Upcoming presidential elections and ongoing peace negotiations demonstrate Colombia’s consolidation of rule and law and democracy.
President Juan Manuel Santos is seeking re-election, and free and fair elections have been a mainstay in the country since 1957—one of the longest stretches in Latin America. Moreover, the peace process, underway since October 2012, is a notable program which has attracted the attention and support of the international community.
Yet while the exercise of democracy and the progress towards a lasting peace are clearly some of the main stories in Colombia, they have overshadowed the country’s economic performance during the past decade. According to Capital Economics, a London-based economic research group, Colombia has surpassed Argentina to become the third-largest economy in Latin America, after Brazil and Mexico.
Colombia has enjoyed stable GDP growth (estimated at between 4 and 5 percent in 2014), diversification of exports, strong fiscal position, and lower unemployment. Poverty has declined with it, and a strong middle class has emerged. Colombia’s economic growth is notable in a country that is climbing out of an internal armed conflict.Colombia is also becoming a regional leader in terms of free trade. The country has already inked deals with the United States, Canada, the European Union, and South Korea, and is negotiating with Japan. A Japan‒Colombia FTA would buoy Colombia’s strong potential in its agricultural sector by accessing a market with a high demand for these products. The relationship would be complementary, with Colombia exporting food products to Japan, and Japan exporting high value-added technological goods to Colombia. By taking advantage of global value chains, investment and trade between the two countries should flourish.
Furthermore, the U.S.‒Colombia Free Trade Agreement has increased U.S. investment to Colombia by 27 percent, and exports from Colombia to the United States have drastically increased. Today, more than 1600 Colombian companies export products to the United States.
Colombia is also a founding member of the Pacific Alliance, a trade group consisting of Colombia, Chile, Peru, and Mexico. The Pacific Alliance has been viewed as an agreement among countries with similar economic models, and with a focus on capital flows, infrastructure, energy, culture, science and technology, and the financial sectors. The alliance has attracted the interest of several countries in the region to become new members, and several European, Asian, and North American countries have become observers.
Colombia benefits from its position in the Pacific Alliance since it is geographically located in the middle of the four countries. This allows it to integrate supply chains, use connections from the other alliance countries to attract Asian-Pacific trade to Colombia, and integrate its stock exchange with Chile and Peru, and later with Mexico, to form the Mercado Integrado Latinoamericano (Integrated Latin American Market—MILA). MILA will soon be the largest stock market in Latin America, both in terms of the number of participating companies but also in market capitalization.
It appears that this is Colombia’s moment. However, risks remain. Colombia’s production of oil, which is almost 40 percent of all its exports, has doubled in the last decade. But the energy revolution in North America, including energy reforms in Mexico, might cause a diversion of Colombia’s oil production to markets beyond the United States. In addition, at its current rate of production, Colombia only has enough reserves to last for seven years. The country should seek to continue drilling new wells in order to maximize its production.
In addition to the energy sector, risks remain in the case of a slowing world economy. Slowing demand from China and other major economies for commodities would impact Colombia. Nevertheless, Colombia’s economy today is more diversified and insulated from global fluctuations, as evidenced by how it weathered the 2008 economic crisis.
Improvements in citizen security have a direct impact in terms of foreign direct investment and credit ratings. Therefore, the success of the Colombian economy must be viewed in light of the advances in resolving the country’s decades-long armed conflict.
Nevertheless, the great strides that Colombia has made in terms of violence should not overshadow Colombia’s progress in trade, investment and economic growth.