With Hope Comes Uncertainty

By Vishesh Dalal

When I got the option to pick a study tour as part of the MBA Program at ESADE Business School, I had the following options: South Korea, Colombia, South Africa and Germany (Berlin). Being passionate about entrepreneurship, Berlin seemed to be the easy answer as the objective of the tour was to network with start-ups and VCs in the Berlin start-up ecosystem. But I thought to myself, in the near future, will I get the opportunity to visit a South American country, along with my international peers, and learn about I continent I have never visited? The answer was easy: pick Colombia and explore a new part of the world! 

Next step was to book tickets, and I was pleasantly surprised to see the national carrier for Colombia Avianca flying a Dreamliner direct from Madrid. 9 hours and you’re in South America. Sounds fun! Given that we have a lot of Colombians in the MBA program, we already had a packed itinerary for the trip, including recommendations for the best things to do in each of the cities we were visiting. The flight to Bogota was comfortable, and it was not unusual to see that apart from my Indian classmate and me, there were no other Indians (or Asians) on that flight. If I were to fly to Bogota from Mumbai, the fastest I could reach was in 30 hours (with 2 stop-overs), not sure if a lot of people would do that?

On our arrival in Bogota, I was happy to see a modern top-class airport, with international food chains like Subway and cab-hailing apps such as Uber at our disposal. The roads were perfectly paved, and it just felt like any other developed city in the world. We were warned multiple times about the city being unsafe (Colombia ranks 146/163 countries in terms of safety and security), but fortunately we had a great (and safe) experience in Bogota, and in the other cities. The drivers were cordial and friendly, although they spoke only Spanish, and we had to connect the dots with the little Spanish we knew.

Fast forward to Universidad de Los Andes, Colombia’s best business school. A tall building (we were told it was initially designed to be a car park), with all modern amenities awaited us. A quick introduction was given by Prof. Marcus Thiell, a German who moved to Colombia as he was intrigued by what the country had to offer. Over the next 5 days, we learnt about different aspects of the Colombian economy, it’s painful past and the love and passion Colombians have for their country. This wasn’t all talk, as I clearly remember all Colombians saying “It was great to meet you, and I hope you enjoy our country” while saying our good-byes.

One of my key learning from the trip was the reason why a lot of South American countries did not industrialize early. One reason was that when they were colonized, given their richness in natural resources, they were ‘exploited’; and there was no interest establishing the right infrastructure within the country for its future growth. The second reason was that in the past China was importing raw materials from these countries at very high prices. This made the local businesses get into the “pack and export” mindset, as they were very happy to get high prices for their unprocessed raw materials and hence did not see any benefit to “add value” to the process.

What happened as a result was that the currency appreciated, making them lose competitiveness with the rest of the world, and then took them several years to build (i.e. industrialize) thereafter. I’m not sure if this was engineered by China in this way, but it did decelerate growth for these countries and put them behind the world by a few years.

Will peace with the FARC bring a fresh wave of investment, growth and prosperity, or will Colombia go the way of Venezuela? We were also told how political insurgency, drug trafficking and corruption were the major challenges faced by the country, how Colombia is trying to open it’s economy to the world in order to attract skilled workforce, investment in education, faster implementation of new technologies and foster higher rate of local innovation.

With a Gini index of 0.53, unemployment at 9.8% and 70% of the population engaged in the informal sector, Colombia has to tackle a lot of issues before gaining a dominant position in the world. It was shocking for me to learn that companies paid an effective tax of 69.8%, and could borrow money from banks at 22-24% interest. This was quite demotivating for any new business being set up in the country. On the other hand, banks who charged the above interest, paid only 6-8% interest on deposits, resulting in very high net interest margins (you can do the math)!

 The theme of the week we spent at Los Andes was ‘Tourism in Colombia’. Tourism is growing at a CAGR of 10%, and the sector employs 28% of the workforce. The country attracts around 3m tourists every year, with a majority of them traveling for business and vacation. We were asked to explore new avenues of tourism such as sports tourism, sun and beach, eco-tourism, health tourism, et cetera. The results were quite encouraging and we believe Colombia does have the potential to attract a lot of foreign tourists in the years to come. It was also interesting to learn that the Colombian Peso (COP) fluctuated +/- 30% to the US Dollar in the recent past, and that stabilizing the exchange rate would provide a fillip to tourism. Current exchange rate is 1 USD = 3,022 COP.

Alongside the study sessions at Los Andes, we also visited the facilities of Frito-Lay (snacks division of PepsiCo), Ramo (market leader in cakes and related products) and Juan Valdez Cafe (the Starbucks of South America).

The trip was not complete without visiting the northern cities of Cartagena, Santa Marta and Palomino. The Caribbean coast was beautiful, clear blue-green waters and white sand beaches.

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