Is Colombia the New El Dorado?

Juan Carlos Martínez Lázaro. Professor. IE Business School

28 November 2012

Colombia offers political stability, a macroeconomic landscape, and good perspectives for growth - which is exactly what Spain cannot offer at the moment.

“We are enjoying an excellent 15 minutes of success in Colombia, and we hope it will last and run for another two or three hours.” These were the opening remarks of Julián Ossa, Plenipotentiary Minister of the Colombian Embassy in Spain, in the breakfast colloquium organized the Ibero American Business Forum on Tuesday at IE Business School to examine investment opportunities Columbia tax-free areas.

Effectively, Colombia is experiencing its best fifteen minutes of success in a long time. On a political level, democratic institutions are now firmly established, and peace talks with FARC have started in Oslo in an effort to put a definitive stop to the violence that has ravaged the country for the last fifty years. On an economic level, Colombia’s macroeconomic landscape, in line with other countries in the Latin American region, is looking very healthy. Growth rates stand at over 4%, inflation is around 3.5%, the public deficit is less than 3% of GDP and is close to achieving a primary surplus.  The country has opened up significantly to the rest of the world, after signing numerous free trade agreements, and has almost doubled exports since 2009. The trade balance has a slight surplus as a result, although this does not apply to the current account. Foreign debt was reduced from 36.3% of GDP in the year 2000, to 20.6% in 2011, and income per capita, although it still stands at around 10,000 dollars, has doubled in the last ten years. Moreover, Colombia has the right level of investment, which it is managing to leverage in order to attract a great deal of foreign capital to the different tax-free zones created in the country in recent years. In fact, after Brazil and Mexico, it is the third most popular destination for foreign investment in Ibero America.

Hispano-Colombian relations are growing fast. With regard to investment, Spanish companies have invested almost 3,500 million in the last decade, making Spain the third biggest investor in Colombia after the US and the UK. Companies like ACS-Cobra, Acciona, Agbar, Telefónica, Planeta, Prisa, BBVA, Telemark, Indra, Hotusa, NH and Sol Meliá are already present there, and there will no doubt be plenty more in the near future, particularly SMEs.

Where trade is concerned, Spanish exports to Colombia have duplicated over the last ten years, but even so they are still very modest (Some 560 million Euros in 2011). Colombian imports, on the other hand, amounted to over 1,600 million Euros for the first seven months of this year, due to the increase in purchases of energy products. We are talking here about bilateral trade that could total some 2,500 million Euros by the end of this year, leaving ample margin for improvement in terms of Spanish exports to the country.

Halfway through the nineties in the last century, Spanish companies started to invest abroad when they saw that their local markets, which until then had been highly protected, began to open up to both domestic and foreign competition. They sought to expand, grow and gain market share, in order to reduce their dependence on their home market. Most started out with Latin America, and then, from 2001, moved into Europe and the US. Generally speaking, their efforts paid off. Today, Spanish companies are expanding abroad because there is no longer a local market. Or even if there is, it is stalling and will grow very little over the next few years. Hence, looking abroad is no longer about expanding, but rather about survival. Those who are already operating abroad, particularly in Ibero America, know from their own experience that it has been their salvation. The same applies to exports. If it weren’t for their dynamism over the last three years, the contraction of the Spanish economy would be far greater, and many firms would not have survived the crisis.

Colombia, like other countries in Latin America, offers Spanish companies political stability, macroeconomic stability, and good growth potential – which is precisely what we don’t have here. That’s why it is so important to make Spanish industry aware that it has to improve its levels of competitiveness and accelerate international expansion to both Latin America and other world regions that are showing the kind of dynamism we now lack.

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