Colombia and Venezuela: Business in the Time of Cholera

Colombian President Juan Manuel Santos prepares to meet with his Venezuelan counterpart Nicolas Maduro. 

Encuentro-Santos-Maduro-21

There is a lot at stake, if they can squash the beef

On Friday, August 1 recently reelected Colombian President Juan Manuel Santos will meet with his Venezuelan counterpart Nicolás Maduro in Cartagena.

Though the agenda of the meeting has not been made public, the smuggling and narcotrafficking that punctures the porous Venezuelan-Colombian border is expected to be a key topic.

But Colombian Finance Minister Mauricio Cárdenas will also be making the trip, and  it seems likely that the group will address the ample economic opportunities between the two countries; opportunities that have been overshadowed as of late by frosty political relations and mutual distrust.

While the Santos-Maduro relationship intially seemed better than the rocky one between former President ÁlvaroUribe and Hugo Chavez, a spat last February derailed some of the positive momentum. With Venezuela then engulfed in protest, President Santos offered his assistance while also demanding that Maduro respect the rights of Colombians living in Venezuela.

Apparently, President Maduro did not feel his country needed any neighborly advice.

“Enough, god damn it,” Maduro responded in an official state appearance. “Enough already of getting in the internal business of our country” (¡Ya basta carajo! íYa basta de que se metan en los asuntos internos de nuestra patria.)

And thus—not for the first time—the bickering of bureaucrats created a wedge between the countries.

Which is a shame, because there is a lot of business that could be done between the two.  

For Colombia, anxious to enlarge a manufacturing export portfolio, proximity to Venezuela offers opportunity. With Venezuelan production geared overwhelmingly towards oil, the country must import just about everything else.

Moreover, certain Colombian and Venezuelan comparative advantages appear complementary, a fact not lost on a Colombia that seeks deeper integration into regional supply chains. Hydrocarbon derivatives readily abundant in Venezuela such as polyethylene and ethylene, can be converted into plastic goods such as polystyrenes, tubes, hoses and resins in Colombia.

Between 2000 and 2008, Colombian exports to Venezuela nearly quadrupled in terms of value. The bulk of these exports were of manufactured goods: In both 2007 and 2008, eight of the top ten Colombian exports to Venezuela were non-commodities, such as vehicles and vehicle parts, textiles and clothing accessories, plastics, machinery and electrical equipment.

For the optimist, this relationship offered proof of Colombia’s potential beyond commodity exports, and Bogotá hoped to use it as a foundation to hone manufacturing efficiencies for global markets.

Unfortunately, the inherent risk in partnering with a boisterously populist neighbor proved far greater than the sheer economics would suggest.

Colombian-Venezuelan ties began to strain in the mid-2000s when Bogotá’s trade negotiations with the US precipitated Venezuela’s exit from the Andean Community of Nations (CAN). The diplomatic relationship rapidly deteriorated, lost amid macho posturing between Colombian President Álvaro Uribe and Venezuelan President Hugo Chávez, and it was severed in July of 2009 when the extent of US military presence in Colombia became public.

On a whim, Chávez moved to replace Colombian trade with imports from Argentina and Brazil.

Video: Chávez and Uribe busting on each other

 

For a man oft-criticized for an inability to match rhetoric with results, Chávez made good on this threat. Between 2008 and 2010, bilateral trade fell from US$7.29 billion to US$1.68 billion, and Colombian exports to Venezuela plummeted from 18 percent to 3.6 percent of total exports.

The losses hurt precisely the sectors Colombia hoped would thrive: Manufacturing exports tumbled, and Colombia’s total exports of textiles dropped by more than half. According to one statistical analysis, the trade breakdown cost Colombia a full percent of real GDP growth in 2009.

And thus, a mutually beneficial relationship was derailed when a stubborn paisa bumped into a bombastic llanero.

Business in a Time of Cholera

Nicolás Maduro and Juan Manuel Santos would do well to put these diplomatic spats behind them…or to at least find a way to posture for their domestic constituencies without interrupting economic relations.

Colombia would be happy to rekindle trade with Venezuela, and by some accounts, their commerce has rebounded in the Santos – Maduro era.

From the Colombian perspective, Venezuela remains a large market that is heavily protected behind high tariffs. If Colombia can negotiate privileged (or even consistent) access to Venezuela, they could have a relatively captive market. The famed Venezuelan shortages, for example, represent an opportunity for more efficient Colombian producers.

As it currently stands, basic goods may actually be flowing in the opposite direction. Given the price subsidies Venezuela places on staple goods, products such as corn starch can be worth far more across the border in Colombia. One Venezuelan state government estimates that upwards of “40 percent of the food sent to the state ends up smuggled into Colombia”.

Presidents Santos and Maduro are unlikely to resolve age old issues of smuggling and border control this Friday in Cartagena. But they do have a chance to reset their relations. And while it might sound crazy, if Venezuelan – Colombian relations improve, the pairing could form a nexus in inchoate cooperation efforts between the Pacific Alliance and Mercosur. 

In the meantime, if Venezuela wants access to Colombia’s milk, in will need to squash the beef.

This photo from Cucuta, Colombia allegedly shows good subsidized and distributed by the Venezuelan government and smuggled across the border.

This photo from Cucuta, Colombia allegedly shows goods subsidized and distributed by the Venezuelan government and smuggled across the border. (See more photos and backstory HERE)

Samuel George (@SamuelGeorge76) is a Latin America specialist working in Washington-DC.

Recently by Samuel – The Gringo’s Guide to the Argentine Holdout Crisis

Check us out of Facebook!

Advertisements
This entry was posted in Andean Region, Caribbean, Uncategorized and tagged , , , , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s