How much does cocaine influence economic growth?

In the midst of a history that has marked generations throughout the country, cocaine generates figures that might seem impressive and far from walking to a scenario in which this problem is close to having a solution, Reality shows that Colombians will continue to carry that ballast for many more years, which has a millionaire effect on the growth of the economy.

Not surprisingly, the impact and resources generated that could impact economic dynamics on influencing the gross domestic product.

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This is why analysts such as Camilo Herrera, founder of the Raddar firm, gave themselves the task of analyzing this phenomenon and reviewing that exports of this substance reached USD $ 13,000 million in 2023, which would place narcotic as the second “export” of the country, just under oil.

You have to read the figures well

However, it makes it clear that this magnitude does not translate automatically growing Economic or in a significant impulse to the Gross Domestic Product (GDP), since, as noted, the value of exports with the real contribution to GDP should not be confused, although it makes it clear that this is a frequent mistake that is made when reading the figures.

“It is one thing to compare sales of something with the value of GDP, and another thing is its contribution to GDP,” said Herrera, who added that in the case of oil, for example, Colombia exported USD $ 15,000 million in 2023, which is equivalent to 4.32% of the total exported total, but its effective contribution to GDP was only 2.65%.

In the case of cocaine, although its illegal trade would generate a similar amount, it is not officially registered or dynamizes About 3% of GDP, but reiterates that this does not mean that it contributes 3% to economic growth.

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“In fact, there is no clear evidence that drug revenues increases have a correlation with GDP growth or household consumption. The drug can generate many dollars, but not necessarily develop,” said this expert.

In addition, market conditions have led to an increase in productive efficiencysince according to Herrera, Colombia not only sowed more coca, but also produced more cocaine per hectare cultivated, thanks to a model of greater efficiency motivated by the fall of international prices and the growing participation of Mexican criminal organizations in the control of the business.

Colombia is one of the largest coca producers in the world.

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At the same time, factors such as the devaluation of weight between 2014 and 2019, the end of air sprinkling with glyphosate, and the increase in global demand have encouraged planting, especially in rural areas without state presence.

A general impact for the whole country and its regions

In parallel, the Anif Economic Studies Center warns of another less visible but equally relevant effect and is the link between drug trafficking and the increase in cash in circulation, since in contexts with high informality and weak institutional presence, The cash becomes the main means of operation of illegal economies.

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These analysts said that being outside the formal financial system, cocaine generates a significant demand for cash, making traceability and facilitating illegal practices such as money laundering.

According to Anif, between 2021 and 2023, while the area cultivated with coca in Colombia It grew from 204,000 to more than 252,000 hectares, the participation of cash on the monetary aggregate (M1 more savings accounts) increased from 22.4% to 24.4%, reaching record levels.

Colombia is one of the largest coca producers in the world.

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“Although labor informality has remained stable, this increase in cash circulating suggests that other forces, such as drug trafficking, are behind this monetary dynamic,” they said.

But the effect goes beyond the financial and in addition to all of the above, the report indicates that the expansion of illicit crops is usually accompanied by greater presence of illegal armed actors, deterioration of the security and weakening of state control and explains that This combination has collateral effects on sectors such as tourism and formal investment.

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Among the regions most affected by this phenomenon, from ANIF they review, especially to Cauca, Norte de Santander or Nariño, where violence linked to drug trafficking has deterred investors and has generated international alerts.

An obvious paradox

Said all of the above, both analyzes agree that cocaine generates a volume Huge money, but does not energize the formal economy or contribute to general well -being. On the contrary, it distorts markets, deteriorates the institutional environment, feeds violence and weakens the effectiveness of monetary and fiscal policy.

Colombia is one of the largest coca producers in the world.

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Therefore, although Colombia produces about 70% of the cocaine in the world, as noted by the United Nations, this does not imply that the drug “moves” the economy in the conventional sense, since as Herrera concludes, “it should, because they are like USD $ 13,000 million, but the evidence says not so much.”

From anif’s optics, the challenge goes beyond the economy and makes it clear that it is a structural challenge that requires articulating drug policy with economic policy, since as long as it does not recover institutional control in the cocaleros territories or the expansion of these crops is contained, drug trafficking will continue to be a Underground force that operates outside the Radar of GDP, but within the heart of many regions of the country.

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Likewise, the debate should not be focused only on money, which although dazzling the exaggerated amounts that moves does not generate development in the communities it affects. On the contrary, you must make all possible emphasis on the causes that make the way and the development that is being robbed of the communities.

Daniel Hernández Naranjo
Portfolio journalist