COLOMBIA Public Disclosure Authorized
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COLOMBIA Public Disclosure Authorized Systematic Country Diagnostic June 22, 2015 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized ___________________________________________________________________________________ Acknowledgements This Colombia Strategic Country Diagnostic was produced by Carter J. Brandon (Lead Economist, GENDR), Barbara Cunha (Senior Country Economist, GMFDR), Samuel Freije-Rodríguez (Lead Economist, GPVDR) and Luciana Marchesini (Strategy Officer, CGEDR); with the research assistance of Domoina Rambeloarison (Junior Professional Associate, LCC1A), Christopher Sall (Consultant, GMFDR), and Daniel Valderrama (Junior Professional Associate, GPVDR). Overall supervision was provided by Gerardo Corrochano (Country Director for Colombia and Mexico), Issam Abousleiman (Country Manager for Colombia), Eduardo Wallentin (Senior Manager, CGECF), Dan Biller (Sector Manager, MIGEC), Louise J. Cord (Manager, GPVDR) and Pablo Saavedra (Manager, GFMDR). In addition, the following people provided overall guidance and substantive inputs through comments to early drafts, as well as participation in several internal and external seminars: Jose Luis Acero (GSURR), Pedro Arizti (GGODR), Marcelo Becerra (GEDDR), Harold Bedoya (LCC1C), Jairo Bedoya (LCCCO), Patricia Caraballo (GFMDR), Gianfilippo Carboni (Consultant, MIGEC), Wendy Cunningham (Program Leader, LCC1C), Jozef Draaisma (GMFDR), Marcelo Fabre (GSURR), Antonio Giuffrida (GHNDR), Eva M. Gutiérrez (Program Leader, LCC1C), Leonardo Iacovone (GTCDR), Jutta Kern (LCC1A), Daniele La Porta (GEEDR), Carlos A. Molina Prieto (GSURR), Michael Morris (GFADR), Angélica Nuñez (GSURR), Ana María Oviedo (GSPDR), Camila Rodríguez (GTIDR), Carlos Rodríguez Castelán (GPVDR), Daniel Sellen (Program Leader, LCC1C), Jorge Luís Silva (GGODR), Claudia Lorena Trejos (GSURR), and María Clara Ucrós (LCREC). Peer reviewers to the concept note and the final SCD are: Marianne Fay (Chief Economist, GCCCE), Luís Felipe López-Calva (Lead Economist, GPVDR) and David Rosenblatt (Principal Advisor, DECOS). Administrative support was provided by Beatriz Elena Franco (LCC1A), Elsa Coy (LCCCO) and Lorena Bustos (LCCCO). 1 Abbreviations and Acronyms CAGR Compounded Annual Growth Rate MTFF Medium Term Fiscal Framework CERAC Conflict Analysis Resource Center NGO Non-governmental Organization CREG Gas Regulation Commission OCYT Observatorio de Ciencia y Tecnología - Observatory for Science and Technology CSA Climate-smart Agriculture OECD Organization for Economic Cooperation and Development DNP Departamento Nacional de PISA Programme for International Student Planeación - National Planning Assessment Department ELN Ejército de Liberación Nacional – POS Plan Obligatorio de Salud - Mandatory National Army for Liberation Health Plan EPS Entidad Promotora de Salud PPP Purchasing Power Parity FARC Fuerzas Armadas Revolucionarias PPSAM Programa de Protección Social para el de Colombia - Revolutionary Adulto Mayor-Social Protection Program Armed Forces of Colombia for the Elderly FDI Foreign Direct Investment R&D Research and Development GDP Gross Domestic Product RS Régimen Subsidiado en Salud – Health Subsidized Regime GHG Greenhouse Gas RUAF Registro Unido –Unified Registry of Beneficiaries GOC Government of Colombia SCD Systematic Country Diagnostic IDP Internally Displaced Person SENA Servicio Nacional de Aprendizaje- National Service of Prentice LAC Latin America and the Caribbean SIP Shared Prosperity Indicator MHCP Ministerio de Hacienda y Crédito TFP Total Factor productivity Público – Ministry of Finance and Public Credit MIC Middle Income Country VAT Value Added Tax MILA Mercado Integrado VLR Victims and Land Restitution Latinoamericano-Integrated Latin American Market MINSALUD Ministerio de Salud y Protección WDI World Development Indicator Social-Ministry of Health and Social Protection IBRD IFC MIGA Regional Vice President: Jorge Familiar Vice President: Karin Finkelston Vice President and CFO: Keiko Honda Country Director: Gerardo M. Corrochano Regional Director: Irene Arias Director Economics and Country Manager: Issam Abousleiman Country Head: Carlos Pinto Sustainability: Ravi Vish Task Managers: Samuel Freije-Rodriguez, Task Managers: Eduardo Wallentin Task Manager: Dan Biller Barbara Cunha and Carter J. Brandon and Luciana Marchesini 2 Contents Executive Summary ...................................................................................................................................... 6 I. FRAMING THE ISSUES .................................................................................................................... 