The fight for second chair: A glance at economic development in urban centres around the country

Sustained macroeconomic growth in expanding uppermiddle-income countries such as Colombia depends on various of factors, one of which is the improved productivity of the internal economy. Economic efficiency in turn hinges on another set of factors, mainly the widespread deployment of infrastructure and the urbanisation of the population. What Colombia lacks in infrastructure development it makes up for with its large collection of growing urban centres.

Unlike some regional neighbours, Colombia has a host of large “secondary” urban centres in addition to the capital, Bogotá. Cities such as Medellín, Cali, Barranquilla, Bucaramanga and others have grown and developed thanks to various factors ranging from the exploitation of oil resources to the growth of free trade zones. The development of these cities has contributed to a reduction in poverty rates and the quicker deployment of health and sanitation infrastructure. While transport infrastructure linking major urban centres remains one of the chief factors restraining broader macroeconomic growth, the cities provide buoyancy to the wider economy through the provision of a large, active and fairly efficient domestic market, mainly due to the urbanisation of the country.

URBANISATION: The demographic shift from a primarily agrarian society to a highly urbanised one has been completed more or less in the past 50 years and has played a key role in economic development. According to a 2012 World Bank study, “Colombia Urbanisation Review”, over the past four decades more than half of GDP growth is owed to urban economic activities, while the number of cities with more than 100,000 inhabitants grew from nine in 1951 to 40 in 2006. More than three-quarters of the population now lives in urban centres, with seven cities having over 1m inhabitants.

The benefits of having diverse urban centres in a highly commoditised economy are huge, as cities provide centralised areas for mid- and downstream activities, such as raw material processing and transportation, in addition to value-added manufacturing processes. In a country where terms such as “Dutch disease” and “resource curse” flow easily from the tongues of businesspeople, such a conglomeration of urban centres has provided a platform for the shift from a resourcedriven economy to a knowledge-driven one.

Moreover, urban centres drastically reduce the cost of basic services such as energy and sanitation infrastructure, which, combined with the ability of urban centres to hold a substantial employable population, has been a key factor in reducing poverty and improving standards of living. Today the gap between rural and urban development shows across a variety of figures, such as the difference in access to secondary education, which stands at 55% in rural areas compared to 75% in urban centres, according to the World Bank.

Though countries such as Brazil and Mexico are similarly developed in terms of urban spread, economic development in numerous others remain highly concentrated in one major city, as is the case with Argentina and Chile. According to the World Bank, 46% of Argentina’s GDP stems from Buenos Aires (more than five times the runner-up, Rosario), while 31% of Chile’s national GDP stems from Santiago (also five times its nearest competitor). By comparison Bogotá contributed 24% to the national economy, followed much more closely by the second-largest city, Medellín (9%).

CONNECTIVITY: As for many Andean countries, one of the principal challenges for Colombia is to increase connectivity between its urban centres to stimulate the flow of goods and labour. World Bank figures show that logistics costs in the private sector amount to just under one-fifth of total sales, higher than the Latin, Caribbean and Central American averages. In several cases it is cheaper for companies to export than it is to ship goods domestically.

MEDELLÍN:The fortunes of Colombia’s second-largest city, Medellín, have seen a dramatic reversal over recent decades. Known as one of the most dangerous cities in the world in the 1980s and 1990s thanks to the infamous Medellín cartel headed by Pablo Escobar, the city is now hailed as a model of modern urban living. In fact, Medellín was voted the world’s most innovative city in 2013 by the Urban Land Institute, ousting iconic global names such as New York and Tel Aviv.

Medellín is a modern urban centre replete with a functioning metro system, and its developed economy closely resembles that of Bogotá. Medellín is responsible for more than two-thirds of the economy of the department of Antioquía, which in turn is responsible for 13% of national GDP. Urban sprawl has helped drive the construction industry in Antioquía and in 2011 the department derived 8.3% of its GDP from real estate and 8.6% from the construction industry. A further 7.8% of GDP came from non-financial services, with finance responsible for 4.8% and commerce accounting for 9.1%. However, despite its declining influence over the past decade, industrial manufacturing remains the principal business within Medellín, bringing in 14.3% of GDP in 2011, down from 17.6% in 2001.

CALI: Following Medellín in terms of population is the city of Cali, which has similarly dispatched its status as a home to one of the most nefarious cartels in recent years, though security remains an issue hindering development. The city’s interconnectivity to the Pacific port of Buenaventura has provided it with an outlet to the global market. Cali and its home department Valle del Cauca were the third-largest economic region in 2011, accounting for 9.6% of national GDP. Its GDP was predominantly based on industry (17%), real estate (12.4%), non-financial services (8.9%) and commerce (7%).

BARRANQUILLA: As an industrial port city on the Caribbean coast, Barranquilla is responsible for shipping a large amount of Colombia’s coal and oil exports, as well as a host of other manufactured and industrial goods. With a population approaching 2m, it is the fourth-largest city and the capital of the Atlántico department. According to 2011 figures from the National Administrative Department of Statistics ( Departamento Administrativo Nacional de Estadística, DANE), the department’s GDP roughly followed national trends, with industry accounting for 16%, followed by real estate (8%), commerce (7.7%), non-financial services (7.6%), public administration (4.7%) and finance (4.5%).

CARTAGENA: The fifth-largest city, Cartagena de Indias, derives much of its economic activity from its location along the Caribbean. A city with a deep history as a principal port and economic centre during colonial times, Cartagena and its historic downtown centre are also a UNESCO World Heritage site and an important tourist destination. Cartagena is the capital of the Bolívar department, the GDP of which largely depends on its status as a coastal area. In 2011 it was responsible for 15.6% of the national fishing industry and 6.5% of total aquatic transportation, according to statistics from DANE. It also contributed 9.7% to national metallic mining production, 7.8% to industrial manufacturing and 5% to civil engineering construction activities.

BUCARAMANGA: Bucaramanga is the sixth-largest city in Colombia and the capital of the Santander department, provider of 7.3% of the nation’s GDP. It has long been considered one of the country’s most beautiful cities, with its parks and tranquillity standing in contrast to the bustling metropolises of Bogotá, and to a lesser extent Medellín and Cali. Its relative proximity to some of the larger hydrocarbons deposits also make it an unofficial capital for the growing energy industry. It is home to the Colombian Petroleum Institute, the research branch of state oil company Ecopetrol and the Colombian Natural Gas Company. The department has a high concentration of industrial activity, which accounted for 27% of GDP in 2011. Construction was responsible for a further 9.2%, while hydrocarbons extraction contributed 6.2%, followed by real estate (5.5%) and commerce (5.2%).

The growth of urban centres has been a key factor in development over the past half century as improved standards of living and concentrated economic growth have accompanied expansion. Their future impact will be determined by the ability of the government to integrate national infrastructure, and promote the development of innovative and knowledge-oriented growth.

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The Report: Colombia 2013

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