National Competitiveness Report

regiones
BANCARIZACIN
EDUCACIN
sostenibilidad
INNOVACIN
NATIONAL COMPETITIVENESS REPORT
executive summary
competencia TECNOLOGA
TOWArDS COLLECTIvE prOSpErITY
2011
2012
FORMALIZACIN
boom minero
recursos naturales
ticJusticia
cluster
SISTEMA mercado TRIBUTARIO laboral
COLOMBIAn prIvATE COUnCIL On COMpETITIvEnESS
internacionalizacin
cambio estructural
Diversificacin
apuestas sectoriales
productive transformation valor agregado

Poltica industrial
Competitividad
seguridad social
visin
MEMBERS
ASSOCIATES
Board of Directors
David Bojanini Presidente Consejo Directivo Grupo de Inversiones Suramericana Ricardo Obregn Vicepresidente Consejo Directivo Carvajal Jos Alejandro Corts Sociedades Bolvar Rose Marie Saab Independence Drilling Jaime Gutirrez PTESA
Members
Julin Jaramillo Alpina Jos Alberto Vlez Grupo Argos Carlos Ral Yepes Bancolombia Ricardo Obregn Carvajal Carlos Jacks Cemex Nayib Neme Chaid Neme Hermanos Felipe Montes Colombit J. Mario Aristizbal Conconcreto Carlos Enrique Moreno Organizacin Corona Guillermo Trujillo Federacin Nacional de Cafeteros David Bojanini Grupo de Inversiones Suramericana Carlos Enrique Piedrahita Grupo Nutresa Carlos Arcesio Paz Harinera del Valle Francisco Thiermann IBM de Colombia Rose Marie Saab Independence Drilling David Gonzlez Intel Ernesto Fajardo Pinto Inversiones Mundial Harold Eder Inversiones Manuelita Jorge Silva Microsoft Antonio Celia Promigas Jaime Gutirrez PTESA Carlos Andrs Uribe Ladrillera Santa Fe Jos Alejandro Corts Sociedades Bolvar Bernardo Guzmn Smurfit Kappa Cartn de Colombia Luis Alberto Botero Alianza Team
Associates
Luis Carlos Villegas ANDI Rafael Meja SAC Julin Domnguez Confecmaras Andrs Cadena Mckinsey&Company Camilo Granada FTI Consulting Gustavo Mutis Centro de Liderazgo y Gestin Carlos Angulo Universidad de los Andes Francisco Piedrahita Universidad ICESI Jorge Humberto Pelez S.J. Universidad Javeriana de Cali Hans-Peter Knudsen Universidad del Rosario Jaime Bueno Ramn de la Torre
Rosario Crdoba Garcs President and CEO
Marco Llins Vargas Vice president
Staff
lvaro Jos Moreno Garca Associate Researcher Angie Alexandra Rodrguez Associate Researcher Clara Patricia Martn Castro Associate Researcher Felipe Serrano Pinilla Associate Researcher Natalia Fernndez Corts Associate Researcher Omar Andrs Herrera Research Assistant Danny Newman Research Assistant Intern, Harvard Kennedy School
Colombian Private Council on Competitiveness www.compite.com.co Cra 9. No. 70 A 35 4th Floor Bogot-Colombia Copyright 2011 Tel: (571) 7427413
TOWArDS COLLECTIvE prOSpErITY
NATIONAL COMPETITIVENESS REPORT

executive summary
2011
2012
COnSEjO prIvADO DE COMpETITIvIDAD COLOMBIA
Foreword
Since its inception in 2007, the Colombian Private Council on Competitiveness committed itself to putting together the Informe Nacional de Competitividad (National Competitiveness Report) on a yearly basis. The objective was and continues being having a working document that would let the country know the state of its competitiveness in its different dimensions, not only from a local perspective, but in relation to the rest the world; in particular, in relation to those countries with which Colombia directly competes. As a result of this diagnostic, the Report also delivers a series of proposals aiming at improving the countrys competitiveness and productivity. The Informe Nacional de Competitividad 2011-2012 is the Colombian Private Council on Competitiveness 5th consecutive report and has at its core the idea of a Productive Transformation for the country. Each chapter, in addition to delivering up to date and relevant information on the lags and progress in each of the topics addressed, includes elements aiming at accelerating this productive transformation process that the country urgently needs. The National Competitiveness System, nowadays the National Competitiveness and Innovation System, has made great progress in terms of developing a sound institutional framework, which is role model around the world, as well as in identifying an integral competitiveness agenda that includes both a horizontal axis made up of the set of policies that affect all the sectors in the economy across the board and a vertical onewhich makes reference to those policies focused on some concrete sectors, either new or already existing ones, with the objective of changing drastically what Colombia currently produces. Up till now, however, efforts have concentrated mainly on the horizontal axis, doing rather marginal efforts in the vertical front, which could be summarized by the implementation of the Productive Transformation Program. Notwithstanding, if Colombia wants to make real progress towards attaining the goals set by years 2032 vision being one of the three most competitive economies in Latin America, with a middle-to-high per capita income, through an economy that exports high value added goods and services and that has lower poverty levels, it cannot continue producing what it has been producing all along, neither in the way that it has been producing it through decades. In order to grow in a continuous and sustained way at the high growth rates the country needs, Colombia needs to submerge itself in a constant process of structural change that leads it to increasing the economys productivity and, in particular, to innovate. For the construction of the Global Competitiveness Index, the World Economic Forum (WEF) ranks countries in three stages of development. The first one, highly basic, based on factors of production, where competition is based on natural resources and low levels of workforce training. The Second, one in which, to preserve the income level reached, the economy depends on the efficiency with which the country uses its factors and on the manufacture of high added value products. In this type of economy, increases in competitiveness are reached through improvements in education levels, higher efficiency in the goods market and labor markets, development of financial markets, capacity to absorb technology and creation of a wide market, either local or international. The third, on in which the only way to sustain the income level reached is through the creation of new and different products, on the basis of sophisticated and innovative production processes. To rank countries in each stage of development, the WEF takes into account the GDP per capita, adjusted by the exchange rate, but also the degree of dependency from natural resources of the country. Colombia, in terms of GDP per capita, is ranked in the second state, but because of its exports with low levels of innovation (primary products, based on natural resources and low technology), that in 2010 reached 88% of total exports of the country, one could say that it is ranked in the first.
Colombia must change the composition of its exports and advance towards an export model of high added value products and services. This applies to traditional sectors of natural resources, as well as to new sectors in which Colombia may eventually have a competitive advantage. This structural change will only be possible through a productive transformation policy that combines both a horizontal agenda and a vertical agenda, or industrial policy, focusing on specific sectors. A policy that, in addition, does not involve protectionism through tariffs or subsidies, and that encompasses public-private efforts at the national and local levels. As depicted throughout the Informe National Competitiveness Report 2011-2012, the consolidation of this kind of vertical agenda is urgent, even more if we take into account the mining-energy boom that is approaching and the risk of suffering the so-called Dutch disease, and the subsequent deindustrialization of the country. Fortunately, the timing to make this structural change is adequate. The resources from royalties will double in the next eight years, when compared to the previous ten, and may be used as provided by the Legislative Act establishing the New General System of Royalties- for the development of all regions. Hereupon, the role performed by the Comisiones Regionales de Competitividad (Regional Competitiveness Commissions) will be crucial, as coordinators of the public-private efforts involved in the productive transformation agenda at the local level, and as one of the main participants in the projects that will be financed with royalties. On how effectively the regions use the resources to support the productive transformation process, will depend the country we will have in 15 years. I hope that the Report will be a key piece for maintaining the focus of our vision about competitiveness. The big challenge towards the future is to guarantee the continuity of the Sistema Nacional de Competitividad e Innovacin (National System of Competitiveness and Innovation) and to deepen the efforts done until now, consolidating the institutional framework that has been put in place, and transforming competitiveness policy into a State policy. For their effort in the elaboration of his document, I thank the team of Consejo Privado de Competitividad: to Marco Llins, vicepresident; to the researchers Alvaro Jos Moreno, editor of the Report, Felipe Serrano, Clara Patricia Martn, Natalia Fernndez, Angie Rodrguez and Omar Herrera, and to the administrative staff. Similarly, I wish to recognize the public and private sector team that has worked with us in the Sistema Nacional de Competitividad e Innovacin, for their compromise in the implementation of our work agenda: to Catalina Crane, High Counselor for Public and Private Management; Sergio Daz-Granados, Minister of Commerce, Industry and Tourism,; Hernando Jos Gmez, Director of the National Planning Department; Jaime Restrepo, Director of Colciencias; Julin Domnguez, President of Confecamaras; and specially to the President of the Republic, Juan Manuel Santos, for always opening channels of discussion for the agenda and priorities of the Private Council on Competitiveness. Lastly, to all Members of the Private Council on Competitiveness, thank you for the trust and generous support. Your interest and steady participation have enormously contributed to the institutional strengthening of this entity in the last years, and to the consolidation of a work agenda with clear and pertinent priorities, and to the concrete results so far attained by the country.
Rosario Crdoba Garcs

