Colombia: A long road to recovery

By Naki B. Mendoza 14 September 2015

Cocoa to be delivered to Casa Luker, one of Colombia’s major chocolate producers. The cacao project is one of many USAID-supported activities that work in areas long strained by civil conflict. Photo by: Thomas Cristofoletti / USAID / CC BY-NC

Less visible than the scenes of war unfolding across parts of the Middle East, Africa and headlines about the refugee crisis, is a long-running conflict that continues to afflict remote corners of South America.

Colombia’s war against guerrilla insurgents may not draw the same attention from abroad as it did in previous decades when heavy fighting led the country to the brink of becoming a failed state. Despite a political and economic revival during the past 10 years, the seeds of domestic conflict are still simmering. They continue to erupt in flashes of fighting that upend the local communities caught in its crossfire.

For millions of Colombians who have yet to reap the benefits of inclusive economic growth, the ongoing conflict poses a major dilemma to their livelihoods. New ventures deploying evolving development strategies have emerged to bridge the gap with the backing of the private sector. But they are still slow to scale, reflecting the limitations of investment in markets weighed down by conflict-related risks.

Two Colombias

Colombians typically speak of their country in twos. One is the prosperous urban Colombia of fast growing, cosmopolitan cities. Any visitor to posh Bogota or Medellin, Colombia’s innovative second city, will notice an urban renaissance that is due largely to a drastic overhaul in domestic security and vast public revenues from a decadelong boom in commodity prices. Together they have positioned Colombia on the high end of middle income countries and at the doorstep of membership into the Organization for Economic Cooperation and Development.

The “other” Colombia, meanwhile, is the remote and rural regions of the country that have yet to partake in this growth. These are areas where governance is weak and corruption is high. They are far from international markets but adjacent to the hot zones of the five-decade war between the central government and rebel Revolutionary Armed Forces of Colombia, or FARC, and the National Liberation Army, or ELN, factions. What began as a communist-inspired insurgency over land and agrarian reforms in the mid-1960s has morphed into a half-century of war with Bogota.

The International Crisis Group, a nongovernmental organization, estimates that around 220,000 people have died and 5 million Colombians have been internally displaced because of the conflict.

The scale of war has dissipated from its peak. Since the turn of the century Bogota has pursued an all-out offensive against the guerrilla groups, roughly tripling its defense budget and increasing its army personnel by three-quarters. A weakened FARC has been negotiating a peace settlement with Bogota since 2012. A final deal is believed to be within reach, yet absent that agreement hostilities have continued.

The guerrillas fund their campaigns through an array of black market activities that include illegal mining, forestry and, of course, the drug trade. This poses a vexing dilemma for the affected communities, most of whom have few other viable economic alternatives.

“Switching from illegal coca farming where the FARC comes to your doorstep and buys at a guaranteed price, to an economy that is much more market-driven, requires a set of skills and resources that might not be there,” said Christian Voelkel, a Colombia analyst at the International Crisis Group.

Coca farming — the feedstock for cocaine — has been an economic mainstay for both the FARC and the communities near its strongholds in south and southwest Colombia, although it’s unclear exactly how much the group generates in coca-related income. Among the barriers to switching to legal trades are skills shortages, poor infrastructure that restricts access to markets and limited access to credit. Weak laws around rural land rights can prevent farmers from posting collateral for loans.

Those barriers have been targets for development programs and the U.S. Agency for International Development has pegged its strategy in Colombia on strengthening the livelihoods and institutions in conflict-affected areas.

“Were it not for the instability and strife associated with the 50-year civil conflict, USAID would not be operating in Colombia,” its country development strategy reads.

Unlike traditional measurements of success such as health care, education or sanitation, USAID says its standard for Colombia is whether partner institutions can successfully “implement the country’s ambitious policies aimed at addressing the causes and consequences of conflict.”

Promoting private sector investment in alternative economies is one of its principal — and most challenging — priorities.

From coca to cocoa

One focal point of those efforts is the municipality of Tumaco. A port city on Colombia’s Pacific coast, Tumaco is on the front lines of the conflict and a frequent target of FARC attacks on the country’s energy infrastructure. A recent pipeline bombing near Tumaco in June spilled 10,000 barrels of crude oil into local water systems, resulting in one of the worst environmental disasters in Colombia’s history.

