Colombia’s future rests on the middle class

Johnson group helps small and medium businesses thrive at critical juncture for Colombia

by Brian Liberatore, MBA ’16, EMI Fellow

Colombians don’t have to look far to see the consequence of extreme inequality.

A populist regime in neighboring Venezuela, which grew from the frustration of a marginalized population, has delivered political, economic, and social ruin, leaving the country on the verge of collapse.

“With high levels of poverty, populism is an easy sell,” Colombian insurance magnate Ernesto De Lima warned earlier this year.[1] His native country is a bright spot in a region hit hard by falling commodity prices. But as he points out, success can be fleeting.

Too often in Latin America stalled progress follows high expectations. Inequality is a stubborn and persistent problem, and to sustain the gains of the last decade, Colombia’s leaders agree, the country must grow its middle class.

The University of the Andes (Uniandes) in BogotÁ is helping to make this happen – offering services to the small- and medium-sized Colombian businesses that are the backbone of the middle class. With support from the Emerging Markets Institute and the Cunningham Fund, I was able to join a group of Johnson students traveling to Colombia this March to work with some of those businesses.

During the trip, we spoke with Colombian Finance Minister Mauricio CÁrdenas. The country, CÁrdenas said, is pushing fiscal conservatism – eschewing excessive tax incentives, and keeping debt low – while spending on social programs. A progressive income tax helps drive money to social programs, which he says the country measures through data analytics.

The policy has public support, but the government has a difficult road ahead. Oil revenues, once 20 percent of the government’s budget, are gone, forcing the government to cut programs or stretch scarce resources. Oil was Colombia’s largest export. Its extraction and sale helped fuel the economic boom of the last decade. Without it, Colombia will have to rebuild its economy by searching inward.

Luis Carlos Sarmiento GutiÉrrez, CEO of Grupo Aval Acciones y Valores, spoke with the group about the country’s resilience and its road ahead.

Colombia, he said, is not as indebted as its neighbors and has acted more quickly in the face of falling commodities. A strict monetary policy helped assure that Colombia did not overspend during the boom years, when soaring oil prices flooded government coffers. But with that revenue gone, the private sector needs to grow. As to where that growth will come from, GutiÉrrez could only speculate. Sectors such as agriculture and (to a smaller extent) tourism hold some promise.

The University of the Andes will play a role in this economic revival. In many ways Uniandes is a symbol of the country’s progress. The school is a mix of modern and classic architecture hosting 18,000 students a short walk from the BogotÁ’s historic center. The school has been an island of prosperity in a sea of poverty. The 10-story business school overlooks makeshift concrete-block homes with corrugated roofs. Like so much of the region, people live in the shadow of world-class institutions, yet lack access to basic services, education, or opportunities. For those at the top – the temptation is to ignore those at the bottom. The threat of crime fuels that dvide.

“Before we ran to our houses,” said Anabell GonzÁlez, who works with Uniandes

After decades of isolation, the school is shifting to help the neighborhood. Starting in 2013, Uniandes launched the Vivienda en Fenicia program. Expansion plans will see 70 percent of school’s property dedicated to public space (70 percent is now private). The goal, GonzÁlez said, is to create community. Uniandes is working with businesses in the neighborhood providing courses, counseling, and access to other resources. The university cannot operate apart from the rest of city. It has a role to play in lifting those around it.

Uniandes president and Johnson Alum Pablo Navas Sanz de SantamarÍa, is looking at the neighborhood and at the international stage. He has helped form a partnership between Uniandes and Cornell. The trip in March is a part of a years-old partnership that is poised to grow. Over the week in March, eight teams from the two universities helped local businesses analyze their strategy and find new ways of growing. The projects included a solar installer, a milk producer, and a food manufacturer among others.

These local industries Finance Minister CÁrdenas said have grown quickly in the past decade. “Made in Colombia” was a rare sight in the supermarket a few years ago. Now Colombian products are making a comeback – competing in quality and price with imports. It’s a positive sign on a long road.

Though the time was short, we met some of Colombia’s future leaders, had a glimpse of the culture, and enjoyed every minute of the trip. These connections don’t end with our return to Ithaca. Colombia has an important place in the region and in the world. And the people we’ve met could lead to collaborations that will help bolster Colombia’s economic and social future – a future we hope will bring sustainable prosperity, avoiding the ill-conceived populism that has plagued Latin America for too long.

[1] Ávila, Ricardo. ‘Seguro que el paÍs saldrÁ adelante.’ Portafolio. March 28, 2016.