President and CEO Colombian Private Council on Competitiveness
Introduction
mlittle over five years ago the National Council on Economic and Social Policies (CONPES, in Spanish) issued document 3439 of 2006 creating the National Competitiveness System; some months later, this system, through its National Competitiveness Commission, approved the long-term vision that has served as a beacon for the countrys competitiveness agenda: In 2032, Colombia will be one of the three most competitive countries in Latin America and will have an income per capita level equivalent to that of a country with a medium-high income, through an economy that exports high value added and innovation intensive goods and services, with a business environment that incentivizes local and foreign investment, favoring regional convergence, improving opportunities for formal employment, elevating the quality of life and notably reducing poverty levels. A lot of work has been done since then in an effort to attain this goal. However, a balance of how the country
is doing in relation to this vision shows a bleak landscape. This is not surprising given that different results cannot be expected if the country keeps on producing the same goods and services. It is through a process of constant structural change or productive transformation that countries can increase their competitiveness levels. Colombia is in dire need of implementing this process of productive transformation. The need becomes more urgent as the country faces an imminent mining and energy boom that will put pressure against the countrys productive diversification. The competitiveness agenda is the roadmap to attain the productive transformation that the country requires. This agenda contains two main axes, a horizontal and a vertical one (see diagram). The horizontal agenda involves the set of policies that affect all sectors of the economy across the board. On the other hand, the vertical agenda, or industrial policy, refers to the set of policies focused on some spe-
HORIZONTAL AGENDA Productive Transformation
Education. Social security. Formalization and labor market. Science, Technology and Innovation. Infrastructure, Transportation and Logistics. Information and communication technologies. Financial System. Tax system. Competition. Justice. Corruption. Sustainability.
VERTICAL AGENDA
It is the agenda that seeks to change Colombias productive structure by making strategic bets on different sectors. Covers any sector (not only industrial). It does not involve protection: through tariffs or direct subsidies. Involves a public-private efforts with local actors.
Colombian Private CounCil on ComPetitiveness
A little over five years ago was created the National Competitiveness System; some months later, this system, through its National Competitiveness Commission, approved the long-term vision that has served as a beacon for the countrys competitiveness agenda. A lot of work has been done since then in an effort to attain this goal. However, a balance of how the country is doing in relation to this vision shows a bleak landscape.
cific sectors, either new or already existing ones, with the objective of catalyzing productive diversification. This policy, whose main driver must be a profound innovation agenda, has as its main purpose addressing bottlenecks and distortions (primarily those related to coordination failures or appropriability problems) that limit the productivity or the mere entry of said sectors. In the last few years, the Sistema Nacional de Competitividad (National Competitiveness System) and, in particular, the Consejo Privado de Competitividad -CPC(Colombian Private Council on Competitiveness), have dedicated themselves primarily to address the horizontal axis of the competitiveness agenda. Though there has been progress on this front, many challenges still lie ahead. In terms of the vertical axis, it is merely taking off. However, this year some progress has been done in relation to the latter agenda, following many of the CPCs proposals on this regard. Firstly, the National Government launched its National Strategy for Innovation and Competitiveness (ENIC, in Spanish). Secondly, the Government re-launched the Programa de Transformacin Productiva (PTP),1 announcing, amongst others, that investment flagship projects are being identified to support productivity growth in sectors included in this program; and that the PTP will finally be implemented at the local level through the coordination of public-private efforts, via the Comisiones Regionales de Competitividad
1
-CRC- (Regional Competitiveness Commissions). Thirdly, it is important to highlight the role that the Plan Nacional de Desarrollo (National Development Plan or PND in Spanish) Law gives to the CRC, as local coordinators of different organizations and venues that currently work on regional competitiveness-related issues. Lastly, the PND Law also gives Bancoldex (Colombias Foreign Trade Bank) a new role as a development bank. In view of the need to speed up the pace towards attaining the goals of year 2032, the concept of productive transformation is at the core of this years Informe Nacional de Competitividad -INC- (National Competitiveness Report). In particular, this years INC focuses mainly on the deepening of the vertical agenda within the competitiveness agenda. The INC report offers recommendations on how to implement said policy, for the Government, the private sector, and other relevant parties. Despite progress was made during the last year in the design of this type of policies, implementation is the true challenge for the country. Particularly because the implementation of this kind of policies implies institutional articulation of different Ministries, agencies, and public entities, as well as public-private coordination, both at the national and local level. As in previous years, it is expected that this report becomes an important input for the design and implementation of policies by the Government. Moreover, it is also expected for it to provide guide to other agents of society, in particular the private sector, about the challenges that entail the implementation of a productive transformation policy for the country, in which all the agents must do their part. Only in this way will the country start to take quantitative leaps to increase its competitiveness and be able to attain its goals for year 2032.
The competitiveness agenda is the roadmap to attain the productive transformation that the country requires. This agenda contains two main axes, a horizontal and a vertical one. The horizontal agenda involves the set of policies that affect all sectors of the economy across the board.
The Programa de Transformacin Productiva -PTP(Productive Transformation Program) is a government program designed to increase the productivity and competitiveness of certain key sectors in the Colombian economy, so they can become world class sectors.
INTRODUCTION
Education
mproductive transformation will depend on the country having a human capital that is qualified, relevant and inclusive. Qualified, meaning that the imparted instruction results in a real positive impact on peoples skills. Relevant, in the sense that the skills they acquire respond to the needs of the productive sector, of society, and the environment in which they interact. Inclusive, implying that this human capital attainment should be available to all agents of society. Currently, the Colombian education system is not prepared to produce human capital with the above characteristics. This will only change if education becomes the top priority for all agents of the Colombian society. One of the major advances is that policies on early childhood integral assistance (children between the ages of 0 and 5) have become a priority, positioning this topic at the highest level in the Presidents Agenda, through the strategy called de Cero a Siempre (From zero onwards). In order to guarantee this policys impact, its implementation process has to be accelerated. Although improvement of gross overall coverage at primary and high school levels are worth noting, deficiencies still persist in net coverage, reflecting problems of over-age and desertion from the education system. Likewise, a deficit in education quality is reflected in the results of international tests such as the Program for International Student Assessment (PISA) and the Trends in International Mathematics and Science Study (TIMSS), in
which Colombian students rank among the lowest achieving countries, not only in the region but in the world. If the country wants to improve, resources must be placed where they might have the greatest impact; for example, in improving the human capital that goes into teaching, which is currently characterized by its low performance. Lastly, it is noticeable that labor skills and competencies in Colombia are not ideal for the countrys present and future needs, in particular for those sector bets under its industrial policy. The low level of productivity of human capital is explained to a great extent by the lack of pertinence of instruction provided by the education system, which has historically formed human capital for those sectors the country has been traditionally involved in, and very little for areas related to potentially new sectors. With regards to human capital demand, while in countries like Malaysia, Korea, and Portugal around 20% of the labor force is concentrated in qualified occupations scientific professionals and intellectuals and technicians and mid level professionals (see graph), Colombia only fills 10% of its vacancies with this type of personnel. As shown in the graph, when this information is disaggregated one can notice that technical and technological professionals account for more than 50% of professionals in most of the countries, reaching levels of 70,9% in Malaysia. On the other hand, Colombia presents a surplus of university graduates (55,3%) relative to that of technicians and technologists -T&T- (44,7%).
Employment distribution of technicians and professionals, 2008 (selected countries)

Relative proportion of employment by occupation (%) 100% 31,7% Norway 68,3% 43,7% 41,4% 46,5% 51,3% 50,5% 49,2% 47,3% 46,7% 80% 70% 60% 50% 40% 30% 20% 10% 0% 46,5% 41,0% 33,8% 32,9% 90% 29,1% Malaysia 70,9%
53,5%
53,5%
56,3%
58,6%
59,0%
48,7%
49,5%
52,7%
24,9% 18,1% 18,3% 33,8% 13,3% 20,1% 14,5% 36,9% 35,4% 16,5% 16,2% 33,9% 37,8% 19,8% Portugal Israel Brazil Singapore Germany Mexico Spain Peru Turkey Korea South Africa Czech Republic
% Total employment per country allocated in quali ed occupations (technicians and professionals)
50,8%
53,3%
Country
Technicians and associate professionals Source: International Labour Organization. Created by CPC professionals
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66,2%
67,1%
Even though steps have been taken during the past few years to balance out this proportion primarily driven by growth in the Servicio Nacional de Aprendizaje -SENA- (National Training Service program supply), the country is far away from the distribution of professionals shown by more developed economies. This distribution in human capital is just one of the signals of the lack of relevance. In addition to this, there is a lack of skills in areas such as bilingualism and use of Information and Communications Technologies (ICT); both of which are fundamental in the development of sectors under the productive transformation agenda the country requires.
Quality of basic and secondary education
Some policy recommendations:

