Wednesday, September 3, 2014

Colonialism of a Different Color?

Made in Colombia? Or just sucked out of
Colombia's earth? Colombia's exports to the
U.S. and China are overwhelmingly
raw materials.
Leftist writers such as Eduardo Galeano have long denounced the United States and European nations for supposedly practicing a kind of economic colonialism: Buying raw materials cheap from poor nations, transforming them into manufactured goods and selling them back to those poor countries for many times their original price.

Decide for yourself whether Galeano and Co. are correct - (but only after also reading the Vargas Llosa family's take on the issue).

Now, however, Galeano should aim his rhetoric east, where China is repeating the Western nations' 'exploitative' methods.

More than 90% of Colombia's
exports to China are petrochemicals.
Today's El Tiempo celebrates that Colombian exports to China have boomed - and are now about half of what Colombia exports to the United States. While that means lots of money for Colombia, the nature of those exports removes the sheen: 92.5% of Colombia's exports to China consist of petroleum and its derivatives. On the other other, only 0.0342% of Colombia's exports to China are manufactured goods. And Colombia's manufactured exports to China have actually dropped by 16% over the past two years.
From China, Colombia buys
manufactured goods like cellphones.

Colombia's export mix to the U.S. isn't much healthier: 61% of those were petroleum and derivatives, and only 9.5% manufactured goods. And those statistics look great compared to 2012 because Colombia's petrochemical exports to the U.S. have plummeted recently as a result of the U.S. fracking boom.

And what does China export to Colombia? Think expensive, manufactured goods such as cars, TVs, laptops, clothing, shoes and even the traditional Colombian sombrero volteao.

In the mid-2000s, a report from Sergio Arboleda University in Bogotá warned that Colombia's "exports are concentrated in products of little added value." Since then, nothing has changed, as a 2012 paper by the Inter-American Dialogue pointed out: "trade with China remains unbalanced and overwhelmingly focused on commodities."

There are few examples of countries anywhere in the world which have built healthy economies by exporting raw materials, but many examples of nations which have destroyed their environments and fed corruption by relying on such exports.

Will Colombia somehow, magically be different? Let's hope so, since that's the track it's headed down.

Colombian exports to China: Raw materials.
Colombian exports to China consist almost completely of raw materials. (Source: Cepal)
Colombia has a large and growing trade deficit with China.
Colombian imports much more from China (dark blue) than it exports to China (light blue).  (Source: Cepal)
By Mike Ceaser, of Bogotá Bike Tours


coolcoil said...

I share your concerns. Education aside, Colombia has some real physical difficulties to overcome if export manufacturing is going to increase. The fact that the core population lives so far from the coast (in truck travel time) is a huge issue. If you want to export, it is hard when you have to pay a fortune just to get your product to a ship.

That said, I caution you to not only look at "trade deficits" when gauging the economic health of a country. It's easy to latch on to these reports, since governments have been publishing them for decades and the values are easy to measure. However, as the world's connectivity has increased, measuring only the value of physical goods moved has become a much less accurate indicator of economic health.

Services is one area that still gets overlooked despite their increasing importance. For example, at the moment my company in the USA is working on a large software project. For part of the project, they have contracted with a number of developers in Medellin. None of that income to Colombia is counted in the export numbers. Of course, if any of their income is spent on imported goods, the trade deficit numbers increase.

Tourism is another example. No matter how much a visitor spends here, none of it counts as export income. Of course, some of that spend will be on imported goods, say a bottle of Chilean wine at dinner. I don't think anybody would argue that tourism is not good for the economy, yet it does increase the reported trade deficit.

Finally, foreign investment necessarily adds to the trade deficit. If a foreigner brings in $1 million to build a business, and 20% of that is spent on imported goods, the trade deficit goes up by $200,000, but the other $800,000 spent in Colombia gets mixed in with domestic spend.

I'm not saying that trade deficits don't matter, but that they are only part of the story, and that part is much smaller than it was 40 years ago. Frankly, it's not easy to point to any one report to say how a country is doing.

Miguel said...

Hi Coolcoil,

You're certainly correct that a country's economy consists of much more than its trade balance. However, my point wasn't so much the deficit itself as what it consists of - Colombia's exporting raw materials and importing high-value manufactured goods.

I'm glad to hear that Colombians are 'exporting' sophisticated tech work. I do believe that at least some nations consider this sort of labor in their trade statistics. It's just the kind of industry which Colombia needs to grow to generate quality jobs here and a middle class.

Raw material exports, in contrast, produce few good jobs.