Colombia’s economic trajectory from the 1990s is anything but straightforward. It reflects the tensions of a country that pursued two major peace processes, in 1990 and 2016, while advancing hardline market-based reforms in the midst of profound internal conflict, effectively operating in what many analysts would describe as a “war economy”.
The 1990s provide a natural starting point. They marked the emergence of a new institutional order, shaped by citizen demands and the demobilization of several guerrilla groups. Yet this political opening—anchored in the 1991 Constitution and peace agreements—coincided with the rise of neoliberal ideas among Colombia’s political elites. Indeed, the institutional shift came hand in hand with sweeping liberalization. Sectors once firmly in state hands were opened to private participation, from energy and mining to finance. At their peak, privatizations reached up to 2.1% of GDP in a single year.
At the turn of the century, this transformation unfolded alongside a surge in primary exports, driven by rising prices for oil, gas, and coal. This reinforced Colombia´s dependence on mining and energy—fiscally, productively, and externally. At the same time, trade liberalization exposed domestic producers to intensifying competitive pressures. Together, these forces accelerated the erosion of Colombia´s productive base, with manufacturing’s share in GDP falling from 18.1% in 1990 to 12.4% in 2022, while financial intermediation rose from 19.3% to 22.3%.
As a result, investment shifted away from higher-value-added activities toward the primary sector. Employment followed, with informality spreading across the labour market. At the same time, capital concentrated in rent-generating sectors (extractive industries and finance) while much of the rest of the economy gravitated toward low-productivity non-tradable goods and services. This pattern was reinforced by the persistence of a large illegal economy, whose stock of illicit capital crowded out more productive uses and hindered the development of higher-value-added activities.
Inequality has long been a structural feature of Colombian society, but it was further entrenched by the neoliberal transformations of the late twentieth century. Today, Colombia still ranks as the second most unequal country in the region. As in other cases, the advance of the neoliberal agenda coincided with a marked decline in the workers’ share of national income over the past decades. UN-ECLAC data show that between 2002 and 2022 Colombia’s Gini coefficient barely changed—from 0.567 to 0.563—remaining persistently above the regional average.
In the aftermath of the late twentieth-century crisis, Colombia’s growth rates generally stood above the regional average, but with weak job creation and persistently high informality. This pattern left the economy highly exposed to international cycles—both financial and commercial—while placing increasing pressure on public spending as the main driver of labour market activity.
A shift in direction
In 2022, Colombians elected the country’s first openly progressive government in more than 200 years of republican history. The new government came to power with a promise of transformation, aiming to break with past trends. Yet the typical constraints of the political cycle combined with deep institutional inertia have made one point clear: that structural change takes time. Meaningful progress requires medium- and long-term strategies, as short-term actions rarely produce high-impact and large-scales results.
That said, the government has taken solid steps along four key policy dimensions to begin shifting previous trends.
Income redistribution policy. A reorientation of fiscal spending and social policy, combined with sustained increases in the minimum wage, has delivered tangible redistributive gains. The Colombian government’s decision to increase the real minimum wage by a cumulative 15.3% has contributed to a decline in monetary poverty from 36.6% in 2022 to 31.8% in 2025. These income effects have also had a positive impact on domestic demand, with household consumption maintaining an upward trend over the past four years, feeding into economic growth. In the labor market, contrary to many orthodox objections, minimum wage increases have coincided with historically low unemployment, falling from 11% in 2022 to 8.3% in March 2026, alongside growth in salaried employment and a decline in the informality, which, while still high, fell from 58.5% in the first quarter of 2022 to 55.3% in the same period of 2026.
Agrarian reform. Central to the implementation of the 2016 peace agreement, agrarian policy has accelerated land access, financing, and property formalization. According to the Agencia Nacional de Tierras, the government has acquired close to 635,000 hectares for distribution to rural workers—ten times more what the two previous administrations combined—and formalized around 1.8 million hectares. The agricultural sector has thus emerged as a leading driver of economic growth, reflecting land redistribution and formalization policies, but also partly due to favourable global price dynamics.
