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From Displacement to Development: How Colombia Can Transform Venezuelan Displacement into Shared Growth

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CGDev
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Executive Summary

The humanitarian, political, and economic crisis in Venezuela has displaced millions of people. As of October 2020, the number of Venezuelan refugees and migrants around the world reached nearly 5.5 million.[2] Neighboring Colombia is hosting far more Venezuelans than any other country---approximately one-third of the total.

The government of Colombia has extended a relatively generous welcome to displaced Venezuelans. In partnership with international organizations, donors, non-governmental organizations (NGOs), and the private sector, it has mobilized a robust humanitarian response and taken steps to integrate Venezuelans into its society and economy. Of the nearly 1.8 million Venezuelans in the country as of August 2020, about 763,000 Venezuelans had been able to regularize their status in Colombia. This means that they have obtained documented legal permission to reside in the country and have access to basic rights and services, including, for most, the right to work.[17-3]

However, a wide range of legal, administrative, structural, and social barriers prevents many Venezuelans from being able to fully meet their needs or realize their rights in practice.[4] As a result, many Venezuelans are struggling to make progress toward economic inclusion---defined as the achievement of decent work and labor income commensurate with one's skills. Prior to the outbreak of COVID-19, employed Colombians were earning 43 percent more on average than employed Venezuelans, despite the fact that Venezuelans are highly educated. Venezuelans also have much higher rates of informal work.[19-5]

Meanwhile, many Colombians also struggle to achieve economic inclusion, and the nearly continuous arrival of Venezuelans to Colombia in the past few years has strained the government's capacity to respond to both populations' needs. Rising social tensions and growing debt created added pressures, coupled with a continuing internal conflict and the resulting internal displacement crisis.[20-6] Furthermore, COVID-19 has wreaked havoc on the country's economy and health systems, exacerbating protection concerns for Colombians and Venezuelans alike. Even in this increasingly difficult context, the international response to the Venezuelan displacement crisis remains severely underfunded.

These challenges underscore the importance of implementing policies that enable Colombia to reap the potential benefits of migration---including by supporting Venezuelans' economic inclusion. The arrival of Venezuelans and the government's response have already yielded a number of benefits, including an increase in gross domestic product (GDP) growth, fewer labor shortages, and a positive impact on the employment rate for Colombians.[7] Continuing to make policy progress can amplify these positive outcomes and address the remaining challenges.

Increasing Venezuelans' economic inclusion would enable more Venezuelans to secure decent work and higher incomes. It would give them financial independence to provide for their own needs, such as healthcare and housing, and would in turn reduce their protection risks. Greater economic inclusion would allow Venezuelans to make even more contributions to the economy, thereby generating benefits to be shared with their host communities. It would certainly have some distributional impacts---some Colombians would be negatively affected in the labor market, at least in the short run. Nevertheless, the net effects for Colombians would be positive, and Colombian workers earning the least would likely gain the most. Moreover, policymakers could multiply benefits by eliminating barriers that hinder the economic inclusion of disadvantaged populations in Colombian host communities.[8] In addition to low-income individuals, internally displaced people (IDPs), and indigenous communities, these include Colombian nationals who had moved to Venezuela as refugees or migrants themselves and have now returned ("returnees").

Using nationally representative labor market data from the end of 2019, we estimate that, if all Venezuelan-specific barriers to economic inclusion were lowered, the following would be true:

  • Venezuelans' average monthly income would increase from $131 to $186.[9] This would translate into an increase of at least $996 million in Colombia's annual GDP, creating a positive ripple effect for Colombian host communities.

  • The total number of formal Venezuelan workers would increase from 293,060 to 454,107, which would reduce job competition in the informal sector and create a positive impact on the social security system.

  • Venezuelans' self-reliance would increase, leading to reduced protection concerns and higher standards of living.

  • Venezuelans would boost Colombian firms' productivity by filling labor shortages, complementing Colombian workers with their unique sets of skills and experiences, and developing business connections abroad.

Our analysis also finds the following:

  • Greater economic inclusion for Colombian returnees would lead to similar benefits, increasing their average income by 13 percent. It is likely that the inclusion of other disadvantaged groups of Colombians, such as IDPs, also would create such benefits.

