The Role of the Diaspora in the Internationalization of the Colombian Economy

Flag of Colombia on display in BogotaAs of 2021, about ten percent of the Colombian population, or five million Colombians mainly resided outside Colombia. As Colombians live and work abroad, they develop perspectives that are different from those of the Colombians that never migrated. Some are learning to use more advanced technology at the job in a foreign firm, some are learning cutting edge skills in a foreign university, some are immersing in a new language and a new cultural experience through relationships with non-Colombian partners, and some are even working on groundbreaking inventions and innovations involving international teams in the world’s leading research hubs. While living abroad, many nurture affections for their families, friends, and the place they may still call home. They find meaning in getting involved at home, in making a positive impact and in being the change for good in Colombia.

How much wealth is there among the Colombian diaspora in terms of professional, managerial, and entrepreneurial experiences, qualifications, professional networks, access to venture capital, knowledge of foreign languages, educational qualifications, and the like? What does the geographic distribution of this wealth look like? Is the Colombian diaspora interested in helping its home countries develop, by sharing their knowhow, networks, and skills? How can the Colombians in Colombia best tap into this wealth? What is the best course of government action in this regard? These are the questions that this project tries to answer.

To answer these questions: 

  • We studied the geography, the demographic and socio-economic characteristics of 1.7 million members of the global Colombian diaspora (34% of the total estimated Colombian diaspora) using census and survey data from major host countries and 3.5 million Twitter users located around the world presumed to be of Colombian origin.
     
  • We studied the locations and industries of Colombian senior managers and directors outside Colombia, using a global database of over 400 million companies.
     
  • Through a survey of 11,500 members of the Colombian diaspora, located in well over 100 countries, we furthermore studied the migration journeys, the diaspora’s attachment to Colombia, the level of diaspora engagement and interest in engaging, the intentions to return back home, the interest in diaspora government policy, and the overall sentiment of the diaspora towards Colombia, through.
     
  • We additionally interviewed 12 Colombian transnational entrepreneurs and professionals, to understand what attracts them professionally to Colombia, and what may stand in the way of more diaspora engagement and professional growth.

Outputs

  • The findings of the research project are published in our report and working paper The Role of the Diaspora in the Internationalization of the Colombian Economy.
     
  • Our online dashboard further allows anyone to interactively explore and compare country-specific results from our Colombian Diaspora Survey.
     
  • Our webinar Engaging Diasporas Around the World explains the Growth Lab’s approach to studying diasporas and includes some of the lessons learned in the case of Colombia. Listen to our podcast where researchers describe the internationalization mission in Colombia, the role of the diaspora in this mission, and the policy implications of this research.
     
  • The main findings of this project were presented to the Colombian government through a series of virtual meetings that took place between March and May 2021:
  • March 2, 2021: Plenary session of Colombia’s Internationalization Mission
     
  • May 25 and 26, 2021: Virtual meetings with the Colombian consulates and embassies around the world.
     
  • May 27, 2021: Virtual meeting with consortium of government agencies, including Colombia’s Ministry of Trade, Industry and Tourism, ProColombia and its international offices, Colombia Productiva and iNNpulsa Colombia.