Farmers harvest potatoes in Boyaca, Colombia. (Photo: Manuel Parra)
Reindustrialization and diversification. Emerging efforts to strengthen specific manufacturing sectors, including shipbuilding, passenger vehicle production, and higher-value-added links within existing value chains, are beginning to yield meaningful results. The inauguration of the first passenger—cargo vehicle assembly plant, with the potential to locally source up to 60% of its components, marks an important step forward. This initiative is intended both to supply the domestic market and to access potential regional markets. At the same time, non-traditional exports have been expanding in both absolute and relative terms, recording positive growth rates over the past three years. These efforts are increasingly aligned with agrarian reform, fostering stronger agro-industral linkages and supporting the creation of domestic value.
Although there is still a long way to go, structural changes are already underway regarding both the diversification of the export basket and employment-generating sectors. A notable development is the increasing share of manufacturing in exports, which rose from 18.49% in 2022 to 22.03% in 2025, with sustained positive growth in recent years. Particularly dynamic subsectors include chemical products, essential oils and resinoids, perfumery goods, as well as machinery and electrical equipment. At the same time, the agricultural sector expanded its share of total exports from 20.31% in 2022 to 30.49% in 2025, driven not only by coffee but also by strong performance in fruits, vegetables, and other animal and vegetable products.
Just energy transition. The focus here has been to shift the energy matrix toward a greater share of renewables, both in supply and end use. This transition seeks not only to reduce economic dependence on fossil fuels, but also to expand access, reduce energy poverty, and promote broader community participation. Notable achievements include both the reduction of fossil fuel subsidies and the increase of electricity generation from renewable sources, which rose from 2% of the electricity matrix in 2022 to 15% in 2025.
These measures have yielded positive results, not only because of government action, but also because they have coincided with favourable global conditions. On the one hand, price shocks affecting key agricultural commodities; on the other, the dynamism of sectors linked to shifts in the demand for certain technologies, driven in part by rising fossil energy prices.
That said, the strongest gains have come from social and redistribution policies, which have done more to sustain economic activity than the productive initiatives themselves—a pattern that reflects not only Colombia’s recent experience, but also that of several progressive governments across the region.
These outcomes are unfolding within a broader global context shaped by U.S. immigration policies and shifts in international trade conditions. Together, they have contributed to increased foreign exchange inflows through net transfers, increased tourism, and stronger prices for some agricultural and mineral commodities. Yet these tailwinds are likely to be temporary, underscoring how much remains to be done on the productive front.
What comes next? Rethinking the development model
Sustaining recent gains in income distribution, and advancing a deeper transformation of Colombia’s productive structure, requires rethinking the country’s development model. This goes beyond defining policy and sectoral priorities. It calls for a more deliberate approach to how development is planned, managed, and implemented.
Experience across Latin America and beyond makes one point clear: there are no universal blueprints for development. Successful strategies require context-specific analysis and design. From this perspective, one way to frame it is through a virtuous triangle of development: a model in which strategy is shaped and executed through the interaction of three actors: the State; the productive sector (workers and employers); and communities.
Colombia’s recent history, marked by political, social, and environmental conflict, offers a powerful reminder of the potential of bringing these three actors together. Their convergence is not only key to building consensus around development goals, but also to ensure their effective and sustainable implementation across economic, social, and environmental dimensions.
Embedding the virtuous triangle within policy design allows for a complex-systems perspective, one that aligns economic objectives with social inclusion and environmental sustainability, while broadening support and reducing implementation frictions. At its core, this approach rests on a simple premise: that successful transformation depends not only on sound policy choices, but also on the institutional capacity to plan and implement them. The virtuous triangle should therefore be understood as part of a broader tradition of Latin American development thinking, including that of Celso Furtado, Osvaldo Sunkel, and Carlos Matus, among others, who emphasize the need to align institutions, actors, and strategies around a coherent, context-specific development path.
Three strategic fronts for structural transformation
From this perspective, three strategic fronts emerge through which objectives and policies can be articulated within the virtuous triangle framework. The first is agrarian transformation. This is central not only to income and property redistribution, but also to expanding access to finance and easing inflationary pressures. As the Kaleckian tradition underscores, the agricultural and primary sectors are especially prone to supply-side price shocks. Strengthening productive capacities in these sectors can therefore help stabilize prices and vulnerabilities related to supply constraints. At the same time, advancing agro-industrialization offers a pathway to job creation to rebuilding linkages between manufacturing and agriculture, one that can in turn be anchored in concrete export targets to generate foreign exchange.
