Colombia Essay

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One of the top performers in gross domestic product (GDP) growth in Latin America, Colombia is considered an important emerging market for many foreign direct investors. Economic growth, however, is still hampered by the country’s decades-long internal armed conflict. As of 2008, Colombia, which became a republic in 1819, is Latin America’s third most populous country after Brazil and Mexico, and the fifth largest economy in the region according to its GDP measured at purchasing power parity (PPP). The country’s economic performance has generally been one of the best in the region, especially under the government of President Alvaro Uribe, who introduced orthodox, market-friendly policies in 2000.

Colombia’s decades-long armed conflict involves two leftist insurgencies (the Revolutionary Armed Forces of Colombia—FARC, and the National Liberation Army—ELN), and a right-wing paramilitary organization (United Self-Defense Forces of Colombia—AUC). By 2006, under the leadership of President Uribe, the rates for kidnapping and murder reached their lowest level in over 20 years, and demobilization of ELN and AUC soldiers led to a significant decrease in violence in the country. Despite such progress in violence reduction, the conflict continues to hamper the economy’s prospects. According to the World Bank, Colombia’s average per capita income would be 50 percent higher than current levels if the country had achieved peace 20 years ago.

In contrast to many other Latin American countries, Colombia benefits from a wealth of natural resources, a diversified economic structure, a relatively developed regulatory environment for business, and stronger institutions. The World Bank even considers Colombia the region’s top reformer in 2008 regarding the implementation of new regulations that enhance business activity.

Petroleum, coal, and coffee represent over 40 percent of the country’s major exports, while imports are mainly concentrated on intermediate, capital, and consumer goods. Thus, the economy is highly dependent on global commodity prices. In contrast to many other oil exporters, Colombia shows account deficits over the last few years because of higher import growth and increased levels of profit remittances from foreign companies operating in the country. Over 50 percent of exports go to the United States, Venezuela, and Ecuador, whereas suppliers are less concentrated regionally—40 percent of all imports originate from the United States, Mexico, and Brazil.

The economic liberalization of the early 1990s caused a relative deindustrialization, and sectors such as textiles and clothing, leather, and shoes suffered from structural changes, whereas sectors such as chemicals, automotive, food processing, beverages, and printing adjusted more easily to the changing market conditions. Nevertheless, textiles and clothing still contribute significantly to total industrial output and manufactured exports, especially by improved access to the U.S. market under the Andean Trade Promotion and Drug Eradication Act (ATPDEA).

As in most Latin American countries, industrial concentration is high. In the manufacturing sector, two conglomerates dominate the market: the Grupo Empresarial Antioqueño in the sectors of financial services, cement, and processed foods, and the Grupo Ardilla Lülle in the sectors of textiles, sugarcane, and soft drinks. However, such industrial concentration is increasingly challenged by elimination of restrictions on imports and foreign investment.

Foreign investors not only increase local competition, but also contribute significantly to the competitiveness of sectors such as food processing, chemicals, and heavy industry (e.g., automotive). Colombian companies, especially in the sectors of steel, tobacco, processed foods, and beer, increasingly became targets for foreign investors. Since 2003 foreign direct investment (FDI) increased significantly, mainly in the sectors of oil, manufacturing, retail, restaurants, and hotels, with the main investors originating from Spain, the United States, the United Kingdom, and Brazil.

According to the World Economic Forum, Colombia’s global competitiveness is positively influenced by factors such as macroeconomic stability, health and primary education, and market size, and negatively impacted by its road and transport infrastructure and technological readiness (i.e., firm-level technology absorption and numbers of internet users and personal computers). Thus, GDP growth can be further positively impacted if Colombia successfully overcomes its infrastructure deficiencies and problems related to the internal armed conflict.

Bibliography:

  1. E. Porter, X. Sala-i-Martin, and K. Schwab, The Global Competitiveness Report 2007–2008 (Palgrave Macmillan, 2007);
  2. The Economist Intelligence Unit—ViewsWire, “Colombia,” www.viewswire.com (cited March 2009);
  3. World Bank Group, “Doing Business in Colombia,” www.doingbusiness.com (cited March 2009).

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