Key Diagnosis

The Colombian diaspora has a wealth of human and social capital that can be mobilized in the process of internationalization of the Colombian economy. Colombians in the U.S. hold the greatest promise in terms of breadth of engagement and potential impact of engagement. Several factors contribute to this. The Colombian community in the U.S is big (1.5 million), geographically concentrated (mainly in the states of Florida, New York, New Jersey, and California), and well embedded in the American economy. Colombians have found a place in the most competitive entrepreneurial circles of the Silicon Valley and elsewhere, and they have achieved senior positions in foreign companies and corporations. They are professionally engaged with Colombia in many different ways, including the building of a new entrepreneurial class, transfer of technology, creating remote work opportunities for Colombians, and setting up business operations there. A large second-generation of Colombians, better educated and better embedded than their parents, presents an opportunity for Colombia, but more incentives may be critical for their direct engagement. Colombians in the European Union and the U.K. also hold a great promise for the internationalization process. The Colombian professional communities here are more dispersed. Colombians in Spain, although numerous (over a million), have a low rate of professional engagement with Colombia, as measured in our diaspora survey. Instead, Colombians in Switzerland, France, the U.K., Germany, Belgium, and Scandinavia, although representing smaller populations, drive engagement. This is in line with our findings that Colombians in senior managerial positions are more common in the U.K. (18% of all Colombian senior managers in the Orbis global dataset) and Switzerland (12%), than in Spain (4%). Colombians in the U.K. are well positioned for a high impact engagement, and many are already involved in Colombia through investments, business startup and academic engagement.

The Colombian diaspora is quickly evolving, and it is growing in ways that are hard to predict. For instance, the Colombian community in Chile grew from 4,000 people at the turn of the 21st century to 120,000 in 2017. In Europe, many Colombians who first arrived in Spain, have migrated to the more professionalized E.U. countries and the U.K. Similarly, some Latin American countries are stepping stones for migration to Europe (e.g., Argentina, Chile, Venezuela, and Ecuador), and others for migration to the U.S. (e.g., Mexico).

Findings from Diaspora Survey

Our diaspora survey indicated a high level of engagement, and an even greater desire to engage. 18% of all participants in our survey were already engaged in activities such as long-distance professional support, investing in Colombia, starting a business in Colombia, humanitarian support or mentoring youth. The degree of interest for more engagement was overwhelming, both among those who are already engaged, and among those that were not yet active in Colombia. Close to 60% of those not already engaged, expressed interest in becoming involved in activities that benefit the development of Colombia. We found that professional engagement can be predicted, and this can guide policy in terms of narrowing down the groups that are most likely to contribute to the internationalization process. Other factors equal, attachment to family and friends in Colombia, past experience with entrepreneurship, and one’s educational attainment are important predictors of professional engagement.

Travel to Colombia drives engagement. We found that stimulating travel to Colombia will lead to more professional engagement. We tested this using the natural experiment of the COVID pandemic. Over 9% of the survey respondents made an additional temporary travel to Colombia because of the pandemic. An extra temporary stay due to the COVID pandemic increased the probability to engage professionally by 3%, and the probability of business engagement by 4%.

We found ‘negative’ sorting and high business engagement among the returnees. We studied the factors that predict one’s plans to return sooner rather than later to Colombia and we found that those in more advanced economies are less likely to think about returning, those better employed and better educated are also less likely to think about returning, other factors equal. This reflects complementarities between people’s skills and experience, and the kind of job opportunities advanced economies offer. However, those that actually return are twice as engaged as Colombians outside Colombia in business development, such as business startup and business investments. Their ventures may be small-scale, but they can be extremely valuable for the communities they serve, and they have the potential of technology transfer. There are reasons to believe that the population of returnee migrants to Colombia during the COVID pandemic is substantial. In other countries such mass returns of diaspora have helped revitalize sectors such as agriculture and gastronomy.

Findings from Interviews with Colombian Transnational Entrepreneurs and Professionals

We found three main drivers of transnational entrepreneurship in Colombia. In our interviews with transnational entrepreneurs, the most commonly mentioned reasons for setting up operations in Colombia were arbitrage opportunities because of wage differentials between Colombia and developed economies, opportunities to bridge technology gaps, and mobilizing established networks of potential business partners and employees in Colombia.

  • Wage differentials. All tech entrepreneurs employed domestic engineers and operations staff, while serving foreign markets. They cited the good quality-wage ratio of domestic engineers as key to their decision to operate in Colombia. For example, by employing Colombian software developers, American companies can save over 60 percent in annual salaries for this group of employees.
     