The second is energy transition. This agenda spans both supply- and demand-side dimensions. Recent geopolitical shocks, from the war in Ukraine to the war in Iran, have exposed the volatility of global fossil fuel markets, prompting many countries to rethink energy security and reduce dependence on imported fuels. In this context, the transition towards renewables is not only an environmental imperative, but also an economic one, with direct implications for costs and competitiveness.
Indeed, expanding renewable energy capacity can help lower energy costs and enhance resilience, while also generating new opportunities across key sectors. On the demand side, technological transformation and substitution associated with new energy carriers is likely to increase demand for new efficient and clean technologies. Realizing this potential, however, requires consistent industrial policies—one that strengthens domestic capabilities in the production of these technologies. Otherwise, the energy transition risks becoming little more than a process of importing equipment, rather than a driver of domestic value chains. It also holds significant potential as a tool for income redistribution and the reduction of energy poverty, as well as for generating employment in strategic sectors.
The third is a macroeconomic strategy with deep social impact, centred on job creation and the improvement of existing employment conditions. At its core, this means strengthening sectors linked to agriculture, agro-industry, and the manufacturing activities associated with the energy transition, while deepening productive strategies in other key areas of the economy. An employment-centred approach can serve not only to reduce poverty and improve the working conditions of those already employed, but also to narrow persistent income gaps.
Workers in a chocolate company. (Photo: USAID)
From strategy to implementation
For the virtuous triangle of development to function, the State must play a central coordinating role between the private sector and communities. Advancing the three strategic fronts outlined above requires not only efficient public spending but also moving beyond the state-versus-market dichotomy toward a model based on shared governance. This implies planning and implementation based on jointly defined priorities. In this framework, the State must have the capacity to regulate and balance power dynamics, foster consensus around development goals, and provide clear, credible mechanisms to resolve conflicts, both over the long-term direction and specific projects.
Ultimately, the success and sustainability of this development strategy depend on the willingness—and the capacity—of all three actors to act on shared commitments. More than disjointed or even duplicated actions, Colombia needs a development compact that recognizes and legitimizes each actor within this triangle. Only then will the country be able to chart a path of its own: one in which the State not only regulates but also actively participates, and in which both communities and the productive sector share the benefits and responsibilities of development. Such a path requires a consensually designed framework for public investment, robust private initiative, and fairer income distribution—anchored in a framework that is collectively designed, broadly supported, and built to last.
Colombia’s longstanding difficulty in pursuing sovereign development strategies must contend with two interrelated challenges: one structural and the other conjunctural. The structural constraint stems from the persistence of economically and technologically lagging industrial elites, alongside rent-seeking, non-productive landholding structures. This is reflected, for instance, in the composition of industrial employment—where only 18% of jobs in medium and large enterprises are filled by professionals, technicians, and technologists—and in the extreme concentration of land ownership, with a Gini coefficient of 0.8 and significant portions of land remaining underutilized. Overcoming these historical constraints requires renewing the industrial structure, centered on innovation and the generation of domestic value added. This process must foster and consolidate a segment of the industrial sector committed to national development objectives, while promoting a more strategic and less subordinate integration into global value chains. Achieving this transformation depends on effective planning and sustained coordination among key public and private actors within the virtuous triangle. The second, more conjunctural challenge relates to the growing dominance of financial wealth accumulation, which has increasingly transformed states into financial agents and constrained their capacity to finance long-term development. At the international level, an asymmetrical financial system reinforces these pressures. Domestically, this dynamic is reproduced through orthodox policy frameworks which tend to prioritize inflation control and exchange rate stability at the expense of productive and industrial transformation. Addressing this constraint requires stronger coordination among national economic policy institutions, alongside deeper regional cooperation to advance reforms to the international financial architecture and secure greater access to sovereign resources for financing strategic investment.
Laura Moisá is a Member of the Board of Directors of the Banco de la República de Colombia. Associate Professor at the Universidad Nacional de Colombia. The views expressed in this article are solely those of the author and do not necessarily reflect those of the Banco de la República de Colombia or its Board of Directors.
Leonardo Rojas is a Member of the Socioeconomics, Institutions and Development Research Group (GSEID) at the Universidad Nacional de Colombia. PhD student at the Universidade Federal do Rio de Janeiro.