The Right Formula

While Colombia's economy shows promise, the country is further diversifying its industrial base to mitigate finite resources.

When quizzed on the essence of modernity, Umberto Eco once observed that, “We no longer live calmly in the present, but are continually striving to prepare ourselves for the future.” This is particularly true in the economic arena, where today’s nation state cannot compete by just treading water. So to better leverage its resources, not least its citizens, local innovation is promoted and investor interest maintained. In a quick beeline to country ratings, Moody’s, S&P and Fitch respectively rate the Andean economy at Baa2, BBB-, and BBB.

And that’s Not Oil

Over half of Colombia’s exports derive from the oil and mining industries, raising revenue destined for wider economic dispersal. In March, an IMF review underlined the need to look beyond hydrocarbons with reserves set to deplete within seven years. Fiscal and economic stability will thereafter rely on diversification achieved today. While the IMF’s short-term outlook remains positive, it did urge structural reforms conducive to “inclusive growth and productivity (…) critical for medium term growth.” Along with reforms, it also recommended continued infrastructural development to enhance commercial connectivity. A decades-long, man-made challenge, the civil conflict saw its first formal day of peace on December 1, 2016. The state’s job now is to achieve a more equitable distribution of the fruits of economic progress, not least to the 7 million or so displaced victims, many of whom, having lost their land at the barrel of a gun, inhabit Colombia’s cities.


Tourism, which could boost both urban and rural economies, has soared over 300% since 2006 by official numbers, when 1 million visitors arrived, and today 70% of visitors are tourists. While Bogotá is the primary destination for business visitor and tourist alike, ecotourism is a hot prospect for the economy.

Attracting the Business

Investment, of course, is not an action, but a reaction, one based on prevailing conditions and potential returns. Getting the conditions right is crucial to ensuring that the right range of sectors are developed, projects realized, and employment created. The World Bank’s 2018 Doing Business report is its 15th edition. Of the 190 economies considered, Colombia ranks 59th, below Peru and above Turkey. Highlighted in the report is the 1999 Colombian bankruptcy reform enabling a more commercially viable business environment where mandatory deadlines on the length of proceedings expedite liquidation.


Colombia, like 112 other nations in the World Bank study, has no minimum paid-in capital requirement for foreign investment. In 2017, FDI climbed around 5% YoY as the firms of 46 nations invested USD14.5 billion, up from USD13.6 billion a year earlier. The annual figure has not dipped below USD10 billion since 2011.


With social spending on education and welfare set to rise going forward to address imbalances and boost participation, increased state revenues are of the essence. Yet, while the informal economy was addressed by the 2012 payroll tax reform, north of 60% of workers remain off the books. Therefore, lost state revenues aside, it is hard to gauge employment figures accurately. Unemployment this February officially reached 10.8% having averaged at 11.5% from 2001 to 2018, peaking at 17.9% in January 2002, and troughing at 7.3% in November of 2015.

…in the Zone

Evidence of diversification is found in Colombia’s free trade zones. Jorge E. Salamanca, the General Manager of Zona Franca Metropolitana, told TBY how being the smallest, his FTZ was also logistically the leanest and set for 100% operational capacity within three years. “We cover sectors of logistics, automotive industry, services, and manufacturing, (and) …our goal is to reach technology, services, business process outsourcing, business process outsourcing (BPO), and pharmaceutical companies.” Of the above, BPO is widely relevant, as Juan Gabriel Pérez, the Executive Director Invest in Bogotá, reveals: “Approximately 62% of Bogotá’s GDP is generated by the service industry.” Meanwhile, Manuel Herrera Luna, the General Manager of Colombia’s largest such zone, Zona Franca La Cayena, talks of a wider regional contribution whereby, “Over the past 10 years, we have invested close to USD200 million in technology and infrastructure (…) creating 1,400 direct jobs and over 2,000 indirect jobs.”

Selected Metrics

In January 2018, imports soared 10.4% YoY to USD3.9 billion, reversing the identical slump of December. Among the leaders were manufactured products accounting for 10.3% with machinery and electric appliances up 32.9%, organic chemicals on 26.9%, iron and steel on 24.7%, and telecommunications equipment on 15.3%. Among agricultural goods, beverages skyrocketed 69.6%. Imports averaged USD1.75 billion between 1980 and 2018, peaking at USD6.08 billion in July 2014 and printing a low of USD280 million in February 1986. Meanwhile, exports climbed 8.3% YoY to USD2.94 billion in February 2018, down from 14.6% in January. They were further still from September 2017’s, YoY growth of 19.3%, which Colombia’s National Department of Administrative Statistics (DANE), attributes to growth in hydrocarbon exports.

In February 2018 Colombia sold 13.7 million barrels of oil, down 18% YoY. Key export partners include the US on 26.4% of the total, followed by Panama on 9.1%, Turkey on 6.7%, China on 5%, and Mexico on 4.3%. Colombian exports averaged USD1.04 billion from 1958 to 2018, peaking historically at USD5.71 billion in March 2012 and troughing at USD20 million in December 1963. Colombia’s current account deficit was at USD1.9 billion in 4Q2017. Depreciation of the peso in combination with more bullish regional prospects stand to be supportive of key exports of manufactured goods, although less than robust industrial production spells sustained import levels and a rather sticky current account deficit. The government’s medium-term objective is a deficit reduction to 1% of GDP by 2022. Industrial production rose 1% over the same month of the previous year in January according to DANE. Reportedly just 19 out of 39 industrial activities saw expansion, with all but one of the remaining 20 declining. Among the major drivers of January’s print was the category of coking, oil refinery, and fuel blending, which holds the biggest weight in terms of the contribution to the overall result. Annual average growth in industrial production inched down to minus 0.5% in January from December’s almost four-year low of minus 0.6%. Somewhat encouragingly, Focus Economics forecasts industrial production growth of 2.1% in 2018, rising to 2.5% in 2019.

The Trump Factor

Amid current trade war bellicosity emanating from the White House, Colombia’s industrial sector is pushing for exemption from sizable respective 25% and 10% tariffs on steel and aluminum. In the balance are the nation’s USD226-million related exports to the US. Thus far, the EU, Mexico, and Canada seem to be exempt. Such concerns naturally percolate down to the consumer, who, predictably perhaps, remains wary of future prospects. The January Fedesarrollo consumer confidence index, while up to -5.4 points from -6 points in December, remains in negative territory. This was notably the best print since November 2016. Latin Focus research forecasts a 2.6% rise in private consumption for 2018, rising to 3.0% a year later.

The Right Policy Mix

Once inflation has settled within the targeted 2-4% range, expected this year or the next, neutral monetary policy is foreseen. And looking ahead a ways, OECD numbers put economic growth at approximately 3% for 2018 and 2019, benefiting from lower corporate taxation, the prospect of sustained oil price recovery, and the continued peace dividend, while infrastructure projects dent unemployment.