  • Technology gaps. In Colombia, sectors like finance and construction use old business models. Finance is not taking a full advantage of the digitized economy, and construction is very labor intensive. In both sectors Colombian transnational entrepreneurs have identified technological gaps that they try to close. In finance, they are bringing about the fintech revolution. In construction, they are trying to bring about novel technology, some aiming at higher production efficiency, some at less environmental footprint, with varying success.
     
  • Networks. Existing networks of Colombians, both in Colombia and among the diaspora are key to developing a business that employs Colombians. Colombians know other Colombians and hiring people they know, and trust, reduces their search costs. This is true for Colombian entrepreneurs with operations inside and outside Colombia.

We identified a number of barriers to business engagement and firm growth. We identified a few overarching barriers, and several sector-specific ones. Among the overarching ones are the knowledge of foreign languages, scarcity of managers with international experience, difficulty to open and close businesses, and tax regulation.

  • The lack of a workforce that is proficient in English and other foreign languages was viewed as a constraint for scaling up and internationalizing by most entrepreneurs and academics we spoke to. Indeed, Colombia has a very low English proficiency in a global comparison. Based on test results of 2.2 million adults in 100 countries and regions in 2020, EF ranked Colombia 77th out of 100, right next to Mongolia, Afghanistan, Angola, and Algeria.
     
  • Interviewees from large companies emphasized the scarcity of managers that have the proper training and experience to help companies expand their businesses abroad. Such managers need international experience, knowledge of foreign languages, and cultural sensitivity, all of which is best gained abroad. To overcome the constraint, companies hire foreigners for these positions. Some have first tried to hire Colombians and failed, and others do not even look inside Colombia.
     
  • Transnational entrepreneurs pointed out that opening, and even more, closing a business is very difficult in Colombia – they have experienced this firsthand. Startup firms hire accountants and/or lawyers to complete the process. Indeed, according to the 2020 Doing Business Indicators, opening a business in Colombia requires 7 procedures that take up a total of 10 days to be completed. In comparison, the most effective countries require a single procedure that takes half a day to complete. This has serious implications for Colombia’s tax base and its national statistics. Because of this constraint, the practice of registering a Colombian business outside Colombia is common among entrepreneurs. A large business accelerator even coaches their start-up firms to register their businesses elsewhere.
     
  • Entrepreneurs often mentioned that it is difficult for small companies to understand and comply with tax regulation in Colombia. Taxes are unnecessarily complicated and compliance with procedures is difficult. These claims are supported by existing evaluations of the Colombian tax system.
     
  • Sector-specific issues. Lack of venture capital in Colombia is a challenge for the expansion of the tech sector. Successful tech entrepreneurs thrived because they located their business development teams near VC hubs abroad, while locating their operations in Colombia. In construction, where great technological gaps attract the interest of diaspora companies, foreign companies that are innovative and capital-intensive stumble upon nepotism and corruption that favor local firms. A complex set of regulations (tax system, labor regulation, bankruptcy law) stands in the way of more private equity investments, and in academia, entrenched ideas about hierarchies and remuneration make it difficult for universities to let foreign faculty and researchers take positions that do not comply with existing roles.

Policy Recommendations

Brain drain characterizes Colombia’s emigration pattern. This pattern will continue in the foreseeable future, as more Colombians acquire education and languages that increase their employability in more advanced economies. We showed that, other factors equal, Colombians in richer countries are less likely to consider returning. Better educated and better employed Colombians living abroad are also less likely to consider returning, other factors equal, but they are more likely to professionally engage with Colombia. Hence, the best way to tap into the wealth of the diaspora is to engage them while abroad.

Diaspora policy has the character of managed serendipity. Investments in the diaspora today will probably lead to great future opportunities for Colombia, but it is uncertain when, and in which form. The key is to have mechanisms that help nurture the relationships with the diaspora, both by providing them services that keep them connected to Colombia, and by offering channels for engagement that benefit the development of Colombia. Our thinking is focused on the means that could help channel some of the talent, experience, social and financial capital of the diaspora towards the Colombians in Colombia in a way that is a win-win for the locals and the diaspora.

