, Thailand and Viet Nam, also flags the gaps needed to build a more inclusive and sustainable economy, namely: access to technology, digital skills training for all generations, and measures to enhance online trust and security.

The survey’s findings confirm e-commerce’s role as the key driver of growth in the ASEAN region. Wholesale and retail trade sector had the highest proportion of people starting new businesses (50%), while the logistics sector had the highest share of people finding new jobs (36%).

Notably, respondents from these two sectors are among those who also reported a decline in income. This could be because when people experienced a fall in income, they started new businesses in the wholesale and retail trade sector to leverage e-commerce opportunities.

A majority of respondents have adapted to the challenges of the coronavirus pandemic through significant digital adoption. Across ASEAN, 64% of respondents have digitalized 50% or more of their tasks, as have 84% of respondents who are owners of micro, small and medium enterprises (MSMEs). Respondents who reported greater levels of digitalization of their work and business reported lower levels of income decline. Similarly, business owners with an online presence were more likely to report an increase in savings (24%) and income (28%) compared to those without one (18%).

However, the benefits of digitalization are unevenly spread across the region. Those who are less “digitalized” found further digital adoption less appealing. As in 2020, respondents continued to point to expensive or poor internet quality or digital devices as the top barriers to digital adoption. While less digitalized respondents pointed to lack of digital skills as a key additional obstacle, more digitalized respondents pointed to trust and security concerns instead.

The identified obstacles were consistent across all six countries surveyed. As such, multistakeholder and regional joint actions are needed to unlock the full potential of ASEAN nations in the digital age and narrow these gaps.

“Through this annual survey, we wanted to understand the views, priorities and concerns of the digital users in ASEAN and gain statistical insights that will help inform and shape relevant regional policy,” said Joo-Ok Lee, Head of the Regional Agenda, Asia-Pacific, World Economic Forum. “The survey showed improving the quality and affordability of ASEAN digital infrastructure, equipping the ASEAN workforce with appropriate skills and enhancing people’s trust in the digital environment are crucial to bring ASEAN over the tipping point for inclusive and sustainable digital transformation.”

“One of the key findings was that digitalization has a ‘flywheel’ effect wherein users who had first experienced the benefits of technology were more eager to deepen their levels of digitalization,” added Santitarn Sathirathai, Group Chief Economist at Sea, a Singapore-based global consumer internet company.“It is critical for the public and private sector to work even more closely to lower any friction and barriers, which may prevent the positive digitalization momentum from taking place. Through this, digitalization can enable post- pandemic recovery in an inclusive and sustainable way.”

Between July and August 2021, the survey polled participants from Indonesia, Malaysia, the Philippines, Singapore, Thailand and Viet Nam. Some 77% of respondents are youths aged between 16 and 35, 56% female and 10% business owners.

This year’s edition continues tomonitor the impact of the pandemic on respondents, explores how the ongoing digitalization has benefited their life and society in the real economy, what stands in their way of further digitalization and maximization of such benefits, and how to tackle the identified obstacles.

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Trade can play a pivotal role in addressing climate change

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Economies in the Asia-Pacific region need to urgently reduce greenhouse gas emissions, including to maintain their trade competitiveness as carbon taxes at borders threaten to rise, according to a new United Nations report.  

Around 16 million new jobs could be created in clean energy, energy efficiency, engineering, manufacturing and construction industries in the Asia-Pacific region, more than compensating for the estimated loss of five million jobs by downscaling industries. 

The Asia-Pacific Trade and Investment Report 2021 was jointly launched on Monday by the UN Economic and Social Commission for Asia and the Pacific (ESCAP), the United Nations Conference on Trade and Development (UNCTAD), and the UN Environment Programme (UNEP). 

Climate-smart policies have a significant cost, particularly for carbon-intensive sectors and economies, but the cost of inaction is far greater. Some estimates are as high as $792 trillion by 2100, if the Paris Agreement targets are not met. 

Risks and competitiveness 

Launching the report, Armida Salsiah Alisjahbana, Executive Secretary of ESCAP, remembered that key trade partners are considering border taxes on carbon. 

Ms. Alisjahbana said this causes “strong concerns on the effects on the developing countries since many economies in the region are at risk of being pushed out of key markets”. 

For her, the roll-out of COVID-19 recovery packages could provide opportunities to invest in low-carbon technologies and sectors.  

Room for improvement 

The Asia-Pacific region is currently the largest emitter of greenhouse gases, but the new report reveals significant room to make these economies greener. 

For example, there are still more barriers to trade in environmental goods than in carbon-intensive fossil fuels and fuel subsidies continue to exist.  

According to the report, the “timely abolishment” of these two policies, and replacement with more targeted measures, could provide much-needed finance and reduce emissions. 

Other proposals are trade liberalization in climate smart and other environmental goods, transition to climate friendly transportation, incorporation of climate issues in trade agreements, carbon pricing and carbon border adjustment taxes. 

For the Bangladesh Commerce Minister, Tipu Munshi, Honourable, these measures “are very much befitting given the crises” the world is facing. 

Positive and negative effects 

In a joint message, New Zealand’s Minister for Trade and Export Growth, Hon Damien O’Connor, and the Minister of Climate Change, Hon James Shaw, said that “one of the most substantial roadblocks in the way of cutting emissions is fusil fuel subsides”. 

UNCTAD chief Rebeca Grynspan, highlighted “the links between trade, investment and climate change are complex”.  

She explained that “the key is to ensure that the positive effects of trade and investment are maximized, such as by promoting trade and investment in renewable energy and low-carbon technologies, while minimizing the adverse effects, like by digitalizing trade and transport systems”.  

According to the report, regional trade agreements can also help, and this change has started to happen. The report points to a general trend towards more environmental provisions in these agreements. 

The Asia-Pacific Trade and Investment Report 2021is the first to examine the impact of upcoming border carbon adjustment in the region.  

It is also the first time an index evaluates climate-smart trade and investment policies. 

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