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Colombian Government Puts Investment at Risk by Violating Property Rights

By: Guest Contributor - Jul 25, 2016, 9:51 am
Centro-Internacional-Bogotá
Bogota’s central business district (wikimedia).

By Phillip Stevens

The transformation of Colombia’s economy over the past few years has been, in a word, remarkable. Outward-looking policies have helped to attract foreign business and investment, creating more jobs and raising wages for Colombians. Unfortunately, recent events in the health sector represent a real threat to continued economic progress.

Since the early 2000s, Colombia has pursued policies that have successfully opened its markets, including the signing of preferential trade agreements with the likes of the United States, the European Union and the European Free Trade Association, privatization of some state-owned enterprises, and reforms to the public sector. Perhaps most importantly, a strong respect for the rule of law and a respect for property rights in the country have contributed substantially to fueling investor confidence.

Standing out in the region, Colombia has prospered as a result of this approach — between 2004 and 2014, the country’s GDP grew at an average rate of 4.8 percent, leaving most of its South American neighbors in the dust.

It therefore seemed astonishingly out of character for the Colombian Ministry of Health in May to threaten a compulsory license for the patents covering the cancer medicine imatinib, owned by the Swiss company Novartis. The message was simple: drop the prices or face confiscation of your property rights.

Such threats are out of step with the wider strategy of the government, which understands that innovation is the key to sustainable economic growth.

To encourage investment by both foreign and local companies, the government put in place a number of start-up investment schemes, as well as creating a variety of tax breaks for R&D to encourage the country’s life science sector.

The stated goal is for Colombia to become one of the top three science, technology and innovation countries in Latin America by 2025.

It’s hard to square this ambition with the threatened compulsory license for imatinib. At the moment, it’s not clear if the license will be issued, or if the Ministry of Health will follow through on plans to forcibly lower the price of the treatment. But given that the patent only has two more years to run before cheaper generic versions can enter the market, it seems a peculiar choice from Health Minister Alejandro Gaviria if his aim is to reduce the government’s medicine bill.

But even the suggestion of abrogating property rights and dictating prices goes against the broader pro-investment strategy of the government.

Foreign investors, especially those in knowledge-intensive industries such as green technologies, chemicals and information technology will be concerned that similar price-controls and patent abrogation could hit them.

Meanwhile, innovative domestic enterprises, including the promising start-ups mushrooming in Bogota and Medellin, will feel increasingly anxious about a future in which the intellectual property that their businesses are built on could be compulsorily licensed.

Innovation is the key to economic growth. But it won’t happen in Colombia unless it remains open to the know-how, expertise, technology and capital that come with investment by foreign companies.

“It’s good to see that the government is willing to stand behind innovation and recognizes that entrepreneurship is the motor of a successful economy,” says Medellin investor Michael Puscar. “But everyone, including the government, recognizes that public funding can’t replace private initiatives in the long run.”

Private sector investment is indeed the key to Colombia’s economic future. But different signals from different parts of the government alarm investors, who above all need assurance.

With that in mind, the government should give a clear message that Colombia is still open for business and think again on this issue.

Philip Stevens is director of Geneva Network, a U.K.-based research organization focusing on international trade issues.