  • **Venezuelan women face a double disadvantage due to their gender and nationality. **Addressing Venezuelan-specific barriers to economic inclusion would lead to a 67 percent increase in incomes for Venezuelan women. Addressing gender-based barriers would lead to an additional 74 percent increase in their incomes. Overall, addressing both gender- and Venezuelan-specific barriers would lead to a 191 percent increase in Venezuelan women's incomes.Given that Venezuelan women account for 52 percent of the total Venezuelan working-age population, huge gains can be made by lowering barriers for Venezuelan women.

  • The potential gains from economic inclusion are greatest for highly educated Venezuelans. Lowering key barriers for this group---especially the lack of work permits and difficulties verifying credentials---could have an outsized positive impact.

  • **Facilitating labor market access for highly educated Venezuelans would yield large gains. **While the average level of education for Venezuelans entering the country has declined over time, large numbers of highly educated Venezuelans continued to enter the countryup until the pandemic-related border closure in March 2020. Providing them with the right to work quickly will be key to ensuring their economic inclusion.

It is important to reiterate that this analysis was conducted using data from before the outbreak of COVID-19. Thus, it does not account for the major changes in labor market outcomes that have occurred in recent months. Given that Venezuelans were working in sectors more highly affected by the pandemic at higher rates than Colombians prior to the outbreak, it is likely that the income gap has grown even larger. As a result, the potential gains for Venezuelans and the economy as a whole are probably even larger than our estimates predict.

History shows that when policymakers make the right choices, economic inclusion for migrants and refugees is possible. To achieve it in the Colombian context, the government and its partners should build on their existing plans and approaches by implementing the following recommendations. Although some of these steps will need to wait until the country and the economy fully reopen, many can be pursued already.

The government of Colombia should do the following:

**1) Maintain an ongoing Permiso Especial de Permanencia (PEP) process for Venezuelans that is not limited by entry date and involves a clear and simplified path toward regularization and guarantees of protection. **The government has introduced mechanisms to facilitate Venezuelans' regularization, including a special two-year residence permit (PEP) that provides the right to work. PEPs have been issued in several rounds during the past three years and have been renewed when nearing expiration. These measures represent important, laudable steps toward economic inclusion. But there are typically long gaps between rounds, leaving many Venezuelans without the formal right to work long after they arrive in Colombia. Furthermore, the many Venezuelans who did not enter the country through official channels have been ineligible for all but one round of PEP provision. Shortening or eliminating delays and expanding eligibility would lead to greater economic inclusion for---and contributions from---Venezuelans.

2) Ensure the implementation of the Income Generation Strategy designed to advance Venezuelans' socioeconomic inclusion. Colombian officials and development partners have done important work to identify many of the practical and legal barriers to inclusion and potential measures to lower or eliminate them. The government should commit at the highest level to continue rolling out this strategy and ensure that the relevant authorities have the resources needed to do so. They also should regularly assess their progress and revisit their plans to adapt the strategy as necessary.

Donors should do the following:

**3) Increase funding for the response to Venezuelan displacement in Colombia---especially for efforts that improve economic inclusion and involve host communities. **As Venezuelans' contributions to revenue grow in the medium term, they should more than offset the large fiscal costs that the Colombian government is currently bearing by hosting Venezuelans. Until then, however, those costs could undermine the government's commitment to a constructive response. To prevent such a reversal, donors should help ease the strain by providing more resources to the Colombian government, international organizations, and NGOs participating in the response. There consistently has been an acute shortfall in the funding required to meet the needs of displaced Venezuelans and host communities, as determined by the UN-coordinated regional Refugee and Migrant Response Plan (RMRP) for Venezuela. Donors, therefore, should increase funding directly to the government and fully fund the RMRP for 2020. A revised RMRP issued in May 2020 reflects changes in the level and type of need among beneficiaries as a result of the pandemic. In Colombia, even as financing requirements for health programs and food and nutrition have increased, integration remains the third-highest priority. Adequate resources therefore should be directed toward improving economic inclusion, and all efforts should continue to include Colombian host communities.

4) Pursue a compact-like approach to better support the Colombian government and encourage the expansion of regularization and the right to work. A compact approach---in which the international community increases funding or other non-aid incentives in exchange for policy progress in the host country---could address the dual problems of inadequate resources and limited access to regularization.

