Director of Colombia’s central bank Carlos Cano warned that growing foreign investment in mining and energy sectors could make other sectors less competitive, reported business magazine Portafolio Friday.
Cano said that the mining and energy sector is attracting more than 85% of Foreign Direct Investment (FDI).
He noted that “the export value of the assets of mining and energy source is contributing more than four-fifths of the growth dynamics of all the country’s exports. But this only generates 200,000 directly jobs.” According to Cano, this is “a genuine symptom of Dutch disease.”
He said that fiscal rules can help avoid Dutch disease as long as they have certain features such a stabilization fund through which investments abroad save surpluses in external accounts of the mining and energy sector during boom times.
According to Cano, Colombia’s trade balance shows a surplus of $1.7 billion. Although the surplus is lower than what it was a year ago, this number remains considerable thanks to strong exports.
“However, the export boom is concentrated exclusively in the mining and energy sectors, whose international prices generally stay at their highest historical levels. In turn, these sectors have been capturing more than 85% of FDI, ” said Cano.
According to the economist, emerging economies are more dependent on mining and energy sector. Countries like Colombia face the risk that, as mining and energy sectors increase the participation in the GDP, growth in public spending will overflow and destabilize the economy.
“Furthermore, to the extent that capital inflows to finance investment in these activities predominate over the others, and as a result of the same shape and proportion evolve export revenues, could lead to strong pressures on the revaluation of the currency and the consequent weakening of the competitiveness of the tradable sectors such as agriculture and industry, thereby configuring symptoms of Dutch disease,” he said.