Therefore, on top of our policy recommendations list is the creation of an international business and technology network of impactful Colombians. The members of such a network would commit time to interact, mentor, and help connect local businesses and other local actors with resources available among the diaspora and their foreign partners. This comes with benefits to the diaspora businesses as well, as it creates better access to the Colombian economy for them, and it serves their desire to help the development of the home country. Such networks have been essential for the development of the tech sector in Taiwan, Israel, India, and China, as well as for the creation of business hubs in Ireland and Scotland. One model that Colombia could consider is GlobalScot. The roots of such a network already exist in Colombia, but our impression is that the existing network needs a more powerful organization and better support to be effective. Our further policy recommendations include:

  • Public recognition of the achievements by the diaspora. Domestic media coverage, and events that recognize and give awards for the achievements of the diaspora can help with brand recognition, and most importantly, they can help grow the networks of diaspora businesses at home. Such recognition does not only benefit the entrepreneurs and their employees, but it creates role models for the new generation of entrepreneurs. If entrepreneurs are portrayed as heroes, more Colombians will aspire to become one. The government should consider developing routines for identifying, promoting, and awarding diaspora achievements.
     
  • Leveraging the diaspora’s knowledge of foreign languages. In contrast with the typical Colombian in Colombia, the Colombians from the diaspora are fluent in many foreign languages. Even in our sample of 11.5k Colombians living abroad, we found over 7,000 Colombians that spoke English at a conversational level or better. Many Colombians spoke French, Portuguese, Italian, and German. At the same time, one of the most favored ways of engaging with Colombia among the diaspora is mentoring of youth. This suggests that a tandem language learning program between the diaspora and the locals may be a project worthwhile considering.
     
  • Encouraging travel to Colombia. Our finding that travel drives professional engagement suggests that programs such as conferences, grants for professional travel, and travel budgets for universities to attract visits of foreign faculty could increase the engagement for those categories of people.
     
  • Creating opportunities for working abroad. To internationalize an economy, it is not sufficient to have the youth study abroad and return right after. Some of the most valuable skills such as managing, teamwork and customer relations, are learned at the job and university education is no substitute for these. Internships and jobs abroad should therefore be an integral part of the international experience. Creating a class of Colombians with foreign country work experience may be an important way to address the scarcity of middle and upper-level managers with international experience. In order to create such a class, Colombian scholarship and student loan programs need to abolish strong incentives for return right after graduation. For example, one of the most popular programs for student loans (COLFUTURO) forgives up to 80% of the loan to those that return to Colombia for at least three years after graduation. The loans, however, must be paid back in full and with high interest rates (up to 15%) for those that choose employment abroad. Moreover, the government could incentivize the development of internship programs among diaspora entrepreneurs. Few diaspora companies have internship programs that employ young Colombians. These programs are costly and do not always pay off for the companies: they have high recruitment costs, including visa support, intensive training periods and short periods of return to that training. It is an altruistic act, and this may be the reason why it does not emerge organically on a larger scale. However, our survey of the diaspora indicates that there is great deal of interest among the established Colombians abroad to help young professionals develop skills. In our survey we identified several hundreds of Colombians abroad that mentor youth in Colombia or provide long-distance professional support to Colombians, and many more that would like to get involved in mentoring. The Colombian government could use its consulates, as well as ProColombia offices to start closer conversations with Colombian-run companies abroad and gauge their interest in experimenting with internship programs. In this way the government can better understand what it would take for companies to offer such opportunities to young Colombians.
     
  • Relaxing some general constraints to doing business. A relatively straightforward change that can have a measurable impact immediately is the regulation of business registration and business closures. There are numerous countries that have recently reengineered their public services to the business community with the objective of simplifying and automating processes, and many successful examples are available.
     
