Colombia: Building a road to the future
Spectacular economic growth in Colombia over the past several years is evidence of policy leaders’ successful efforts to restore peace and stability in a country once synonymous with violent conflict. Indeed, the future looks brighter than ever, with a new free trade agreement (FTA) ratified with the US in October 2011 and vibrant growth across diverse economic sectors. There is still room for improvement, however, most notably in the country’s poor transportation infrastructure if Colombia hopes to fully realise its potential.
Currently the fifth-largest economy in Latin America, Colombia boasts strong economic and fiscal indicators. GDP grew by 6.7% in the third quarter of 2011 and is expected to grow by 5-5.5% in the fourth. The minister of finance, Juan Carlos Echeverry, said that despite the global economic slowdown, Colombia is on track to maintain its economic expansion. Indeed, he told Reuters in mid-November that his “worst-case” scenario prediction for 2012 is an annual growth rate of 4.5%.
Foreign direct investment, however, was down slightly in 2010 to $6.8bn from $7.2bn in 2009, according to the US Department of State. This is most likely due to the global economic slowdown; the US is Colombia’s largest source of foreign investment.
But an attractive business environment should lead to continued foreign capital inflows in the future. In the World Bank’s Ease of Doing Business ranking, which assesses starting and operating a local firm, Colombia jumped five places in 2011 and is ranked third in all of Latin America.
In 2011, Colombia’s fiscal policies led the three biggest credit rating agencies to increase the national debt rating to investment grade. Tax revenue has exceeded expectations by 8% so far in 2011, leading to a reduction in the estimated national debt from 4% of GDP to 3.3%. Going forward, there are plans to implement further fiscal reforms that will expand the tax base and allow the already low national debt to be cut to a minuscule 0.8% of GDP by 2014, international media has reported.
Last year, Colombian exports reached $39bn. Primary export activities include petroleum, coal, nickel, emeralds, apparel, bananas and cut flowers. The US, China and Ecuador are the biggest recipients of Colombian exports. Crude oil production has doubled since 2007, totaling 927,000 barrels per day as of May 2011. Colombia’s proven oil reserves total 1.9bn barrels, the fifth-largest in Latin America.
A land rich in minerals, Colombia is the 10th largest producer of coal in the world and the primary exporter of coal to the US. It is also the world’s leading producer of emeralds, mining 5.23m carats in 2010.
Agriculture makes up 7.1% of GDP, with coffee serving as a primary export crop. Global warming, however, is claimed by some to be the reason for recent decreases in production. While 12m, 132-pound bags of coffee were produced in 2006, the sector currently lags far behind its goal of 17m bags for 2014. Due to higher temperatures in coffee-growing regions, last year’s crops resulted in only 9m bags.
While coffee production may be falling behind, improved security has made tourism a true growth sector in the national economy. Tourism has doubled since 2004 and is expected to continue to grow at an annual rate of 10.6%, according to Invest in Colombia, the government’s tourism, foreign investment and export promotion agency. Visitors are drawn to locations like Cartagena, a colonial city on the Caribbean coast, which has earned recognition among travel bloggers as South America’s “next Buenos Aires”.
However, to support growth in the tourism sector and economy as a whole, drastic efforts must be taken to build the country’s ailing transportation infrastructure. The World Economic Forum ranks the quality of Colombian roads 108th out of 139 countries, behind Peru, Mali and Zimbabwe.
With a topography defined by large mountain chains and jungle, it is no wonder that Colombia has struggled to build transportation infrastructure. However, President Juan Manuel Santos is eager to change this. He recently announced the creation of a new national infrastructure agency that will inject $55bn into the sector over the next 10 years. One of the first projects on the agenda is connecting northern industrial centre Medellín with the Caribbean coast via four connecting highways, 900 km of new roads, 600 bridges and 131 tunnels.
When the FTA signed with the US comes into effect in early 2012, Colombia can expect to see an increase in exports to the US from $17bn to $50bn within five years. With the right transport infrastructure in place to support this growth, it should be a smooth ride to the future for Colombia.