Education is just too important to be left solely in the hands of the Government. All agents of society should establish a commitment in favor of education and put together a participative alliance (like Brazil did with the movement Everybody in favor of Education), with short, medium, and long-term goals and quantifiable indicators that increase accountability for investments made in this area.
It is necessary to strengthen and give more relevance to the Basic and Secondary Education Quality Index of the Ministerio de Educacin Nacional -MEN- (National Ministry of Education). Apart from the average results in the Saber 5th, 9th, and 11th grade State Exams, this index should include the graduation rate, as well as the teachers performance evaluations results; Compensation and incentive plans that reward all agents that meet quality improvement goals must be established. These should include secretariats of education, as well as schools and teachers; It is important to increase the teaching career prestige in order to recruit the best students to become teachers, by giving special compensations to the best students, as well as implementing a massive marketing campaign in which the teaching careers is given more recognition; Progressively eliminate the double-shift school strategy and replace it with a full-time one, offering extracurricular activities so that students can make good use of their free time. The percentage of full time faculty staff must be increased; It is necessary to incentivize internationalization and make it a criterion to obtain the qualified register recognition for programs and Instituciones de Educacin Superior -IES- (Higher Education Institutions); An independent national ranking must be designed to assess the quality of IES; The Saber Pro State Exam results should be more binding. A complete portfolio of incentives must be designed to attract qualified domestic and foreign personnel into the country, and procedures to obtain visas, as well as payment mechanisms and requirements for foreigners, should be simplified; Pilot programs should be implemented on strategic sectors to validate the National Qualifications System, in order to start its gradual implementation. Additionally, a strategy to guarantee the appropriation of the National Strategy for Management of the Human Resource by the private sector should be defined; It is necessary to measure functional illiteracy of workers in order to establish training courses that improve productivity in the short term.
Early childhood integral assistance
Quality of Higher Education
Resources to guarantee universal integral assistance to vulnerable populations must be safe guarded; therefore, Government should include preschool and early childhood education as part of the General Participation System (national budget transfers to departments); It is necessary to strengthen the active participation of the private sector in the implementation of the de Cero a Siempre policy; Thus, the Early Childhood Intersectorial Commission should include a representative from the private sector such as someone from the program Empresarios por la Educacin (Businessmen for Education) as a permanent guest to this commission. A percentage of the parafiscal charges that are currently allotted to SENA must be used for promoting relevant programs at the regional level by public and private certified technical and technological institutions; In order to minimize academic desertion, in addition to increasing credit supply, monitoring and guidance mechanisms for students should be implemented, including psychological counseling that may detect and take action on those students that may be more prone to abandoning their education.
Relevance
Coverage
EDUCATION
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Social Security
mcountry that protects its population against consumer shocks related to unemployment, health, and old age increases, and solidifies its productive bases and therefore its competitiveness. Empirical evidence shows the economic and social benefits of having adequate health and pension systems. On one hand, the healthiest individuals have greater labor productivity and generate more income, which impacts national productivity. On the other, saving in pensions generates a positive impact on the economy, not only because the savings of young generations translate into the accumulation of capital that can be invested, but because it also contributes to the macroeconomic stability of the country. A badly managed pension system, that loses capital due to the lack of financial coverage, affects competitiveness by generating less savings, fiscal deficit, less investments, and greater taxes that do not translate into well being. In health, the reforms of the Colombian Health System (SGSSS, in Spanish) have positively affected the coverage and quality of the services, yet still a lot of faults persist. First, it presents problems of financial sustainability that rely on multiple causes, such as the recent provisions issued by the Constitutional Court in which fulfillment of the equity principle is attempted. Second, the country still shows substantial flaws in the provision of public health because there isnt an adequate prevention and health
promotion. Third, the SGSSS generates counter-incentives to formalization: the Contributive Regime is financed by taxes on wages, fact that produces strong counterincentives to access the formal sector, and at the same time increases the number of people that form part of the Subsidized Regime. Fourth, the Colombian health system creates incentives for moral hazard and adverse selection problems that generate inefficiency in the system: on one hand, some individuals, by being insured, are more likely to use the medical services though they may not need it. On the other, the SGSSS clusters most of the high-risk individuals (people with higher probability of getting highcost illnesses) in the Health Services Promoters that have public participation. In pensions, the Colombian situation is more alluring. On the one hand, as a product of various decisions made by the Courts that changed the nature of a reform in 1993, the Colombian pension system has become financially unsustainable (see graph). On the other hand, the country has not made enough progress in terms of equity and coverage. Currently, only 1,2 million people are pensioned in Colombia, 3% of the total population and 25% of the population at retiring age. Even more worrisome, approximately 60% of the requests for retirement to the private insurance regime do not end up constituting the benefits because the affiliates do not meet the weeks of contribution required to be eligible for a minimum pension, a requisite of the Colombian system.
Additional scal cost due to decisions by the Council of State

0,25% (NPV 3,8% of GDP) ($20,1 Billions)
0,20%
% of GDP
0,15%
0,10% (NPV 2,2% of GDP) ($11,7 Billions) 0,05%
0,00% 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065
All factors included (last six months average)
All factors divided (last six months)
Note: NPV = Net present value. Source: Departamento Nacional de Planeacin, Direccin Nacional de Regalas.
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Added to the aforementioned is the change in the countrys demographic composition. In the last 50 years, the population pyramid has drastically changed, increasing the proportion of adults over 60 years compared to the younger generations, a trend that will continue during the next 50 years. This change threatens the sustainability of the pension system.

It has to be revised the circumstances and effects implied by the vertical integration between Health Services Promoters and Health Providing Institutions over the quality and presentation of health services. It is important for health plans to concentrate on promoting health and illness prevention. New incentives must be generated, these could be created by modifying the calculation of the Unit of Payment per Capita (UPC), which apart from being based in items like the number of affiliates, should include prevention and promotion; It is proposed that the functions of the administration of financial risk inherent in the operation of health plans be regulated and accountable to the Financial Superintendent so that the National Department of Health can concentrate exclusively in its own functions; For the financing of the SGSSS, it must be considered the possibility of alternative contribution sources different to taxes on wages. One financing alternative could be via resources from the General National Budget. In this way, all the individuals would pay this tax in proportion to their income, but the benefits would be equal for all; This system would not have any distinctions between employees on the contributing plan or subsidized plan, and it would be the State that would redistribute the resources to the different Health Services Promoters through a new structure of the UPC; The Mandatory Health Plan, would be one for all individuals and should be defined according to the countrys public health policy and based on a list to determine the prescriptions and procedures that would be excluded.
A badly managed pension system, that loses capital due to the lack of financial coverage, affects competitiveness by generating less savings, fiscal deficit, less investments, and greater taxes that do not translate into well being. Empirical evidence shows the economic and social benefits of having adequate health and pension systems.
Pension policy recommendations
It is proposed to eliminate the public pay-as-you-go system as it was stipulated in the reform of 1993. For that, the entry of any new affiliates must be halted immediately and any new transfers from the private individual savings plan must be prohibited; Limiting the high pensions granted by the public scheme to the maximum allowed by law is recommended, even for people who already receive their retirement pension; It is relevant to increase and match the retirement ages for men and women, as well as to increase the contributions, not only of employees but also of employers, and the number of weeks required for eligibility; It is time to eliminate the minimum pension requirements and the obligation of increasing the minimum pension annually, according to the minimum wage increase.
SOCIAL SECURITY
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Formalization and Labor Market
he Colombian economy shows a great heterogeneity in labor productivity amongst the sectors that comprise it (inter-sector) and within each of them (intra-sector), setting up the stage for the country to risk undergoing a negative structural change. This heterogeneity is explained, to a great extent, by the high levels of informality in the economy that reach levels of around 60%. Despite the country having periods of important economic growth during these past ten years, informality levels have stayed constant, which shows that the causes of informality are structural in nature (see graph). Even though some progress has been made through the issuance of the Law of Formalization and Employment Generation (Law 1429 of 2010), there is still a lot of ground for improvement.
The Colombian economy shows a great heterogeneity in labor productivity amongst the sectors that comprise it (inter-sector) and within each of them (intra-sector), setting up the stage for the country to risk undergoing a negative structural change.
Evolution of the labor and business informality levels in Colombia

Percentage of informal employment or microenterprises (%)
70 60 50 40 30 20 10 57,6% 49,6% 43,8% 63,7% 58,3% 58,2% 56,9% 55,0% 45,1% 58,7% 56,0% 61,5% 57,4%
57,7% 53,7% 41,8%
58,3% 51,6% 39,4%
58,3% 57,1%
41,5%
42,5%
39,2%
Business- No formal accounting process Entrepreneurial - Did not renew or obtain the registry of commerce Labor - DANE (employment without social security) 2009 - I 2009 - II 2009 - III 2009 - IV 2010 - I 2010 - II 2010 - III 2010 - IV
Period (quarter)
Source: Departamento Nacional de Planeacin Great Integrated Household Survey and Microenterprise Survey
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Make the Colombian labor market more flexible:
Increase human capital:
Reduce non-salary labor costs: the proposal is to gradually change the financing of the Instituto Colombiano de Bienestar Familiar -ICBF- (Colombian Institute of Family Welfare) and the Cajas de Compensacin Familiar (Social Compensation Funds), towards being financed via general national budget resources, and start dismantling the seven percentage points these parafiscal contributions represent in terms of non-salary labor costs. In addition, a health reform is proposed to detach the actual 12.5 points associated to salaries within the contributive regime and let health be financed by the State through general taxes; Reduce redundancy costs: while some sort of unemployment insurance is implemented, redundancy costs in Colombia must be reduced. Additionally, the firing regime should be revised, as it is considered to be within the top 40 most expensive regimes among 183 countries, according to the World Bank.
Re-skill and retrain the labor force: in order to maximize the probabilities of finding job for the unemployed or the informal worker, it is necessary to design active re-skilling and re-training policies for the countrys strategic sectors.
Deepen the countrys Industrial Policy
Develop new sectors: with the objective of inducing labor transfer from low productivity sectors to those with a higher productivity, it is necessary to deepen the countrys industrial policy, in order to foster the emergence of new sectors. In this sense, the country must prioritize sectors and areas, with the risk of making mistakes along the way hopefully at the lowest possible cost, under its National Strategy for Innovation and Competitiveness.
Bring the Micro, Small and Medium Enterprises (Mipymes, in Spanish) closer to the efficient production frontier:
Continue altering the cost-benefit relationship in favor of formality:
Establish control mechanisms and additional sanctions for running a business without the mercantile register: amongst others, some of the proposals are: i) to create in the Labor Inspection, Surveillance and Control (IVC) Division of the Ministry of Social Protection, a strategy to do rigorous monitoring and to apply sanctions to informal businesses that do not comply with labor norms; ii) to increase the number of labor and business surveillance inspectors all across the country; and iii) to undertake periodical monitoring of businesses that have received preventive training by the IVC team and apply the respective sanctions in case of noncompliance.
Apply best practices in Mipymes: replicate the experience of other countries like India, in which the Government has offered Mipymes a portfolio of best practices in management, accounting, innovation, and market access, amongst others, in order to provide them with tools that allow them to increase their productivity levels; Establish clear protocols for entry and sunset clauses for Mipymes support: in order to guarantee that Government programs and policies do not become artificial respirators for businesses that will never improve their productivity, it is recommended establishing clear protocols for entry and sunset clauses for Mipymes coaching and support; in this way, support and public resources for businesses that do not fulfill with certain performance requisites (indicators, goals, and time tables) should be taken away by national and local governments.
FORMALIzATION AND LABOR MARKET
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Science, Technology and Innovation
he science, technology and innovation (CTeI, in Spanish) agenda is at the heart of a productive transformation policy. In this sense, the Colombian Government has made it central to its economic strategy through the implementation of the following five actions: the continuation of the implementation of the CTeI Law, Law 1286 of 2009; the articulation between the Sistema Nacional de Competitividad -SNC(National Competitiveness System) and the Sistema Nacional de Ciencia Tecnologa e Innovacin -SNCTI- (National Science, Technology and Innovation System); the development of a National Strategy for Innovation and Competitiveness (ENIC, in Spanish); the decision to allot 10% of energy and mining royalties to CTeI investment; and the creation of the Development Unit at Bancoldex, Colombias Foreign Trade Bank. However, there is still a lot to do. Investment in research and development projects (R&D) in Colombia represents just 0,16% of GDP, which is very low compared to some reference countries (see table). From the public sector standpoint, there is a big dispersion of resources and little innovative results with regards to publicly financed CTeI projects. This situation translates into a low use of intellectual property in the country. Additionally, there is an enormous deficiency in the development and accumulation of skills to innovate and the quality of scientific institutions is very low. Furthermore, there are weaknesses in the adoption and transferring of technology and there is a precarious technological extension service.
Regarding the private sector, private investment in R&D is well below the public one, representing in 2009 only 0,04% of GDP. This situation translates into a low innovative capacity. In addition to this, there is scarce ability in the private sector to identify and formulate projects. Additionally, the ability to absorb technology is limited, as a result of both the lack of a technological extension service and unawareness of ways to access new technologies. The link between university and enterprises is still in an incipient stage and the absence of technology transfer offices limits the generation of business spin-offs. These deficiencies are reflected in the scarce production of high technological content goods or intangible goods susceptible of being protected by intellectual property rights.
Investment in research and development projects in Colombia represents just 0,16% of GDP, which is very low compared to some reference countries.
Investment in R&D as percentage of GDP, benchmarking countries, 2009

