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    Colombian foreign trade engulfed in atmosphere of uncertainness

The last five years have evidenced a poor foreign trade performance for Colombia as the trade balance ended 2016 with a deficit equal to 4.4 % of the GDP (US $13.495 billion) scenario mirrored in imports for a total of US $44.889 billion and exports of US $ 31.394 billion.)

In regards to exports, 2012 was a historic year with US $60.125 billion, meaning that the drop in exports reached 50% with respect to 2016.

For 2016, oil and other mining products were 56% of the exports, a figure relatively low if compared to the year 2013, when this industry represented 71% of the exports. This reflects the great impact of the oil price drop which led to an important fall in revenue for the government and the fiscal deficit mentioned previously.

With respect on how exports are comprised, the export incentive policies have not had the expected results, as instead of stimulating exports some businesses took advantage of the import condition of the policies and imported technologies and raw materials with little or no effort to encourage research or development of better production processes.

According to the figures, in 2016, 45.4% of the imports were intermediate goods and raw materials (US $20.369 billion). Of this 73% were only for the industrial sector, 30.2 % for capital goods (US $13.535 billion).

2017 performance

During 2017, two facts that had great relevance could be highlighted and made regional markets acquire a particular appeal:

  • The “Trump effect”
  • The dynamics of the Pacific Alliance

With respect to the “Trump effect”, a new scenario is on the table. The new attitude of the Trump administration is leading them to be excluded from defining topics of great global importance. Besides stepping down from the Trans-Pacific Partnership, TPP and reviewing the North American Free Trade Agreement (NAFTA), the U.S. government withdrew from the Paris Treaty on climate change.

As a consequence, Latin America is changing its attitude regarding economic integration. Mexico, for instance, whose economy depends on trade with the United States, has a renewed interest in strengthening its trade with its new trade partners.

Additionally, Argentina has also been adopting policies looking to increase regional free trade in an extended concept of the Mercosur Common External Tariff scheme. Now Chile –the most open economy in Latin America– has always wanted to integrate the liberal economies of the Pacific Rim looking for greater markets.

The role of the Pacific Alliance

The Pacific Alliance comprised of Mexico, Colombia, Chile, and Peru, will begin to have an important role. This agreement focuses on trade of good and services; expediting trade; establishing origin regulations and solving issues, among other aspects.

From the beginning, one of the first goals of its members was to win over the markets of the countries located in the Pacific Rim. One of the greatest interests which Colombia had when becoming a member of the group was to take advantage of the long road traveled by Chile, Mexico and Peru, which for many years have forged strong ties with countries of the far east, a task still pending for Colombia.

Four of the wealthiest countries in the world –Australia, Canada, New Zealand and  Singapore, have shown interest in becoming members of the Pacific Alliance, this shows the strategic importance of this economic block.

However, these agreements should be well directed in order to not fall into the same vicious circle of signing agreements to attract foreign investment just for extraction purposes. This will turn into a great source of opportunities and also risks, due to the notable differences between the existing Pacific Alliance members and the incoming countries, in terms of GDP, per capita income and general prosperity of its economies.

The four new potential members have a combined GDP of US $3,200 billion and a population of close to 70 million inhabitants, while the current alliance has a combined GDP of 1,700 billion and a population of US $225 million. If these GDPs would combine it would be US $ 4,900 billion, turning it into the fourth economic axis in the planet, slightly under Japan. Now the Alliance would have 35% of the GDP of Latin America, equivalent to 100%.

International trade in perspective

What would be the main suggestion to obtain benefits from the possible extension of the Pacific Alliance?  That Chile, Mexico, and Peru and mostly Colombia to diversify their economies. On the contrary, most of the incoming investment would still focus on extractive activities, a model which has not worked in our region as confirmed by the recent history of the drop of the commodity markets. If we do not diversify, we could fall into the same circle and there would be no future for our countries.

There are already facts that show that if we do not change gears everything will continue the same. Currently, Australia has more than 100 companies that invest in Chile, but 85% of them are devoted to mining activities. The same thing happens with Canada, one of the greatest investors in Latin America.

Moreover, it is important that the current members of the alliance invest more in infrastructure and logistics, which for Colombia turns into a must, more so now that corruption scandals are risking several planned infrastructure megaprojects.

When analyzing the global economy and development rates, of the eight economies of a future Pacific Alliance, Colombia has the worst rates in key matters such as per capita income. According to figures of the World Bank, while a person from Singapore has an average income of US $52,960 a Colombian national has US $5,805.61 a year.

If we look at the human development index, Australia (No. 2), Singapore (No. 5), Canada (No. 10) and New Zealand (No. 13) are the best ranked in comparison to Chile (No. 38), Mexico (No. 77), Peru (No. 87) and Colombia (No. 95), figures of the United Nations Development Program (UNDP) for 2016.

While the new members are determined, the current Alliance needs to look inward first and determine what it wants towards the future and welfare of its inhabitants.