The government, international organizations, and NGOs should do the following:

**5) Prioritize support for women's economic inclusion. **Barriers to economic inclusion for Venezuelan women are especially large and require a differentiated response. Moving forward, actors should place greater focus on lowering women-specific barriers, such as a lack of access to childcare.

**6) Facilitate the process of credential and skill verification. **The difficulty of verifying foreign credentials and degrees in Colombia is a major barrier to economic inclusion for highly educated Venezuelans in the country. To address this problem, the government should focus on building institutional capacity to process applications---a solution that would benefit migrants of other nationalities as well. Financial and technical support from donors is critical to making this possible.

**7) Diversify approaches to combating xenophobia. **Discriminationaffects Venezuelans'ability to find and keep jobs, while negative public perceptions could undermine the government's commitment to integrating Venezuelans. Antixenophobia programs and campaigns can help counter these effects and are already under way. However, antirefugee and antimigrant sentiment is known to rise in moments of national crisis---especially economic crisis---as is occurring in the context of COVID-19. The government and its partners should thus intensify their efforts; diversify their approaches; and incorporate insights from contact theory, the idea that prejudice between groups can be reduced by interpersonal contact.

**8) Provide working age, displaced individuals in Colombia and their families with the means to move to areas in the country that have more labor market opportunities, if they choose to. **Our analysis predicts that because many Venezuelans and Colombian returnees are located in areas of the country with relatively few economic opportunities, they would have higher incomes if they were living in different areas. However, the cost of moving, difficulty securing and affording housing, and limited access to information about job opportunities present obstacles. The government and UN thus could provide means for Venezuelans and Colombian returnees to move to areas with greater labor market opportunities if they are interested in doing so. This not only would improve economic inclusion but could reduce the risk of negative labor market effects for host communities and ease the strain on service systems in areas that currently have large displaced populations. In addition to facilitating movement away from areas with fewer economic opportunities, policymakers should prioritize measures to create jobs in these areas, to the benefit of Colombians and Venezuelans alike.

**9) Rigorously evaluate livelihood programs. **Livelihood programs, which are designed to help individuals achieve decent work and increase their income, can have remarkable impacts. However, they are highly inconsistent. To ensure they are having their intended impact, large organizations managing these programs---like the International Labour Organization (ILO), International Organization for Migration (IOM), and major NGOs---as well as the government of Colombia should regularly conduct experimental evaluations to collect evidence of what works and what does not in the Colombian context.

10) Raise the profile of companies that engage forced migrants. Many businesses in Colombia hire Venezuelans or supply from Venezuelan-owned or -employing companies. They are driven by a desire to create social benefit and/or because they derive an economic benefit from doing so.International organizations and NGOs should create incentives for more businesses to follow suit by raising the profiles of companies that engage forcibly displaced people and are interested in promoting this engagement. Doing so could increase demand among socially conscious consumers who want to support companies that are creating social benefits. As a result, it could stimulate the companies' sales and exports, boost their profits, and in turn allow them to expand and hire more Venezuelans as well as Colombians.**\ **

The private sector should do the following:

**11) Engage Venezuelans and host communities through core business. **Businesses can improve economic inclusion by directly hiring Venezuelans, investing in businesses owned by or employing Venezuelans, and/or supplying from businesses owned by or employing Venezuelans. They also can improve outcomes for disadvantaged host community members by including them in these efforts.

**12) Advocate for continued policy progress. **Businesses should take up a key role as advocates with policymakers. Because they drive the economy, they can have a powerful voice in influencing government policy. Businesses should advocate for changes to make it easier to hire Venezuelans. The government should seek partnerships with business leaders and professional organizations to receive their input on how policies will affect the private sector's interactions with Venezuelans.

Stakeholders should also work together to conduct research to further our understanding of the best ways to achieve---and create widely shared benefits from---economic inclusion. As we highlight in this paper, there are still many unknowns in this regard. Shedding light on these unknowns could accelerate impact.

The influx of Venezuelans into Colombia has presented many challenges but also an opportunity to boost Colombia's economic development. The constructive response of the government thus far and efforts of international organizations and civil society have already created positive, widely shared benefits. If policy choices are made that continue to follow a productive path, especially during the public health crisis, even more benefits can be created for Venezuelans and Colombians alike.