4,0 3,5 3,0 % of GDP 2,5 2,0 1,66 1,5 1,0 0,5 0,0 Korea Portugal Spain Brazil South Africa Turkey Malaysia Chile Mexico Colombia 1,38 1,23 0,92 0,85 0,84 0,67 0,37 0,15 % of GDP
3,36
Colombian Investment in R&D as percentage of GDP, 1995-2010

0,35 0,30 0,25 0,20 0,15 0,10 0,05 0,00 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Year Country
16

The ENIC is an important step to promote innovation as the main driver of the countrys productive transformation and competitiveness agenda. It is critical to determine a strategic prioritization of resources, to define their scope, and to design the stages and mechanisms to implement this policy; In the case of resource prioritization, three funding strategies are proposed: one should be directed towards financing knowledge development; another should be oriented towards financing knowledge application; and the last one should concentrate in the financing of open research. At least 60% of resources coming from energy and mining royalties and from the Departamento Administrativo de Ciencia, Tecnologa e Innovacin -Colciencias- (Administrative Department of Science, Technology and Innovation) should go to the knowledge application strategy. The rest of these resources should be assigned in the following way: at least 75% for the funding of knowledge development and the remainder for open research; Public agencies in charge of financing CTeI projects should undertake coordinated tenders in order to generate economies of scale. This will allow, among others, to increase resources, their potential impact, and avoid the overutilization of this mechanism. A Mixed Technical Committee under the SNCeI should be created to coordinate public agencies involved in the financing of CTeI activities; Colciencias resources for financing PhD training should concentrate on areas of knowledge that are relevant for the development of the countrys long-term sectorial bets; The relationship between university and enterprises should be strengthened through the implementation of a strategy for the creation of technology transfer offices and the promotion of mechanisms that encourage business spin-offs. Furthermore, a unique system that divulges technological services and existing incentives for the private and academic sectors should be in place. In addition to this, a technological extension service which could be directed by SENA, should be established to facilitate technology transfer and adoption by the private sector;
The ability to absorb technology is limited, as a result of both the lack of a technological extension service and unawareness of ways to access new technologies. The link between university and enterprises is still in an incipient stage and the absence of technology transfer offices limits the generation of business spin-offs.
In order to foster CTeI investment it is necessary to establish matching grants mechanisms, as non reimbursable co-financing resources. Additionally, it is important that Bancoldexs Development Unit kicks off in order to promote early stage financing, such as angel investors networks and venture capital funds; In order to improve the quality of research and development project proposals there should be a training program that teaches businessmen how to develop their business ideas and how to attract investors. The Mixed Technical Committee proposed above could design this program and coordinate its implementation; At the local level, it is important that sectorial roadmaps are designed and implemented to foster cluster development, given that it is well known that agglomeration economies encourage CTeI investment. Additionally, the Regional Competitiveness Commissions (CRC, in Spanish) should be the channel for proposals to be presented to the CTeI Fund decision-making board of the General Royalties System. Therefore, this function should be made explicit in the Law that will fully develop the Royalties Legislative Act; The Colombian intellectual property system should be revised in order to achieve better institutional articulation and, thus, facilitate the granting of property rights. In order to promote the use of intellectual property, it is necessary to design and implement training programs so that the private sector becomes more knowledgeable about the available tools for protecting intangibles goods.
SCIENCE, TECHNOLOGY AND INNOVATION
17
Infrastructure, Transportation and Logistics
ne of the most important bottlenecks for the countrys productivity is found in the deficiencies related to its infrastructure, transportation and logistics (ITL). Regarding infrastructure, the country appears to be lagging behind according to international indicators that assess conditions of roads, ports, airports, rivers navigability, and train infrastructure. The lack of planning and prioritization of infrastructure projects and the lack of articulation between different transportation modes are just some of the characteristics of the countrys current ITL situation. This, combined with the weakness of institutions in charge of these matters, such as the Instituto Nacional de Concesiones -INCO- (National Institute of Concessions), has resulted in failures in contracting and in the implementation of concessions schemes, as well as in numerous contract renegotiations and corruption problems. Additionally, there are great weaknesses in terms of the countrys logistics, which are made clear, among others, by the excessive inspections and trade procedures in ports and airports, coupled with the lack of competitiveness of the freight transport sector. Given the above, the country does not rank well in international key performance indicators (see graph).
One of the most important bottlenecks for the countrys productivity is found in the deficiencies related to its infrastructure, transportation and logistics. The country appears to be lagging in international indicators that assess conditions of roads, ports, airports, rivers navigability, and train infrastructure.
The country is starting to change this situation through major investments in infrastructure and the strengthening of institutions in charge of these matters. However, given that this area is so critical to achieve a productive transformation, any effort on this matter must be deepened and accelerated.
Logistics Performance Index, 2010

80 70 60 50 67 72

Prioritizing infrastructure projects and implementing logistical optimization: although the country has a Transport Master Plan, it is important to guarantee its implementation and prioritize logistical pathways that integrate different transportation modes, identifying and resolving bottlenecks that hinder effective freight flow along these prioritized pathways. In order to achieve this, it is necessary to design a policy for the implementation and development of multimodal transport; Likewise, operation management offices for these pathways should be established in order to guarantee their efficiency and maintenance; Regarding freight inspection, it is required to implement not only mechanisms for institutional coordi-
Ranking
50 40 30 20 10 0 23 25 28 29 34 39
49 41
Chile
Malaysia
South Africa
Portugal
Mexico
Brazil
Peru
Country
Colombia
Korea
Spain
Turkey
Source: World Bank.
18
nation, but also control mechanisms supported by information and communication technologies;
Strengthen the countrys concession policies: the country cannot continue financing infrastructure projects just through the National General Budget. In order to attract the private sector to develop the countrys infrastructure, some adjustments must be made in terms of the sectors institutions, the implementation of best practices in concessions, and the structuring of financial assets that would be attractive for investors; It is essential to give the Agencia Nacional de Infraestructura -ANI- (National Infrastructure Agency) the exclusiveness and independence to structure, promote and define mechanisms to finance infrastructure projects for all transportation modes. With regards to concessions, there should be clear and efficient procedures for tenders and the awarding of projects, as well as an effective regulatory framework that identifies the risks and obligations of parties. Lastly, regarding structuring attractive financial assets, the use of project finance should be promoted, as well as the adoption of a system introducing maximum profitability limits for pension funds. The latter in order to reduce incentives for herd behavior towards the same low risk portfolios by institutional investors that could bring in resources for infrastructure;
There are great weaknesses in terms of the countrys logistics, which are made clear, among others, by the excessive inspections and trade procedures in ports and airports, coupled with the lack of competitiveness of the freight transport sector.
The lack of planning and prioritization of infrastructure projects and the lack of articulation between different transportation modes are just some of the characteristics of the countrys current infrastructure, transportation and logistics situation.
It is critical to have a world-class freight transport sector. Even though the elimination of the freight price table was a good first step towards developing this sector, there is still much progress to be done. Especially when a world-class freight transport sector will positively impact all the sectors of the Colombian economy. In this sense, the Ministry of Transportation should continue the process for improving and adapting the existing mechanisms to replace the vehicle fleet, and must assure that the countrys freight transport supply adjusts itself in a flexible way to changes in demand conditions. Additionally, with regards to multimodal policy, it is necessary to generate the incentives to promote the integration of freight transportation firms of different modal nature. For its implementation, it will also be necessary training the labor force of the different modes, and remove all of the regulatory barriers that discourage the development of different transport modes; The implementation of a productive transformation policy will imply addressing a series of ITL related distortions and bottlenecks that are specific to each sector or industry. Moreover, many of these issues respond to local characteristics, making them specific to a geographical context. Therefore, this kind of obstacles must be addressed by the agency responsible for the implementation of the productive transformation policy, with the support of national level institutions such as the Logistics National Committee, under the National Competitiveness and Innovation System. Furthermore, these specific issues should be addressed by clusters managers at the local level, who must seek to articulate the relevant institutional offer towards solving these issues, through the CRC.
INFRASTRUCTURE, TRANSPORTATION AND LOGISTICS
19
Information and Communication Technologies
he use of information and communication technologies (ICTs) in Colombia is fundamental to close the existing gaps in labor productivity. The intra-sectoral gaps show that Colombias productive sector is not using these types of technologies and, therefore, finds itself far from the efficient production frontier. On top of its usage, ICT appropriation is a key element to increase productivity in areas such as education, medicine, justice, and the public sector, amongst others, and to increase the countrys productivity as a whole. Regarding ICT absorption, during 2010 the country kept ranked on intermediate positions in international rankings of ICT use, absorption and development. Colombia ranked 49th amongst 66 countries in the IT Competitiveness Index, reflecting the low performance of ICT R&D in the country. The country also moved back on the Technological Readiness pillar of World Economic Forum (WEF) Global Competitiveness Report, indicating
that it is essential to strengthen the promotion and use of ICTs in daily activities and in productive processes, in order to achieve a higher level of competitiveness in the economy; it is also critical to increase levels of productivity and efficiency. The increase in the use and appropriation of ICTs depends on tackling in restrictions both from the supply and the demand side. For example, in terms of supply, despite sustained growth, Colombia lags behind on mobile and fixed broadband penetration compared with other countries (see graph); there is also an important digital gap between rural and urban areas. Additionally, matters such as low household PC penetration, high fees along poor service quality, have limited the general and efficient use of broadband in the country. The government has been working on generating tax and regulatory incentives to counteract these limitations, as a way to reach the goal of universalizing ICT services, mainly in the broadband side.
Broadband subscriptions per 100 inhabitants, 2010.

