Bancolombia: OECD Membership Will Boost Colombia’s Economic Competitiveness and Growth Potential
Colombia joining the Organization for Economic Co-operation and Development (OECD) is likely to boost the nation’s economic competitiveness and potential growth in the years to come, according to an analysis by the nation’s largest bank.
In highlighting the benefits of membership, which Colombia was granted late last month after a half-decade of reforms and evaluation by the global economic club, Bancolombia pointed toward the experience of 10 other nations that have joined over the past 25 years.
It noted that the “fate of the economies” to join the OECD has “varied widely.” And it stress that the near-term performance of the Colombian economy in the next few years will continue to depend mostly upon global and domestic factors.
But the Medellín-based institution does believe that “being part of this organization will allow Colombia to adopt better public policies, which will contribute to overcoming the large gaps in terms of competitiveness.”
Specifically, Bancolombia points to the other nations that have seen a measurable increase in the type of competitive metrics measured in “Doing Business” annual study conducted by the World Bank.
Colombia ranked just 59th overall, out of 190 studied economies, in the latest version and lagged behind the bulk of the 37 OECD nations. It fares particularly poorly in terms of enforcing contracts (ranking 177th), paying taxes (142nd), and starting a business (96th).
Chile has seen improvements in some of its worst-performing categories over the past decade. In the 2010 Doing Business report, released before Chile joining the OECD, the nation ranked 66th, for example, in terms of dealing with construction permits. It now ranks 15th. It has also risen from to 69th to 56th in terms of enforcing contracts.
Estonia has seen even greater gains across the board. It already ranked 24th before it became an OECD member in 2010 but has since risen to 12th. Over the same timeframe, it has improved from 37th to 12th in terms of starting a business, from 49th to 11th in enforcing contracts, and 38th to 14th in paying taxes.
“Without exception there are reductions in the costs of opening businesses and foreign trade operations,” states Bancolombia about improvements seen after other nations have become OECD nations. “These countries also managed to reduce the tax burden on companies, strengthen the protection of minority investors, and expedite the building permits.”
Such gains, in terms of Doing Business study rankings, improved measurably in each of the four nations that joined the OECD in 2010, Chile, Slovenia, Estonia, and Israel.
Because they all joined the OECD in 2010, when the global economy was just beginning its recovery from a deep trough, it means that their macroeconomic factors likely would have improved regardless in the years to come. This was especially the case in Chile, which was only the second Latin American nation to join and invites comparisons to Colombia.
Still, according to Bancolombia, these competitive gains, which can in part be attributed to the mandatory reforms needed to join the club, suggest that membership adds benefits that can be separated from the wider ebb and flow of the economic cycle.
READ MORE: Colombia Becomes 37th Member Admitted to OECD
For Colombia, ascension doesn’t meant that the next few years will definitely be more positive than past years. But in the bank’s assessment, if Colombia can follow the same well-worn path of its predecessors, such structural improvements will allow the nation to have higher economic growth potential over the longer term.
“Gains on this front will be essential to achieve the goal of expanding steadily above the current potential growth, which we estimate at 3.5%,” stated the report. “Accession to the OECD is a very important achievement for the Colombian economy, since it reveals the commitment the country assumes to maintain policies adjusted to the best worldwide standards.”