Colombian companies must apply basic labor standards to reach OECD standards

23 July 2018 Consultancy.lat

Colombia was invited to join the Organisation for Economic Cooperation and Development in earlier this year, in May. A civil war with guerrilla insurgents and right-wing paramilitaries – which official ended in 2016 – as well as continuing strife with narco-traffickers has taken its toll on the central government’s rule of law. However, today the country is putting these issues behind it and facing perhaps an even tougher battle.

As a prerequisite of joining the Organisation for Economic Cooperation and Development (OECD) a country must bring its laws, policies, and practices up to OECD standards. These standards make up the values that make the OECD such a prestigious institution, often cited as a club of the world’s most prosperous countries.

For Colombia, the OECD insisted that in joining, the country must reform its justice system, corporate governance of state-owned enterprises, anti-bribery, trade, and labor issues, as well as create new national policies on industrial chemicals policy and waste management. 

The country is already in full swing in overhauling these institutions and the Colombian Government is busy with projects enhancing the country’s trade initiatives. One such initiative which is in line with the OECD’s requests is the contract which the Colombian Mining and Energy Planning Unit put out for waste reform – turning urban waste into bio-gas.

Companies must apply basic labor standards in Colombia for country to reach OECD standards

Incoming Colombian President, Iván Duque said in his election victory speech: “What we most want is for Colombia united to completely smash corruption across all the territories. We are going to return to our population the hope and ability to believe in our institutions. We will be the government that like never before in our country will confront this cancer.” Duque also said that his government would convert Colombia into “the country of social justice and political equality.”

Another pressing issue for Duque is reform to the country’s labor laws. The rules and regulations that govern working conditions in Colombia must be brought up to the standards of the OECD, which includes both Mexico and Chile as members. Both of these countries have set the standard in Latin America when it comes to minimum wage, job security, worker’s representation rights – i.e., union membership – and health and safety in the workplace.

For the OECD, these standards can be established via either legislation or collective agreements, or a combination of both. “Governments and firms may indeed be tempted to put pressure on working conditions and social protection in an effort to improve competitiveness in world markets, generating what has been called ‘social dumping,’” stated an OECD article titled ‘Labor Standards and Economic Integration.’

The fear is that once membership is achieved then these standards can drop to improve trade competitiveness within the membership bloc. Carlos Mario Sandoval, EY Colombia’s resident expert in labor law and a partner with the consulting firm commented on what must be done to achieve Colombia’s goals of aligning itself with other members of the organization.

Basic labor standards

"One of the general premises of the Organization for Economic Cooperation and Development in the workplace is to promote the application of basic labor standards, which are linked to the protection of human rights in the workplace in improving productivity, the standard of living of member countries, and reducing gaps between rich and poor,” Sandoval commented. 

Four issues will have to be addressed: minimum wage, pensions, labor guarantees and reduction of collective agreements. These issues will prevail throughout Duque’s presidency, especially when it comes to violence against union leaders, informal labor, undue hiring in the production chain, as well as the way in which the Ministry of Labor oversees this issues.

By addressing minimum wage in certain regions and ages, as recommended by recent OECD policy, the country can enhance its ability to create formal employment opportunities. Currently, the country’s minimum wage is roughly $265 a month. This is higher than the current minimum wage in both Mexico and Venezuela.

Mario Sandoval also brings into focus the need to revisit the pension system in Colombia. The system is – like the vast majority of basic services Latin America – split between public and private, which causes a defined gap between the rich and poor. By addressing the fundamental structure governing both in the country, the EY partner says that a ‘Good Practices Club’ could increase equality for pensions.

Thirdly, in terms of labor guarantees, Colombia has been struggling to meet international standards for some years now. A collective of Colombia’s labor unions and representatives filed a complaint in 2016 with the US Labor Department in regards to kidnappings, death threats, and murders to workers who attempted to exercise their labor rights. According to Mario Sandoval, in order to improve these conditions, the Colombian Government must actively promote the right to trade union associations.

