A Vibrant Emerging Market
Colombia today is not the Colombia of Pablo Escobar nor does it resemble the Colombia from the 1994 movie, Clear and Present Danger. Over the past decade, Colombia has dramatically improved security throughout the country with the help of over $8 billion in USG security and has achieved an average economic growth rate of 5 percent. Although there are still challenges that Colombia is facing, including infrastructure deficiencies, the country boasts a growing economy with investment grade status, a rising middle class, and a government that is committed to democratic prosperity and regional leadership. It is hungry for free trade agreements with the Americas, Europe, and Asia and its leaders are pushing for Colombia to become the third largest economy in Latin America, in line with the relative size of its population.
Security has Improved
The security gains Colombia has achieved since 2002 are dramatic: the number of murders has fallen by 45 percent and political assassinations by 87 percent; kidnappings are down 91 percent; and terrorist attacks are down 91 percent.
Since 2002, more than 54,000 paramilitaries and guerrillas have demobilized and attacks against oil pipelines dropped by 71 percent. Colombia’s current President, Juan Manuel Santos, is committed to improving security further, both for people and businesses.
However, challenges still remain. Although the number of FARC fighters has decreased from 16,000 in 2001 to approximately 8,000 in 2011, they are still active in rural areas. Criminal gangs have also become more prevalent over the last few years in rural sectors and cities.
Democracy and Prosperity are the Government’s Goals
Since taking office in August 2010, the Santos Administration has demonstrated great political will to create the conditions for economic development, job growth, and reductions in poverty. For the first time in many years, Colombia reached a single-digit unemployment rate, 9.7 percent in September 2011, due to the creation of over 820,000 jobs since Santos took office. By 2014, the President has vowed to create 2.5 million jobs, formalize 500,000 informal jobs, and lift three million Colombians out of poverty.
Sound fiscal and macroeconomic management allowed Colombia to claim the triple crown of seeing its credit ratings increased to ‘Investment Grade’ level by Standard and Poor’s, Moody’s and Fitch Ratings.
While Colombia’s economy has grown 5 percent on average over the last decade and the overall poverty rate has decreased, income inequality remains a challenge.
Now is a Great Time to Be Positioned in Colombia
With increased security, a market of more than 45 million people, an abundance of natural resources, and an educated and growing middle-class, the Government of Colombia has opened the country up to global trade and investment.
The U.S. – Colombia Free Trade Agreement (FTA) entered into force on May 15, 2012. It is expected that before 2013, Colombia will have another FTA in force with the European Union. This is in addition to the nine trade agreements already in force, and the five currently being negotiated with South Korea, Turkey, Panama, Israel and Japan.
This year Colombia moved up five places in the World Bank’s 2012 “Doing Business Report,” noting improvements in starting a business, paying taxes, and resolving insolvency. The report recognizes Colombia for best practices in protecting investors, paying taxes, and making it easier to trade across borders. However, the survey also noted Colombia’s high transportation costs and deficiencies in enforcing contracts.
The 2011-2012 World Economic Forum’s (WEF) Global Competitiveness Index gave Colombia high marks for macroeconomic stability, the strength of investor protection, its large market size, and innovation and business sophistication. However, it cautioned that security concerns remain very high on the list of factors dragging down its competitive potential along with transportation infrastructure deficiencies and regulations hindering domestic competition.
Oil, mining, energy and infrastructure offer imminent opportunities
Colombia’s mineral and energy resources are abundant, especially in coal, natural gas, precious minerals and oil. Furthermore, higher prices, increased international demand, improved output, and pro-business reforms, have led companies from Canada to China to establish operations in Colombia. However, the major increase in demands for exploration has taxed the environmental licensing agency (ANLA) causing delays in receiving an environmental license of up to six months to a year.
As improved security conditions have translated into new exploration in previously off-limits areas, Colombia’s infrastructure demands in terms of roads, ports, and railroads have increased. Only 15 percent of Colombia’s roads are paved, and the nation has just 1,000 kilometers of dual-lane divided highways. Colombia has just 900 kilometers of railroad, and river navigation has yet to be developed to transport goods on a large-scale. Inadequate infrastructure is the second biggest problem for doing business in Colombia behind corruption, according to the World Economic Forum’s report and has been likened to a 10-15 percent tax.
President Santos announced an investment in infrastructure of roughly $26 billion over four years, or an investment of 3.7 percent of GDP. This ambitious investment plan will create enormous opportunities for those companies willing and capable of undertaking the river dredging, construction of highways and state of the art ports and airports that the country needs.
Colombia’s immediate demand for infrastructure materials and services offers a promising market for U.S. infrastructure-related exports as well as construction and engineering companies seeking to expand their businesses. U.S. businesses can benefit not only from participating in these projects directly, but also by establishing themselves as front-line suppliers of machinery, equipment and services to those who actually undertake the construction works.
[If you want a broader context or more specific information on how Colombia ranks in various structural factors in comparison to other countries, take a look at the World Economic Forum's Global Competitiveness Report and the World Bank's Doing Business Report ]