100 90 80 Fixed (wired)-broadband Mobile-broadband
91
73
Per 100 inhabitants
70 60 50 40 30 20 10 0 Mexico Colombia Malaysia Chile Peru Brazil Turkey Spain Portugal South Africa Korea
56
37 27 17 5,7 5,6 10 7 3 7 10 8 7 11 1 10 18 7 23
19
Country
Source: International Communication Union - UIT
20
On the demand side, the use and appropriation of ICTs also depend on the needs and skills of potential users. Colombias results on the 2009 OECD PISA survey of digital literacy indicate that about 70% of students are below the minimum level required in digital reading as to surf the web in an efficient and effective way. This shows that Colombian students are not yet able to benefit from digital tools, limiting their access to educational, employment and social opportunities characteristic of the digital age. Studies show that ICTs incorporation and appropriation develop through different phases, according to the particular growth and evolution dynamics of each company. However, the productivity impact for businesses able to incorporate ICTs to enhance their innovative processes is more striking. In the case of MSMEs, it is important to highlight the benefits in terms of building social capital at low cost, which often triggers new socio-economic relations resulting in new businesses or new ideas of good practice in order to expand and be more productive.
The increase in the use and appropriation of ICTs depends on tackling in restrictions both from the supply and the demand side. For example, in terms of supply, despite sustained growth, Colombia lags behind on mobile and fixed broadband penetration compared with other countries.

Widespread diffusion of broadband
Use and adoption of ICTs to enhance public and private sector productivity :
It is critical to extend the supply and use of prepaid broadband in the country. Current high internet rates prevent the increase in service penetration, especially in low-income population. The proposal is to extend the existing prepaid plans offering with affordable rates and attractive packages suitable to the low-income population; It is important to offer consumers the possibility to package their PC purchase with broadband access plans that link the user to the service from the very beginning; The inclusion of s computer within every unit of social interest housing purchased is suggested. This proposal would increase PC household penetration, representing just an additional marginal cost for new homeowners.
Universalize the scope of Gobierno en Lnea (Government Online) Strategy at regional level, taking advantage of the economies of scale in the development of related virtual services of the national system; Include Cloud computing trainings for MSMEs within the Plan Vive Digital (Live Digital Plan). Cloud usage will allow cost reduction for companies using it, bolstering in that way the use of ICTs.
ICTs application in cross-cutting areas of competitiveness
e-Learning: It is important that regional governments take advantage of the resources from royalties to promote projects that increase the use of information technologies in public education. e-Justice: It is critical to promote the digitalization of court records and administrative proceedings, in order to optimize courts management. This will speed up final decisions in judicial proceedings.
INFORMATION AND COMMUNICATION TECHNOLOGIES
21
Financial System
n order to achieve the productive transformation the country needs, progress must be made in terms of the access the Colombian population has to financial services, the capacity to finance entrepreneurs throughout all the entrepreneurship stages, and the use of risk management strategies against adverse shocks that might compromise productivity. The country has been making progress in terms of financial inclusion, mainly due to the growth of non-traditional channels. However, the high levels of informality, the limits on interest rates, the high costs associated to bancarization (i.g. 4x1000 tax, handling fees, etc.), and the low levels of basic knowledge on finance-related issues, continue to hamper the countrys further progress. Proof of this is that Colombia is still lagging behind in several of the international indicators on this matter, when compared to other countries. An example of this is the WEFs indicator on people and businesses access to capital and financial services, in which the country ranks 47th out of 57 countries and last amongst some countries of reference (see graph). Financial Access
50 45 40 42 31 27 20 12 Chile South Africa Colombia Malaysia Turkey Mexico Peru Korea Spain Brazil 23 43 44 46 47
The country has been making progress in terms of financial inclusion, mainly due to the growth of non-traditional channels. However, the high levels of informality, the limits on interest rates, the high costs associated to bancarization and the low levels of basic knowledge on finance-related issues, continue to hamper the countrys further progress.
Ranking
35 30 25 20 15 10
Country
Note: Access by individuals and businesses to different forms of capital and nancial services. 1-to-7 scale (1 and 7 correspond to the worst and best possible outcomes, respectively). Source: World Economic Forum - The Financial Economic Report 2010.
The situation regarding access to finance throughout the different entrepreneurship stages is no different. An incipient early stage financing industry (angel investors, seed capital, and venture capital) is just budding. In this regard, it is important to highlight the creation of Bancoldexs Development Unit, which will have, among others, the task of increasing the offer of early stage financing. Regarding bank credit, the country needs to increase lenders rights protection, so that credit does not only flow toward collaterized projects, but also toward those with expected higher returns. In terms of capital markets, despite there have been major advances regarding market deepening, the country is still lacking an integral policy to foster the markets real take-off. With regards to risk hedging, insurance penetration levels in Colombia are still low 2.3% of GDP. The same happens in terms of development and use of the derivatives market. All of the above must be coupled with the implementation of a comprehensive strategy of financial education, aiming at improving the countrys existing deficiencies in this area. Fortunately, Fogafin (Colombias Financial Institution Guarantee Fund) is leading an effort to define and implement a Financial Education National Strategy.
22

Broaden access to financial services
Risk Hedging
Generate incentives to induce payments through the financial system. Thus, the country should consider introducing tax reductions ( for example VAT discounts) and other type of incentives to transactions using plastic money and to those made through electronic channels; Eliminate limits currently set on interest rates, which only restrict credit access to part of the population. On the other hand, as long as the fiscal situation allows it, the possibility of accelerating the 4x1000 gradual tax elimination must be explored.
Deepen the use of derivative markets. A strategy to increase the use of these mechanisms must be twofold. In the first place, it should include measures to strengthen the countrys derivatives market, as well as its wider use. Second, it should include a set of measures aimed at divulging the existence of these tools, as well as their potential risks and benefits; Strengthen the insurance sectors institutions and regulation. Progress must be made in key regulation for the insurance industry, such as updating the reserves regime.
Financial Education
Financing throughout the different stages of entrepreneurship
Implement the Innovation and Competitiveness National Strategy and, in particular, bring into operation Bancoldexs Development Unit, which will be in charge of deepening the early-stage financing offer; Design strategies towards improving and strengthening contractual terms, aiming at guaranteeing lenders rights and facilitating enforcement; Design a comprehensive capital markets development policy including, amongst others, greater investor protection; measures to increase the quality of the markets regulation and surveillance; definition and prioritization of areas in which to improve and a revision of existing demand vehicles; Accelerate the harmonization of accounting standards to international standards. Despite the Public Accountancy Technical Council has already started this task, in compliance with the Accounting Law (Law 1314 of 2009), it is well known that this process is going at a very slow pace.
Implement a comprehensive financial education strategy that articulates all the relevant public and private agents. In this regard, the implementation of Fogafins Financial Education National Strategy must be backed. The National Competitiveness and Innovation System could be used as a public/private coordination organ for the implementation of this strategy.
Regarding bank credit, the country needs to increase lenders rights protection, so that credit does not only flow toward collaterized projects, but also toward those with expected higher returns. In terms of capital markets, despite there have been major advances regarding market deepening, the country is still lacking an integral policy to foster the markets real take-off.
FINANCIAL SYSTEM
23
Tax System
he tax structure of a country directly influences its economic growth and competitiveness. Through a good tax system, the State not only guarantees the generation of sufficient resources to satisfy the needs of its people and maintain the stability of public finance; it also shapes private incentives to invest, generate employment and explore business alternatives in new economic sectors, directly influencing the possibilities for a productive transformation of the country. Colombia`s tax system is far from aligned with the countrys competitiveness agenda. First, several taxes distort the decisions of investors and workers. Indeed, Colombia has a very high corporate tax rate that not only makes the country less attractive to local investors and foreigners, but it also promotes evasion and affects the gross savings of the production. It also has very high payroll taxes, which halts the generation of formal employment. Moreover, it has badly designed capital taxes (in Spanish, impuestos al patrimonio), which discourage investment, promote economic dwarfism and act as a brake for productivity and savings (see graph).
Through a good tax system, the State not only guarantees the generation of sufficient resources to satisfy the needs of its people and maintain the stability of public finance; it also shapes private incentives to invest, generate employment and explore business alternatives in new economic sectors, directly influencing the possibilities for a productive transformation of the country.
Total tax rate , 2010

