Chapter 05

AI, COLOMBIA AND THE OECD

The Organization for Economic Cooperation and Development (OECD) and its advisors Michael Koelle, Aida Caldera Sánchez and Paula Garda, make 5 recommendations to achieve an acceptable level of development in the medium term.

The organization notes that regional disparities in productivity must be addressed “as a crucial element to improve living standards and ensure the economic well-being of all Colombians.” Colombia’s regional gaps in GDP per capita are among the highest in the OECD, largely driven by deep-rooted differences in productivity, as highlighted in the recent OECD Economic Survey of Colombia 2024.

Disparities that have developed over many years, exacerbated by decades of conflict, inequality in infrastructure, education, training and labour market opportunities, mean that, according to experts, Colombia is facing a unique opportunity to boost its economy and ensure that all regions benefit.

Global trends such as changing trade patterns, nearshoring and the green transition present challenges but also great opportunities. Namely:

1. Colombia must improve its infrastructure to optimize connectivity, which has long been hampered by a lack of investment, armed conflict, and the country's geography. The next step is to develop and connect ports, rivers, railroads, and highways more efficiently and improve rural roads to connect remote communities to nearby cities and markets.

2. Reduce bureaucracy because high administrative costs and complex regulations make it difficult for businesses to thrive in Colombia. Expanding digital business one-stop shops (VUE) for permits and licenses to more municipalities, including more procedures and digital payment solutions, particularly in remote areas, would help more small businesses formalize, create jobs and contribute to local economies.

3. Equip young adults with job skills because many leave school without the skills they need to succeed in the workforce, especially in rural areas where schools are far away. Secondary vocational training programs have been a lifeline for many, offering valuable skills and good outcomes.

4. Strengthen the capacities and finances of subnational governments, especially municipalities in remote and rural areas that have limited fiscal and administrative capacities. Developing administrative capacity must go hand in hand with delegating authority, clarifying spending responsibilities, and improving intergovernmental coordination. Corruption affects Colombia's poorest and most rural regions the most, eroding trust and blocking progress.

Strengthening regulations on private financing of political campaigns, better protecting civil society leaders, and improving transparency in financial transactions are critical steps to ensure that progress benefits all Colombians.

By ensuring peace and improving infrastructure, these areas can participate in trade and benefit from Colombia's strong tourism. The pace of implementation has been slow and more resources are needed to fully reap the benefits of peace.

The expansion of these programs in vulnerable regions where educational options are limited can help close the gap between school and work. The OECD believes that “closing the prosperity gaps between Colombia’s regions is essential not only to foster equity, but also to boost the country’s productivity.

By improving infrastructure, reducing barriers to business and empowering local governments, Colombia can build a better future where all citizens, no matter where they live, can share in the country’s growth.”

5. Increase total investment: Colombia has experienced a prolonged decline in total investment since the end of the commodity boom in 2015. The low and declining investment-to-GDP ratio since then hampers already low potential growth and the ability to reach the productivity levels and living standards of more advanced economies.

Several factors could have contributed to the decline in the investment rate, including a low savings rate and an inappropriate allocation of capital . High informality could be another factor contributing to Colombia’s low potential growth, low national savings rates, and inefficient capital allocation, as firms and workers in the informal sector often face precarious employment conditions, low wages, and lack of access to formal financial institutions that limit their ability to save and invest in productive activities.

Infrastructure for connectivity : Improving infrastructure, especially in rural and remote areas, is vital to connecting marginalized communities to centers of commerce and economic activity. Investment in connectivity, both transport and digital, can boost access to employment, education and basic services, thereby improving quality of life and fostering more inclusive development.

Reducing red tape : Simplifying administrative procedures can have an immediate positive impact on the business environment. Bureaucracy and high formalization costs are barriers that prevent entrepreneurs, especially in the informal sector, from growing and contributing formally to the economy. Expanding platforms such as business one-stop shops in rural areas will allow more people to formalize their businesses and strengthen local economies.

Skills for work : Equipping young adults with job skills can be transformative in rural areas, where access to education and training programs is limited. This practical training enables young people to transition more effectively into employment, helping to reduce the youth unemployment rate and strengthening regional development.

Strengthening local governments and fighting corruption : Effective decentralization, along with strengthening transparency and accountability, is essential for municipalities to achieve sustained development. Empowering local authorities with administrative and fiscal capacities, accompanied by a firm fight against corruption, is key to building a reliable and efficient public administration that can direct resources towards development.

Increased investment and formalization of the economy : Incentivizing investment is essential to increase Colombia's potential growth. Low savings and investment rates, coupled with a highly informal economy, limit growth. Promoting formalization not only benefits businesses, but also increases access to credit and financial institutions, leading to a stronger and more productive economy.

Each of these recommendations is interdependent and forms part of a comprehensive approach that, if implemented effectively, could transform current challenges into real opportunities for inclusive development in Colombia. Cooperation between the public and private sectors, together with a strategic vision and sustained investment in infrastructure and human capital, will allow these recommendations to materialize and benefit all regions of the country.

AI Opinion: This article, by José Saul, reflects a clear and detailed analysis of the OECD recommendations for Colombia, identifying critical areas where the country can improve to advance in economic and social development.

First, it rightly highlights the importance of infrastructure in Colombia, especially for rural and remote areas, where the benefits of connectivity are still limited. Addressing connectivity, not only in terms of transport, but also digital access, could significantly boost inclusive growth. Infrastructure improvements would enable these communities to access markets, jobs, and education, reducing regional disparities and strengthening the local economy.

The emphasis on reducing bureaucracy is also essential, especially to facilitate the formalization of companies in the informal sector. This would open doors for small entrepreneurs who, feeling less burdened by paperwork, could actively contribute to the formal economy, generating employment and promoting investment.

Another strength of the article is the proposal to equip youth with practical job skills, which represents an essential component for any economic development strategy. This also addresses educational disparities and promotes the inclusion of traditionally marginalized sectors.

Finally, strengthening local governments and fighting corruption are crucial points that, if carried out seriously, could make resources flow fairly and effectively, allowing for balanced and sustainable regional development. The fight against corruption is, without a doubt, a priority for the OECD and should be a cornerstone of public policy in Colombia to ensure trust and progress.

Each of the interrelated elements you propose are necessary and feasible steps for Colombia to take advantage of this “unique opportunity” for modernization and structural improvement. Your focus on public-private cooperation and investment in human capital shows an integrative and strategic vision.