Lastly, there must be a reduction in employing methods of collective agreements in Colombia, to reach the OECD labor standards. The OECD has expressed concern for the prevalence of collective agreement barriers in Colombia, restricting the ability for Colombians to join a trade union association or apply collective bargaining.

OECD Secretary-General, Angel Gurría said in relation to Colombia joining the OECD: “We are very pleased to welcome Colombia as a member of the OECD. Accession to our Organisation was set as a priority by President Santos when he assumed office and we are glad that the process could be completed during his mandate. It has been a journey in which we have always appreciated the strong commitment and leadership of President Santos and his team.”

“The accession of Colombia will contribute to our efforts to transform the OECD into a more diverse and inclusive institution, which will ensure our relevance in the years and decades ahead. The global challenges we are facing today can only be addressed if we have emerging, developing, and advanced economies working together,” he concluded.

Digitization could add $240 billion to Mexico’s GDP by 2025

22 January 2019 Consultancy.lat

New in-depth analysis by McKinsey & Company ranks Mexico 55th in digital maturity out of 151 countries. When compared to countries with similar economic output, Mexico is in good shape, but the country has “yet to achieve the kind of world-class digital transformation that fuels productivity and economic growth.”

Countries that have adequately transformed, such as Estonia and Malaysia, have incomes close to Mexico, but punch “above their weight” when it comes to digital maturity. Mexico is about halfway there. Taking steps to improve its global digital position, however, could increase the country’s GDP by  7-15% (approximately $155-240 billion) by 2025. Such an increase would be powered by increased productivity and employment in existing industries, new digital businesses, a broadened expanded information-and-communication-technology (ICT) sector, as well as the successful labor force transition into the digital world.

Mexico is the second-largest economy in Latin America, meaning it is in the unique position to set the regional standard for a “digitally enabled” government.

For their analysis, McKinsey & Company researchers Alberto Chaia, Gonzalo Garcia-Muñoz, Philipp Haugwitz, Max Cesar, and Andre de Oliveira Vaz defined digital maturity using four categories: government, foundations, economy, and society. The study also laid out steps that Mexico could take to improve its digital maturity. Of these four factors, Mexico has the most work to do in digital economy and digital foundations, categories in which its scores are just below average – and which are highly correlated.

Digital maturity of Mexico according to McKiney

The bad news first

Digital foundations essentially encompass the ability of citizens to participate in a digital society. This means internet access, mobile networks, and so forth. “In 2016, Mexico had just 13 fixed-line broadband subscriptions for every 100 inhabitants” the analysis found. “The rate of subscription to mobile broadband is higher, at 61%, but this still leaves a sizeable portion of the population unconnected and thus spending additional time and money getting to physical centers to access government services.” This lack of access causes Mexico to rank 93rd overall in the digital foundations category. 

Mexico’s digital economy, in turn, is hindered by its “shaky” digital foundations. It sits in 92nd place of all countries surveyed. There is a lack of access to high-speed internet, as stated, as well as an unreliable postal service and a lack of bank accounts among the population, with just 40% of citizens aged over 15 having an account. These factors decrease the country’s potential to develop an e-commerce industry that is widely and conveniently used. Exports of ICT goods, as well, account for an astonishing less than 1% of all exported goods and services.

And now for the good news

Mexico’s digital government, which ranks 39th overall, has made great strides in recent years. The creation of gob.mx, for example, provides "a one-stop portal that consolidates 34,000 databases from 250 government institutions and 5,400 public services. The platform is described as the “centerpiece” of Mexico’s digitization efforts, allowing citizens easy access to important legal documents such as birth certificates, as well as automating internal processes, making workplaces tasks run more smoothly for government employees.