15 II. WHAT ARE THE CRITICAL FACTORS DRIVING OUTPUT AND PRODUCTIVITY GROWTH?23 Macroeconomic achievements in the last decade ............................................................................... 24 Going forward: Risks associated with an extractives-driven growth mode and opportunities for sustaining growth in the future ............................................................................................................ 49 III. WHAT ARE THE CRITICAL FACTORS THAT DETERMINE INCLUSION? .............................. 52 Advances in poverty eradication, shared prosperity, and inequality reduction in Colombia .............. 52 Labor markets as mechanisms of inclusion ......................................................................................... 65 Social Policy as a mechanism of inclusion ......................................................................................... 72 IV. HOW SUSTAINABLE ARE CURRENT PATHS OF GROWTH AND INCLUSION?.................... 85 Mixed sustainability outlook ............................................................................................................... 85 Fiscal sustainability ............................................................................................................................. 85 Environmental sustainability ............................................................................................................... 87 Social sustainability .......................................................................................................................... 107 V. PRIORITIZATION OF CONSTRAINTS ON PROGRESS TOWARD THE TWIN GOALS ......... 109 VI. ANNEXES ......................................................................................................................................... 115 Annex 1: Stakeholder Consultations ................................................................................................. 115 Annex 2: Benchmarking Colombia in the World .............................................................................. 127 Annex 3: Private Sector Notes .......................................................................................................... 155 VII. REFERENCE LIST ..................................................................................................................... 181 3 List of Boxes Box I-1: A benchmarking exercise for Colombia ....................................................................................... 21 Box II-1: Colombia: A Closed Economy? .................................................................................................. 28 Box II-2: Structural Changes in Exports ..................................................................................................... 30 Box II-3: Agriculture Financing ................................................................................................................. 33 Box II-4: Land-related Constraints on Rural Economic Development ....................................................... 47 Box II-5: Economic Impacts of the Armed Conflict and Violence: A Literature Review .......................... 48 Box III-1: Pensions, Poverty, and Inequality in Colombia ......................................................................... 75 Box III-2: Funding Social Policy: Progressivity of Tax and Transfers in Colombia .................................. 81 Box IV-1: Modeling the Impact of a Potential Peace Agreement on Colombia’s Deforestation ............... 91 Box IV-2: Climate-Smart Agriculture in Colombia.................................................................................... 98 Box IV-3: Mortality Burden of Pollution in Colombia vs. Benchmark Country Groupings, 2010 .......... 101 Box IV-4: Key issues raised by the OECD Environmental Management Review of Colombia .............. 104 List of Tables Table ES-1: Origin of Challenges to Inclusive and Sustainable Growth in Colombia ............................... 13 Table ES-2: Prioritization of Main Challenges to Inclusive and Sustainable Growth in Colombia ........... 14 Table II-1: Percentage Contribution to Total Growth in Value Added per Capita (2001-2013) ................ 40 Table III-1: Multidimensional Poverty Rates by Dimension in Colombia ................................................. 59 Table III-2: Evolution of Inequality Indexes in Colombia .......................................................................... 62 Table III-3: Colombia Housing Deficit: 1973-2012 ................................................................................... 77 Table III-4: Indicators of Citizen Security in Colombian Departments, c.2010 ......................................... 80 Table V-1: Origin of Challenges to Inclusive and Sustainable Growth in Colombia ............................... 111 Table V-2: Prioritization of Main Challenges