Colombia needs foreign investors and has many advantages to offer.

VITAL STATISTICS

Site: Northwestern South America

Neighbors: Panama, Venezuela, Brazil, Peru, Ecuador

Capital city: Bogota

Population (2021): 51 421 790

Official language: Spanish

GDP per capita (2020): $ 5,332.80

GDP growth (2020): -6.8%

Inflation (2020): 2.5%

Cash: Peso

Investment promotion agency: ProColombia is the main federal agency; some states and municipalities also have agencies, such as Invest in Bogotá

Investment incentives available: Free trade zones; income tax exemptions and deductions in priority sectors; tax incentives for investments that generate new jobs or new production in areas affected by natural disasters and municipalities affected by a former conflict; reductions or exemptions from customs duties; sectoral incentives for technology, agriculture and others

Corruption perception index ranking (2020): 92

Political risks: As of this writing, lead candidate Gustavo Petro’s FDI priorities are unclear.

Security risks: Refugees from Venezuela and the presence of Colombian armed groups, some drug trafficking; high risk of kidnappings and violent crimes; assaults, assaults and armed robberies.

ADVANTAGES

Strong government interest in FDI, great location for US trade, great need to rebuild infrastructure, investor-friendly government, well-trained workforce

THE INCONVENIENTS

It is not known if the country can sufficiently reduce its dependence on fossil fuels

Sharp increases in public debt ratios following stimulus measures during the pandemic that could impact credit ratings and access to international credit markets

Sources: Bancolombia, Government of Canada Global Travel Advisory, International Monetary Fund, Reuters, Transparency International, United States Department of State, World Bank, World Population Review

For more information, see Global financeColombia Economic Report data page.

Like other countries, Colombia is working to emerge from the Covid-19 pandemic while balancing the effects of supply and demand shocks. In Colombia, Brazil and Mexico, contraction in demand lowered inflation, while Colombia and Mexico saw inflation partially offset by supply shocks, according to the World Bank. Additionally, Colombia and Brazil suffered the biggest collapse in demand due to the pandemic.

The Colombian economy is now recovering from its slump of last year and is once again attracting interest from foreign direct investors. The US-Colombia Free Trade Agreement implemented in 2012 is high on the list of attractive factors. It makes Colombia more attractive to investors than some of its neighbors, said Richard Francis, senior director of Sovereigns at Fitch Ratings. “They were also able to take advantage of the problems of their neighbors like Ecuador and Venezuela. This has led companies to choose Colombia as their regional hub, ”he explains. Colombia compares well economically to Chile and Argentina.

Location, location, location

Colombia’s location offers other advantages. “It has excellent connectivity with the United States,” said former US Ambassador to Colombia Kevin Whitaker. Its four largest cities — Bogotá, Medellín, Cali, and Barranquilla — all have direct flights to major US airline hubs. The country also has attractive human capital. “It has a well-educated population [including a large number of] people with higher education degrees, ”says Whitaker. He adds that a large portion of the workforce is fluent in English.

While oil and its derivatives dominate the economy, foreign direct investment (FDI) opportunities include technology, consumer goods, and infrastructure. “It is a very mountainous country. Years of war have slowed down infrastructure development, putting Colombia at a disadvantage, ”says Francis. “Public-private partnerships are one of the [ways to deliver investment.] There is still a great need for it. The benefits have attracted a wide range of companies, including Hilton Hotel, Amazon, Microsoft, and American Airlines.

Traditionally, Colombia has welcomed US investment; and this “welcome mat” approach should broaden and deepen as a strategy to overcome the economic cost of the pandemic. The World Bank estimates that Colombia, Chile and Peru will post deficits of more than 4% of GDP this year.

Despite its advantages, Colombia faces a host of challenges, including complex security issues. Contrary to popular belief, the fighting with the left guerrillas ended five years ago with the formal signing of a peace agreement. Currently, violence in the countryside is caused by competition between criminal gangs, some of which claim political affiliations, although this is often a convenient cover story. The recent capture of Dairo Antonio Úsuga, often referred to as the world’s most dangerous drug trafficker, might not turn out to be the blow some have suggested. “Historically, Colombian criminal organizations have shown an ability to promote from within and prosecute criminal enterprises,” former Ambassador Whitaker said.

The medium-term future holds political question marks that cloud the image of FDI, including next year’s elections. Leftist candidate Gustavo Petro’s IDF priorities are unclear. For some investors, this may suggest postponing final decisions after the election.