Despite this – and the appointment of a national digital strategy coordinator who sits on the president’s staff - Mexico “receives low scores from its citizens on their overall satisfaction with the convenience and accessibility of government services.” Citizen experience was the worst-rated of those group countries surveyed (Canada, France, Germany, Mexico, the United Kingdom and the United States). There was also a largest perception gap between the private and public sector.

How digital can boost Mexico’s GDP

A digital society, according to the report, “can improve the quality of life for citizens by fostering greater civic participation, providing access to information, and offering new tools for health and education.” As previously shown, Mexico is pushing such platforms, including several subsections of gob.mx, on which citizens can participate in public polls and discussions, and present potential digital solutions to serious societal problems such as earthquake detection systems.

Mexico is well on its way to achieving a “good” or “very good” digital maturity rating (right now, the country is “acceptable”). According to McKinsey, “There are three basic initiatives Mexican government leaders could consider putting on top of their priority lists [to speed the transition into the upper echelons of digitization].”

First, the Mexican government must define a digital vision and strategy. Second, it must link that vision to policymaking. Entwining the two ensures that digitization acts as a “lever” to a policy’s success. “To establish a clear link between its digital vision and public value, Mexico’s incoming administration may want to consider revisiting the country’s "National Digital Strategy" for 2013 and aligning it with Mexico’s current and future needs, as well as with the new government’s priorities,” the report states. A “test and learn” attitude toward linking digital vision and policy will also be necessary, as the only way to avoid repeated mistakes is by closely evaluating those that have been made, then planning accordingly. Adopting this attitude, according to the report, will necessitate more flexible budgetary strategies.   

The third suggested initiative is all about power to the people. Successful digital transformations are those that are centered around the citizens, rather than the institutions that serve and govern them. This means service delivery is key, and centralization of digitalization efforts – initially, perhaps, in the form of a council that would oversee governmental transformation – could greatly aid government agencies in getting the people what they desire. As Mexico transforms, so would the ways in which ideas are generated and put into action. For instance, the United States has the US Digital Service, which works with the White House, and Singapore relies greatly on the Government Technology Agency, which reports to the country’s president and implements digital strategies.

Digital maturity benchmark

Filling in the cracks

Because Mexico ranks on the low end of the “digital foundations” category, it is obvious that the other four categories, which by nature fall under the “foundations” umbrella, are potentially negatively affected. As such, McKinsey offers five steps that could be taken to strengthen the country’s digital infrastructure. 

Private companies, for one, could be offered incentives to provide broadband internet to “marginalized” communities, such as those in Oaxaca and Chiapas. The study points to India as an example, where the government-created National Optical Fibre Network (BharatNet) “successfully brought broadband services to approximately 115,000 villages, aiming to deliver broadband connectivity to 250,000 villages overall.” 

Talent is also an issue. “In recent years, Mexico has made significant strides to boost the number of college graduates with degrees in science, technology, engineering, and mathematics (STEM),” the report states. In 2016, 25% of university graduates with a STEM degree. 

But degrees aren’t so much the problem as education in general. “Only 17% of Mexicans graduate from college, making the talent pool small.” Programs that keep primary and secondary school teachers in the loop are a must – as are “reskilling” programs meant to train a percentage of the workforce that is soon to be displaced by technology such as automation. 

Rounding out the five suggestions are a system that easily and simply explains new regulations regarding technology - an invaluable resource for startups; the development of cybersecurity units required to monitor the security of such a large, overarching transformation; and a streamlined, interoperable model for data sharing across multiple government agencies. 

It’s an investment

The challenges and obstacles in Mexico’s path to digital transformation are not inconsiderable, but are neither without long-term reward. “Going digital will require an investment of financial resources, extensive coordination among the multiple stakeholders and levels of government, and new regulations governing the growing e-commerce and fintech sectors. It most likely would entail participation incentives for the private sector, since governments should not attempt to 'go it alone.' In the end, both sectors of society stand to reap the value digitization will sow.” 

Related: Mexico leads Latin America in robotization, followed by Brazil and Argentina.