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By Sandeep Wasnik
Colombia has the third-largest economy in South America and the fourth-largest GDP in all of Latin American countries, with a GDP per capita of approximately $16,540 (PPP) which makes it the middle-income nation. The International Monetary Fund (IMF) forecasts that between 2023 and 2025, GDP growth will be 3.2 percent on average annually, where the economy of Colombia is expected to grow, this growth will be driven by continued strong domestic demand, rising exports, and increased foreign investment. In April 2020, Colombia officially joined the Organization for Economic Cooperation and Development (OECD) as a full member, also since August 2020, Colombia fully joined the WTO Trade Facilitation Agreement (TFA). Colombia is an affiliate in regional organizations like the Andean Community of Nations (CAN), the Pacific Alliance, and the Inter-American Development Bank (IADB).
Micro and small enterprises are prevalent in Colombia. According to the Ministry of Labor of Colombia, these enterprises account for more than 90% of the nation’s productive sector and 80% of all employment. The majority of daily commerce is handled in Spanish because of the nation’s low level of English ability.
However, there are certain issues with the Colombian economy, such as high levels of inequality, poverty, and unemployment. Additionally, the nation is battling to lessen its reliance on oil exports. In an effort to solve these issues, the Colombian government has recently undertaken a number of measures. These changes have prioritized enhancing infrastructure, healthcare, education, and economic diversification.
Colombia Inflation and Challenges
The major issue for the Colombian government is inflation. Strong demand, inflation inertia, indexation of rents, agricultural losses from heavy rains, and currency devaluation all contributed to inflation reaching 13.1 percent in 2022. The government has implemented measures to combat inflation, such as increasing interest rates, selling foreign currency reserves, tightening fiscal policy, and implementing import restrictions.
Although, it is too early to determine if these measures will be effective in bringing inflation down to the central bank’s goal target (Set at 3 percent by the Bank’s Board of Directors “BDBR” with a permissible deviation of ±1 percentage point). This target refers to consumer price inflation, which is measured statistically as the annual variation in the Consumer Price Index (CPI). But in the upcoming months, it’s anticipated that the inflation rate will continue to decline.
In July 2023, Colombia’s annual inflation rate decreased for the fourth consecutive month to 11.78 percent, which was slightly higher than the market expectation of 11.61 percent and down from the previous month’s 12.13 percent. This was the lowest number since September 2022 and was mostly caused by decreased price growth. Below infographic shows Colombia annual inflation change since past 20 years till 2022.
Colombia infrastructure expansions
To increase trade and economic growth, Colombia is currently expanding its seaports. By 2025–2026, the government aims to increase port capacity overall by 30 percent. The largest port in the nation is at the city of Cartagena. Along with deepening the port’s channels, the development will also involve building a new container terminal. An investment of US$42 million is being made by Colombian cement manufacturer “Cementos Argos” to triple the capacity of its Cartagena port terminal. 1,200 jobs are anticipated to be created during construction and 750,000 man-hours of employment after the project is completed.
The Port of Buenaventura in Cascajal Island is the country’s second-largest port. Historically, the port has only exported a small quantity of coal. However, China has shown a preliminary interest in developing the port as part of a US$7.6 billion proposal that would use a newly built railway to connect Colombia’s interior coalfields with Buenaventura, permitting massive exports of Colombian coal across the Pacific. China was still looking to invest in the Port of Buenaventura in 2017 in order to expand it. Despite environmental concerns raised by the local populations, which are predominantly Afro-Colombian, discussions about a Port of Buenaventura extension continued throughout 2020. Protests and blockades in 2021 prevented traffic from reaching the seaport, which had an immediate impact on coal shipments. Other ports are also in the plan for the expansions like Barranquilla, which is the country’s third-largest port. The expansion will include the construction of a new container terminal and the deepening of the port’s channels. Port of Santa Marta, which is a major coal exporting port and Port of Tumaco, which is a major port in the Pacific Coast.
The river ports of Colombia are also expanding in addition to the seaports. Transporting products to and from the interior of the nation relies heavily on the river ports. It is anticipated that the development of the river ports will aid in easing traffic congestion and enhancing Colombia’s transportation effectiveness.
