Post-COVID integration of Colombia in the world economy

POST-COVID INTEGRATION OF COLOMBIA IN THE WORLD ECONOMY Laurence Boone, OECD Chief Economist 28 April 2020

Key messages Covid-19 is affecting people and the economy on multiple fronts • Covid-19 is severely disrupting people’s life and the world economy and taking a heavy toll on people’s health

The spread of the virus is having a large social and economic impact • Whole sectors are in standstill, commodity prices plummeted and financial market are disrupted • Economic activity is plunging and economies in LAC are heading into recession accompanied by higher unemployment and informality

Raising integration in the world economy in the aftermath of Covid-19 • • • •

There is a large untapped potential to make Colombian exports an engine of growth Openness remains low and exports highly concentrated in terms of goods, destinations and regions There is potential to improve technological capabilities in goods and services Improving infrastructure and reducing the costs of trade will be paramount 2

The foreseen impact is unprecedented Impact of shutdowns on sectoral activity In per cent of GDP at constant prices 0

%

-5 -10 -15 -20 -25 -30 -35

ARG BRA Transport manufacturing Hotels, restaurant and air travel Total

CHL COL CRI Construction Professional and real estate services

MEX G7 Retail and wholesale trade Other personal services

Source: OECD policy note on initial impact of COVID-19 containment measures on economic activity.

3

Consumption expenditure is strongly hit Illustrative decline in consumption expenditure Percentage decline and contributions in percentage points 0 -5

-10 -15 -20 -25 -30 -35

CHL

Clothing & footwear Arts and recreation

COL

CRI Household equipment Hotels, restaurants and package holidays

MEX

G7

Transport expenditure Other personal services

Note: This chart shows a scenario for the total decline in consumption expenditure, making an assumption about the share of expenditure in each sub-category that is no longer possible due to containment measures.

These shares are then multiplied by the share of that sub-category in total consumption to calculate the total decline in consumption. The full list of categories and the assumed share of that category that is no longer possible includes: Clothing and footwear (100%); furnishings, household equipment and routine household maintenance (100%); purchase of vehicles (100%); operation of personal transport equipment (50%); transport services (50%); audio-visual, photographic and information processing equipment (75%); other major durables for recreation and culture (100%); other recreational items and equipment, gardens and pets (100%); recreational and cultural services (75%); newspapers, books and stationery (50%); package holidays (100%); restaurants and hotels (75%); personal care (100%).

Source: OECD Annual National Accounts and Eurostat.

4

The labour market is being strongly hit Many work in the most negatively affected sectors

Informality is widespread and a large share is in the shutdowns sectors

% of total employment 30

% of total employment 90

% 90

25

80

80

70

70

60

60

50

50

40

40

30

30

20

20

10

10

20 15 10 5

0 Manufacturing

Construction

Source: National Statistical Office, Dane

Wholesale and Real estate retail trade, hotels services and and restraurants business services

0

URY

CRI

CHL

BRA

ARG

COL

Note: Informalityis defined as not contributing to social security.

Source: IADB, SiMS Database

MEX

PER

0

5

Unprecedented fiscal and monetary responses Allowed fiscal balance by the fiscal rule

Policy rate and headline inflation

% GDP 0 2014

2015

2016

2017

2018

2019

2020

2021

2022

% 10 Monetary policy rate

9 -1

(Annual) headline inflation

8 7

-2

6 5

-3

4 -4

Immigration shock

3

2

Source: ComitĂŠ Consultivo de la Regla Fiscal and Marco Fiscal de Mediano Plazo 2019, Ministry of Finance Colombia

Source: Central Bank and National Statistical Office.