80 69,0 60 56,5 50,5 40 29,8 25,0 Malaysia (49) Portugal (85) Spain (119) 20 Chile (21) Korea (32) South Africa (36) Peru (70) Colombia (135) Mexico (110) Brazil (133) 30,5 40,5 33,7 43,3 44,5 78,7
% of pro ts
Country
Note: This variable is a combination of pro t tax (% of pro ts), labor tax and contribution (% of pro ts), and other taxes (% of pro ts). Source: World Bank/International Finance Corporation, Doing Business 2011: Making a Difference for Entrepreneurs
24
Turkey (88)
Second, Colombia`s tax system is complex; fulfilling tax obligations is cumbersome and expensive, which is why the level of tax distortion is major and the collection level for the State is poor. Colombia has eight different VAT rates, two tax regimes (common and simplified) and a high divergence between the nominal rate of withholding tax and the tariff effectively charged to the taxpayers. Moreover, it has a high number of tax exemptions which contribute to the complexity of the tax system, reduce the productivity of taxes and constitute a violation to the principle of horizontal equity. Third, Colombia shows a big concentration of tax burden. Tax payment falls on a reduced number of taxpayers, generating a much reduced real tax base. Though there have been some advances like Law 1430 of 2010, which eliminated tax deductions for investment in capital goods, and the recent tariff reforms that have reduced average tariffs in general, Colombia is still far from having a tax system in line with the aspirations of the country. If Colombia wants to be competitive, it is imperative to modify the tax system.
Colombia`s tax system is complex; fulfilling tax obligations is cumbersome and expensive, which is why the level of tax distortion is major and the collection level for the State is poor. Colombia has eight different VAT rates, two tax regimes (common and simplified) and a high divergence between the nominal rate of withholding tax and the tariff effectively charged to the taxpayers.

It is proposed to reduce the corporate income tax rate from 33% to 20%. This reduction would be complemented through the introduction of a fixed tariff of 13% for the distribution of dividends, keeping the progressive tariff for income of natural persons;
It is convenient to consider reducing the tax burden over payrolls; in particular, the elimination of parafiscal contributions associated to the Compensation Funds and the ICBF, and the contributions to the contributive health regime, searching for alternative sources of financing for these items; It is necessary to reduce the number of VAT tariffs to two: 0% and 16%. The first rate would apply in an exceptional manner to the goods and services that due to their economic and social functions should be exempt from the VAT, and also to those goods and services that are exported and consumed outside Colombia. The second would apply for the rest of goods; Is recommended to reduce the number of taxpayers covered by the simplified regime by reducing the gross income eligibility threshold from 4,000 to 1,000 tax value units (UVT, in Spanish); It is appropriate to eliminate, or at least reduce to its smallest expression, the presence of tax exemptions in the Colombian tax system; The number of natural persons paying taxes must be increased through the reduction the threshold as of which natural persons start to pay income and supplementary taxes.
Colombia's tax system is far from aligned with the countrys competitiveness agenda. Several taxes distort the decisions of investors and workers. Indeed, Colombia has a very high corporate tax rate that not only makes the country less attractive to local investors and foreigners, but it also promotes evasion and affects the gross savings of the production.
TAx SYSTEM
25
promotion and protection of Competition
usiness rivalry in local markets is one of the factors that most affects a nations` degree of competitiveness. Where competition between companies exists, there lies economic growth, innovation, productivity and competitiveness. That explains why countries that progressively increase market competition experience a higher growth in their GDP per capita. Even though Colombia has laws that promote and protect competition since 1959, its markets are still concentrated, with low rivalry and high barriers of entry (see graph). In addition, the perception about the effectiveness of Superintendencia de Industria y Comercio (SIC) Colombia`s Competition Agency- is not as strong as it should be.
Even though Colombia has laws that promote and protect competition since 1959, its markets are still concentrated, with low rivalry and high barriers of entry. In addition, the perception about the effectiveness the Colombian Competition Agency is not as strong as it should be.
Extent of market dominance

7 6 5
4 3 2 Malaysia (14) Spain(29) Brazil (40) Chile (88) Peru (89) South Africa (37) Colombia (94) Korea (114) Turkey (41) Portugal (115) Mexico (124) 1
Country
How would you characterize corporate activity in your country? (1 = dominated by a few business groups); 7 = (spread among many rms) Source: World Economic Forum, Global Competitiveness Report 2011-2012
The absence of strong rivalry in Colombian markets comes from multiple sources, amongst which are anticompetitive conducts performed by private agents in the market (cartels, abuse of dominance and/or anticompetitive mergers), and government regulations that restrain competition in the market and protect specific sectors or businesses. This shows how the enactment of antitrust laws is not by itself sufficient to promote competition. Effective competition policy requires, in addition, the existence of a strong, independent and transparent competition agency that punishes anticompetitive conduct, and prevents the enactment of anticompetitive regulations. Indeed, there is a direct relationship between the effectiveness of competition laws and the nature of the institutions entrusted with their application. For such reason, the institutional design of the competition agency is the cornerstone to guarantee its effectiveness in the market. Multiple efforts have been put in place to improve the effectiveness of Colombias competition policy. This includes the enactment of new competition laws; an increase in the promotion competition laws by the SIC; and an increase in the number of cartel and abuse of dominance investigations. Nonetheless, data shows that the effectiveness of the Colombian Competition Agency has not been constant. On the contrary, it has depended on the staff in charge of the Agency. This has resulted in a
26
Index
very low repression of anticompetitive conducts in some periods of time, something that has affected Colombia`s competitiveness. The establishment of a coherent and effective competition policy in Colombia requires the modification of the rules that regulate the institutional framework of the Colombian Competition Agency. Stronger independence, clearer legal proceedings, sufficient budget, and better legal mechanisms to enforce competition laws, are some of the challenges that Colombia must face if it wants to count on competitive, innovative, efficient markets.

The creation of a new Competition Agency, with at least the following characteristics, is suggested:
The establishment of a coherent and effective competition policy in Colombia requires the modification of the rules that regulate the institutional framework of the Colombian Competition Agency. Stronger independence, clearer legal proceedings, sufficient budget, and better legal mechanisms to enforce competition laws, are some of the challenges that Colombia must face.
Exclusively dedicated to the promotion of competition in the Colombian market;
There is a direct relationship between the effectiveness of competition laws and the nature of the institutions entrusted with their application. For such reason, the institutional design of the competition agency is the cornerstone to guarantee its effectiveness in the market.
Divided in three branches: one dedicated to the investigation of anticompetitive conducts and the analysis of mergers; one collegiate branch in charge of judging anticompetitive conducts and mergers that may lessen competition, and of the general direction of the competition agency; and another dedicated to economic and market research. The collegiate body in charge of judging the conducts should be made up by people that meet the minimum professional standards, elected for fixed and staggered periods of time, without the possibility of reelection, and whose causes for dismissal are expressly stipulated by Law; Have a right to veto regulations from public entities that might affect free competition in the Colombian market. Alternatively, the competition agency should be legitimized to file nullity actions before courts of law in order to remove anticompetitive regulations.
The enactment of a clear and specific regulation of private antitrust actions is highly recommended.
This regulation should allow private parties to recover damages resulting from anticompetitive conduct performed by other market actors.
PROMOTION AND PROTECTION OF COMPETITION
27
justice
ne of the biggest disincentives to do business in a country is the lack of legal certainty. When businessmen do not have certainty about the rules that govern their investments, or do not count with a fast, easy and predictable mechanism to enforce them, they back their investment efforts or assume a very high cost in doing them. Colombias judicial system is still one of the most inefficient in the world. Judicial proceedings are lengthy and unpredictable; confidence in justice and judges is low; levels of corruption -according to citizens- are high; and the profession of being a judge does not have the prestige it is due. According to Doing Business 2012, which measures the efficiency of judicial systems, Colombia obtained the 149th place out of 183 countries (see graph 1). Similarly, the WEF Global Competitiveness Report 2011-2012, locates Colombia in the 88th place between 142 countries, with regards to the indicator that measures the efficiency of the legal system.
One of the biggest disincentives to do business in a country is the lack of legal certainty. When businessmen do not have certainty about the rules that govern their investments, or do not count with a fast, easy and predictable mechanism to enforce them, they back their investment efforts or assume a very high cost in doing them.
Time (days) to enforce a contract