  • Reassessing startup grant programs for returning migrants. The COVID pandemic is making Colombians abroad reassess their location decisions. We found that a temporary return caused by the COVID pandemic doubled the odds of considering returning to Colombia more permanently sooner, rather than later. We surveyed only a small group of recent returnees from Colombia, but we think that the actual population of returnees is probably large. These are particularly interested in business startup grants for returning migrants, based on findings from our survey. While Colombia has programs that support startups (e.g., Fondo Emprender, iNNpulsa Colombia), it would be important to understand how they apply to the needs of return migrants, and whether the increase in the population of returnees creates a need for reassessing the scale of the available funding. Focus groups with returning migrants could help understand their needs and assess their match with available funding programs.
     
  • Planning for luck. The number of Colombians residing abroad will most likely grow significantly in the next ten to twenty years. As more Colombians seek education abroad, learn foreign languages, and follow the established networks of family and friends in foreign countries, more will find it attractive to stay abroad. At the same time, it is hard to tell how, where and at what pace these communities will grow. Local shocks such as changes in immigration policies of host countries, or global shocks such as the COVID pandemic, will sometimes counteract the general pattern, and force people to think more about their future in Colombia. Allowing people to freely move between Colombia and foreign countries by streamlining processes and regulation that facilitates this movement, is key to making luck work for Colombians and Colombia. Here are a few directions worth considering.
     
    • Monitor the evolution and the pulse of your diaspora. With the help of its network of consulates and embassies, the government could effectively track the population developments of its diaspora and gather accurate and up-to-date statistics of its evolution. In addition to registry data, an annual survey of the diaspora could explore their interests, sentiments, level of engagement with Colombia, and intentions to return.
       
    • Negotiate more double taxation treaties. Colombia has double taxation treaties with many countries around the world, but these do not seem to include some of the major destination countries for Colombians: U.S., Argentina, Australia, Germany, and the Scandinavian countries.
       
    • Negotiate more treaties to allow for the transfer of pensions and other benefits. Encouraging Colombians to pay into the existing pension systems in Colombia is one approach, but to our understanding, the numbers of Colombians participating from abroad is meager. A more effective way may be to negotiate more treaties that enable transfer of pensions from/to Colombia. Some treaties exist (Uruguay, Argentina, Chile, Ecuador, and Spain), but treaties with major host countries such as Canada, U.S., U.K., yet need to be negotiated.
       
    • Ensure mutual recognition of qualifications between Colombia and host countries. Our understanding is that a working group at Colombia Nos Une is collaborating with the Colombian Ministry of Education to expand the mutual recognition of degrees. We hope that this effort is well supported and successful.
       
    • Create paths for naturalization or permanent residency for foreign spouses of Colombians. Making it possible for foreign spouses to acquire residency status similar to that of Colombians is important for making return less costly. If paths to naturalization or permanent residency for foreign spouses do not exist yet in Colombia, the immigration systems of Singapore and Hong Kong can be taken as examples. These countries have immigration policies that are not only friendly to the person, but to the family. They have understood that migration decisions are seldom made by a single person only, and that people plan the move of entire families. By enabling the foreign partners of Colombians to work and live in Colombia, the government would prepare the ground for more internationalization at home in the long run.

PROJECT DATES

This project was finalized in June 2021.

FUNDED BY

Financial support for this work was provided by Colombia’s Ministry of Trade, Industry and Tourism; ProColombia; Colombia Productiva and iNNpulsa Colombia

Project Leads

Principal Investigator: Ricardo Hausmann

Project Manager: Ljubica Nedelkoska

TEAM MEMBERS

Ricardo Hausmann

Ricardo Hausmann

Director, Growth Lab
Rafik Hariri Professor of the Practice of International Political Economy, HKS
Julian Hinz headshot

Julian Hinz

External Collaborator, Growth Lab
Professor, Kiel Institute for the World Economy
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