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Impact Of The Illicit Narcotics Trade On The Colombian Economy

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Introduction

Republic of Colombia is a nation located in the northern part of South America. Currently it is one of the largest and most prosperous countries in the region. Every year millions of tourists flock to Colombia to visit its’ amazing beaches and taste its’ exceptional coffee. The country has become more known as some of its’ stars, like Shakira, have become popular worldwide and commendable performances in the last few FIFA World Cups have also contributed. The problem lies with the fact that the country’s good name has been tainted by the illegal narcotics trade. Vast amounts of drugs, especially cocaine, are produced in the country and exported to the western world. Currently people associate cocaine with Colombia, the way they do with pizza and Italy and the way new books, movies and tv-shows have glorified some of biggest contributors to the problem has not helped. Billions of dollars have been spent in the country and outside of it to combat this problem, but production is still at an all-time high. The purpose of this paper will be to examine the impact of the illicit drug trade on the Colombian economy. We will also look at the finances behind some of the biggest enterprises related to the industry and how locals, especially the low-income population, have been affected. There are many theories out there, so we wanted to take a look for ourselves and reach our own conclusion.

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History and Current State of The Colombian Economy

Colombia is located in South America and is one of the biggest economies in the region. It currently has the third largest GDP in the continent, just after Brazil and Argentina. During the mid-20th-century the country started a large industrialization process, becoming one of the world’s leaders in exporting coffee. Even though the industry was prosperous the economy was not able to grow steadily until the 1980s due to a number of internal conflicts, unstable prices and other economic and political factors. However, since then the country has experienced an unprecedented economic boom. In the 1990s a number of events including governmental reform, decrease in economic growth of its neighbors and reduction on the reliance of coffee exports by investing in other industries laid the foundation for Colombia to turn from a failed state in to a Latin American powerhouse. Colombia has cemented itself as one of the strongest economies in the region. It has signed trade agreements with other Latin American nations, South Korea, the European Union and developed strong ties with its’ main trading partner – the United States of America.

Currently Colombia’s main exports are still commodity based: petroleum, coal, coffee, precious metals and plants. Despite that, over the years the country has been able to distance itself from an agriculture-based economy. Using strategic investment into modern industries like information technology, shipbuilding, tourism, electronics and car manufacturing it has helped increase the quality of life in the country thus lifting millions of people out of poverty. It has also benefited from stronger economic and political stability than some of its’ neighbors: “Colombia had been undergoing a relatively successful economic development process, avoiding some of the problems troubling other Latin American countries, particularly the severe external debt crisis of the 1980s”.

In 2016 the Colombian government signed a peace deal ending a five decade long civil war, making the country safer and more attractive to foreign investment. Even though the country has been able to achieve sustainable economic growth it still has a few big problems to deal with, most notably – the production of illegal narcotics: “Nevertheless, the most recent conflict’s scale and severity are associated with an entirely new phenomenon: the extensive damage wrought by drug trafficking in terms of heightened violence and in Colombian society in general.”(Ocampo, para) While obviously not condoned by the Colombian government, it is important to mention that the economy has been significantly affected by large production of illegal drugs in the country. The effect that this industry has on people and other businesses in definitely not unnoticeable and will be discussed in more detail further in the paper.

History and Current State of the Illicit Drug Trade

Colombia’s history with narcotics production goes back to as early as the 1960s. During that time the biggest economy in the world – the United States of America, saw un unpreceded increase in use of psychoactive drugs. Popularization of drug use by the younger generation created a market where criminals could practice their trade. Demand skyrocketed and wherever there is demand, there is going to be supply, no matter the product. Due to its geographical location Colombia is most know for production of cocaine, which can only be produced in this region of the world. During the 1970s, criminals from other illegal activities moved over into production and trafficking of drugs. Due to high demand, especially from the US, over a short period of time small time criminals were able to become multi billionaires. The power and violence that had plagued the drug industry spread through to other parts of Colombian society. Using money they had made, cartels were able to buy more local politicians and gain even more power. This continues to this day as Colombia is still one of the most corrupt countries in the world. It was ranked 99th by Transparency Internationals Corruption Perception Index.

Currently the drug industry in Colombia produces and exports around 866 metric tons of cocaine each year making it a $100 billion industry. The biggest customers are Europe, North America and Asia. Currently the industry directly and indirectly employs around 70,000 people, many of which are poor families living in extremely rural areas of the country, without any ways of making money in order to survive. The authorities are not oblivious to the problem. Efforts are being made not only by local but also by foreign governments to curb production and decrease demand. But currently it seems they these actions are ineffective as in 2017 the UNODC (United Nations Office on Drugs and Crime) reported that production was at an all-time high. One of the more known personas that has spearheaded the industry since its beginning is the notorious drug lord Pablo Escobar.