1600 1400 1346
Number of days
1200 1000 800 600 400 200 0 415 420 425 428 230 547 480 515 600 731
Country
Source: Doing Business 2012.
The difficulties of the Colombian judicial system do not come from the lack of economic resources. It is true that the judicial system needs more investment; however, to improve the performance of Colombian courts, other factors need to be taken into account. Today, Judges spend much of their time performing administrative duties that could be performed by other institutions; the Colombian legal system is extremely procedural (too much steps to make a decision), which lengthens judicial proceedings; there is excessive use of the proceedings to enforce fundamental constitutional rights (accin de tutela, in Spanish); the transition from written to oral trials has been very slow; lawyers employ dilatory ploys that are not opportunely sanctioned; the legal branch does not use the necessary ICTs to speed up proceedings; the human capital of the judicial branch is constantly questioned; the evaluation of judges does not seem to represent the users opinion; and the use of alternative mechanisms for conflict resolution is rather timid. Although significant progress has been made in the last years, the country still requires multiple reforms to reach the legal certainty needed to be competitive. Judges duties must be reorganized in such a way that they concentrate only in those that need a legal decision; parties must play a more active role in judicial proceedings; the system of recruitment, training and evaluation of judges must be improved; ICTs must be implemented, so that
Mexico
Turkey
South Africa
28
Colombia
Portugal
Chile
Malaysia
Korea
Spain
Brazil
Peru
absurd obligations, like having to go every day to the courthouse to revise the status of a file can be eliminated; the oral trial system must be applied adequately; higher promotion for the use of alternative mechanisms for conflict resolution is needed; legal mechanisms so that the judges can discipline the parties and their lawyers are required; more important, the establishment of mandatory judicial precedent is pertinent. As long as the country does not make a structural reform to the judicial branch that implies a change in the structure of proceedings and the litigation culture, it will continue to occupy low markers in the national and international indicators.
It is necessary to further specialize jurisdictions and create specialized judges for topics such as bankruptcy, environment, competition, consumer protection, intellectual property, among others. Under the current jurisdictional division, civil judges deal with legal matters that bear no legal relationship with each other. The proposed specialization will improve the quality of judicial decisions and the efficiency of courts. It is pertinent to direct all the efforts and resources necessary to effectively implement the oral system in judicial proceedings. A prompt implementation of this system, which includes appropriate training to judges and magistrates in charge of applying it, will result in a better allocation of human and economic resources in the justice system. It is necessary to eliminate the procedural institution called lawsuit reform, by which the parties may reform their lawsuit at the beginning of the process. This institution, which is highly used in civil and administrative proceedings, has acted as a disincentive for plaintiffs to file complete lawsuit, and has strongly delayed judicial proceedings. Its elimination will reduce the time to obtain a final decision in judicial proceedings.

Specialized executive courts must be created, dedicated solely to debt collection, in order to liberate the rest of judges from attending these proceedings that today take up 80% of their time. The creation of executive courts must come in tandem with the creation of an Administrative Support Entity (EAA, in Spanish) for the Judicial Branch. The proposed EAA would assume all the administrative tasks that are currently taking up all the time and efforts of ordinary judges, such as: designation of experts, court receivers, liquidators, etc. The Colombian procedural system must be reformed in order to transfer to lawyers and parties certain tasks that today are being executed by judges. It is therefore necessary to evaluate the implementation of a discovery system that allows parties to collect evidence without presence of a judge. A system of mandatory judicial precedent should be established. This would require municipal and circuit judges to follow the jurisprudence of the tribunals of their judicial district and of the Supreme Court; and would require tribunals to follow the precedents set by the Supreme Court. It would also be appropriate to create a bar or collegiate exam for lawyers, so that all students graduated from a law school that want to practice law have to pass this aptitude and knowledge test.
Colombias judicial system is still one of the most inefficient in the world. Judicial proceedings are lengthy and unpredictable; confidence in justice and judges is low; levels of corruption -according to citizens- are high; and the profession of being a judge does not have the prestige it is due.
JUSTICE
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Corruption
ccording to the World Bank, corruption is the greatest obstacle for a countries economic and social development. Corruption not only undermines the resources the State uses to satisfy the needs of its citizens; it also makes investment opportunities less appealing, halts economic growth, perpetuates poverty levels, promotes inefficiency, instability and violence. According to national international indicators, Colombia continues to be a country with high levels of corruption. Proof of this is that, according to busi-
nessmen, corruption continues to be the biggest disincentive for doing business in Colombia (see graph). The country ranks poorly on international indicators that measure the diversion of public funds, public trust of politicians, and irregular payments and bribes, among others. National indicators also show a high degree of corruption in State contracting; the Legislative and Judicial branch continue to have high levels of corruption; the deviation of resources coming from royalties is immense; and red tape continues to be a source of offer and demand of corruption.
The most problematic factors for doing business, 2011-2012
Corruption Inadequate supply of infrastructure Inef cient government bureaucracy Access to nancing Tax rates Crime and theft Restrictive labor regulations Inadequately educated workforce Tax regulations In ation Foreign currency regulations Policy instability Poor work ethic in national labor force Poor public health Government instability/coups 0 0,7 0,5 4 8 12 16 2,8 1,8 4 3,9 5,9 5,5 7,5 7,3 9 10,6 10,1 12,1
18
20
Note: From a list of 15 factors, respondents were asked to select the ve most problematic for doing business in their country and to rank them between 1 (most problematic) and 5. The bars in the gure show the responses weighted according to their rankings. Source: World Economic Forum - The Global Competitiveness Report 2011-2012.
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The effects of corruption on competitiveness are perverse: inefficiency, poverty, violence, inequality, political and economic instability, are only some of the consequences of this practice. In the last few years, important efforts have been made to minimize corruption in Colombia. The Plan Nacional de Desarrollo 2010-2014 (National Development Plan) lays out a general action plan to increase government transparency; Congress issued an anticorruption statute; the Presidential Program for Modernization, Effectiveness, Transparency and the Fight Against Corruption has brought forth several activities that attempt to increase the levels of transparency and decrease corruption in Colombia; and an increase in the effectiveness of the controlling entities in the fight against corruption is perceived. Notwithstanding the above, the efforts are still low considering the dimensions of the problem. The country must change the way in which the Public Administration does business; revise the institutions and processes that generate corruption and modify them. In other words, the country must eliminate processes that generate incentives of offer and demand for corruption. The simple removal of bad apples from public entities with recourse to investigation and sanction will not be enough if the source of income from corruption is still active, because there will always be another group of officials who will replace the old ones and perform corruption activities.
In the last few years, important efforts have been made to minimize corruption in Colombia. The National Development Plan lays out a general action plan to increase government transparency; Congress issued an anticorruption statute; the Presidential Program for Modernization, Effectiveness, Transparency and the Fight Against Corruption has brought forth several activities that attempt to increase the levels of transparency and decrease corruption in Colombia.

The government must design an all-inclusive policy to fight corruption. Such policy should include all branches of the public sector, territorial entities, and civil society. The policy must define specific strategies, and quantifiable and practical goals for the entities in charge of preventing, investigating and sanctioning corrupt conducts. Also, the policy should have as a primary objective the modification of the way in which the Government does business; The National Planning Department (DNP, in Spanish) must issue a detailed and precise State contract guide on mandatory requirements for State entities, establishing substantive rules on government contracting ( for example, laying out the steps that all public entities should be taking into account to contract public goods or services);
Congress must generalize and make mandatory the use of public auction processes in commercial exchanges for purposes of contracting of goods and services with contractors who can be selected by means of a summarized process; An amnesty system must be incorporated for those who, without being processed for crimes of corruption (but having participated in such), denounce their existence and offer sufficient evidence to implicate other participants in the crime, such as in the case of price cartels in Competition law; It is necessary to modify the performance evaluation system for civil servants. The evaluation of officials must move toward objective factors, almost mathematical, that request from the evaluators the use of grades when the official does not meet the specific and quantifiable goals, such as the number of tasks performed or decisions made in a specific period of time.
CORRUPTION
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Sustainability
or a country to be competitive, as well as productive and efficient, it must favor long-term economic growth. Therefore, it must face challenges that have an impact on competitiveness, such as environmental protection, fulfillment of the social needs of its population and guarantee the transparency and governance of the economic actors of its economy. To this effect, its development must be sustainable, that is, a development that satisfies the needs of the present without compromising the ability of future generations to meet their own needs. In environment, this means considering a number of important elements that are critical for long-term development. In particular, the way in which the physical environment has been handled can have an irreversible impact in the future productivity of the country. In the social ground, there are areas of potential vulnerability for national competitiveness due to social cohesion. In the economic area, public institutions can create vulnerability in the markets; but private institutions are also important for creating wealth, thats why the frequent corporation scandals makes evident the importance for business to be managed with transparency and to pursue high accounting and financial standards for reporting.
Impact of sustainability on competitiveness
70 60 50 Rank 40 30 20 10 Spain
The long-term competitiveness of a country is strengthened when its businesses are led with honesty, and when those who lead them have rigorous ethical standards, not only in their interaction with the environment but also in their relationship with the government, other businesses and the people. The economy also gets stronger when there is transparency in the government and in all entities of the public sector. The World Economic Forums Global Competitiveness Report 2011-2012, addresses the relationship between sustainability and competitiveness and presents a preliminary version of the so called Sustainable Competitiveness Index (SCI). According to the SCI, Colombia classifies as 55th from a sample of 100 countries. This implies that the inclusion of variables that impact sustainability improves the rank of the country in more than ten positions with regards to the 142 countries measured in the general WEF ranking, the Global Competitiveness Index (GCI), in which the country ranks 68th. However, with regards to the reference countries, in the SCI as well as in the GCI, the countrys competitiveness is amongst the worst (see graph).
Mexico
Malaysia
Korea
Chile
Portugal
South Africa
Brazil
Peru
Country Ranking SCI (among 100 countries)

Source: World Economic Forum, Global Competitiveness Report 2011-2012.
Ranking GCI (among 139 countries)
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Colombia
Turkey
Colombia ranks better in the SCI thanks to the good results in environmental KPIs. In the social factors, despite the advantages in the demographic area, common to all Latin American countries, Colombia has the worst performance in variables such as juvenile unemployment. In economic matters, Latin America is characterized by its low capacity for innovation and unsuitable market conditions, equally present in Colombia.

