Focus: The economic rationale for social investment

A Rising Tide

Oct. 15, 2021

Colombia is implementing a variety of programs of social uplift, from investments in public housing to raising financial inclusion.

Every index known to economists indicate that Colombia is moving toward becoming a relatively high-income nation. The GDP, for example, is expected to reach USD325 billion in 2021, up from USD270 billion in 2020. Just with a touch of optimism one can predict that Colombia will soon join the ranks of the developed economies of the world. However, with this shift also come some of the most challenging problems that highly developed economies have to deal with: huge income gaps, absence of social mobility, and the concentration of wealth among the economic elite.

To overcome such challenges, Colombia has been implementing programs of social investment to ensure that the country's population of over 45 million will all benefit from the nation's economic breakthroughs. To name but one example, during the darkest days of the pandemic, some unemployed individuals qualified for a plan called Solidarity Income devised by the national development office (DNP), which although did not eliminate poverty across Colombia, kept the poverty rate in check.
Thankfully, some 41 million (over 91%) of the citizenry are covered by some form of health insurance.

The country has a subsidized healthcare system that tries to help the most vulnerable classes. Although Colombia lacks a thorough national health system comparable, say, to the NHS in the UK, the country earmarks significantly large subsidies for vulnerable individuals by companies known as health-promoting entities (entidades promodoras de salud).

Colombia's expenditure on health from GDP grew from 6.2% in 1993 to 7.8% in 2003. Meanwhile, the nation's public expenditure on health from GDP, more than doubled from 1.4% in 1993 to 3.1% in 2003—which is a definite sign that the public sector is playing a more active role in the health segment.

To narrow the gap between high-income and low-income Colombians in areas other than healthcare, the country is putting other equalization programs into practice. The solidarity fund (El Fondo de Solidaridad y Garantía), one of whose service was mentioned earlier, for example, intends to further close the gap between the wealthy and the poor.

With the rapid industrialization of Colombia yet another social problem is emerging which needs investment. Large cities such as Bogotá attract a large number of skilled and semiskilled workforce from all over the country. However, as housing in large cities is in short supply, immigrant workers may be drawn to slums around the cities.

“The Housing Institute addresses the problem, directing the construction of housing for the low-income rural and urban population," according to the Encyclopedia Britannica, while the Ministry of Public Health also independently tries to raise awareness about the manifold social problems caused by slums.

Unlike many developing countries, Colombia follows a social housing policy which is, at times, on par with what is available in developed economies. Priority interest housing, social interest housing, and non-social interest housing are the three types of public housing offered by the Colombian government. These three schemes cover those vulnerable citizens who earn USD581-1,130, but not all accommodations provided by the government are necessarily free.

Social uplift in any developing country, including Colombia, also requires the availability of easily accessible credit by the banks. Easy credit allows the middle class's reach to exceed its grasp, which will, in turn, result in a thriving economy.
Nubank and Lulo Bank, to name but two, are newly established banks with minimum banking costs that offer credit to tens of millions of Colombians. The easy credit provided by the likes of these two banks play a pivotal role in solidifying the Colombian middle class and increasing their spending power. Nubank has now become the largest digital bank in the world in terms of the number of customers.

Lulo Bank has similarly gone completely digital, increasing the level of financial inclusion in Colombia. The number of unbanked Colombians is not few either: around 20-30 million—which is not appropriate for a country with a leaping economy such as Colombia. The launching of Nubank and Lulo Bank will raise the level of financial inclusion in Colombia to international levels in the months to come, especially given their emphasis on digitalization of banking and Colombia's tech-savvy population.

Perhaps the situation regarding social investment in Colombia is best described by José Manuel Restrepo, Colombia's Minister of Finance and Public Credit, who recently told TBY in an exclusive interview that “currently, social investment has to move around the protection of the most vulnerable and the generation of employment. During the drafting of the Social Investment Bill, we have received several ideas and comments surrounding the need to create jobs, not only from businesses with which we have spoken, but also from the beneficiaries of social programs themselves, who say that despite receiving these subsidies, they would like to work, start a business and be able to advance based on their own merits."

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