Apr-20

Jan-20

Oct-19

Jul-19

Apr-19

Jan-19

Oct-18

Jul-18

Apr-18

Jan-18

Oct-17

Jul-17

Apr-17

Jan-17

Oct-16

Jul-16

Apr-16

Jan-16

-6

Oct-15

0

Jul-15

1

Apr-15

Covid-19

Jan-15

-5

6

Financial markets are being disrupted Risk premium of international government bonds Emerging Markets Bond Index (EMBI) 10

Basic points

Exchange rates Index 31 Jan=1 1.4

9 8

1.3

7 6

1.2

5 4 1.1

3 2

1

1

BRA Source: JP Morgan and Datastream

CHL

COL

CRI

20/Apr

10/Apr

31/Mar

21/Mar

11/Mar

1/Mar

20/Feb

10/Feb

MEX

0.9

31/Jan

CRI

20-Apr-20

COL

10-Apr-20

31-Mar-20

CHL

21-Mar-20

01-Mar-20

BRA

11-Mar-20

20-Feb-20

10-Feb-20

31-Jan-20

0

MEX 7

Exposure to the trade shock is low… The economy remains closed Exports plus imports, average 2010-2018

% of GDP 250

200

Less open

% of GDP 250 More open

200

150

100

100

50

50

0

0

BRA USA ARG JPN COL AUS CHN IDN RUS IND PER TUR NZL ITA GBR FRA ESP GRC CHL CAN ISR CRI NOR MEX SAU FIN PRT DEU SWE KOR POL TUN DNK AUT CHE THA MYS SVN CZE NLD BEL HUN SVK IRL

150

Note: Data for Peru show the average for the period 2010 - 2017.

Source: OECD Analytical database; IMF International Financial Statistics (IFS).

8

…but exports are concentrated on commodities Exports of primary products 2016 % of exports 90

Oil and copper prices % of exports 90

80

80

70

70

60

60

50

50

40

40

Crude oil WTI

Index 1-Jan=1 1.2

Copper

0.8

0.4

20/Apr

10/Apr

31/Mar

21/Mar

11/Mar

1/Mar

0

20/Feb

0

0.0

10/Feb

10

31/Jan

10

21/Jan

20

11/Jan

20

1/Jan

30

KOR JPN ITA CZE PRT DEU HUN SVK FRA POL USA ESP MEX ZAF IDN CAN BRA CRI CHL NZL AUS ARG COL NOR

30

Note: According to Lall (2000)’s classification. Primary products are oil, mining and raw agriculture products.

Source: OECD computations based on CEPII (2017), BACI Database and World Bank, World Development Indicators database. ‘ 9

After COVID-19: is there a role for Colombia?

Overlap in the specialisation of goods exports of Colombia and China to the world Share of products 60

50

40

30

20

10

0

Source: Araujo, Chalaux and Haugh (2018), Who’s in Your Export Market? The Changing Pattern of Competition In World Trade, Economics Department Working Papers No. 1526, OECD Publishing

10

Continuously raising technological capabilities is essential Maturity of exports goods for Colombia (oil sector excluded) Accelerating

Growing

Decelerating

Declining

Stagnant/unknown

100%

100%

90%

90%

80%

80%

70%

70%

60%

60%

50%

50%

40%

40%

30%

30%

20%

20%

10%

10%

0%

1995

2000

2004

2008

2012

2015

2016

0%

Note: Accelerating products are those whose demand is growing over time at increasing rates. Growing demand products are those whose demand is increasing, but the rate of growth is not. Decelerating products are those whose demand is decreasing at increasing rates. Declining demand products are those whose demand is decreasing, but not at increasing rates.

Source: OECD calculations based on BACI database from the CEPII. .

11

Knowledge intensive service exports can be stepped-up Sector shares in total services exports 2015 % of service exports 100

Travel

Transport

Insurance and financial services

ICT, professional and other services

% of service exports 100

90

90

80

80

70

70

60

60

50

50

40

40

30

30

20

20

10

10

0

ARG

Source: World Bank, World Development Indicators database.

CHL

COL

OECD

0 12

Key recommendations to raise integration into the world economy Trade policies • Phase out import restrictions and review other non-tariff barriers with a view towards reducing them.

• Reduce tariff dispersion.

• Widen the scope of regulatory impact assessment, including also the stock of regulations.

Logistics and trade facilitation • Reduce barriers to entry and competition in transport.

• Improve customs logistics, including by increasing inter-agency cooperation and making further use of paperless online solutions for permissions and payments.

Infrastructure • Prioritise improving multimodal transport connectivity of ports and customs.

More info in OECD Economic Surveys: Colombia 2019

13

Thank you For more information https://oecd.org/coronavirus https://twitter.com/oecdeconomy eco.contact@oecd.org

‌and exports are concentrated on commodities

Source: Atlas of economic complexity