Unlocking Colombia’s Potential

The Colombian economy consistently generated strong growth rates over the last couple of years. This growth was not only based on high oil prices, but also on competent economic management. Proof of the sound fundamentals is the 2012 drop to 2.5% that turned into a 4.5% growth rate in 2013. The Economist Intelligence Unit predicts a slower pace of growth for 2015 (3.5%) but, — with reason— is optimistic that stronger growth will return in 2016. As things stand deteriorating oil prices will certainly have a negative impact on the economy, but a total collapse like in neighbouring Venezuela is highly unlikely.
This is primarily because Colombia runs a much more diverse economy and aims to attract foreign capital, especially for the mining sector. In recent times, however, small businesses have gained traction, too. In Bogotá for example, software developers and fine cuisine are just two examples of newly thriving industries. This points to the citizens’ ability to occupy themselves with private enterprise. Such a turn is certainly due to  increasing wealth, improving education, and, above all, progress in the peace talks with the FARC guerrilla. Colombians’ daily activities are not solely absorbed by pure survival.
Decision-makers aim to bring the peace process to an end by the end of the year. As such the longest lasting internal war would finish with certain improvements of the security environment, although urban crime will remain a source of concern for some time. The Colombian civil war is a highly complex affair. A very general explanation is that right-wing paramilitaries and government troops started to rob land from peasants, in a society, which typically for Latin America, was and still is marked by class differences. Various guerilla groups formed and began to confront the paramilitaries, with the Marxist-Leninist FARC being the most prominent and strongest one. During the 1980s the situation became more complex still, as drug cartels, dominated by the notorious Pablo Escobar, entered the hostilities. The situation deteriorated and the country collapsed into violence, with mass murders in the country-side and bombings in the cities (especially Medellín) becoming normal occurrences.
It is important to note that the current talks between the Santos government and the FARC in Havana, are the product of a delicate balance of pro-peace forces in civil society and remnants of right-wing paramilitary hardliners, gathered around former president Álvaro Uribe. These forces want to fight the FARC and other rebel groups with military means. Each camp unites about 50% and come elections without an agreement the entire process could collapse. Such an outcome would not only be disastrous for the country, it would also raise the costs of doing business there. Insurgencies would return – on top of the already spiralling urban crime.
In order to avoid this outcome Santos’ negotiators focus on five items on the peace agenda. Fortunately, two of those – land reform and the FARC’s integration into the political system – have been ticked off already. Three more items – cease cocaine production, complete ceasefire and disarmament, and legal justice for the crimes committed – are still contingent. All of these items are interwoven, and progress on one might be a setback for another. Optimism should be in order, nonetheless, because both the FARC and the current government seem determined to finish the peace process successfully. The peace process gained enough traction to put even small but still dangerous fringe guerillas like the ELN into doubt over the violent path.

Our Analysis
The peace talks are likely to succeed, not only because the country has ample experience with instability and re-integration of rebels. This is not to say that the process will be smooth. Businesspeople should expect political turmoil which will absorb much of the government’s agenda. The second question is how ‘success’ will be defined. Still, even if such definition is couched in the most general terms, Colombia is bound to grow more stable and prosperous in the coming decade.
Major improvements are not only expected for major cities like Bogotá or Medellín—which are developing into hubs for technological innovation, arts, and fine dining—but also in the countryside. We therefore recommend to look closely into software development, transport, and nightlife for those who focus on urban areas. Additionally, we also advise considering investments in irrigation systems, telecommunications and transport infrastructure, or provision of credit. Investments in the rural parts of Colombia are likely to  become especially profitable, because the modernization of the countryside is a key item in the peace talks and has already been agreed on. The government is therefore likely to creates favourable conditions for foreign capital to enter such areas.

Talk to us about a possible engagement in Colombia. We provide a tailored report based on your business’ needs with recommendations on how best to hedge against politico-economic contingencies.