Colombia is becoming a popular Latin American investment market. But if Bogotá wants to grow beyond the middle-income range and become a long term-investment destination, the government will have to emphasize better governance above all else.
The fast-growth of the Colombian economy cannot be attributed to the policies of any particular presidential administration. Rather, the Colombian economy has expanded because of a decade-long combination of well-coordinated monetary, fiscal, and trade policy spanning three different administrations and, of course, positive economic externalities.
As the Colombian government tries to sell its success story to investors, it is sitting in a crucial point in its development trajectory. The quality of governance in Colombia, which has not improved significantly since 2002, is an enormous, camouflaged tax on investment. If the governance status quo continues to fester, Colombia might face the middle-income trap.
From 1997 to 2002, the World Bank published three country assistance strategy reports for Colombia which addressed the importance of good governance in sustaining economic growth and development. Unfortunately, improvements in governance have been sluggish in key areas — such as corruption — which might undermine future economic growth.
The World Bank has devised five main categories to measure good governance: control of corruption, government effectiveness, political stability and absence of violence, rule of law, and voice and accountability. As of 2012, Colombia’s percentile for political stability and absence of violence was 8.1—in 2000, amidst the heat of the armed conflict, its percentile was 8.2.
The rule of law percentile increased dramatically from 19.1 in 2000 to 42.2 in 2009, but has stagnated since then. The voice and accountability indicator follows a similar path and has fluctuated between the 43rd and 45th percentile since 2007. What is most worrying is that the best performing indicator — government effectiveness — stopped improving in 2008 and the control of corruption indicator has dipped from the 50th to the 41st percentile in the past four years.
This last figure is perhaps the most troubling for the Colombian government and its quest to have the country transition into a developed, consumer-based economy. Government effectiveness has lingered at comparatively mediocre levels and control of corruption has decreased dramatically. According to the Corruption Perception Index 2013, Colombia ranked 94th out of 175 countries in level of corruption, alongside Benin and Djibouti.
Corruption in Colombia has not just flattened; it has visibly deteriorated in the past 10 years. In 2004, it ranked 60th on the CPI, alongside Belize and Brazil. In 2004, Colombia was the 4th least corrupt country in the region, whereas now it has been surpassed by a rapidly growing Peru and is considerably more corrupt than Chile, Uruguay, and Brazil.
Unlike economic management, governance is a factor that policymakers can control completely. Colombian lawmakers in both the central and local governments should focus their efforts on improving all five of the World Bank governance indicators. Even government effectiveness, which is Colombia’s highest ranking indicator, is far below the OECD average.
With this said, Colombia can look for inspiration in the southern Andes to Chile. The Chilean government is one of the freest from corruption — its control of corruption percentile rank is 91.4. Impressively, four of the five governance indicators for Chile are above the 80th percentile. Chile has also outperformed Colombia economically, growing an average of 5% for the past 20 years. Furthermore, Chile was invited to join the OECD in 2010 as a result of its sound economic policies, banking reforms, and anti-corruption laws that would allow the state to pursue companies suspected of bribery and corruption.
Chile represents the next set of objectives that the Colombian government should emphasize. In 2000, Colombia was not in a position to prioritize better governance because there was very little state capacity. After a decade of economic growth, a more stable civil society, and a dissipating armed conflict, the Colombian government should acknowledge that it is still far behind OECD countries and even regional partners, such as Chile. If the Colombian government wants to facilitate its growth trajectory in the coming years, it should proactively attack corruption at the local and central levels as well as improve the rule of law.
