Colombia: Why industry needs innovation
Mounting interest in Colombia’s natural resources led to notching up unprecedented levels of foreign direct investment (FDI) last year. However, some analysts have raised concerns that investor interest remains focused almost exclusively on mining and energy, regarded as unsustainable long term while leaving industries, particularly manufacturing, struggling to compete on the international stage.
Foreign investment hit a record-breaking $16.68bn in 2012, according to the Central Bank, up 11% on 2011 and earning Colombia 28th place on the global list for FDI inflows. FDI in oil and mining reached $13.35bn last year, up from $12.24bn in 2011, while productivity in the industrial sector is waning. Figures from the National Statistics Department (DANE) showed manufacturing production dropped 4.1% in November 2012, year-on-year (y-o-y).
The industrial sector faces a number of major challenges, led by the continuing appreciation of the peso and a massive influx of imports, especially from tariff-free Asia. Imports have risen steadily since the country signed free trade agreements (FTAs) with key trading powers, including the US, and, more recently, the EU and South Korea.
Analysts have called on Colombia to introduce further reforms they say would provide support for the industrial sector. In its Economic Assessment of Colombia, released on January 31, the Organisation for Economic Cooperation and Development (OECD) urged improvements to transport infrastructure, increased private investment, higher productivity and removal of some of the barriers entrepreneurs face.
They have also highlighted the need to address key issues in higher education, which they said would pave the way for industry to become more productive and innovative. Colombia ranks 92nd out of 141 in the Innovation Efficiency Index (IEI) and is 65th in the Global Innovation Index (GII), which is co-published by INSEAD and the World Intellectual Property Organisation.
The importance of promoting competitiveness across the industrial sector was one of the topics explored at the Third Innovation Conference, which was organised by the local entrepreneurship and innovation accelerator Connect Bogota in mid-March.
Andrea Kates, a cross-industry innovation expert, told the hundreds of researchers present at the event that innovation could be instrumental in generating employment, describing it as “a very important source of job creation”. She also referred to the important part that collaboration between researchers, universities and businesses played in driving innovation, saying “...this generates new sources of knowledge and opportunities.”
The conference concluded that it was especially important for small and medium-sized enterprises (SMEs) to embrace innovation, given the added challenges they faced in the open market.
Colombia lags behind Chile, Brazil and Costa Rica when it comes to the level of public support which business innovation receives, according to the GII. However, efforts to address the situation, spearheaded by iNNpulsa, a government institution focused on market-oriented entrepreneurship, are gaining pace.
Catalina Ortiz, iNNpulsa’s general manager, told the local press recently the institution’s goal was to increase the private sector’s contribution to investment. “Although Colombia’s investment in innovation doubled from 2011 to 2012, it remains... little money,” she said.
The institution recently announced plans to make COP15m ($8m) available for new SME projects. A new wave of public funding has also been earmarked for supporting 30 projects during 2013, which the institution hopes will be augmented by seed capital from the private sector.
Innovation is given a priority in the government’s Productive Transformation Plan (PTP), which includes in its key aims a goal of making local industry more competitive. The plan, which falls under the Ministry of Commerce, Industry and Tourism, includes product research and development, as well as innovation. The government body also considers public-private partnerships (PPPs) to be the “ideal means to promote and stimulate the development of goods and services in certain sectors of the economy”.
To date, 12 segments, including business process outsourcing, information and communications technology, health tourism, auto parts and textiles, have benefitted from the PTP.
Although progress has been made, some businesses remain at a disadvantage when it comes to competing in the open market, particularly those operating in manufacturing processes, like the automotive segment. By focusing on increasing funding for innovation from both public and private sources, Colombia will be making important progress in preparing its most traditional industries to compete on an international level.