Colombia's finance minister, Juan Carlos Echeverry, has every reason to be enthusiastic about his country's future but he is careful not to be complacent, knowing only too well that an economic boom can lead to bust.
Investors are looking at Colombia with rising interest. The country’s economy is set to grow between 5% and 6% this year, according to government estimates, faster than the Latin American average of about 4.5%. Colombia has tamed its drug traffickers, quelling the violence that ran hand in hand with it, and has recaptured much of the land that had been illegally appropriated. Colombians now feel safe to travel by road through the countryside – something that would have been unthinkable 10 years ago.
Invigorated by the efforts of the country’s previous president, Alvaro Uribe, to end violence and illegal activities, Colombia has aggressively started attracting foreign investors and is presenting itself as a welcoming gateway to Latin America. The slogan created a few years ago – “the only risk is wanting to stay” – feels right in the context of the beauty of some corners of the country. Cartagena is a prime example – a city on the Caribbean Sea, with a historic walled centre that has been named a Unesco world heritage site.
The missing link
But Cartagena and its environs are not just a tourist attraction. Recent news of a rail network that would offer an alternative to the Panama Canal have made the area immediately relevant to more than five-star hoteliers. The ambitious 220-kilometre rail network is being pushed by Chinese investors and would link Colombia’s Pacific coast to a new city, to be developed near Cartagena on the Atlantic coast, where Chinese goods would be reassembled and distributed across Latin America.
The whole of Colombia – or at least government and businesses – is bursting with enthusiasm about the future and is keen to attract investors.
During his recent visit to Europe, finance minister Juan Carlos Echeverry found an equally enthusiastic response from potential investors. He was part of an official Colombian delegation, including president Juan Manuel Santos, attending the World Economic Forum annual meeting in Davos, Switzerland. The delegation also visited Madrid, Paris and London to meet investors. “People are looking at the country with a very positive outlook; they are talking about business,” says Mr Echeverry. “Market confidence is solid. It has been restored during the past 10 years.”
Having tamed drug-related violence, most of the illegally appropriated land can now be exploited for mining, oil exploration and agriculture. An intense infrastructure effort will be required and the government is prepared to invest and also to welcome foreign investments. “The government is going to spend [large sums] on infrastructure, which has been needed for a long time,” says Mr Echeverry. “We expect investors and technology from abroad to come and exploit all [of the many] possibilities.”
The advanced talks on the Chinese Development Bank’s investment in the coast-to-coast rail network – which would be operated by China Railway Group – is indicative of Colombia’s openness to foreign capital and businesses.
And investments will not only go towards infrastructure. As with most of Latin America, Colombia is rich in commodities. Mining efforts will be intensified with a particular focus on gold, but also involving coal. Oil exploration is expected to take place and production of soft commodities such as palm oil and other agricultural products will intensify.
Running risks
An open market, favourable business environment, growing demand for infrastructure and real estate, and vast natural resources are the prerequisites for an economic boom. But with every boom there is the risk of a bust. Looking at recent experience in the US and its real-estate collapse, Mr Echeverry is well aware of the fact that a similar situation could happen in Colombia. “A real-estate bubble could develop in Colombia, burst, create economic turmoil and set the country back two or three years,” he says.
The dangers of a highly valued currency are also a potential problem and, although not in favour of a strict capital control system as implemented in Brazil, Mr Echeverry says some action must be taken. Colombia’s central bank is set to keep on intervening to cool the Colombian peso’s overvaluation if necessary. “We are monitoring the situation,” he says. “What I do not like is that these are completely predictable cycles of appreciation and depreciation. [Currency appreciation] can be very costly for domestic producers and that should be avoided.”
Growth in Colombia – and the whole of Latin America – is being driven by Asia’s demand for the region's natural resources. As long as China and India continue to buy commodities, the country should do well. But this positive outlook should not leave room for any complacency. “[Colombia] undertook many microeconomic and macroeconomic reforms," says Mr Echeverry. "Our financial system is very stable. But you can never say that things are solved; we have to keep on reforming. Reforms are a process, not a package. So far, we have solid fundamentals. So let’s hope that markets keep on having strong confidence in Latin America and that we keep on selling everything we produce as we have done in the past couple of years.”
