The OECD and Colombia: a Huge Step Forward

After years of negotiations, Colombia has officially become the 37^th member of the Organization for Economic Co-operation and Development (OECD). The accession process began in 2013, and has already sparked important reforms to reduce informality in the labor market, improve the education system, and expand healthcare programs.Colombia is looking to benefit greatly from the OECD. For instance, the recognition that comes with membership brings the possibility of attracting increased foreign direct investment (FDI). But the membership comes with a price. According to the Center of American Studies, the country will have to contribute with 5 million dollars per year to the OECD, and will have to invest around 20 trillion pesos annually for the next 15 years, mainly in environmental, commercial, and infrastructural programs.Previous OECD AnalysisThe OECD has assessed the performance of the Colombian agriculture sector, with the goal of getting an overview of the sector and proposing some policy reforms. Some of the recommendations included:

• Long-term structural reform to support agriculture and strategic investment (irrigation and transport infrastructure).
• Reinforcing the Agricultural Innovation System.
• Integrating further into international agro-food markets.

Flavia Santoro, president of ProColombia, a governmental institution dedicated to promoting tourism, foreign investment, and exports, says that the Colombian government is "working towards the productive transformation of agriculture through production organizing, cluster development and agro-industrial value chains, which integrate industrial production with small and medium-sized producers." Though the Colombian economy will have to adapt to OECD's high standards, Santoro is confident that the agriculture sector can rise to the occasion.

Evolution of the Producer Support Estimate, 1995 to 2017 (Source: The OECD)

Meeting OECD StandardsMany of the OECD reports have shed light on the challenges laying ahead. Though, as the organization says, Colombia has a huge “untapped export potential”. This is showcased in the logistics performance of the country, which is far from reaching the OECD standards, but can be addressed short term.

Colombia’s time and logistics-intensive exports, compared to the OECD, 2015 (Source: The OECD)

According to the organization, improving customs and inspection procedures, as well as strengthening institutional coordination of logistics and infrastructure policy, can considerably reduce transport costs in the short run. Meanwhile in the long term, Colombia is planning to invest in infrastructure to follow OECD’s recommendations.As Flavia Santoro explained, the government seeks an “articulated and comprehensive” policy regarding agriculture, not only to "improve agricultural activities but environment impact, which includes investments in civil infrastructure, improvements in logistics and connectivity within and outside Colombia."Potential benefits for the Colombian EconomyAccording to a report from EAFIT University from Colombia, the country entered the OECD to strengthen its role in international relations and foreign policy. It has been a long time since the process started more than a decade ago. Many changes have been made to demonstrate that Colombia is not only willing to follow OECD recommendations, but is also capable of meeting it’s standards.The potential benefits of OECD membership are tremendous. According to Flavia Santoro “there will be multiple benefits, (including) better public policies, greater confidence and foreign investment, and greater positioning and international influence of Colombia." Complemented with “high quality data from the OECD reports, top-notch advice, and rigorous and frequent studies on the nation's progress.”Additionally, she indicated that “given the reputation of this body (the OECD), membership increases the confidence of national and international investors in the country." Pointing out that the “current members of the OECD concentrate 75% of foreign direct investment globally and 60% of world trade and GDP. Since Colombia will be associated with this club from now on, it will be able to access better conditions and international financial instruments."What about the COVID-19 crisis?The president of ProColombia says they “are convinced that in the current circumstances, the arrival of foreign investments to Colombia, will leverage the rebound of the economy in the post-COVID-19 era," and that “being within this select group of countries will allow us to boost the promotion of opportunities and Colombia's potential as an investment destination in a post-Covid-19 world."Early economic forecasts for 2020 placed Colombia as one of the fastest-growing economies of the region. But with the pandemic, the Colombian economy is now expected to shrink 2% on the year.

Forecast of GDP growth (%) for Latin American countries, April 2020 (Source: Statista)

She explained that for 2021, the FMI expects a recovery and economic growth of 3,5% for the Colombian economy, being one of the strongest recoveries in Latin America. Santoro also stated that “even in the midst of an environment marked by uncertainty (…), Colombia has shown resilience, which leaves us in a better position to not let our guard down and continue to move forward with the aim of achieving the best practices that are characteristic of OECD members.”Membership in the OECD is a huge step forward for Colombia, and will grant both foreign and domestic investor increased confidence in the country. The high standards imposed by the organization will be challenging to achieve, but the benefits, especially for the agricultural sector, cannot be overstated. A greater connectedness to global supply chains, a stronger infrastructural framework, and streamlined exports and customs processes are only a few of the many benefits that Colombia will enjoy as a member of the OECD.Read more from Farmfolio.