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AmericasNovember 6 2006

Colombia on the comeback trail

Economic growth in Colombia is brisk: purchasing power is up and inflation is at its lowest for 40 years. But what of the security issue? Courtney Fingar reports from Bogata.
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To say that Colombia has an image problem is an understatement: for the past four decades the very name has been synonymous with violence, drugs and kidnapping. It was, for the most part, a well-deserved reputation, but one that is becoming quickly outdated as the ‘democratic security’ programme of Colombian president Alvaro Uribe, re-elected in May, makes headway in restoring government authority over patches of the country formerly threatened by guerrilla and paramilitary groups.

Colombia is not without its problems, and it is a long road to prosperity, but the country is safer and more optimistic than it has been for many years. Economic growth, tipped to exceed 6% by next year, is brisk, exports are booming, purchasing power is increasing, unemployment is declining and inflation is at its lowest level for more than 40 years. Foreign investors are returning: foreign direct investment (FDI) inflows tripled from 1994 to 2005. In February, Standard & Poor’s improved Colombia’s ratings outlook from stable to positive, citing its improving economic prospects. Moody’s followed suit by changing its foreign exchange outlook from negative to stable due to external debt decreasing from $39.45bn to $38.37bn between 2004 and 2005.

A free trade agreement with the US will only improve Colombia’s economic outlook: by some estimates it will add one or two percentage points to GDP growth.

“My message to international investors is that Colombia deserves all their confidence. International investors can trust in Colombia,” Mr Uribe tells The Banker. “We are making great efforts to create stable and transparent rules and to create the conditions for our country to have sustainable economic growth that will not be less than 6%. We are totally open to international investors and we consider them necessary partners to create social cohesion in Colombia.”

Mining concerns are leading the expedition. Companies such as Rio Tinto, Cambridge Minerals Resources and Greystar were on hand in Medellin in late September for the second annual International Mining Fair and Conference.

Mr Uribe attended the event, taking questions from mining professionals and local officials in the audience. He said: “We are trying to improve the institutional framework [for the mining sector].” He also said that he was asking the minister of mining and energy to present an amended mining code to Congress in mid-March.

The last gold rush?

The packed room, and feedback from multinational attendees, suggests the industry is ready to give Colombia a second look. Preston Chiaro, chief executive, energy, at Rio Tinto, who travelled from London, said: “We are carrying out exploration [in Colombia] for a variety of products. There are challenges here, but they are challenges we have faced in other parts of the world that we have managed successfully.” The government, Mr Chiaro said, had been “extra supportive” of Rio Tinto’s activities in the country: “I have not found a more receptive government anywhere in the world. We have had good political support from the local [government] all the way up to the national government. We would have no problem doing business in Colombia if we found deposits of significant size.”

UK-based Cambridge Minerals Resources formally launched operations in Colombia eight months ago and has taken over five small but high-grade mines with three more under negotiation. “Colombia is phenomenally well endowed with minerals,” says managing director Colin Andrew. “There are not many countries where there has not been major exploration of minerals for the past 40 years. Colombia could be the last gold rush on the planet.”

Perception and reality

Investors in other, less adventurous sectors may take a bit more convincing, since Colombia’s image has not improved as rapidly as its prospects.

Officials at Proexport Colombia, the agency charged with promoting trade and investment, say the large gap between perception and reality means that their biggest challenge is getting people to come to Colombia – preconceived notions tend to evaporate once they actually arrive.

“Once you have been here five minutes you no longer believe what you have read about Colombia, and after a day you can’t remember why you believed it in the first place,” attests Mr Andrew.

In an interview in his Bogota offices, Colombia’s vice-president Francisco Santos says all levels of government are working hard to close the gap and to promote inward investment. As a result, companies “are looking at a country they had totally discarded before”. He cites the example of General Electric, which had given up on Colombia after one of the company’s executives was kidnapped and killed in the 1990s, but which has now returned after vigorous wooing.

“From the president all the way down, we have become sellers [promoters] of Colombia,” says Mr Santos. What they have to sell is “a country with the third largest population in Latin America, with a stable democracy, stable rules, strong institutions and a drastically improved security situation, and which offers huge opportunities for foreign investors”.

The size and scope of these opportunities will expand as security continues to improve, which Mr Santos says the government is pressing ahead with despite the major gains achieved in a relatively short amount of time. “We are pretty excited about the results of the past four years but there is still a long way to go. We need to consolidate the security situation and improve security in remote, rural areas and diminish the areas where [the criminal] groups operate. And second, we need to improve security in urban areas. Most of our cities have homicide rates that are lower than others in Latin America but we still have problems with common delinquency crimes.”

The focus on individual street crimes is itself a positive indication of how far Colombia has come. If you had told him four years ago that the government would have the luxury of worrying about such low-level crime, Mr Santos says, he never would have believed it. “We underestimated the capability of the police and army and overestimated the capability of the bad guys. The criminal groups are on the defensive. They are seeing diminishing returns, to use an economic term.”

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