The Finance Behind Pablo Escobar’s Empire

Pablo Emilio Escobar Gaviria was one of the biggest drug lords in the world. He was born in the small Colombian town of Rionegro. He was one of seven children born to a farmer and elementary school teacher. He began his criminal activity during his teenage years. He briefly studied in university become quickly dropping out to begin his career. Before entering the drug business, he was a successful contraband smuggler, ran various scams and stole cars. He entered the cocaine business in the mid 1970s because of the much higher earning potential due to heightened demand for narcotics in the western world, especially the US. Due to his connections and knowledge from his previous smuggling days he was able to build his small enterprise into an international multi-billion-dollar empire. At its height the cartel made around $22 billion each year. Pablo Escobar amounted a personal wealth of around $31 billion and was on Forbes list of billionaires for 7 years straight Because of his upbringing was quite generous, especially to the poorer communities of Medellin, the town he spent most of his childhood in.

It is no surprise that his presence made an economic impact on the local communities. Even today he is worshiped among some people in the city, 26 years after his death. Before the source of his wealth was widely known, he was seen a savior, taking from the rich and giving to the poor. He was regularly seen giving out cash in the streets, he built multiple schools, houses, sports stadiums which increased the local economy and help put thousands out of poverty. His generosity laid the foundation for the city to become better and currently it is one of the safest cities in the country. This is one of the things that helped his get elected to the national congress, where he could create favorable ties with powerful politicians, increasing his power even more. Pablo needed a way to launder his vast amount of money. One of the options was the Colombian national football team. At some point he became their sole financier. Another is buying products abroad and selling them in Colombia at a loss. While this may seem good as it increases the locals purchasing power, this has a long-lasting negative impact on legal local businesses. Pablo Escobar was able to turn his small business into an empire. While his activity was criminal, you cannot deny the positive impact it had on local communities. He helped lift thousands out of poverty, some of which are still thankful to him to this day. However, his business has had a large negative effect on the country and its economy as a whole. Some of the effects are still felt to this day.

Impact of the Narcotics Industry on Colombia

Colombia has a long history related to production of narcotics. Since the 1970s in everyone’s minds it has become known as the world’s capital of cocaine. Since then it has affected millions around the world. People, governments, businesses and others have all felt the impact that this industry causes. Many lives have been unnecessarily spared in the fight against drugs and there is no end in sight. Currently narcotics production is embedded into every part of Colombia. This industry has a long-lasting impact on the economy, both positive and negative. While the industry is criminal, you cannot deny that it has positive effect on certain aspects of Colombian life. Narcotics production has created thousands of jobs, helping poor communities get out of poverty. While some might bear the fruit of the narcotics trade, it is undeniable that the industry very negatively impacts the country as a whole. First of all, it harms the countries name in the international community making it less attractive to investors. Cocaine production has incentivized legal business owners to enter the trade, increasing criminal activity and decreasing tax revenue.

The heightened violence in the streets has resulted in thousands of unnecessary deaths. The Government is not blind to these problems and is putting a lot of effort in to combat the industry and incentivize citizens to step away from it. With production at an all-time high the government has created incentives for people to grow legal crops or livestock instead of plants needed to make cocaine. This has helped larger farmers create profitable legal businesses but with poorer communities the problem remains. The main issue is that most farmers are located in very rural areas, and sale of legal crops does not outweigh the large costs of growing and transporting goods to marketplaces. The government gets help from its international allies to combat narcotics production. The main contributor is the United States, which, since the 1990s, has pumped in around half a billion dollars a year for this cause, has sent drug enforcement agents stationed in the country full time to help local governments and at times sent in the military.

The illegal drug trade has created a system of smuggling product out of the country and into markets where it can be sold. This has resulted in higher costs for the Colombia government as more workers are needed to check shipments at ports. It is amazing how the narcotics production industry encompassed people from different walks of life: from poor farmers to chemists to high ranking government officials. While some positives can be found, most of them are short term and result in bigger problems. We can without a doubt say that illicit production of drugs has negative impacted almost every aspect of Colombian life and will do so for the foreseeable future until it is dealt with.

Conclusion

All things considered we can without a doubt say that the Colombian economy has been severely negatively impacted by the illegal narcotics trade. Citizens were affected as they were less incentivized to create legal businesses. Attention was focused on issues of combating drug production instead of helping people and creating a healthier economy. Millions of dollars were spent each year on the war on drugs instead of using that money for infrastructure, development, education and other factors that could have increased economic growth. While certain figures, like Pablo Escobar, contributed to local communities, it resulted in authorities turning a blind eye to his illegal activities, creating long-lasting negative effects. The forty year old industry is still at its height with no end in sight and will continue to negatively impact Colombia and its people.

01 February 2021

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