The Colombian government is also focusing on the road infrastructure, with a $25 billion investment, the Fourth Generation (4G) transportation initiative will construct nearly 4,400 kilometres of new roads, 141 tunnels, and 1300 viaducts. The Fifth Generation (5G) road initiative, a US$12.9 billion investment, will create 7 road projects, 4 airport projects, 2 river projects, and 1 railway project.
Colombia’s Foreign Direct Investment
Foreign Direct Investment (FDI) acts as a catalyst for economic and social development, with benefits that extend beyond a boost to the GDP, competitiveness, and growth of the local economy. It is, in fact, a significant source of expert, skilled, and high-level employment.
Since 2022, the Bogota Region has experienced the highest rate of job openings, accounting for about 66.8 percent of hirings, due to foreign investment projects funded by businesses in the United States, Spain, and Argentina. These are followed by nations like Brazil and Japan, which created 4.4 percent and 2.7 percent of jobs, respectively.
In the second quarter of 2023, foreign direct investment in Colombia increased by US$5278 million (US$5.278 billion). The highest growth was US$6776 million, and the lowest growth was US$197 million.
Colombia’s economic growth rate had been roughly 4 percent for decades prior to the outbreak. The economy continues to thrive and is one of the fastest-growing among its peers despite the difficulties caused by COVID-19. The International Monetary Fund’s preliminary findings show that Colombia’s approach to combating the pandemic has been fruitful.
Colombia importations and Exportation
Free trade agreements and a strong robust operational model for post-pandemic helped Colombia’s GDP grow by 8 percent in 2022. Employment levels recovered as the previously restrained demand for products and services soared. In the Western Hemisphere, Colombia competes as a dominant player and now has 17 free trade agreements with 65 nations.
According the Colombian Ministry of commerce, industries and tourism (Ministerio de Comercio, Industria y Turismo), the biggest trading partner for Colombia in 2022 is USA; the exports of products accounts to the USA are US$14.84 billion, followed by Panama (US$5.83 billion), Netherlands (US$2.69 billion, India (US$2.30 billion), Brazil (US$2.33 billion), China (US$2.15 billion), Ecuador (US$1.88 billion), Spain (US$11.48 billion), Mexico (US$1.75 billion), Canada (US$1.13 billion), Note: all these export values are in FOB (INCOTERMS). Exports in Colombia increased to 4.09 USD billion in July from 3.99 USD Billion in June of 2023.
The mainstay of Colombia’s exports, which make up a considerable amount of its revenue, are oil and natural gas (Petroleum oils and oils obtained from bituminous minerals). Second product for export is an international iconic Colombian coffee that is renowned for its superb flavour and aroma. Colombia produces high-quality beans that account for a sizable portion of the world’s coffee market thanks to its several microclimates that are suitable for coffee growth. Third is Gold, incl. gold plated with platinum, unwrought, for non-monetary purposes (excl. gold in powder form) and others. Info graphs show the 20 years Exports historical data of Colombia.
The top three categories of imports into Colombia are manufactured goods (74 percent of total imports), fuels and extractive industry products (15 percent), and agricultural, food, and beverage items (7 percent). United States imports account for 24 percent of overall imports US$18.839 billion, followed by China (US$18.69 billion, 24 percent), Brazil (US$5.49 billion, 7 percent), and Mexico (US$4.174 billion, 5 percent). France (US$2.458 billion), Germany (US$2.352 billion), India (US$1.720 billion), Argentina (US$1.640 billion), Spain (1.467 billion) and Japan (US$1.435 billion), Note: all values are in CIF (INCOTERMS). Below graph shows 20 years importation historical data.
In conclusion, Colombia has several advantages for investors, importation and exportation, including a robust economy, an ideal location, an abundance of natural resources, a growing middle class, favourable government policies, skilled labour, infrastructural growth, and tourism potential.
The author is Latin American and the Caribbean Countries market Advisor, also Director of International trade and Investment of Grupo 108.
Disclaimer: Views expressed are personal and do not reflect the official position or policy of the Financial Express Online