Environmental Sustainability
Promote coherent environmental policies at three levels: adapt growth strategies in a way that minimize the effects of climate change in the ecosystem; play a more active role in international business and agreements on climate change and to participate in the discussions of global policies on the subject; and put in place specific national policies; Efficient use and management of the resources must constitute a primary goal in economic policy, which implies fiscal and normative interventions that go beyond those that are strictly environmental; Innovation must play a fundamental role in the creation and adoption of clean technologies.
For a country to be competitive it must favor long-term economic growth. It must face environmental protection, fulfillment of the social needs of its population and guarantee the transparency and governance of his economic actors.
Strengthen the institutions for conflicts resolution; Strengthen the local and national democratic structures to protect the civil liberties and community initiatives to control the accountability and responsibility of the government.
Economic Sustainability
Businesses must agree to align their environmental strategies and operations, employment standards and corporate ethics; Integrate changes into operations, management, strategy and culture in the business activity. In particular, as it is established in some of the principles of the UN Global Compact Initiative, it is important to emphasize that businesses improve their performance in each of these three areas of sustainability: In environmental issues, businesses must seek a preventive focus that favors the ecosystem, garner initiatives that promote environmental responsibility, and favor the development and spread of technologies that are environmentally friendly; In employment standards, businesses must support the freedom of association and effective recognition of the right to collective bargaining agreements, eliminating all instances of forced or coerced labor, support child labor eradication and abolish employment and occupational discrimination practices; In corporate ethics, it is imperative that businesses oppose corruption of all kinds, including extortion and bribery.
Social Sustainability
Environmental sustainable growth policies must match with the objectives to reduce poverty; Provide a better infrastructure that improves health and education, and introduce technologies that favor an ecosystem for innovation that results in and higher productivity that translate in better and less expensive goods and services for the poor; Design policies that favor income and other objectives simultaneously. Though it cannot be assumed that economic growth inevitably moves toward social development and eradication of poverty, many countries have been able to advance in these two fronts by generating more income for their population; Policies that promote economic growth and those that favor social development overlap. Its important to look for possible synergies;
SUSTAINABILITY
33
regional Chapter: Implementing the productive Transformation policy at the Local Level
t the end of the day, it is businesses, sectors and clusters the ones that compete, not countries. Therefore, a countrys competitiveness is defined at the local level, where these agents arise and from where businesses compete. Colombia will be a more competitive country if and only if it is able to generate competitive businesses, sectors, and clusters. Thus, the implementation of a vertical agenda under a productive transformation policy necessarily implies undertaking public and private efforts at the local level. It is, thus, crucial that Colombia organizes itself, both at the local and national level, to implement this type of work at the local level. The implementation of the proposed agenda is inconceivable if firstly or simultaneously one doesnt strengthen the Regional Competitiveness Commissions (CRC, in Spanish) from an institutional and technical standpoint. In terms of institutional strengthening, it is very positive the role that has been granted to the CRC by the National Development Plan (PND, in Spanish) Law, with regards to articulating the different local agencies and organizations that work on improving local competitiveness. This Law will have to be fully developed by decree, which should serve to define the bases for the institutional architecture of CRC. With regards to their institutional architecture and given the positive experience in the organization and operation of national level committees of the National Competitiveness and Innovation System (SNCeI, in Spanish) the CPC proposes replicating this same model at the local level (see diagram). Additionally, the CRC require technical strengthening. Firstly, so that they are able to implement and design sectorial roadmaps at the local level. Secondly, so that they have the capacity of identifying and structuring projects to support the growth dynamics of sectors on which efforts are being focused. The design as well as the implementation of roadmaps must be led by cluster managers from the private sector. With the objective of supporting these cluster managers work, the CRC should establish cross-cutting working groups that bring together the relevant public/private agents, according to the nature of each working group.
Proposal of institutional architecture for Comisiones Regionales de Competitividad

Regional Competitiveness Commission *Guilds * Labor Sector * Chamber of Commerce *Entrepreneurs *Academia * Regional development Instances * Government * Mayors * Public entities in the local level
Executive Committee * Chamber of Commerce President * Private sector representative * Governor * Mayor
Technical Committee Technical equipment: * Chamber of Commerce * Private Sector Technical equipment: * Government * Mayoralty
Technical Secretariat * Local Chamber of Commerce Civil society Public sector
Additionally, it is important to take into account the new role that the PND Law gives Bancoldex as a development bank. In this regard, the work of sectorial teams at the local level should be supported by the Development Unit that is currently been established by Bancoldex to fulfill its new role. With regards to governance, the Executive Committees of the CRC must serve as a board of directors to which all the sectorial teams that are working at a point in time will have to be accountable to.
34
Empirical evidence suggests that one of the best practices when implementing productive transformation agendas is adopting a carrot and stick type of incentive scheme. Thus, national and local governments should quit supporting sector bets that are not complying with certain performance requirements. With this scheme, sectors under this policy will have the incentives to fully implement the agendas that should lead them towards attaining productivity gains. The country is lucky enough that the need for implementing a productive transformation agenda has coincided with a mining and energy boom and with a reform of the distribution of these sectors royalties. The new General Royalties System (SGR, in Spanish) establishes a series of funds to which departments will have access. In particular, there are three funds that will be relevant for implementing competitiveness agendas at the local level. These are: the Fund for Science, Technology and Innovation, the Fund for Regional Development, and the Fund for Regional Compensation. The Regional Competitiveness Plans, and more concretely the sectorial roadmaps, must become a source of investment projects that support the dynamics of the departments sectorial bets to be financed with royalties. The Legislative Act that established the SGR foresees the creation of Consulting Committees with the participation of the civil society, to support the organs that decide on the use of royalties. Within the SNCeI, discussions are taking place with the Ministry of Finance and the National Planning Department (DNP, in Spanish) in order to include in the regulatory bill that will regulate the Legislative Act, that CRC are part of those Consulting Committees. In this way, the CRC should become one of the most important sources for projects to be considered by the regional decision organs (or triangles), ensuring that evaluated projects coherent with the middle and long-term visions that regions have defined through their CRC. The stage of development in which departments will be in twenty years time will hinge upon the efficiency and efficacy with which they invest the resources derived from royalties.
A countrys competitiveness is defined at the local level, where these agents arise and from where businesses compete. Colombia will be a more competitive country if and only if it is able to generate competitive businesses, sectors, and clusters. Thus, the implementation of a vertical agenda under a productive transformation policy necessarily implies undertaking public and private efforts at the local level. It is, thus, crucial that Colombia organizes itself, both at the local and national level, to implement this type of work at the local level.
REGIONAL CHAPTER: IMPLEMENTING THE PRODUCTIVE TRANSFORMATION POLICY AT THE LOCAL LEVEL
35

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TOWArDS COLLECTIvE prOSpErITY

COLOMBIAn prIvATE COUnCIL On COMpETITIvEnESS

productive transformation valor agregado

COLOMBIAn prIvATE COUnCIL On COMpETITIvEnESS

COLOMBIAn prIvATE COUnCIL On COMpETITIvEnESS

Rosario Crdoba Garcs President and CEO

Marco Llins Vargas Vice president

TOWArDS COLLECTIvE prOSpErITY

NATIONAL COMPETITIVENESS REPORT

COnSEjO prIvADO DE COMpETITIvIDAD COLOMBIA

Rosario Crdoba Garcs

HORIZONTAL AGENDA Productive Transformation

Colombian Private CounCil on ComPetitiveness

Employment distribution of technicians and professionals, 2008 (selected countries)

Colombian Private CounCil on ComPetitiveness

Quality of basic and secondary education

Some policy recommendations:

Early childhood integral assistance

Quality of Higher Education

Additional scal cost due to decisions by the Council of State

0,10% (NPV 2,2% of GDP) ($11,7 Billions) 0,05%

All factors included (last six months average)

All factors divided (last six months)

Colombian Private CounCil on ComPetitiveness

Some policy recommendations:

Pension policy recommendations

Formalization and Labor Market

Evolution of the labor and business informality levels in Colombia

57,7% 53,7% 41,8%

58,3% 51,6% 39,4%

Colombian Private CounCil on ComPetitiveness

Some policy recommendations:

Increase human capital:

Deepen the countrys Industrial Policy

Continue altering the cost-benefit relationship in favor of formality:

FORMALIzATION AND LABOR MARKET

Science, Technology and Innovation

Investment in R&D as percentage of GDP, benchmarking countries, 2009

Colombian Investment in R&D as percentage of GDP, 1995-2010

Colombian Private CounCil on ComPetitiveness

Some policy recommendations:

Infrastructure, Transportation and Logistics

Logistics Performance Index, 2010

Some policy recommendations:

Source: World Bank.

Colombian Private CounCil on ComPetitiveness

Information and Communication Technologies

Broadband subscriptions per 100 inhabitants, 2010.

Per 100 inhabitants

Colombian Private CounCil on ComPetitiveness

Some policy recommendations:

ICTs application in cross-cutting areas of competitiveness

INFORMATION AND COMMUNICATION TECHNOLOGIES

Colombian Private CounCil on ComPetitiveness

Some policy recommendations:

Financing throughout the different stages of entrepreneurship

Total tax rate , 2010

Colombian Private CounCil on ComPetitiveness

Some policy recommendations:

promotion and protection of Competition

Extent of market dominance

Colombian Private CounCil on ComPetitiveness

Some policy recommendations: