Foreign Investment and Sustainable Development
Over the last decade, the Colombian government has opened its doors in an unprecedented manner to Foreign Direct Investment (FDI) from China into its domestic natural resources and extractive industries. This openness and the entry of Chinese capital into the country have undoubtedly given a boost to the Colombian economy, which was particularly evident during the years surrounding the 2008 financial crisis. However, in the medium and long term, the entry of Chinese enterprises and capital into Colombia, without a national strategy of sustainable development, can be a Trojan horse that prevents the progress of the Colombian industry in certain key sectors of the local economy.
Foreign Investment and Sustainable Development
Economic analysis finds that the gradual entry of Chinese enterprises into the primary sector of the Colombian economy and the intensification of trade between the two countries have a correlation with the reprimarization of the Colombian oil industry. For instance, in the year 2000, crude oil constituted 29% of Colombian exports, while refined petroleum represented 5.4% of the national exports. Fifteen years later, in 2015, exports of crude oil accounted for 34% of the country’s total and refined petroleum accounted for 3.3%. Undoubtedly, the United States is the main market for Colombian oil, purchasing 40% of the refined oil exported by Colombia in 2015 and 35% of the country’s crude oil exports. However, China, which barely bought any crude oil from Colombia ten years ago, purchased 14% of Colombia’s crude oil exports in 2015. At the same time, China bought only 1.0% refined oil exported by Colombia. As these findings suggest, China has substantially increased its demand for Colombian oil, but it demands, almost exclusively, crude oil. This imbalance is particularly evident when China is contrasted against other major consumers of Colombian oil, such as the United States. Furthermore, given that Chinese companies are amongst the top private extractors active in the Colombian oil industry.
Research suggests that China is in the process of reproducing its model of a neo-mercantilist FDI in Colombia. As Colombia’s second largest trading partner and gaining ground rapidly in the country’s extractive industry, China and its enterprises are facilitating the exploitation and export of non-value-added energy resources and mineral commodities; all this, without substantially investing in manufacturing or refining project in Colombia. Simultaneously, Chinese imports of manufactured goods towards Colombia are steadily increasing. These trends can be interpreted as the beginning of an economic and commercial relationship, in which Colombia would become increasingly more dependent on Chinese manufacture. Thus, China’s commercial and economic practices are preventing the sustainable development of a fully mature oil industry in Colombia. Even more so, China is facilitating the absence of value-added chains within the country and perpetuating inequality in the trade balance. Given this scenario, Colombia must attempt state-led industrialization, not through the substitution of imports, but rather by catering to the preferences of large middle classes with purchasing power in emerging markets. Farmfolio and its CEO Dax Cooke are capitalizing on this opportunity, by focusing on organic products for export, such as bottled coconut water.