The Tumaco region has historically relied on three main sources of legal income — palm oil, shrimp and cocoa. But in 2013, Casa Luker, the main buyer of the region’s cocoa production and one of Colombia’s largest chocolate manufacturers, closed up shop under threats and extortion from criminal bands. Prices paid to local cocoa growers plunged creating an immediate income vacuum that officials worried could be filled by coca farming.

In that year, USAID stepped in to broker an arrangement for Casa Luker to resume purchasing from local cocoa suppliers in Tumaco. The initiative established a new company — Chocolate Tumaco — that pools cocoa production from seven local associations to sell to Casa Luker.

USAID provides farmers with technical guidance on agricultural practices in exchange for Casa Luker agreeing to purchase 70 percent of Chocolate Tumaco’s supply. The fixed purchase arrangement established guaranteed revenues directly between farmers and the chocolate manufacturer. Since 2013 Casa Luker has paid out around $3.5 million through the agreement, according to USAID.

The initiative has indeed transformed lives. More than 3,000 farmers are involved in Chocolate Tumaco and earn incomes that might otherwise have come through illegal means. Their inclusion in the formal economy is a first step towards exercising their full rights of Colombian citizenship.

Chocolate Tumaco is one of several such initiatives. A twin project is underway in the province of Antioquia, Colombia’s main coffee producing region that is also a corridor of drug and contraband activity. The initiative has established a fixed purchase agreement between producer associations that represent 1,500-2,000 cocoa growing families and Nacional de Colombia, a major coffee bean buyer. Multinational companies Nestle and Starbucks have also signed on to USAID-backed partnerships to purchase milk from dairy farmers and train local coffee growers.

Limitations and risks

But like any new business there are growing pains. Producer associations often have conflicting business interests, project managers told Devex. And disagreements commonly arise over how to reinvest profits.

More broadly, while the projects draw the investment and support from some of the largest private sector companies in the industry, they are still far from the level of scale needed to produce major change.

Early indicators put the size of the challenge into scope.

A survey on Colombian coca farming released by the United Nations Office on Drugs and Crime in July revealed that both the areas under coca cultivation and the volumes of cocaine produced “increased substantially” in 2014 from the previous year.

The number of hectares where coca is grown rose 44 percent year-on-year while domestic cocaine production jumped 52 percent from its 2013 volumes, according to the report.

“Whatever effort there is, it is not changing the big picture,” Voelkel said.

Alternative development projects are well intentioned, but are what Voelkel described as “unsuccessful, late and timid.” They are relatively new initiatives and fall well short of the public resources that are dedicated to traditional law enforcement priorities on drugs, he said.

Private sector companies still face the inherent risks of remote markets, poor infrastructure, and disruptions to their operations in conflict-affected regions that prevent them from independently investing their resources without some form of public backing.

Foreign donors, such as USAID, are minority shareholders in the efforts and they acknowledge the leading role that Colombia’s government must play in scaling up their work. USAID calculated that the total amount of bilateral donor aid made available in Colombia last year was $900 million, compared to a 2015 government budget of $108 billion.

While a portion of those donor funds go towards leveraging more private sector investment, the government’s main outlays for its anti-drug strategy still center on traditional enforcement measures — capturing supplies, destroying crops, jailing producers and dismantling money laundering schemes.

Additionally, some of those enforcement efforts can have disproportionate consequences that aid programs are not yet scaled to address. “Lots of crops get eradicated, but there are relatively few who benefit from alternative development models,” said Voelkel.

Colombia’s emergence from the depth of a crisis is indeed remarkable. Its growth trajectory and economic stability over the past decade can be directly traced to the government’s containment of its long-running civil conflict. But the large pockets of affected communities are still mired in poverty and the risks for large-scale investment that they face, illustrate the ongoing challenges of emerging from a protracted conflict.

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About the author

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Naki B. Mendozamfbmendoza

Naki is a former reporter for Devex Impact based in Washington, D.C., where he covered the intersection of business and international development. Prior to Devex he was a Latin America reporter for Energy Intelligence covering corporate investments and political risks in the region’s energy sector. His previous assignments abroad have posted him throughout Europe, South America and Australia.


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